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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
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Commission File Number 333-74997
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
A Florida Corporation
IRS Employer Identification No. 59-3535315
3411 Tamiami Trail North, Suite 200
Naples, Florida 34103
(941) 643-4646
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934: NONE
Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Revenue for the fiscal year ended December 31, 1999: $432,291
The aggregate market value of the common stock of the Registrant held by
nonaffiliates of the Registrant (852,934 shares) on March 1, 2000, was
$8,529,340. As of such date, no organized trading market existed for the common
stock of the Registrant. The aggregate market value was computed by reference to
the fair market value of the common stock of the Registrant based on recent
sales of the common stock. For the purposes of this response, directors,
officers and holders of 5% or more of the Registrant's common stock are
considered the affiliates of the Registrant at that date.
The number of shares outstanding of the Registrant's common stock, as of March
1, 2000: 1,163,570 shares of $.01 par value common stock.
Documents Incorporated by Reference: NONE
Transitional Small Business Disclosure Format (check one)
Yes No X
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this Annual Report on Form 10-KSB contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which statements generally can be identified by
the use of forward-looking terminology, such as "may," "will," "expect,"
"estimate," "anticipate," "believe," "target," "plan," "project," or "continue"
or the negatives thereof or other variations thereon or similar terminology, and
are made on the basis of management's plans and current analyses of Citizens
Bancshares, its business and the industry as a whole. These forward-looking
statements are subject to risks and uncertainties, including, but not limited
to, economic conditions, competition, interest rate sensitivity and exposure to
regulatory and legislative changes. The above factors, in some cases, have
affected, and in the future could affect, Citizens Bancshares' financial
performance and could cause actual results for fiscal 2000 and beyond to differ
materially from those expressed or implied in such forward-looking statements.
Citizens Bancshares does not undertake to publicly update or revise its
forward-looking statements even if experience or future changes make it clear
that any projected results expressed or implied therein will not be realized.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Citizens Bancshares of Southwest Florida, Inc. was incorporated in
Florida in September 1998 to serve as a holding company for Citizens National
Bank of Southwest Florida, a national banking association then in organization.
Citizens Bancshares was incorporated as a mechanism to enhance Citizens National
Bank's ability to serve its future customers' requirements for financial
services. The holding company structure provides flexibility for expansion of
Citizens Bancshares' banking business through acquisition of other financial
institutions and provision of additional banking-related services which the
traditional commercial bank may not provide under present laws. For example,
banking regulations require that a national bank maintain a minimum ratio of
capital to assets. In the event that Citizens National Bank's growth is such
that this minimum ratio is not maintained, Citizens Bancshares may borrow funds,
subject to the capital adequacy guidelines of the Federal Reserve Board, and
contribute them to the capital of Citizens National Bank and otherwise raise
capital in a manner which is unavailable to Citizens National Bank under
existing banking regulations.
For approximately the first eleven months following its incorporation,
the main activities of Citizens Bancshares centered on applying for a national
bank charter, applying to become a bank holding company, hiring and training
bank employees, preparing the banking facilities and premises for opening, and
conducting an initial public offering of common stock to raise a minimum of $10
million to fund the startup of Citizens National Bank. By August 1999, Citizens
Bancshares had received subscriptions to purchase common stock in an amount in
excess of the required minimum, and on August 24, 1999, Citizens National Bank
commenced operations at its office located at 3401 Tamiami Trail North in
Naples, Florida.
Citizens National Bank is a full service commercial bank, without trust
powers. The bank offers a full range of interest bearing and non-interest
bearing accounts, including commercial and retail checking accounts, money
market accounts, individual retirement accounts, regular interest
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bearing statement savings accounts, certificates of deposit, commercial loans,
real estate loans, home equity loans and consumer/installment loans. In
addition, Citizens National Bank provides such consumer services as U.S. Savings
Bonds, travelers checks, cashiers checks, safe deposit boxes, bank by mail
services, direct deposit and automatic teller services.
DEPOSITS
Citizens National Bank offers a full range of interest bearing and
non-interest bearing accounts, including commercial and retail checking
accounts, money market accounts, individual retirement accounts, regular
interest bearing statement savings accounts and certificates of deposit with
fixed and variable rates and a range of maturity date options. The sources of
deposits are residents, businesses and employees of businesses within Citizens
National Bank's market area, obtained through the personal solicitation of
Citizens National Bank's officers and directors, direct mail solicitation and
advertisements published in the local media. Citizens National Bank pays
competitive interest rates on time and savings deposits up to the maximum
permitted by law or regulation. In addition, Citizens National Bank has
implemented a service charge fee schedule competitive with other financial
institutions in the bank's market area, covering such matters as maintenance
fees on checking accounts, per item processing fees on checking accounts,
returned check charges and the like.
LOAN PORTFOLIO
Citizens National Bank engages in a full complement of lending
activities, including commercial/industrial, consumer and real estate loans. As
of December 31, 1999, Citizens National Bank had a legal lending limit for
unsecured loans of up to $1,256,725 to any one person. See "Supervision and
Regulation."
While risk of loss in Citizens National Bank's loan portfolio is
primarily tied to the credit quality of the various borrowers, risk of loss may
also increase due to factors beyond Citizens National Bank's control, such as
local, regional and/or national economic downturns. General conditions in the
real estate market may also impact the relative risk in Citizens National Bank's
real estate portfolio. Of Citizens National Bank's target areas of lending
activities, commercial loans are generally considered to have greater risk than
real estate loans or consumer installment loans.
Management of Citizens National Bank intends to originate loans and to
participate with other banks with respect to loans which exceed Citizens
National Bank's lending limits. Management of Citizens National Bank does not
believe that loan participations necessarily pose any greater risk of loss than
loans which Citizens National Bank originates.
The following is a description of each of the major categories of loans
in Citizens National Bank's loan portfolio:
Commercial Loans
Commercial lending is directed principally towards businesses whose
demands for funds fall within Citizens National Bank's legal lending limits and
which are potential deposit customers of the bank. This category of loans
includes loans made to individual, partnership or corporate borrowers,
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and obtained for a variety of business purposes. Particular emphasis is placed
on loans to small and medium-sized businesses. The primary repayment risk for
commercial loans is the failure of the business due to economic or financial
factors. Although Citizens National Bank typically looks to a commercial
borrower's cash flow as the principal source of repayment for such loans, many
commercial loans may be secured by inventory, equipment, accounts receivable,
and other assets.
Consumer Loans
Citizens National Bank's consumer loans consist primarily of
installment loans to individuals for personal, family and household purposes,
including automobile loans to individuals and pre-approved lines of credit. This
category of loans also includes lines of credit and term loans secured by second
mortgages on the residences of borrowers for a variety of purposes including
home improvements, education and other personal expenditures. In evaluating
these loans Citizens National Bank reviews the borrower's level and stability of
income and past credit history and the impact of these factors on the ability of
the borrower to repay the loan in a timely manner. In addition, Citizens
National Bank maintains a proper margin between the loan amount and collateral
value.
Real Estate Loans
Citizens National Bank's real estate loans consist of residential first
and second mortgage loans, residential construction loans and commercial real
estate loans to a limited degree. These loans are made consistent with Citizens
National Bank's appraisal policy and real estate lending policy which detail
maximum loan-to-value ratios and maturities. These loan-to-value ratios are
sufficient to compensate for fluctuations in the real estate market to minimize
the risk of loss to the bank.
ASSET/LIABILITY MANAGEMENT
It is the objective of Citizens National Bank to manage assets and
liabilities to provide a satisfactory, consistent level of profitability within
the framework of established cash, loan, investment, borrowing and capital
policies. Certain of the officers of Citizens National Bank are responsible for
monitoring policies and procedures that are designed to ensure acceptable
composition of the asset/liability mix, stability and leverage of all sources of
funds while adhering to prudent banking practices. It is the overall philosophy
of management to support asset growth primarily through growth of core deposits,
which include deposits of all categories made by individuals, partnerships and
corporations. Management of Citizens National Bank seeks to invest the largest
portion of Citizens National Bank's assets in commercial, consumer and real
estate loans.
Citizens National Bank's asset/liability mix is monitored on a daily
basis with a quarterly report reflecting interest-sensitive assets and
interest-sensitive liabilities being prepared and presented to Citizens National
Bank's Board of Directors. The objective of this policy is to control
interest-sensitive assets and liabilities so as to minimize the impact of
substantial movements in interest rates on Citizens National Bank's earnings.
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MARKET AREA AND COMPETITION
The primary market area of Citizens National Bank is the Park Shore
section of Naples, Florida, which is approximately three miles north of downtown
Naples, in Collier County, Florida. Collier County represents one of the fastest
growing metropolitan areas in the United States. According to information
compiled by the Collier County Community Development and Environmental Services
Division, the county population more than quadrupled from 1975 to 1995. The
county's estimated 1999 population of 202,900 is expected to increase another
30% by the end of the year 2000.
Collier County's economic base is built on services, retail trade,
tourism, finance, insurance, real estate, construction and agriculture. While
historically employment in the county has been seasonal, as a result of winter
tourism, recent population growth has added greater diversity to the county's
economy.
Competition in Citizens National Bank's market area is intense. At June
30, 1999, Collier County reported total bank and thrift institution deposits of
$4.1 billion and the market was served by 24 financial institutions with a total
of 89 branches in Collier County. The 24 financial institutions represent 22
commercial banks and two savings banks. Nineteen regional holding companies are
represented in the county. Of these, Bank of America and First Union are the
largest. In addition, numerous brokerage firms compete in the market for
deposits and services.
Financial institutions compete with one another primarily for deposits.
Citizens National Bank's deposit base directly affects its loan activities and
general growth. Primary methods of competition include interest rates on
deposits and loans, service charges on deposit accounts and the offering of
unique financial services products. Citizens National Bank competes with
financial institutions which have much greater financial resources than Citizens
National Bank, and which may be able to offer more and unique services and
possibly better terms to their customers.
Citizens National Bank also competes with financial institutions other
than commercial banks and savings and loan associations, including insurance
companies, consumer finance companies, brokerage houses, credit unions and other
business entities which have recently been entering the traditional banking
markets. Due to the continuing growth of Collier County, it is anticipated that
additional competition will continue from new entrants to the market.
CORRESPONDENT BANKING
Correspondent banking involves the providing of services by one bank to
another bank which cannot provide that service for itself from an economic or
practical standpoint. Citizens National Bank is required to purchase
correspondent services offered by larger banks, including check collections,
purchase of Federal Funds, security safekeeping, investment services, coin and
currency supplies, overline and liquidity loan participations and sales of loans
to or participations with correspondent banks. Such correspondent arrangements
are governed, in part, by the provisions of 12 C.F.R. 32.107 and OCC Banking
Circular 181 (Rev.) (August 2, 1984).
Citizens National Bank plans to sells loan participations to
correspondent banks with respect to loans which exceed Citizens National Bank's
lending limit. As compensation for services
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provided by a correspondent, Citizens National Bank may maintain certain
balances with such correspondents in non-interest bearing accounts. At December
31, 1999 Citizens National Bank had no outstanding participations.
DATA PROCESSING
Citizens National Bank has entered into a five-year data processing
servicing agreement with The BISYS Group, Inc., which provides for Citizens
National Bank to receive a full range of data processing services, including an
automated general ledger, deposit accounting, commercial, real estate and
installment lending data processing, central information file and ATM
processing. Investment portfolio accounting is provided by Independent Bankers
Bank, and payroll processing is provided by ADP.
EMPLOYEES
Citizens National Bank presently employs 17 persons on a full-time
basis, including 11 officers, and one person on a part-time basis. Citizens
National Bank will hire additional persons as needed, including additional
tellers and financial service representatives. All employees of Citizens
Bancshares are also employed by Citizens National Bank, and all of the
compensation paid to such employees is paid by Citizens National Bank.
MONETARY POLICIES
The results of operations of Citizens National Bank will be affected by
credit policies of monetary authorities, particularly the Federal Reserve Board.
The instruments of monetary policy employed by the Federal Reserve Board include
open market operations in U.S. Government securities, changes in the discount
rate on member bank borrowings, changes in reserve requirements against member
bank deposits and limitations on interest rates which member banks may pay on
time and savings deposits. In view of changing conditions in the national
economy and in the money markets, as well as the effect of action by monetary
and fiscal authorities, including the Federal Reserve Board, no prediction can
be made as to possible future changes in interest rates, deposit levels, loan
demand or the business and earnings of Citizens National Bank.
SUPERVISION AND REGULATION
Citizens Bancshares and Citizens National Bank operate in a highly
regulated environment, and their business activities is governed by statute,
regulation and administrative policies. The business activities of Citizens
Bancshares and Citizens National Bank are closely supervised by a number of
regulatory agencies, including the Federal Reserve Board, the Office of the
Comptroller of the Currency (the "OCC"), the Florida Department of Banking and
Finance (the "Florida Banking Department") (to a limited extent) and the Federal
Deposit Insurance Corporation (the "FDIC").
Citizens Bancshares is regulated by the Federal Reserve Board under the
federal Bank Holding Company Act, which requires every bank holding company to
obtain the prior approval of the Federal Reserve Board before acquiring more
than 5% of the voting shares of any bank or all or substantially all of the
assets of a bank, and before merging or consolidating with another bank holding
company. The Federal Reserve Board (pursuant to regulation and published policy
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statements) has maintained that a bank holding company must serve as a source of
financial strength to its subsidiary banks. In adhering to the Federal Reserve
Board policy, Citizens Bancshares may be required to provide financial support
to a subsidiary bank at a time when, absent such Federal Reserve Board policy,
Citizens Bancshares may not deem it advisable to provide such assistance.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994, Citizens Bancshares, or any other bank holding company located in
Florida, may acquire a bank located in any other state, and a bank holding
company located outside Florida may acquire any Florida-based bank, in either
case subject to certain deposit percentage and other restrictions. The
legislation also provides that, unless an individual state has elected to
prohibit out-of-state banks from operating interstate branches within its
territory, adequately capitalized and managed bank holding companies will be
able to consolidate their multistate bank operations into a single bank
subsidiary and to branch interstate through acquisitions.
De novo branching by an out-of-state bank is lawful only if it is
expressly permitted by the laws of the host state. The authority of a bank to
establish and operate branches within a state remains subject to applicable
state branching laws.
On November 12, 1999, the Gramm-Leach-Bliley Financial Services
Modernization Act was signed into law. The Financial Services Modernization Act
eliminates the barriers erected by the 1933 Glass-Steagall Act and amends the
Bank Holding Company Act of 1956, among other statutes. Further, it allows for
the affiliation of banking, securities and insurance activities in new financial
services organizations.
A dominant theme of the new legislation is functional regulation of
financial services, with the primary regulator of the company being the agency
which traditionally regulates the activity in which the company wishes to
engage. For example, the Securities and Exchange Commission will regulate bank
securities transactions, and the various banking regulators will oversee banking
activities.
The principal provisions of the Financial Services Modernization Act
will permit Citizens Bancshares, if it meets the standards for a "well-managed"
and "well-capitalized" institution and has at least a "satisfactory" Community
Reinvestment Act performance, to engage in any activity that is "financial in
nature," including security and insurance underwriting, investment banking, and
merchant banking investing in commercial and industrial companies. Citizens
Bancshares, if it satisfies the above criteria, can file a declaration of its
status as a "financial holding company" ("FHC") with the Federal Reserve, and
thereafter engage directly or through nonbank subsidiaries in the expanded range
of activities which the Financial Services Modernization Act identifies as
financial in nature. Further, Citizens Bancshares, if it elects FHC status, will
be able to pursue additional activities which are incidental or complementary in
nature to a financial activity, or which the Federal Reserve subsequently
determines to be financial in nature. The Financial Services Modernization Act
will also allow the Bank, with OCC approval, to control or hold an interest in a
"financial subsidiary" which may engage in, among other things, the activities
specified in the Financial Services Modernization Act as being financial in
nature. Such a subsidiary, though, is not permitted to engage in insurance
underwriting or annuity issuance, real estate development, investment
activities, or merchant banking activities. Further, any financial subsidiary
that the Bank
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created would generally be treated as an affiliate of the Bank, rather than as a
subsidiary for purposes of affiliate transaction restrictions of Sections 23A
and 23B of the Federal Reserve Act.
It is expected that the Financial Services Modernization Act will
facilitate further consolidation in the financial services industry on both a
national and international basis, and will cause existing bank holding companies
to restructure their existing activities in order to take advantage of the new
powers granted and comply with their attendant requirements and conditions.
A bank holding company which has not elected to become a FHC will
generally be prohibited from acquiring control of any company which is not a
bank and from engaging in any business other than the business of banking or
managing and controlling banks. However, these non- FHC bank holding companies
will still be able to engage in certain activities which have been identified by
the Federal Reserve Board to be so closely related to banking as to be a proper
incident thereto and thus permissible for bank holding companies.
These activities, including those listed below, are left unchanged by
the Financial Services Modernization Act which does not prohibit non-FHC bank
holding companies from engaging in these activities. The list of permissible
nonbanking activities includes the following activities: extending credit and
servicing loans; acting as investment or financial advisor to any person, with
certain limitations; leasing personal and real property or acting as a broker
with respect thereto; providing management and employee benefits consulting
advice and career counseling services to nonaffiliated banks and nonbank
depository institutions; operating certain nonbank depository institutions;
performing certain trust company functions; providing certain agency
transactional services, including securities brokerage services, riskless
principal transactions, private placement services, and acting as a futures
commission merchant; providing data processing and data transmission services;
acting as an insurance agent or underwriter with respect to limited types of
insurance; performing real estate appraisals; arranging commercial real estate
equity financing; providing check-guaranty, collection agency and credit bureau
services; engaging in asset management, servicing and collection activities;
providing real estate settlement services; acquiring certain debt which is in
default; underwriting and dealing in obligations of the United States, the
states and their political subdivisions; engaging as a principal in foreign
exchange trading and dealing in precious metals; providing other support
services such as courier services and the printing and selling of checks; and
investing in programs designed to promote community welfare.
In determining whether an activity is so closely related to banking as
to be permissible for bank holding companies, the Federal Reserve Board is
required to consider whether the performance of such activities by a bank
holding company or its subsidiaries can reasonably be expected to produce
benefits to the public, such as greater convenience, increased competition and
gains in efficiency, that outweigh such possible adverse effects as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, and unsound banking practices. Generally, bank holding companies must
obtain approval of the Federal Reserve Board to engage in any activity not
previously approved by the Federal Reserve Board or to modify in any material
respect as activity for which Federal Reserve Board approval had been obtained.
Citizens Bancshares is also regulated by the Florida Banking Department
under the Florida Banking Code, which requires every bank holding company to
obtain the prior approval of the
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Florida Commissioner of Banking before acquiring more than 5% of the voting
shares of any Florida bank or all or substantially all of the assets of a
Florida bank, or before merging or consolidating with any Florida bank holding
company. A bank holding company is generally prohibited from acquiring ownership
or control of 5% or more of the voting shares of any Florida bank or Florida
bank holding company unless the Florida bank or all Florida bank subsidiaries of
the bank holding company to be acquired have been in existence and continuously
operating, on the date of the acquisition, for a period of three years or more.
However, approval of the Florida Banking Department is not required if the bank
to be acquired, or all bank subsidiaries of the Florida bank holding company to
be acquired, are national banks.
Citizens National Bank is also subject to the Florida banking and usury
laws restricting the amount of interest which it may charge in making loans or
other extensions of credit. In addition, Citizens National Bank, as a subsidiary
of Citizens Bancshares, is subject to restrictions under federal law in dealing
with Citizens Bancshares and other affiliates, if any. These restrictions apply
to extensions of credit to an affiliate, investments in the securities of an
affiliate and the purchase of assets from an affiliate.
Loans and extensions of credit by national banks are subject to legal
lending limitations. Under federal law, a national bank may grant unsecured
loans and extensions of credit in an amount up to 15% of its unimpaired capital
and surplus to any person if the loans and extensions of credit are not fully
secured by collateral having a market value at least equal to their face amount.
In addition, a national bank may grant loans and extensions of credit to such
person up to an additional 10% of its unimpaired capital and surplus, provided
that each loan or extension of credit is fully secured by readily marketable
collateral having a market value, determined by reliable and continuously
available price quotations, at least equal to the amount of funds outstanding.
Loans and extensions of credit may exceed the general lending limit if they
qualify under one of several exceptions. Such exceptions include certain loans
or extensions of credit arising from the discount of commercial or business
paper, the purchase of bankers' acceptances, loans secured by documents of
title, loans secured by U.S. obligations and loans to or guaranteed by the
federal government, and loans or extensions of credit which have the approval of
the OCC and which are made to a financial institution or to any agent in charge
of the business and property of the financial institution.
Both Citizens Bancshares and Citizens National Bank are subject to
regulatory capital requirements imposed by the Federal Reserve Board and the
OCC. The Federal Reserve Board and the OCC have issued risk-based capital
guidelines for bank holding companies and banks which make regulatory capital
requirements more sensitive to differences in risk profiles of various banking
organizations. The capital adequacy guidelines issued by the Federal Reserve
Board are applied to bank holding companies, on a consolidated basis with the
banks owned by the holding company, as well as to state member banks. The OCC's
risk capital guidelines apply directly to national banks regardless of whether
they are a subsidiary of a bank holding company. Both agencies' requirements
(which are substantially similar), provide that banking organizations must have
capital equivalent to at least 8% of risk-weighted assets. The risk weights
assigned to assets are based primarily on credit risks. Depending upon the
riskiness of a particular asset, it is assigned to a risk category.
For example, securities with an unconditional guarantee by the United
States government are assigned to the lowest risk category, while a risk weight
of 50% is assigned to loans secured by
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owner-occupied one to four family residential mortgages provided that certain
conditions are met. The aggregate amount of assets assigned to each risk
category is multiplied by the risk weight assigned to that category to determine
the weighted values, which are added together to determine total risk-weighted
assets. Both the Federal Reserve Board and the OCC have also implemented minimum
capital leverage ratios to be used in tandem with the risk-based guidelines in
assessing the overall capital adequacy of banks and bank holding companies.
Under these rules, banking institutions must maintain a ratio of at least 3%
"Tier 1" capital to total weighted risk assets (net of goodwill, certain
intangible assets, and certain deferred tax assets). Tier 1 capital includes
common shareholders equity, noncumulative perpetual preferred stock and minority
interests in the equity accounts of consolidated subsidiaries.
Both the risk-based capital guidelines and the leverage ratio are
minimum requirements. They are applicable to all banking institutions unless the
applicable regulating authority determines that different minimum capital ratios
are appropriate for a particular institution based upon its circumstances.
Institutions operating at or near these ratios are expected to have
well-diversified risks, excellent control systems, high asset quality, high
liquidity, good earnings, and in general must be considered strong banking
organizations, rated composite 1 under the CAMELS rating system of banks or the
BOPEC rating system of bank holding companies. The OCC requires that all but the
most highly-rated banks and all banks with high levels of risk or experiencing
or anticipating significant growth will maintain ratios at least 100 to 200
basis points above the stated minimums. The Federal Reserve Board requires bank
holding companies without a BOPEC-1 rating to maintain a ratio of at least 4%
Tier 1 capital to total assets; furthermore, banking organizations with
supervisory, financial, operational, or managerial weaknesses, as well as
organizations that are anticipating or experiencing significant growth, are
expected to maintain capital ratios well above the 3% and 4% minimum levels.
The FDIC adopted a rule substantially similar to that issued by the
Federal Reserve Board, establishing a minimum leverage ratio of 3% and providing
that FDIC-regulated banks with anything less than a CAMELS-1 rating must
maintain a ratio of at least 4%. In addition, the FDIC rule specifies that a
depository institution operating with less than the applicable minimum leverage
capital requirement will be deemed to be operating in an unsafe and unsound
manner unless the institution is in compliance with a plan, submitted to and
approved by the FDIC, to increase the ratio to an appropriate level. Finally,
the FDIC requires any insured depository institution with a leverage ratio of
less than 2% to enter into and be in compliance with a written agreement between
it and the FDIC (or the primary regulator, with the FDIC as a party to the
agreement). Such an agreement will nearly always contemplate immediate efforts
to acquire the capital required to increase the ratio to an appropriate level.
Institutions that fail to enter into or maintain compliance with such an
agreement will be subject to enforcement action by the FDIC.
The OCC's guidelines provide that intangible assets are generally
deducted from Tier 1 capital in calculating a bank's risk-based capital ratio.
However, certain intangible assets which meet specified criteria ("qualifying
intangibles") are retained as a part of Tier 1 capital. The OCC has modified the
list of qualifying intangibles, currently including only purchased credit card
relationships and mortgage and non-mortgage servicing assets, whether originated
or purchased and excluding any interest-only strips receivable related thereto.
Furthermore, the OCC's guidelines formerly provided that the amount of such
qualifying intangibles that may be included in Tier 1 capital was limited to a
maximum of 50% of total Tier 1 capital. The OCC has amended its
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guidelines to increase the limitation on such qualifying intangibles from 50% to
100% of Tier 1 capital, of which no more than 25% may consist of purchased
credit card relationships and non-mortgage servicing assets. Furthermore, banks
may now deduct from Tier 1 capital disallowed servicing assets on a basis that
is net of any associated deferred tax liability. Deferred tax liabilities netted
this way may not also be netted against deferred tax assets when determining the
amount of deferred tax assets that are dependent upon future taxable income.
In addition, the OCC has adopted rules which clarify treatment of asset
sales with recourse not reported on a bank's balance sheet. Among assets
affected are mortgages sold with recourse under Fannie Mae, Freddie Mac and
Farmer Mac programs. The rules clarify that even though those transactions are
treated as asset sales for bank Call Report purposes, those assets will still be
subject to a capital charge under the risk-based capital guidelines.
The risk-based capital guidelines of the OCC, the Federal Reserve Board
and the FDIC explicitly include provisions regarding a bank's exposure to
declines in the economic value of its capital due to changes in interest rates
to ensure that the guidelines take adequate account of interest rate risk.
Interest rate risk is the adverse effect that changes in market interest rates
may have on a bank's financial condition and is inherent to the business of
banking. The exposure of a bank's economic value generally represents the change
in the present value of its assets, less the change in the value of its
liabilities, plus the change in the value of its interest rate off-balance sheet
contracts. Concurrently, the agencies issued a joint policy statement to
bankers, effective June 26, 1996, to provide guidance on sound practices for
managing interest rate risk. In the policy statement, the agencies emphasize the
necessity of adequate oversight by a bank's Board of Directors and senior
management and of a comprehensive risk management process. The policy statement
also describes the critical factors affecting the agencies' evaluations of a
bank's interest rate risk when making a determination of capital adequacy. The
agencies' risk assessment approach used to evaluate a bank's capital adequacy
for interest rate risk relies on a combination of quantitative and qualitative
factors. Banks that are found to have high levels of exposure and/or weak
management practices will be directed by the agencies to take corrective action.
The OCC, the Federal Reserve Board and the FDIC recently added a
provision to the risk- based capital guidelines that supplements and modifies
the usual risk-based capital calculations to ensure that institutions with
significant exposure to market risk maintain adequate capital to support that
exposure. Market risk is the potential loss to an institution resulting from
changes in market prices. The modifications are intended to address two types of
market risk: general market risk, which includes changes in general interest
rates, equity prices, exchange rates, or commodity prices, and specific market
risk, which includes particular risks faced by the individual institution, such
as event and default risks. The provision defines a new category of capital,
Tier 3, which includes certain types of subordinated debt. The provision
automatically applies only to those institutions whose trading activity, on a
worldwide consolidated basis, equals either (i) 10% or more of total assets or
(ii) $1 billion or more, although the agencies may apply the provision's
requirements to any institution for which application of the new standard is
deemed necessary or appropriate for safe banking practices. For institutions to
which the modifications apply, Tier 3 capital may not be included in the
calculation rendering the 8% credit risk ratio; the sum of Tier 2 and Tier 3
capital may not exceed 100% of Tier 1 capital; and Tier 3 capital is used in
both the numerator and denominator of the normal risk-based capital ratio
calculation to account for the estimated maximum amount that the value of all
positions in the institution's trading account, as well as all foreign exchange
and
-10-
<PAGE> 12
commodity positions, could decline within certain parameters set forth in a
model defined by the statute. Furthermore, covered institutions must "backtest,"
comparing the actual net trading profit or loss for each of its most recent 250
days against the corresponding measures generated by the statutory model. Once
per quarter, the institution must identify the number of times the actual net
trading loss exceeded the corresponding measure and must then apply a statutory
multiplication factor based on that number for the next quarter's capital charge
for market risk.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"), enacted on December 19, 1991, provides for the development of a
regulatory monitoring system requiring prompt action on the part of banking
regulators with regard to certain classes of undercapitalized institutions.
While the FDICIA does not change any of the minimum capital requirements, it
directs each of the federal banking agencies to issue regulations putting the
monitoring plan into effect. The FDICIA creates five "capital categories" ("well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized") which are defined in the
FDICIA and which will be used to determine the severity of corrective action the
appropriate regulator may take in the event an institution reaches a given level
of undercapitalization. For example, an institution which becomes
"undercapitalized" must submit a capital restoration plan to the appropriate
regulator outlining the steps it will take to become adequately capitalized.
Upon approving the plan, the regulator will monitor the institution's
compliance. Before a capital restoration plan will be approved, any entity
controlling a bank (i.e., a holding company) must guarantee compliance with the
plan until the institution has been adequately capitalized for four consecutive
calendar quarters. The liability of the institution is limited to the lesser of
five percent of the institution's total assets or the amount which is necessary
to bring the institution into compliance with all capital standards. In
addition, "undercapitalized" institutions will be restricted from paying
management fees, dividends and other capital distributions, will be subject to
certain asset growth restrictions and will be required to obtain prior approval
from the appropriate regulator to open new branches or expand into new lines of
business.
As an institution's capital levels decline, the extent of action to be
taken by the appropriate regulator increases, restricting the types of
transactions in which the institution may engage and ultimately providing for
the appointment of a receiver for certain institutions deemed to be critically
undercapitalized.
-11-
<PAGE> 13
In response to the directive issued under the Act, the regulators have
established regulations which, among other things, prescribe the capital
thresholds for each of the five capital categories established by the Act. The
following table reflects the capital thresholds:
<TABLE>
<CAPTION>
Total Risk-Based Tier 1 Risk-Based Tier 1
Capital Ratio Capital Ratio Leverage Ratio
------------- ------------- --------------
<S> <C> <C> <C>
Well capitalized(1) >=10% >= 6% >= 5%
Adequately Capitalized(1) >= 8% >= 4% >= 4%(2)
Undercapitalized(4) < 8% < 4% < 4%(3)
Significantly Undercapitalized(4) < 6% < 3% < 3%
Critically Undercapitalized - - <= 2%(5)
</TABLE>
- ---------------------------
(1) An institution must meet all three minimums.
(2) >=3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(3) < 3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(4) An institution falls into this category if it is below the specified
capital level for any of the three capital measures.
(5) Ratio of tangible equity to total assets.
The FDICIA also provides that each Federal banking agency must
prescribe safety and soundness standards in certain areas of banking practice.
In order to comply with the FDICIA, the Federal Reserve Board, the OCC and the
FDIC have adopted regulations defining operational and managerial standards
relating to internal controls, loan documentation, credit underwriting, interest
rate exposure, asset growth, and compensation, fees and benefits.
Both the capital standards and the safety and soundness standards which
the FDICIA seeks to implement are designed to bolster and protect the deposit
insurance fund.
As a national bank, the Bank is subject to examination and review by
the OCC. This examination is typically completed on-site every eighteen months
and is subject to off-site review at call. The OCC, at will, can access
quarterly reports of condition, as well as such additional reports as may be
required by the national banking laws.
As a bank holding company, Citizens Bancshares is required to file with
the Federal Reserve Board an annual report of its operations at the end of each
fiscal year and such additional information as the Federal Reserve Board may
require pursuant to the Act. The Federal Reserve Board may also make
examinations of Citizens Bancshares and each of its subsidiaries.
The scope of regulation and permissible activities of Citizens
Bancshares and Citizens National Bank is subject to change by future federal and
state legislation. In addition, regulators sometimes require higher capital
levels on a case-by-case basis based on such factors as the risk characteristics
or management of a particular institution. Citizens Bancshares and Citizens
National Bank are not aware of any attributes of their operating plan that would
cause regulators to impose higher requirements.
-12-
<PAGE> 14
ITEM 2. DESCRIPTION OF PROPERTY
Citizens National Bank's main office is a single story, 4,500 square
foot building located on an approximately 1.05-acre parcel of land at 3401
Tamiami Trail North in Naples, Florida. The facility has a vault, four offices,
four teller stations, five drive-through lanes, a boardroom conference facility
and a loan operations area.
Citizens Bancshares leases approximately 3,000 square feet of office
space to serve as the operations offices of Citizens Bancshares and Citizens
National Bank. The leased premises are located at 3411 Tamiami Trail North,
which is adjacent to the property on which Citizens National Bank's main office
facility is located. Monthly payments of $4,438.50 are due under the lease
agreement.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which Citizens
Bancshares or Citizens National Bank is a party or of which any of their
properties are subject; nor are there material proceedings known to Citizens
Bancshares to be contemplated by any governmental authority; nor are there
material proceedings known to Citizens Bancshares, pending or contemplated, in
which any director, officer or affiliate or any principal security holder of
Citizens Bancshares, or any associate of any of the foregoing is a party or has
an interest adverse to Citizens Bancshares or Citizens National Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the quarter ended December 31, 1999 to a
vote of security holders of Citizens Bancshares.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. MARKET INFORMATION
During the period covered by this report and to date, there has been no
established public trading market for Citizens Bancshares' common stock.
B. HOLDERS OF COMMON STOCK
As of March 1, 2000, the number of holders of record of Citizens
Bancshares' common stock was 409.
C. DIVIDENDS
To date, Citizens Bancshares has not paid any dividends on its common
stock. As Citizens Bancshares and Citizens National Bank are both start-up
enterprises, it is the policy of the Board of Directors of Citizens Bancshares
to reinvest earnings for such period of time as is necessary to ensure the
success of the operations of Citizens Bancshares and of Citizens National Bank.
There are no
-13-
<PAGE> 15
current plans to initiate payment of cash dividends, and future dividend policy
will depend on Citizens National Bank's earnings, capital requirements,
financial condition and other factors considered relevant by the Board of
Directors of Citizens Bancshares.
Citizens National Bank is restricted in its ability to pay dividends
under the national banking laws and by regulations of the OCC. Pursuant to 12
U.S.C. Section 56, a national bank may not pay dividends from its capital. All
dividends must be paid out of undivided profits, subject to other applicable
provisions of law. Payments of dividends out of undivided profits is further
limited by 12 U.S.C. Section 60(a), which prohibits a bank from declaring a
dividend on its shares of common stock until its surplus equals its stated
capital, unless there has been transferred to surplus not less than one-tenth of
the bank's net income for the preceding two consecutive half-year periods (in
the case of an annual dividend). Pursuant to 12 U.S.C. Section 60(b), the
approval of the OCC is required if the total of all dividends declared by
Citizens National Bank in any calendar year exceeds the total of its net income
for that year combined with its retained net income for the preceding two years,
less any required transfers to surplus.
D. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 19, 1999, Citizens Bancshares commenced an initial public
offering of its common stock, $.01 par value per share. The shares of the common
stock sold in the offering were registered under the Securities Act of 1933, as
amended, on a Registration Statement on Form SB-2, Registration No. 333-74997
(the "Registration Statement"). The Registration Statement registered 1,200,000
shares of common stock, to be sold to the public at a price of $10.00 per share,
and warrants to purchase 113,330 shares of common stock, which have been issued
to the organizers of the Citizens Bancshares and the Bank in consideration of
the efforts expended and risks undertaken by the organizers during the
organizational process. On February 14, 2000, the initial public offering was
completed. Citizens Bancshares sold an aggregate of 1,145,570 shares, for gross
aggregate proceeds of $11,455,700.
As set forth in the table below, Citizens Bancshares paid expenses in
the aggregate of approximately $55,000 in connection with the offering. All of
the amounts shown in the table are estimated except for the Securities and
Exchange Commission registration fee. None of the amounts shown were paid
directly or indirectly to any director, officer or general partner of Citizens
Bancshares, or any of their associates, or to any persons owning 10% or more of
any class of equity securities of Citizens Bancshares, or to an affiliate of
Citizens Bancshares.
<TABLE>
<S> <C>
SEC registration fee........................ $ 3,651
Blue sky qualification fees and expenses.... 2,500
Printing and engraving expenses............. 15,000
Legal fees and expenses..................... 20,000
Accounting fees and expenses................ 10,000
Mailing and distribution.................... 2,000
Miscellaneous............................... 2,000
--------
Total....................................... $ 55,151
========
</TABLE>
-14-
<PAGE> 16
After deducting the offering expenses described above, net proceeds to
Citizens Bancshares from the offering totaled approximately $11,400,549. Of this
amount, Citizens Bancshares used $9.7 million to purchase 100% of the issued and
outstanding capital stock of Citizens National Bank and the remaining $1,700,549
has been used to repay expenses incurred in the organization of Citizens
Bancshares and to provide general working capital. None of the net proceeds of
the offering have been paid directly or indirectly to any director, officer,
general partner of Citizens Bancshares, or any of their associates, or to any
persons owning 10% or more of any class of equity securities of Citizens
Bancshares, or to an affiliate of Citizens Bancshares.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of Citizens Bancshares' financial condition
and results of operations should be read in conjunction with Citizens
Bancshares' Consolidated Financial Statements, related notes and statistical
information included elsewhere herein.
ORGANIZATION
Citizens Bancshares was incorporated in September 1998 to serve as a
holding company for Citizens National Bank. For approximately the first eleven
months of operation, the main activities centered on applying for a national
bank charter, applying to become a bank holding company, preparing the banking
facilities, hiring and training bank personnel, and raising capital in an
initial public offering to fund the start-up of Citizens National Bank. On
August 24, 1999, Citizens National Bank commenced operations.
RESULTS OF OPERATIONS
During the development stage, from June 15, 1998 (date of
incorporation) to August 24, 1999 (the date Citizens National Bank opened),
Citizens Bancshares' net loss amounted to $669,966. Net loss from August 24,
1999 to December 31, 1999 amounted to $553,821. Losses from June 15, 1998 to
December 31, 1999 amounted to $1,223,787, or $(2.21) per share, based on the
weighted average shares outstanding during 1999.
Net Interest Income
Net interest income is the principal component of a financial
institution's income stream and represents the difference between interest and
certain fee income generated from earning assets and the interest expense paid
on deposits and other borrowed funds. Fluctuations in interest rates, as well as
volume and mix changes in earning assets and interest-bearing liabilities, can
materially impact net interest income. Citizens National Bank had no investments
in tax-exempt securities during 1999 and, accordingly, no adjustment is
necessary to facilitate comparisons on a taxable equivalent basis.
-15-
<PAGE> 17
The following table sets forth, for the period indicated, certain
information related to the Citizens Bancshares' average balance sheet, its
yields on average earning assets and its average rates on interest-bearing
liabilities. Such yields and rates are derived by dividing income or expense by
the average balance of the corresponding assets or liabilities. Average balances
have been derived from the daily balances throughout the period indicated.
<TABLE>
<CAPTION>
Year Ended December 31, 1999
------------------------------------------------
Interest
Average Income/ Yield/
Balance Expense Rate
<S> <C> <C> <C>
ASSETS
Earning assets:
Loans, net of deferred loan fees(1) ........................... $ 586,643 $ 65,528 11.17%
Investment securities(2) ...................................... 509,584 29,403 5.77%
Interest bearing deposits in banks ............................ 2,164,220 94,360 4.36%
Federal funds sold ............................................ 4,599,417 236,870 5.15%
----------- ----------- -----
Total earning assets ............................................. $ 7,859,865 $ 426,161 5.42%
Cash and due from banks ....................................... 268,301
Premises and equipment, net ................................... 1,757,000
Other assets .................................................. 13,454
Allowance for loan losses ..................................... (2,212)
-----------
Total assets ..................................................... $ 9,896,408
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits .............................. $ 292,075 6,192 2.12%
Savings deposits .............................................. 176,354 5,079 2.88%
Money market deposits ......................................... 313,353 10,654 3.40%
Certificates of deposit of $100,000 or more ................... 1,113,812 62,819 5.64%
Other time deposits ........................................... 1,275,294 78,048 6.12%
Other borrowed funds .......................................... 1,252,691 19,060(3) 1.52%(3)
----------- ----------- -----
Total interest-bearing liabilities ............................... $ 4,423,580 $ 181,852 4.11%
-----------
Noninterest-bearing demand deposits ........................... 381,649
Other liabilities ............................................. 7,677
Shareholders' equity .......................................... 5,083,503
-----------
Total liabilities and shareholders' equity ....................... $ 9,896,408
===========
Net interest income ........................................... $ 244,309
===========
Net interest spread ........................................... 1.31%
Net interest margin ........................................... 2.47%
</TABLE>
- --------------------
(1) During 1999, all loans were accruing interest. Deferred loan fees were $0
in 1999.
(2) The yield on investment securities is computed based upon the average
balance of investment securities at amortized cost and does not reflect the
unrealized gains or losses on such investments.
(3) Net of capitalized interest.
As reflected above, average yield on earning assets amounted to 5.42%,
while the average cost of funds amounted to 4.11%. Net interest yield is
computed by subtracting interest expense from interest income and dividing the
resulting figure by average interest-earning assets. Net interest yield for the
year ended December 31, 1999 amounted to 3.11%.
-16-
<PAGE> 18
To counter potential declines in the net interest margin and the
interest rate risk inherent in the balance sheet, Citizens National Bank will
periodically adjust the rates and terms of its interest-bearing liabilities in
response to general market rate changes and the competitive environment.
Management monitors Federal funds sold levels throughout the year, investing any
funds not necessary to maintain appropriate liquidity in higher yielding
investments such as short-term U.S. government and agency securities. Citizens
National Bank will continue to manage its balance sheet and its interest rate
risk based on changing market interest rate conditions.
Rate/Volume Analysis of Net Interest Income
A rate/volume analysis of net interest income cannot be provided as of
December 31, 1999 because at that date Citizens National Bank had been operating
for less than two years.
Non-Interest Income
Non-interest income consists of revenues generated from a broad range
of financial services, products and activities, including fee-based services,
service fees on deposit accounts and other activities. In addition, gains
realized from the sale of other real estate owned, and investments available for
sale are included in non-interest income.
Non-interest income for the year ended December 31, 1999 amounted to
$6,130 and represented 0.09% of average assets. Management expects non-interest
income as a percentage of average assets to increase significantly in 2000.
Non-Interest Expense
Non-interest expense for the year ended December 31, 1999 amounted to
$1,324,222. As a percent of total average assets, non-interest expense amounted
to 6.31%. The components of non-interest expense for 1999 are set forth below.
<TABLE>
<S> <C>
Salaries and benefits................................ $ 698,503
Occupancy expenses................................... 143,925
Equipment rentals, depreciation and maintenance...... 59,275
General operating expenses........................... 422,519
----------
Total non-interest expense....................... $1,324,222
==========
</TABLE>
Provision for Loan Losses
During 1999, $26,885 was provided to the allowance for loan losses.
There were no charge-offs during 1999. As of December 31, 1999, management
considers the allowance for loan losses to be adequate to absorb expected future
losses. However, there can be no assurance that charge-offs in future periods
will not exceed the allowance for loan losses or that additional provisions to
the allowance will not be required.
-17-
<PAGE> 19
FINANCIAL CONDITION
Loan Portfolio
The following table presents various categories of loans contained in
Citizens National Bank's loan portfolio at December 31, 1999:
<TABLE>
<CAPTION>
AS OF
TYPE OF LOAN DECEMBER 31, 1999
------------ -----------------
<S> <C>
Commercial................................................ $1,995,645
Consumer.................................................. 570,739
Real estate............................................... 1,767,757
----------
Subtotal......................................... 4,334,141
Less: allowance for loan losses.................. 26,885
----------
Total (net of allowances)................ $4,307,256
==========
</TABLE>
The following is a presentation of an analysis of maturities of loans
at December 31, 1999:
<TABLE>
<CAPTION>
DUE IN 1 DUE AFTER 1 TO DUE AFTER
TYPE OF LOAN YEAR OR LESS 5 YEARS 5 YEARS TOTAL
- ------------ ------------ ------- ------- -----
(in thousands)
<S> <C> <C> <C> <C>
Commercial ................ $ 705 $ 104 $1,187 $1,996
Consumer .................. 63 269 238 570
Real estate ............... 212 109 1,447 1,768
------ ------ ------ ------
Total ................ $ 980 $ 482 $2,872 $4,334
====== ====== ====== ======
</TABLE>
For the above loans, the following is a presentation of an analysis of
sensitivities to changes in interest rates at December 31, 1999:
<TABLE>
<CAPTION>
DUE IN 1 DUE AFTER 1 TO DUE AFTER
TYPE OF LOAN YEAR OR LESS 5 YEARS 5 YEARS TOTAL
- ------------ ------------ ------- ------- -----
(in thousands)
<S> <C> <C> <C> <C>
Predetermined fixed interest rate $ 226 $ 396 $1,068 $1,690
Floating interest rate .......... 754 86 1,804 2,644
------ ------ ------ ------
Total ...................... $ 980 $ 482 $2,872 $4,334
====== ====== ====== ======
</TABLE>
As of December 31, 1999, all loans were accruing interest, no accruing
loans were contractually past due 90 days or more as to principal and interest
payments and no loans were defined as "troubled debt restructurings."
As of December 31, 1999, no loans were classified for regulatory
purposes as doubtful, substandard or special mention which (i) represent or
result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity, or capital resources, or
(ii) represent material credits about which management is aware of any
information which causes management to have serious doubts as to the ability of
such borrowers to comply with the loan repayment terms. As of December 31, 1999,
there were no loans with respect to which
-18-
<PAGE> 20
known information about possible credit problems of borrowers causes management
to have serious doubts as to the ability of such borrowers to comply with the
loan repayment terms.
Accrual of interest is discontinued on a loan when management
determines upon consideration of economic and business factors affecting
collection efforts that collection of interest is doubtful. Interest accrual was
not discontinued on any loans during 1999.
Summary of Loan Loss Experience
An analysis of Citizens National Bank's loan loss experience for fiscal
1999 is furnished in the following table, as well as a breakdown of the
allowance for possible loan losses:
ANALYSIS OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
<S> <C>
Balance at beginning of period....................... $ 0
Charge-offs.......................................... 0
Recoveries........................................... 0
Additions charged to operations...................... 26,885
--------
Balance at end of period............................. $ 26,885
========
Ratio of net charge-offs during the period to
average loans outstanding during the period...... 0%
========
</TABLE>
At December 31, 1999 the allowance was allocated as follows:
<TABLE>
<CAPTION>
PERCENT OF LOANS
IN EACH CATEGORY
AMOUNT TO TOTAL LOANS
<S> <C> <C>
Commercial ............................. $13,765 46.0%
Consumer ............................... 4,281 13.2%
Real estate ............................ 8,839 40.8%
------- ------
Total ......................... $26,885 100.0 %
======= ======
</TABLE>
Loan Loss Reserve
In considering the adequacy of Citizens National Bank's allowance for
possible loan losses, management has focused on the fact that as of December 31,
1999, 46.0% of outstanding loans are in the category of commercial loans.
Commercial loans are generally considered by management as having greater risk
than other categories of loans in Citizens National Bank's loan portfolio.
However, 94.7% of these commercial loans at December 31, 1999 were made on a
secured basis. Management believes that the secured condition of the
preponderant portion of its commercial loan portfolio greatly reduces any risk
of loss inherently present in commercial loans.
-19-
<PAGE> 21
Citizens National Bank's consumer loan portfolio constitutes 13.2% of
outstanding loans at December 31, 1999. At December 31, 1999 the majority of
Citizens National Bank's consumer loans were secured by collateral primarily
consisting of automobiles, boats and other personal property. Management
believes that these loans involve less risk than commercial loans.
Real estate mortgage loans constituted 40.8% of outstanding loans at
December 31, 1999. All loans in this category represent residential real estate
mortgages where the amount of the original loan generally does not exceed 80% of
the appraised value of the collateral. These loans are considered by management
to be well secured with a low risk of loss.
A review of the loan portfolio by an independent firm is conducted
annually. The purpose of this review is to assess the risk in the loan portfolio
and to determine the adequacy of the allowance for loan losses. The review
includes analyses of historical performance, the level of non-conforming and
rated loans, loan volume and activity, review of loan files and consideration of
economic conditions and other pertinent information. Upon completion, the report
is approved by the Board and management of Citizens National Bank. In addition
to the above review, Citizens National Bank's primary regulator, the OCC, also
conducts an annual examination of the loan portfolio. Upon completion, the OCC
presents its report of findings to the Board and management of Citizens National
Bank. Information provided from the above two independent sources, together with
information provided by the management of Citizens National Bank and other
information known to members of the Board, are utilized by the Board to monitor,
on a quarterly basis, the loan portfolio. Specifically, the Board attempts to
identify risks inherent in the loan portfolio (e.g., problem loans, potential
problem loans and loans to be charged off), assess the overall quality and
collectibility of the loan portfolio, and determine amounts of the allowance for
loan losses and the provision for loan losses to be reported based on the
results of their review.
Deposits
The following table presents, for the period from August 24, 1999 (the
date Citizens National Bank opened) through December 31, 1999, the average
amount of and average rate paid on each of the following deposit categories:
<TABLE>
<CAPTION>
PERIOD FROM AUGUST 24, 1999 (BANK
OPENING) TO DECEMBER 31, 1999
---------------------------------------
DEPOSIT CATEGORY AVERAGE AMOUNT AVERAGE RATE PAID
- ---------------- -------------- -----------------
<S> <C> <C>
Non-interest bearing demand deposits............... $ 1,071,553 --
NOW and money market deposits....................... 1,701,100 2.79%
Savings deposits.................................... 494,319 2.88%
Time deposits....................................... $ 6,705,122 5.90%
</TABLE>
-20-
<PAGE> 22
The following table indicates amounts outstanding of time certificates
of deposit of $100,000 or more and respective maturities at December 31, 1999:
<TABLE>
<CAPTION>
MATURITIES OF
TIME CERTIFICATES OF DEPOSIT
AT DECEMBER 31, 1999
-----------------------------
AMOUNT AVERAGE RATE
------ ------------
<S> <C> <C>
3 months or less .................... $ 406,892 5.06%
3-6 months .......................... 4,770,779 6.23%
6-12 months ......................... 765,860 5.66%
over 12 months ...................... -- --
---------- ----
Total .......................... $5,943,531 6.08%
========== ====
</TABLE>
Investment Portfolio
As of December 31, 1999, investment securities comprised approximately
5.2% of Citizens National Bank's assets, federal funds sold comprised
approximately 59.5% of Citizens National Bank's assets, and net loans comprised
approximately 16.3% of Citizens National Bank's assets. Citizens National Bank
invests primarily in direct obligations of the United States, obligations
guaranteed as to principal and interest by the United States, obligations of
agencies of the United States and certificates of deposit issued by commercial
banks. In addition, Citizens National Bank enters into Federal Funds
transactions with its principal correspondent banks, and acts as a net seller of
such funds. The sale of Federal Funds amounts to a short-term loan from Citizens
National Bank to another bank.
The following table presents the book value of Citizens National Bank's
investments at December 31, 1999. All securities held at December 31, 1999 were
categorized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
--------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
------------------ ----------------
<S> <C> <C>
Obligations of U.S. Treasury and other U.S. agencies.............. -- $987,915
Other securities.................................................. 377,360 --
-------- --------
Total.................................................... $377,360 $987,915
======== ========
</TABLE>
-21-
<PAGE> 23
The following table indicates, as of December 31, 1999, the amount of
investments due by contractual maturity in (i) one year or less, (ii) one to
five years, (iii) five to ten years, and (iv) over ten years:
<TABLE>
<CAPTION>
AMOUNT YIELD (1)
------ ---------
<S> <C> <C>
Obligations of U.S. Treasury and other U.S. agencies:
0-1 year ....................................... $ 0 --
Over 1 through 5 ............................... $ 987,915 6.16%
Over 5 through 10 .............................. 0 --
Federal Reserve Bank stock, Federal Home Loan
Bank stock and other securities, no maturity ... 377,360 6.00%
---------- ----
Total ............................................... $1,365,275 6.13%
========== ====
</TABLE>
- -----------------
(1) Citizens National Bank has not invested in any tax-exempt obligations.
Interest Rate Sensitivity
Net interest income, Citizens National Bank's primary source of
earnings, fluctuates with significant interest rate movements. To lessen the
impact of these margin swings, the balance sheet should be structured so that
repricing opportunities exist for both assets and liabilities in roughly
equivalent amounts at approximately the same time intervals. Imbalances in these
repricing opportunities at any point in time constitute interest rate
sensitivity.
Interest rate sensitivity refers to the responsiveness of
interest-bearing assets and liabilities to changes in market interest rates. The
rate sensitive position, or gap, is the difference in the volume of rate
sensitive assets and liabilities, at a given time interval. The general
objective of gap management is to actively manage rate sensitive assets and
liabilities so as to reduce the impact of interest rate fluctuations on the net
interest margin. Management generally attempts to maintain a balance between
rate sensitive assets and liabilities as the exposure period is lengthened to
minimize Citizens National Bank overall interest rate risks.
-22-
<PAGE> 24
The asset mix of the balance sheet is continually evaluated in terms of
several variables: yield, credit quality, appropriate funding sources and
liquidity. To effectively manage the liability mix of the balance sheet, there
should be a focus on expanding the various funding sources. The interest rate
sensitivity position at year-end 1999 is presented in the following table. The
difference between rate sensitive assets and rate sensitive liabilities, or the
interest rate sensitivity gap, is shown at the bottom of the table. Since all
interest rates and yields do not adjust at the same velocity, the gap is only a
general indicator of rate sensitivity.
<TABLE>
<CAPTION>
AFTER
THREE
MONTHS AFTER SIX AFTER ONE
BUT MONTHS YEAR BUT
WITHIN WITHIN BUT WITHIN
THREE SIX WITHIN FIVE AFTER FIVE
MONTHS MONTHS ONE YEAR YEARS YEARS TOTAL
------ ------ -------- ----- ----- -----
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans ................................... $ 628 $ -- $ 945 $ 1,693 $ 1,068 $ 4,334
US Government securities ................ -- -- -- 988 -- 988
Federal funds sold ...................... 15766 -- -- -- -- 15,766
Other earning assets .................... 2000 -- -- -- 377 2,377
-------- -------- -------- -------- -------- --------
Total earning assets ................. $ 18,394 $ -- $ 945 $ 2,681 $ 1,445 $ 23,465
======== ======== ======== ======== ======== ========
SUPPORTING SOURCES OF FUNDS
Interest-bearing deposits ............... $ 3,009 $ -- $ -- $ -- $ -- $ 3,009
Certificates, less than $100 M .......... 43 6937 424 -- -- 7,404
Certificates, $100M and over ............ 407 4771 766 -- -- 5,944
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities ... $ 3,459 $ 11,708 $ 1,190 $ -- $ -- $ 16,356
======== ======== ======== ======== ======== ========
Interest-sensitivity gap ................ $ 14,935 $(11,708) $ (245) $ 2,681 $ 1,445 $ 7,108
Cumulative interest-sensitivity gap ..... $ 14,935 $ 3,227 $ 2,982 $ 5,663 $ 7,108
Interest-sensitivity gap ratio .......... 531.8% 0.0% 79.4% N/A N/A
Cumulative interest-sensitivity gap ratio 531.8% 121.3% 118.2% 134.5% 143.5%
</TABLE>
As evidenced by the table above, Citizens National Bank is cumulatively
asset sensitive. In an increasing interest rate environment, an asset sensitive
position (a gap ratio of greater than 100%) is generally more advantageous since
assets are repriced sooner than liabilities. Conversely, in a declining interest
rate environment, a liability sensitive position (a gap ratio of less than 100%)
is generally more advantageous as liabilities would be repriced sooner than
assets. With respect to Citizens National Bank, an increase in interest rate
would result in higher earnings while a decline in interest rates will reduce
income. This, however, assumes that all other factors affecting income remain
constant.
As Citizens National Bank continues to grow, management will
continuously structure its rate sensitivity position to best hedge against
rapidly rising or falling interest rates. Citizens National Bank's
Asset/Liability Committee meets on a quarterly basis and develops management's
strategy for the upcoming period. Such strategy includes anticipations of future
interest rate movements.
-23-
<PAGE> 25
Liquidity
Liquidity represents the ability to provide steady sources of funds for
loan commitments and investment activities, as well as to maintain sufficient
funds to cover deposit withdrawals and payment of debt and operating
obligations. Citizens National Bank's liquidity position was initially
established through Citizens Bancshares' purchase of $9,700,000 of the common
stock of Citizens National Bank. As Citizens National Bank grows, liquidity
needs can be met either by converting assets to cash or by attracting new
deposits. Bank deposits grew to $17,947,371 at December 31, 1999. Below are the
pertinent liquidity balances and ratios at December 31, 1999.
<TABLE>
<CAPTION>
AT
DECEMBER 31, 1999
<S> <C>
Cash and cash equivalents................................ $ 18,295,344
Securities available for sale............................ 50,760
CDs over $100,000 to total deposits ratio................ 33.1%
Loan to deposit ratio.................................... 24.1%
Brokered deposits........................................ 0
</TABLE>
Cash and cash equivalents are the primary source of liquidity. At
December 31, 1999, cash and cash equivalents amounted to $18.3 million,
representing 64.8% of total assets. Securities available for sale provide a
secondary source of liquidity. None of the $1.4 million in Citizens National
Bank's securities portfolio is scheduled to mature in 2000.
At December 31, 1999, large denomination certificates accounted for
33.1% of total deposits. Large denomination CDs are generally more volatile than
other deposits. As a result, management continually monitors the competitiveness
of the rates it pays on its large denomination CDS and periodically adjusts its
rates in accordance with market demands. Significant withdrawals of large
denomination CDs may have a material adverse effect on Citizens National Bank's
liquidity. Management believes that since a majority of the above certificates
were obtained from Bank customers residing in Collier County, Florida, the
volatility of such deposits is lower than if such deposits were obtained from
depositors residing outside of Collier County, as outside depositors are
generally more likely to be interest rate sensitive.
Brokered deposits are deposit instruments, such as certificates of
deposit, deposit notes, bank investment contracts and certain municipal
investment contracts that are issued through brokers and dealers who then offer
and/or sell these deposit instruments to one or more investors. As of December
31, 1999, Citizens Bancshares had no brokered deposits in its portfolio.
Management knows of no trends, demands, commitments, events or
uncertainties that should result in or are reasonably likely to result in
Citizens Bancshares' liquidity increasing or decreasing in any material way in
the foreseeable future.
-24-
<PAGE> 26
RETURN ON EQUITY AND ASSETS
Returns on average consolidated assets and average consolidated equity
for the year ended December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
<S> <C>
Return on average assets.......................................... (5.2)%
Return on average equity.......................................... (12.7)%
Average equity to average assets ratio............................ 41.3%
Dividend payout ratio............................................. 0.0%
</TABLE>
CAPITAL ADEQUACY
There are now two primary measures of capital adequacy for banks and
bank holding companies: (i) risk-based capital guidelines and (ii) the leverage
ratio.
The risk-based capital guidelines measure the amount of a bank's
required capital in relation to the degree of risk perceived in its assets and
its off-balance sheet items. Note that under the risk-based capital guidelines,
capital is divided into two "tiers." Tier 1 capital consists of common
shareholders' equity, non-cumulative and cumulative (bank holding companies
only) perpetual preferred stock and minority interest. Goodwill is subtracted
from the total. Tier 2 capital consists of the allowance for loan losses, hybrid
capital instruments, term subordinated debt and intermediate term preferred
stock. Banks are required to maintain a minimum risk-based capital ratio of
8.0%, with at least 4.0% consisting of Tier 1 capital.
The second measure of capital adequacy relates to the leverage ratio.
The OCC has established a 3.0% minimum leverage ratio requirement. Note that the
leverage ratio is computed by dividing Tier 1 capital into total assets. For
banks that are not rated CAMELS 1 by their primary regulator, (which includes
the subsidiary Bank), the minimum leverage ratio should be 3.0% plus an
additional cushion of at least 1 to 2 percent, depending upon risk profiles and
other factors.
A new rule was recently adopted by the Federal Reserve Board, the OCC
and the FDIC that adds a measure of interest rate risk to the determination of
supervisory capital adequacy. In connection with this new rule, the agencies
have also proposed a measurement process to measure interest rate risk. Under
this proposal, all items reported on the balance sheet, as well as off-balance
sheet items, would be reported according to maturity, repricing dates and cash
flow characteristics. A bank's reporting position would be multiplied by
duration-based risk factors and weighted according to rate sensitivity. The net
risk weighted position would be used in assessing capital adequacy. The
objective of this complex proposal is to determine the sensitivity of a bank to
various rising and declining interest rate scenarios.
-25-
<PAGE> 27
The table below illustrates Citizens National Bank's and Citizen
Bancshares' regulatory capital ratios at December 31, 1999:
<TABLE>
<CAPTION>
MINIMUM
DECEMBER 31, REGULATORY
CITIZENS NATIONAL BANK 1999 REQUIREMENT
- ---------------------- ------ -----------
<S> <C> <C>
Tier 1 Capital........................................ 87.54% 4.00%
Tier 2 Capital......................................... 0.28%
------
Total risk-based capital ratio.................... 87.82% 8.00%
======
Leverage ratio......................................... 39.70% 4.00%
======
CITIZENS BANCSHARES - CONSOLIDATED
Tier 1 Capital......................................... 102.16% 4.00%
Tier 2 Capital......................................... 0.27%
------
Total risk-based capital ratio................... 102.43% 8.00%
======
Leverage ratio......................................... 44.48% 4.00%
======
</TABLE>
The above ratios indicate that the capital positions of Citizens
Bancshares and Citizens National Bank are sound and that Citizens Bancshares is
well positioned for future growth.
-26-
<PAGE> 28
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are filed with this report:
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income - Year ended December 31, 1999 and
the period from June 15, 1998 to December 31, 1998
Consolidated Statements of Changes in Shareholders' Equity - Year ended
December 31, 1999 and the period from June 15, 1998 to December 31,
1998
Consolidated Statements of Cash Flows - Year ended December 31,
1999 and the period from June 15, 1998 to December 31, 1998
27
<PAGE> 29
[HILL, BARTH & KING LLC LOGO]
Trianon Centre
3777 Tamiami Trail, North
Suite 200
Naples, Florida 34103
(941) 263-2111 PHONE
(941) 263-0496 FAX
www.hbkcpa.com
Board of Directors and Stockholders of
Citizens Bancshares of Southwest Florida, Inc.
Naples, Florida
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets
of Citizens Bancshares of Southwest Florida, Inc. and its subsidiary
Citizens National Bank of Southwest Florida (collectively, the Company)
as of December 31, 1999 and 1998 and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows
for the year ended December 31, 1999 and the period from June 15, 1998
(date of inception) 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 audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated
financial position of Citizens Bancshares of Southwest Florida, Inc.
and subsidiary as of December 31, 1999 and 1998 and the consolidated
results of their operations and their consolidated cash flows for the
year ended December 31, 1999 and the period from June 15, 1998 (date of
inception) to December 31, 1998 in conformity with generally accepted
accounting principles.
/s/ Hill Barth & King LLC
Certified Public Accountants
January 18, 2000
Naples, Florida
28
<PAGE> 30
CONSOLIDATED BALANCE SHEETS
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
A S S E T S
Cash and due from banks $ 2,529,344 $ 115,057
Federal funds sold 15,766,000 0
------------ -----------
TOTAL CASH AND CASH EQUIVALENTS 18,295,344 115,057
------------ -----------
Interest-bearing deposits in banks 2,000,000 0
Securities available for sale - NOTE B 50,760 0
Securities held to maturity (fair value
approximates $985,938) - NOTE B 987,915 0
Loans - NOTE C 4,334,141 0
Less:
Allowance for loan losses - NOTE C (26,885) 0
------------ -----------
NET LOANS 4,307,256 0
------------ -----------
Restricted securities, Federal Home Loan Bank
and Federal Reserve Bank Stock, at cost 326,600 0
Premises and equipment - NOTE D 2,170,140 1,349,297
Accrued interest receivable 51,723 0
Other assets 52,024 31,433
------------ -----------
$ 28,241,762 $ 1,495,787
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Deposits - NOTE E $ 17,947,371 $ 0
Other borrowings 0 1,600,000
Accrued interest payable 3,266 18,406
Accrued expenses and other liabilities 156,558 0
------------ -----------
TOTAL LIABILITIES 18,107,195 1,618,406
------------ -----------
Commitments and contingencies - NOTE G Stockholders' Equity (Deficit) - NOTE K:
Preferred stock, par value $.01 per share,
1,000,000 shares authorized; no shares
issued and outstanding 0 0
Common stock, par value $.01 per share,
20,000,000 shares authorized; 1,145,070
shares issued and outstanding in 1999
and 500 in 1998 11,451 5
Additional paid-in capital 11,346,903 495
Accumulated deficit (1,223,787) (123,119)
Accumulated other comprehensive income 0 0
------------ -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 10,134,567 (122,619)
------------ -----------
$ 28,241,762 $ 1,495,787
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
29
<PAGE> 31
CONSOLIDATED STATEMENTS OF OPERATIONS
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
Year ended December 31, 1999 and the period
from June 15, 1998 (date of inception) to December 31, 1998
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 65,528 $ 0
Interest on securities and other 123,763 1,917
Interest on federal funds sold 236,870 0
----------- ---------
TOTAL INTEREST INCOME 426,161 1,917
----------- ---------
INTEREST EXPENSE
Interest on deposits 162,772 0
Interest on other borrowings 19,080 2,073
----------- ---------
TOTAL INTEREST EXPENSE 181,852 2,073
----------- ---------
NET INTEREST INCOME (LOSS) 244,309 (156)
Provision for loan losses (26,885) 0
----------- ---------
NET INTEREST INCOME (LOSS) AFTER
PROVISION FOR LOAN LOSSES 217,424 (156)
NON-INTEREST INCOME
Service charges, commissions and fees 6,130 0
----------- ---------
223,554 (156)
----------- ---------
NON-INTEREST EXPENSES
Salaries and employee benefits - NOTE I 698,503 18,360
Occupancy expenses 143,925 17,026
Equipment rental, depreciation and
maintenance 59,275 32
General operating - NOTES H AND N 422,519 87,545
----------- ---------
TOTAL OTHER EXPENSES 1,324,222 122,963
----------- ---------
LOSS BEFORE INCOME TAXES (1,100,668) (123,119)
INCOME TAXES - NOTE F 0 0
----------- ---------
NET LOSS $(1,100,668) $(123,119)
=========== =========
LOSS PER SHARE $ (1.98) $ 0
=========== =========
WEIGHTED AVERAGE SHARES OUTSTANDING 554,558 0
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements
30
<PAGE> 32
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
Year ended December 31, 1999 and the period from
June 15, 1998 (date of inception) to December 31, 1998
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN ACCUMULATED COMPREHENSIVE
STOCK CAPITAL DEFICIT INCOME TOTAL
----------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance (date of inception)
June 15, 1998 $ 0 $ 0 $ 0 $ 0 $ 0
Common stock issued,
pursuant to company
organization 5 495 0 0 500
Comprehensive income:
Net loss for 1998 0 0 (123,119) 0 (123,119)
Unrealized gain on
available for sale
investment securities 0 0 0 0 0
------------
Total comprehensive income (123,119)
----------- ------------ ----------- ------ ------------
Balance (deficit)
December 31, 1997 5 495 (123,119) 0 (122,619)
Common stock issued,
net of offering
costs of $92,347 11,451 11,346,903 0 0 11,358,354
Common stock redeemed
(organizational shares) (5) (495) 0 0 (500)
Comprehensive income:
Net loss for 1999 0 0 (1,100,668) 0 (1,100,668)
Unrealized gain on
available for sale
investment securities 0 0 0 0 0
------------
Total comprehensive income (1,100,668)
----------- ------------ ----------- ------ ------------
Balance (deficit)
December 31, 1999 $ 11,451 $ 11,346,903 $(1,223,787) $ 0 $ 10,134,567
=========== ============ =========== ====== ============
</TABLE>
See accompanying notes to consolidated financial statements
31
<PAGE> 33
CONSOLIDATED STATEMENTS OF CASH FLOWS
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
Year ended December 31, 1999 and the period
from June 15, 1998 (date of inception) to December 31, 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,100,668) $ (123,119)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 45,606 32
Provision for loan losses 26,885 0
Increase in accrued interest
receivable (51,723) 0
Increase in other assets (21,091) (30,933)
Increase (decrease) in accrued interest
payable (15,140) 18,406
Increase in accrued expenses and
other liabilities 156,558 0
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (959,573) (135,614)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest-bearing deposits
in banks (2,000,000) 0
Net increase in loans (4,334,141) 0
Purchases of securities available for sale (377,360) 0
Purchases of securities held for investment (987,915) 0
Purchases of premises and equipment (866,449) (1,349,329)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (8,565,865) (1,349,329)
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
32
<PAGE> 34
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
Year ended December 31, 1999 and the period
from June 15, 1998 (date of inception) to December 31, 1998
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 17,947,371 $ 0
Borrowings on (repayment of) short-term notes (1,600,000) 1,600,000
Net proceeds from issuance of
common stock 11,358,354 0
------------ ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 27,705,725 1,600,000
------------ ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 18,180,287 115,057
CASH AND CASH EQUIVALENTS
Beginning of period 115,057 0
------------ ----------
End of period $ 18,295,344 $ 115,057
============ ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 196,992 $ 0
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements
33
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation:
Citizens Bancshares of Southwest Florida, Inc. (the Company) is
incorporated under the laws of the state of Florida. The Company's activities
prior to August 24, 1999 were limited to the organization of Citizens National
Bank of Southwest Florida, Inc., (the Bank), as well as preparation for a
$12,000,000 common stock offering (the Offering). On August 24, 1999, the
Company and the Bank emerged from the development stage and began operations.
The consolidated financial statements of the Company include the
accounts of the Company and its wholly-owned subsidiary, Citizens National Bank
of Southwest Florida. All significant intercompany balances and transactions
have been eliminated.
Nature of Operations:
The Bank provides a full range of commercial and consumer banking
services primarily within the Naples, Florida area. As a national bank, it is
subject to regulation by the Office of the Comptroller of the Currency and the
Federal Deposit Insurance Corporation.
Use of Estimates:
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Cash, demand balances due from banks and federal funds sold are
considered cash and cash equivalents for cash flow reporting purposes.
Generally, federal funds are sold for one-day periods.
Investment Securities:
Debt securities for which the Bank has the positive intent and ability
to hold to maturity are classified as held to maturity and reported at amortized
cost. Securities are classified as trading securities if bought and held
principally for the purpose of selling them in the near future. No investments
are held for trading purposes. Securities not classified as held to maturity are
classified as available for sale, and reported at fair value with unrealized
gains and losses excluded from earnings and reported net of tax as a separate
component of stockholders' equity until realized. Other investments, which
include Federal Reserve Bank stock and Federal Home Loan Bank stock, are carried
at cost as such investments do not have readily determinable fair values.
34
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment Securities (Continued):
Realized gains and losses on sales of investment securities are
determined by specific identification of the security sold. Declines in value of
investment securities judged to be other than temporary are recognized as losses
in the statement of operations.
Loans:
Loans are stated at the principal amount outstanding, net of unearned
income and an allowance for loan losses. Interest income on all loans is accrued
based on the outstanding daily balances.
Management has established a policy to discontinue accruing interest
(non-accrual status) on a loan after it has become 90 days delinquent as to
payment of principal or interest unless the loan is considered to be well
collateralized and the Bank is actively in the process of collection. In
addition, a loan will be placed on non-accrual status before it becomes 90 days
delinquent if management believes that the borrower's financial condition is
such that collection of interest or principal is doubtful. Interest previously
accrued but uncollected on such loans is reversed and charged against current
income when the receivable is estimated to be uncollectible.
Interest income on non-accrual loans is recognized only as received.
Nonrefundable fees and certain direct costs associated with originating
or acquiring loans are recognized over the life of related loans on a method
that approximates the interest method. For the year ended December 31, 1999, the
net amount of fees and direct costs were not deferred to be recognized over the
life of the loan but were expensed in the consolidated statements of operations.
The net amount of direct loan fees and costs expensed is not materially
different from the amounts which normally would have been deferred. The Bank
intends to begin deferring net fees and costs during 2000.
Allowance for Loan Losses:
The determination of the balance in the allowance for loan losses is
based on an analysis of the loan portfolio and reflects an amount which, in
management's judgment, is adequate to provide for probable loan losses after
giving consideration to the growth and composition of the loan portfolio,
current economic conditions, past loss experience, evaluation of potential
losses in the current loan portfolio and such other factors that warrant current
recognition in estimating loan losses.
Loans which are considered to be uncollectible are charged-off against
the allowance. Recoveries on loans previously charged-off are added to the
allowance.
35
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Allowance for Loan Losses (Continued):
Impaired loans are loans for which it is probable that the Bank will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. Impairment losses are included in the allowance for loan losses
through a charge to the provision for loan losses. Impairment losses are
measured by the present value of expected future cash flows discounted at the
loan's effective interest rate, or, as a practical expedient, at either the
loan's observable market price or the fair value of the collateral. Interest
income on impaired loans is recognized only as received.
Premises and Equipment:
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
lives of the depreciable assets. Leasehold improvements are amortized over the
lives of the respective leases or the service lives of the improvements,
whichever is less.
The Company capitalizes interest on borrowings during the construction
or renovation of new facilities. Capitalized interest is added to the cost of
the underlying assets and is amortized over the useful lives of the assets. For
1999 and 1998 the Company capitalized $64,508 and $0, respectively.
Income Taxes:
Provisions for income taxes are based on taxes payable or refundable for
the current year and deferred taxes on temporary differences between the amount
of taxable income and pretax financial income and between the tax basis of
assets and liabilities and their reported amounts in the consolidated financial
statements. Deferred tax assets and liabilities are included in the consolidated
financial statements at currently enacted income tax rates applicable to the
period in which the deferred tax assets and liabilities are expected to be
realized or settled.
The Company and the Bank file a consolidated tax return.
New Accounting Pronouncements:
In June 1998, the Financing Accounting Standards Board (FASB) issued
Statement No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and reporting standards for
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, the FASB issued SFAS 137 which deferred the
effective date of SFAS 133 to years beginning after June 15, 2000. Management
does not believe the adoption of this statement will have a material impact on
financial condition and results of operations.
36
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE B - SECURITIES
Investment securities shown in the consolidated balance sheets of the
Company at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED ESTIMATED
AMORTIZED ------------------------ FAIR
COST GAINS LOSSES VALUE
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Available for sale securities:
Independent Bankers Bank Stock $ 50,760 $ 0 $ 0 $ 50,760
-------- -------- -------- --------
Totals $ 50,760 $ 0 $ 0 $ 50,760
======== ======== ======== ========
Held to maturity securities:
U.S. Treasury securities and
other U.S. agency obligations $987,915 $ 0 $ 1,977 $985,938
-------- -------- -------- --------
Totals $987,915 $ 0 $ 1,977 $985,938
======== ======== ======== ========
</TABLE>
Expected maturities of investment securities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Periodic payments are
received of mortgage-backed securities based on the payment patterns of the
underlying collateral. Maturities of mortgage-based securities are included
below based on their expected average life of similar investments as determined
by the Bank's portfolio and analysis servicer. As of December 31, 1999, the
amortized cost and estimated fair value of investment securities, by contractual
maturities, are as follows:
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
--------------------------- --------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Due after one through
five years $987,915 $985,938 $ 0 $ 0
-------- -------- -------- --------
987,915 985,938 0 0
Independent Bankers Bank 0 0 50,760 50,760
-------- -------- -------- --------
Totals $987,915 $985,938 $ 50,760 $ 50,760
======== ======== ======== ========
</TABLE>
37
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE C - LOANS
The composition of loans at December 31, 1999 is as follows:
<TABLE>
<S> <C>
Commercial $ 584,556
Real estate 2,928,879
Lines of credit 500,526
Consumer 320,180
------------
Total $ 4,334,141
============
</TABLE>
The majority of the Company's lending activities are conducted
principally with customers located in the Naples, Florida area. Commercial loans
are primarily extended to small and mid-sized corporate borrowers in service and
manufacturing related industries. Although the Bank's loan portfolio is
diversified, a significant portion of its loans are collateralized by real
estate. Therefore, the Bank could be susceptible to economic downturns and
natural disasters.
The Bank had no loans on nonaccrual as of December 31, 1999.
The activity in the allowance for loan losses for the year ended
December 31, 1999 is as follows:
<TABLE>
<S> <C>
Balance at beginning
of year $ 0
Provision charged to
operations 26,885
Charge-offs 0
Recoveries 0
---------
Balance at end of year $ 26,885
=========
</TABLE>
NOTE D - PREMISES AND EQUIPMENT
Premises and equipment at December 31, consist of the following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Land $ 545,269 $ 545,269
Building 1,050,407 802,169
Leasehold improvements 23,640 0
Furniture, fixtures and equipment 263,548 0
EDP equipment and software 332,914 1,891
------------ ------------
2,215,778 1,349,329
Less accumulated depreciation 45,638 32
------------ ------------
Totals $ 2,170,140 $ 1,349,297
============ ============
</TABLE>
Depreciation expense for the years ended December 31, 1999 and 1998 was
$45,606 and $32, respectively.
38
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE E - DEPOSITS
Deposits at December 31, 1999 are comprised of the following:
<TABLE>
<S> <C>
Interest-bearing:
Money market $ 1,044,918
Negotiable order of withdrawal accounts 1,288,100
Savings 675,900
Certificates of deposit:
Less than $100,000 7,403,604
$100,000 or more 5,943,531
-----------
16,356,053
Demand (non-interest-bearing) 1,591,318
-----------
Total $17,947,371
===========
</TABLE>
The maturities on certificates of deposit of $100,000 or more as of
December 31, 1999 are as follows:
<TABLE>
<S> <C>
Three months or less $ 406,892
Over three months to six months 4,770,779
Over six months to twelve months 765,860
-----------
Total $ 5,943,531
===========
</TABLE>
At December 31, 1999, all certificates of deposit mature during the
next year.
Included in interest expense is $62,819 which relates to interest on
certificates of deposit of $100,000 or more.
39
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE F - INCOME TAXES
At December 31, 1999, the Company assessed its earnings history and
trend over the past year, its estimate of future earnings, and the expiration
date of the net operating loss carryforward and determined that it is more
likely than not that the deferred tax assets will not be realized in the near
term. Accordingly, a valuation allowance is recorded at December 31, 1999 and
at December 31, 1998.
The components of deferred tax assets and deferred tax liabilities at
December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 189,808 $ 0
Allowance for loan losses 9,141 0
Organizational and startup costs 228,116 41,797
Other deductions deferred for
income taxes 7,978 1,554
--------- ---------
435,043 43,351
--------- ---------
Deferred tax liabilities:
Depreciation on premises and equipment 23,753 209
--------- ---------
411,290 43,142
Valuation allowance 411,290 43,142
--------- ---------
Deferred tax assets, net $ 0 $ 0
========= =========
</TABLE>
At December 31, 1999, the Company had a tax net operating loss
carryforward of approximately $540,000 which expires in 2019.
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company has entered into an operating lease agreement for certain
bank offices which expires in October 2001. Rent expense was $57,421 for 1999
related to this lease.
Future minimum rental commitments as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
Year ending -
December 31, 2000 $ 89,930
December 31, 2001 82,851
December 31, 2002 22,762
December 31, 2003 20,612
December 31, 2004 6,528
Thereafter 1,333
---------
Total minimum payments required $ 224,016
=========
</TABLE>
The Company and the Bank have entered into employment agreements expiring
at various dates through May 2002 with four senior officers providing for
annual compensation aggregating approximately $410,000.
40
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE H - RETIREMENT PLAN
The Company maintains a 401(k) Retirement Plan (the Plan) to which
eligible employees may contribute from 1% to 15% of their pay. Currently, the
Company does not contribute to the Plan on behalf of eligible employees but the
Company may make discretionary contributions based on the Company's
profitability and approval of the board of directors. Employees who have
completed at least three months of service and have attained age 21 are
generally eligible to participate. Employee contributions are 100% vested as
amounts are credited to the employee's account. Company contributions, if made,
would become 20% vested when an employee has completed 1 year of service, and
vest at a rate of 20% per year thereafter, fully vesting when an employee has
completed 5 years of service. The Company made no contributions to the Plan in
1999.
NOTE I - RELATED PARTY TRANSACTIONS
The Bank has granted loans to executive officers and directors of the
Bank and the Company and to associates of such executive officers and
directors. Such loans were made in the ordinary course of business under normal
credit terms and do not represent more than the normal risk of collection. The
activity for these loans for 1999 is as follows:
<TABLE>
<S> <C>
Loan balances at December 31, 1998 $ 0
New loans 50,000
Repayments (50,000)
----------
Loan balances at December 31, 1999 $ 0
==========
</TABLE>
The Bank also has accepted deposits from employees, officers and
directors of the Bank and the Company and from associates of such officers and
directors. The deposits were accepted on substantially the same terms as those
of other depositors. Such deposits amounted to approximately $594,936 at
December 31, 1999.
NOTE J - SUBSEQUENT EVENT
During the first quarter 2000 the Company anticipates the conclusion of
its common stock offering subject to the registration filed with the SEC on May
7, 1999. As of December 31, 1999 1,145,070 shares had been issued out of the
1,200,000 shares registered with the SEC.
41
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE K - STOCKHOLDERS' EQUITY
The Company has adopted an incentive stock option plan for certain of
its employees and has authorized and reserved 150,000 shares of common stock
for issuance under this plan.
The Company applies APB 25 in accounting for its stock option plan
described above. The option price under the stock option plan equals or exceeds
the fair market value of the common shares on the date of grant and,
accordingly, no compensation cost has been recognized under the provisions of
APB 25 for stock options. Under SFAS 123, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
(or vesting) period. Had compensation cost for the Company's stock option plan
been determined under SFAS 123, based on the fair market value at the grant
dates, the Company's pro forma net loss and net loss per share would have been
reflected as follows:
<TABLE>
<CAPTION>
1999
------------
<S> <C>
Net loss as reported $ (1,100,668)
Pro forma net loss $ (1,198,670)
Net loss per share as reported $ (1.98)
Pro forma net loss per share $ (2.16)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model. Assumptions used in 1999 include:
dividend yield of 0.00%, expected volatility of 16.12%, risk-free interest rate
of 6.00% and expected lives of 4.92 years. At December 31, 1999, options for
17,000 shares were exercisable at an average price per share of $10.00. Options
granted expire after 10 years and are exercisable in 20% to 33.33% increments
annually. Transactions related to this stock option plan are as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS OPTION PRICE
OUTSTANDING PER SHARE
----------- ------------
<S> <C> <C>
Balance December 31, 1998 0
Granted 88,650 $ 10.00
Exercised 0
Forfeited 0
----------- ------------
Balance December 31, 1999 88,650 $ 10.00
=========== ============
</TABLE>
In connection with its initial offering of common stock, the Company
granted to certain organizers of the Company warrants to purchase .67 shares of
common stock (at an exercise price of $10.00 per share) for each initial share
purchased by such organizers in the offering. The Warrants will vest in equal
increments of 20% commencing on the date of grant (August 24, 1999) and on each
anniversary date thereafter until fully vested. Warrants may be exercised in
whole or in part for $10.00 per share beginning on the date of grant and
expiring 10 years after the grant date.
42
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE K - STOCKHOLDERS' EQUITY (CONTINUED)
The Company has reserved 113,330 shares of its Common Stock for
issuance thereunder.
The approval of the Comptroller of the Currency is required for
national banks to pay dividends in excess of earnings retained in the current
year plus retained net profits for the preceding two years. As of December 31,
1999, no amount was available for distribution to the Company as dividends
without prior regulatory approval.
The Company and Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and
prompt corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings, and
other factors, and the regulators can lower classifications in certain cases.
Failure to meet various capital requirements can initiate regulatory action
that could have a direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
<TABLE>
<CAPTION>
Capital to risk-
weighted assets
-------------------------
Tier 1 capital
Total Tier 1 to average assets
----------------------------------------------------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
</TABLE>
The Company was considered well capitalized as of December 31, 1999.
Management is not aware of any events or circumstances that have
occurred since year-end that would change the Company's capital category.
43
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE K - STOCKHOLDERS' EQUITY (CONTINUED)
At December 31, 1999, actual capital levels and minimum required levels
were as follows (in thousands):
<TABLE>
<CAPTION>
Minimum Required
Minimum To Be Well
Required Capitalized Under
For Capital Prompt Corrective
Adequacy Action
Actual Purposes Regulations
-----------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk
weighted assets)
Consolidated $10,162 102.43% $ 794 8.00% $ 992 10.00%
Bank $ 8,405 87.82% $ 766 8.00% $ 957 10.00%
Tier 1 capital (to risk
weighted assets)
Consolidated $10,135 102.16% $ 397 4.00% $ 595 6.00%
Bank $ 8,378 87.54% $ 383 4.00% $ 574 6.00%
Tier 1 capital (to
average assets)
Consolidated $10,135 44.48% $ 911 4.00% $1,139 5.00%
Bank $ 8,378 39.70% $ 844 4.00% $1,055 5.00%
</TABLE>
NOTE L - OFF-BALANCE SHEET RISK
In the normal course of business, the Bank utilizes various financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
through loans approved but not yet funded, lines of credit and standby letters
of credit. The credit risks associated with financial instruments are generally
managed in conjunction with the Banks' balance sheet activities and are subject
to normal credit policies, financial controls and risk limiting and monitoring
procedures.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Banks evaluate each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Banks upon extension of credit, is based
on management's credit evaluation of the counterparty. Collateral held varies
but may include compensating balances, accounts receivable, inventory,
property, plant and equipment and income-producing commercial properties.
44
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE L - OFF-BALANCE SHEET RISK (CONTINUED)
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions. Most guarantees expire within one year. The credit risk involved
in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. Collateral supporting these commitments
for which collateral is deemed necessary is maintained by the Banks.
Credit losses are incurred when one of the parties fails to perform in
accordance with the terms of the contract. The Banks' exposure to off-balance
sheet credit risk is represented by the contractual amount of the commitments
to extend credit and standby letters of credit. At December 31, 1999, the Bank
had commitments of approximately $1,151,095 for undisbursed portions of loans
in process and unused portions of lines of credit. Commitments under standby
letters of credit aggregated approximately $30,000 at December 31, 1999.
NOTE M - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table presents the estimates of fair value of financial
instruments as of December 31, 1999:
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
AMOUNT VALUE
------------ ------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 18,295,344 $ 18,295,344
Interest-bearing deposits in bank 2,000,000 2,000,000
Securities available for sale 50,760 50,760
Securities held to maturity 987,915 985,938
Restricted securities 326,600 326,600
Net loans 4,334,141 4,334,141
Accrued interest receivable 51,723 51,723
Financial liabilities:
Deposits 17,947,371 18,136,184
Accrued interest payable 3,266 3,266
Off-Balance Sheet Credit Risk:
Commitments to extend credit 1,151,095 1,151,095
Standby letters of credit 30,000 30,000
</TABLE>
45
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE M - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and cash equivalents: For these short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Securities: For securities, fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans: The fair value of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining
maturities.
Deposits: The fair value of demand deposits, savings accounts and
certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity deposits is estimated
by discounting future cash flows using rates currently offered for
deposits of similar remaining maturities. The fair value estimates do
not include the benefits that result from low-cost funding provided by
the deposit liabilities compared to the cost of alternate sources of
funds.
Accrued interest: The carrying amounts of accrued interest receivable
and accrued interest payable approximate their fair values.
Off-balance sheet credit risk: The fair value of commitments is
estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the customer. For fixed-rate loan
commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The fair value of
letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties at the reporting date.
The fair value estimates are presented for on-balance sheet financial
instruments without attempting to estimate the value of the bank's long-term
relationships with depositors and the benefit that results from low-cost
funding provided by deposit liabilities. In addition, significant assets which
are not considered financial instruments and are, therefore, not a part of the
fair value estimates include office properties and equipment.
46
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE N - GENERAL OPERATING EXPENSES
The following amounts comprise general operating expenses for the year
ended December 31, 1999:
<TABLE>
<S> <C>
Office expenses and supplies $ 84,321
Data processing 34,936
Professional and outside service fees 75,344
Advertising, marketing and public
relations 63,652
Dues and subscriptions 30,211
Insurance 24,347
License, fee and taxes 16,196
Other 93,512
-----------
Totals $ 422,519
===========
</TABLE>
NOTE O - CONDENSED FINANCIAL INFORMATION
The condensed financial information of Citizens Bancshares of Southwest
Florida, Inc. (parent company only) as of December 31, 1999 and 1998 and for
the year ended December 31, 1999 and the period from June 15, 1998 (date of
inception) to December 31, 1998 is as follows:
<TABLE>
<CAPTION>
BALANCE SHEETS
1999 1998
----------- ----------
<S> <C> <C>
Assets:
Investment in and indebtedness of
subsidiary, at equity $ 8,388,168 $ 0
Cash and due from banks 1,746,399 115,057
Premises and equipment 0 1,349,297
Other assets 0 31,433
----------- -----------
$10,134,567 $ 1,495,787
=========== ===========
Liabilities:
Accrued expenses and other liabilities $ 0 $ 18,406
Other borrowings 0 1,600,000
Stockholders' equity (deficit):
Preferred stock 0 0
Common stock 11,451 5
Additional paid-in capital 11,346,903 495
Accumulated deficit (1,223,787) (123,119)
Accumulated other comprehensive income 0 0
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 10,134,567 (122,619)
----------- -----------
$10,134,567 $ 1,495,787
=========== ===========
</TABLE>
47
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE O - CONDENSED FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Income:
Interest on investment
securities and other $ 94,360 $ 1,917
------------ ------------
TOTAL INCOME 94,360 1,917
------------ ------------
Expenses:
Interest on other borrowings 19,080 2,073
Salaries and employee benefits 305,869 18,360
Occupancy 65,877 17,026
Equipment rental, depreciation
and maintenance 193 32
General operating 222,377 87,545
------------ ------------
TOTAL EXPENSES 613,396 125,036
------------ ------------
LOSS FROM OPERATIONS
BEFORE INCOME TAXES AND EQUITY IN
UNDISTRIBUTED NET LOSS OF SUBSIDIARY (519,036) (123,119)
Income taxes 0 0
------------ ------------
LOSS BEFORE EQUITY IN UNDISTRIBUTED
NET LOSS OF SUBSIDIARY (519,036) (123,119)
Equity in undistributed net loss
of subsidiary (581,632) 0
------------ ------------
NET LOSS (1,100,668) (123,119)
Accumulated deficit:
Beginning of period (123,119) 0
------------ ------------
End of period $ (1,223,787) $ (123,119)
============ ============
</TABLE>
48
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE O - CONDENSED FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,100,668) $ (123,119)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Equity in undistributed net
loss of subsidiary 581,632 0
Depreciation of premises and
equipment 193 32
(Increase) decrease in other
assets 30,933 (30,933)
Increase (decrease) in accrued expenses
and other liabilities (18,406) 18,406
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (506,316) (135,614)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary banks (8,969,800) 0
Purchases of premises and equipment (510,145) (1,349,329)
Sale of premises and equipment 1,859,249 0
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (7,620,696) (1,349,329)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on (repayment of)
short-term notes (1,600,000) 1,600,000
Proceeds from issuance of
common stock 11,358,354 0
------------ ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 9,758,354 1,600,000
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,631,342 115,057
Cash and cash equivalents:
Beginning of period 115,057 0
------------ ------------
End of period $ 1,746,399 $ 115,057
============ ============
</TABLE>
49
<PAGE> 51
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no occurrence requiring a response to this Item.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of Citizens Bancshares and
Citizens National Bank are as follows:
<TABLE>
<CAPTION>
Position with Position with
Name Age (1) Citizens Bancshares Citizens National Bank
- ---- --- ------------------- ----------------------
<S> <C> <C> <C>
Michael L. McMullan.............. 45 Chief Executive Officer Chief Executive Officer
and Class II Director and Director
Polly M. Rogers.................. 61 President President
and Class III Director and Director
Joe B. Cox....................... 60 Chairman Chairman
and Class III Director and Director
Thomas M. Whelan................. 50 Chief Financial Officer Chief Financial Officer
Craig D. Sherman................. 42 -- Chief Lending Officer
Earl L. Frye..................... 71 Class III Director Director
Stanley W. Hole.................. 68 Class I Director Director
John B. James.................... 58 Class II Director Director
LaVonne Johnson.................. 67 Class I Director Director
Luc C. Mazzini................... 44 Class I Director Director
Bernard L. Turner................ 73 Class II Director Director
Lorenzo Walker................... 79 Class III Director Director
</TABLE>
- -----------------
(1) As of March 1, 2000
With the exception of Mr. McMullan, all of the directors of Citizens
Bancshares have served as directors since the incorporation of the company in
September 1998. Mr. McMullan has been a member of the Board of Directors since
February 1999. Citizens Bancshares has a classified Board of Directors whereby
one-third of the members will be elected each year at the company's Annual
Meeting of Shareholders. Upon such election, each director serves for a term of
three years. Citizens Bancshares' officers are appointed by its Board of
Directors and hold office at the will of the Board.
Each member of the Board of Directors of Citizens National Bank is
elected each year at the bank's Annual Meeting of Shareholders. As Citizens
Bancshares is the sole shareholder of Citizens National Bank, bank directors are
effectively elected by the Board of Directors of the holding company. Citizens
National Bank's officers are appointed by its Board of Directors and hold office
at the will of the Board.
50
<PAGE> 52
MICHAEL L. MCMULLAN has served as President and Chief Executive Officer
of Citizens Bancshares and Citizens National Bank since February 1999. From 1990
to February 1999, Mr. McMullan was employed by NationsBank (now Bank of America)
in various management positions, including Manager of Economic Development for
the State of Florida, the position he held immediately prior to joining Citizens
Bancshares. Mr. McMullan was Senior Banking Executive for NationsBank in Collier
County from 1991-1993.
POLLY M. ROGERS has served as the President of Citizens Bancshares and
Citizens National Bank since September 1998. From July 1994 until July 1996, Ms.
Rogers served as President and as a director of Gulf Coast National Bank in
Naples, Florida.
JOE B. COX has served as the senior partner of the Naples branch office
of the law firm of Cummings & Lockwood since July 1978. Mr. Cox is a director of
Beasley Broadcasting Group, Inc., which is traded on the Nasdaq National Market
under the symbol "BBGI."
THOMAS M. WHELAN has served as the Chief Financial Officer of Citizens
Bancshares and Citizens National Bank since April 1999. From 1993 to 1996, Mr.
Whelan served in various positions, including Vice President, Director for
Banking Services, with Triangle Bank in Raleigh, North Carolina. In 1996, he
joined Hendry County Bank as Vice President and Cashier, and in May 1997 was
named President and Chief Executive Officer. Following the acquisition of Hendry
County Bank by Florida Community Bank in February 1998, he served as Executive
Vice President until joining Citizens Bancshares in April 1999.
CRAIG D. SHERMAN has served as the Senior Lending Officer of Citizens
National Bank since May 1999. Prior to joining Citizens, Mr. Sherman was
employed by SouthTrust Bank for over five years, serving most recently as Vice
President and Commercial Team Lender.
EARL L. FRYE has served as the President of Downing-Frye & Associates,
a real estate development firm, since 1963. From 1989 to 1992, Mr. Frye served
as a broker with and partner of USF&G Realty near Baltimore, Maryland.
STANLEY W. HOLE, a professional engineer, is Chairman Emeritus of Hole,
Montes & Associates, a Naples-based civil engineering firm of which Mr. Hole was
Chairman of the Board when he retired in 1997 after serving for 32 years. He
maintains a private consulting practice and serves on a number of advisory
boards in southwest Florida.
JOHN B. JAMES retired from NationsBank on December 31, 1997 after 30
years in the banking industry. His most recent position with NationsBank, which
he held from 1994 until 1997, was Senior Vice President, Regional Executive,
Collier and Monroe Counties, Florida.
LAVONNE JOHNSON is a retired Planner and Project Director for Allegheny
County, Pennsylvania
LUC C. MAZZINI, D.D.S. is a licensed dentist in both Florida and Texas
and has been practicing General Dentistry since 1980. Dr. Mazzini has maintained
an active dental practice in Collier County since 1990.
51
<PAGE> 53
BERNARD L. TURNER served as Chairman of the Board of the Florida
Coastal School of Law, Jacksonville, Florida, since he co-founded the
institution in 1994.
LORENZO WALKER retired in 1980 as a principal of Walker Construction
Company, which he co-founded in 1946. In 1953, Mr. Walker formed James L. Walker
Real Estate Inc., of which he served as President until retiring in 1999.
There are no family relationships between any director or executive
officer and any other director or executive officer of Citizens Bancshares.
Citizens Bancshares is not subject to the requirements of Section 16 of
the Securities Exchange Act of 1934.
ITEM 10. EXECUTIVE COMPENSATION.
The following tables provide certain summary information for the fiscal
year ended December 31, 1999 concerning compensation paid or accrued by Citizens
Bancshares to or on behalf of Citizens Bancshares' Chief Executive Officer. None
of the executive officers of Citizens Bancshares received compensation in excess
of $100,000 during fiscal 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
------------------- ------------
Name and Securities
Principal Position Year Salary Bonus Underlying Options
------------------ ---- ------ ----- ------------------
<S> <C> <C> <C> <C>
Michael L. McMullan 1999(1) $120,356 - 30,000
Chief Executive Officer
</TABLE>
- ----------------------
(1) Mr. McMullan has served as Chief Executive Officer of Citizens Bancshares
since February 28, 1999. Prior to that date, the company was in the
organizational stage and no one received any compensation for serving as
its Chief Executive Officer.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
Number of Percentage of total
shares underlying options granted to Exercise price
Name options granted employees in 1999 per share Expiration date
- ---- --------------- ----------------- --------- ---------------
<S> <C> <C> <C> <C>
Michael L. McMullan 30,000 33.8% $10.00 10/24/09
</TABLE>
52
<PAGE> 54
No stock options were exercised by any optionee during fiscal 1999. The
following table provides information regarding the value of options held by the
Chief Executive Officer at December 31, 1999:
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options
at Fiscal Year End at Fiscal Year End
Name Exercisable / Unexercisable Exercisable / Unexercisable
- ---- --------------------------- ---------------------------
<S> <C> <C>
Michael L. McMullan 6,000 / 24,000 $0 / $0 (1)
</TABLE>
- -------------------------
(1) Dollar values calculated as the difference between the estimated fair
market value of Citizens Bancshares' common stock at December 31, 1999
($10.00) and the exercise price of such options. Because no organized
trading market exists for the common stock of the Bank, the fair market
value was computed by reference to the offering price of the common stock
in the company's initial public offering.
Employment Agreement with Chief Executive Officer
Citizens Bancshares and Citizens National Bank have entered into an
employment agreement, dated as of April 28, 1999, with Michael McMullan,
pursuant to which Mr. McMullan serves as Chief Executive Officer of Citizens
National Bank and Citizens Bancshares. The employment agreement provides for a
term of three years and an initial salary at an annual rate of $140,000. Mr.
McMullan's salary may be increased from time to time in the sole discretion of
the board of directors of Citizens Bancshares, and Mr. McMullan will also be
eligible to receive a bonus, which will not exceed 40% of his annual base
salary. In addition, Mr. McMullan has been issued an option pursuant to the
employment agreement to purchase 30,000 shares of the common stock of Citizens
Bancshares at an exercise price of $10.00 per share.
In the event of a "change of control" of Citizens Bancshares, as
defined in the employment contract, Mr. McMullan will be entitled to give
written notice to Citizens Bancshares of termination of his employment agreement
and to receive a cash payment equal to 250% of his annual salary, and an
additional cash payment equal to the excess, if any, of the aggregate market
value of the number of shares of common stock of Citizens Bancshares subject to
options held by Mr. McMullan over the aggregate exercise price of all such
options.
The employment agreement provides that Citizens Bancshares may
terminate the employment of Mr. McMullan with or without cause, but that in the
latter case Mr. McMullan will receive a severance payment equal to that he would
be entitled to in the event of a change in control, as described above. In
addition, the employment agreement contains a non-compete provision which
provides that in the event the employment contract is terminated by Citizens
Bancshares or Citizens National Bank without cause, or by Mr. McMullan, Mr.
McMullan may not, without the prior written consent of Citizens Bancshares,
either directly or indirectly serve as an employee of any financial institution
within Collier or Lee County for a period of twelve months after such
termination.
53
<PAGE> 55
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of March 1, 2000
with respect to ownership of the outstanding common stock of Citizens Bancshares
by (i) all persons known by Citizens Bancshares to beneficially own more than 5%
of the outstanding shares of common stock of Citizens Bancshares, (ii) each
director of Citizens Bancshares, and (iii) all executive officers and directors
of Citizens Bancshares, as a group.
<TABLE>
<CAPTION>
Number of Shares Percent
Name Beneficially Owned (1) of Total (2)
- ---- ------------------ --------
<S> <C> <C>
Joe B. Cox....................................... 26,197 (3) 2.3%
Earl L. Frye..................................... 26,197 (4) 2.3%
Stanley W. Hole.................................. 13,093 (5) 1.1%
John B. James.................................... 26,197 (6) 2.3%
LaVonne Johnson ................................. 52,197 (7) 4.5%
Luc C. Mazzini................................... 32,667 (8) 2.8%
Michael L. McMullan.............................. 16,000 (9) 1.4%
Polly M. Rogers.................................. 30,197 (10) 2.6%
Bernard L. Turner................................ 29,530 (11) 3.3%
Lorenzo Walker .................................. 47,197 (12) 4.1%
All directors and executive
officers, as a group (12 individuals)...... 310,636 (13) 25.8%
</TABLE>
- --------------
(1) Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them. The information shown above is based upon
information furnished to the company by the named persons. Information
relating to beneficial ownership of the shares is based upon "beneficial
ownership" concepts set forth in rules promulgated the Securities Exchange
Act of 1934, as amended. Under such rules a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting
power," which includes the power to vote or to direct the voting of such
security, or "investment power," which includes the power to dispose or to
direct the disposition of such security. A person is also deemed to be a
beneficial owner of any security of which that person has the right to
acquire beneficial ownership within 60 days. Under the rules, more than one
person may be determined to be a beneficial owner of the same securities.
(2) In calculating the percentage ownership for a given individual or group,
the number of shares of the company's common stock outstanding includes
unissued shares subject to options, warrants, rights or conversion
privileges exercisable within sixty days held by such individual or group,
but such unissued shares are not deemed outstanding in calculating the
percentage ownership for other persons or groups.
(3) Includes presently exercisable warrants to purchase 2,667 shares.
(4) Includes presently exercisable warrants to purchase 2,667 shares.
(5) Includes presently exercisable warrants to purchase 1,333 shares and 3,000
shares held by spouse, as to which beneficial ownership is disclaimed.
(6) Includes presently exercisable warrants to purchase 2,667 shares.
(7) Includes presently exercisable warrants to purchase 2,667 shares and 26,000
shares held by spouse, as to which beneficial ownership is disclaimed.
(8) Includes presently exercisable warrants to purchase 2,667 shares.
(9) Includes presently exercisable options to purchase 6,000 shares.
(10) Includes presently exercisable options to purchase 4,000 shares and
presently exercisable warrants to purchase 2,667 shares.
(11) Includes presently exercisable warrants to purchase 2,667 shares and 6,000
shares held by spouse, as to which beneficial ownership is disclaimed.
(12) Includes presently exercisable warrants to purchase 2,667 shares and 21,000
shares held by spouse, as to which beneficial ownership is disclaimed.
(13) Includes 39,666 shares subject to presently exercisable warrants and
options and 56,000 shares as to which beneficial ownership is disclaimed.
54
<PAGE> 56
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Citizens National Bank extends loans from time to time to certain of
Citizens Bancshares' directors, their associates and members of the immediate
families of the directors and executive officers of Citizens Bancshares. These
loans are made in the ordinary course of business on substantially the same
terms, including interest rates, collateral and repayment terms, as those
prevailing at the time for comparable transactions with persons not affiliated
with Citizens Bancshares or Citizens National Bank, and do not involve more than
the normal risk of collectibility or present other unfavorable features.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed with or incorporated by
reference into this report. The exhibits which are denominated by an asterisk
(*) were previously filed as a part of, and are hereby incorporated by reference
from (i) a Registration Statement on Form SB-2 for Citizens Bancshares filed
with the SEC on March 24, 1999 ("SB-2"); or (ii) Amendment No. 1 to SB-2, filed
with the SEC on May 7, 1999 ("SB-2/A"). The exhibit numbers correspond to the
exhibit numbers in the referenced document.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
*3.1 Amended and Restated Articles of Incorporation of Citizens
Bancshares (SB-2)
*3.2 Bylaws of Citizens Bancshares (SB-2)
*4.1 Specimen Common Stock Certificate (SB-2/A)
*4.3 Form of Stock Purchase Warrant (SB-2/A)
*10.1 Employment Agreement of Michael L. McMullan, dated as of April
28, 1999 (SB-2/A)
10.1.1 Amendment, dated as of August 24, 1999, to the Employment
Agreement of Michael L. McMullan
*10.2 Agreement for the Purchase and Sale of Real Property (SB-2)
*10.3 Employment Agreement of Polly M. Rogers, dated as of April 28,
1999 (SB-2/A)
10.3.1 Amendment, dated as of August 24, 1999, to the Employment
Agreement of Polly M. Rogers
10.4 1999 Stock Option Plan
10.5 Form of Incentive Stock Option Agreement
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K. No reports on Form 8-K were required to be
filed for the quarter ended December 31, 1999.
55
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
Dated: March 27, 2000 By: /s/ Michael L. McMullan
-----------------------------------------------
Michael L. McMullan
Chief Executive Officer (Principal Executive
Officer)
Dated: March 27, 2000 By: /s/ Thomas M. Whelan
-----------------------------------------------
Thomas M. Whelan
Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Joe B. Cox Chairman and Director March 27, 2000
- ----------------------------------
Joe B. Cox
/s/ Michael L. McMullan Chief Executive Officer and March 27, 2000
- ---------------------------------- Director
Michael L. McMullan
/s/ Polly M. Rogers President and Director March 27, 2000
- ----------------------------------
Polly M. Rogers
Director
- ----------------------------------
Earl L. Frye
/s/ Stanley W. Hole Director March 28, 2000
- ----------------------------------
Stanley W. Hole
/s/ John B. James Director March 28, 2000
- ----------------------------------
John B. James
/s/ LaVonne Johnson Director March 27, 2000
- ----------------------------------
LaVonne Johnson
/s/ Luc C. Mazzini Director March 27, 2000
- ----------------------------------
Luc C. Mazzini
/s/ Bernard L. Turner Director March 27, 2000
- ----------------------------------
Bernard L. Turner
/s/ Lorenzo Walker Director March 27, 2000
- ----------------------------------
Lorenzo Walker
</TABLE>
56
<PAGE> 58
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders as
of the date of filing this report. An annual report and proxy materials will be
furnished to security holders subsequent to the filing of this Annual Report on
Form 10-KSB, and the Registrant will furnish copies of such material to the
Commission when they are sent to security holders.
57
<PAGE> 59
\ EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No Description
------- -----------
<S> <C>
10.1.1 Amendment, dated as of August 24, 1999, to the
Employment Agreement of Michael L. McMullan
10.3.1 Amendment, dated as of August 24, 1999, to the
Employment Agreement of Polly M. Rogers
10.4 1999 Stock Option Plan
10.5 Form of Incentive Stock Option Agreement
21.1 Subsidiaries of Registrant
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
58
<PAGE> 1
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
EXHIBIT 10.1.1
<PAGE> 2
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment"), dated as of
the 24th day of August, 1999, is entered into by and among CITIZENS BANCSHARES
OF SOUTHWEST FLORIDA, INC., a Florida corporation (the "Company"), CITIZENS
NATIONAL BANK OF SOUTHWEST FLORIDA, a national banking association (the "Bank")
(the Company and the Bank are collectively referred to herein as the
"Employer") and MICHAEL L. McMULLAN ("Executive").
W I T N E S S E T H :
WHEREAS, the Employer and Executive have entered into an Employment
Agreement dated as of April 28, 1999 (the "Employment Agreement");
WHEREAS, Executive is entitled under the terms of the Employment
Agreement to be issued certain options as of April 28, 1999 to purchase shares
of the common stock of the Company;
WHEREAS, as of the date of this Amendment, Executive has not been
issued any stock options by the Company;
WHEREAS, Executive desires to waive any right to be issued stock
options as of April 28, 1999 in consideration of the grant of incentive stock
options by the Company to Executive pursuant to the Company's 1999 Stock Option
Plan; and
WHEREAS, the Board of Directors of the Company deems it to be in the
best interest of the Company to grant to Executive certain stock options
pursuant to the Company's 1999 Stock Option Plan.
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants herein contained and other good and valuable consideration, the
parties hereto agree that the Employment Agreement is hereby amended by
deleting Part C of Exhibit A in its entirety, and inserting the following in
lieu thereof:
C. STOCK OPTIONS. The Company shall grant to Executive, pursuant to
the Company's 1999 Stock Option Plan (the "Plan"), incentive stock options to
purchase Thirty Thousand (30,000) shares of the common stock of the Company at
an exercise price equal to the fair market value of such shares on the date of
grant. Unless sooner vested as a result of other terms of this or any other
Agreement, twenty percent (20%) of these options shall vest on December 31,
1999, and twenty percent (20%) shall vest on the 31st day of December on each
of the successive four years. Unless these options expire earlier pursuant to
the terms of this Agreement, these options shall expire at the end of the
ten-year period commencing on the date on which the options are granted. The
provisions of this paragraph shall in no way limit the availability of
additional options to executive.
All other provisions of the Employment Agreement shall remain in full
force and effect as originally written.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
"EXECUTIVE" "COMPANY"
CITIZENS BANCSHARES OF
SOUTHWEST FLORIDA, INC.
/s/ Michael L. McMullan(L.S) By: /s/ Polly M. Rogers
- ---------------------------- ---------------------------
Michael L. Mcmullan Polly M. Rogers
President
"BANK"
CITIZENS NATIONAL BANK OF
SOUTHWEST FLORIDA
By: /s/ Polly M. Rogers
---------------------------
Polly M. Rogers
President
<PAGE> 1
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
EXHIBIT 10.3.1
<PAGE> 2
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment"), dated as of
the 24th day of August, 1999, is entered into by and among CITIZENS BANCSHARES
OF SOUTHWEST FLORIDA, INC., a Florida corporation (the "Company"), CITIZENS
NATIONAL BANK OF SOUTHWEST FLORIDA, a national banking association (the "Bank")
(the Company and the Bank are collectively referred to herein as the
"Employer") and POLLY M. ROGERS ("Executive").
W I T N E S S E T H :
WHEREAS, the Employer and Executive have entered into an Employment
Agreement dated as of April 28, 1999 (the "Employment Agreement");
WHEREAS, Executive is entitled under the terms of the Employment
Agreement to be issued certain options as of April 28, 1999 to purchase shares
of the common stock of the Company;
WHEREAS, as of the date of this Amendment, Executive has not been
issued any stock options by the Company;
WHEREAS, Executive desires to waive any right to be issued stock
options as of April 28, 1999 in consideration of the grant of incentive stock
options by the Company to Executive pursuant to the Company's 1999 Stock Option
Plan; and
WHEREAS, the Board of Directors of the Company deems it to be in the
best interest of the Company to grant to Executive certain stock options
pursuant to the Company's 1999 Stock Option Plan.
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants herein contained and other good and valuable consideration, the
parties hereto agree that the Employment Agreement is hereby amended by
deleting Part C of Exhibit A in its entirety, and inserting the following in
lieu thereof:
C. STOCK OPTIONS. The Company shall grant to Executive, pursuant
to the Company's 1999 Stock Option Plan (the "Plan"), incentive stock options to
purchase Twenty Thousand (20,000) shares of the common stock of the Company at
an exercise price equal to the fair market value of such shares on the date of
grant. Unless sooner vested as a result of other terms of this or any other
Agreement, twenty percent (20%) of these options shall vest on December 31,
1999, and twenty percent (20%) shall vest on the 31st day of December on each of
the successive four years. Unless these options expire earlier pursuant to the
terms of this Agreement, these options shall expire at the end of the ten-year
period commencing on the date on which the options are granted. The provisions
of this paragraph shall in no way limit the availability of additional options
to executive.
All other provisions of the Employment Agreement shall remain in full
force and effect as originally written.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
"EXECUTIVE" "COMPANY"
CITIZENS BANCSHARES OF
SOUTHWEST FLORIDA, INC.
/s/ Polly M. Rogers (L.S) By: /s/ Michael L. McMullan
- ------------------------ --------------------------------
POLLY M. ROGERS Michael L. McMullan
Chief Executive Officer
"BANK"
CITIZENS NATIONAL BANK OF
SOUTHWEST FLORIDA
By: /s/ Michael L. McMullan
--------------------------------
Michael L. McMullan
Chief Executive Officer
<PAGE> 1
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
EXHIBIT 10.4
<PAGE> 2
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
1999 STOCK OPTION PLAN
EFFECTIVE AS OF AUGUST 24, 1999
1. PURPOSE
The primary purpose of the Citizens Bancshares of Southwest Florida,
Inc. 1999 Stock Option Plan (the "Plan") is to encourage and enable eligible
directors, officers, key employees and certain consultants and advisors of
Citizens Bancshares of Southwest Florida, Inc. (the "Company") and its
subsidiaries to acquire proprietary interests in the Company through the
ownership of Common Stock of the Company. The Company believes that directors,
officers and key employees who participate in the Plan will have a closer
identification with the Company by virtue of their ability as shareholders to
participate in the Company's growth and earnings. The Plan also is designed to
provide motivation for participating directors, officers and key employees to
remain in the employ of and to give greater effort on behalf of the Company. It
is the intention of the Company that the Plan provide for the award of
"incentive stock options" qualified under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") and the regulations promulgated
thereunder, as well as the award of non-qualified stock options. Accordingly,
the provisions of the Plan related to incentive stock options shall be
construed so as to extend and limit participation in a manner consistent with
the requirements of Section 422 of the Code.
2. DEFINITIONS
The following words or terms shall have the following meanings:
(a) "Agreement" shall mean a stock option agreement between the Company
and an Eligible Employee or Eligible Participant pursuant to the terms of this
Plan.
(b) "Board of Directors" shall mean the Board of Directors of the
Company.
(c) "Committee" shall mean the committee appointed by the Board of
Directors to administer the Plan, if any, as set forth in Section 5 of the
Plan.
(d) "Company" shall mean Citizens Bancshares of Southwest Florida,
Inc., a Florida corporation.
(e) "Eligible Employee(s)" shall mean key employees regularly employed
by the Company or a Subsidiary (including officers, whether or not they are
directors) as the Board of Directors or the Committee shall select from time to
time.
<PAGE> 3
(f) "Eligible Participant(s)" shall mean directors, officers, key
employees of the Company and its Subsidiaries, consultants, advisors and other
persons who may not otherwise be eligible to receive Qualified Incentive
Options pursuant to Section 8 of the Plan.
(g) "Market Price" shall mean the closing price of the Company's Common
Stock on the date in question, as quoted by the Nasdaq National Market or the
Nasdaq SmallCap Market (or other nationally recognized quotation service). If
the Company's Common Stock is not traded on the Nasdaq Stock Market but is
registered on a national securities exchange, "Market Price" shall mean the
closing sales price of the Company's Common Stock on such national securities
exchange. If the Company's shares of Common Stock are not traded on a national
securities exchange or through any other nationally recognized quotation
service, then "Market Price" shall mean the fair market value of the Company's
Common Stock as determined by the Board of Directors or the Committee, acting
in good faith, under any method consistent with the Code, or Treasury
Regulations thereunder, as the Board of Directors or the Committee shall in its
discretion select and apply at the time of the grant of the option concerned.
Subject to the foregoing, the Board of Directors or the Committee, in fixing
the market price, shall have full authority and discretion and be fully
protected in doing so.
(h) "Optionee" shall mean an Eligible Employee or Eligible Participant
having a right to purchase Common Stock under an Agreement.
(i) "Option(s)" shall mean the right or rights granted to Eligible
Employees or Eligible Participants to purchase Common Stock under the Plan.
(j) "Plan" shall mean this Citizens Bancshares of Southwest Florida,
Inc. 1999 Stock Option Plan.
(k) "Shares," "Stock," or "Common Stock" shall mean shares of the $.01
par value common stock of the Company.
(l) "Subsidiary" or "Subsidiaries" shall mean any corporation(s) of
which the Company owns or controls, directly or indirectly, more than a
majority of the voting stock.
(m) "Ten Percent Owner" shall mean an individual who, at the time an
Option is granted, owns or controls, directly or indirectly, more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or a Subsidiary.
3. EFFECTIVE DATE
The effective date of the Plan (the "Effective Date") shall be the date
the Plan is adopted by the Board of Directors. The Plan must subsequently be
approved by the shareholders of the Company by the affirmative vote of the
holders of not less than a majority of the Shares voted at a meeting at which a
quorum is present, which shareholder vote must be taken no later than twelve
2
<PAGE> 4
months after the date the Plan is adopted by the Board of Directors. In the
event shareholder approval of the adoption of the Plan is not obtained within
the aforesaid twelve month period, any Options granted in the intervening
period shall be void.
4. SHARES RESERVED FOR PLAN
The shares of the Company's Common Stock to be sold to Eligible
Employees and Eligible Participants under the Plan may at the election of the
Board of Directors be either treasury shares or shares originally issued for
such purpose. The maximum number of Shares which shall be reserved and made
available for sale under the Plan shall be One Hundred Fifty Thousand
(150,000); provided, however, that such Shares shall be subject to the
adjustments provided in Section 8(h). Any Shares subject to an Option which for
any reason expires or is terminated unexercised may again be subject to an
Option under the Plan.
5. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board of Directors or the
Committee. The Committee shall be comprised of not less than two members
appointed by the Board of Directors of the Company from among its members, each
of whom qualifies as a "Non-Employee Director" as such term is defined in Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor regulation.
Within the limitations described herein, the Board of Directors of the
Company or the Committee shall administer the Plan, select the Eligible
Employees and Eligible Participants to whom Options will be granted, determine
the number of shares to be optioned to each Eligible Employee and Eligible
Participant and interpret, construe and implement the provisions of the Plan.
The Board of Directors or the Committee shall also determine the price to be
paid for the Shares upon exercise of each Option, the period within which each
Option may be exercised, and the terms and conditions of each Option granted
pursuant to the Plan. The Board of Directors and Committee members shall be
reimbursed for out-of-pocket expenses reasonably incurred in the administration
of the Plan.
If the Plan is administered by the Board of Directors, a majority of
the members of the Board of Directors shall constitute a quorum, and the act of
a majority of the members of the Board of Directors present at any meeting at
which a quorum is present, or acts approved in writing by all members of the
Board of Directors shall be the acts of the Board of Directors. If the Plan is
administered by the Committee, a majority of the members of the Committee shall
constitute a quorum, and the acts of a majority of the members present at any
meeting at which a quorum is present, or acts approved in writing by all of the
members of the Committee shall be the acts of the Committee.
3
<PAGE> 5
6. ELIGIBILITY
Options granted pursuant to Section 8 shall be granted only to Eligible
Employees. Options granted pursuant to Section 9 may be granted to Eligible
Employees and to Eligible Participants.
7. DURATION OF THE PLAN
The Plan shall remain in effect until all Shares subject to or which
may become subject to the Plan shall have been purchased pursuant to Options
granted under the Plan; provided that Options under the Plan must be granted
within ten years from the Effective Date. The Plan shall expire on the tenth
anniversary of the Effective Date.
8. QUALIFIED INCENTIVE OPTIONS
It is intended that Options granted under this Section 8 shall be
qualified incentive stock options under the provisions of Section 422 of the
Code and the regulations thereunder or corresponding provisions of subsequent
revenue laws and regulations in effect at the time such Options are granted.
Such Options shall be evidenced by stock option agreements in such form and not
inconsistent with this Plan as the Committee or the Board of Directors shall
approve from time to time, which Agreements shall contain in substance the
following terms and conditions:
(a) Price. The purchase price for shares purchased upon exercise
will be equal to the Market Price on the day the Option is granted; provided
that the purchase price of stock deliverable upon the exercise of a qualified
incentive stock option granted to a Ten Percent Owner under this Section 8
shall be not less than 110% of the Market Price on the day the Option is
granted, as determined by the Board of Directors or the Committee, but in no
case less than the par value of such stock.
(b) Number of Shares. The Agreement shall specify the number of
Shares which the Optionee may purchase under such Option, as determined by the
Board of Directors or the Committee.
(c) Exercise of Options. The Shares subject to the Option may be
purchased in whole or in part by the Optionee in accordance with the terms of
the Agreement from time to time after shareholder approval of the Plan, as
determined by the Board of Directors or the Committee, but in no event later
than ten years from the date of grant of the Option. Notwithstanding the
foregoing, Shares subject to an Option which is a qualified incentive stock
option granted to a Ten Percent Owner under this Section 8 may be purchased
from time to time but in no event later than five years from the date of grant
of the Option.
(d) Medium and Time of Payment. Stock purchased pursuant to an
Agreement shall be paid for in full at the time of purchase. Payment of the
purchase price shall be in cash or, in lieu of payment of all or part of the
purchase price in cash, the Optionee may surrender to the Company
4
<PAGE> 6
Common Stock valued at the Market Price on the date of exercise of the Option
in accordance with the terms of the Agreement. Upon receipt of payment, the
Company shall, without transfer or issue tax, deliver to the Optionee (or other
person entitled to exercise the Option) a certificate or certificates for such
Shares.
(e) Rights as a Shareholder. An Optionee shall have no rights as a
shareholder with respect to any Shares covered by an Option until the date of
issuance of the stock certificate to the Optionee for such Shares. Except as
otherwise expressly provided in the Plan, no adjustments shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior
to the date such stock certificate is issued.
(f) Nonassignability of Option. No Option shall be assignable or
transferable by the Optionee except by will or by the laws of descent and
distribution. During the lifetime of the Optionee, the Option shall be
exercisable only by him or her.
(g) Effect of Termination of Employment or Death. In the event an
Optionee during his or her lifetime ceases to be an employee of the Company or
of any Subsidiary of the Company for any reason (including retirement) other
than death or permanent and total disability, any Option or unexercised portion
thereof which was otherwise exercisable on the date of termination of
employment shall expire unless exercised within a period of three months from
the date on which the Optionee ceased to be an employee, but in no event after
the term provided in the Optionee's Agreement. In the event an Optionee ceases
to be an employee of the Company or of any Subsidiary of the Company for any
reason (including retirement) other than death or permanent and total
disability prior to the time that an Option or portion thereof becomes
exercisable, such Option or portion thereof which is not then exercisable shall
terminate and be null and void. Whether authorized leave of absence for
military or government service shall constitute termination of employment for
the purpose of this Plan shall be determined by the Board of Directors or the
Committee, which determination shall be final and conclusive.
In the event an Optionee ceases to be an employee of the Company or any
Subsidiary of the Company by reason of death or permanent and total disability,
any Option or unexercised portion thereof which was otherwise exercisable on
the date such Optionee ceased employment shall expire unless exercised within a
period of one year from the date on which the Optionee ceased to be an
employee, but in no event after the term provided in the Optionee's Agreement.
In the event that an Optionee during his or her lifetime ceases to be an
employee of the Company or any Subsidiary of the Company by reason of death or
permanent and total disability, any Option or portion thereof which was not
exercisable on the date such Optionee ceased employment may, in the discretion
of the Board of Directors or the Committee, be accelerated and become
immediately exercisable for a period of one year from the date on which the
Optionee ceased to be an employee, but in no event shall the exercise period
extend past the term provided in the Optionee's Agreement.
5
<PAGE> 7
"Permanent and total disability" as used in this Plan shall be as
defined in Section 22(e)(3) of the Code.
In the event of the death of an Optionee, the Option shall be
exercisable by his or her personal representatives, heirs or legatees, as
provided herein.
(h) Recapitalization. In the event dividends are payable in Common
Stock or in the event there are splits, subdivisions or combinations of shares
of Common Stock, the number of Shares available under the Plan shall be
increased or decreased proportionately, as the case may be, and the number and
Option exercise price of Shares deliverable upon the exercise thereafter of any
Option theretofore granted shall be increased or decreased proportionately, as
the case may be, as determined to be proper and appropriate by the Board of
Directors or the Committee.
(i) Reorganization. In the event the Company is merged or
consolidated with another corporation and the Company is not the surviving
corporation, or in case the property or stock of the Company is acquired by
another corporation, or in case of a separation, reorganization,
recapitalization or liquidation of the Company, the Board of Directors of the
Company, or the Board of Directors of any corporation assuming the obligations
of the Company hereunder, shall either (i) make appropriate provision for the
protection of any outstanding Options by the substitution on an equitable basis
of appropriate stock of the Company, or of the merged, consolidated or
otherwise reorganized corporation which will be issuable in respect to the
shares of Common Stock of the Company, provided only that the excess of the
aggregate fair market value of the Shares subject to option immediately after
such substitution over the purchase price thereof is not more than the excess
of the aggregate fair market value of the Shares subject to option immediately
before such substitution over the purchase price thereof, or (ii) provide
written notice to the Optionee that the Option (including, in the discretion of
the Board of Directors, any portion of such Option which is not then
exercisable) must be exercised within sixty days of the date of such notice or
it will be terminated. If any adjustment under this Section 8(i) would create a
fractional Share or a right to acquire a fractional Share, such shall be
disregarded and the number of Shares available under the Plan and the number of
Shares covered under any Options previously granted pursuant to the Plan shall
be the next lower number of Shares, rounding all fractions downward. An
adjustment made under this Section 8(i) by the Board of Directors shall be
conclusive and binding on all affected persons.
Except as otherwise expressly provided in this Plan, the Optionee shall
have no rights by reason of any subdivision or consolidation of shares of stock
of any class, or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class, or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off of assets or
stock of another corporation; and any issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class,
shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or prices of Shares subject to an Option.
6
<PAGE> 8
The grant of an Option pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part
of its business or assets.
(j) Annual Limitation. The aggregate fair market value (determined
at the time the Option is granted) of the Shares with respect to which
incentive stock options are exercisable for the first time by an Optionee
during any calendar year (under all incentive stock option plans of the Company
and its Subsidiaries) shall not exceed $100,000. Any excess over such amount
shall be deemed to be related to and part of a non-qualified stock option
granted pursuant to Section 9.
(k) General Restriction. Each Option shall be subject to the
requirement that if at any time the Board of Directors shall determine, in its
reasonable discretion, that the listing, registration or qualification of the
Shares subject to such Option upon any securities exchange or under any state
or federal law, or the consent or approval of any government regulatory body,
is necessary or desirable as a condition of, or in connection with, the
granting of such Option or the issue or purchase of Shares thereunder, such
Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Board of Directors.
Alternatively, such Options shall be issued and exercisable only upon such
terms and conditions and with such restrictions as shall be necessary or
appropriate to effect exemption from such listing, registration, or other
qualification requirement.
9. NON-QUALIFIED OPTIONS
The Board of Directors or the Committee may grant to Eligible Employees
or Eligible Participants Options under the Plan which are not qualified
incentive stock options under the provisions of Section 422 of the Code. Such
non-qualified options shall be evidenced by Agreements in such form and not
inconsistent with this Plan as the Board of Directors or the Committee shall
approve from time to time, which Agreements shall contain in substance the same
terms and conditions as set forth in Section 8 hereof with respect to qualified
incentive stock options; provided, however, that:
(i) the limitations set forth in Sections 8(a) and 8(c)
with respect to Ten Percent Owners shall not be applicable to non-qualified
options granted to any Ten Percent Owner;
(ii) the limitations set forth in Section 8(g) with
respect to termination of employment or death shall not be applicable to
non-qualified option grants, and any such limitations shall be determined on a
case by case basis by the Board of Directors or the Committee at the time of
the non-qualified option grant;
(iii) the limitation set forth in Section 8(j) with respect
to the annual limitation of incentive stock options shall not be applicable to
non-qualified option grants; and
7
<PAGE> 9
(iv) non-qualified options may be granted at a purchase
price equal to not less than 75% of the Market Price on the day the Option is
granted.
10. AMENDMENT OF THE PLAN
The Plan may at any time or from time to time be terminated, modified
or amended at a meeting of the shareholders of the Company at which a quorum is
present by the affirmative vote of the holders of a majority of the Shares
voted on such issue. The Board of Directors may at any time and from time to
time modify or amend the Plan in any respect, except that without shareholder
approval the Board of Directors may not (1) increase the maximum number of
Shares for which Options may be granted under the Plan (other than increases
due to changes in capitalization as referred to in Section 8(h) hereof), or (2)
change the class of persons eligible for qualified incentive options. The
termination or any modification or amendment of the Plan shall not, without the
written consent of an Optionee, affect his or her rights under an Option or
right previously granted to him or her. With the written consent of the
Optionee affected, the Board of Directors or the Committee may amend
outstanding option agreements in a manner not inconsistent with the Plan.
Without employee consent, the Board of Directors may at any time and from time
to time modify or amend outstanding option agreements in such respects as it
shall deem necessary in order that incentive options granted hereunder shall
comply with the appropriate provisions of the Code and regulations thereunder
which are in effect from time to time respecting "Qualified Incentive Options."
The Company's Board of Directors may also suspend the granting of Options
pursuant to the Plan at any time and may terminate the Plan at any time;
provided, however, no such suspension or termination shall modify or amend any
Option granted before such suspension or termination unless (1) the affected
participant consents in writing to such modification or amendment or (2) there
is a dissolution or liquidation of the Company.
11. BINDING EFFECT
All decisions of the Board of Directors or the Committee involving the
implementation, administration or operation of the Plan or any offering under
the Plan shall be binding on the Company and on all persons eligible or who
become eligible to participate in the Plan.
12. APPLICATION OF FUNDS
The proceeds received by the Company from the sale of Common Stock
pursuant to Options exercised hereunder will be used for general corporate
purposes.
8
<PAGE> 1
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
EXHIBIT 10.5
<PAGE> 2
CITIZENS BANCSHARES OF SOUTHWEST FLORIDA, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT ("Option Agreement") is made and
entered into this ___ day of ________, 1999 by and between CITIZENS BANCSHARES
OF SOUTHWEST FLORIDA, INC. (the "Company") and ___________ ("Participant");
W I T N E S S E T H:
The Board of Directors of the Company has adopted that certain 1999
Stock Option Plan, as amended (the "Plan"), a copy of which is attached hereto
as Exhibit "A" and incorporated herein by reference. Pursuant to the terms of
the Plan and in consideration of the efforts of Participant on behalf of the
Company, the Board of Directors has selected Participant to participate in the
Plan and desires to grant to Participant certain incentive stock options to
purchase shares of the Company's authorized $.01 par value common stock
("Stock"), subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises, agreements and
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. INCORPORATION OF PLAN PROVISIONS
This Option Agreement is subject to and is to be construed in all
respects in a manner which is consistent with the terms of the Plan, the
provisions of which are hereby incorporated by reference into this Option
Agreement. Unless specifically provided otherwise, all terms used in this
Option Agreement shall have the same meaning as in the Plan.
2. GRANT OF OPTION
Subject to the further terms and conditions of this Option Agreement,
Participant is hereby granted a stock option to purchase _______ shares of
Stock, effective as of the date first written above. This stock option is
intended to be an Incentive Stock Option as provided in ss. 422 of the Internal
Revenue Code.
3. FAIR MARKET VALUE OF STOCK
The Board of Directors has determined, in good faith and in its best
judgment, that the fair market value per share of Stock as of the date this
stock option is granted is $_____.
4. OPTION PRICE
The Board of Directors has determined that the price for each share of
Stock purchased under this Option Agreement shall be $_____.
<PAGE> 3
5. EXPIRATION OF OPTIONS
The option to acquire Stock pursuant to this Option Agreement shall
expire (to the extent not previously fully exercised) upon the first to occur
of the following:
(a) ________________ (the tenth anniversary of the date
of grant of the option);
(b) The date which is three (3) months following the date
which Participant ceases his employment with the Company or any subsidiary of
the Company, otherwise than as a result of Participant's death or total
disability;
(c) The date which is the first anniversary of the date
upon which Participant ceases to be employed by the Company, or any subsidiary
of the Company, by reason of Participant's death or total disability; or
(d) The date upon which Participant ceases her employment
with the Company or any subsidiary of the Company, for any reason, including
death or total disability, with respect to any portion of this option that is
not then exercisable on the date Participant ceases her employment with the
Company.
6. EXERCISE OF OPTION
Unless options hereunder shall earlier lapse or expire pursuant to
Article 5 hereof, this option shall be exercisable with respect to the full
number of shares subject to this Option Agreement as follows:
_____________________________________________
_____________________________________________
_____________________________________________
To the extent such options become exercisable in accordance with the
foregoing, Participant may exercise this stock option, in whole or in part,
from time to time. The option exercise price may be paid by Participant either
(i) in cash, (ii) by surrender of shares of Stock owned by Participant for more
than six months on the date of surrender and which have a fair market value on
the date of surrender equal to the aggregate exercise price of the shares as to
which such option shall be exercised, or (iii) shares of Stock issued or
issuable in connection with the exercise of this option.
Notwithstanding the foregoing ,Participant shall be permitted to pay
the exercise price of this option in shares of Stock pursuant to clauses (ii)
and (iii) above only if an organized trading market in the Stock exists on the
date of exercise of this option. In addition, any payment of the option
exercise price pursuant to the aforementioned clause (iii) shall be made only
with the prior consent of the Board of Directors of the Company.
For the purposes of this Article 6, an "organized trading market" shall
be deemed to exist on the date of exercise of the option if: (a) the Stock is
listed on a national securities exchange, or (b) the Stock has been quoted on
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") for the 15 trading days preceding the date of exercise of the
option, or (c) bid and asked quotations for the Stock have been published by
the National Quotation Bureau or other recognized inter-dealer quotation
publication (other than NASDAQ) during 20 of the 30 trading days preceding the
date of exercise of the option. In the event that an organized trading market
for the Stock exists on the date of exercise of the option, Participant shall
be given credit against the option
-2-
<PAGE> 4
exercise price hereunder for such shares surrendered equal to (i) if the Stock
is listed on a national securities exchange or is quoted on the NASDAQ National
Market System, the last actual sales transaction price reported on the day
preceding exercise of the option, or, if there were no actual sales
transactions reported for such date, on the date next preceding such date on
which actual sales transactions were reported, or (ii) if the Stock is quoted
on NASDAQ (other than the NASDAQ National Market System) or by the National
Quotation Bureau or other recognized inter-dealer quotation publication, the
average of the high and low price quotations on the day preceding exercise of
the option, or, if there were no price quotations for such date, on the date
next preceding such date on which there were high and low price quotations for
the Stock.
7. MANNER OF EXERCISE
This stock option may be exercised by written notice to the Secretary
of the Company specifying the number of shares to be purchased and signed by
Participant or such other person who may be entitled to acquire Stock under
this Option Agreement. If any such notice is signed by a person other than
Participant, such person shall also provide such other information and
documentation as the Secretary of the Company may reasonably require to assume
that such person is entitled to acquire Stock under the terms of the Plan and
this Option Agreement. After receipt of the notice and any other assurances
requested by the Company under this Article 7, and upon receipt of the full
option price, the Company shall issue to the person giving notice of exercise
under this Option Agreement the number of shares specified in such notice.
8. RESTRICTIONS ON TRANSFERABILITY
The stock option granted hereunder shall not be transferable by
Participant otherwise than by will or by the laws of descent and distribution,
and such stock option shall be exercisable during Participant's lifetime only
by Participant.
9. FURTHER RESTRICTIONS ON EXERCISE AND SALE OF STOCK
Neither this Option nor any portion thereof shall be exercisable at any
time during which there is not on file with the Securities and Exchange
Commission an effective Registration Statement covering the option shares on
Form S-8, or similar form promulgated by the Securities and Exchange
Commission.
Nothing contained in this section shall be construed to obligate the
Company to, or to grant any right to the holder of this Option to, cause the
Company to file any Registration Statement; or, if any such Registration
Statement is filed, to prepare any additional prospectus, to file any
amendments to the Registration Statement, or to continue said Registration
Statement in effect.
If at any time during which this Option is otherwise exercisable
according to its terms there is no effective Registration Statement on file
with the Securities and Exchange Commission covering the shares then acquirable
hereunder, the Board of Directors may, in its sole discretion, permit this
Option to be exercised by the holder hereof, upon its satisfaction that the
offer and sale of such option shares to the option holder is exempt in fact
from the registration requirements of the Securities Act of 1933, as amended,
and such state securities laws as shall be applicable, and may condition such
exercise upon
-3-
<PAGE> 5
its receipt of such representations, factual assurances and legal opinions as
it shall deem necessary to determine and document the availability of any such
exemption and may further condition such exercise upon such undertakings by the
holder hereof or such restriction upon the transferability of the shares to be
acquired hereunder as it shall determine to be necessary to effectuate and
protect the claim to any such exemption.
10. REORGANIZATION
In the event that dividends are payable in Common Stock of the Company
or in the event there are splits, subdivisions or combinations of shares of
Common Stock of the Company, the number of Shares available under the Plan
shall be increased or decreased proportionately, as the case may be, and the
number of Shares deliverable upon the exercise thereafter of any Option
theretofore granted shall be increased or decreased proportionately, as the
case may be, without change in the aggregate purchase price.
In case the Company is merged or consolidated with another corporation
and the Company is not the surviving corporation, or in case the property or
stock of the Company is acquired by another corporation, or in case of a
separation, reorganization, recapitalization or liquidation of the Company, the
Board of Directors of the Company, or the Board of Directors of any corporation
assuming the obligations of the Company hereunder, shall either (i) make
appropriate provision for the protection of any outstanding Options by the
substitution on an equitable basis of appropriate stock of the Company, or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect to the shares of Common Stock of the Company, provided only
that the excess of the aggregate fair market value of the shares subject to
option immediately after such substitution over the purchase price thereof is
not more than the excess of the aggregate fair market value of the shares
subject to option immediately before such substitution over the purchase price
thereof, or (ii) upon written notice to the Participant provide that the Option
(including the shares not then exercisable) must be exercised within sixty (60)
days of the date of such notice or it will be terminated.
-4-
<PAGE> 6
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
executed by a member of the Board of Directors or a duly authorized officer of
the Company, and Participant has executed this Option Agreement as of the date
first written above.
CITIZENS BANCSHARES OF SOUTHWEST
FLORIDA, INC.
By:
-----------------------------------------
Michael L. McMullan
Chief Executive Officer
"PARTICIPANT"
-5-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Citizens National Bank of Southwest Florida, a national banking
association.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1999 FINANCIAL STATEMENTS OF CITIZENS BANCSHARES OF SOUTHWEST
FLORIDA, INC., AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,529,344
<INT-BEARING-DEPOSITS> 2,000,000
<FED-FUNDS-SOLD> 15,766,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50,760
<INVESTMENTS-CARRYING> 987,915
<INVESTMENTS-MARKET> 0
<LOANS> 4,344,141
<ALLOWANCE> 26,885
<TOTAL-ASSETS> 28,241,762
<DEPOSITS> 17,947,371
<SHORT-TERM> 0
<LIABILITIES-OTHER> 159,824
<LONG-TERM> 0
0
0
<COMMON> 11,451
<OTHER-SE> 10,123,116
<TOTAL-LIABILITIES-AND-EQUITY> 28,241,762
<INTEREST-LOAN> 65,528
<INTEREST-INVEST> 123,763
<INTEREST-OTHER> 236,870
<INTEREST-TOTAL> 426,161
<INTEREST-DEPOSIT> 162,772
<INTEREST-EXPENSE> 181,852
<INTEREST-INCOME-NET> 244,309
<LOAN-LOSSES> 26,885
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,324,222
<INCOME-PRETAX> (1,100,668)
<INCOME-PRE-EXTRAORDINARY> (1,100,668)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,100,668)
<EPS-BASIC> (1.98)
<EPS-DILUTED> (1.98)
<YIELD-ACTUAL> (5.64)
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 26,885
<ALLOWANCE-DOMESTIC> 26,885
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
