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As filed with the Securities and Exchange Commission on March 21, 2000.
Registration No. 333-95091
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CENTERSTATE BANKS OF FLORIDA, INC.
(Name of Small Business Issuer as specified in its charter)
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FLORIDA 6711 59-3606741
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification Number)
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7722 SR 544 EAST, WINTER HAVEN, FLORIDA 33881 (863) 422-8990
(Address and telephone number of
principal executive offices)
JAMES H. WHITE
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
CENTERSTATE BANKS OF FLORIDA, INC.
7722 SR 544 EAST, WINTER HAVEN, FLORIDA 33881 (863) 422-8990
(Name, address and telephone number of agent for service)
----------
Copy to:
JOHN P. GREELEY, ESQUIRE
SMITH, MACKINNON, GREELEY, BOWDOIN,
EDWARDS, BROWNLEE & MARKS, P.A.
255 SOUTH ORANGE AVENUE
SUITE 800
ORLANDO, FLORIDA 32801
(407) 843-7300
FACSIMILE (407) 843-2448
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APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
The date of mailing the Proxy Statement-Prospectus included herein to
the shareholders of First National Bank of Polk County.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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PROXY STATEMENT FOR FIRST NATIONAL BANK OF POLK COUNTY
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PROSPECTUS OF CENTERSTATE BANKS OF FLORIDA, INC.
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Dear First National Bank of Polk County shareholder:
This proxy statement/prospectus is being furnished to you because you
own common stock of First National Bank of Polk County. The board of directors
of First National/Polk has approved a merger whereby First National/Polk will
become a subsidiary of Centerstate Banks of Florida, Inc. IN THE MERGER, YOU
WILL RECEIVE 1.62 SHARES OF CENTERSTATE BANKS OF FLORIDA COMMON STOCK FOR EACH
SHARE OF FIRST NATIONAL/POLK COMMON STOCK YOU OWN. Centerstate Banks of Florida
has not yet commenced any business. It has, however, entered into similar merger
agreements with First National Bank of Osceola County, headquartered in
Kissimmee, Florida, and Community National Bank of Pasco County, headquartered
in Zephyrhills, Florida. The closing of the First National/Polk merger is
conditioned upon the simultaneous closing by Centerstate Banks of Florida of the
First National Bank of Osceola County and Community National Bank of Pasco
County mergers. Upon the consummation of these mergers, First National/Polk,
First National Bank of Osceola County, and Community National Bank of Pasco
County will operate as separate subsidiaries of Centerstate Banks of Florida.
The mergers would result in 36.2%, 29.2%, and 34.6% of the outstanding
Centerstate Banks of Florida common stock being owned by First National Bank of
Osceola County shareholders, First National/Polk shareholders, and Community
National Bank of Pasco County shareholders, respectively.
Centerstate Banks of Florida common stock is not listed for quotation
on any stock exchange and is not actively traded.
The special meeting at which you will consider approval of the merger
will be held at ______, p.m. on ___________, 2000, at First National/Polk's
principal executive offices, 7722 SR 544 East, Winter Haven, Florida 33881. We
cannot complete the merger unless holders of at least two-thirds of First
National/Polk common stock approve it.
Whether or not you plan to attend the special meeting, please take the
time to vote by completing and mailing the enclosed proxy card to us. If you
sign, date and mail your proxy card without indicating how you wish to vote,
your proxy will be counted as a vote in favor of the merger. If you fail to
return your card, the effect will be a vote against the merger. YOUR VOTE IS
VERY IMPORTANT.
On behalf of the board of directors of First National/Polk, we urge you
to vote "FOR" approval and adoption of the merger.
James H. White George H. Carefoot
Chairman of the Board President and Chief Executive Officer
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------
The date of this proxy statement/prospectus is __________, 2000 and it
is first being mailed to shareholders of First National/Polk on or about
________, 2000.
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE MERGER .............................................................. 1
SUMMARY ............................................................................................. 2
Centerstate and First National/Polk are the parties to the merger .................... 2
Centerstate intends to continue First National/Polk dividend policy .................. 2
The investment banker says the merger is fair to shareholders ........................ 2
Shareholders may exercise dissenters' rights ......................................... 3
There are certain differences between Centerstate and First National/Polk shares ..... 3
The First National/Polk board of directors recommends approval of the merger ......... 3
The merger is generally tax free to shareholders ..................................... 3
Management stock options will convert to Centerstate options ......................... 3
The special meeting will be held on ___________, 2000 ................................ 3
Information on voting at a special meeting and director ownership of stock ........... 4
First National/Polk will continue its operations after the merger .................... 4
The merger agreement is included in the proxy statement/prospectus ................... 4
The bank regulatory agencies have approved the merger ................................ 4
The merger agreement can be terminated before it is closed ........................... 4
Centerstate Banks of Florida intends to use pooling of interests accounting treatment. 4
COMMUNITY NATIONAL BANK OF PASCO COUNTY AND
FIRST NATIONAL BANK OF OSCEOLA COUNTY MERGERS......................................... 5
FIRST NATIONAL BANK OF POLK COUNTY
SELECTED FINANCIAL DATA............................................................... 6
THE SPECIAL MEETING ................................................................................. 13
General............................................................................... 13
Date, time and place of the special meeting........................................... 13
Shares outstanding and entitled to vote; record date.................................. 13
Vote required to approve merger....................................................... 13
Voting and solicitation of proxies ................................................... 13
THE MERGER .......................................................................................... 15
General information about the merger ................................................. 15
Background of the merger ............................................................. 15
Recommendation of the First National/Polk board ...................................... 18
Opinion of financial advisor ......................................................... 19
Compensation of Allen C. Ewing ....................................................... 24
Centerstate's reasons for the merger ................................................. 25
Conversion ratio ..................................................................... 25
Interest of certain persons in the merger ............................................ 25
Effectiveness of the merger .......................................................... 26
Regulatory approvals for the merger .................................................. 26
Rights of dissenting shareholders .................................................... 26
Resales of Centerstate Banks of Florida common stock to be received
by affiliates of First National/Polk ......................................... 27
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Accounting treatment of the merger .................................................. 28
Federal income tax consequences of the merger ....................................... 28
How to exchange First National/Polk stock certificates
for Centerstate Banks of Florida stock ...................................... 29
Conduct of business pending the merger .............................................. 29
Conditions for the merger ........................................................... 31
Expenses and fees related to the merger ............................................. 31
Amendment, waiver and termination ................................................... 31
DIFFERENCE IN RIGHTS OF CENTERSTATE BANKS OF FLORIDA
AND FIRST NATIONAL/POLK SHAREHOLDERS ................................................ 32
Authorized capital stock ............................................................ 32
Voting .............................................................................. 33
Shareholders' meetings .............................................................. 33
Dividend rights ..................................................................... 33
Appraisal rights .................................................................... 34
Control share and fair price laws ................................................... 34
MARKET AND DIVIDEND INFORMATION .................................................................... 35
Stock trading information ........................................................... 35
Dividends ........................................................................... 36
DESCRIPTION OF CENTERSTATE BANKS OF FLORIDA ........................................................ 36
Conduct of business prior to the merger ............................................. 36
Conduct of business following the merger ............................................ 37
Directors ........................................................................... 37
Executive officers .................................................................. 38
Property ............................................................................ 38
Employees ........................................................................... 39
Legal proceedings ................................................................... 39
BUSINESS OF FIRST NATIONAL/POLK .................................................................... 39
SUPERVISION AND REGULATION ......................................................................... 64
DESCRIPTION OF CAPITAL STOCK ....................................................................... 70
General ............................................................................. 70
Common shares ....................................................................... 70
Preferred shares .................................................................... 70
Indemnification provisions .......................................................... 70
LEGAL OPINION ...................................................................................... 71
EXPERTS ............................................................................................ 71
ADDITIONAL INFORMATION ............................................................................. 71
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INDEX TO FINANCIAL STATEMENTS ...................................................................... F-1
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Appendices
Appendix A: Agreement to Merge Among First National Bank of Polk County,
Centerstate Banks of Florida, Inc. and First Interim National
Bank of Polk County
Appendix B: Opinion of Allen C. Ewing & Co.
Appendix C: Excerpts from Section 215a of the National Bank Act
Appendix D: Information on Community National Bank of Pasco County
Appendix E: Information on First National Bank of Osceola County
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Q: WHAT WILL HAPPEN IN THE MERGER?
A: First National/Polk will continue to conduct its business and
operations as it currently conducts it, but as a subsidiary bank of
Centerstate Banks of Florida.
Q: HOW WILL I BE AFFECTED BY THE MERGER?
A: After the merger, you will own shares in Centerstate Banks of Florida.
Centerstate Bank of Florida will have three subsidiary banks, which
will consist of First National/Polk, First National Bank of Osceola
County and Community National Bank of Pasco County. There are certain
differences in owning shares of Centerstate Banks of Florida compared
to First National/Polk. You should carefully review these differences,
which are discussed beginning on page 33.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and
mail the proxy card in the enclosed envelope as soon as possible so
that your shares of First National/Polk common stock will be
represented at the special meeting even if you cannot attend.
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: You are being asked to vote on the merger.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: You may send in a later-dated proxy card or you may attend the special
meeting and vote your shares in person. If you have already mailed your
proxy card and want to vote in person, before the meeting you should
notify the president of First National/Polk.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If the merger is completed, we will send you written instructions
for exchanging your First National/Polk common stock for Centerstate
Banks of Florida common stock.
Q: WHEN WILL THE MERGER BE COMPLETED?
A: Assuming we receive the required approvals, we expect the merger to be
completed during the second quarter of 2000.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you want additional copies of this document or if you want to ask
any questions about the merger, you should contact:
First National/Polk
George H. Carefoot
President and Chief Executive Officer
7722 SR 544 East
Winter Haven, Florida 33881
(863) 422-8990
Please rely only on the information in this proxy statement/prospectus
or information that we have referred you to review. We have not
authorized anyone to provide you with different information.
1
<PAGE> 7
SUMMARY
This summary section may not contain all information that is important
to you. You are urged to read the entire proxy statement/prospectus before
deciding how to vote your shares.
CENTERSTATE AND FIRST NATIONAL/POLK ARE THE PARTIES TO THE MERGER
First National/Polk is located in Polk County, Florida, and provides
general banking services, including personal lines of credit, commercial,
agricultural, real estate and installment loans, checking, savings, NOW and
money market accounts, certificates of deposit and individual retirement
accounts. The principal office of First National/Polk is located at 7722 SR 544
East, Winter Haven, Florida 33881. Its telephone number is (863) 422-8990.
Centerstate Banks of Florida has not yet conducted any business. It is
being organized to serve as a bank holding company for First National/Polk,
First National Bank of Osceola County, and Community National Bank of Pasco
County. The principal office of Centerstate Banks of Florida is located at 7722
SR 544 East, Winter Haven, Florida 33881. Its telephone number is
(863) 422-8990.
Centerstate Banks of Florida has not commenced operations and will not
until the proposed merger is consummated. It has no assets or liabilities other
than $1.00 initial capitalization.
FIRST NATIONAL/POLK SHAREHOLDERS WILL RECEIVE 1.62 SHARES OF
CENTERSTATE COMMON STOCK FOR EACH SHARE OUTSTANDING.
In the merger, for each share of First National/Polk common stock you
own, you will receive 1.62 shares of Centerstate Banks of Florida common stock.
You will not receive any fractional shares. Instead, you will receive a
check in payment for any fractional shares based on the book value of a share of
First National/Polk common stock at the end of the month prior to effectiveness
of the merger.
CENTERSTATE INTENDS TO CONTINUE FIRST NATIONAL/POLK DIVIDEND POLICY
First National/Polk paid cash dividends of $.18 per share in 1999 and
$.15 per share in 1998. Centerstate Banks of Florida intends to pay cash
dividends to shareholders following the merger in an amount at least equal on a
comparative basis to the amount historically received by First National/Polk
shareholders. The payment of dividends by Centerstate Banks of Florida is
dependent upon its profitability, capital requirements, and regulatory
constraints.
THE INVESTMENT BANKER SAYS THE MERGER IS FAIR TO SHAREHOLDERS
Allen C. Ewing & Co., which was retained by First National/Polk as
financial advisor in connection with the merger, has advised First National/Polk
that the merger conversion ratio is fair from a financial point of view to the
First National/Polk shareholders. First National/Polk, First National Bank of
Osceola County and Community National Bank of Pasco County have agreed to pay
Allen C. Ewing a total fee of $25,000, or $8,333.00 each, for financial advisory
services rendered in the merger, and to reimburse Allen C. Ewing for reasonable
out-of-pocket expenses incurred as a part of its engagement.
2
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SHAREHOLDERS MAY EXERCISE DISSENTERS RIGHTS
In the merger, you may be entitled to dissenters' rights under the
national banking laws. If you properly exercise your dissenters' rights, you
will be entitled to receive in cash the value of the shares determined as of the
day the merger becomes effective. See "The Merger - Rights of dissenting
shareholders," page 28.
THERE ARE CERTAIN DIFFERENCES BETWEEN CENTERSTATE AND FIRST NATIONAL/POLK SHARES
As a First National/Polk shareholder, you can cumulate your votes in
the election of directors, which allows minority shareholders to have the
ability to elect a director. Centerstate Banks of Florida shareholders do not
have such rights, and thus a majority of the shares elects the entire board.
First National/Polk shareholders also have certain appraisal rights in merger
and consolidation transactions. If Centerstate Banks of Florida shares qualify
for trading under the NASDAQ system, then Centerstate Banks of Florida
shareholders will not have dissenters' rights in connection with a merger or
consolidation transaction. Please see "Difference in Rights of Centerstate Banks
of Florida and First National/Polk Shareholders" beginning on page ____ for
additional information regarding changes in shareholder rights.
THE FIRST NATIONAL/POLK BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE MERGER
The board of directors of First National/Polk believes that the merger
is in the best interest of First National/Polk shareholders, and unanimously
recommends a vote FOR approval of the merger. See "The Merger - Recommendation
of the First National/Polk Board," page 20.
THE MERGER IS GENERALLY TAX FREE TO SHAREHOLDERS
We have an opinion of KPMG LLP that the merger is generally tax free to
First National/Polk shareholders for U.S. federal income tax purposes. You will
have to pay taxes on a portion of any cash you receive instead of fractional
shares or if you dissent and receive cash payment for your First National/Polk
shares. Your tax consequences depend on your personal situation. You are
encouraged to consult your tax advisor. See "The Merger - Federal income tax
consequences of the merger," page 29.
MANAGEMENT STOCK OPTIONS WILL CONVERT TO CENTERSTATE OPTIONS
First National/Polk management has no change in control, employment or
other agreements. They do, however, own options for First National/Polk common
stock which will convert into options for Centerstate Banks of Florida common
stock on the same basis that the First National/Polk shares are converted into
Centerstate Banks of Florida common stock in the merger.
THE SPECIAL MEETING WILL BE HELD ON ___________, 2000
The special meeting will be held on __________, ___________, 2000 at
____ p.m., local time, at the offices of First National/Polk at 7722 SR 544
East, Winter Haven, Florida 33881. See "The Special Meeting," on page ____.
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INFORMATION ON VOTING AT A SPECIAL MEETING AND DIRECTOR OWNERSHIP OF STOCK
You may vote at the special meeting only if you owned shares of First
National/Polk common stock at the close of business on __________, ___________,
2000. You may cast one vote for each share of First National/Polk common stock
owned at that date. In order to approve the merger, the holders of at least
two-thirds of the outstanding shares of First National/Polk common stock must
vote in favor of the merger. As of __________, 2000, the First National/Polk
directors, executive officers and their affiliates held a total of 52.50% of the
outstanding shares of First National/Polk. Management of First National/Polk
expects that these persons will vote in favor of the merger.
FIRST NATIONAL/POLK WILL CONTINUE ITS OPERATIONS AFTER THE MERGER
We propose a merger between First National/Polk and a subsidiary to be
formed by Centerstate Banks of Florida. After the merger, First National/Polk
will retain its name, officers and directors and continue its operations from
its same banking offices.
THE MERGER AGREEMENT IS INCLUDED IN THE PROXY STATEMENT/PROSPECTUS
We have attached the merger agreement as Appendix A to this proxy
statement/prospectus. We encourage you to read the merger agreement, as it is
the legal document that governs the merger.
THE BANK REGULATORY AGENCIES HAVE APPROVED THE MERGER
The merger has been approved by the Board of Governors of the Federal
Reserve System and the Office of the Comptroller of the Currency.
THE MERGER AGREEMENT CAN BE TERMINATED BEFORE IT IS CLOSED
We may terminate the merger agreement at any time without completing
the merger, even after you have approved it.
In addition, either of us may decide, without the consent of the other,
to terminate the merger agreement if the merger has not occurred by December 31,
2000, or if the shareholders of First National/Polk fail to approve the merger.
For a description of other circumstances in which either of us may terminate the
merger agreement, see "The Merger Agreement - Amendment, waiver and
termination," page 33.
CENTERSTATE BANKS OF FLORIDA INTENDS TO USE POOLING OF INTERESTS ACCOUNTING
TREATMENT
We believe the merger qualifies as a pooling of interests for
accounting purposes. Using this accounting method, Centerstate Banks of Florida
anticipates that the asset and liability accounts of First National/Polk will
not be adjusted, but will be combined with the corresponding accounts of First
National Bank of Osceola County and Community National Bank of Pasco County.
This means no goodwill will be reported on the books of Centerstate Banks of
Florida, which otherwise would reduce its accounting net income for the next
several years.
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COMMUNITY NATIONAL BANK OF PASCO COUNTY AND
FIRST NATIONAL BANK OF OSCEOLA COUNTY MERGERS
On December 10, 1999, Centerstate Banks of Florida entered into
separate merger agreements with Community National Bank of Pasco County and
First National Bank of Osceola County. These merger agreements provide for the
two banks to become subsidiaries of Centerstate Banks of Florida, along with
First National/Polk. Similar to the First National/Polk transaction, these two
bank mergers are expected to be accounted for as a pooling-of-interest.
The terms of the merger agreements between Centerstate Banks of Florida
and each of the three banks are similar, with the exception of the conversion
ratio applicable to the particular bank. The merger agreement between
Centerstate Banks of Florida and Community National Bank of Pasco County
provides for shareholders of Community National Bank of Pasco County to receive
2.02 shares of Centerstate Banks of Florida common stock for each outstanding
share of Community National Bank of Pasco County. The merger agreement between
Centerstate Banks of Florida and First National Bank of Osceola County provides
for shareholders of First National Bank of Polk County to receive 2.00 shares of
Centerstate Banks of Florida common stock for each outstanding share of First
National Bank of Osceola County.
Assuming the conversion of all First National/Polk common stock, and
the conversion of all First National Bank of Osceola County and Community
National Bank of Pasco County common stock in their mergers, the consummation of
the First National/Polk, First National Bank of Osceola County and Community
National Bank of Pasco County mergers would result in 29.2%, 36.2%, and 34.6% of
the outstanding Centerstate Banks of Florida common stock being owned by First
National/Polk shareholders, First National Bank of Osceola County shareholders,
and Community National Bank of Pasco County shareholders, respectively.
The merger transactions involving First National/Polk, Community
National Bank of Pasco County and First National Bank of Osceola County are all
conditioned upon each of the three bank merger transactions closing on the same
date. Thus, none of the transactions will close unless all of the bank merger
transactions close and each of First National/Polk, Community National Bank of
Pasco County and First National Bank of Osceola County become subsidiaries of
Centerstate Banks of Florida.
Since the closing of the First National/Polk transaction is conditioned
upon the simultaneous closing by Centerstate Banks of Florida of the Community
National Bank of Pasco County and First National Bank of Osceola County
transactions, this proxy statement/prospectus also includes information on
Community National Bank of Pasco County and First National Bank of Osceola
County, as well as pro forma financial information which takes into account the
closing by Centerstate of all three bank transactions. For additional
information regarding Community National Bank of Pasco County and First National
Bank of Osceola County, see the pro forma financial information of Centerstate
Banks of Florida, the financial statements of the banks included under the
section entitled "Index to Financial Statements," and the Appendices to this
proxy statement/prospectus.
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First National Bank Of Polk County
SELECTED FINANCIAL DATA
The information presented below for the years ended December 31, 1995
through 1999 is derived in part from First National/Polk's audited financial
statements. This information does not purport to be complete and should be read
in conjunction with First National/Polk's financial statements appearing
elsewhere in this prospectus.
SELECTED FINANCIAL DATA
Years Ended December 31,
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1999 1998 1997 1996 1995
(Dollars in thousands except for per share data) --------- --------- --------- --------- ---------
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SUMMARY OF OPERATIONS:
Total Interest Income $ 4,993 $ 4,998 $ 4,439 $ 3,878 $ 3,430
Total Interest Expense (2,020) (2,232) (1,959) (1,832) (1,660)
--------- --------- --------- --------- ---------
$ 2,973 $ 2,766 $ 2,480 $ 2,046 $ 1,770
Provision for Loan Losses (63) (39) (73) (120) (168)
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Net Interest Income After Provision for
Loan Losses $ 2,910 $ 2,727 $ 2,407 $ 1,926 $ 1,602
Noninterest Income 355 274 209 170 109
Noninterest Expense (2,244) (2,014) (1,766) (1,447) (1,221)
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Income before Income Taxes $ 1,021 $ 987 $ 850 $ 649 $ 490
Income Taxes (375) (296) (302) (244) (39)
--------- --------- --------- --------- ---------
Net Income $ 646 $ 691 $ 548 $ 405 $ 451
========= ========= ========= ========= =========
PER COMMON SHARE DATA:
Basic Earnings Per Share $ 1.37 $ 1.58 $ 1.35 $ 1.01 $ 1.12
Diluted Earnings Per Share $ 1.32 $ 1.49 $ 1.27 $ 0.96 $ 1.12
Book Value Per Share $ 14.07 $ 13.35 $ 11.88 $ 10.71 $ 9.94
Tangible Book Value Per Share $ 14.21 $ 13.19 $ 11.82 $ 10.58 $ 9.64
Dividends $ 0.18 $ 0.15 $ 0.10 $ 0.07 $ 0.00
Actual Shares Outstanding 486,625 441,250 412,500 402,500 402,500
Weighted Average Shares Outstanding 472,662 437,360 406,719 402,500 402,500
Diluted Weighted Average Shares Outstanding 488,155 462,503 431,201 421,065 402,500
BALANCE SHEET DATA:
Assets $ 75,007 $ 73,778 $ 63,925 $ 54,303 $ 48,239
Total Loans, net 43,169 39,415 34,497 29,651 25,164
Total Deposits 67,730 67,426 58,454 49,350 43,650
Short-Term Borrowings 259 255 389 337 280
Shareholders' Equity 6,846 5,890 4,901 4,311 4,002
Tangible Capital 6,913 5,821 4,876 4,257 3,881
Average Total Assets 74,812 69,901 59,473 52,063 44,054
Average Loans (net) 40,127 36,991 32,541 27,607 23,926
Average Interest Earning Assets 68,128 63,969 54,153 47,653 40,641
Average Deposits 67,766 63,486 54,534 47,327 39,334
Average Interest Bearing Deposits 56,432 54,486 46,983 41,384 34,589
Average Interest Bearing Liabilities 56,778 55,169 47,394 47,665 39,682
Average Shareholders' Equity 6,422 5,456 4,568 4,049 3,567
</TABLE>
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SELECTED FINANCIAL DATA - Continued
Years Ended December 31,
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1999 1998 1997 1996 1995
(Dollars in thousands except for per share data) --------- --------- --------- --------- ---------
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SELECTED FINANCIAL RATIOS:
Return on Average Assets 0.86% 0.99% 0.92% 0.78% 1.02%
Return on Average Equity 10.06% 12.66% 12.00% 10.00% 12.64%
Dividend Payout 13.17% 9.49% 7.42% 6.96% 0.00%
Efficiency (1) 67.43% 66.25% 65.67% 65.30% 64.98%
Net Interest Margin (2) 4.36% 4.32% 4.58% 4.29% 4.36%
Net Interest Spread (3) 3.77% 3.77% 4.06% 4.29% 4.26%
CAPITAL RATIOS:
Tier 1 Leverage Ratio 9.19% 8.19% 7.81% 7.91% 8.53%
Risk-Based Capital
Tier 1 17.01% 14.80% 14.44% 14.07% 14.20%
Total 18.26% 16.00% 15.70% 15.33% 15.45%
Average Equity to Average Assets 8.58% 7.81% 7.68% 7.78% 8.10%
ASSET QUALITY RATIOS:
Net Charge-Offs to Average Loans 0.29% 0.01% 0.09% -0.04% 0.48%
Allowance to Period End Loans 1.45% 1.72% 1.86% 2.07% 1.92%
Allowance for Loan Losses to
Nonperforming Loans 140.89% 104.72% 0.00% 209.22% 226.29%
Nonperforming Assets to Total Assets 0.85% 0.89% 0.00% 1.18% 0.49%
OTHER DATA:
Banking Locations 3 3 3 2 2
Full-Time Equivalent Employees 32 32 28 27 19.5
</TABLE>
(1) Efficiency ratio is non-interest expense divided by the sum of net
interest income before the provision for loan loss plus non-interest
income.
(2) Net interest margin is net interest income divided by total average
earning assets.
(3) Net interest spread is the difference between the average yield on
average earning assets and the average yield on average interest
bearing liabilities.
7
<PAGE> 13
UNAUDITED CONDENSED PRO FORMA FINANCIAL STATEMENTS
The following pro forma condensed financial statements reflect the balance
sheets as of December 31, 1999 and 1998 and the income statements for the years
then ended after giving effect to the merger whereby First National Bank of
Osceola County, Community National Bank of Pasco County and First National Bank
of Polk County will become subsidiaries of Centerstate Banks of Florida, Inc.
The merger is expected to be accounted for as a pooling of interests. The
conversion ratio recommended is 2.0 shares of Centerstate Banks of Florida
common stock for each share of First National Bank of Osceola County, 2.02
shares of Centerstate Banks of Florida common stock for each outstanding share
of Community National Bank of Pasco County and 1.62 shares of Centerstate Banks
of Florida common stock for each outstanding share of First National Bank of
Polk County.
8
<PAGE> 14
CENTERSTATE BANKS OF FLORIDA, INC.
Pro Forma Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
First National/ Community First National/
CenterState Osceola Nat'l/Pasco Polk Combined
---------- -------------- ------------- -------------- ---------------
ASSETS
<S> <C> <C> <C> <C> <C>
Cash and due from banks $ 1 $ 6,833,328 $ 7,729,372 $ 5,413,247 $ 19,975,948
Federal funds sold 700,770 737,000 2,631,000 4,068,770
Investment securities available for sale 22,038,778 17,625,445 20,162,297 59,826,520
Investment securities held to maturity 3,532,305 -- -- 3,532,305
Loans, net 70,160,780 61,830,310 43,169,433 175,160,523
Accrued interest receivable 691,055 672,569 448,888 1,812,512
Premises and equipment, net 4,434,399 6,061,989 2,578,302 13,074,690
Other real estate owned -- -- 190,597 190,597
Deferred income taxes 223,312 351,630 262,669 837,611
Prepaids and other assets 118,931 133,388 150,407 402,726
========== ============= ============ ============= ===============
Total assets $ 1 $ 108,733,658 $ 95,141,703 $ 75,006,840 $ 278,882,202
========== ============= ============ ============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing $ $ 74,806,896 $ 74,210,325 $ 56,378,614 $ 205,395,835
Noninterest bearing 20,015,370 11,214,288 11,351,625 42,581,283
---------- ------------- ------------ ------------- ---------------
Total deposits 94,822,266 85,424,613 67,730,239 247,977,118
Securities sold under agreements
to repurchase 2,263,131 1,556,134 259,000 4,078,265
Accrued interest payable 127,690 128,642 75,724 332,056
Federal reserve bank advances 3,000,000 -- -- 3,000,000
Accounts payable and other
accrued expenses 61,648 24,726 96,347 182,721
---------- ------------- ------------ ------------- ---------------
Total liabilities 100,274,735 87,134,115 68,161,310 255,570,160
---------- ------------- ------------ ------------- ===============
Stockholders' equity:
Common stock 1 2,555,875 2,436,050 2,433,125 7,425,051
Additional paid-in capital 2,745,684 2,598,126 2,555,034 7,898,844
Retained earnings 3,264,193 3,064,422 1,924,427 8,253,042
Accumulated other comprehensive income (106,829) (91,010) (67,056) (264,895)
---------- ------------- ------------ ------------- ---------------
Total stockholders' equity 1 8,458,923 8,007,588 6,845,530 23,312,042
========== ============= ============ ============= ===============
Total liabilities and stockholders' equity $ 1 $ 108,733,658 $ 95,141,703 $ 75,006,840 $ 278,882,202
========== ============= ============ ============= ===============
</TABLE>
9
<PAGE> 15
CENTERSTATE BANKS OF FLORIDA, INC.
Pro Forma Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
First National/ Community First National/
ASSETS CenterState Osceola Nat'l/Pasco Polk Combined
----------- ------------ ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Cash and due from banks $ 1 $ 4,687,944 $ 3,787,574 $ 3,106,304 $ 11,581,823
Federal funds sold 5,017,000 5,175,000 3,752,000 13,944,000
Investment securities available for sale 35,818,706 21,955,703 23,809,823 81,584,232
Investment securities held to maturity 2,555,226 2,555,226
Loans, net 56,591,397 55,783,943 39,414,516 151,789,856
Accrued interest receivable 753,990 666,606 533,345 1,953,941
Premises and equipment, net 3,714,825 5,294,524 2,701,899 11,711,248
Other real estate owned 34,672 203,179 237,851
Deferred income taxes 91,869 235,942 184,117 511,928
Prepaids and other assets 93,959 46,960 72,493 213,412
----------- ------------- ------------- -------------- ----------------
Total assets $ 1 $ 109,324,916 $ 92,980,924 $ 73,777,676 $ 276,083,517
=========== ============= ============= ============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing $ $ 78,886,965 $ 73,322,182 $ 57,359,893 $ 209,569,040
Noninterest bearing 18,670,815 11,324,586 10,066,213 40,061,614
----------- ------------- ------------- -------------- ----------------
Total deposits 97,557,780 84,646,768 67,426,106 249,630,654
Securities sold under agreements
to repurchase 3,978,073 652,948 255,000 4,886,021
Accrued interest payable 143,246 144,862 91,057 379,165
Accounts payable and other
accrued expenses 189,294 89,694 115,617 394,605
----------- ------------- ------------- -------------- ----------------
Total liabilities 101,868,393 85,534,272 67,887,780 255,290,445
=========== ============= ============= ============== ================
Stockholders' equity:
Common stock 1 2,255,545 2,307,925 2,206,250 6,769,721
Additional paid-in capital 2,334,249 2,430,696 2,250,547 7,015,492
Retained earnings 2,741,285 2,591,424 1,364,345 6,697,054
Accumulated other comprehensive income 125,444 116,607 68,754 310,805
----------- ------------- ------------- -------------- ----------------
Total stockholders' equity 1 7,456,523 7,446,652 5,889,896 20,793,072
----------- ------------- ------------- -------------- ----------------
Total liabilities and stockholders' equity $ 1 $ 109,324,916 $ 92,980,924 $ 73,777,676 $ 276,083,517
=========== ============= ============= ============== ================
</TABLE>
10
<PAGE> 16
CENTERSTATE BANKS OF FLORIDA, INC.
Pro Forma Statement of Operations
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
FIRST NATIONAL/ COMMUNITY FIRST NATIONAL/
CENTERSTATE OSCEOLA NAT'L/PASCO POLK COMBINED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 5,639,325 5,103,704 3,532,568 $ 14,275,597
Investment securities 1,739,947 1,223,606 1,307,640 4,271,193
Federal funds sold 150,631 251,697 152,538 554,866
------------ ------------ ------------ ------------ ------------
TOTAL INTEREST INCOME -- 7,529,903 6,579,007 4,992,746 19,101,656
------------ ------------ ------------ ------------ ------------
INTEREST EXPENSE
Deposits 3,095,506 2,989,455 2,004,313 8,089,274
Securities sold under agreements
to repurchase 160,864 52,391 15,397 228,652
------------ ------------ ------------ ------------ ------------
TOTAL INTEREST EXPENSE -- 3,256,370 3,041,846 2,019,710 8,317,926
------------ ------------ ------------ ------------ ------------
NET INTEREST INCOME -- 4,273,533 3,537,161 2,973,036 10,783,730
Provision for loan losses 186,000 9,000 63,000 258,000
------------ ------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER
LOAN LOSS PROVISION -- 4,087,533 3,528,161 2,910,036 10,525,730
------------ ------------ ------------ ------------ ------------
NON INTEREST INCOME
Service charges on deposit accounts 707,507 591,342 232,037 1,530,886
Other service charges and fees 182,693 67,382 123,365 373,440
(Loss) on sale of other real estate owned -- (3,428) -- (3,428)
Gain on sale of available for sale securities 6,418 -- -- 6,418
------------ ------------ ------------ ------------ ------------
TOTAL NON INTEREST INCOME -- 896,618 655,296 355,402 1,907,316
------------ ------------ ------------ ------------ ------------
NON INTEREST EXPENSE
Salaries, wages and employee benefits 1,665,073 1,423,152 1,029,052 4,117,277
Occupancy expense 563,345 413,590 236,013 1,212,948
Depreciation of premises and equipment 265,347 321,717 191,374 778,438
Stationery and printing supplies 164,291 79,320 84,615 328,226
Advertising and public relations 82,114 80,123 49,871 212,108
Data processing expense 279,587 240,767 231,158 751,512
Legal and professional fees 100,668 111,628 62,237 274,533
Other expenses 791,852 539,281 360,583 1,691,716
------------ ------------ ------------ ------------ ------------
NON INTEREST EXPENSE -- 3,912,277 3,209,578 2,244,903 9,366,758
------------ ------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,071,874 973,879 1,020,535 3,066,288
Provision for income taxes 390,682 354,831 374,841 1,120,354
------------ ------------ ------------ ------------ ------------
NET INCOME $ -- $ 681,192 $ 619,048 $ 645,694 $ 1,945,934
============ ============ ============ ============ ============
Earnings per share of common stock:
Basic $ -- $ 1.42 $ 1.31 $ 1.37 $ 1.36
Diluted $ -- $ 1.36 $ 1.27 $ 1.32 $ 1.32
Average number of common shares outstanding:
Basic 1 481,135 471,830 472,662 1,425,628
Diluted 1 500,084 487,230 488,155 1,475,470
</TABLE>
11
<PAGE> 17
CENTERSTATE BANKS OF FLORIDA, INC.
Pro Forma Statement of Operations
For the year ended December 31, 1998
<TABLE>
<CAPTION>
FIRST NATIONAL/ COMMUNITY FIRST NATIONAL/
CENTERSTATE OSCEOLA NAT'L/PASCO POLK COMBINED
----------- --------------- ----------- --------------- --------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $ $ 5,160,699 $ 4,868,419 $ 3,452,295 $ 13,481,413
Investment securities 1,468,988 1,108,953 1,254,071 3,832,012
Federal funds sold 636,830 296,312 291,839 1,224,981
----------- ----------- ----------- ----------- --------------
TOTAL INTEREST INCOME 0 7,266,517 6,273,684 4,998,205 18,538,406
----------- ----------- ----------- ----------- --------------
INTEREST EXPENSE
Deposits 3,349,948 3,039,598 2,198,379 8,587,925
Securities sold under agreements
to repurchase 103,563 58,853 33,975 196,391
----------- ----------- ----------- ----------- --------------
TOTAL INTEREST EXPENSE 0 3,453,511 3,098,451 2,232,354 8,784,316
----------- ----------- ----------- ----------- --------------
NET INTEREST INCOME 3,813,006 3,175,233 2,765,851 9,754,090
Provision for loan losses 38,473 150,000 39,000 227,473
----------- ----------- ----------- ----------- --------------
NET INTEREST INCOME AFTER 0 3,774,533 3,025,233 2,726,851 9,526,617
----------- ----------- ----------- ----------- --------------
LOAN LOSS PROVISION
NON INTEREST INCOME
Service charges on deposit accounts 584,789 423,759 195,016 1,203,564
Other service charges and fees 122,114 41,098 79,701 242,913
Gain on sale of real estate owned 99,659
----------- ----------- ----------- ----------- --------------
TOTAL NON INTEREST INCOME 0 706,903 564,516 274,717 1,546,136
----------- ----------- ----------- ----------- --------------
NON INTEREST EXPENSE
Salaries, wages and employee benefits 1,373,971 1,131,682 887,138 3,392,791
Occupancy expense 422,940 272,603 215,842 911,385
Depreciation of premises and equipment 217,172 215,412 212,826 645,410
Stationery and printing supplies 99,530 83,034 77,193 259,757
Advertising and public relations 75,266 47,772 56,837 179,875
Data processing expense 232,530 208,688 185,072 626,290
Legal and professional fees 97,544 114,735 52,288 264,567
Other expenses 556,196 420,755 326,910 1,303,861
----------- ----------- ----------- ----------- --------------
NON INTEREST EXPENSE 0 3,075,149 2,494,681 2,014,106 7,583,936
----------- ----------- ----------- ----------- --------------
INCOME BEFORE INCOME TAXES 0 1,406,287 1,095,068 987,462 3,488,817
Provision for income taxes 512,396 393,405 296,171 1,201,972
----------- ----------- ----------- ----------- --------------
NET INCOME $ 0 $ 893,891 $ 701,663 $ 691,291 $ 2,286,845
=========== =========== =========== =========== ==============
Earnings per share of common stock:
Basic $ 1.00 $ 1.00 $ 0.76 $ 0.98 $ 0.9
Diluted $ 0.93 $ 0.93 $ 0.72 $ 0.92 $ 0.85
Average number of common shares outstanding:
Basic 893,474 925,259 708,523 2,527,256
Diluted 963,354 976,834 749,417 2,689,605
</TABLE>
12
<PAGE> 18
THE SPECIAL MEETING
GENERAL
This proxy statement/prospectus and the accompanying proxy card are
being mailed to you on or about _________, 2000. The First National/Polk board
of directors will be soliciting proxies from the holders of First National/Polk
common stock to be voted at the special meeting. The special meeting has been
called to consider and vote upon the merger agreement providing for the merger
of First National/Polk with a national banking subsidiary to be organized by
Centerstate Banks of Florida. The First National/Polk board of directors
unanimously has approved the merger agreement and recommends that you vote FOR
approval of it.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
This special meeting will be held on _________, 2000 at ______ p.m.,
local time, in the principal executive officers of First National/Polk, at 7722
SR 544 East, Winter Haven, Florida 33881.
SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE
Only holders of record of First National/Polk common stock on
_________, 2000, will be entitled to notice of and to vote at the special
meeting and any adjournments or postponements of the special meeting. On that
date, there were 486,625 shares of First National/Polk common stock outstanding
and entitled to vote at the special meeting. Each share is entitled to one
vote. As of ___________, 2000, there were approximately ____ holders of record
of First National/Polk common stock.
VOTE REQUIRED TO APPROVE MERGER
The approval of the merger requires the approval from the holders of
at least two-thirds of all the shares of First National/Polk common stock
outstanding.
As of __________, 2000, the First National/Polk directors, executive
officers and their affiliates owned 52.50% of the outstanding stock of First
National/Polk. First National/Polk management anticipates that these persons
will vote in favor of the merger.
VOTING AND SOLICITATION OF PROXIES
All shares of First National/Polk represented at the special meeting
by properly executed proxies received prior to or at the special meeting, and
not revoked, will be voted at the special meeting in accordance with the
instructions on the proxies. If you properly execute a proxy but include no
voting instructions, your shares will be voted to approve the merger and
authorize the merger.
The First National/Polk board of directors does not know of any
matters, other than as described in the notice of special meeting, which are to
come before the special meeting. If any other matters are properly presented at
the special meeting for action, the persons named in the enclosed form of proxy
will have the authority to vote on those matters in their discretion.
If you give a proxy, you have the right to revoke it at any time
before it is voted. You may revoke your proxy by (1) filing with the Secretary
of First National/Polk a written notice of revocation bearing a later date than
the proxy, (2) duly executing a later dated proxy relating to the same shares
and delivering it to the
13
<PAGE> 19
Secretary of First National/Polk before the taking of the vote at the special
meeting, or (3) attending the special meeting and voting in person. Any written
notice of revocation or subsequent proxy should be sent so as to be delivered
to First National/Polk, 7722 SR 544 East, Winter Haven, Florida 33881,
Attention: George H. Carefoot, or hand delivered to Mr. Carefoot at or before
the taking of the vote at the special meeting.
First National/Polk will pay for the cost of the solicitation of
proxies. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers and employees of First National/Polk in person
or by telephone, or by other means of communication. These individuals will not
be additionally compensated but may be reimbursed for out-of-pocket expenses
they incur in connection with the solicitation. Arrangements also will be made
with custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of First National/Polk common stock held of
record by such persons. First National/Polk may reimburse these custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses they incur in
connection with the solicitation.
14
<PAGE> 20
THE MERGER
All material terms and provisions of the merger agreement are
disclosed in the proxy statement/prospectus. This section of the proxy
statement/prospectus describes some aspects of the merger. The following
descriptions are not complete and are qualified in their entirety by reference
to the merger agreement, which is attached as Appendix A to this document and
is incorporated by reference into this document. We urge you to read all of the
merger agreement carefully.
GENERAL INFORMATION ABOUT THE MERGER
On December 10, 1999, Centerstate Banks of Florida and First
National/Polk signed a merger agreement. The merger agreement provides that
First National/Polk will merge into an interim national banking subsidiary to
be formed by Centerstate Banks of Florida. After the merger, First
National/Polk will continue to conduct its business as it did prior to the
merger, and with the same name, directors, employees and banking offices,
except that it will be a subsidiary of Centerstate Banks of Florida.
Shareholders of First National/Polk will become shareholders of Centerstate
Banks of Florida, except to the extent that they exercise dissenters' rights in
the merger.
Centerstate Banks of Florida has entered into similar merger
agreements with First National Bank of Osceola County and Community National
Bank of Pasco County. The merger involving First National/Polk will not be
completed unless Centerstate Banks of Florida at the same time completes its
mergers with First National Bank of Osceola County and Community National Bank
of Pasco County. Thus, if the merger is completed, Centerstate Banks of Florida
will have three separate subsidiary banks consisting of First National/Polk,
First National Bank of Osceola County, and Community National Bank of Pasco
County. For additional information regarding Community National Bank of Pasco
County, see the information beginning at Appendix D to this proxy
statement/prospectus. For additional information regarding First National Bank
of Osceola County, see the information beginning at Appendix E to this proxy
statement/prospectus. Also, additional financial information regarding First
National Bank of Osceola County and Community National Bank of Pasco County is
included under the section entitled "Index to Financial Statements," beginning
on page F-1.
Assuming the conversion of all First National/Polk common stock, and
the conversion of all First National Bank of Osceola County and Community
National Bank of Pasco County common stock in their mergers, the consummation
of the First National/Polk, First National Bank of Osceola County and Community
National Bank of Pasco County mergers would result in 29.2%, 36.2%, and 34.6%
of the outstanding Centerstate Banks of Florida common stock being owned by
First National/Polk shareholders, First National Bank of Osceola County
shareholders, and Community National Bank of Pasco County shareholders,
respectively.
BACKGROUND OF THE MERGER
In 1989, James H. White and other individuals worked together to form
First National Bank of Osceola County and Community National Bank of Pasco
County as separate community banks in Central Florida. Mr. White currently
serves as Chairman of the Board of First National of Osceola County and
Community National Bank of Pasco County, positions he has held with each of the
banks since they opened in 1989. In forming the banks, there was some
discussion among the directors of the two banks about the possibility in the
future of combining the two banks under a holding company structure if the
circumstances and value were deemed appropriate by each of the banks at that
time. In 1992, Mr. White and other individuals from Winter Haven, Florida and
surrounding communities worked to organize First National
15
<PAGE> 21
Bank/Polk. Mr. White has served as Chairman of the Board of First National/Polk
since its opening in 1992. The Organizers of First National/Polk were aware of
the interest by First National Bank of Osceola County and Community National
Bank of Pasco County in possibly forming under a bank holding company
structure, and the directors of the three banks discussed this possibility from
time to time.
In 1993 and 1994, First National/Polk, Community National Bank of
Pasco County and First National Bank of Osceola County held meetings and
discussions with several other Florida community banks, regarding the
possibility of the three banks and other Florida banks combining as separate
subsidiary banks under a holding company. The discussions with the several
Florida community banks terminated in late 1994 with no agreements signed by
any of the banks.
From time to time thereafter, First National/Polk, Community National
Bank of Pasco County and First National Bank of Osceola County continued their
discussions regarding the possibility of the three banks reorganizing under a
bank holding company structure. These discussions became more frequent in the
early part of 1998. The three banks explored the advisability of building a
multi-bank holding company which would have the potential of offering publicly
traded stock and opportunities for share liquidity, thereby potentially
enhancing the value to the shareholders of each of the three banks. In the
second quarter of 1998, representatives of the three banks asked
representatives of Allen C. Ewing to meet with the directors of the three banks
regarding the consideration of forming a holding company. On May 7, 1998,
representatives of Allen C. Ewing met with the directors of the three banks to
discuss how peer mergers, or combination of equals transactions, are effected,
and various related issues including procedures for listing shares of publicly
traded companies, and information on publicly-traded Florida banks. In August
1998, the Presidents of the three banks, along with Mr. White and
representatives of Allen C. Ewing, met to discuss the possible bank holding
company formation. In September 1998, the three banks retained Allen C. Ewing
to provide assistance in assessing the basis on which the three banks could
reorganize under a bank holding company and the amount that each bank's
shareholders might own as a result of the transaction. As a part of this
process, the three banks exchanged and reviewed financial and other information
on their organizations. Also in September 1998, the three banks sent letters to
their shareholders advising that their directors were in the process of
assessing the formation of a holding company for the three banks, but
cautioning that the process may take an extended period of time to complete, if
at all, and that factors including the performance of bank stocks generally and
economic and market conditions could cause the banks to delay or cancel the
process.
The three banks continued to hold informal discussions during the
remainder of 1998 and the first half of 1999, and also continued to exchange
and review financial and other information on their organizations.
In August 1999, the presidents of the three banks met with Mr. White
and legal counsel to develop a more formal process for forming a bank holding
company and bringing the three banks underneath the holding company as separate
subsidiaries. On September 20, 1999, the three banks caused Centerstate Banks
of Florida to be incorporated under Florida law. On September 29, 1999,
representatives of the three banks met with representatives of Allen C. Ewing,
legal counsel, and accountants to discuss the organization of Centerstate Banks
of Florida and the process for the reorganization of the three banks under the
bank holding company. At the meeting, each of the banks appointed Mr. White and
two directors from each of the banks to serve as the seven member board of
directors of Centerstate Banks of Florida. Mr. White also was elected to serve
as Chairman, President and Chief Executive Officer of Centerstate Banks of
Florida.
During October 1999, the banks had several discussions with each other
as well as with Allen C. Ewing for purposes of Allen C. Ewing developing a
report for presentation to the three banks as well as to
16
<PAGE> 22
Centerstate Banks of Florida of a possible conversion ratio for the three
banks. On October 28, 1999, Allen C. Ewing representatives met with
representatives of the three banks and Centerstate Banks of Florida for an
overview of Allen C. Ewing's analysis of the three banks and its calculation of
possible conversion ratios. Without taking any action on the report, the
representatives of the three banks asked Allen C. Ewing to continue its
analysis and review of the banks' information and to report back to the banks
on Allen C. Ewing's recommended conversion ratio. Also during October 1999,
legal counsel prepared drafts of a form of merger agreement for consideration
by the directors of Centerstate Banks of Florida, and each of the three banks.
Allen C. Ewing continued its discussions with representatives of the
three banks during the first portion of November 1999 and, on November 11,
1999, advised Centerstate Banks of Florida and the three banks on a recommended
conversion ratio in connection with the proposed merger transaction. Based upon
its analysis, Allen C. Ewing indicated that it would be in a position to issue
a fairness opinion to each of the three banks based upon a recommended
conversion ratio of 1.62 shares of Centerstate Banks of Florida common stock
for each outstanding share of First National/Polk, 2.02 shares of Centerstate
Banks of Florida common stock for each outstanding share of Community National
Bank of Pasco County, and 2.0 shares of Centerstate Banks of Florida common
stock for each outstanding share of First National Bank of Osceola County.
On November 15, 1999, the Board of Directors of First National Bank of
Osceola County met to review the Allen C. Ewing report, information regarding
the banks, and the terms of the merger agreement. At this meeting, legal
counsel reviewed generally the fiduciary obligations of directors in sales of
financial institutions and commented on the form of definitive agreement and
affiliate agreements to be entered into between First National Bank of Osceola
County directors and Centerstate Banks of Florida. In connection with the
meeting, Allen C. Ewing had advised First National Bank of Osceola County that
the conversion ratio is fair, from a financial point of view, to the
shareholders of First National Bank of Osceola County. First National Bank of
Osceola County's board then unanimously approved the merger agreement. First
National Bank of Osceola County management also was authorized to execute the
merger agreement.
On November 17, 1999, the Board of Directors of Community National
Bank of Pasco County met to review the Allen C. Ewing report, information
regarding the banks, and the terms of the merger agreement. At this meeting,
legal counsel reviewed generally the fiduciary obligations of directors in
sales of financial institutions and commented on the form of definitive
agreement and affiliate agreements to be entered into between Community
National Bank of Pasco County directors and Centerstate Banks of Florida. In
connection with the meeting, Allen C. Ewing had advised Community National Bank
of Pasco County that the conversion ratio is fair, from a financial point of
view, to the shareholders of Community National Bank of Pasco County. Community
National Bank of Pasco County's board then unanimously approved the merger
agreement. Community National Bank of Pasco County management also was
authorized to execute the merger agreement.
On November 18, 1999, the Board of Directors of First National/Polk
met to review the Allen C. Ewing report, information regarding the banks, and
the terms of the merger agreement. At this meeting, legal counsel reviewed
generally the fiduciary obligations of directors in sales of financial
institutions and commented on the form of definitive agreement and affiliate
agreements to be entered into between First National/Polk directors and
Centerstate Banks of Florida. In connection with the meeting, Allen C. Ewing
had advised First National/Polk that the conversion ratio is fair, from a
financial point of view, to the shareholders of First National/Polk. First
National/Polk's board then unanimously approved the merger agreement. First
National/Polk management also was authorized to execute the merger agreement.
17
<PAGE> 23
On December 10, 1999, Centerstate Banks of Florida approved and
entered into the separate merger agreements with First National/Polk, Community
National Bank of Pasco County, and First National Bank of Osceola County.
The terms of the merger agreements between Centerstate Banks of
Florida and each of the three banks are similar, with the exception of the
conversion ratio applicable to the particular bank.
RECOMMENDATION OF THE FIRST NATIONAL/POLK BOARD
The First National/Polk board of directors has unanimously approved
the merger agreement and recommends that you vote FOR approval and adoption of
the merger agreement. The First National/Polk board of directors has determined
that the merger is in your best interest and in the best interest of First
National/Polk.
Without assigning any relative or specific weights to the factors, the
board of directors of First National/Polk considered the following material
factors:
- The terms of the merger agreement, including the conversion
ratio. The mergers would result in approximately 29.2% of the
outstanding Centerstate Banks of Florida common stock being
owned by First National/Polk shareholders. The First
National/Polk board believes that this resulting ownership
takes into account, and substantially patterns, the
contribution that First National/Polk will make to the
combined Centerstate Banks of Florida organization in the
primary areas of equity capital and net income. As set forth
in the "Opinion of financial advisor" section below, the
29.2% resulting Centerstate Banks of Florida ownership by
First National/Polk shareholders is in the range of First
National/Polk's 29.6% contribution to Centerstate fully
diluted equity capital at September 30, 1999 and the 29.8%
contribution to the forecasted fully diluted equity capital
at December 31, 1999, and also is in the range of the 27.4%
contribution by First National/Polk to Centerstate's
normalized net income for the 12 months ended September 30,
1999, and the 29.7% contribution to forecasted normalized net
income for the year ended December 31, 1999. It is also in
the range of the 26.8% forecasted contribution by First
National/Polk to Centerstate's fully diluted equity capital
at December 31, 2000 and the 26.8% forecasted normalized net
income of Centerstate for 2000.
- That upon completion of the merger, Centerstate Banks of
Florida intends to qualify its shares to be eligible for
trading on the Nasdaq system. Currently, there is no
established public trading market for the shares of First
National/Polk common stock, and its shares are not actively
traded. While there is no assurance, if such shares do qualify
for trading on the Nasdaq System then First National/Polk
shareholders may have the opportunity to sell their
Centerstate Banks of Florida stock through market makers who
can facilitate the sale in an established public trading
market. Currently, shareholders must sell in privately
negotiated transactions without the benefit of public
quotations or public information. Centerstate Banks of
Florida would have been the 11th largest publicly-traded
community bank headquartered in Florida, based upon December
31, 1999 market data information for publicly traded Florida
banks available to Centerstate Banks of Florida. Based upon
such market data, the average daily trading volume for the 10
largest such institutions during the months of November 1999,
December 1999 and January 2000 was 0.22% of outstanding
shares. Applying this average of 0.22% to the anticipated
2,853,854 shares of Centerstate Banks of Florida common stock
to be outstanding after the closing of the mergers, results
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<PAGE> 24
in an imputed average daily trading volume of 6,278 shares of
Centerstate Banks of Florida common stock. This is in excess
of the average daily trading volume of 99 shares for all
three banks combined during the same three month period,
taking into account the conversion ratio in the mergers.
Shareholders should understand that there is no assurance
that the average daily trading volume in Centerstate Banks of
Florida common stock following the merger would approximate
the averages discussed above, since several factors affect
stock trading volume including the underlying performance of
the institution, and prevailing economic and financial
conditions.
- That the merger will afford First National/Polk the
opportunity to participate in the ownership of a bank holding
company which, after the closing of the First National Bank of
Polk County and Community National Bank of Pasco County
mergers, would have greater capital resources than First
National/Polk. First National/Polk's shareholders equity as of
December 31 was $7.4 million. The combined capital of
Centerstate Banks of Florida following the closing of the
three bank mergers and based upon December 31, 1999 financial
information would be $23.3 million.
- That after the merger, First National/Polk will be able to
use the collective resources and capital of the entire
Centerstate Banks of Florida organization to serve more and
larger customers through a branching network not available to
any of the three banks and larger lending limits reflecting
the combined organization. Based upon First National/Polk's
capital at December 31, 1999, the maximum amount that it can
lend to one customer is approximately $1.1 million.
Centerstate Banks of Florida would have a total lending limit
of approximately $3.5 million taking into account the capital
of all three banks at December 31, 1999.
- The likelihood of receiving requisite regulatory approvals.
- The overall compatibility of operations and management of
First National/Polk, First National Bank of Osceola County,
and Community National Bank of Pasco County.
First National/Polk also entered into the merger agreement conditioned
upon it receiving from its financial advisor an opinion as to the fairness of
the conversion ratio from a financial point of view to the First National/Polk
shareholders. See "Opinion of financial advisor" below.
THE BOARD OF DIRECTORS OF FIRST NATIONAL/POLK UNANIMOUSLY RECOMMENDS
THAT FIRST NATIONAL/POLK SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT.
OPINION OF FINANCIAL ADVISOR
GENERAL
First National/Polk retained Allen C. Ewing as financial advisor in
connection with the merger. Allen C. Ewing was also retained by First National
Bank of Osceola County and Community National Bank of Pasco County to serve as
financial advisor in connection with the merger. Allen C. Ewing delivered to
First National/Polk a written opinion, dated December 22, 1999 as to the
fairness, from a financial point of view, of the conversion ratio to the
shareholders of First National/Polk.
Allen C. Ewing is regularly engaged in the valuation of securities in
connection with mergers and
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<PAGE> 25
acquisitions, underwritings, private placements, trading and market making
activities, and valuations for various other purposes for commercial banks. The
board of directors of First National/Polk engaged Allen C. Ewing based on its
experience as a financial advisor in mergers and acquisitions of financial
institutions, particularly transactions in Florida, and its general investment
banking experience in the financial services industry.
You should consider the following as you read this discussion of Allen
C. Ewing's opinion:
- The text of Allen C. Ewing's written opinion is located
in Appendix B to this proxy statement/prospectus and
should be read carefully and in its entirety by the
shareholders of First National/Polk.
- Allen C. Ewing's opinion is directed to the board of
directors of First National/Polk and addresses only the
fairness, from a financial point of view, of the conversion
ratio to the shareholders of First National/Polk.
- Allen C. Ewing's opinion was based on information provided by
First National/Polk, First National Bank of Osceola County,
and Community National Bank of Pasco County, as well as
general economic, market, and financial conditions as they
existed on the date of the opinion.
- Allen C. Ewing's opinion is subject to Centerstate Banks of
Florida completing its mergers with First National Bank of
Osceola County and Community National Bank of Pasco County at
the same time it completes its merger with First
National/Polk.
- Allen C. Ewing was not engaged to make any recommendations to
the board of directors of First National/Polk regarding
strategies other than the merger with Centerstate Banks of
Florida and Allen C. Ewing's opinion does not address the
underlying business decision by the board of directors of
First National/Polk to enter into the merger.
- Allen C. Ewing's opinion does not constitute a recommendation
to any First National/Polk shareholder as to how he or she
should vote on the merger.
In connection with its opinion, Allen C. Ewing reviewed, analyzed and
relied upon the following information provided by the management of First
National/Polk, First National Bank of Osceola County, and Community National
Bank of Pasco County:
- the merger agreement;
- audited financial statements for the three banks for the
three years ended December 31, 1998;
- unaudited interim financial information for the three banks
for various periods for the year 1999;
- forecasted results for the three banks, prepared by
management of each respective bank, for various periods for
the years 1999, 2000, and 2001; and
- normalized income for the three banks, prepared by management
of each respective bank, for various historical and future
periods.
In connection with its opinion, Allen C. Ewing also considered:
- publicly available information concerning the trading of
publicly-traded common stocks of Florida financial
institutions, as well as publicly available information
regarding mergers and acquisitions of Florida financial
institutions;
- the business prospects of the three banks, and the general
economies of their respective markets; and
20
<PAGE> 26
- other financial, economic, and regulatory factors deemed
relevant by Allen C. Ewing.
In conducting its review and arriving at its opinions, Allen C. Ewing
relied upon and assumed the accuracy and completeness of all of the financial
and other information provided to it or publicly available, and Allen C. Ewing
did not attempt to verify such information independently. Allen C. Ewing relied
upon the management of each bank as to the reasonableness and achievability of
all forecasts and adjustments for normalized income provided to Allen C. Ewing.
Allen C. Ewing assumed that such forecasts and adjustments reflected the best
available estimates and judgments of management and that such forecasts and
adjustments will be realized in the amounts and in the time periods estimated
by management.
Allen C. Ewing assumed, without independent verification, that the
aggregate allowances for loan and other losses for First National/Polk, First
National Bank of Osceola County, and Community National Bank of Pasco County
are adequate to cover such losses. Allen C. Ewing did not make or obtain any
inspections, evaluations, or appraisals of the assets or liabilities of the
three banks, nor did Allen C. Ewing examine any individual loan, property, or
securities files. Allen C. Ewing also assumed that First National/Polk, First
National Bank of Osceola County, and Community National Bank of Pasco County
have taken necessary steps to address Year 2000 issues and Allen C. Ewing makes
no representations with respect to the Year 2000 readiness of the three banks.
Allen C. Ewing assumed for purposes of its opinion that the merger
will qualify as a pooling of interests transaction under generally accepted
accounting principles and that the transaction will qualify as a tax-free
reorganization for income tax purposes. Allen C. Ewing also assumed that the
conditions to the merger as set forth in the merger agreement, including
receipt of any required governmental, regulatory, or other consents and
approvals, would be satisfied and that the merger would be consummated on a
timely basis as contemplated by the merger agreement.
Allen C. Ewing met with the boards of directors and management of First
National/Polk, First National Bank of Osceola County, Community National Bank of
Pasco County, and Centerstate Banks of Florida on several occasions for the
purposes of developing conversion ratios for the three banks. See "The
Merger - Background of the merger." Based on such meetings and the information
provided to Allen C. Ewing and other considerations as outlined under "The
Merger - Opinion of the financial advisor - General," Allen C. Ewing
recommended to each of the three banks a conversion ratio that, in Allen C.
Ewing's judgment, was fair, from a financial point of view, to the respective
shareholders of each of the three banks.
On November 11, 1999, Allen C. Ewing recommended conversion ratios of
1.62 shares of Centerstate Banks of Florida common stock for each outstanding
share of First National/Polk common stock, 2.00 shares of Centerstate Banks of
Florida common stock for each outstanding share of First National Bank of
Osceola County common stock, and 2.02 shares of Centerstate Banks of Florida
common stock for each outstanding share of Community National Bank of Pasco
County common stock. The recommended conversion ratios for each of the three
banks were subsequently approved by the boards of directors of each of the
three banks at meetings taking place during the week of November 15, 1999. See
"The Merger Background of the merger."
VALUATION METHODOLOGIES
In connection with its opinions, Allen C. Ewing performed various
analyses, a brief summary of which follows:
ANALYSIS OF TERMS OF THE MERGER. In the merger, each share of First
National/Polk common stock
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<PAGE> 27
outstanding will be converted into the right to receive 1.62 shares of
Centerstate Banks of Florida common stock. See "Conversion of shares."
ANALYSIS OF COMPARABLE TRANSACTIONS. Because of the relatively few
transactions involving peer mergers of three community banks with total assets
less than $100 million each, analysis of comparable transactions was not
utilized by Allen C. Ewing.
DISCOUNTED CASH FLOW ANALYSIS. Discounted cash flow analysis is based
on management's forecasted earnings and dividends for a period of years and a
projected value at the end of the period. The cash flow streams are then
discounted at various discount rates reflecting required rates of return and
the inherent risks in the cash flow projections. Because of the volatility in
earnings resulting from recent branch openings, the hiring of additional
officers and personnel, and other costs for First National/Polk, First National
Bank of Osceola County, and Community National Bank of Pasco County, discounted
cash flow analysis was not utilized by Allen C. Ewing.
CONTRIBUTION ANALYSIS. Allen C. Ewing calculated the contributions by
First National/Polk, First National Bank of Osceola County, and Community
National Bank of Pasco County to the pro forma balance sheet and income
statement of Centerstate Banks of Florida for various periods. The following
table presents various balance sheet and income statement contributions to be
made to Centerstate Banks of Florida by each of the three banks, compared to
the pro forma ownership in Centerstate Banks of Florida by the shareholders
from each of the three banks after the merger.
<TABLE>
<CAPTION>
First National Community
Bank of Osceola First National/ National Bank of
County Polk Pasco County
Contribution to Contribution to Contribution to
Centerstate Centerstate Centerstate
--------------- ---------------- ----------------
AT OR FOR THE TRAILING TWELVE
MONTHS ENDED SEPTEMBER 30, 1999:
<S> <C> <C> <C>
Fully Diluted Equity Capital 36.3% 29.6% 34.0%
Total Loans 40.3% 25.0% 34.8%
Total Deposits 38.7% 26.6% 34.8%
Total Assets 38.9% 26.3% 34.8%
Actual Net Income 34.8% 32.0% 33.2%
Normalized Net Income 36.1% 26.2% 37.7%
AT OR FOR THE YEAR
ENDING DECEMBER 31, 1999:
Forecasted Fully Diluted Equity Capital 36.3% 29.8% 33.8%
Forecasted Total Loans 40.3% 24.4% 35.4%
Forecasted Total Deposits 38.4% 26.7% 34.8%
Forecasted Total Assets 39.1% 26.2% 34.7%
Forecasted Net Income 35.8% 33.0% 31.2%
Forecasted Normalized Net Income 36.2% 27.4% 36.4%
</TABLE>
22
<PAGE> 28
<TABLE>
<CAPTION>
AT OR FOR THE YEAR
ENDING DECEMBER 31, 2000:
<S> <C> <C> <C>
Forecasted Fully Diluted Equity Capital 36.7% 29.7% 33.6%
Forecasted Total Loans 38.4% 24.3% 37.3%
Forecasted Total Deposits 37.3% 26.4% 36.3%
Forecasted Total Assets 38.3% 26.1% 35.6%
Forecasted Net Income 37.1% 29.7% 33.2%
Forecasted Normalized Net Income 37.6% 26.8% 35.6%
</TABLE>
<TABLE>
<CAPTION>
First National Community
Bank of Osceola First National/ National Bank of
County Polk Pasco County
---------------- --------------- ----------------
<S> <C> <C> <C>
Conversion Ratio 2.00 1.62 2.02
Pro Forma Fully Diluted Percentage
Ownership of Centerstate Banks of Florida
to be Owned by the Shareholders of Each
of the Three Banks 36.0% 29.1% 34.9%
</TABLE>
ACCRETION AND DILUTION ANALYSIS. Allen C. Ewing analyzed the pro forma
impact of the merger on fully diluted earnings per share and book value per
share of First National/Polk, First National Bank of Osceola County, and
Community National Bank of Pasco County. Allen C. Ewing's analysis showed that
the merger, compared to the continued operation of First National/Polk on a
stand-alone basis, would be:
- $0.12, or 8.96%, dilutive to earnings per share and $0.23, or
1.75%, dilutive to fully diluted book value per share for the
trailing twelve months ended September 30, 1999;
- $0.14, or 11.65%, dilutive to forecasted earnings per share
and $0.33, or 2.38%, dilutive to fully diluted forecasted
book value per share for the year ending December 31, 1999;
and
- $0.03, or 1.96%, dilutive to forecasted earnings per share
and $0.29, or 1.93%, dilutive to fully diluted forecasted
book value per share for the year ending December 31, 2000.
Allen C. Ewing's analysis showed that the merger, compared to the continued
operation of First National Bank of Osceola County on a stand-alone basis,
would be:
- $0.05, or 3.59%, accretive to earnings per share and $0.14,
or 0.85%, dilutive to fully diluted book value per share for
the trailing twelve months ended September 30, 1999;
- $0.01, or 0.51%, accretive to forecasted earnings per share
and $0.15, or 0.90%, dilutive to fully diluted forecasted
book value per share for the year ending December 31, 1999;
and
- $0.05, or 2.94%, dilutive to forecasted earnings per share
and $0.35, or 1.91%, dilutive to fully diluted forecasted
book value per share for the year ending December 31, 2000.
Allen C. Ewing's analysis showed that the merger, compared to the continued
operation of Community National Bank of Pasco County on a stand-alone basis,
would be:
- $0.07, or 4.87%, accretive to earnings per share and $0.39,
or 2.43%, accretive to fully diluted book value per share for
the trailing twelve months ended September 30, 1999;
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<PAGE> 29
- $0.14, or 11.71%, accretive to forecasted earnings per share
and $0.50, or 3.06%, accretive to fully diluted forecasted
book value per share for the year ending December 31, 1999;
and
- $0.08, or 5.04%, accretive to forecasted earnings per share
and $0.67, or 3.79%, accretive to fully diluted forecasted
book value per share for the year ending December 31, 2000.
STOCK TRADING HISTORY. Allen C. Ewing reviewed the prior stock trading
history for First National/Polk common stock and concluded that no active
trading market exists for First National/Polk common stock. After the merger,
Centerstate Banks of Florida intends to list its shares of common stock for
trading on the Nasdaq system, which may provide the opportunity for share
liquidity if an active trading market develops.
While the summary set forth above describes the material analyses
performed by Allen C. Ewing, it does not purport to be a complete description
of the analyses. The preparation of a fairness opinion is not necessarily
susceptible to partial analysis or summary description. Allen C. Ewing believes
that its analyses and the summary set forth above must be considered as a whole
and that selecting portions of its analyses without considering all analyses,
or selecting part or all of the above summary without considering all factors
and analyses, would create an incomplete view of the processes underlying the
analyses reflected in Allen C. Ewing's opinions. In addition, Allen C. Ewing
may have given various analyses more or less weight than other analyses and may
have deemed various assumptions more or less probable than other assumptions,
so that the ranges of valuations resulting from any particular analysis
described above should not be taken to be Allen C. Ewing's view of the actual
value of First National/Polk, First National Bank of Osceola County, or
Community National Bank of Pasco County. The fact that any specific analysis
has been referred to in the summary above is not intended to indicate that such
analysis was given greater weight than any other analysis.
In performing its analyses, Allen C. Ewing made numerous assumptions
with respect to industry performance, general business, and economic conditions
and other matters, many of which are beyond the control of First National/Polk,
First National Bank of Osceola County, and Community National Bank of Pasco
County. The analyses performed by Allen C. Ewing are not necessarily indicative
of actual values or actual future results, which may be significantly more or
less favorable than suggested by such analyses. Such analyses were prepared
solely as part of Allen C. Ewing's analysis of the fairness, from a financial
point of view, of the conversion ratio to the shareholders of First
National/Polk. The analyses do not purport to be appraisals or to reflect the
prices at which a company actually might be sold or the prices at which any
securities may trade at the present time or at any time in the future. In
addition, as described above, Allen C. Ewing's opinion is just one of many
factors taken into consideration by the board of directors of First
National/Polk in determining to enter into the merger agreement.
In the ordinary course of its business as a broker/dealer, Allen C.
Ewing may, from time to time, purchase securities from, and sell securities to,
banking and thrift companies and as a market maker in securities may, from time
to time, have a long or short position in, and buy or sell, debt or equity
securities of banking and thrift companies for its own account and for the
account of its customers. As of the date of this proxy statement/prospectus,
Allen C. Ewing had no such position in the securities of First National/Polk,
First National Bank of Osceola County, Community National Bank of Pasco County,
or Centerstate Banks of Florida.
COMPENSATION OF ALLEN C. EWING
First National/Polk, First National Bank of Osceola County, and
Community National Bank of Pasco County have agreed to pay Allen C. Ewing a
total fee equal to $25,000 ($8,333 each) for financial advisory
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<PAGE> 30
services rendered in connection with the merger. Further, each of the three
banks has agreed to reimburse Allen C. Ewing for reasonable out-of-pocket
expenses incurred in connection with acting as financial advisor to each. Each
of the three banks has also agreed to indemnify and hold harmless Allen C.
Ewing and its directors, officers, and employees against certain liabilities,
including liabilities under the federal securities laws, in connection with its
services.
CENTERSTATE'S REASONS FOR THE MERGER
Centerstate Banks of Florida has not yet conducted any business and
will not until the proposed merger is consummated. It has no assets or
liabilities other than $1.00 initial capitalization. It was formed solely to
serve as the corporate entity under which the three banks would be reorganized.
Centerstate Banks of Florida was organized by the three banks, and its
directors consist of individuals who also serve as directors of the three
banks. Thus, Centerstate Banks of Florida's reasons for engaging in the
transaction are to facilitate the reorganization of the three banks under one
corporate entity, which in turn would be owned by the shareholders of the
banks.
CONVERSION RATIO
As a result of the merger, each share of First National/Polk common
stock outstanding immediately prior to effectiveness of the merger, other than
shares as to which dissenters' rights have been perfected under the national
banking laws, will be converted into the right to receive 1.62 shares of
Centerstate Banks of Florida common stock. This is referred to as the
conversion ratio. Centerstate Banks of Florida will not issue fractional shares
of its common stock. A holder of First National/Polk common stock otherwise
entitled to a fractional share will be paid cash in lieu of such fractional
share based on the book value of First National/Polk common stock on the last
day of the month prior to or on the date the merger becomes effective.
INTEREST OF CERTAIN PERSONS IN THE MERGER
All of First National/Polk's directors and officers will obtain an
equity interest in Centerstate Banks of Florida in exchange for their shares of
First National/Polk common stock in the merger. Each of them will receive the
same number of shares of Centerstate Banks of Florida common stock for each
share of First National/Polk common stock owned by him or her as every other
First National/Polk shareholder. Directors and officers of First National/Polk
will be treated the same as other First National/Polk shareholders, except that
they may be subject to certain restrictions on any resale of Centerstate Banks
of Florida common stock received by them in the merger. See "Resales of
Centerstate Banks of Florida common stock to be received by affiliates of First
National/Polk" below.
First National/Polk has outstanding stock options covering 37,450
shares of First National/Polk common stock. These options will be assumed by
Centerstate Banks of Florida and will continue as outstanding options
exercisable for shares of Centerstate Banks of Florida common stock. Each
holder of an option will have the right to acquire after effectiveness of the
merger a number of shares of Centerstate Banks of Florida common stock equal to
the product, rounded up to the next whole number, of (1) the number of shares
of First National/Polk common stock covered by the option and (2) the
conversion ratio. The exercise price at which the option will be exercisable
will be an amount, rounded up to the next whole cent, computed by dividing (1)
the exercise price per share of the option, by (2) the conversion ratio. Option
holders who exercise their options prior to effectiveness of the merger and
receive First National/Polk common stock will
25
<PAGE> 31
receive Centerstate Banks of Florida common stock in the merger in the same
manner as any other First National/Polk shareholder.
The merger agreement also provides that after effectiveness of the
merger, Centerstate Banks of Florida will indemnify the present and former
officers, directors and employees of First National/Polk against losses
incurred by them prior to effectiveness of the merger to the full extent
allowed under Florida law and by the articles of incorporation of First
National/Polk.
EFFECTIVENESS OF THE MERGER
The merger will become effective on the date and time set forth in the
certificate of merger relating to the merger issued by the Comptroller of the
Currency. Unless otherwise agreed to by First National/Polk and Centerstate
Banks of Florida, the effectiveness of the merger will occur on the tenth
business day following the later to occur of (1) the effective date of the last
required regulatory approval to consummate the merger, (2) the date on which
First National/Polk shareholders approved the merger agreement, and (3) the
date on which all other conditions required for consummation of the merger are
completed.
REGULATORY APPROVALS FOR THE MERGER
The Board of Governors of the Federal Reserve System and the Office of
the Comptroller of the Currency have approved the merger.
RIGHTS OF DISSENTING SHAREHOLDERS
The national banking laws afford you the right to dissent from the
merger and receive cash for the value of your shares. The following is a brief
summary of the steps you must take to perfect your dissenters' rights under the
national banking laws. This summary does not purport to be complete and is
subject in all respects to the provisions of the national banking laws which
are reproduced as Appendix C to this proxy statement/prospectus. A shareholder
of First National/Polk who wishes to exercise his or her dissenters' rights:
- must either give written notice to the President of First
National/Polk, at or prior to the special meeting, of the
holder's dissent from the merger or must vote against the
merger at the special meeting;
- within 30 days after the effectiveness of the merger, must
make a written request to First National/Polk for appraisal;
and
- must send his or her First National/Polk stock certificates
with the written request for appraisal.
The written notices and written requests to First National/Polk should
be addressed to: George H. Carefoot, President and Chief Executive Officer,
First National Bank of Polk County, 7722 SR 544 East, Winter Haven, Florida
33881.
If you perfect your dissenters' rights, the value of your shares will
be determined as of the effectiveness of the merger by an appraisal made by a
committee of three persons. One person will be selected by a vote of the
holders of a majority of the stock, the owners of which are exercising their
dissenters' rights. The second member will be selected by the board of
directors of First National/Polk. The third
26
<PAGE> 32
member will be selected by the two persons so selected. The value agreed upon
by any two of the three appraisers governs. If the value so fixed is not
satisfactory to a dissenting shareholder who has requested payment, that
shareholder may within five days after being notified of the appraised value of
the shares, appeal to the Comptroller of the Currency. The Comptroller of the
Currency will cause a reappraisal to be made which will be final and binding as
to the value of the shares. If within 90 days after effectiveness of the
merger, one or more of the appraisers is not selected for any reason, or the
appraisers fail to determine the value of the shares, the Comptroller of the
Currency will, upon request of any interested party, cause an appraisal to be
made. This appraisal will be final and binding on all parties. The expenses of
the Comptroller of the Currency in making the reappraisal or the appraisal will
be paid by First National/Polk.
To exercise your dissenters' rights, strict adherence to the
provisions of the national banking laws is required. If you think you may
desire to exercise your dissenters' rights, you should carefully review
the statutory provisions attached to this proxy statement/prospectus as
Appendix C. As in all legal matters, you would be well advised to seek the
guidance of an attorney.
If you receive cash for the fair value of your shares of First
National/Polk common stock, that cash will be subject to federal income taxes.
The amount of gain or loss and its character as ordinary or capital gain or
loss will be determined in accordance with the Internal Revenue Code. If you
are contemplating the possible exercise of dissenters' rights, you are urged to
consult a tax advisor as to the federal and any applicable state and local
income tax consequences resulting from such an election.
RESALES OF CENTERSTATE BANKS OF FLORIDA COMMON STOCK TO BE RECEIVED BY
AFFILIATES OF FIRST NATIONAL/POLK
The shares of Centerstate Banks of Florida common stock that you will
receive in the merger will be registered under the Securities Act of 1933.
Under current law, if you are not an affiliate of First National/Polk or
Centerstate Banks of Florida within the meaning of Rule 144 under the
Securities Act, you may sell or transfer any shares of Centerstate Banks of
Florida common stock that you receive in the merger without need of further
registration under the Securities Act.
If you are an affiliate of First National/Polk before the merger or an
affiliate of Centerstate Banks of Florida after the merger, you may resell the
shares of Centerstate Banks of Florida common stock issued to you in the merger
only:
- in transactions permitted by Rule 144 and 145 under the
Securities Act;
- pursuant to an effective registration statement; or
- in transactions exempt from registration.
Generally, if you are an executive officer, director or principal
shareholder or other control person of First National/Polk or Centerstate Banks
of Florida, you may be deemed to be an affiliate for these purposes. Other
shareholders would not be deemed to be affiliates. Rule 144 and 145, insofar as
relevant to the merger, impose restrictions on the manner in which affiliates
may make resales and also on the quantity of resales that such affiliates, and
others with whom they may act in concert, may make within any three-month
period.
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<PAGE> 33
ACCOUNTING TREATMENT OF THE MERGER
Centerstate Banks of Florida intends to treat the merger as a pooling
of interests for accounting purposes. The unaudited pro forma financial
information included in this proxy statement/prospectus reflects the merger
using the pooling of interests method of accounting.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The merger is conditioned upon receipt of an opinion as to the
principal federal income tax consequences expected to result from the merger.
KPMG LLP has provided this opinion.
The following summary of the material federal income tax consequences
expected to result from the merger is qualified in its entirety by reference to
the full text of the opinion of KPMG LLP, including the assumptions upon which
that opinion is based. The opinion is filed as Exhibit 8 to the registration
statement of which this proxy statement/prospectus is a part. Neither the
opinion nor this summary addresses any tax considerations under foreign, state
or local laws, or the tax considerations to shareholders other than individual
United States citizens who hold their shares of First National/Polk common
stock or Centerstate Banks of Florida common stock as capital assets within the
meaning of the Internal Revenue Code.
No rulings have been requested from the Internal Revenue Service as to
the federal income tax consequences of the merger. You should be aware that the
opinion of KPMG LLP is not binding on the Internal Revenue Service and the
Internal Revenue Service is not precluded from taking a different position. You
should also be aware that some of the federal income tax consequences of the
merger are governed by provisions of the Internal Revenue Code as to which
there are no final regulations and little or no judicial or administrative
guidance. KPMG LLP's opinion is based upon the federal income tax laws as in
effect on the date of the opinion and as those laws are currently interpreted.
There can be no assurance that future legislation, regulations, administrative
rulings or court decisions will not adversely affect the accuracy of the
statements contained in this proxy statement/prospectus or in the opinion.
Subject to the limitations and assumptions described above, KPMG LLP
will render an opinion to Centerstate Banks of Florida and First National/Polk
that the merger will have the following federal income tax consequences:
- No gain or loss will be recognized by Centerstate Banks of
Florida or First National/Polk as a result of the
transactions contemplated in the merger agreement;
- No gain or loss will be recognized by the shareholders of
First National/Polk as a result of their exchange of First
National/Polk common stock for Centerstate Banks of Florida
common stock, except to the extent that any shareholder
receives cash in lieu of a fractional share or as a
dissenting shareholder;
- The holding period of the Centerstate Banks of Florida common
stock received in the merger will include the period during
which the stock of First National/Polk exchanged therefor was
held, provided such stock was a capital asset in the hands of
the holder on the date of the exchange; and
- The federal income tax basis of the Centerstate Banks of
Florida common stock received in the merger will be the same
as the basis of the First National/Polk common stock
exchanged therefor.
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<PAGE> 34
The tax consequences of the merger may vary depending upon your
particular circumstances. You are urged to consult your own tax advisor to
determine the particular tax consequences of the merger to you, including the
applicability and effect of any state, local or foreign income, property,
transfer or other tax laws.
HOW TO EXCHANGE FIRST NATIONAL/POLK STOCK CERTIFICATES FOR CENTERSTATE BANKS OF
FLORIDA STOCK
Promptly after the merger becomes effective, Centerstate Banks of
Florida will mail transmittal and exchange instructions to each holder of
record of First National/Polk common stock to be used to exchange shares of
First National/Polk common stock for shares of Centerstate Banks of Florida
common stock. These transmittal letters will be accompanied by instructions
specifying other details of the exchange. You should not send in your
certificates until you receive a transmittal form and instructions.
After the merger becomes effective, each certificate for shares of
First National/Polk common stock will be deemed to represent only the right to
receive:
- the number of shares of Centerstate Banks of Florida common
stock that the holder is entitled to receive in the merger;
and
- the cash payment for any fractional share of First
National/Polk common stock.
The holder of an unexchanged certificate will not be entitled to
receive any dividend or other distribution payable by Centerstate Banks of
Florida until the certificate has been exchanged.
CONDUCT OF BUSINESS PENDING THE MERGER
In the merger agreement, First National/Polk and Centerstate Banks of
Florida have agreed that until the merger becomes effective or the merger
agreement is terminated, each will, with some exceptions:
- use its best efforts to take all actions necessary for all
regulatory applications to be approved and use reasonable
efforts to remove any condition unduly restricting the
operations or materially adversely affecting the condition of
Centerstate Banks of Florida or First National/Polk or
rendering consummation of the merger unduly burdensome;
- use its best efforts to obtain any consents and approvals
required to consummate the merger;
- refrain from taking any action which would cause any
representations and warranties to become untrue in any
material respect or any condition set forth in the merger
agreement to not be satisfied;
- continue to file all reports and documents required with
appropriate regulatory authorities;
- refrain from taking any action which would disqualify the
merger as a tax-free reorganization under the Internal
Revenue Code;
- permit representatives of the other party to have full access
to information and documents pertaining to it;
- notify the other of any material adverse development
affecting its business;
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<PAGE> 35
- conduct its business in the ordinary course consistent with
past practices;
- use reasonable efforts to maintain its business organization,
employees and business relationships; and
- take no action which would adversely affect or delay the
ability of any party to obtain any consent or approval
required for the merger.
In addition, until the merger becomes effective, First National/Polk
and Centerstate Banks of Florida have each agreed that it will not
- incur any debt other than the ordinary course of business;
- make any change in its capital structure, except for the
payment of dividends consistent with past practices and the
issuance of shares upon the exercise of stock options;
- sell any of its material properties or assets or cancel any
material indebtedness, except in the ordinary course of
business;
- make any material investment in any other entity, except in
the ordinary course of business;
- enter into or terminate, or make any changes to, any material
leases or contracts, other than renewals, and except in the
ordinary course of business;
- increase in any material manner the compensation of its
employees or implement or change any benefit plans, except in
the ordinary course of business;
- amend its articles of association or bylaws;
- enter into any new material line of business;
- change its lending, investment, liability management and
other material banking policies in any respect which is
material;
- incur or commit to any capital expenditure other than the
ordinary course of business;
- change its method of accounting; or
- issue or sell any additional shares, except upon the
conversion of outstanding options.
The merger agreement also provides that neither Centerstate Banks of
Florida nor First National/Polk may solicit or encourage or consider or
participate in the negotiation or the submission of a proposal or offer from
any person relating to any recapitalization, merger, acquisition of 25% or more
of its stock or assets, or similar transaction. This excludes the agreements
that Centerstate Banks of Florida has entered into to similarly acquire First
National Bank of Osceola County and Community National Bank of Pasco County.
However, either party can consider and negotiate regarding any prohibited
proposal to the extent its board of directors determines in good faith that the
failure to do so would be inconsistent with its fiduciary obligations. If a
party makes this determination, it must promptly notify the other party.
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<PAGE> 36
CONDITIONS FOR THE MERGER
The obligations of First National/Polk and Centerstate Banks of
Florida to affect the merger are subject to conditions, including:
- the approval of the merger agreement by the holders of at
least two-thirds of the outstanding shares of First
National/Polk common stock;
- receipt of the approval of the merger by all bank regulatory
agencies, without inclusion of any condition which would
unduly restrict the operations, or would materially adversely
affect the condition, of Centerstate Banks of Florida or
First National/Polk or make consummation of the merger unduly
burdensome;
- the accuracy in all material respects of the representations
and warranties of the parties set forth in the merger
agreement;
- the absence of any pending or threatened action or proceeding
which would prevent consummation of the merger or would
adversely affect the rights of a party after effectiveness of
the merger to own, operate or control its assets;
- the shareholders equity of First National/Polk on the last
day of the calendar month immediately preceding effectiveness
of the merger shall not be less than the amount at September
30, 1999;
- the holders of no more than 5% of the outstanding First
National/Polk common stock shall have elected to exercise
their dissenters' rights in the merger.
The closing of the merger is also conditioned upon the simultaneous
closing by Centerstate Banks of Florida of the First National Bank of Osceola
County and Community National Bank of Pasco County mergers.
EXPENSES AND FEES RELATED TO THE MERGER
Each party to the merger agreement will bear its own expenses incurred
in connection with the merger.
AMENDMENT, WAIVER AND TERMINATION
The merger may be terminated at any time prior to the merger, either
before or after the special meeting by mutual consent of Centerstate Banks of
Florida and First National/Polk. In addition, the merger agreement may be
terminated at any time by either Centerstate Banks of Florida or First
National/Polk if:
- the effectiveness of the merger has not occurred by December
31, 2000;
- there is a material breach of a representation, warranty or
covenant by the other party, which has not been cured within
15 days after written notice of the breach has been given;
- if a material adverse development occurs affecting the
condition of the other party;
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<PAGE> 37
- if the merger fails to receive approval of the First
National/Polk shareholders; or
- if any approval from a bank regulatory agency required for
effectiveness of the merger is not received, or includes
conditions which in the reasonable judgment of a party would
unduly impair or restrict the operations or materially
adversely affect the condition of either party, or render
consummation of the merger unduly burdensome.
If the merger agreement is terminated, no party will have any further
liability to the other party, except for any liability of a party which
breaches the merger agreement.
Substantially all of the conditions to consummating the merger may be
waived to the extent permissible under law by the party for whose benefit the
condition has been imposed, without the approval of shareholders of First
National/Polk.
DIFFERENCE IN RIGHTS OF CENTERSTATE BANKS OF FLORIDA
AND FIRST NATIONAL/POLK SHAREHOLDERS
As a result of the merger, shareholders of First National/Polk will
exchange their shares of common stock in First National/Polk for shares of
common stock in Centerstate Banks of Florida and will become shareholders of
Centerstate Banks of Florida. First National/Polk is a national banking
association and subject to the national banking laws. Centerstate Banks of
Florida is a Florida corporation and subject to Florida law. As discussed
below, there are certain differences between the national banking laws and the
laws of the State of Florida that will change the rights of First National/Polk
shareholders as a result of their becoming shareholders of Centerstate Banks of
Florida. In addition, the following also summarizes certain differences between
Centerstate Banks of Florida's articles of incorporation and bylaws and the
articles of association of First National/Polk.
AUTHORIZED CAPITAL STOCK
Centerstate Banks of Florida is authorized to issue up to 20,000,000
shares of common stock. As of the date of this proxy statement/prospectus, only
one share of common stock was outstanding which was held by James H. White
solely to facilitate the organization of Centerstate Banks of Florida. First
National/Polk articles authorize the issuance of up to 5,000,000 shares of
First National/Polk common stock.
The Centerstate Banks of Florida articles also authorize Centerstate
Banks of Florida to issue up to 5,000,000 shares of preferred stock, none of
which were issued or outstanding as of the date of this Proxy Statement. The
First National/Polk articles do not authorize the issuance of any shares of
First National/Polk preferred stock. The shares of Centerstate Banks of Florida
preferred stock may be issued by the Centerstate Banks of Florida board from
time to time without further shareholder action, in one or more series, and
with such relative rights and preferences as the board may determine. As to any
series this may include the dividend rate, the terms and conditions of
redemption, liquidation value, voting rights, conversion rights, and such other
relative, participating, optional, or special rights, qualifications,
limitations, or restrictions as the Centerstate Banks of Florida board may
determine.
The Centerstate Banks of Florida board of directors may authorize the
issuance of additional shares of Centerstate Banks of Florida common stock or
preferred stock without further action by the Centerstate Banks of Florida
shareholders, unless such action is required in a particular case by applicable
law. The authority to issue additional shares of Centerstate Banks of Florida
common stock or preferred stock provides
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<PAGE> 38
Centerstate Banks of Florida with the flexibility necessary to meet its future
needs without the delay resulting from seeking shareholder approval. The
unissued shares of Centerstate Banks of Florida common stock and preferred
stock may be issued from time to time for any corporate purposes, including
stock splits, stock dividends, employee benefit and compensation plans,
acquisitions, and public or private sales for cash as a means of raising
capital. Such shares could be used to dilute the stock ownership of persons
seeking to obtain control of Centerstate Banks of Florida. In addition, the
sale of a substantial number of shares of Centerstate Banks of Florida common
stock or the sale of preferred stock to persons who have an understanding with
Centerstate Banks of Florida concerning the voting of such shares, or the
distribution or dividend of such shares, may have the effect of discouraging or
increasing the cost of unsolicited attempts to acquire control of Centerstate
Banks of Florida. Further, because the Centerstate Banks of Florida board has
the power to determine the voting, conversion or other rights of Centerstate
Banks of Florida preferred stock, the issuance of a series of preferred stock
to persons friendly to management could effectively discourage or preclude
consummation of a change in control transaction or have the effect of
maintaining the position of Centerstate Banks of Florida incumbent management.
Centerstate Banks of Florida does not currently have any plans or commitments
to effect any such issuance, but reserves the right to take any action that the
board of directors deems to be in the best interests of Centerstate Banks of
Florida and its shareholders.
VOTING
Each holder of First National/Polk common stock is entitled to one
vote for each share of First National/Polk common stock held, except in the
election of directors. In all elections of directors, each First National/Polk
shareholder has the right to vote the number of shares of First National/Polk
common stock owned by such shareholder for as many persons as there are
directors to be elected, or to use cumulative voting, which permits the
shareholder to cumulate such shares and give one candidate as many votes as
will equal the number of directors multiplied by the number of shares of such
shareholder's stock, or to distribute such shareholder's votes on the same
principle among as many candidates as the shareholder shall think fit.
Shareholders of Centerstate Banks of Florida do not have cumulative voting
rights. Each share of Centerstate Banks of Florida common stock entitles the
holder thereof to one vote on all matters, including the election of directors.
First National/Polk may effect mergers or consolidations if the
holders of at least two-thirds of the outstanding shares of First National/Polk
common stock cast their votes in favor of such a proposal. Centerstate Banks of
Florida may effect mergers or consolidations if the holders of a majority of
the outstanding shares of Centerstate Banks of Florida common stock cast their
votes in favor of such a proposal.
SHAREHOLDERS' MEETINGS
Special meetings of First National/Polk shareholders may be called by
the Board or any 20 or more shareholders owning, in the aggregate, not less
than 20% of the outstanding First National/Polk shares. Centerstate Banks of
Florida's Bylaws provide that special meetings of Centerstate Banks of Florida
shareholders may be called by the Chairman, the President, the board of
directors or by the holders of not less than one-third of the outstanding
Centerstate Banks of Florida shares.
DIVIDEND RIGHTS
The holders of First National/Polk common stock are entitled to
dividends when, as and if declared by First National/Polk's board of directors
out of funds legally available therefor. However, national banks are subject to
the provisions of the national banking laws which limit the payment of
dividends by national banks if (1) such dividends would impair the bank's
capital structure, (2) the bank's surplus fund is not equal
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<PAGE> 39
to its common capital, or (3) dividends declared in any year would exceed the
total of net profits in that year combined with retained net profits for the
preceding two years, less any required transfer to surplus.
Holders of Centerstate Banks of Florida common stock are entitled to
dividends when, as and if declared by Centerstate Banks of Florida's board of
directors out of funds legally available therefor. Under Florida law, a
dividend may not be paid if, after giving effect to the dividend, the
corporation would not be able to pay its debts as they become due in the usual
course of business or the corporation's total assets would be less than the sum
of its total liabilities plus the amount that would be needed if the
corporation were to dissolve to satisfy the preferential rights of those
shareholders whose rights are superior to those receiving the distribution.
APPRAISAL RIGHTS
Both the national banking laws and Florida corporate law provide that
dissenting shareholders have appraisal rights with respect to mergers and
consolidations. These appraisal rights differ primarily in the procedures
employed to determine the value of the shares. Under the national banking laws,
the value of shares of dissenting shareholders is determined by an appraisal
made by a committee of three persons composed of one selected by the vote of
the holders of a majority of the shares as to which dissenters' rights are
exercised, one selected by the directors and one selected by the two so
selected. Any shareholder may within five days after being notified of the
appraised value of the shares, as determined by two of the three appraisers,
appeal to the OCC, who must reappraise the shares. The OCC's determination is
final and binding.
Under Florida law, a corporation is entitled to make a written offer
to each dissenting shareholder to pay an amount the corporation estimates to be
the fair value of the shares to which dissenters' rights have been exercised.
If the corporation fails to make such an offer or a dissenting shareholder
fails to accept it, then the corporation, at its own election or upon demand
from any dissenting shareholder given within certain time periods, may file an
action in state court requesting that the fair value of the shares be
determined. The court has the option of appointing one or more persons to act
as appraisers to receive evidence and recommend a decision on the question of
fair value. The court also has the discretion of including a fair rate of
interest.
Florida law provides that holders of shares which are traded on the
NASDAQ national market system or an exchange, or held of record by not fewer
than 2,000 shareholders, do not have dissenters' rights with respect to a plan
of merger or share exchange, or a proposed sale or exchange of property. After
the First National/Polk, First National Bank of Osceola County and Community
National Bank of Pasco County mergers, Centerstate Banks of Florida intends to
make application to qualify the shares of Centerstate Banks of Florida common
stock for trading under the NASDAQ system. If such shares are designated a
NASDAQ national market system security, then holders of Centerstate Banks of
Florida common stock will not have dissenters' rights in connection with a plan
of merger or share exchange, or a proposed sale or exchange of property,
submitted by Centerstate Banks of Florida to a vote of the Centerstate Banks of
Florida shareholders.
CONTROL SHARE AND FAIR PRICE LAWS
Centerstate Banks of Florida is subject to several provisions under
Florida law which may deter or frustrate unsolicited attempts to acquire
certain Florida corporations. These statutes, commonly referred to as the
"Control Share Act" and the "Fair Price Act," apply to most public corporations
organized in Florida unless the corporation has specifically elected to opt out
of such provisions. Centerstate Banks of Florida has
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<PAGE> 40
not elected to opt out of these provisions. The Fair Price Act generally
requires that certain transactions between a public corporation and an
affiliate must be approved by two-thirds of the disinterested directors or
shareholders, not including those shares beneficially owned by an "interested
shareholder". The Control Share Act generally provides that shares of a public
corporation acquired in excess of certain specified thresholds will not posses
any voting rights unless such voting rights are approved by a majority vote of
the corporation's disinterested shareholders. These anti-takeover provisions of
Florida law could result in Centerstate Banks of Florida being less attractive
to a potential acquiror and/or result in shareholders receiving less for their
shares than otherwise might be available in the event of an unsolicited
takeover attempt.
MARKET AND DIVIDEND INFORMATION
STOCK TRADING INFORMATION
Centerstate Banks of Florida has only one share outstanding, which is
held by James H. White solely to facilitate the organization of Centerstate
Banks of Florida. Thus, no shares of Centerstate Banks of Florida common stock
have been traded and there is no established public trading market for the
shares.
After the First National/Polk, First National Bank of Osceola County
and Community National Bank of Pasco County mergers, Centerstate Banks of
Florida intends to make application to qualify the shares of Centerstate Banks
of Florida common stock for trading under the NASDAQ System. Although
Centerstate Banks of Florida believes that the shares of Centerstate Banks of
Florida common stock will meet the qualification for trading under the NASDAQ
System, including the qualifications for the NASDAQ national market system,
there is no assurances as to whether or when the shares will be accepted for
trading under the NASDAQ System.
First National/Polk common stock is not actively traded, and such
trading activity, as it occurs, takes place in privately negotiated
transactions. There is no established public trading market for the shares of
First National/Polk common stock. Management of First National/Polk is aware of
certain transactions in its shares that have occurred since January 1, 1998,
although the actual trading prices of all stock transactions are not known.
The following sets forth the high and low trading prices for certain
trades of First National/Polk common stock that occurred in transactions known
to First National/Polk since January 1, 1998:
<TABLE>
<CAPTION>
2000
1998 1999 (THROUGH MARCH 6, 2000)
---- ---- -----------------------
HIGH LOW SHARES HIGH LOW SHARES HIGH LOW SHARES
---- --- ------ ---- --- ------ ---- --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $16.50 $16.00 1,050 $17.50 $17.50 700 -- -- --
2nd Quarter -- -- -- 20.00 18.00 1,400
3rd Quarter 17.50 17.50 1,200 18.00 18.00 1,200
4th Quarter 17.50 17.50 1,500 18.00 18.00 5,200
</TABLE>
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The last sale of First National/Polk common stock of which First
National/Polk management had knowledge prior to the December 10, 1999 date of
the merger agreement occurred on October 20, 1999 at a price of $18.00 per
share. The last sale of First National/Polk common stock of which First
National/Polk management had knowledge of occurred on December 17, 1999 at a
price of $18.00 per share. As noted above, there is no established public
trading market for the shares of First National/Polk common stock or
Centerstate Banks of Florida common stock.
First National/Polk had approximately 361 shareholders of record as of
December 31, 1999.
DIVIDENDS
Since Centerstate Banks of Florida has not commenced any business, it
has not paid any dividends. First National/Polk paid cash dividends of $.15 per
share in 1998, and $.18 per share in 1999. The Centerstate Banks of Florida
board may consider the payment of regular quarterly dividends following
completion of the First National/Polk, First National Bank of Osceola County
and Community National Bank of Pasco County mergers. If at any time the
Centerstate Banks of Florida board determines to pay dividends on the
Centerstate Banks of Florida common stock, the timing and the extent to which
dividends are paid by Centerstate Banks of Florida will be determined by such
board in light of then-existing circumstances, including Centerstate Banks of
Florida's rate of growth, profitability, financial condition, existing and
anticipated capital requirements, the amount of funds legally available for the
payment of cash dividends, regulatory constraints and such other factors as the
board determines relevant. The primary source of funds for payment of dividends
by Centerstate Banks of Florida is dividends paid to Centerstate Banks of
Florida by First National/Polk, First National Bank of Osceola County and
Community National Bank of Pasco County. There are various statutory
limitations on the dividends paid by such banks. For additional information
regarding the restrictions on the payment of dividends by national banks and
Florida corporations, see "Difference in Rights of Centerstate Banks of Florida
and First National/Polk Shareholders Dividend Rights" and "Supervision and
Regulation -- Dividends."
DESCRIPTION OF CENTERSTATE BANKS OF FLORIDA
CONDUCT OF BUSINESS PRIOR TO THE MERGER
Centerstate Banks of Florida was formed as a Florida corporation on
September 20, 1999 to serve as a bank holding company for First National/Polk,
First National Bank of Osceola County and Community National Bank of Pasco
County. The outstanding capital stock of Centerstate Banks of Florida consists
of one share of common stock, which is owned by James H. White solely to
facilitate the organization of the company. Mr. White is chairman of the board
of each of First National/Polk, First National Bank of Osceola County and
Community National Bank of Pasco County. The merger agreement provides that
prior to effectiveness of the merger Centerstate Banks of Florida will not
conduct any business operations or enter into any contract or agreement of any
kind, acquire any asset, or incur any liability, except as contemplated by the
merger agreement.
Centerstate Banks of Florida has not commenced operations and will not
until the proposed merger is consummated and has no assets or liabilities other
than $1.00 initial capitalization.
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CONDUCT OF BUSINESS FOLLOWING THE MERGER
Following the merger, Centerstate Banks of Florida will own all of the
outstanding shares of First National/Polk, First National Bank of Osceola
County and Community National Bank of Pasco County. Each of the three banks
will continue to operate as separate subsidiary banks of Centerstate Banks of
Florida. They will continue with their same name, directors, officers,
employees and banking offices that they had prior to effectiveness of the
merger. Although no plans have been made as of the date of this proxy
statement/prospectus, Centerstate Banks of Florida in the future may decide to
establish new subsidiaries for the purposes of carrying on businesses not now
conducted by the Banks. Centerstate Banks of Florida also could assess
opportunities for possible growth through additional business combinations with
other community banks located in Florida.
Centerstate Banks of Florida has not commenced operations and will not
until the proposed merger is consummated and has no assets or liabilities other
than $1.00 initial capitalization.
DIRECTORS
The board of directors of Centerstate Banks of Florida consists of
seven persons, two of whom have been designated by each of First National/Polk,
First National Bank of Osceola County, and Community National Bank of Pasco
County. The seventh director is Mr. James H. White, who serves as a director of
each of the three banks. The following sets forth certain information regarding
each of the directors:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS
NAME AND AGE EXPERIENCE DURING PAST FIVE YEARS
<S> <C>
James H. White, 73 Chairman of the Board of First National Bank of
Polk County, First National Bank of Osceola
County and Community National Bank of Pasco
County
G. Robert Blanchard, Sr., 72 President and CEO of WRB Enterprises, Inc.
(diversified holding company)
James H. Bingham, 51 President of Bingham Realty, Inc. (commercial
real estate company)
Terry W. Donley, 51 President of Donley Citrus, Inc. (citrus
harvesting and production)
Bryan W. Judge, 72 Self-employed, farming (1994-present); Chief
Executive Officer of Judge Farms (1965-1994)
Samuel L. Lupfer, IV, 44 President of Lupfer-Frakes, Inc.
(insurance)
J. Thomas Rocker, 57 Director - Arctic Services, Inc.
(commercial insulation)
</TABLE>
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<PAGE> 43
EXECUTIVE OFFICERS
The table below lists the executive officers of Centerstate Banks of
Florida. Each officer is elected by the board of directors for a term of office
extending until the meeting of the board of directors following the next annual
meeting of shareholders and until his successor has been elected and qualified.
<TABLE>
<CAPTION>
POSITION WITH CENTERSTATE
NAME AND AGE BANKS OF FLORIDA PRINCIPAL OCCUPATION
- ------------ ---------------- --------------------
<S> <C> <C>
James H. White, 73 Chairman of Board, President Chairman of Board, President
and Chief Executive Officer and Chief Executive Officer of
Centerstate; Chairman of the
Board of First National Bank of
Polk County, Community
National Bank of Pasco County
and First National Bank of
Osceola County
G. Robert Blanchard, Sr., 72 Vice Chairman of the Board Vice Chairman of the Board of
Centerstate; President and
Chief Executive Officer of
WRB Enterprises, Inc.
(diversified holding company)
James J. Antal, 48 Senior Vice President and Chief Senior Vice President and Chief
Financial Officer Financial Officer of Centerstate
(November 1999 to present);
self-employed certified public
accountant (November 1998
to November 1999); Senior Vice
President, Chief Financial
Officer and Treasurer of
Trumbull Savings and Loan
Company (August 1992 to
November 1998)
</TABLE>
Each officer holds office until the next annual meeting of the
directors and until such officer's successor is duly elected and qualified.
Centerstate Banks of Florida has not compensated any of its officers
or directors. There are no plans at the present time to provide compensation to
any officers or directors of Centerstate Banks of Florida. However, the board
of directors may provide for such compensation at a future date without
shareholder approval.
PROPERTY
Centerstate Banks of Florida owns no real property. In the event that
its business requires office space, it is anticipated that the space will be
minimal and will be located in the main office of First National/Polk at 920
North Bermuda Avenue, Kissimmee, Florida 34741.
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<PAGE> 44
EMPLOYEES
Centerstate Banks of Florida does not currently intend to employ any
persons other than its executive officers, who will be compensated by the
respective Bank for which the officer is employed.
LEGAL PROCEEDINGS
Centerstate Banks of Florida is not a party to any legal proceeding.
BUSINESS OF FIRST NATIONAL/POLK
GENERAL
First National/Polk was organized as a national banking association on
February 21, 1992, First National/Polk provides a range of consumer and
commercial banking services to individuals, businesses and industries. The
basic services offered by First National/Polk include: demand interest bearing
and noninterest bearing accounts, money market deposit accounts, NOW accounts,
time deposits, safe deposit services, credit cards, cash management, direct
deposits, notary services, money orders, night depository, travelers' checks,
cashier's checks, domestic collections, savings bonds, bank drafts, drive-in
tellers, and banking by mail. In addition, First National/Polk makes secured
and unsecured commercial and real estate loans and issues stand-by letters of
credit. First National/Polk provides automated teller machine ("ATM") cards, as
a part of the HONOR ATM network, thereby permitting customers to utilize the
convenience of larger ATM networks. First National/Polk does not have trust
powers and, accordingly, no trust services are provided.
The revenues of First National/Polk are primarily derived from
interest on, and fees received in connection with, real estate and other loans,
and from interest and dividends from investment and mortgage-backed securities,
and short-term investments. The principal sources of funds for First
National/Polk's lending activities are its deposits, repayment of loans, and
the sale and maturity of investment securities. The principal expenses of First
National/Polk are the interest paid on deposits, and operating and general
administrative expenses.
As is the case with banking institutions generally, First
National/Polk's operations are materially and significantly influenced by
general economic conditions and by related monetary and fiscal policies of
financial institution regulatory agencies, including the Federal Reserve and
the OCC. Deposit flows and costs of funds are influenced by interest rates on
competing investments and general market rates of interest. Lending activities
are affected by the demand for financing of real estate and other types of
loans, which in turn is affected by the interest rates at which such financing
may be offered and other factors affecting local demand and availability of
funds. First National/Polk faces strong competition in the attraction of
deposits (its primary source of lendable funds) and in the origination of
loans. See "Competition."
LENDING ACTIVITIES
First National/Polk offers a range of lending services, including real
estate, consumer and commercial loans, to individuals and small businesses and
other organizations that are located in or conduct a substantial portion of
their business in the Bank's market area. First National/Polk's total loans at
December 31, 1999 and 1998 were $43.9 million, or 59% of total assets, and
$40.2 million, or 54% of total assets, respectively. The interest rates charged
on loans vary with the degree of risk, maturity, and amount of the loan, and
are
39
<PAGE> 45
further subject to competitive pressures, money market rates, availability
of funds, and government regulations. First National/Polk has no foreign loans
or loans for highly leveraged transactions.
First National/Polk's loans are concentrated in three major areas:
real estate loans, commercial loans, and consumer loans. At December 31, 1999,
65.4%, 18.2% and 16.4% and at December 31, 1998, 69.8%, 13.6%, and 17.7% of
First National/Polk's loan portfolio consisted of real estate, commercial and
consumer loans, respectively. In excess of 96% of First National/Polk's loans
at December 31, 1999 and 1998, respectively, were made on a secured basis. As
of December 31, 1999 and 1998, 65.4% and 68.6%, respectively of the loan
portfolio consisted of loans secured by mortgages on real estate.
First National/Polk's commercial loans include loans to individuals
and small-to-medium sized businesses located primarily in Polk County for
working capital, equipment purchases, and various other business purposes. A
majority of First National/Polk's commercial loans are secured by equipment or
similar assets, but these loans may also be made on an unsecured basis.
Commercial loans may be made at variable- or fixed-interest rates. Commercial
lines of credit are typically granted on a one-year basis, with loan covenants
and monetary thresholds. Other commercial loans with terms or amortization
schedules of longer than one year will normally carry interest rates which vary
with the prime lending rate and will become payable in full and are generally
refinanced in three to five years.
First National/Polk's real estate loans are secured by mortgages and
consist primarily of loans to individuals and businesses for the purchase,
improvement of or investment in real estate and for the construction of
single-family residential units or the development of single-family residential
building lots. These real estate loans may be made at fixed- or
variable-interest rates. First National/Polk generally does not make
fixed-interest rate commercial real estate loans for terms exceeding five
years. Loans in excess of five years generally have adjustable interest rates.
First National/Polk's residential real estate loans generally are repayable in
monthly installments based on up to a 30-year amortization schedule with
variable-interest rates.
First National/Polk's consumer loan portfolio consists primarily of
loans to individuals for various consumer purposes, but includes some business
purpose loans which are payable on an installment basis. The majority of these
loans are for terms of less than five years and are secured by liens on various
personal assets of the borrowers, but consumer loans may also be made on an
unsecured basis. Consumer loans are made at fixed- and variable-interest rates,
and are often based on up to a five-year amortization schedule. First
National/Polk has a policy and practice that loans to its officers, directors
or shareholders owning more than 10% of First National/Polk common stock, must
be approved, in advance, by a majority of the entire board of directors with
the interested party abstaining from the vote.
First National/Polk has a policy and practice that loans to its
executive officers, directors or shareholders owning more than 10% of First
National/Polk common stock must be approved in advance, by the majority of the
entire board of directors with the interested party abstaining from the vote.
Any loans to executive officers, directors and principal shareholders must be
made on substantially the same terms, including interest rates and collateral,
as those existing at the time for comparable transactions with persons who are
not affiliated with the bank. Loans to executive officers, directors and
principal shareholders also must not involve more than the normal risk of
repayment or present other unfavorable features. The Bank may pay an overdraft
on an account of a director, provided the payment is in accordance with a
written, preauthorized, interest bearing extension of credit specifying a
method of repayment or a written preauthorized transfer of funds from another
account. As to transactions, other than loans, with directors and principal
shareholders, First National/Polk requires that any such transaction be on
terms and under circumstances that are substantially the same, or at least as
favorable to the Bank, as those prevailing at the
40
<PAGE> 46
time for comparable transactions involving other parties who are not affiliated
with the Bank. If there are no comparable prevailing transactions, then the
transaction with the director or principal shareholder must be on terms and
under circumstances that in good faith would be offered and would apply to
others who are not affiliated with the Bank. From time to time, First
National/Polk has had loans to its directors and executive officers, and other
transactions with its directors. First National/Polk management believes that
such loans and transactions were in compliance with the foregoing policies.
For additional information regarding First National/Polk's loan
portfolio, see "First National/Polk's Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Financial Condition."
DEPOSIT ACTIVITIES
Deposits are the major source of First National/Polk's funds for
lending and other investment activities. First National/Polk considers the
majority of its regular savings, demand, NOW and money market deposit accounts
to be core deposits. These accounts comprised 63.2% and 58.5% of First
National/Polk's total deposits at December 31, 1999 and 1998, respectively.
Approximately 36.8% and 41.5% of First National/Polk's deposits at December 31,
1999 and 1998 were certificates of deposit. Generally, First National/Polk
attempts to maintain the rates paid on its deposits at a competitive level.
Time deposits of $100,000 and over made up 5.0% and 5.3% of First
National/Polk's total deposits at December 31, 1999 and 1998, respectively. The
majority of the deposits of First National/Polk are generated from Polk County.
First National/Polk does not accept brokered deposits. For additional
information regarding First National/Polk's deposit accounts, see "First
National/Polk's Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition."
EMPLOYEES
At December 31, 1999, First National/Polk employed 32 full-time and
four part-time employees. The employees are not represented by a collective
bargaining unit. First National/Polk consider relations with its employees to
be good.
PROPERTIES
The main office of First National/Polk is located at 7722 State Road
544 East, Winter Haven, Florida in a two-story building of approximately 12,000
square feet, which is owned by First National/Polk. First National/Polk also
has a branch office of approximately 2,800 square feet in a one-story building
located at 1191 Highway 27 North, Haines City, Florida, and a branch office of
approximately 3,200 square feet in a one-story building located at 12600 U.S.
Highway 27 N., Davenport, Florida. All of First National/Polk's branch offices
are owned by it.
LITIGATION
In the ordinary course of operations, First National/Polk is a party
to various legal proceedings. Management does not believe there is any
proceeding pending against First National/Polk which, if determined adversely,
would have a material adverse effect on the financial condition or results of
operations of First National/Polk.
41
<PAGE> 47
MANAGEMENT
Board of Directors. The Board of Directors of First National/Polk
currently consists of 13 directors, each of whom holds office until the next
annual meeting of First National/Polk shareholders. The following table sets
forth certain information with respect to the directors of First National/Polk.
<TABLE>
<CAPTION>
DIRECTOR OR OFFICER
OF FIRST NATIONAL/POLK PRINCIPAL OCCUPATION AND BUSINESS
NAME AND AGE SINCE EXPERIENCE DURING PAST FIVE YEARS
- ------------------ ---------------------- ---------------------------------
<S> <C> <C>
James H. White, 73 1992 Chairman of the Board of First National/Polk,
First National Bank of Osceola County, and
Community National Bank of Pasco County
Bruce A. Davis, 47 1992 President - Bruce A. Davis & Associates,
Inc. (insurance agency)
Terry W. Donley, 51 1992 President - Donley Citrus, Inc. (citrus
harvesting and production)
Bruce B. Ingram, 54 1992 President - Ingram Grove Service, Inc.
(citrus harvesting and production)
Jack A. Kuder, 71 1992 Citrus Grower
Charlie N. Long, Jr., 68 1992 Owner - Central Park and Central Park II
(mobile retirement home community)
Edward D. Mathews, 65 1992 Owner - Sonny's Bar-B-Q (Haines City,
Winter Haven & Bartow) (multiple franchise
owner)
Louis W. McKnight, 82 1992 President - Holly Hill Fruit Products Co., Inc.
(fruit harvester, grower and processor)
William K. Pou, Jr., 42 1992 Executive Vice President of Retail
Operations - W. S. Badcock Corp. (retail
furniture business)
J. Thomas Rocker, 57 1992 Director - Arctic Services, Inc. (commercial
insulation)
Joy C. Sims, 57 1992 Community Leader
Ralph T. Stalnaker, Jr. 1992 President - Woodland Lakes Retirement
Concepts, Inc. (mobile home retirement
community)
George H. Carefoot, 56 1992 President and Chief Executive Officer of
First National Bank/Polk
</TABLE>
42
<PAGE> 48
Executive Officers. The following sets forth information regarding the
executive officers of First National/Polk. The officers of First National/Polk
serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS
NAME AND AGE EXPERIENCE DURING PAST FIVE YEARS
- ---------------------- -------------------------------------
<S> <C>
George H. Carefoot, 56 President and Chief Executive Officer
Lynn C. Briske, 52 Operations - Vice President - Cashier
Joyce W. Lovelace, 42 Retail Lending - Vice President
</TABLE>
COMPENSATION AND BENEFITS
The table below sets forth certain information with respect to
compensation paid to Mr. George H. Carefoot (the President and Chief Executive
Officer of First National/Polk) during the years presented. No other executive
officer of First National/Polk received a total salary and bonus in excess of
$100,000 in 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS COMPENSATION COMPENSATION(1)
- ------------------ ---- --------- ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
George H. Carefoot, 1999 $122,276 $6,000 -- $4,891
President and Chief 1998 $117,520 $8,500 -- $4,700
Executive Officer 1997 $113,000 $8,500 -- $4,520
</TABLE>
- ------------------
(1) Represents amounts contributed by First National/Polk to Mr.
Carefoot's Section 401(k) savings plan accounts.
Non-employee directors of First National/Polk receive directors fees
of $200.00 for each Board and $75.00 for each committee meeting attended.
Savings Plan
First National/Polk has a 401(k) savings plan covering substantially
all employees of First National/Polk. Under the provisions of the plan,
employees may contribute up to 15% of their compensation on a pre-tax basis,
subject to limits specified in the Internal Revenue Code. First National/Polk
may make, at the discretion of the Board of Directors, matching contributions
up to 3% of the employee's annual compensation and within various limitations
specified by the Code.
Stock Option Plan
First National/Polk has a Directors' Stock Option Plan and an
Officers' and Employees' Stock Option Plan. Under the plans, options for an
aggregate of 26,450 shares of First National/Polk Common Stock were outstanding
as of the date of this Proxy Statement (including options for 13,000 shares
held by Mr. Carefoot). The Plans provide that options are granted at prices
equal to market value on the date of grant (as determined by the Board of
Directors), and become exercisable over four years at the rate of 25% each
year. The options
43
<PAGE> 49
remain exercisable up to 10 years from the date of grant. The
exercise prices for the options range from $10.00 to $17.50 per share.
MANAGEMENT AND PRINCIPAL STOCK OWNERSHIP
Directors and Officers
The following table sets forth the beneficial ownership of outstanding
shares of First National/Polk Common Stock as of the date of this Proxy
Statement by First National/Polk's current directors, and by current directors
and executive officers as a group. Except as set forth below, management of
First National/Polk is not aware of any individual or group that owns in excess
of 5% of the outstanding shares of First National/Polk.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AMOUNT/NATURE OF PERCENT
(AND ADDRESS OF 5% OWNER) BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------------- ----------------------- --------
<S> <C> <C>
George H. Carefoot 25,000(2) 5.00%
313 Hamilton Shore Drive
Winter Haven, FL 33881
Bruce A. Davis 20,500(3) 4.31%
Terry W. Donley 13,750 2.89%
Bruce B. Ingram 15,000(4) 3.15%
Jack A. Kuder 18,425(5) 3.87%
Charlie N. Long, Jr. 14,300(6) 3.01%
Edward D. Mathews 21,050(7) 4.43%
Louis W. McKnight 21,025(8) 4.42%
William K. Pou, Jr. 17,500(9) 3.68%
J. Thomas Rocker 25,650(10) 5.39%
Joy C. Sims 16,000(11) 3.36%
Ralph T. Stalnaker, Jr. 14,000(12) 2.94%
James H. White 27,500(12) 5.78%
P. O. Box 188
Haines City, FL 33845-0188
All directors and executive 249,800 52.50%
officers as a group (15 persons)
</TABLE>
44
<PAGE> 50
- --------------------
(1) Information related to beneficial ownership is based upon the
information available to First National/Polk.
(2) Includes options to acquire 13,000 shares.
(3) Includes 15,000 shares held jointly with his spouse, 2,000 shares held
jointly with his child, 1,500 shares held jointly with his mother, and
2,000 shares held by his company as to which shares he exercises
voting and investment power.
(4) Held jointly with his spouse.
(5) Includes 17,925 shares held by his company as to which shares he
exercises voting and investment power.
(6) Consists of 12,800 shares held jointly with his spouse and 1,500
shares held by his retirement plan.
(7) Consists of 15,000 shares held jointly with his spouse and 5,850
shares held by his company as to which shares he exercises voting and
investment power.
(8) Includes 10,000 shares held by his company as to which shares he
exercises voting and investment power and 5,825 shares held by his
retirement plan.
(9) Includes 2,500 shares held by his spouse.
(10) Includes 5,000 shares held by his spouse, 5,000 shares held jointly
with his spouse, and 3,150 shares held by his retirement plan.
(11) Includes 5,000 shares held jointly with her spouse.
(12) Includes 11,500 shares held by his spouse, and 1,000 shares held
jointly with his spouse.
45
<PAGE> 51
FIRST NATIONAL/POLK
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS COVERS IMPORTANT FACTORS
AFFECTING THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF FIRST
NATIONAL/POLK FOR THE PERIODS SHOWN. FIRST NATIONAL/POLK'S FINANCIAL STATEMENTS
SHOULD BE READ IN CONJUNCTION WITH THIS ANALYSIS.
OVERVIEW
First National/Polk is a national bank chartered February 21, 1992. It
provides traditional deposit and lending products and services to its commercial
and retail customers through three full service branches located within Polk
County in central Florida. The company is subject to the supervision of the
Office of the Comptroller of the Currency. At December 31, 1999, the Bank had
total assets of $75.0 million, total loans of $43.2 million, total deposits of
$67.7 million, and total shareholders' equity of $6.8 million. Net income for
the years ended December 31, 1999 and 1998, was $646,000 and $691,000
respectively.
First National/Polk is located in the northwest corner of Polk County,
which is primarily a retirement and agricultural community. It is the fastest
growing area in Polk County. As Orlando is expanding, residential housing is
spreading west on Interstate 4 extending into this area of the county. In
addition, Walt Disney World is approximately ten miles from First
National/Polk's closest branch, which makes First National/Polk's market a
convenient commute for any of the thousands of Disney employees.
At December 31, 1999, real estate loans were approximately 65% of total
gross loans outstanding. Of this amount, more than half were residential real
estate loans. Due to the demographics of the market, the concentration in real
estate loans overall, residential real estate loans in particular, is expected
to continue.
RESULTS OF OPERATIONS
NET INCOME
Year Ended December 31, 1999, compared to Year Ended December 31, 1998
First National/Polk's net income for the years ended December 31, 1999
and 1998 was $646,000 and $691,000 respectively. The net income per share for
the years ended December 31, 1999 and 1998 were $1.37 $(1.32 diluted) and $1.58
$(1.49 diluted). The per share income was negatively impacted due to the
issuance of additional shares from the exercise of stock options. First
National/Polk has a qualified stock option plan for its employees, as well as a
non qualified stock option plan for its directors.
First National/Polk's return on average assets ("ROA") and return on
average equity ("ROE") for the year ended December 31, 1999 was 0.86% and 10.06%
as compared to the ROA and ROE of 0.99% and 12.66% for the year ended December
31, 1998. The efficiency ratios for the two years ended December 31, 1999 and
1998 approximated 67% and 66% respectively.
There were positive improvements in net interest income of
approximately $207,000 and in non-interest income of approximately $81,000 in
the year ending December 31, 1999 as compared to the year
46
<PAGE> 52
ending December 31, 1998. These positive impacts were partially offset by the
negative impacts resulting from a $24,000 increase in the loan loss provision, a
$230,000 increase in non interest expense, and a $79,000 increase in income tax
expense the year ending December 31, 1999 as compared to the year ending
December 31, 1998.
The improvement in the net interest margin was primarily due to a
combination of increased interest earning assets and changes in interest bearing
liabilities, plus an increase in non interest bearing demand deposits. The
increase in non-interest expense is due to increases in compensation expense,
data processing expense, and other operating expense.
NET INTEREST INCOME/MARGIN
Net interest income consists of interest and fee income generated by
earning assets, less interest expense.
Year Ended December 31, 1999, compared to Year Ended December 31, 1998
Net interest income increased $207,000 or 7.5% to $2,973,000 during
1999 compared to $2,766,000 during 1998. The $207,000 increase was a combination
of a $5,000 decrease in interest income and a $212,000 decrease in interest
expense.
Average interest earning assets increased $4,159,000 to $68,128,000
during 1999 compared to $63,969,000 for 1998. Comparing these same two periods,
the yield on average interest earning assets decreased from 7.81% to 7.33%. The
increase in volume had a positive effect on the change in interest income
($364,000 volume variance), however, this was offset by the negative impact
resulting from the 0.48% decrease in average yields ($369,000 rate variance).
The result was a $5,000 decrease in interest income.
Average interest bearing liabilities increased $1,609,000 to
$56,778,000 during 1999 compared to $55,169,000 for 1998. Comparing these same
two periods, the cost of average interest bearing liabilities decreased from
4.05% to 3.56%. Although volume increase, interest expense decreased due to the
change in the deposit mix. That is, smaller average balances of higher cost
deposits, and larger average balances of lower cost deposits, in 1999 as
compared to 1998 ($35,000 volume variance). The decrease in yield had a
decreasing effect on interest expense ($177,000 rate variance). The result was a
$212,000 decrease in interest expense. Refer to the tables Average Balances -
Yields & Rates below.
47
<PAGE> 53
<TABLE>
<CAPTION>
AVERAGE BALANCES - YIELDS & RATES
(Dollars are in Thousands)
Years Ended December 31,
----------------------------------------------------------------------------------
1999 1998
---------------------------------------- -------------------------------------
Average Interest Average Average Interest Average
ASSETS: Balance Inc / Exp Rate Balance Inc / Exp Rate
------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Federal Funds Sold $ 3,114 $ 153 4.91% $ 5,462 $ 292 5.35%
Securities Available for Sale 24,887 1,308 5.26% 21,516 1,254 5.83%
Loans (2)(1) 40,127 3,532 8.80% 36,991 3,452 9.33%
------- ------- ---- ------- ------ ----
TOTAL EARNING ASSETS $68,128 $ 4,993 7.33% $63,969 $4,998 7.81%
All Other Assets 6,684 5,932
------- -------
TOTAL ASSETS $74,812 $69,901
======= =======
LIABILITIES & SHAREHOLDERS' EQUITY:
Deposits:
NOW & Money Markets $25,977 $ 698 2.69% $21,948 $ 614 2.80%
Savings 4,675 62 1.33% 4,026 78 1.94%
Time Deposits 25,780 1,245 4.83% 28,512 1,506 5.28%
Short Term Borrowings 346 15 4.34% 683 34 4.98%
------- ------- ---- ------- ------ ----
TOTAL INTEREST
BEARING LIABILITIES $56,778 $ 2,020 3.56% $55,169 $2,232 4.05%
Demand Deposits 11,334 9,000
Other Liabilities 278 276
Shareholders' Equity 6,422 5,456
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $74,812 $69,901
======= =======
NET INTEREST SPREAD (3) 3.77% 3.76%
===== ====
NET INTEREST INCOME $ 2,973 $2,766
======= ======
NET INTEREST MARGIN (4) 4.36% 4.32%
===== ====
</TABLE>
(1) Loan balances are net of deferred fees/cost of origination and reserve for
loan loss allowances.
(2) Interest income on average loans includes loan fee recognition of $116,000
and $122,000 for the years ended December 31, 1999 and 1998.
(3) Represents the average rate earned on interest earning assets minus the
average rate paid on interest bearing liabilities.
(4) Represents net interest income divided by total earning assets.
48
<PAGE> 54
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Net Change Dec 31, 1998 - 1999
-------------------------------
Net
Volume (1) Rate (2) Change
-------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Federal Funds sold $(126) $ (13) $(139)
Securities Available for Sale 196 (142) 54
Loans 294 (214) 80
-------------------------------
TOTAL INTEREST INCOME $ 364 $(369) $ (5)
-------------------------------
INTEREST EXPENSE
Deposits
NOW & Money Market Accounts $ 113 $ (29) $ 84
Savings 13 (29) (16)
Time Deposits (144) (117) (261)
Short-Term Borrowings (17) (2) (19)
-------------------------------
TOTAL INTEREST EXPENSE $ (35) $(177) $(212)
-------------------------------
NET INTEREST INCOME $ 399 $(192) $ 207
===============================
</TABLE>
(1) The volume variance reflects the change in the average balance outstanding
multiplied by the actual average rate during the prior period.
(2) The rate variance reflects the change in the actual average rate multiplied
by the average balance outstanding during the current period.
PROVISION FOR LOAN LOSSES
Management's policy is to maintain the allowance for loan losses at a
level sufficient to absorb inherent losses in the loan portfolio. The allowance
is increased by the provision for loan losses, which is a charge to current
period earnings, and net recoveries on prior period loan charge-offs. The
allowance is decreased by net charge-offs. In determining the adequacy of the
reserve for loan losses, management considers the conditions of individual
borrowers, First National/Polk's historical loan loss experience, the general
economic environment and the overall portfolio composition. As these factors
change, the level of loan loss provision changes.
Year Ended December 31, 1999, Compared to Year Ended December 31, 1998
The provision for loan loss expense increased $24,000, or 62%, to
$63,000 during 1999, as compared to $39,000 for 1998. The increase was primarily
due to a change in management's assessment of conditions of individual borrowers
and the overall portfolio composition. At December 31, 1999 the allowance for
loan losses totaled $634,000 or 1.5% of total loans outstanding, compared to
$688,000 or 1.7% of total loans outstanding at December 31, 1998.
The following sets forth certain information on First National/Polk's
allowance for loan losses for the periods presented.
49
<PAGE> 55
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Years Ended
Dec 31
--------------------------
1999 1998
--------------------------
<S> <C> <C>
Balance at Beginning of Year $ 688 $ 654
Loans Charged-Off:
Commercial, Financial & Agricultural (88) 0
Real Estate, Mortgage (25) (5)
Consumer (6) (19)
--------------------------
Total Loans Charged-Off $ (119) $ (24)
--------------------------
Recoveries on Loans Previously
Charged-Off:
Commercial, Financial & Agricultural $ 0 $ 0
Real Estate, Mortgage 0 17
Consumer 2 2
--------------------------
Total Loan Recoveries $ 2 $ 19
--------------------------
Net Loans Charged-Off $ (117) $ (5)
--------------------------
Provision for Loan Losses Charged
to Expense $ 63 $ 39
--------------------------
Ending Balance $ 634 $ 688
==========================
Total Loans Outstanding (net of deferred
fees/costs) $ 43,803 $ 40,103
Average Loans Outstanding $ 40,767 $ 39,717
Allowance for Loan Losses to Loans
Outstanding 1.45% 1.72%
Net Charge-offs to Average Loans
Outstanding 0.29% 0.01%
</TABLE>
NON-INTEREST INCOME
Year Ended December 31, 1999, Compared to Year Ended December 31, 1998
Non interest income for 1999 increased $81,000 or 30% to $355,000 as
compared to $274,000 for 1998. The net increase was comprised of a $37,000
increase in service fees from various deposit accounts, a $10,000 increase in
rental income, a $13,0000 increase in ATM related fees, and a $21,000 net
increase from other miscellaneous fees.
50
<PAGE> 56
NON-INTEREST EXPENSE
Year Ended December 31, 1999, Compared to Year Ended December 31, 1998
Non interest expense increased $230,000 or 11% to $2,244,000 during
1999 compared to $2,014,000 for 1998. The increase was a result of a $142,000
increase in compensation and related employee benefits. Data processing service
expense increased $46,000 primarily due to the Bank switching from manual check
sorting and stuffing in house, to outsourcing this function with an automated
processor. The remaining non-interest expense variances net to $42,000 and are
summarized in the table below -- Non Interest Expenses.
NON INTEREST EXPENSES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Year Ended Dec 31
-----------------------------------
1999 1998 Incr/(Decr)
-----------------------------------
<S> <C> <C> <C>
Salary, wages and employee benefits $1,029 $ 887 $ 142
Occupancy expense 236 216 20
Depreciation of premises and equipment 191 213 (22)
Stationary and printing supplies 85 77 8
Advertising and public relations 50 57 (7)
Data processing expense 231 185 46
Legal & professional fees 62 52 10
Other operating expenses 360 327 33
-----------------------------------
Total non interest expenses $2,244 $2,014 $ 230
===================================
</TABLE>
INCOME TAX PROVISION
The income tax provision for the year ended December 31, 1999, was
$375,000, an effective tax rate of 36.7%, as compared to $296,000 for the year
ended December 31, 1998, which was an effective tax rate of 30.0%. The increase
in the effective tax rate in 1999 compared to 1998 was primarily the result of
higher amounts of non-deductible items in 1999 as compared to 1998.
Net Income
Net income for the years ended December 31, 1999 and 1998 was $646,000
and $691,000, respectively.
FINANCIAL CONDITION
As of December 31, 1999, First National/Polk had total assets of $75.0
million, compared to $73.8 million as of December 31, 1998. Net loans
outstanding on December 31, 1999, were $43.2 million, compared to $39.4 million
as of December 31, 1998.
Loans
Lending related income is the most important component of First
National/Polk's net interest income and is the major contributor to
profitability. The loan portfolio is the largest component of earning assets,
and generates the largest portion of revenues. The absolute volume of loans and
the volume of loans as a percentage of earning assets are important determinants
of net interest margin as loans are expected to produce higher yields than
securities and other earning assets. Average loans during the year ending
December 31, 1999, were $40,127,000, or 58.9% of earning assets as compared to
$36,991,000 or
51
<PAGE> 57
57.8% of earning assets for December 31, 1998. This represented an average loan
to average deposit ratio of 59.2% and 58.3% for the years ending December 31,
1999 and 1998, respectively.
As of December 31, 1999, First National/Polk had total loans net of
deferred fees/costs of $43,803,000 as compared to $40,103,000 at December 31,
1998, an increase of $3,700,000, or 9.2%. The growth in loans was mainly due to
the general growth in the market and the calling efforts of the loan officers.
As of December 31, 1999, commercial, financial and agricultural loans totaled
$7,989,000 or 18.3% of the loan portfolio. Real estate construction loans
totaled $1,278,000 or 2.9% of the loan portfolio. Real estate mortgage loans
totaled $27,343,000 or 62.4% of the loan portfolio. Installment and consumer
loans totaled $7,193,000 or 16.4% of the loan portfolio.
As of December 31, 1998 commercial, financial and agricultural loans
totaled $5,433,000 or 13.5% of the loan portfolio. Real estate construction
loans totaled $1,801,000 or 4.5% of the loan portfolio. Real estate mortgage
loans primarily consisted of singe family residential mortgages and totaled
$25,692,000 or 64.1% of the loan portfolio. Installment and consumer loans
totaled $7,177,000 or 17.9% of the loan portfolio.
Loan concentrations are considered by management to exist where there
are amounts loaned to multiple borrowers engaged in similar activities which
collectively could be similarly impacted by economic or other conditions and
when the total of such amounts would exceed 25% of total capital. Due to the
lack of diversified industry in the markets served, First National/Polk has
concentrations in geographic locations as well as in types of loans funded. The
tables below provide a summary of the loan portfolio composition and maturities
for the periods provided below.
LOAN PORTFOLIO COMPOSITION
(Dollars are in Thousands)
<TABLE>
<CAPTION>
TYPES OF LOANS December 31,
- --------------- ----------------------------
1999 1998
----------- ----------
<S> <C> <C>
Commercial, Financial & Agricultural $ 7,989 $ 5,433
Real Estate - Construction 1,278 1,801
Real Estate - Mortgage 27,343 25,692
Installment & Consumer Loans 7,193 7,177
----------- ----------
Total Loans, Net of Deferred fees/costs $ 43,803 $ 40,103
Less: Allowance for Loan Losses (634) (688)
----------- ----------
Net Loans $ 43,169 $ 39,415
=========== ==========
</TABLE>
LOAN MATURITY SCHEDULE
Based on Contractual Maturities
(Dollars are in Thousands)
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------------
0 - 12 1 - 5 Over 5
Months Years Years Total
-------- -------- --------- -------
<S> <C> <C> <C> <C>
All Loans other Than Construction $ 6,556 $ 15,421 $ 20,548 $42,525
Real Estate - Construction 1,278 0 0 1,278
------- -------- -------- -------
Total $ 7,834 $ 15,421 $ 20,548 $43,803
======= ======== ======== =======
Fixed Interest Rate $ 2,402 $ 11,135 $ 8,031 $21,568
Variable Interest Rate 5,432 4,286 12,517 22,235
------- -------- -------- -------
Total $ 7,834 $ 15,421 $ 20,548 $43,803
======= ======== ======== =======
</TABLE>
52
<PAGE> 58
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------------
0 - 12 1 - 5 Over 5
Months Years Years Total
--------- --------- -------- --------
<S> <C> <C> <C> <C>
All Loans Other Than Construction $21,703 $11,520 $5,080 $38,303
Real Estate - Construction 1,800 0 0 1,800
------- ------- ------ -------
Total $23,503 $11,520 $5,080 $40,103
======= ======= ====== =======
Fixed Interest Rate $ 1,946 $ 6,789 $4,733 $13,468
Variable Interest Rate 21,557 4,731 347 26,635
------- ------- ------ -------
Total $23,503 $11,520 $5,080 $40,103
======= ======= ====== =======
</TABLE>
Credit Quality
First National/Polk maintains an allowance for loan losses to absorb
inherent losses in the loan portfolio. The loans are charged against the
allowance when management believes collection of the principal is unlikely. The
allowance consists of amounts established for specific loans and is also based
on historical loan loss experience. The specific reserve element is the result
of a regular analysis of all loans and commitments based on credit rating
classifications. The historical loan loss element represents a projection of
possible future credit problems and is determined using loan loss experience of
each loan type. Management also weighs general economic conditions based on
knowledge of specific factors that may affect the collectibility of loans. First
National/Polk is committed to the early recognition of possible problems and to
maintaining a sufficient allowance. At December 31, 1999, the allowance for loan
losses was $634,000 or 1.4% of total loans outstanding, net of unearned income,
compared to $688,000 or 1.7% at December 31, 1998.
Non-performing assets consist of non-accrual loans, loans past due 90
days or more and still accruing interest, and other real estate owned. Loans are
placed on a non-accrual status when they are past due 90 days and management
believes the borrower's financial condition, after giving consideration to
economic conditions and collection efforts, is such that collection of interest
is doubtful. When a loan is placed on non-accrual status, interest accruals
cease and uncollected interest is reversed and charged against current income.
Subsequent collections reduce the principal balance of the loan until the loan
is returned to accrual status.
Total non-performing assets as of December 31, 1999, decreased
$207,000, or 32%, to $450,000, compared to $657,000 as of December 31, 1998.
Non-performing loans, plus other real estate owned, as a percentage of total
assets at December 31, 1999, and 1998, was 0.85% and 0.89%, respectively.
Management believes that First National/Polk's allowance for loan losses was
adequate at December 31, 1999.
Management is continually analyzing its loan portfolio in an effort to
recognize and resolve its problem assets as quickly and efficiently as possible.
As of December 31, 1999, management believes that it has identified and
adequately reserved for such problem assets. However, management recognizes that
many factors can adversely impact various segments of its market. As such,
management continuously focuses its attention on promptly identifying and
managing potential problem loans as they arise. The table below summarizes First
National/Polk's non-performing assets and allocation of allowance for loan
losses for the periods provided.
53
<PAGE> 59
NON PERFORMING ASSETS
(Dollars are in Thousands)
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
------ ------
<S> <C> <C>
Non-Accrual Loans $ 259 $ 452
Past Due Loans 90 Days or More
and Still Accruing Interest 0 2
Other Real Estate Owned 191 203
------ ------
Total Non-Performing Assets $ 450 $ 657
====== ======
Percent of Total Assets 0.85% 0.89%
====== ======
Allowance for Loan Losses $ 634 $ 688
====== ======
Allowance for Loan Losses to
Nonperforming Loans 140.89% 104.72%
====== ======
</TABLE>
<TABLE>
<CAPTION>
Dec 31, 1999 Dec 31, 1998
------------ ------------
<S> <C> <C>
Restructured loans $ 0 $ 0
---- ----
Recorded investment in impaired loans $649 $983
---- ----
</TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------- ----------------------
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
------- ----------- ------ ------------
<S> <C> <C> <C> <C>
Commercial, Financial & Agricultural $359 18% $410 14%
Real Estate Construction 0 3% 59 4%
Real Estate - Mortgage 182 63% 153 65%
Consumer 93 16% 66 17%
Unallocated 0 0% 0 0%
---- --- ---- ---
Total $634 100% $688 100%
==== === ==== ===
</TABLE>
Deposits and Funds Purchased
Total deposits as of December 31, 1999, were $67,730,000 compared to
$67,426,000 on December 31, 1998, an increase of $304,000 or 0.5%. First
National/Polk does not rely on purchased or brokered deposits as a source of
funds. Instead, the generation of deposits within its market area, serves as
First National/Polk's fundamental tool in providing a source of funds to be
invested, primarily in loans. The table below summarizes selected deposit
information for the periods indicated.
54
<PAGE> 60
SELECTED STATISTICAL INFORMATION FOR DEPOSITS
(Dollars are in Thousands)
<TABLE>
<CAPTION>
December 31, December 31,
----------------------- -----------------------
1999 1998
----------------------- -----------------------
Average Average
Balance Rate Balance Rate
------- ----- ------- -----
<S> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $11,334 0.00% $ 9,000 0.00%
Interest-bearing demand
deposits 25,977 2.69% 21,948 2.80%
Savings deposits 4,675 1.33% 4,026 1.94%
Time deposits 25,780 4.82% 28,512 5.28%
------- ---- ------- ----
Total Average Deposits $67,766 2.96% $63,486 3.46%
======= ==== ======= ====
</TABLE>
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Dec 31, 1999 Dec 31, 1998
------------ ------------
<S> <C> <C>
Three Months or Less $1,507 $1,408
Three Through Six Months 502 990
Six Through Twelve Months 711 780
Over Twelve Months 647 428
------ ------
Total $3,367 $3,606
====== ======
</TABLE>
Repurchase Agreements
First National/Polk enters into agreements to repurchase ("repurchase
agreements") under which the Bank pledges investment securities owned and under
its control as collateral against the one-day agreements. The daily average
balance of these agreements for the years ended December 31, 1999 and 1998 was
approximately $346,000 and $683,000, respectively. Interest expense for the same
periods was approximately $15,000 and $34,000, respectively, resulting in an
average rate paid of 4.34% and 4.98% for the years ended December 31, 1999, and
1998, respectively.
SCHEDULE OF SHORT-TERM BORROWINGS (1)
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Maximum Average Weighted
Outstanding Interest Rate Average
at any Average during the Ending Interest Rate
Month End Balance Year Balance at Year End
---------- ------- ------------ ------- --------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1999 $ 433 $346 4.34% $259 4.57%
1998 $1,161 $683 4.98% $255 4.50%
</TABLE>
- -------------------------
(1) Consists of Securities sold under agreements to repurchase
55
<PAGE> 61
Securities
First National/Polk accounts for investments at fair value except for
those securities which the Bank has the positive intent and ability to hold to
maturity. Investments to be held for indefinite periods of time and not intended
to be held to maturity are classified as available for sale and are carried at
fair value. Unrealized holding gains and losses are included as a separate
component of stockholders' equity net of the effect of income taxes. Realized
gains and losses on investment securities available for sale are computed using
the specific identification method.
Securities that management has the intent and the Bank has the ability
at the time of purchase or origination to hold until maturity are classified as
investment securities held to maturity. Securities in this category are carried
at amortized cost adjusted for accretion of discounts and amortization of
premiums using the level yield method over the estimated life of the securities.
If a security has a decline in fair value below its amortized cost that is other
than temporary, then the security will be written down to its new cost basis by
recording a loss in the statement of operations.
First National/Polk does not engage in trading activities as defined in
Statement of Financial Accounting Standard No. 115.
First National/Polk's available for sale portfolio was $20,162,000 at
December 31, 1999 and $23,810,000 at December 31, 1998, 27% and 32%,
respectively of total assets. See the tables below for a summary of security
type, maturity and average yield distributions.
First National/Polk does not have any securities in its held to
maturity portfolio at December 31, 1999, and 1998.
First National/Polk uses its securities portfolio primarily as a source
of liquidity and a base from which to pledge assets for repurchase agreements
and public deposits. When the company's liquidity position exceeds expected loan
demand, other investments are considered by management as a secondary earnings
alternative. Typically, management remains short-term (under 5 years) in its
decision to invest in certain securities. As these investments mature, they will
be used to meet cash needs or will be reinvested to maintain a desired liquidity
position. First National/Polk has designated it's securities as available for
sale to provide flexibility, in case an immediate need for liquidity arises. The
composition of the portfolio offers management full flexibility in managing its
liquidity position and interest rate sensitivity, with the intent to minimize
the adverse impact on its regulatory capital levels. The available for sale
portfolio is carried at fair market value and had a net unrealized loss of
approximately $108,000 on December 31, 1999, and a net unrealized gain of
approximately $110,000 on December 31, 1998.
First National/Polk invests primarily in direct obligations of the
United States, obligations guaranteed as to the principal and interest by the
United States and obligations of agencies of the United States. In addition,
First National/Polk enters into federal funds transactions with its principal
correspondent banks, and acts as a net seller of such funds. The Federal Reserve
Bank also requires equity investments to be maintained by First National/Polk.
The tables below summarize the maturity distribution of securities, weighted
average yield by range of maturities, and distribution of securities for the
period provided.
56
<PAGE> 62
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------------- --------------------------
Amortized Estimated Amortized Estimated
AVAILABLE-FOR-SALE Cost Market Value Cost Market Value
- ------------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government Agencies
And Corporations and Obligations of
State and Political Subdivisions:
One Year or Less $14,580 $14,516 $ 8,649 $ 8,690
Over One Through Five Years 4,546 4,502 14,918 14,987
Over Five Through Ten Years 1,000 1,000 0 0
Over Ten Years 0 0 0 0
Federal Reserve Bank Stock 144 144 133 133
------- ------- ------- -------
Total $20,270 $20,162 $23,700 $23,810
======= ======= ======= =======
HELD-TO-MATURITY
- ---------------- ------- ------- ------- -------
Total $ 0 $ 0 $ 0 $ 0
======= ======= ======= =======
</TABLE>
WEIGHTED AVERAGE YIELD BY RANGE OF MATURITIES
(Average yields on securities available for sale are calculated based on
amortized cost)
<TABLE>
<CAPTION>
Dec 31, 1999 Dec 31, 1998
-------------------------------
<S> <C> <C>
One Year or Less 5.18% 5.75%
Over One Through Five Years 5.90% 5.37%
Over Five Through Ten Years 6.60% 0.00%
Over Ten Years 0.00% 0.00%
</TABLE>
DISTRIBUTION OF INVESTMENT SECURITIES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------ -------------------------
Amortized Fair Amortized Fair
AVAILABLE-FOR-SALE Cost Value Cost Value
- ------------------ --------- --------- ---------- ----------
<S> <C> <C> <C> <C>
US Treasury Securities $ 9,030 $ 8,982 $ 8,535 $ 8,597
US Government Agencies 8,998 8,952 12,995 13,040
State, County, & Municipal 1,000 1,000 1,000 1,000
Mortgage-Backed Securities 1,098 1,084 1,037 1,040
Federal Reserve Bank Stock 144 144 133 133
------- ------- ------- -------
Total $20,270 $20,162 $23,700 $23,810
======= ======= ======= =======
</TABLE>
Liquidity and Interest Rate Sensitivity
Market and public confidence is the financial strength of First
National/Polk and financial institutions in general, and will largely determine
the institutions access to appropriate levels of liquidity. This confidence is
significantly dependent on First National/Polk's ability to maintain sound asset
quality and appropriate levels of capital reserves.
Liquidity is defined as the ability of First National/Polk to meet
anticipated customer demands for funds under credit commitments and deposit
withdrawals at a reasonable cost and on a timely basis.
57
<PAGE> 63
Management measures the Bank's liquidity position by giving consideration to
both on- and off-balance sheet sources of and demands for funds on a daily and
weekly basis.
Sources of liquidity include cash and cash equivalents, net of federal
requirements to maintain reserves against deposit liabilities; investment
securities eligible for pledging to secure borrowings from dealers and customers
pursuant to securities sold under repurchase agreements; loan repayments; loan
sales; deposits and certain interest rate-sensitive deposits; and borrowings
under overnight federal fund lines available from correspondent banks. In
addition to interest rate-sensitive deposits, First National/Polk's primary
demand for liquidity is anticipated fundings under credit commitments to
customers.
Interest rate sensitivity refers to the responsiveness of
interest-earning assets and interest-bearing 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,
including both floating rate instruments and instruments which are approaching
maturity. The measurement of First National/Polk's interest rate sensitivity, or
gap, is one of the principal techniques used in asset and liability management.
Management generally attempts to maintain a balance between rate-sensitive
assets and liabilities as the exposure period is lengthened to minimize the
overall interest rate risks to the company.
The asset mix of the balance sheet is evaluated continually in terms of
several variables: yields, credit quality, appropriate funding sources and
liquidity. Management of the liability mix of the balance sheet focuses on
expanding the various funding sources.
First National/Polk's gap and liquidity positions are reviewed
periodically by management to determine whether or not changes in policies and
procedures are necessary to achieve financial goals. At December 31, 1999,
approximately 51% of total gross loans were adjustable rate, 73% of total
securities either reprice or mature in less than one year, and the remaining
securities either reprice or mature in three years or less. Total deposit
liabilities consisted of approximately $31,480,000 (46%) in NOW, Money Market
Accounts and Savings, $24,898,000 (37%) in time deposits and $11,352,000 (17%)
in non-interest bearing demand accounts. At December 31, 1998, approximately 66%
of total gross loans were adjustable rate, 36% of total securities either
reprice or mature in less than one year, and the remaining securities either
reprice or mature in two years or less. Total deposit liabilities consisted of
approximately $29,370,000 (44%) in NOW, Money Market Accounts and Savings,
$27,989,000 (41%) in time deposits and $10,066,000 (15%) in non-interest bearing
demand accounts. A rate sensitivity analysis is presented below as of December
31, 1999 and December 31, 1998.
First National/Polk has prepared a table which presents the market risk
associated with financial instruments held by the company. In the "Rate
Sensitivity Analysis" table, rate sensitive assets and liabilities are shown by
maturity or repricing periods, separating fixed and variable interest rates. The
estimated fair value of each instrument category is also shown in the table.
While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that, were First National/Polk
have to dispose of such instruments at December 31, 1999, and December 31, 1998,
the estimated fair values would necessarily have been achieved at that date,
since market values may differ depending on various circumstances. The estimated
fair values at December 31, 1999, and December 31, 1998, should not necessarily
be considered to apply at subsequent dates.
58
<PAGE> 64
RATE SENSITIVITY ANALYSIS
December 31, 1999
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Est. Fair
1 Year 2 Years 3 Years 4 Years 5 Years 5 Ys + TOTAL Value
------ ------- ------- ------- ------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans
Fixed Rate Loans $ 7,287 $ 520 $ 979 $ 2,097 $ 2,098 $ 8,587 $21,568 $21,617
Average Interest Rates 9.26% 8.80% 9.70% 8.80% 8.80% 8.43% 8.85%
Variable Rate Loans 16,447 311 843 2,150 2,149 335 22,235 22,235
Average Interest Rates 8.45% 8.35% 8.60% 8.35% 8.35% 7.30% 8.42%
Investment Securities (1)
Fixed Rate Securities 14,580 4,023 523 0 0 0 19,126 19,018
Average Interest Rates 5.17% 5.66% 6.25% 5.30%
Variable Rate Securities 1,000 0 0 0 0 0 1,000 1,000
Average Interest Rates 6.69% 6.69%
Federal Funds Sold 2,631 0 0 0 0 0 2,631 2631
Average Interest Rates 5.08% 5.08%
Other Earning Assets (2) 144 0 0 0 0 0 141 141
Average Interest Rates 6.00% 6.00%
------- ------- ------- ------- ------- ------- ------- -------
Total Interest-Earning Assets $42,089 $ 4,854 $ 2,345 $ 4,247 $ 4,247 $ 8,922 $66,701 $66,642
6.88% 5.85% 8.64% 8.53% 8.92% 7.98% 7.50%
======= ======= ======= ======= ======= ======= =======
INTEREST BEARING LIABILITIES
NOW Accounts $12,202 $ 0 $ 0 $ 0 $ 0 $ 0 $12,202 $12,202
Average Interest Rates 1.00% 1.00%
Money Market Accounts 13,445 0 0 0 0 0 13,445 13,445
Average Interest Rates 4.74% 4.74%
Savings Accounts 5,833 0 0 0 0 0 5,833 5,833
Average Interest Rates 1.25% 1.25%
CDs $100,000 & Over 2,720 313 200 134 0 0 3,367 3,360
Average Interest Rates 4.30% 4.81% 6.25% 5.55% 4.51%
CDs Under $100,000 16,402 3,527 1,261 212 129 0 21,531 21,492
Average Interest Rates 4.86% 4.96% 5.64% 5.10% 4.92% 4.92%
Securities Sold Under
Repurchase Agreements 259 0 0 0 0 0 259 259
Average Interest Rates 4.58% 4.58%
------- ------- ------- ------- ------- ------- ------- -------
Total Interest-Bearing Liabilities $50,861 $ 3,840 $ 1,461 $ 346 $ 129 $ 0 $56,637 $56,591
3.39% 4.73% 5.67% 5.31% 4.70% 3.63%
======= ======= ======= ======= ======= ======= =======
</TABLE>
- ----------------------------
(1) Securities available for sale are shown at their amortized cost.
(2) Represents interest earning Federal Reserve Bank Stock.
59
<PAGE> 65
RATE SENSITIVITY ANALYSIS
December 31, 1998
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Est. Fair
1 Year 2 Years 3 Years 4 Years 5 Years 5 Ys + TOTAL Value
------ ------- ------- ------- ------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans
Fixed Rate Loans $ 1,946 $ 921 $ 711 $2,211 $2,946 $4,733 $13,468 $13,874
Average Interest Rates 8.56% 9.56% 8.45% 8.93% 9.10% 9.26% 9.05%
Variable Rate Loans 21,557 720 870 3,116 25 347 26,635 26,635
Average Interest Rates 8.30% 9.13% 9.30% 8.55% 8.80% 7.40% 8.37%
Investment Securities (1)
Fixed Rate Securities 7,516 15,051 0 0 0 0 22,567 22,677
Average Interest Rates 5.76% 5.36% 5.46%
Variable Rate Securities 1,000 0 0 0 0 0 1,000 1,000
Average Interest Rates 5.77% 5.77%
Federal Funds Sold 3,752 0 0 0 0 0 3,752 3752
Average Interest Rates 4.67% 4.67%
Other Earning Assets (2) 133 0 0 0 0 0 133 133
Average Interest Rates 6.00% 6.00%
---------- ---------- ------ ------ ------ ------ ------- -------
Total Interest-Earning Assets $ 35,904 $ 16,692 $1,581 $5,327 $2,971 $5,080 $67,555 $68,071
7.30% 5.75% 8.92% 8.71% 9.10% 9.13% 7.28%
========== ========== ====== ====== ====== ====== =======
INTEREST BEARING LIABILITIES
NOW Accounts $ 13,006 $ 0 $ 0 $ 0 $ 0 $ 0 $13,006 $13,006
Average Interest Rates 1.42% 1.42%
Money Market Accounts 12,072 0 0 0 0 0 12,072 12,072
Average Interest Rates 3.98% 3.98%
Savings Accounts 4,293 0 0 0 0 0 4,293 4,293
Average Interest Rates 1.75% 1.75%
CDs $100,000 & Over 3,179 100 0 200 127 0 3,606 3,661
Average Interest Rates 5.14% 5.25% 6.25% 5.55% 5.22%
CDs Under $100,000 16,921 4,950 1,189 1,110 206 7 24,383 24,743
Average Interest Rates 4.94% 5.60% 5.45% 5.70% 5.22% 4.00% 5.13%
Securities Sold Under
Repurchase Agreement 255 0 0 0 0 0 255 255
Average Interest Rates 4.17% 4.17%
---------- ---------- ------ ------ ------ ------ ------- -------
Total Interest-Bearing Liabilities $ 49,726 $ 5,050 $1,189 $1,310 $ 333 $ 7 $57,615 $58,030
3.52% 5.59% 5.45% 5.78% 5.35% 4.00% 3.80%
========== ========== ====== ====== ====== ======= =======
</TABLE>
- --------------------------------
(1) Securities available for sale are shown at their amortized cost.
(2) Represents interest earning Federal Reserve Bank Stock.
60
<PAGE> 66
Primary Sources and Uses of Funds
Year ended December 31, 1999
The primary source of funds during the period included a net decrease
in investments ($3,648,000), increase in deposits ($304,000), exercise of stock
options net of tax benefit ($531,000), and net income ($646,000). The primary
uses of funds during the period included an increase in net loans outstanding
($3,754,000), increase in federal funds sold and other cash items ($1,186,000),
dividends paid ($86,000) and other miscellaneous net uses ($103,000).
Year ended December 31, 1998
The primary source of funds during the period included a net growth in
deposits ($8,972,000), exercise of stock options net of tax benefits ($320,000),
net income ($691,000), and other miscellaneous net sources ($164,000). The
primary uses of funds during the period included an increase in investments
outstanding ($5,163,000), an increase in net loans outstanding ($4,918,000), and
dividends paid ($66,000).
CAPITAL RESOURCES
Shareholders' equity at December 31, 1999, was $6,846,000, as compared
to $5,890,000 at December 31, 1998.
The Comptroller has established risk-based capital requirements for
national banks. These guidelines are intended to provide an additional measure
of a bank's capital adequacy by assigning weighted levels of risk to asset
categories. Banks are also required to systematically maintain capital against
such "off-balance sheet" activities as loans sold with recourse, loan
commitments, guarantees and standby letters of credit. These guidelines are
intended to strengthen the quality of capital by increasing the emphasis on
common equity and restricting the amount of loan loss reserves and other forms
of equity such as preferred stock that may be included in capital. First
National/Polk's goal is to maintain its current status as a "well-capitalized
institution" as that term is defined by its regulators.
Under the terms of the guidelines, banks must meet minimum capital
adequacy based upon both total assets and risk adjusted assets. All banks are
required to maintain a minimum ratio of total capital to risk-weighted assets of
8% and a minimum ratio of Tier 1 capital to risk-weighted assets of 4%.
Adherence to these guidelines has not had an adverse impact on First
National/Polk. Selected capital ratios at December 31, 1999 and 1998 were as
follows:
CAPITAL RATIOS
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Actual Well Capitalized
------------------- -------------------- Excess
Amount Ratio Amount Ratio Amount
------------------- -------------------- -----------
<S> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Total Capital: (to Risk Weighted Assets): $7,423 18.3% $4,065 10.0% $3,358
Tier 1 Capital: (to Risk Weighted Assets): $6,913 17.0% $2,439 6.0% $4,474
Tier 1 Capital: (to Average Assets): $6,913 9.2% $3,762 5.0% $3,151
</TABLE>
61
<PAGE> 67
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998:
<S> <C> <C> <C> <C> <C>
Total Capital: (to Risk Weighted Assets): $6,315 16.0% $3,934 10.0% $2,381
Tier 1 Capital: (to Risk Weighted Assets): $5,821 14.8% $2,360 6.0% $3,461
Tier 1 Capital: (to Average Assets): $5,821 8.2% $3,555 5.0% $2,266
</TABLE>
EFFECTS OF INFLATION AND CHANGING PRICES
The accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates generally have a more significant impact on the
performance of a financial institution than the effects of general levels of
inflation. Although interest rates do not necessarily move in the same direction
or to the same extent as the prices of goods and services, increases in
inflation generally have resulted in increased interest rates. In addition,
inflation affects financial institutions' increased cost of goods and services
purchased, the cost of salaries and benefits, occupancy expense, and similar
items. Inflation and related increases in interest rates generally decrease the
market value of investments and loans held and may adversely affect liquidity,
earnings, and shareholders' equity. Commercial and other loan originations and
refinancings tend to slow as interest rates increase, and can reduce First
National/Polk's earnings from such activities.
ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, the Bank adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 provides new accounting and reporting
standards for reporting and displaying comprehensive income and its components
in a full set of general-purpose financial statements. The adoption of this
standard did not have a material impact on reported results of operations of the
Bank.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes accounting and
reporting standards for derivative instruments (including certain derivative
instruments imbedded in other contracts). The statement is effective for fiscal
years beginning after June 15, 1999. The financial impact of the adoption of
this statement has not been determined. However, the effect of the adoption of
the statement is not expected to be material. In June 1999, the FASB issued SFAS
No. 137, which delays implementation of SFAS No. 133 for one year.
Quarterly Financial Information
The following table sets forth, for the periods indicated, certain
consolidated quarterly financial information for the Bank. This information is
derived from First National/Polk's unaudited financial statements which include,
in the opinion of management, all normal recurring adjustments which management
considers necessary for a fair presentation of the results for such periods.
This information should be read in conjunction with First National/Polk's
Financial Statements included elsewhere in this Prospectus. The results for any
quarter are not necessarily indicative of results for future periods.
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SELECTED QUARTERLY DATA
(Dollars are in Thousands)
<TABLE>
<CAPTION>
(Dollars in Thousands except 1999 1998
for per share data) ---------------------------------- -------------------------------------
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
- -------------------------------------- ---------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 759 $ 739 $ 757 $ 718 $ 684 $ 703 $ 690 $ 689
Provision for Loan Losses 0 6 28 29 0 0 19 20
---------------------------------- --------------------------------------
Net Interest Income after
after provision for loan losses $ 759 $ 733 $ 729 $ 689 $ 684 $ 703 $ 671 $ 669
Other Income (excluding
security transactions) $ 88 $ 86 $ 90 $ 91 $ 76 $ 72 $ 65 $ 61
Other expenses $ 531 $ 567 $ 574 $ 572 $ 478 $ 527 $ 516 $ 493
---------------------------------- -------------------------------------
Income before income
tax expense $ 316 $ 252 $ 245 $ 208 $ 282 $ 248 $ 220 $ 237
Income tax expense $ 119 $ 90 $ 90 $ 76 $ 76 $ 53 $ 80 $ 87
---------------------------------- -------------------------------------
Net Income $ 197 $ 162 $ 155 $ 132 $ 206 $ 195 $ 140 $ 150
================================== =====================================
Basic earnings per common share $0.41 $0.34 $0.33 $0.28 $0.47 $0.44 $0.32 $0.34
Diluted earnings per common share $0.40 $0.33 $0.31 $0.27 $0.44 $0.42 $0.30 $0.32
</TABLE>
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SUPERVISION AND REGULATION
Banks and their holding companies, and many of their affiliates, are
extensively regulated under both federal and state law. The following is a brief
summary of certain statutes, rules, and regulations affecting Centerstate Banks
of Florida, First National/Polk, First National Bank of Osceola County and
Community National Bank of Pasco County. For purposes of this summary, First
National/Polk, First National Bank of Osceola County and Community National Bank
of Pasco County are collectively referred to as the "Banks." This summary is
qualified in its entirety by reference to the particular statutory and
regulatory provisions referred to below and is not intended to be an exhaustive
description of the statutes or regulations applicable to the business of
Centerstate Banks of Florida and the Banks. Any change in the applicable law or
regulation may have a material effect on the business and prospects of
Centerstate Banks of Florida and the Banks. Supervision, regulation, and
examination of banks by regulatory agencies are intended primarily for the
protection of depositors, rather than shareholders.
Bank Holding Company Regulation. Centerstate Banks of Florida has not
commenced any business but has filed applications with the Federal Reserve Bank
of Atlanta to become a bank holding company by acquiring the Banks. If the
applications are approved and Centerstate Banks of Florida acquires the Banks,
then Centerstate Banks of Florida will be subject to the supervision,
examination and reporting requirements of the Bank Holding Company Act and the
regulations of the Federal Reserve. The Company is required to furnish to the
Federal Reserve an annual report of its operations at the end of each fiscal
year, and such additional information as the Federal Reserve may require
pursuant to the Act. The Act requires that a bank holding company obtain the
prior approval of the Federal Reserve before (1) acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any bank, (2)
taking any action that causes a bank to become a subsidiary of the bank holding
company, or (3) merging or consolidating with any other bank holding company.
The Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly of banking in any section of the
United States, or substantially lessen competition, unless the anticompetitive
effects are clearly outweighed by the public interest in meeting the convenience
and needs of the community to be served. The Federal Reserve is also required to
consider the financial and managerial resources and future prospects of the bank
holding companies and banks concerned and the convenience and needs of the
community to be served. Consideration of financial resources generally focuses
on capital adequacy and consideration of convenience and needs issues includes
the parties' performance under the Community Reinvestment Act of 1977, both of
which are discussed below.
Bank holding companies are generally prohibited from engaging in
activities other than banking, or managing or controlling banks or other
permissible subsidiaries, and from acquiring or retaining control of any company
engaged in any activities other than those activities determined by the Federal
Reserve to be closely related to banking or managing or controlling banks. In
determining whether a particular activity is permissible, the Federal Reserve
must consider whether the performance of such an activity can reasonably be
expected to produce benefits to the public, such as greater convenience,
increased competition, or gains in efficiency that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices. For example,
factoring accounts receivable, acquiring or servicing loans, leasing personal
property, conducting securities brokerage activities, performing certain data
processing services, acting as agent or broker in selling credit life insurance
and certain other types of insurance in connection with credit transactions, and
certain insurance underwriting activities have all been determined by
regulations of the Federal Reserve to be permissible activities of bank holding
companies. Despite prior approval, the Federal Reserve has the power to order a
holding company or its subsidiaries to terminate any activity or terminate its
ownership or control of any subsidiary, when it has
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reasonable cause to believe that such activity or ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.
Banks are subject to the provisions of the Community Reinvestment Act.
Under the terms of the Community Reinvestment Act, the appropriate federal bank
regulatory agency is required, in connection with its examination of a bank, to
assess such bank's record in meeting the credit needs of the community served by
that bank, including low- and moderate-income neighborhoods. The Community
Reinvestment Act does not establish specific lending requirements or programs
for financial institutions, nor does it limit an institution's discretion to
develop the types of products and services that it believes are best suited to
its particular community, consistent with the Act. The regulatory agency's
assessment of the bank's record is made available to the public. Further, such
assessment is required of any bank which has applied to
- charter a national bank,
- obtain deposit insurance coverage for a newly chartered
institution,
- establish a new branch office that will accept deposits,
- relocate an office, or
- merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution.
In the case of a bank holding company applying for approval to acquire
a bank or other bank holding company, the Federal Reserve will assess the record
of each subsidiary bank of the applicant bank holding company, and such records
may be the basis for denying the application.
Gramm-Leach-Bliley Act. On November 12, 1999, President Clinton signed
into law the Gramm-Leach-Bliley Act which reforms and modernizes certain areas
of financial services regulation. The law permits the creation of new financial
services holding companies that can offer a full range of financial products
under a regulatory structure based on the principle of functional regulation.
The legislation eliminates the legal barriers to affiliations among banks and
securities firms, insurance companies, and other financial services companies.
The law also provides financial organizations with the opportunity to structure
these new financial affiliations through a holding company structure or a
financial subsidiary. The new law reserves the role of the Federal Reserve Board
as the supervisor for bank holding companies. At the same time, the law also
provides a system of functional regulation which is designed to utilize the
various existing federal and state regulatory bodies. The law also sets up a
process for coordination between the Federal Reserve Board and the Secretary of
the Treasury regarding the approval of new financial activities for both bank
holding companies and national bank financial subsidiaries.
The law also includes a minimum federal standard of financial privacy.
Financial institutions are required to have written privacy policies that must
be disclosed to customers. The disclosure of a financial institution's privacy
policy must take place at the time a customer relationship is established and
not less than annually during the continuation of the relationship. The act also
provides for the functional regulation of bank securities activities. The law
repeals the exemption that banks were afforded from the definition of "broker,"
and replaces it with a set of limited exemptions that allow the continuation of
some historical activities performed by banks. In addition, the act amends the
securities laws to include banks within the general definition of dealer.
Regarding new bank products, the law provides a procedure for handling products
sold by banks that have securities elements. In the area of Community
Reinvestment Act activities,
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the law generally requires that financial institutions address the credit needs
of low-to-moderate income individuals and neighborhoods in the communities in
which they operate. Bank regulators are required to take the Community
Reinvestment Act ratings of a bank or of the bank subsidiaries of a holding
company into account when acting upon certain branch and bank merger and
acquisition applications filed by the institution. Under the law, financial
holding companies and banks that desire to engage in new financial activities
are required to have satisfactory or better Community Reinvestment Act ratings
when they commence the new activity.
Most of the provisions of the law take effect on November 12, 1999,
with other provisions being phased in over a one to two year period thereafter.
It is anticipated that the effects of the law, while providing additional
flexibility to bank holding companies and banks, may result in additional
affiliation of different financial services providers, as well as increased
competition, resulting in lower prices, more convenience, and greater financial
products and services available to consumers.
Bank Regulation. The Banks are national banks. The deposits of the
Banks are insured by the FDIC to the extent provided by law. The Banks are
subject to comprehensive regulation, examination and supervision by the
Comptroller of the Currency and the FDIC. The Banks also are subject to other
laws and regulations applicable to banks. Such regulations include limitations
on loans to a single borrower and to its directors, officers and employees;
restrictions on the opening and closing of branch offices; the maintenance of
required capital and liquidity ratios; the granting of credit under equal and
fair conditions; and the disclosure of the costs and terms of such credit. The
Banks are examined periodically by the Comptroller of the Currency, to whom the
Banks submit periodic reports regarding their financial condition and other
matters. The Comptroller of the Currency has a broad range of powers to enforce
regulations and to take discretionary actions determined to be for the
protection and safety and soundness of banks, including the institution of cease
and desist orders and the removal of directors and officers. The Comptroller of
the Currency also has the authority to approve or disapprove mergers,
consolidations, and similar corporate actions.
Under federal law, federally insured banks are subject to certain
restrictions on any extension of credit to their parent holding companies or
other affiliates, on investment in the stock or other securities of affiliates,
and on the taking of such stock or securities as collateral from any borrower.
In addition, banks are prohibited from engaging in certain tie-in arrangements
in connection with any extension of credit or the providing of any property or
service.
Federal law also contains capital standards and civil and criminal
enforcement provisions. Annual full-scope, on-site examinations are required of
all insured depository institutions. The cost for conducting an examination of
an institution may be assessed to that institution, with special consideration
given to affiliates and any penalties imposed for failure to provide information
requested.
Transactions with Affiliates. There are various legal restrictions on
the extent to which Centerstate Banks of Florida and any future nonbank
subsidiaries can borrow or otherwise obtain credit from the Banks. There also
are legal restrictions on the Banks' purchase of or investments in the
securities of and purchases of assets from Centerstate Banks of Florida. The
Banks also are restricted in loaning to third parties collateralized by the
securities or obligations of Centerstate Banks of Florida, issuing guarantees,
acceptances, and letters of credit on behalf of Centerstate Banks of Florida and
certain bank transactions with Centerstate Banks of Florida. Subject to certain
limited exceptions, the Banks may not extend credit to Centerstate Banks of
Florida or to any other affiliate in an amount which exceeds 10% of the
respective Bank's capital stock and surplus and may not extend credit in the
aggregate to such affiliates in an amount which exceeds 20% of its capital stock
and surplus. Further, there are legal requirements as to the type, amount and
quality of collateral which must secure such extensions of credit transactions
between the Banks and Centerstate Banks of Florida
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or such other affiliates. Such transactions also must be on terms and under
circumstances, including credit standards, that are substantially the same or at
least as favorable to the Banks as those prevailing at the time for comparable
transactions with non-affiliated companies. Also, Centerstate Banks of Florida
and its subsidiaries are prohibited from engaging in certain tie-in arrangements
in connection with any extension of credit, lease or sale of property or
furnishing of services.
Dividends. Dividends from the Banks constitute the primary source of
funds for dividends to be paid by Centerstate Banks of Florida. As national
banks, the Banks are subject to certain limitations on their right to pay
dividends. See "Difference in Rights of Centerstate Banks of Florida and First
National/Polk Shareholders - Dividend rights." Florida law applicable to
companies including Centerstate Banks of Florida provides that dividends may be
declared and paid only if, after giving it effect, (1) the company is able to
pay its debts as they become due in the usual course of business, and (2) the
company's total assets would be greater than the sum of its total liabilities
plus the amount that would be needed if the company were to be dissolved at the
time of the dividend to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
dividend.
Capital Requirements. The federal bank regulatory authorities have
adopted risk-based capital guidelines for banks and bank holding companies that
are designed to make regulatory capital requirements more sensitive to
differences in risk profile among banks and bank holding companies. The
resulting capital ratios represent qualifying capital as a percentage of total
risk-weighted assets and off-balance sheet items. The guidelines are minimums,
and the federal regulators have noted that banks and bank holding companies
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain all ratios well in excess of
the minimums. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital ratio
equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1 capital
includes common shareholders' equity, qualifying perpetual preferred shares, and
minority interests in equity accounts of consolidated subsidiaries, but excludes
goodwill and most other intangibles and excludes the allowance for loan and
lease losses. Tier 2 capital includes the excess of any preferred shares not
included in Tier 1 capital, mandatory convertible securities, hybrid capital
instruments, subordinated debt and intermediate term-preferred shares, and
general reserves for loan and lease losses up to 1.25% of risk-weighted assets.
Federal law contains "prompt corrective action" provisions pursuant to
which banks are to be classified into one of five categories based upon capital
adequacy, ranging from "well capitalized" to "critically undercapitalized" and
which require, subject to certain exceptions, the appropriate federal banking
agency to take prompt corrective action with respect to an institution which
becomes "significantly undercapitalized" or "critically undercapitalized".
The Comptroller of the Currency has issued final regulations to
implement the "prompt corrective action" provisions. In general, the regulations
define the five capital categories as follows:
- an institution is "well capitalized" if it has a total
risk-based capital ratio of 10% or greater, has a Tier 1
risk-based capital ratio of 6% or greater, has a leverage
ratio of 5% or greater and is not subject to any written
capital order or directive to meet and maintain a specific
capital level for any capital measures;
- an institution is "adequately capitalized" if it has a total
risk-based capital ratio of 8% or greater, has a Tier 1
risk-based capital ratio of 4% or greater, and has a leverage
ratio of 4% or greater;
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- an institution is "undercapitalized" if it has a total
risk-based capital ratio of less than 8%, has a Tier 1
risk-based capital ratio that is less than 4% or has a
leverage ratio that is less than 4%;
- an institution is "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6%, a Tier 1
risk-based capital ratio that is less than 3% or a leverage
ratio that is less than 3%; and
- an institution is "critically undercapitalized" if its
"tangible equity" is equal to or less than 2% of its total
assets.
The Comptroller of the Currency also, after an opportunity for a
hearing, has authority to downgrade an institution from "well capitalized" to
"adequately capitalized" or to subject an "adequately capitalized" or
"undercapitalized" institution to the supervisory actions applicable to the next
lower category, for supervisory concerns. The degree of regulatory scrutiny of a
financial institution will increase, and the permissible activities of the
institution will decrease, as it moves downward through the capital categories.
Institutions that fall into one of the three undercapitalized categories may be
required to
- submit a capital restoration plan;
- raise additional capital;
- restrict their growth, deposit interest rates, and other
activities;
- improve their management;
- eliminate management fees; or
- divest themselves of all or part of their operations.
Bank holding companies controlling financial institutions can be called
upon to boost the institutions' capital and to partially guarantee the
institutions' performance under their capital restoration plans. These capital
guidelines can affect Centerstate Banks of Florida in several ways.
After completion of the acquisition of the three Banks, Centerstate
Banks of Florida's capital levels will be in excess of those required to be
maintained by a "well capitalized" financial institution. However, rapid growth,
poor loan portfolio performance, or poor earnings performance, or a combination
of these factors, could change Centerstate Banks of Florida's capital position
in a relatively short period of time, making an additional capital infusion
necessary.
Federal law also requires that (1) only a "well capitalized" depository
institution may accept brokered deposits without prior regulatory approval and
(2) the appropriate federal banking agency annually examine all insured
depository institutions, with some exceptions for small, "well capitalized"
institutions and state-chartered institutions examined by state regulators.
Federal law also contains a number of consumer banking provisions, including
disclosure requirements and substantiative contractual limitations with respect
to deposit accounts.
Enforcement Powers. Congress has provided the federal bank regulatory
agencies with an array of powers to enforce laws, rules, regulations and orders.
Among other things, the agencies may require that
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institutions cease and desist from certain activities, may preclude persons from
participating in the affairs of insured depository institutions, may suspend or
remove deposit insurance, and may impose civil money penalties against
institution-affiliated parties for certain violations.
Maximum Legal Interest Rates. Like the laws of many states, Florida law
contains provisions on interest rates that may be charged by banks and other
lenders on certain types of loans. Numerous exceptions exist to the general
interest limitations imposed by Florida law. The relative importance of these
interest limitation laws to the financial operations of the Banks will vary from
time to time, depending on a number of factors, including conditions in the
money markets, the costs and availability of funds, and prevailing interest
rates.
Bank Branching. Banks in Florida are permitted to branch state wide.
Such branch banking, by national banks, however, is subject to prior approval by
the Comptroller of the Currency. Any such approval would take into consideration
several factors, including the bank's level of capital, the prospects and
economics of the proposed branch office, and other conditions deemed relevant by
the Comptroller of the Currency for purposes of determining whether approval
should be granted to open a branch office.
Change of Control. Federal law restricts the amount of voting stock of
a bank holding company and a bank that a person may acquire without the prior
approval of banking regulators. The overall effect of such laws is to make it
more difficult to acquire a bank holding company and a bank by tender offer or
similar means than it might be to acquire control of another type of
corporation. Consequently, shareholders of Centerstate Banks of Florida may be
less likely to benefit from the rapid increases in stock prices that may result
from tender offers or similar efforts to acquire control of other companies.
Federal law also imposes restrictions on acquisitions of stock in a bank holding
company and a state bank. Under the federal Change in Bank Control Act and the
regulations thereunder, a person or group must give advance notice to the
Federal Reserve before acquiring control of any bank holding company and the
Comptroller of the Currency before acquiring control of any national bank, such
as the Banks. Upon receipt of such notice, the Federal Reserve or the
Comptroller of the Currency, as the case may be, may approve or disapprove the
acquisition. The Change in Bank Control Act creates a rebuttable presumption of
control if a member or group acquires a certain percentage or more of a bank
holding company's or national bank's voting stock, or if one or more other
control factors set forth in the Change in Bank Control Act are present.
Interstate Banking. Federal law provides for nationwide interstate
banking and branching. Under the law, interstate acquisitions of banks or bank
holding companies in any state by bank holding companies in any other state are
permissible subject to certain limitations. Florida also has a law that allows
out-of-state bank holding companies (located in states that allow Florida bank
holding companies to acquire banks and bank holding companies in that state) to
acquire Florida banks and Florida bank holding companies. The law essentially
provides for out-of-state entry by acquisition only (and not by interstate
branching). Interstate branching and consolidation of existing bank subsidiaries
in different states is permissible.
Effect of Governmental Policies. The earnings and businesses of
Centerstate Banks of Florida and the Banks are affected by the policies of
various regulatory authorities of the United States, especially the Federal
Reserve. The Federal Reserve, among other things, regulates the supply of credit
and deals with general economic conditions within the United States. The
instruments of monetary policy employed by the Federal Reserve for those
purposes influence in various ways the overall level of investments, loans,
other extensions of credit, and deposits, and the interest rates paid on
liabilities and received on assets.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Centerstate Banks of Florida's articles of incorporation authorize it
to issue up to 20,000,000 common shares. Only one share of such common stock was
outstanding as of the date of this proxy statement/prospectus was held by James
H. White solely to facilitate the organization of Centerstate Banks of Florida.
Centerstate Banks of Florida also is authorized to issue up to 5,000,000 shares
of preferred stock, none of which were outstanding as of the date of this proxy
statement/prospectus.
COMMON SHARES
The Centerstate Banks of Florida common stock to be issued in the
merger will be fully paid and nonassessable. The holders of common shares are
entitled to one vote for each share held of record on all matters voted upon by
shareholders. Each outstanding common share is entitled to participate equally
in any distribution of net assets made to the stockholders in liquidation,
dissolution, or winding up Centerstate Banks of Florida and is entitled to
participate equally in dividends as and when declared by Centerstate Banks of
Florida's Board of Directors. There are no redemption, sinking fund, conversion,
or preemptive rights with respect to the common stock. All common stock have
equal rights and preferences.
PREFERRED SHARES
As of the date of this proxy statement/prospectus, no preferred shares
were issued or outstanding. The board of directors is authorized to fix or alter
the rights, preferences, privileges and restrictions of any wholly unissued
series of preferred shares, including the dividend rights, original issue price,
conversion rights, voting rights, terms of redemption, liquidation preferences
and sinking fund terms thereof, and the number of shares constituting any such
series and the designation thereof and to increase or decrease the number of
shares of such series subsequent to the issuance of shares of such series but
not below the number of shares then outstanding. The board of directors, without
shareholder approval, can issue preferred shares with the voting and conversion
rights described above, which could adversely affect the voting power of the
shareholders of common shares. Centerstate Banks of Florida has no plans at this
time to issue any preferred shares. Any such issuance of preferred shares could
have the effect of delaying or preventing a change of control.
INDEMNIFICATION PROVISIONS
Florida law authorizes a company to indemnify its directors and
officers in certain instances against certain liabilities which they may incur
by virtue of their relationship with the company. Further, a Florida company is
authorized to provide further indemnification or advancement of expenses to any
of its directors, officers, employees, or agents, except for acts or omissions
which constitute:
- a violation of the criminal law unless the individual had
reasonable cause to believe it was lawful,
- a transaction in which the individual derived an improper
personal benefit,
- in the case of a director, a circumstance under which certain
liability provisions of the Florida Business Corporation Act
are applicable related to payment of dividends or other
distributions or repurchases of shares in violation of such
Act, or
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- willful misconduct or a conscious disregard for the best
interest of the company in a proceeding by the company, or a
company shareholder.
A Florida company also is authorized to purchase and maintain liability
insurance for its directors, officers, employees and agents.
Centerstate Banks of Florida's bylaws provide that Centerstate Banks of
Florida shall indemnify each of its directors and officers to the fullest extent
permitted by law, and that the indemnity will include advances for expenses and
costs incurred by such director or officer related to any action in regard to
which indemnity is permitted. There is no assurance that Centerstate Banks of
Florida will maintain liability insurance for its directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, or persons controlling Centerstate
Banks of Florida pursuant to the foregoing provisions, Centerstate Banks of
Florida has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
LEGAL OPINION
The legality of the common stock being offered hereby will be passed
upon for Centerstate Banks of Florida by Smith, Mackinnon, Greeley, Bowdoin,
Edwards, Brownlee & Marks, P.A., Orlando, Florida.
EXPERTS
The financial statements of First National Bank of Polk County,
Community National Bank of Pasco County, and First National Bank of Osceola
County at December 31, 1999 and 1998 and for the years then ended have been
included herein and in the registration statement in reliance upon the report of
KPMG LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of such firm as experts in accounting and auditing.
On August 18, 1998, Community National Bank of Pasco County dismissed
Dwight Darby & Company as its accountants and retained the accounting firm of
KPMG LLP. Dwight Darby & Company's report on the financial statements for
Community National Bank of Pasco County for 1997 and 1996 did not contain an
adverse opinion or a disclaimer of opinion nor was such report qualified or
modified as to audit scope or accounting principle. During such calendar years
and the subsequent interim period preceding the change in its accountants, there
were no disagreements with the former accountant on any matter of accounting
principle or practices, financial statement disclosure or auditing scope or
procedure, which disagreement or disagreements, if not resolved to the
satisfaction of the former accountant, would have caused them to make a
reference to the subject matter of the disagreement in connection with its
report. The decision to dismiss Dwight Darby & Company was recommended and
approved by the Board of Directors of Community National Bank of Pasco County.
ADDITIONAL INFORMATION
Centerstate Banks of Florida has filed with the Commission a
Registration Statement under the Securities Act, with respect to the common
shares offered by the Registration Statement. This proxy
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statement/prospectus does not contain all of the information set forth in the
Registration Statement and in the exhibits attached. Certain items were omitted
in accordance with the rules and regulations of the Commission. For further
information with respect to Centerstate Banks of Florida and the common shares,
reference is made to the Registration Statement and the exhibits filed with it.
Anyone can inspect the Registration Statement without charge at the Public
Reference Section of the Commission Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Commission's regional offices:
Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, New York,
10048; and Midwest Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies may be obtained upon payment of the
required fees. Information contained in this proxy statement/prospectus which
refer to a document filed as an exhibit to the Registration Statement are
qualified in their entirety by reference to a copy of that document. In
addition, Centerstate Banks of Florida is required to file electronic versions
of these documents with the Commission through the Commission's EDGAR system.
The Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
Centerstate Banks of Florida intends to furnish its shareholders with
annual reports containing financial statements audited by independent public
accountants and with quarterly reports containing unaudited financial
information for each of the first three quarters of each fiscal year.
72
<PAGE> 78
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Independent Auditors' Report ............................................................. F-3
Balance Sheets as of December 31, 1999 and 1998 .......................................... F-4
Statements of Operations for the years ended December 31, 1999 and 1998 .................. F-5
Statements of Changes in Stockholders' Equity and Comprehensive Income for the
years ended December 31, 1999 and 1998 ............................................... F-6
Statements of Cash Flows for the years ended December 31, 1999 and 1998 .................. F-7
Notes to the Financial Statements ........................................................ F-8
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Independent Auditors' Report ............................................................. F-31
Balance Sheets as of December 31, 1999 and 1998 .......................................... F-32
Statements of Operations for the years ended December 31, 1999 and 1998 .................. F-33
Statements of Changes in Stockholders' Equity and Comprehensive Income for the years ended
December 31, 1999 and 1998 ........................................................... F-34
Statements of Cash Flows for the years ended December 31, 1999 and 1998 .................. F-35
Notes to the Financial Statements ........................................................ F-36
</TABLE>
F-1
<PAGE> 79
<TABLE>
<S> <C>
FIRST NATIONAL BANK OF POLK COUNTY
Independent Auditors' Report ............................................................. F-57
Balance Sheets as of December 31, 1999 and 1998 .......................................... F-58
Statements of Operations for the years ended December 31, 1999 and 1998 .................. F-59
Statements of Changes in Stockholders' Equity and Comprehensive Income for the years ended
December 31, 1999 and 1998 ........................................................... F-60
Statements of Cash Flows for the years ended December 31, 1999 and 1998 .................. F-61
Notes to the Financial Statements ........................................................ F-62
</TABLE>
F-2
<PAGE> 80
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First National Bank of Osceola County
Kissimmee, Florida
We have audited the accompanying balances sheet of First National Bank of
Osceola County as of December 31, 1999 and 1998 and the related statements of
operations, changes in stockholders' equity and comprehensive income and cash
flows for the years then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First National Bank of Osceola
County at December 31, 1999 and 1998, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/KPMG LLP
Orlando, Florida
February 2, 2000
F-3
<PAGE> 81
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,833,328 $ 4,687,944
Federal funds sold 700,770 5,017,000
Investment securities available for sale 22,038,778 35,818,706
Investment securities held to maturity (market value of
$3,457,495 and $2,546,254 for December 31, 1999
and 1998, respectively) 3,532,305 2,555,226
Loans, less allowance for loan losses of $798,510 and $781,034
for December 31, 1999 and 1998, respectively 70,160,780 56,591,397
Accrued interest receivable 691,055 753,990
Bank premises and equipment, net 4,434,399 3,714,825
Deferred income taxes, net 223,312 91,869
Prepaids and other assets 118,931 93,959
------------- ------------
Total assets $ 108,733,658 $109,324,916
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing $ 74,806,896 $ 78,886,965
Noninterest bearing 20,015,370 18,670,815
------------- ------------
Total deposits 94,822,266 97,557,780
Securities sold under agreements to repurchase 2,263,131 3,978,073
Accrued interest payable 127,690 143,246
Federal Reserve Bank advances 3,000,000 --
Accounts payable and accrued expenses 61,648 189,294
------------- ------------
Total liabilities 100,274,735 101,868,393
------------- ------------
Stockholders' equity:
Common stock, $5 par value; 550,000 shares
authorized; 511,175 and 451,109 shares issued and
outstanding at December 31, 1999 and 1998 2,555,875 2,255,545
Additional paid-in capital 2,745,684 2,334,249
Retained earnings 3,264,193 2,741,285
Accumulated other comprehensive (loss) income (106,829) 125,444
------------- ------------
Total stockholders' equity 8,458,923 7,456,523
Commitments and contingent liabilities
------------- ------------
Total liabilities and stockholders' $ 108,733,658 $109,324,916
============= ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 82
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Interest income:
Loans $5,639,325 $5,160,699
Investment securities 1,739,947 1,468,988
Federal funds sold 150,631 636,830
---------- ----------
7,529,903 7,266,517
Interest expense:
Deposits 3,095,506 3,349,948
Securities sold under agreement to repurchase 160,864 103,563
---------- ----------
3,256,370 3,453,511
---------- ----------
Net interest income 4,273,533 3,813,006
Provision for loan losses 186,000 38,473
---------- ----------
Net interest income after loan loss provision 4,087,533 3,774,533
---------- ----------
Other income:
Service charges on deposit accounts 707,507 584,789
Other service charges and fees 182,693 122,114
Gain on sale of available for sale securities 6,418 --
---------- ----------
Total other income 896,618 706,903
---------- ----------
Other expenses:
Salaries, wages and employee benefits 1,665,073 1,373,971
Occupancy expense 563,345 422,940
Depreciation of premises and equipment 265,347 217,172
Stationary and printing supplies 164,291 99,530
Advertising and public relations 82,114 75,266
Data processing expense 279,587 232,530
Legal and professional fees 100,668 97,544
Other expenses 791,852 556,196
---------- ----------
Total other expenses 3,912,277 3,075,149
---------- ----------
Income before income taxes 1,071,874 1,406,287
---------- ----------
Provision for income taxes 390,682 512,396
---------- ----------
Net income $ 681,192 $ 893,891
========== ==========
Earnings per share:
Basic $ 1.42 2.00
========== ==========
Diluted $ 1.36 1.86
========== ==========
Common shares used in the calculation of earnings per share:
Basic 481,135 446,737
========== ==========
Diluted 500,084 481,677
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 83
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Statements of Changes in Stockholders' Equity and Comprehensive Income
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) -
RECLASSI- ADDITIONAL OTHER TOTAL
COMPREHENSIVE FICATION COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
INCOME AMOUNT STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY
------------- ------------- ---------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1997 $2,177,500 2,200,078 1,960,171 20,103 6,357,852
Dividends paid -- -- (112,777) -- (112,777)
Stock options exercised 78,045 78,045 -- -- 156,090
Tax effect of tax deduction
in excess of book
deduction on options
exercised during the year -- 56,126 -- -- 56,126
Comprehensive income:
Net income $ 893,891 -- -- 893,891 -- 893,891
Other comprehensive
income, net of tax:
Gross unrealized income
on securities 105,341
Less: reclassified
adjustment for gains
included in net income -- -- -- -- 105,341 105,341
--------
Net realized gain
on securities 105,341
---------
Comprehensive income $ 893,891
========= ---------- --------- --------- --------- ---------
Balances, December 31, 1998 2,255,545 2,334,249 2,741,285 125,444 7,456,523
Dividends paid -- -- (158,284) -- (158,284)
Stock options exercised 300,330 300,330 -- -- 600,660
Tax effect of tax deduction
in excess of book
deduction on options
exercised during the year -- 111,105 -- -- 111,105
Comprehensive income:
Net income $ 681,192 -- -- 681,192 -- 681,192
Other comprehensive
income, net of tax:
Gross unrealized loss
on securities (241,712)
Less: reclassified
adjustment for gains
included in net loss 6,418
--------
Net unrealized
loss on
securities (235,294) -- -- -- (232,273) (232,273)
---------
Comprehensive income $ 445,898
========= ---------- --------- --------- --------- ---------
Balances, December 31, 1999 $2,555,875 2,745,684 3,264,193 (106,829) 8,458,923
========== ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 84
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Statements of Cash Flows
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 681,192 $ 893,891
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 186,000 38,473
Depreciation of premises and equipment 265,347 217,172
Net amortization/accretion of investment securities 131,046 189,386
Net deferred loan origination fees 36,400 471
Deferred income taxes 8,696 (5,091)
Realized gain on sale of available for sale securities (6,418) --
Tax deduction in excess of book deduction on options exercised 111,105 56,126
Cash provided by (used in) changes in:
Decrease (increase) in accrued interest receivable 62,935 (147,856)
Increase in prepaids and other assets (24,972) (30,525)
(Decrease) increase in accrued interest payable (15,556) 16,246
Decrease in accounts payable and accrued expenses (127,646) (60,030)
------------ ------------
Net cash provided by operating activities 1,308,129 1,168,263
------------ ------------
Cash flows from investing activities:
Purchases of available-for-sale of securities (4,569,337) (33,032,503)
Proceeds from sales of investment securities available for sale 7,016,641 --
Proceeds from maturities of investment securities available for sale 8,858,505 6,353,955
Proceeds from callable investment securities available for sale 2,000,000 4,500,000
Purchases of investment securities held-to-maturity (1,500,000) (1,058,438)
Proceeds from maturities of investment securities held-to-maturity 500,000 2,513,126
Increase in loans, net of repayments (13,791,783) (4,317,211)
Net purchases of premises and equipment (984,921) (1,010,102)
------------ ------------
Net cash used in investing activities (2,470,895) (26,051,173)
------------ ------------
Cash flows from financing activities:
Net (decrease) increase in demand and savings deposits (2,735,514) 19,049,998
Net (decrease) increase in securities sold under agreements to repurchase (1,714,942) 2,933,873
Proceeds from Federal Reserve Bank advances 3,000,000 --
Stock options exercised 600,660 156,090
Dividends paid (158,284) (112,777)
------------ ------------
Net cash (used in) provided by financing activities (1,008,080) 22,027,184
------------ ------------
Net decrease in cash and cash equivalents (2,170,846) (2,855,726)
Cash and cash equivalents, beginning of year 9,704,944 12,560,670
------------ ------------
Cash and cash equivalents, end of year $ 7,534,098 $ 9,704,944
============ ============
Supplemental schedule of noncash transactions:
Market value adjustment-investment securities available-for-sale
Market value adjustments-investments $ (171,283) $ 201,129
Deferred income tax asset (liability) 64,454 (75,685)
------------ ------------
Unrealized (loss) gain on investments available-for-sale $ (106,829) $ 125,444
============ ============
Cash paid during the year for:
Interest $ 3,271,926 $ 3,437,265
============ ============
Income taxes $ 442,898 $ 497,114
============ ============
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 85
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the basis of presentation and the
significant accounting and reporting policies which First National Bank
of Osceola County (the "Bank") follows in preparing and presenting its
financial statements.
(a) CASH EQUIVALENTS
For purposes of the statement of cash flows, the Bank considers
cash and due from banks, federal funds sold and noninterest
bearing deposits in other banks with a purchased maturity of three
months or less to be cash equivalents.
(b) INVESTMENT SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES
HELD TO MATURITY
The Bank accounts for investments at fair value, except for those
securities, which the Bank has the positive intent and ability to
hold to maturity. Investments to be held for indefinite periods of
time and not intended to be held to maturity are classified as
available for sale and are carried at fair value. Unrealized
holding gains and losses are included as a separate component of
shareholders' equity net of the effect of income taxes.
Securities that management has the intent and the Bank has the
ability at the time of purchase or origination to hold until
maturity are classified as investment securities held to maturity.
Securities in this category are carried at amortized cost adjusted
for accretion of discounts and amortization of premiums using the
level yield method over the estimated life of the securities. If a
security has a decline in fair value below its amortized cost that
is other than temporary, then the security will be written down to
its new cost basis by recording a loss in the statements of
operations.
(c) LOANS
Loans receivable that management has the intent and the Bank has
the ability to hold until maturity or payoff are reported at their
outstanding unpaid principal balance less the allowance for loan
losses and deferred fees on originated loans.
(Continued)
F-8
<PAGE> 86
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
Loans are placed on nonaccrual status when the loan becomes 90
days past due as to interest or principal, unless the loan is both
well secured and in the process of collection, or when the full
timely collection of interest or principal becomes uncertain. When
a loan is placed on nonaccrual status, the accrued and unpaid
interest receivable is written off, amortization of the net
deferred loan origination fees cease and the loan is accounted for
on the cash or cost recovery method thereafter , until qualifying
for return to accrual status.
The Bank, considering current information and events regarding the
borrower's ability to repay their obligations, considers a loan to
be impaired when it is probable that the Bank will be unable to
collect all amounts due according to the contractual terms of the
loan agreement. When a loan is considered to be impaired, the
amount of the impairment is measured based on the present value of
expected future cash flows discounted at the loan's effective
interest rate, the secondary market value of the loan, or the fair
value of the collateral for collateral dependent loans. In the
case of impaired collateral dependent loans where repayment is
expected to be provided solely by the underlying collateral and
there is no other available and reliable sources of repayment, the
loan is written down to the lower of cost or collateral value.
Impairment losses are included in the allowance for loan losses.
(d) ALLOWANCE FOR LOAN LOSSES
The Bank follows a consistent procedural discipline and accounts
for loan loss contingencies in accordance with Statement of
Financial Accounting Standards No. 5, "Accounting for
Contingencies" (Statement 5). The following is a description of
how each portion of the allowance for loan losses is determined.
The Bank segregates the loan portfolio for loan loss purposes into
the following broad segments: commercial real estate; residential
real estate; commercial business; and consumer loans. The Bank
provides for an allowance for losses inherent in the portfolio by
the above categories, which consists of two components: general
loss percentages and specific loss analysis.
General loss percentages are calculated based upon historical
analyses. A portion of the allowance is calculated for inherent
losses which management believes exist as of the evaluation date
even though they might not have been identified by the more
objective processes used. This is due to the risk of error and/or
inherent imprecision in the process. This portion of the allowance
is particularly subjective and requires judgments based on
qualitative factors which do not lend themselves to exact
mathematical calculations such as; trends in delinquencies and
nonaccruals; migration trends in the portfolio; trends in volume,
terms, and portfolio mix; new credit products and/or changes in
the geographic distribution of those products; changes in lending
policies and procedures; loan review reports on the efficacy of
the risk identification process; changes in the outlook for local,
regional and national economic conditions and concentrations of
credit.
(Continued)
F-9
<PAGE> 87
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
Allowances are provided in the event that the specific collateral
analysis on a loan indicates that the estimated loss upon
liquidation of collateral would be in excess of the general
percentage allocation. The provision for loan loss is debited or
credited in order to state the allowance for loan losses to the
required level as determined above.
The Bank considers a loan to be impaired when it is probable that
the Bank will be unable to collect all amounts due, both principal
and interest, according to the contractual terms of the loan
agreement. When a loan is impaired, the Bank may measure
impairment based on (a) the present value of the expected future
cash flows of the impaired loan discounted at the loan's original
effective interest rate; (b) the observable market price of the
impaired loans; or (c) the fair value of the collateral of a
collateral-dependent loan. The Bank selects the measurement method
on a loan-by-loan basis, except for collateral-dependent loans for
which foreclosure is probable must be measured at the fair value
of the collateral. In a troubled debt restructuring involving a
restructured loan, the Bank measures impairment by discounting the
total expected future cash flows at the loan's original effective
rate of interest.
Regulatory examiners may require the Bank to recognize additions
to the allowance based upon their judgment about the information
available to them at the time of their examination.
(e) PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation which is computed over the estimated useful lives of
the assets which range from 5 to 40 years on a straight-line
basis.
(f) OTHER REAL ESTATE OWNED
Real estate acquired in the settlement of loans is recorded at the
lower of cost (principal balance of the former loan plus costs of
obtaining title and possession) or estimated fair value, less
estimated selling costs. Costs relating to development and
improvement of the property are capitalized, whereas those
relating to holding the property are charged to operations.
(g) COMPREHENSIVE INCOME
The Bank's other comprehensive income is the unrealized
gain/(loss) on investment securities available for sale which is
excluded from the statement of operations and is recorded as a
separate component of stockholders' equity.
(Continued)
F-10
<PAGE> 88
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
(h) NET INCOME PER SHARE
The Bank adopted Statement of Financial Accounting Standards No.
128 (Statement 128) Earnings per Share, in the year ended December
31, 1998. Under Statement 128, the Bank presents two earnings per
share (EPS) amounts. Basic EPS is calculated based on net earnings
available to common shareholders and the weighted-average number
of shares outstanding during the year. Diluted EPS includes
additional dilution from potential common stock, such as stock
issuable pursuant to the exercise of stock options outstanding.
(i) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that included the enactment
date. Deferred tax assets are recognized subject to management's
judgment that realization is more likely than not.
(j) 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 amount of revenues and expenses during the reporting
period. These estimates include the allowance for loan loss and
the valuation of the deferred tax asset. Actual results could
differ from these estimates.
(k) EFFECT OF NEW PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board (the "FASB")
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities".
This Statement, which is effective for all fiscal quarters and all
fiscal years beginning after June 15, 1999, requires all
derivatives be measured at fair value and be recognized as assets
and liabilities in the statement of financial position. This
Statement sets forth the accounting for changes in fair value of a
derivative depending on the intended use and designation of the
derivative. Implementation of the Statement is not expected to
have a significant impact on the financial position or results of
operations of the Bank.
(Continued)
F-11
<PAGE> 89
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
In June 1999, the FASB issued Statement of Financial Accounting
Standard No. 137 which amended the implementation date of SFAS No.
133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000.
(l) RECLASSIFICATION
Certain amounts in the 1998 financial statements have been
reclassified to conform with the 1999 financial statements.
(2) INVESTMENT SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES HELD
TO MATURITY
The amortized cost and estimated market values of investment securities
available for sale for the years ended December 31, 1999 and 1998 are as
follows:
INVESTMENT SECURITIES AVAILABLE FOR SALE:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $13,803,729 $ 1,639 $ 63,462 $13,741,906
Obligations of U.S.
government agencies 8,000,385 -- 99,346 7,901,039
Mortgage backed
securities 250,197 -- 10,114 240,083
Federal reserve bank stock 155,750 -- -- 155,750
----------- -------- ----------- -----------
$22,210,061 $ 1,639 $ 172,922 $22,038,778
=========== ======== =========== ===========
</TABLE>
(Continued)
F-12
<PAGE> 90
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $19,621,138 $153,434 $ -- $19,774,572
Obligations of U.S.
government agencies 15,500,675 53,664 4,775 15,549,564
Mortgage backed
securities 360,414 -- 1,194 359,220
Federal reserve bank stock 135,350 -- -- 135,350
----------- -------- ----------- -----------
$35,617,577 $207,098 $ 5,969 $35,818,706
=========== ======== =========== ===========
</TABLE>
The amortized cost and estimated market values of investment securities
held to maturity for the years ended December 31, 1999 and 1998:
INVESTMENT SECURITIES HELD TO MATURITY:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ -- $ -- $ -- $ --
Obligations of U.S.
government agencies 3,532,305 -- 74,810 3,457,495
----------- -------- ----------- -----------
$ 3,532,305 $ -- $ 74,810 $ 3,457,495
=========== ======== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 500,689 $ 3,686 $ -- $ 504,375
Obligations of U.S.
government agencies 2,054,537 -- 12,658 2,041,879
----------- -------- ----------- -----------
$ 2,555,226 $ 3,686 $ 12,658 $ 2,546,254
=========== ======== =========== ===========
</TABLE>
(Continued)
F-13
<PAGE> 91
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
The amortized cost and estimated market value of investment securities
available for sale and held to maturity for the year ended December 31,
1999 by contractual maturity, is below:
<TABLE>
<CAPTION>
ESTIMATED
MARKET
AMORTIZED COST VALUE
-------------- -----------
<S> <C> <C>
Investment securities available for sale:
Due in one year or less $16,284,582 $16,204,109
Due after one year through five years 5,769,729 5,678,919
Federal Reserve Bank stock 155,750 155,750
----------- -----------
$22,210,061 $22,038,778
=========== ===========
Investment securities held to maturity:
Due after one year through five years $ 3,532,305 $ 3,457,495
=========== ===========
</TABLE>
At December 31, 1999 and 1998, the Bank had $500,000 and $250,000,
respectively, in investment securities pledged to the Treasurer of the
State of Florida as collateral on public fund deposits and for other
purposes required or permitted by law.
Proceeds from sales of investment securities available for sale were
$7,016,641 and $-0- in 1999 and 1998, respectively. Gross realized gains
on sales of investment securities available for sale during 1999 and 1998
were $6,418 and $-0-, respectively. During 1999 and 1998, there were no
sales of investment securities held to maturity.
(Continued)
F-14
<PAGE> 92
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
(3) LOANS
Major categories of loans included in the loan portfolio for the years
ended December 31, 1999 and 1998 are:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Real estate:
Residential $19,553,933 $17,055,229
Commercial 28,363,682 20,799,754
Construction 3,962,770 2,801,246
----------- -----------
Total real estate 51,880,385 40,656,229
Commercial 12,109,839 10,827,888
Installment 6,924,701 5,831,592
Overdrafts 117,095 93,052
----------- -----------
71,032,020 57,408,761
Less:
Allowance for loan losses 798,510 781,034
Deferred loan origination fees 72,730 36,330
----------- -----------
Net loans $70,160,780 $56,591,397
=========== ===========
</TABLE>
At December 31, 1999 and 1998, there were no nonaccrual loans and no
impaired loans.
Certain principal stockholders, directors and officers and their related
interests were indebted to the Bank as summarized below at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Balance, beginning of year $1,653,797 $1,587,000
Additional new loans 1,276,327 1,471,480
Repayments on outstanding loans 1,109,383 1,404,683
---------- ----------
Balance, end of year $1,820,741 $1,653,797
========== ==========
</TABLE>
(Continued)
F-15
<PAGE> 93
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
All such loans were made in the ordinary course of business. For the
years ended December 31, 1999 and 1998, principal stockholders, directors
and officers of the Bank and their related interests had available lines
of credit of $469,575 and $842,077, respectively.
Changes in the allowance for loan losses for the years ended December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Balance, beginning of year $ 781,034 $ 780,995
Provision charged to operations 186,000 38,473
Loans charged-off (200,153) (55,198)
Recoveries of previous charge-offs 31,629 16,764
--------- ---------
Balance, end of year $ 798,510 $ 781,034
========= =========
</TABLE>
(4) PREMISES AND EQUIPMENT
A summary of premises and equipment for the years ended December 31, 1999
and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Land $1,746,128 $1,732,098
Building and building improvements 1,720,714 1,210,327
Furniture, fixtures and equipment 1,705,395 1,267,758
Leasehold improvements 266,887 244,020
---------- ----------
5,439,124 4,454,203
Less accumulated depreciation 1,004,725 739,378
---------- ----------
$4,434,399 $3,714,825
========== ==========
</TABLE>
(Continued)
F-16
<PAGE> 94
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Bank in estimating
fair values of financial instruments as disclosed herein:
CASH AND CASH EQUIVALENTS - The carrying amount of cash and cash
equivalents represents fair value.
INVESTMENTS - The Bank's investment securities available for sale and
held to maturity represent investments in U.S. Government obligations,
U.S. Government Agency securities, and state and political
subdivisions. The Bank's equity investments at year-end represents
stock investments in the Federal Reserve Bank. The stock is not
publicly traded and the carrying amount was used to estimate the fair
value. The fair value of the U.S. Government obligations and U.S.
Government Agency obligations and state and local political subdivision
portfolios was estimated based on quoted market prices.
LOANS - For variable rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. Fair values for commercial real estate, commercial and consumer
loans other than variable rate loans are estimated using discounted
cash flow analysis, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. Fair
values of impaired loans are estimated using discounted cash flow
analysis or underlying collateral values, where applicable.
DEPOSITS - The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at December 31, 1999
and 1998 (that is their carrying amounts). The carrying amounts of
variable rate, fixed term money market accounts and certificates of
deposit (CDs) approximate their fair value at the reporting date. Fair
values for fixed rate CDs are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
time deposits.
REPURCHASE AGREEMENTS - The carrying amount of the repurchase
agreements approximate their fair value.
FEDERAL RESERVE ADVANCES - The carrying amount of the Federal reserve
advances approximate their fair value.
COMMITMENTS - Fair values for off-balance-sheet lending commitments are
based on fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the
counterparties' credit standing.
(Continued)
F-17
<PAGE> 95
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
The following tables present the carrying amounts and estimated fair
values of the Bank's financial instruments.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------
CARRYING
AMOUNT FAIR VALUE
----------- -----------
<S> <C> <C>
Financial assets:
Cash and due from banks and federal funds sold $ 7,534,098 $ 7,534,098
Investment securities available for sale 22,038,778 22,038,778
Investment securities held to maturity 3,532,305 3,457,495
Loans (carrying amount less allowance
for loan losses of $798,510) 70,160,780 68,977,414
Financial liabilities:
Deposits:
Without stated maturities $46,752,635 $46,752,635
With stated maturities 48,069,631 48,211,220
Securities sold under agreement to repurchase 2,263,131 2,263,131
Federal reserve advances 3,000,000 3,000,000
Commitments:
Letter of credit $ -- $ 95,863
Lines of credit -- 9,340,122
Loan commitments -- 13,699,420
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------
<S> <C> <C>
Financial assets:
Cash and due from banks and federal funds sold $ 9,704,944 $ 9,704,944
Investment securities available for sale 35,818,706 35,818,706
Investment securities held to maturity 2,555,226 2,546,254
Loans (carrying amount less allowance
for loan losses of $781,034) 56,591,397 56,750,000
Financial liabilities:
Deposits:
Without stated maturities $42,793,386 $42,793,386
With stated maturities 54,764,394 55,080,000
Securities sold under agreement to repurchase 3,978,073 3,978,073
Commitments:
Letter of credit $ -- $ 191,149
Lines of credit -- 6,028,801
Loan commitments -- 7,049,204
</TABLE>
(Continued)
F-18
<PAGE> 96
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
The carrying amounts shown in the tables are included in the balance
sheets under the indicated captions.
(6) DEPOSITS
A detail of deposits for the years ended December 31, 1999 and 1998
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
1999 RATE 1998 RATE
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Non-interest bearing demand deposits $ 20,015,370 --% $ 18,670,815 --%
Interest bearing:
Interest-bearing demand deposits 16,777,264 1.90% 16,093,120 1.43%
Savings deposits 9,960,001 2.46% 8,029,451 1.65%
Time deposits less than $100,000 36,710,573 4.99% 43,203,321 5.43%
Time deposits of $100,000 or greater 11,359,058 5.27% 11,561,073 5.60%
------------ ----- ------------ -----
$ 94,822,266 3.16% $ 97,557,780 3.09%
============ ===== ============ =====
</TABLE>
The following table presents, by various interest rate categories, the
amount of certificate accounts as of December 31, 1999, maturing during
the periods reflected below (dollars in thousands):
<TABLE>
<CAPTION>
INTEREST RATE 2000 2001 2002 2003 2004 TOTAL
------------- ------- ----- ----- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
1.00% - 3.99% $ 2,263 -- -- -- -- 2,263
4.00% - 4.99% 15,472 2,395 202 174 37 18,280
5.00% - 5.99% 17,292 3,662 579 548 281 22,362
6.00% - 6.99% 2,993 1,331 243 26 179 4,772
7.00% - 7.45% 320 -- 73 -- -- 393
------- ----- ----- --- ------ ------
$38,340 7,388 1,097 748 497 48,070
======= ===== ===== === ====== ======
</TABLE>
(Continued)
F-19
<PAGE> 97
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
Included in interest-bearing deposits are certificates of deposit issued,
which have remaining maturities at December 31, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
One year $38,339,893 $46,739,065
Two year 7,388,023 5,361,169
Three year 1,096,956 1,432,630
Four year 747,679 823,520
Five year 497,080 408,010
----------- -----------
$48,069,631 $54,764,394
=========== ===========
</TABLE>
A summary of interest expense on deposits is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Interest-bearing demand deposits $ 251,559 $ 231,130
Savings deposits 241,573 181,338
Time deposits less than $100,000 2,032,543 2,269,057
Time deposits of $100,000 or greater 569,831 668,423
---------- ----------
$3,095,506 $3,349,948
========== ==========
</TABLE>
The Bank had deposits from directors, officers and employees and their
related interests of $2,895,437 and $1,280,453 for the years ended
December 31, 1999 and 1998, respectively.
(7) OTHER BORROWINGS
The Bank enters into sales of securities under agreements to repurchase.
These fixed-coupon agreements are treated as financings, and the
obligations to repurchase securities sold are reflected as a liability in
the balance sheet. The dollar amount of securities underlying the
agreements remain in the asset accounts.
At December 31, 1999 and 1998, the Bank had $2,263,131 and $3,978,073 in
repurchase agreements with weighted average interest rates of 4.52% and
4.33%, respectively. Repurchase agreements are secured by U.S. Treasury
securities and Government Agency securities with market values of
$6,726,570 and $4,264,453 at December 31, 1999 and 1998, respectively.
(Continued)
F-20
<PAGE> 98
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
The repurchase agreements were to repurchase the identical securities as
those, which were sold. Repurchase agreements averaged $3,704,982 and
$2,315,848 for the years ended December 31, 1999 and 1998, respectively.
The maximum amount outstanding at any month-end for the corresponding
periods was $4,847,979 and $4,729,620, respectively. Total interest
expense paid on repurchase agreements for the years ending December 31,
1999 and 1998 was $154,919 and $103,563, respectively.
The Bank has available repurchase lines equal to the amount of all
unpledged investment securities.
In 1998, the Bank had an unsecured line of credit with another financial
institution of $1,000,000, with an interest rate of 5.59%. As of December
31, 1999 and 1998, the outstanding balance was zero.
In 1999, the Bank had a secured line of credit with the Federal Reserve
Bank of $17,750,000 with an interest rate of 7.00%. The line of credit
was secured by U.S. Treasury securities and Government Agencies with
market values of $17,887,821 at December 31, 1999. As of December 31,
1999, the outstanding balance was $3,000,000. Total interest expense paid
for Federal Reserve Bank advances for the year ending December 31, 1999
was $5,945.
(8) INCOME TAXES
The provision for income taxes for the years ended December 31, 1999 and
1998 consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- --------- --------
<S> <C> <C> <C>
DECEMBER 31, 1999:
Federal $ 352,552 7,426 359,978
State 29,434 1,270 30,704
--------- --------- --------
$ 381,986 8,696 390,682
========= ========= ========
DECEMBER 31, 1998:
Federal $ 462,781 $ (4,784) $457,997
State 54,706 (307) 54,399
--------- --------- --------
$ 517,487 $ (5,091) $512,396
========= ========= ========
</TABLE>
(Continued)
F-21
<PAGE> 99
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities for the
years ended December 31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Unrealized loss on investment securities
available for sale $ 64,454 $ --
Allowance for loan losses 248,818 256,862
--------- ---------
Net deferred tax asset 313,272 256,862
--------- ---------
Deferred tax liabilities:
Premises and equipment, due to differences in
depreciation methods and useful lives (89,960) (89,308)
Unrealized gain on investment securities
available for sale -- (75,685)
--------- ---------
Total deferred tax liability (89,960) (164,993)
--------- ---------
Net deferred tax asset $ 223,312 $ 91,869
========= =========
</TABLE>
The Bank has recorded a deferred tax asset of $223,312 and $91,869 for
the years ended December 31, 1999 and 1998, respectively. No valuation
allowance as defined by SFAS 109 is required for the years ended December
31, 1999 and 1998. Management believes that a valuation allowance is not
necessary because it is more likely than not the deferred tax asset is
realizable.
(Continued)
F-22
<PAGE> 100
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
A reconciliation between the actual tax expense and the "expected" tax
expense (computed by applying the U.S. federal corporate rate of 34% to
earnings before income taxes) is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
-------- ---------
<S> <C> <C>
"Expected" tax expense $364,437 $ 478,138
State income taxes, net of federal income tax
benefits 20,265 35,800
Other, net 5,980 (1,542)
-------- ---------
$390,682 $ 512,396
======== =========
</TABLE>
(9) COMMITMENTS
The following is a schedule of future minimum annual rentals under the
noncancellable operating leases of the Bank's facilities as of December
31, 1999:
<TABLE>
<S> <C>
2000 $ 175,921
2001 175,921
2002 175,921
2003 175,921
2004 148,421
Thereafter 678,874
------------
$ 1,530,979
============
</TABLE>
Rent expense for the years ended December 31, 1999 and 1998 was $172,112
and $142,687, respectively, and is included in occupancy expense in the
accompanying statements of operations. Operating lease income from
subleases of the Bank's premises for December 31, 1999 and 1998 amounted
to $8,403 and $6,250, respectively.
(Continued)
F-23
<PAGE> 101
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
(10) REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets. Management believes, as of December
31, 1999, that the Bank meets all capital adequacy requirements to which
it is subject.
As of December 31, 1999, the most recent notification from the Office of
Comptroller of the Currency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain total risk-based,
Tier I risk-based, Tier I leverage ratios as set forth in the table.
There are no conditions or events since that notification that management
believes have changed the institution's category.
(Continued)
F-24
<PAGE> 102
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISION
------------------- -------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1999:
Total capital (to risk weighted
assets) $9,239,134 13.3% $5,543,143 >8% $6,928,928 >10%
- -
Tier I capital (to risk
weighted assets) 8,440,624 12.2% 2,771,571 >4% 4,157,357 > 6%
- -
Tier I capital (to average
assets) 8,440,624 7.8% 4,311,941 >4% 5,389,926 > 5%
- -
DECEMBER 31, 1998:
Total capital (to risk weighted
assets) $8,019,444 13.7% $4,668,192 >8% $5,835,241 >10%
- -
Tier I capital (to risk
weighted assets) 7,289,402 12.5% 2,334,096 >4% 3,501,144 > 6%
- -
Tier I capital (to average
assets) 7,289,402 6.7% 4,336,161 >4% 5,420,201 > 5%
- -
</TABLE>
(11) DIVIDENDS
The Board of Directors of the Bank declared cash dividends of $158,284
and $112,777 for the years ended December 31, 1999 and 1998,
respectively. Banking regulations limit the amount of dividends that may
be paid by the Bank without prior approval of the Bank's regulatory
agency.
(Continued)
F-25
<PAGE> 103
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
(12) STOCK OPTION PLANS
The Bank currently has an incentive stock plan for the directors and
employees. In September 1989, the Bank authorized 97,500 common shares
for future options for all directors under an incentive stock option and
non-statutory stock option plan. The number of options granted to each
director shall not exceed 7,500. Options were granted at $10.00 per share
(fair market value of the stock). Each option provides that the
underlying options expire no later than September 18, 1999 and vesting
occurs at 20% on September 18th of each year. As of December 31, 1999 and
1998, there were -0- and 23,291 options vested and outstanding,
respectively. During 1999 and 1998, 400 and -0-, respectively, were
forfeited due to terminations. No additional options were granted and
22,891 were exercised during the year ended December 31, 1999.
In addition, in 1989, the Bank granted options for a total of 45,000
shares under a stock option plan to key employees of the Bank. Options
were granted at a minimum price of $10.00 per share (fair market value of
the stock). Each option provides an exercise period as decided by the
Board with expiration at ten years from the date of grant. As of December
31, 1999 and 1998, there were 2,856 and 39,431 options vested and 4,656
and 42,681 outstanding, respectively. During 1999 and 1998, 850 and 1,894
were forfeited due to terminations, respectively. No additional options
were granted and 37,175 were exercised during the year ended December 31,
1999.
The Bank applies APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost for the
Bank's stock-based compensation plan been determined consistent with FASB
Statement No. 123, the Bank's net income would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net income:
As reported $ 681,192 $ 893,891
Pro forma 673,625 887,746
Diluted earnings per share:
As reported 1.36 1.86
Pro forma 1.35 1.84
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the minimum value method with the following weighted-average
assumptions used for grants in 1998: dividend yield of 5.0%; expected
volatility of 0%; risk-free interest rates of 4.73% and expected lives of
7 years for the plan options.
(Continued)
F-26
<PAGE> 104
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
A summary of the status of the Bank's stock option plan for the years
December 31, 1999 and 1998, and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
OPTIONS FILED 1999 1998
----------------------------------------------------- ----------- ----------
<S> <C> <C>
Outstanding at beginning of year: 65,972 79,975
Granted ---- 3,500
Exercised (60,066) (15,609)
Forfeited (1,250) (1,894)
---------- ----------
Outstanding at end of year 4,656 65,972
Options exercisable at end of year 2,856 62,972
========== ==========
Weighted-average fair value of option granted
during the year per share $ -- $ 7.92
========== ==========
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
- -------------------------------------------------------------------------------------------------------------------------
WEIGHTED
NUMBER WEIGHTED WEIGHTED NUMBER AVERAGE EXERCISE
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT PRICE AT
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, DECEMBER 31,
EXERCISE PRICES 1999 LIFE PRICE 1999 1999
- --------------- -------------- ----------- -------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$10.00 4,656 4.7 years $10.00 2,856 $10.00
</TABLE>
(13) EMPLOYEE BENEFIT PLAN
The Bank maintains a 401(k) compensation and incentive plan for the
benefit of its employees. Employees are eligible to participate in the
plan after completing one year of continuous employment. The Bank
contributed an amount equal to a certain percentage of the employees'
contributions based on the discretion of the Board of Directors. The
Bank's total contributions are not to exceed six percent of the
employees' annual compensation. During the years ended December 31, 1999
and 1998 the Bank's contributions to the plan were $85,283 and $32,267,
respectively.
(Continued)
F-27
<PAGE> 105
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
(14) CREDIT COMMITMENTS
The Bank has outstanding at any time a significant number of commitments
to extend credit. These arrangements are subject to strict credit control
assessments and each customer's creditworthiness is evaluated on a
case-by-case basis. A summary of commitments to extend credit and standby
letters of credit written for the years ended December 31, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1999 1998
----------- ----------
<S> <C> <C>
Standby letters of credit $ 95,863 $ 191,149
Available lines of credit 9,340,122 6,028,801
Unfunded firm loan commitments - variable rate 13,699,420 7,049,204
</TABLE>
Because many commitments expire without being funded in whole or part,
the contract amounts are not estimates of future cash flows.
The majority of loan commitments have terms up to one year and have
variable interest rates.
Credit risk represents the accounting loss that would be recognized at
the reporting date if counterparties failed completely to perform as
contracted. The credit risk amounts are equal to the contractual amounts,
assuming that the amounts are fully advanced and that the collateral or
other security is of no value.
The Bank's policy is to require customers to provide collateral prior to
the disbursement of approved loans. The amount of collateral obtained, if
it is deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, real estate and
income providing commercial properties.
Standby letters of credit are contractual commitments issued by the Bank
to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
(Continued)
F-28
<PAGE> 106
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
(15) CONCENTRATIONS OF CREDIT RISK
Most of the Bank's business activity is with customers located within
Osceola County and portions of adjacent counties. The majority of
commercial and mortgage loans are granted to customers residing in this
area. Generally, commercial loans are secured by real estate, and
mortgage loans are secured by either first or second mortgages on
residential or commercial property. As of December 31, 1999,
substantially all of the Bank's loan portfolio was secured. Although the
Bank has a diversified loan portfolio, a substantial portion of its
debtors' ability to honor their contracts is dependent upon the economy
of Osceola County and portions of adjacent counties. The Bank does not
have significant exposure to any individual customer or counterparty.
(16) BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
--------------- ------------- -------------
<S> <C> <C> <C>
For the year ended 1999:
BASIC EARNINGS PER SHARE:
Net income $ 681,192 481,135 $ 1.42
=============
EFFECT OF DILUTIVE SECURITIES:
Stock options -- 18,949
-------------- -------
DILUTED EARNINGS PER SHARE:
Income and assumed conversions $ 681,192 500,084 $ 1.36
============== ======= =============
For the year ended 1998:
BASIC EARNINGS PER SHARE:
Net income $ 893,891 446,737 $ 2.00
=============
EFFECT OF DILUTIVE SECURITIES:
Stock options -- 34,940
-------------- -------
DILUTED EARNINGS PER SHARE:
Income and assumed conversions $ 893,891 481,677 $ 1.86
============== ======= =============
</TABLE>
(Continued)
F-29
<PAGE> 107
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
(17) MERGER NEGOTIATIONS
The Bank's Board of Directors has approved a merger whereby the Bank will
become a subsidiary of Centerstate Banks of Florida, Inc.
("Centerstate"). In the merger, the shareholders of the Bank will receive
2.0 shares of Centerstate common stock for each Bank common share owned.
Centerstate has not yet commenced any business. It has, however, entered
into similar merger agreements with First National Bank of Polk County
("Polk") and Community National Bank of Pasco County ("Pasco"). The
closing of the Bank's merger is conditioned upon the simultaneous closing
by Centerstate and the Polk and Pasco mergers. Upon the consummation of
these mergers, the Bank, Polk and Pasco will operate as separate
subsidiaries of Centerstate.
F-30
<PAGE> 108
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Community National Bank of Pasco County:
We have audited the accompanying balance sheets of Community National Bank of
Pasco County as of December 31, 1999 and 1998 and the related statements of
operations, changes in stockholders' equity and comprehensive income and cash
flows for the years then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Community National Bank of
Pasco County at December 31, 1999 and 1998, and the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/KPMG LLP
- ----------------
Orlando, Florida
February 4, 2000
F-31
<PAGE> 109
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,729,372 $ 3,787,574
Federal funds sold 737,000 5,175,000
Investment securities available for sale 17,625,445 21,955,703
Loans, less allowance for loan losses of $869,815 and
$865,503 at December 31, 1999 and 1998, respectively 61,830,310 55,783,943
Accrued interest receivable 672,569 666,606
Bank premises and equipment, net 6,061,989 5,294,524
Other real estate owned -- 34,672
Deferred income taxes 351,630 235,942
Prepaids and other assets 133,388 46,960
------------ -----------
$ 95,141,703 $92,980,924
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 11,214,288 $11,324,586
Interest bearing 74,210,325 73,322,182
------------ -----------
Total deposits 85,424,613 84,646,768
Securities sold under agreements to repurchase 1,556,134 652,948
Accrued interest payable 128,642 144,862
Accounts payable and accrued expenses 24,726 89,694
------------ -----------
Total liabilities 87,134,115 85,534,272
------------ -----------
Stockholders' equity:
Common stock, $5 par value; 5,000,000 shares
authorized; 487,210 and 461,585 shares issued
and outstanding at December 31, 1999 and 1998 2,436,050 2,307,925
Additional paid-in capital 2,598,126 2,430,696
Retained earnings 3,064,422 2,591,424
Accumulated other comprehensive (loss) income (91,010) 116,607
------------ -----------
Total stockholders' equity 8,007,588 7,446,652
Commitments and contingent liabilities
------------ -----------
Total liabilities and stockholders' equity $ 95,141,703 $92,980,924
============ ===========
</TABLE>
See accompanying notes to financial statements
F-32
<PAGE> 110
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998
----------- ----------
<S> <C> <C>
Interest income:
Loans $ 5,103,704 $4,868,419
Investment securities 1,223,606 1,108,953
Federal funds sold 251,697 296,312
----------- ----------
6,579,007 6,273,684
----------- ----------
Interest expense:
Deposits 2,989,455 3,039,598
Securities sold under agreement to repurchase 52,391 58,853
----------- ----------
3,041,846 3,098,451
----------- ----------
Net interest income 3,537,161 3,175,233
Provision for loan losses 9,000 150,000
----------- ----------
Net interest income after loan loss provision 3,528,161 3,025,233
----------- ----------
Other income:
Service charges on deposit accounts 591,342 423,759
Other service charges and fees 67,382 41,098
(Loss) gain on sale of other real estate owned (3,428) 99,659
----------- ----------
655,296 564,516
----------- ----------
Other expenses:
Salaries, wages and employee benefits 1,423,152 1,131,682
Occupancy expense 413,590 272,603
Depreciation of premises and equipment 321,717 215,412
Stationary and printing supplies 79,320 83,034
Advertising and public relations 80,123 47,772
Data processing expense 240,767 208,688
Legal and professional fees 111,628 114,735
Other expenses 539,281 420,755
----------- ----------
3,209,578 2,494,681
----------- ----------
Income before provision for income taxes 973,879 1,095,068
Provision for income taxes 354,831 393,405
----------- ----------
Net income $ 619,048 $ 701,663
=========== ==========
Earnings per share:
Basic $ 1.31 $ 1.53
=========== ==========
Diluted $ 1.27 $ 1.45
=========== ==========
Common shares used in the calculation of earnings per share:
Basic 471,830 458,049
=========== ==========
Diluted 487,230 483,581
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE> 111
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Statements of Changes in Stockholders' Equity and Comprehensive Income
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) -
RECLASSI- ADDITIONAL OTHER TOTAL
COMPREHENSIVE FICATION COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
INCOME AMOUNT STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY
------------- ------------- ---------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1997 $2,183,240 2,265,349 2,005,032 34,688 6,488,309
Dividends paid -- -- (115,271) -- (115,271)
Stock options exercised 124,685 124,685 -- -- 249,370
Tax effect of tax deduction
in excess of book
deduction on options
exercised during the year -- 40,662 -- -- 40,662
Comprehensive income:
Net income $701,663 -- -- 701,663 -- 701,663
Other comprehensive
income, net of tax:
Gross unrealized gain
on securities 81,919
Less: reclassified
adjustment for gain
included in net
income --
--------
Net unrealized gain on
securities 81,919 -- -- -- 81,919 81,919
--------
Comprehensive income $783,582
======== ---------- --------- --------- -------- ---------
Balances, December 31, 1998 2,307,925 2,430,696 2,591,424 116,607 7,446,652
Dividends paid -- -- (146,050) -- (146,050)
Stock options exercised 128,125 128,125 -- -- 256,250
Tax effect of tax deduction
in excess of book
deduction on options
exercised during the year -- 39,305 -- -- 39,305
Comprehensive income:
Net income $619,048 -- -- 619,048 -- 619,048
Other comprehensive
income, net of tax:
Gross unrealized loss
on securities (209,540)
Less: reclassified
adjustment for loss
included in net
income (1,923)
--------
Net unrealized loss
on securities (207,617) -- -- -- (207,617) (207,617)
--------
Comprehensive income $411,431
======== ---------- --------- --------- -------- ---------
Balances, December 31, 1999 $2,436,050 2,598,126 3,064,422 (91,010) 8,007,588
========== ========= ========= ======== ====-====
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE> 112
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 619,048 $ 701,663
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 9,000 150,000
Depreciation of premises and equipment 321,717 215,412
Net amortization/accretion of investment securities 80,501 17,571
Net deferred loan origination fees 7,001 (62)
Loss (gain) on sale of other real estate owned 3,428 (99,659)
Loss on sale of securities 1,923 --
Deferred income taxes 9,574 (61,139)
Tax deduction in excess of book deduction on options exercised 39,305 40,662
Cash provided by (used in) changes in:
Net change in accrued interest receivable (5,963) (57,196)
Net change in prepaids and other assets (86,428) (2,472)
Net change in accrued interest payable (16,220) 2,905
Net change in accounts payable and accrued expenses (64,968) (86,824)
----------- ------------
Net cash provided by operating activities 917,918 820,861
----------- ------------
Cash flows from investing activities:
Purchases of investment securities available for sale (9,085,690) (15,955,525)
Proceeds from callable investment securities available for sale 1,500,000 2,300,000
Proceeds from maturities of investment securities available for sale 8,000,000 6,000,000
Proceeds from sales of investment securities available for sale 3,500,645 --
Proceeds from maturities of investment securities held to maturity -- 3,000,000
Increase in loans, net of repayments (6,062,368) (5,086,240)
Purchases of premises and equipment (1,089,182) (2,059,348)
Proceeds from sale of other real estate owned 31,244 390,241
----------- ------------
Net cash used in investing activities (3,205,351) (11,410,872)
----------- ------------
Cash flows from financing activities:
Net increase in demand and savings deposits 777,845 12,976,225
Net increase (decrease) in other borrowings 903,186 (834,803)
Stock options exercised 256,250 249,370
Dividends paid (146,050) (115,271)
----------- ------------
Net cash provided by financing activities 1,791,231 12,275,521
----------- ------------
Net (decrease) increase in cash and cash equivalents (496,202) 1,685,510
Cash and cash equivalents, beginning of year 8,962,574 7,277,064
----------- ------------
Cash and cash equivalents, end of year $ 8,466,372 $ 8,962,574
=========== ============
Supplemental schedule of noncash transactions:
Market value adjustment-investment securities available-for-sale
Market value adjustments-investments $ (145,919) $ 186,960
Deferred income tax asset (liability) 54,909 (70,353)
----------- ------------
Unrealized (loss) gain on investments available-for-sale $ (91,010) $ 116,607
=========== ============
Transfer of loan to other real estate owned $ -- $ 34,000
=========== ============
Other supplemental disclosures: Cash paid during the year for:
Interest $ 3,058,066 $ 3,095,546
=========== ============
Income taxes $ 371,567 $ 368,750
=========== ============
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE> 113
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the basis of presentation and the
significant accounting and reporting policies which Community National
Bank of Pasco County (the "Bank") follows in preparing and presenting its
financial statements.
(a) CASH EQUIVALENTS
For purposes of the statement of cash flows, the Bank considers
cash and due from banks, federal funds sold and noninterest
bearing deposits in other banks with a purchased maturity of three
months or less to be cash equivalents.
(b) INVESTMENT SECURITIES AVAILABLE FOR SALE
The Bank accounts for investments at fair value except for those
securities which the Bank has the positive intent and ability to
hold to maturity. Investments to be held for indefinite periods of
time and not intended to be held to maturity are classified as
available for sale and are carried at fair value. Unrealized
holding gains and losses are included as a separate component of
shareholders' equity net of the effect of income taxes.
(c) LOANS
Loans receivable that management has the intent and the Bank has
the ability to hold until maturity or payoff are reported at their
outstanding unpaid principal balance less the allowance for loan
losses and deferred fees on originated loans.
Loans are placed on nonaccrual status when the loan becomes 90
days past due as to interest or principal, unless the loan is both
well secured and in the process of collection, or when the full
timely collection of interest or principal becomes uncertain. When
a loan is placed on nonaccrual status, the accrued and unpaid
interest receivable is written off, amortization of the net
deferred loan origination fees cease and the loan is accounted for
on the cash or cost recovery method thereafter until, qualifying
for return to accrual status.
The Bank, considering current information and events regarding the
borrower's ability to repay their obligations, considers a loan to
be impaired when it is probable that the Bank will be unable to
collect all amounts due according to the contractual terms of the
loan agreement. When a loan is considered to be impaired, the
amount of the impairment is measured based on the present value of
expected future cash flows discounted at the loan's effective
interest rate, the secondary market value of the loan, or the fair
value of the collateral for collateral dependent loans. In the
case of impaired collateral dependent loans where repayment is
expected to be provided solely by the underlying collateral and
there is no other available and reliable sources of repayment, the
loan is written down to the lower of cost or collateral value.
Impairment losses are included in the allowance for loan losses.
(Continued)
F-36
<PAGE> 114
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
(d) ALLOWANCE FOR LOAN LOSSES
The Bank follows a consistent procedural discipline and accounts
for loan loss contingencies in accordance with Statement of
Financial Accounting Standards No. 5, "Accounting for
Contingencies" (Statement 5). The following is a description of
how each portion of the allowance for loan losses is determined.
The Bank segregates the loan portfolio for loan loss purposes into
the following broad segments: commercial real estate; residential
real estate; commercial business; and consumer loans. The Bank
provides for an allowance for losses inherent in the portfolio by
the above categories, which consists of two components: general
loss percentages and specific loss analysis.
General loss percentages are calculated based upon historical
analyses. A portion of the allowance is calculated for inherent
losses which management believes exist as of the evaluation date
even though they might not have been identified by the more
objective processes used. This is due to the risk of error and/or
inherent imprecision in the process. This portion of the allowance
is particularly subjective and requires judgments based on
qualitative factors which do not lend themselves to exact
mathematical calculations such as; trends in delinquencies and
nonaccruals; migration trends in the portfolio; trends in volume,
terms, and portfolio mix; new credit products and/or changes in
the geographic distribution of those products; changes in lending
policies and procedures; loan review reports on the efficacy of
the risk identification process; changes in the outlook for local,
regional and national economic conditions and concentrations of
credit.
Allowances are provided in the event that the specific collateral
analysis on a loan indicates that the estimated loss upon
liquidation of collateral would be in excess of the general
percentage allocation. The provision for loan loss is debited or
credited in order to state the allowance for loan losses to the
required level as determined above.
The Bank considers a loan to be impaired when it is probable that
the Bank will be unable to collect all amounts due, both principal
and interest, according to the contractual terms of the loan
agreement. When a loan is impaired, the Bank may measure
impairment based on (a) the present value of the expected future
cash flows of the impaired loan discounted at the loan's original
effective interest rate; (b) the observable market price of the
impaired loans; or (c) the fair value of the collateral of a
collateral-dependent loan. The Bank selects the measurement method
on a loan-by-loan basis, except for collateral-dependent loans for
which foreclosure is probable must be measured at the fair value
of the collateral. In a troubled debt restructuring involving a
restructured loan, the Bank measures impairment by discounting the
total expected future cash flows at the loan's original effective
rate of interest.
(Continued)
F-37
<PAGE> 115
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
Regulatory examiners may require the Bank to recognize additions
to the allowance based upon their judgment about the information
available to them at the time of their examination.
(e) PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation which is computed over the estimated useful lives of
the assets which range from 5 to 31.5 years on a straight-line
basis.
(f) OTHER REAL ESTATE OWNED
Real estate acquired in the settlement of loans is recorded at the
lower of cost (principal balance of the former loan plus costs of
obtaining title and possession) or estimated fair value, less
estimated selling costs. Costs relating to development and
improvement of the property are capitalized, whereas those
relating to holding the property are charged to operations.
(g) COMPREHENSIVE INCOME
The Bank's other comprehensive income is the unrealized
gain/(loss) on investment securities available for sale which is
excluded from the statement of operations and is recorded as a
separate component of stockholders' equity.
(h) NET INCOME PER SHARE
The Bank adopted Statement of Financial Accounting Standards No.
128 (Statement 128) Earnings per Share, in the year ended December
31, 1998. Under Statement 128, the Bank presents two earnings per
share (EPS) amounts. Basic EPS is calculated based on net earnings
available to common shareholders and the weighted-average number
of shares outstanding during the year. Diluted EPS includes
additional dilution from potential common stock, such as stock
issuable pursuant to the exercise of stock options outstanding.
(i) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that included the enactment
date. Deferred tax assets are recognized subject to management's
judgment that realization is more likely than not.
(Continued)
F-38
<PAGE> 116
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
(j) 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 amount of revenues and expenses during the reporting
period. These estimates include the allowance for loan loss and
the valuation of the deferred tax asset. Actual results could
differ from these estimates.
(k) EFFECT OF NEW PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedge Activities".
This Statement, which is effective for all fiscal quarters and all
fiscal years beginning after June 15, 1999, requires all
derivatives be measured at fair value and be recognized as assets
and liabilities in the statement of financial position. This
Statement sets forth the accounting for changes in fair value of a
derivative depending on the intended use and designation of the
derivative. Implementation of the Statement is not expected to
have a significant impact on the financial position or results of
operations of the Bank.
In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137 which amended the implementation date SFAS No.
133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000.
(l) RECLASSIFICATION
Certain amounts in the 1998 financial statements have been
reclassified to conform with the 1999 financial statements.
(Continued)
F-39
<PAGE> 117
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
(2) INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated market values of investment securities
available for sale for the years ended December 31, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- -------- ----------- -----------
<S> <C> <C> <C>
U.S. Treasury securities $11,576,286 $ -- $ 85,114 $11,491,172
Obligations of U.S.
government agencies 6,054,128 -- 60,805 5,993,323
Federal reserve bank stock 140,950 -- -- 140,950
----------- -------- ----------- -----------
$17,771,364 $ -- $ 145,919 $17,625,445
=========== ======== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- -------- ----------- -----------
<S> <C> <C> <C>
U.S. Treasury securities $15,075,747 $149,425 $ -- $15,225,172
Obligations of U.S.
government agencies 5,552,046 37,535 -- 5,589,581
Municipals 1,000,000 -- -- 1,000,000
Federal reserve bank stock 140,950 -- -- 140,950
----------- -------- ----------- -----------
$21,768,743 $186,960 $ -- $21,955,703
=========== ======== =========== ===========
</TABLE>
The amortized cost and estimated market value of investment securities
available for sale for the year ended December 31, 1999 by contractual
maturity, is below:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
----------- ------------
<S> <C> <C>
Investment securities available for sale:
Due in one year or less $ 9,579,844 $ 9,522,058
Due after one year through five years 8,050,570 7,962,437
Federal reserve bank stock 140,950 140,950
----------- -----------
$17,771,364 $17,625,445
=========== ===========
</TABLE>
(Continued)
F-40
<PAGE> 118
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
At December 31, 1999 and 1998, the Bank had $2,008,202 and $2,023,915,
respectively, in securities pledged to the State of Florida as collateral
on public fund deposits and for other purposes required or permitted by
law.
Proceeds from sales of investment securities available for sale were
$3,500,645 and $-0- in 1999 and 1998, respectively. Gross realized losses
on sales of investment securities available for sale during 1999 and 1998
were $1,923 and $-0-, respectively.
(3) LOANS
Major categories of loans included in the loan portfolio for the years
ended December 31, 1999 and 1998 are:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Real estate:
Residential $22,405,926 $23,590,905
Commercial 22,521,760 19,121,381
Construction 6,672,424 4,697,886
----------- -----------
Total real estate 51,600,110 47,410,172
Commercial 8,580,590 7,689,922
Installment 2,633,232 1,654,245
Overdrafts 7,953 9,866
----------- -----------
62,821,885 56,764,205
Less:
Allowance for loan losses 869,815 865,503
Deferred loan origination fees 121,760 114,759
----------- -----------
Net loans $61,830,310 $55,783,943
=========== ===========
</TABLE>
(Continued)
F-41
<PAGE> 119
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
The following is a summary of information regarding nonaccrual and
impaired loans for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Nonaccrual loans $214,660 $180,003
======== ========
Recorded investment in impaired loans $817,593 $596,000
======== ========
Allowance for loan losses related to impaired loans
$ 24,558 $ 54,000
======== ========
</TABLE>
<TABLE>
<CAPTION>
INTEREST
INCOME NOT INTEREST AVERAGE
RECOGNIZED ON INCOME RECORDED
NONACCRUAL RECOGNIZED ON INVESTMENT IN
LOANS IMPAIRED LOANS IMPAIRED LOANS
------------- -------------- --------------
<S> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31:
1999 $ 22,392 $ 52,454 $ 706,797
1998 $ 6,881 $ 40,005 $ 899,000
</TABLE>
Certain principal stockholders, directors and officers and their related
interests were indebted to the Bank as summarized below for the years
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Balance, beginning of year $2,747,587 $2,172,197
Additional new loans 1,390,385 1,192,571
Repayments on outstanding loans 1,342,922 617,181
---------- ----------
Balance, end of year $2,795,050 $2,747,587
========== ==========
</TABLE>
All such loans were made in the ordinary course of business. For years
ended December 31, 1999 and 1998, principal stockholders, directors and
officers of the Bank and their related interests had available lines of
credit of $811,472 and $194,900, respectively.
(Continued)
F-42
<PAGE> 120
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
Changes in the allowance for loan losses for the years ended December 31,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
Balance, beginning of year $ 865,503 $ 754,637
Provision charged to operations 9,000 150,000
Loans charged-off (53,926) (42,808)
Recoveries of previous charge-offs 49,238 3,674
--------- ---------
Balance, end of year $ 869,815 $ 865,503
========= =========
</TABLE>
(4) PREMISES AND EQUIPMENT
A summary of premises and equipment for the years ended December 31, 1999
and 1998 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Land $1,682,576 $1,109,845
Building 4,040,127 3,710,891
Furniture, fixtures and equipment 1,792,374 1,524,662
Construction in progress 3,079 87,008
---------- ----------
7,518,156 6,432,406
Less accumulated depreciation 1,456,167 1,137,882
---------- ----------
$6,061,989 $5,294,524
========== ==========
</TABLE>
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Bank in estimating
fair values of financial instruments as disclosed herein:
CASH AND CASH EQUIVALENTS - The carrying amount of cash and cash
equivalents represents fair value.
(Continued)
F-43
<PAGE> 121
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
INVESTMENTS AVAILABLE FOR SALE - The Bank's investment securities
available for sale represent investments in U.S. Government
obligations, U.S. Government Agency securities, and state and political
subdivisions. The Bank's equity investments at year-end represents
stock investments in the Federal Reserve Bank. The stock is not
publicly traded and the carrying amount was used to estimate the fair
value. The fair value of the U.S. Government obligations and U.S.
Government Agency obligations and state and local political subdivision
portfolios was estimated based on quoted market prices.
LOANS - For variable rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. Fair values for commercial real estate, commercial and consumer
loans other than variable rate loans are estimated using discounted
cash flow analysis, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. Fair
values of impaired loans are estimated using discounted cash flow
analysis or underlying collateral values, where applicable.
DEPOSITS - The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at December 31, 1999
and 1998 (that is their carrying amounts). The carrying amounts of
variable rate, fixed term money market accounts and certificates of
deposit (CDs) approximate their fair value at the reporting date. Fair
values for fixed rate CDs are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
time deposits.
REPURCHASE AGREEMENTS - The carrying amount of the repurchase
agreements approximate their fair value due to short-term nature of
their indebtedness.
COMMITMENTS - Fair values for off-balance-sheet lending commitments are
based on fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the
counterparties' credit standing.
(Continued)
F-44
<PAGE> 122
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
The following tables present the carrying amounts and estimated fair
values of the Bank's financial instruments.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------
CARRYING
AMOUNT FAIR VALUE
----------- -----------
<S> <C> <C>
Financial assets:
Cash and due from banks and federal
funds sold $ 8,466,372 $ 8,466,372
Investment securities available for sale 17,625,445 17,625,445
Loans (carrying amount less allowance
for loan losses of $896,815) 61,830,310 62,981,162
Financial liabilities:
Deposits:
Without stated maturities $36,329,451 $36,329,451
With stated maturities 49,095,162 48,800,310
Securities sold under agreement to repurchase 1,556,134 1,556,134
Commitments:
Letter of credit $ -- $ 198,295
Lines of credit -- 8,343,646
Loan commitments -- 11,629,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------
<S> <C> <C>
Financial assets:
Cash and due from banks and federal
funds sold $ 8,962,574 $ 8,962,574
Investment securities available for sale 21,955,703 21,955,703
Loans (carrying amount less allowance
for loan losses of $865,503) 55,783,943 57,091,202
Financial liabilities:
Deposits:
Without stated maturities $31,949,566 $31,949,566
With stated maturities 52,697,202 53,588,943
Securities sold under agreement to repurchase 652,948 652,948
Commitments:
Letter of credit $ -- $ 401,295
Lines of credit -- 4,697,456
Loan commitments -- 6,540,000
</TABLE>
(Continued)
F-45
<PAGE> 123
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
The carrying amounts shown in the tables are included in the balance
sheets under the indicated captions.
(6) DEPOSITS
A detail of deposits for the years ended December 31, 1999 and 1998
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
1999 RATE 1998 RATE
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Non-interest bearing deposits $ 11,214,288 --% $ 11,324,586 --%
Interest bearing:
Interest-bearing demand
Deposits 17,475,197 1.7% 14,213,877 1.7%
Savings deposits 7,639,966 2.0% 6,411,103 2.0%
Time deposits less than $100,000 43,304,663 4.9% 44,323,979 4.7%
Time deposits of $100,000 or
Greater 5,790,499 5.1% 8,373,223 4.9%
------------ ---- ------------ ----
$ 85,424,613 3.3% $ 84,646,768 3.4%
============ ==== ============ ====
</TABLE>
The following table presents, by various interest rate categories, the
amount of certificate accounts maturing during the periods reflected
below (dollars in thousands):
<TABLE>
<CAPTION>
INTEREST RATE 2000 2001 2002 2003 2004 TOTAL
------------- -------- ----- ----- ----- ---- ------
<S> <C> <C> <C> <C> <C> <C>
1.00% - 3.99% $ 21 4 -- -- -- 25
4.00% - 4.99% 15,507 4,020 883 560 172 21,142
5.00% - 5.99% 18,036 4,662 1,024 650 199 24,571
6.00% - 6.99% 2,465 637 140 88 27 3,357
-------- ----- ----- ----- --- ------
$ 36,029 9,323 2,047 1,298 398 49,095
======== ===== ===== ===== === ======
</TABLE>
(Continued)
F-46
<PAGE> 124
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
Included in interest-bearing deposits are certificates of deposit issued,
which have remaining maturities at December 31, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
One year $36,028,939 $29,745,046
Two year 9,323,269 12,658,064
Three year 2,046,996 4,624,012
Four year 1,297,891 2,269,018
Five year 398,067 3,401,062
----------- -----------
$49,095,162 $52,697,202
=========== ===========
</TABLE>
A summary of interest expense on deposits is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Interest-bearing demand deposits $ 278,101 $ 186,682
Savings deposits 143,564 105,377
Time deposits less than $100,000 2,314,419 2,484,703
Time deposits of $100,000 or greater 253,371 262,836
---------- ----------
$2,989,455 $3,039,598
========== ==========
</TABLE>
The Bank had deposits from directors, officers and employees and their
related interests of approximately $2,313,000 and $931,000 for the years
ended December 31, 1999 and 1998, respectively.
(7) OTHER BORROWINGS
The Bank enters into sales of securities under agreements to repurchase.
These fixed-coupon agreements are treated as financings, and the
obligations to repurchase securities sold are reflected as a liability in
the balance sheet. The dollar amount of securities underlying the
agreements remain in the asset accounts.
(Continued)
F-47
<PAGE> 125
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
At December 31, 1999 and 1998, the Bank had $1,556,134 and $652,948 in
repurchase agreements with weighted average interest rates of 4.20% and
4.63%, respectively. Repurchase agreements are secured by U.S. Treasury
securities with market values of $4,007,412 and $1,522,500 as of
December 31, 1999 and 1998, respectively.
The repurchase agreements were to repurchase the identical securities as
those which were sold. Repurchase agreements averaged $1,249,574 and
$1,268,558 for the years ended December 31, 1999 and 1998, respectively.
The maximum amount outstanding at any month-end for the corresponding
periods was $2,848,705 and $1,525,913, respectively. Total interest
expense paid on repurchase agreements for the years ending December 31,
1999 and 1998 was $52,391 and $58,853, respectively.
The Bank has available repurchase lines equal to the amount of all
unpledged investment securities.
(8) INCOME TAXES
The provision for income taxes for the years ended December 31, 1999 and
1998 consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- --------- --------
<S> <C> <C> <C>
DECEMBER 31, 1999:
Federal $ 306,663 $ 8,175 $314,838
State 38,594 1,399 39,993
--------- --------- --------
$ 345,257 $ 9,574 $354,831
========= ========= ========
DECEMBER 31, 1998:
Federal $ 397,901 $ (52,234) $345,667
State 56,643 (8,905) 47,738
--------- --------- --------
$ 454,544 $ (61,139) $393,405
========= ========= ========
</TABLE>
(Continued)
F-48
<PAGE> 126
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities for the
years ended December 31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 297,425 $ 294,038
Deferred loan fees 45,818 43,184
Unrealized loss on investment securities 54,909 --
--------- ---------
Net deferred tax asset 398,152 337,222
--------- ---------
Deferred tax liabilities:
Accretion of discount on investments (1,498) (3,498)
Unrealized gain on investment securities
available for sale -- (70,353)
Premises and equipment due to differences in
depreciation method and useful lives (45,024) (27,429)
--------- ---------
Total deferred tax liability (46,522) (101,280)
--------- ---------
Net deferred tax asset $ 351,630 $ 235,942
========= =========
</TABLE>
The Bank has recorded a deferred tax asset of $351,630 and $235,942 for
the years ended December 31, 1999 and 1998, respectively. No valuation
allowance as defined by SFAS 109 is required at December 31, 1999 and
1998.
A reconciliation between the actual tax expense and the "expected" tax
expense (computed by applying the U.S. federal corporate rate of 34% to
earnings before income taxes) is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
"Expected" tax expense $ 331,151 $ 372,323
State income taxes, net of federal income
tax benefits 26,395 32,879
Other, net (2,715) (11,797)
--------- ---------
$ 354,831 $ 393,405
========= =========
</TABLE>
(Continued)
F-49
<PAGE> 127
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
(9) REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets. Management believes, as of December
31, 1999, that the Bank meets all capital adequacy requirements to which
it is subject.
As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain total risk-based,
Tier I risk-based, Tier I leverage ratios as set forth in the table.
There are no conditions or events since that notification that management
believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------------ -------------------------- ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------ ------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Total capital (to risk
weighted assets) $ 8,826,813 14.10% $ 5,007,286 >8.0% $ 6,259,107 >10.0%
- -
Tier I capital (to risk
weighted assets) 8,043,345 12.85% 2,503,643 >4.0% 3,755,464 > 6.0%
- -
Tier I capital (to average
assets) 8,043,345 8.41% 3,826,972 >4.0% 4,783,715 > 5.0%
- -
</TABLE>
(Continued)
F-50
<PAGE> 128
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------------ -------------------------- ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------ ------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1998:
Total capital (to risk
weighted assets) $ 7,965,900 14.86% $ 4,288,320 >8.0% $ 5,360,400 >10.0%
- -
Tier I capital (to risk
weighted assets) 7,267,000 13.56% 2,144,160 >4.0% 3,216,240 > 6.0%
- -
Tier I capital (to average
assets) 7,267,000 8.20% 3,544,800 >4.0% 4,431,000 > 5.0%
- -
</TABLE>
(10) DIVIDENDS
The Board of Directors of the Bank declared cash dividends of $146,050
and $115,271 for the years ended December 31, 1999 and 1998,
respectively. Banking regulations limit the amount of dividends that may
be paid by the Bank without prior approval of the Bank's regulatory
agency.
(11) STOCK OPTION PLANS
The Bank currently has an incentive stock plan for the directors and
employees. In October 1989, the Bank authorized 62,500 common shares for
future options for each director under an incentive stock option and
non-statutory stock option plan. The number of options granted to each
director shall not exceed 7,500. Options were granted at $10.00 per share
(fair market value of the stock). Each option provides that the
underlying option expires no later than December 31, 1999 and vesting
occurs at 25% for each year of service from the effective date of the
grant. As of December 31, 1999 and 1998, there were -0- and 6,000 options
vested and outstanding, respectively. During 1999 and 1998, 6,000 and -0-
were forfeited due to terminations, respectively. No additional options
were granted and 1,000 were exercised during the year ended December 31,
1999.
(Continued)
F-51
<PAGE> 129
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
In addition, in 1989, the Bank granted options for a total of 45,000
shares under a stock option plan to key employees of the Bank. Options
were granted at a minimum price of $10.00 per share or fair market value
of the stock at the date of grant. Each option provides a vesting period
of 25% at the date of grant and 25% for each year of service thereafter.
The options expire in ten years from the date of the grant. As of
December 31, 1999 and 1998, there were 5,250 and 29,500 options vested
and outstanding, respectively. During 1999 and 1998, 125 and -0- were
forfeited due to terminations, respectively. No additional options were
granted and 24,625 were exercised during the year ended December 31,
1999.
At December 31, 1998, the Bank has two stock-based compensation plans,
which are described above. The Bank applies APB Opinion No. 25 and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its stock option plans. Had
compensation cost for the Bank's stock-based compensation plans been
determined consistent with FASB Statement No. 123, the Bank's net income
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net income:
As reported $ 619,048 $ 701,663
Pro forma 616,351 698,966
Diluted earnings per share:
As reported 1.27 1.45
Pro forma 1.27 1.45
</TABLE>
The fair value of each option granted was estimated on the date of grant
using minimum value method with the following weighted-average
assumptions; dividend yield of .80 percent, expected volatility of -0-
percent, risk-free interest rate of 4.73% and expected life of 8 years
for the plan options.
(Continued)
F-52
<PAGE> 130
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
A summary of the status of the Bank's stock option plan for the years
ended December 31, 1999 and 1998, and changes for the years ended
December 31, 1999 and 1998 on those dates is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
FIXED OPTIONS 1999 1998
----------------------------------------------- ---------- -------
<S> <C> <C>
Outstanding at beginning of year: 37,000 61,937
Granted -- --
Exercised (25,625) (24,937)
Forfeited (6,125) --
---------- -------
Outstanding at end of year 5,250 37,000
---------- -------
Options exercisable at end of year 5,250 36,500
========== =======
Weighted-average fair value of options granted
during the year per share $ -- $ --
========== =======
</TABLE>
The following table summarizes information about fixed stock options
outstanding for the year December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTTED AVERAGE
NUMBER WEIGHTED WEIGHTED NUMBER AVERAGE EXERCISE
RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT PRICE AT
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, DECEMBER 31,
PRICES 1999 LIFE PRICE 1999 1999
-------- -------------- ----------- -------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
$10.00 5,250 6.0 years $10.00 5,250 $10.00
</TABLE>
(12) EMPLOYEE BENEFIT PLAN
The Bank has adopted a 401(k) profit sharing plan. The effective date of
the 401(k) portion of the plan is April 1, 1992, and was restated January
1, 1996. The effective date of the profit sharing portion of the plan is
January 1, 1995. The plan covers all employees with one year of service
who are 18 years of age or older. Under the 401(k) plan, employees can
contribute and defer taxes on compensation contributed, as defined in the
plan, within prescribed limits. The Bank may make discretionary matching
contributions, qualified nonelective contributions and discretionary
nonelective contributions, which are allocated on deferring bases. The
Bank's contribution to the 401(k) portion of the plan amounted to $19,590
and $17,756 for the years ended December 31, 1999 and 1998, respectively.
The Bank's contribution to the profit sharing portion of the plan was
$31,400 and $24,783 for the years ended December 31, 1999 and 1998,
respectively.
(Continued)
F-53
<PAGE> 131
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
(13) CREDIT COMMITMENTS
The Bank has outstanding at any time a significant number of commitments
to extend credit. These arrangements are subject to strict credit control
assessments and each customer's creditworthiness is evaluated on a
case-by-case basis. A summary of commitments to extend credit and standby
letters of credit written for the years ended December 31, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
----------- ----------
<S> <C> <C>
Standby letters of credit $ 198,295 $ 401,295
Available lines of credit 8,343,646 4,697,456
Unfunded firm loan commitments -- variable rate 11,629,000 6,540,000
</TABLE>
Because many commitments expire without being funded in whole or part,
the contract amounts are not estimates of future cash flows.
The majority of loan commitments have terms up to one year and have
variable interest rates.
Credit risk represents the accounting loss that would be recognized at
the reporting date if counterparties failed completely to perform as
contracted. The credit risk amounts are equal to the contractual amounts,
assuming that the amounts are fully advanced and that the collateral or
other security is of no value.
The Bank's policy is to require customers to provide collateral prior to
the disbursement of approved loans. The amount of collateral obtained, if
it is deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, real estate and
income providing commercial properties.
Standby letters of credit are contractual commitments issued by the Bank
to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
(Continued)
F-54
<PAGE> 132
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
(14) CONCENTRATIONS OF CREDIT RISK
Most of the Bank's business activity is with customers located within
Pasco County and portions of adjacent counties. The majority of
commercial and mortgage loans are granted to customers residing in this
area. Generally, commercial loans are secured by real estate, and
mortgage loans are secured by either first or second mortgages on
residential or commercial property. As of December 31, 1999,
substantially all of the Bank's loan portfolio was secured. Although the
Bank has a diversified loan portfolio, a substantial portion of its
debtors' ability to honor their contracts is dependent upon the economy
of Pasco County and portions of adjacent counties. The Bank does not have
significant exposure to any individual customer or counterparty.
(15) BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------- ------------- -------------
<S> <C> <C> <C>
For the year ended 1999:
BASIC EARNINGS PER SHARE:
Net income $ 619,048 471,830 $ 1.31
=============
EFFECT OF DILUTIVE SECURITIES:
Stock options -- 15,400
--------------- -------
DILUTED EARNINGS PER SHARE:
Income and assumed conversions $ 619,048 487,230 $ 1.27
=============== ======== =============
For the year ended 1998:
BASIC EARNINGS PER SHARE:
Net income $ 701,663 458,049 $ 1.53
=============
EFFECT OF DILUTIVE SECURITIES:
Stock options -- 25,532
--------------- --------
DILUTED EARNINGS PER SHARE:
Income and assumed conversions $ 701,663 483,581 $ 1.45
=============== ======== =============
</TABLE>
(Continued)
F-55
<PAGE> 133
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1999 and 1998
(16) MERGER NEGOTIATIONS
The Bank's Board of Directors has approved a merger whereby the Bank will
become a subsidiary of Centerstate Banks of Florida, Inc.
("Centerstate"). In the merger, the shareholders of the Bank will receive
2.02 shares of Centerstate common stock for each Bank common share owned.
Centerstate has not yet commenced any business. It has, however, entered
into similar merger agreements with First National Bank of Polk County
("Polk") and First National Bank of Osceola County ("Osceola"). The
closing of the Bank's merger is conditioned upon the simultaneous closing
by Centerstate and the Polk and Osceola mergers. Upon the consummation of
these mergers, the Bank, Polk and Osceola will operate as separate
subsidiaries of Centerstate.
F-56
<PAGE> 134
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First National Bank of Polk County:
We have audited the accompanying balance sheets of First National Bank of Polk
County as of December 31, 1999 and 1998 and the related statements of
operations, changes in stockholders' equity and comprehensive income and cash
flows for the years then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First National Bank of Polk
County at December 31, 1999 and 1998, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/KPMG LLP
- ----------------
Orlando, Florida
January 27, 2000
F-57
<PAGE> 135
FIRST NATIONAL BANK OF POLK COUNTY
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1999 1998
------------ ----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,413,247 3,106,304
Federal funds sold 2,631,000 3,752,000
Investment securities available for sale 20,162,297 23,809,823
Loans, less allowance for loan losses of $633,633 and 43,169,433 39,414,516
$688,530 for December 31, 1999 and 1998, respectively
Accrued interest receivable 448,888 533,345
Premises and equipment, net 2,578,302 2,701,899
Other real estate owned 190,597 203,179
Deferred income taxes, net 262,669 184,117
Prepaids and other assets 150,407 72,493
------------ ----------
$ 75,006,840 73,777,676
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing $ 56,378,614 57,359,893
Nonnterest bearing 11,351,625 10,066,213
------------ ----------
Total deposits 67,730,239 67,426,106
Securities sold under agreements to repurchase 259,000 255,000
Accrued interest payable 75,724 91,057
Accounts payable and accrued expenses 96,347 115,617
------------ ----------
Total liabilities 68,161,310 67,887,780
------------ ----------
Stockholders' equity:
Common stock, $5 par value; 5,000,000 shares
authorized; 486,625 and 441,250 shares issued and
oustanding at December 31, 1999 and 1998 2,433,125 2,206,250
Additional paid-in capital 2,555,034 2,250,547
Retained earnings 1,924,427 1,364,345
Accumulated other comprehensive (loss) income (67,056) 68,754
------------ ----------
Total stockholders' equity 6,845,530 5,889,896
Commitments and contingent liabilities
------------ ----------
Total liabilities and stockholders' equity $ 75,006,840 73,777,676
============ ==========
</TABLE>
See accompanying notes to financial statements.
F-58
<PAGE> 136
FIRST NATIONAL BANK OF POLK COUNTY
Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998
---------- ---------
<S> <C> <C>
Interest income:
Loans $3,532,568 3,452,295
Investment securities 1,307,640 1,254,071
Federal funds sold 152,538 291,839
---------- ---------
Total interest income 4,992,746 4,998,205
---------- ---------
Interest expense:
Deposits 2,004,313 2,198,379
Securities sold under agreement to repurchase 15,397 33,975
---------- ---------
Total interest expense 2,019,710 2,232,354
---------- ---------
Net interest income 2,973,036 2,765,851
Provision for loan losses 63,000 39,000
---------- ---------
Net interest income after loan loss provision 2,910,036 2,726,851
---------- ---------
Other income:
Service charges on deposit accounts 232,037 195,016
Other service charges and fees 123,365 79,701
---------- ---------
355,402 274,717
---------- ---------
Other expenses:
Salaries, wages and employee benefits 1,029,052 887,138
Occupancy expense 236,013 215,842
Depreciation of premises and equipment 191,374 212,826
Stationary and printing supplies 84,615 77,193
Advertising and public relations 49,871 56,837
Data processing expense 231,158 185,072
Legal and professional fees 62,237 52,288
Other operating expenses 360,583 326,910
---------- ---------
2,244,903 2,014,106
---------- ---------
Income before provision for income taxes 1,020,535 987,462
Provision for income taxes 374,841 296,171
---------- ---------
Net income $ 645,694 691,291
========== =========
Earnings per share:
Basic $ 1.37 1.58
========== =========
Diluted $ 1.32 1.49
========== =========
Common shares used in the calculation of earnings per share:
Basic 472,662 437,360
========== =========
Diluted 488,155 462,603
========== =========
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE> 137
FIRST NATIONAL BANK OF POLK COUNTY
Statements of Changes in Stockholders' Equity and Comprehensive Income (Loss)
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) -
RECLASSI- ADDITIONAL OTHER TOTAL
COMPREHENSIVE FICATION COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
INCOME AMOUNT STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY
------------- ------------- ---------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1997 $2,062,500 2,074,435 739,242 24,554 4,900,731
Dividends paid -- -- (66,188) -- (66,188)
Stock options exercised 143,750 143,750 -- -- 287,500
Tax effect of tax deduction
in excess of book
deduction on options
exercised during the year -- 32,362 -- -- 32,362
Comprehensive income:
Net income $ 691,291 -- -- 691,291 -- 691,291
Other comprehensive
income, net of tax:
Gross unrealized gain
on securities 44,200
Less: reclassified
adjustment for gain
included in net income -- -- -- -- 44,200 44,200
--------
Net unrealized gain on
securities 44,200
---------
Comprehensive income $ 735,491
========= --------- ---------- --------- --------- -------- ---------
Balances, December 31, 1998 2,206,250 2,250,547 1,364,345 68,754 5,889,896
Dividends paid -- -- (85,612) -- (85,612)
Stock options exercised 226,875 226,875 -- -- 453,750
Tax effect of tax deduction
in excess of book
deduction on options
exercised during the year -- 77,612 -- -- 77,612
Comprehensive income:
Net income $ 645,694 -- -- 645,694 -- 645,694
Other comprehensive
income, net of tax:
Gross unrealized loss
on securities (135,810)
Less: reclassified
adjustment for loss
included in net
income --
--------
Net unrealized loss
on securities (135,810) -- -- -- (135,810) (135,810)
---------
Comprehensive income $ 509,884
========= --------- ---------- --------- --------- -------- ---------
Balances, December 31, 1999 $2,433,125 2,555,034 1,924,427 (67,056) 6,845,530
========== ========= ========= ======== =========
</TABLE>
See accompanying notes to financial statements.
F-60
<PAGE> 138
FIRST NATIONAL BANK OF POLK COUNTY
Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 645,694 691,291
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 63,000 39,000
Depreciation of premises and equipment 191,374 212,828
Net accretion of discounts on investment securities 67,443 (12,300)
Net deferred loan origination fees 9,440 20,366
Gain on sale of other real estate owned (7,823) --
Write down of other real estate owned 11,436 9,227
Deferred income taxes 3,387 (101,847)
Tax deduction in excess of book deduction on options exercised 77,612 32,362
Cash provided by (used in) changes in:
Net change in accrued interest receivable 84,457 (49,435)
Net change in prepaids and other assets (77,914) (47,812)
Net change in accrued interest payable (15,333) (4,865)
Net change in accounts payable and accrued expenses (19,270) 30,151
------------ -----------
Net cash provided by operating activities 1,033,503 818,966
------------ -----------
Cash flows from investing activities:
Proceeds from maturities of investment securities available for sale 11,980,841 12,521,191
Proceeds from callable investment securities available for sale 2,000,000 1,500,000
Purchases of investment securities available for sale (10,618,507) (19,099,770)
Increase in loans, net of repayments (3,992,303) (5,188,988)
Purchases of premises and equipment (67,777) (196,655)
Proceeds from sale of other real estate owned 173,915 276,415
------------ -----------
Net cash used in investing activities (523,831) (10,187,807)
------------ -----------
Cash flows from financing activities:
Net increase in demand and savings deposits 304,133 8,971,771
Net increase in other borrowings 4,000 (134,000)
Stock options exercised 453,750 287,500
Dividends paid (85,612) (66,188)
------------ -----------
Net cash provided by financing activities 676,271 9,059,083
------------ -----------
Net increase (decrease) in cash and cash equivalents 1,185,943 (309,758)
Cash and cash equivalents, beginning of year 6,858,304 7,168,062
------------ -----------
Cash and cash equivalents, end of year $ 8,044,247 6,858,304
============ ===========
Supplemental schedule of noncash transactions:
Market value adjustment-investment securities available-for-sale-
Market value adjustments-investments $ (107,514) 110,235
Deferred income tax liability 40,458 (41,481)
------------ -----------
Unrealized (loss) gain on investments available-for-sale $ (67,056) 68,754
============ ===========
Transfer of loan to other real estate owned $ 164,946 212,406
============ ===========
Cash paid during the year for:
Interest $ 2,035,043 2,237,219
============ ===========
Income taxes $ 390,214 357,513
============ ===========
</TABLE>
See accompanying notes to financial statements.
F-61
<PAGE> 139
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the basis of presentation and the
significant accounting and reporting policies which First National Bank
of Polk County (the "Bank") follows in preparing and presenting its
financial statements.
(a) CASH EQUIVALENTS
For purposes of the statement of cash flows, the Bank considers
cash and due from banks, federal funds sold and noninterest
bearing deposits in other banks with a purchased maturity of three
months or less to be cash equivalents.
(b) INVESTMENT SECURITIES AVAILABLE FOR SALE
The Bank accounts for investments at fair value except for those
securities, which the Bank has the positive intent and ability to
hold to maturity. Investments to be held for indefinite periods of
time and not intended to be held to maturity are classified as
available for sale and are carried at fair value. Unrealized
holding gains and losses are included as a separate component of
stockholders' equity net of the effect of income taxes. Realized
gains and losses on investment securities available for sale are
computed using the specific identification method.
(c) LOANS
Loans receivable that management has the intent and the Bank has
the ability to hold until maturity or payoff are reported at their
outstanding unpaid principal balance less the allowance for loan
losses and deferred fees on originated loans.
Loans are placed on nonaccrual status when the loan becomes 90
days past due as to interest or principal, unless the loan is both
well secured and in the process of collection, or when the full
timely collection of interest or principal becomes uncertain. When
a loan is placed on nonaccrual status, the accrued and unpaid
interest receivable is written off, amortization of the net
deferred loan origination fees cease and the loan is accounted for
on the cash or cost recovery method thereafter, until qualifying
for return to accrual status.
(Continued)
F-62
<PAGE> 140
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
The Bank, considering current information and events regarding the
borrower's ability to repay their obligations, considers a loan to
be impaired when it is probable that the Bank will be unable to
collect all amounts due according to the contractual terms of the
loan agreement. When a loan is considered to be impaired, the
amount of the impairment is measured based on the present value of
expected future cash flows discounted at the loan's effective
interest rate, the secondary market value of the loan, or the fair
value of the collateral for collateral dependent loans. In the
case of impaired collateral dependent loans where repayment is
expected to be provided solely by the underlying collateral and
there is no other available and reliable sources of repayment, the
loan is written down to the lower of cost or collateral value.
Impairment losses are included in the allowance for loan losses.
(d) ALLOWANCE FOR LOAN LOSSES
The Bank follows a consistent procedural discipline and accounts
for loan loss contingencies in accordance with Statement of
Financial Accounting Standards No. 5, "Accounting for
Contingencies" (Statement 5). The following is a description of
how each portion of the allowance for loan losses is determined.
The Bank segregates the loan portfolio for loan loss purposes into
the following broad segments: commercial real estate; residential
real estate; commercial business; and consumer loans. The Bank
provides for an allowance for losses inherent in the portfolio by
the above categories, which consists of two components: general
loss percentages and specific loss analysis.
General loss percentages are calculated based upon historical
analyses. A portion of the allowance is calculated for inherent
losses which management believes exist as of the evaluation date
even though they might not have been identified by the more
objective processes used. This is due to the risk of error and/or
inherent imprecision in the process. This portion of the allowance
is particularly subjective and requires judgments based on
qualitative factors which do not lend themselves to exact
mathematical calculations such as; trends in delinquencies and
nonaccruals; migration trends in the portfolio; trends in volume,
terms, and portfolio mix; new credit products and/or changes in
the geographic distribution of those products; changes in lending
policies and procedures; loan review reports on the efficacy of
the risk identification process; changes in the outlook for local,
regional and national economic conditions and concentrations of
credit.
Allowances are provided in the event that the specific collateral
analysis on a loan indicates that the estimated loss upon
liquidation of collateral would be in excess of the general
percentage allocation. The provision for loan loss is debited or
credited in order to state the allowance for loan losses to the
required level as determined above.
(Continued)
F-63
<PAGE> 141
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
The Bank considers a loan to be impaired when it is probable that
the Bank will be unable to collect all amounts due, both principal
and interest, according to the contractual terms of the loan
agreement. When a loan is impaired, the Bank may measure
impairment based on (a) the present value of the expected future
cash flows of the impaired loan discounted at the loan's original
effective interest rate; (b) the observable market price of the
impaired loans; or (c) the fair value of the collateral of a
collateral-dependent loan. The Bank selects the measurement method
on a loan-by-loan basis, except for collateral-dependent loans for
which foreclosure is probable must be measured at the fair value
of the collateral. In a troubled debt restructuring involving a
restructured loan, the Bank measures impairment by discounting the
total expected future cash flows at the loan's original effective
rate of interest.
Regulatory examiners may require the Bank to recognize additions
to the allowance based upon their judgment about the information
available to them at the time of their examination.
(e) PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation which is computed over the estimated useful lives of
the assets which range from 3 to 40 years on a double-declining
balance.
(f) OTHER REAL ESTATE OWNED
Real estate acquired in the settlement of loans is recorded at the
lower of cost (principal balance of the former loan plus costs of
obtaining title and possession) or estimated fair value, less
estimated selling costs. Costs relating to development and
improvement of the property are capitalized, whereas those
relating to holding the property are charged to operations.
(g) COMPREHENSIVE INCOME
The Bank's other comprehensive income is the unrealized
gain/(loss) on investment securities available for sale which is
excluded from the statement of operations and is recorded as a
separate component of stockholders' equity.
(h) NET INCOME PER SHARE
The Bank adopted Statement of Financial Accounting Standards No.
128 (Statement 128) Earnings per Share, in the year ended December
31, 1998. Under Statement 128, the Bank presents two earnings per
share (EPS) amounts. Basic EPS is calculated based on net earnings
available to common shareholders and the weighted-average number
of shares outstanding during the year. Diluted EPS includes
additional dilution from potential common stock, such as stock
issuable pursuant to the exercise of stock options outstanding.
(Continued)
F-64
<PAGE> 142
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
(i) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that included the enactment
date. Deferred tax assets are recognized subject to management's
judgment that realization is more likely than not.
(j) 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 amount of revenues and expenses during the reporting
period. These estimates include the allowance for loan loss and
the valuation of the deferred tax asset. Actual results could
differ from these estimates.
(k) EFFECT OF NEW PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedge Activities".
This Statement, which is effective for all fiscal quarters and all
fiscal years beginning after June 15, 1999, requires all
derivatives be measured at fair value and be recognized as assets
and liabilities in the statement of financial position. This
Statement sets forth the accounting for changes in fair value of a
derivative depending on the intended use and designation of the
derivative. Implementation of the Statement is not expected to
have a significant impact on the financial position or results of
operations of the Bank.
In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137 which amended the implementation date of SFAS
No. 133 to be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000.
(l) RECLASSIFICATIONS
Certain amounts in the 1998 financial statements have been
reclassified to conform with the 1999 financial statements.
(Continued)
F-65
<PAGE> 143
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
(2) INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated market values of investment securities
available for sale for the years ended December 31, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 9,029,788 1,192 (48,887) 8,982,093
Obligations of U.S.
government agencies 10,095,973 -- (59,819) 10,036,154
Municipals 1,000,000 -- -- 1,000,000
Federal reserve bank stock 144,050 -- -- 144,050
----------- -------- ----------- ----------
$20,269,811 1,192 (108,706) 20,162,297
=========== ======== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 8,535,040 62,497 (220) 8,597,317
Obligations of U.S.
government agencies 14,031,798 57,424 (9,466) 14,079,756
Municipals 1,000,000 -- -- 1,000,000
Federal reserve bank stock 132,750 -- -- 132,750
----------- -------- ----------- ----------
$23,699,588 119,921 (9,686) 23,809,823
=========== ======== =========== ==========
</TABLE>
The amortized cost and estimated market value of investment securities
available for sale for the year ended December 31, 1999 by contractual
maturity is listed below:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------
AMORTIZED ESTIMATED
COST MARKET VALUE
----------- ------------
<S> <C> <C>
Investment securities available for sale:
Due in one year or less $14,579,507 $14,515,717
Due after one year through five years 4,546,254 4,502,530
Due after five years through fifteen years 1,000,000 1,000,000
Federal reserve bank stock 144,050 144,050
----------- -----------
$20,269,811 $20,162,297
=========== ===========
</TABLE>
(Continued)
F-66
<PAGE> 144
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
At December 31, 1999 and 1998, the Bank had $251,000 and $250,000, at
cost, respectively, in securities pledged to the State of Florida as
collateral on public fund deposits and for other purposes required or
permitted by law.
(3) LOANS
Major categories of loans included in the loan portfolio for the years
ended December 31, 1999 and 1998 are:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Real estate:
Residential $18,578,222 $15,623,778
Commercial 8,872,634 10,166,172
Construction 1,277,682 1,800,438
----------- -----------
Total real estate 28,728,538 27,590,388
Commercial 7,989,400 5,433,823
Installment 6,842,422 6,788,342
Equity lines of credit 347,857 306,565
Overdrafts 2,614 82,253
----------- -----------
43,910,831 40,201,371
Less:
Allowance for loan losses 633,633 688,530
Deferred loan origination fees 107,765 98,325
----------- -----------
Net loans $43,169,433 $39,414,516
=========== ===========
</TABLE>
(Continued)
F-67
<PAGE> 145
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
The following is a summary of information regarding nonaccrual and
impaired loans for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Nonaccrual loans $258,965 $452,832
======== ========
Recorded investment in impaired loans $648,679 $982,618
======== ========
Allowance for loan losses related to impaired loans $188,560 $208,057
======== ========
</TABLE>
<TABLE>
<CAPTION>
INTEREST
INCOME NOT AVERAGE
RECOGNIZED RECORDED
ON INVESTMENT
NONACCRUAL IN IMPAIRED
LOANS LOANS
----------- -----------
<S> <C> <C>
FOR THE YEARS ENDED DECEMBER 31:
1999 $ 13,065 $ 815,649
=========== ===========
1998 $ 4,497 $ 595,338
=========== ===========
</TABLE>
Certain principal stockholders, directors and officers and their related
interests were indebted to the Bank as summarized below at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Balance, beginning of year $2,588,361 $2,429,671
Additional new loans 1,360,391 1,416,572
Repayments on outstanding loans 1,411,284 1,257,882
---------- ----------
Balance, end of year $2,537,468 $2,588,361
========== ==========
</TABLE>
All such loans were made in the ordinary course of business. For the
December 31, 1999 and 1998, principal stockholders, directors and
officers of the Bank and their related interests had available lines of
credit of $1,326,304 and $864,592, respectively.
(Continued)
F-68
<PAGE> 146
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
Changes in the allowance for loan losses for the years ended December 31,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
Balance, beginning of year $ 688,530 $ 653,750
Provision charged to operations 63,000 39,000
Loans charged-off (119,651) (23,601)
Recoveries of previous charge-offs 1,754 19,381
--------- ---------
Balance, end of year $ 633,633 $ 688,530
========= =========
</TABLE>
(4) PREMISES AND EQUIPMENT
A summary of premises and equipment for the years ended December 31, 1999
and 1998 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Land $ 757,346 $ 757,346
Building and building improvements 1,836,652 1,836,652
Furniture, fixtures and equipment 1,154,220 1,100,883
Construction in progress 7,425 --
---------- ----------
3,755,643 3,694,881
Less accumulated depreciation 1,177,341 992,982
---------- ----------
$2,578,302 $2,701,899
========== ==========
</TABLE>
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Bank in estimating
fair values of financial instruments as disclosed herein:
CASH AND CASH EQUIVALENTS - The carrying amount of cash and cash
equivalents represents fair value.
(Continued)
F-69
<PAGE> 147
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
INVESTMENTS AVAILABLE FOR SALE - The Bank's investment securities
available for sale represent investments in U.S. Government
obligations, U.S. Government Agency securities, and state and political
subdivisions. The Bank's equity investments at year-end represents
stock investments in the Federal Reserve Bank. The stock is not
publicly traded and the carrying amount was used to estimate the fair
value. The fair value of the U.S. Government obligations and U.S.
Government Agency obligations and state and local political subdivision
portfolios was estimated based on quoted market prices.
LOANS - For variable rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. Fair values for commercial real estate, commercial and consumer
loans other than variable rate loans are estimated using discounted
cash flow analysis, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. Fair
values of impaired loans are estimated using discounted cash flow
analysis or underlying collateral values, where applicable.
DEPOSITS - The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at December 31, 1999
and 1998 (that is their carrying amounts). The carrying amounts of
variable rate, fixed term money market accounts and certificates of
deposit (CDs) approximate their fair value at the reporting date. Fair
values for fixed rate CDs are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
time deposits.
REPURCHASE AGREEMENTS - The carrying amount of the repurchase
agreements approximate their fair value.
COMMITMENTS - Fair values for off-balance-sheet lending commitments are
based on fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the
counterparties' credit standing.
(Continued)
F-70
<PAGE> 148
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
The following tables present the carrying amounts and estimated fair
values of the Bank's financial instruments.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------
CARRYING
AMOUNT FAIR VALUE
----------- -----------
<S> <C> <C>
Financial assets:
Cash and due from banks and federal funds sold $ 8,044,247 $ 8,044,247
Investment securities available for sale 20,162,297 20,162,297
Loans (carrying amount less allowance
for loan losses of $633,633) 43,169,433 43,852,000
Financial liabilities:
Deposits:
Without stated maturities $42,831,333 $42,831,333
With stated maturities 24,898,906 24,852,000
Securities sold under agreement to repurchase 259,000 259,000
Commitments:
Letter of credit $ -- $ 468,400
Lines of credit -- 3,249,559
Loan commitments -- 2,878,181
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------
<S> <C> <C>
Financial assets:
Cash and due from banks and federal funds sold $ 6,858,304 $ 6,858,304
Investment securities available for sale 23,809,823 23,809,823
Loans (carrying amount less allowance
for loan losses of $688,530) 39,414,516 40,509,000
Financial liabilities:
Deposits:
Without stated maturities $39,436,632 $39,436,632
With stated maturities 27,989,474 28,404,000
Securities sold under agreement to repurchase 255,000 255,000
Commitments:
Letter of credit $ -- $ 200,000
Lines of credit -- 4,038,203
Loan commitments -- 3,536,768
</TABLE>
(Continued)
F-71
<PAGE> 149
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
The carrying amounts shown in the tables are included in the balance
sheets under the indicated captions.
(6) DEPOSITS
A detail of deposits for the years ended December 31, 1999 and 1998
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
1999 RATE 1998 RATE
------------- --------- ---------- --------
<S> <C> <C> <C> <C>
Non-interest bearing deposits $ 11,351,625 --% 10,066,213 --%
Interest bearing:
Interest-bearing demand
deposits 25,646,704 2.69% 25,077,507 2.65%
Savings deposits 5,833,004 1.29% 4,292,912 1.75%
Time deposits less than
$100,000 21,531,456 4.83% 24,383,845 5.13%
Time deposits of $100,000
or greater 3,367,450 4.79% 3,605,629 5.22%
------------- ----- ---------- -----
$ 67,730,239 3.49% 67,426,106 3.51%
============= ===== ========== =====
</TABLE>
The following table presents, by various interest rate categories, the
amount of certificate accounts maturing during the periods reflected
below (dollars in thousands):
<TABLE>
<CAPTION>
INTEREST RATE 2000 2001 2002 2003 2004 TOTAL
------------- ------- ----- ----- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
1.00% - 3.99% $ 2,408 -- -- -- -- 2,408
4.00% - 4.99% 10,616 1,990 185 66 67 12,924
5.00% - 5.99% 4,400 1,768 787 281 63 7,299
6.00% - 7.00% 1,699 79 490 -- -- 2,268
------- ----- ----- --- --- ------
$19,123 3,837 1,462 347 130 24,899
======= ===== ===== === === ======
</TABLE>
(Continued)
F-72
<PAGE> 150
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
Included in interest-bearing deposits are certificates of deposit issued,
which have remaining maturities at December 31, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
One year $ 19,123,242 $ 20,100,111
Two year 3,837,486 5,050,078
Three year 1,461,899 1,189,023
Four year 346,593 1,310,106
Five year 129,686 340,156
------------ ------------
$ 24,898,906 $ 27,989,474
============ ============
</TABLE>
A summary of interest expense on deposits is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Interest-bearing demand deposits $ 698,256 $ 613,574
Savings deposits 62,177 78,558
Time deposits less than $100,000 1,078,773 1,333,051
Time deposits of $100,000 or greater 165,107 173,196
---------- ----------
$2,004,313 $2,198,379
========== ==========
</TABLE>
The Bank had deposits from directors, officers and employees and their
related interests of approximately $1,619,323 and $1,506,131 for the
years ended December 31, 1999 and 1998, respectively.
(7) OTHER BORROWINGS
The Bank enters into sales of securities under agreements to repurchase.
These fixed-coupon agreements are treated as financings, and the
obligations to repurchase securities sold are reflected as a liability in
the balance sheet. The dollar amount of securities underlying the
agreements remains in the asset accounts.
(Continued)
F-73
<PAGE> 151
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
At December 31, 1999 and 1998, the Bank had $259,000 and $255,000 in
repurchase agreements with weighted average interest rates of 4.57% and
4.50%, respectively. Repurchase agreements are secured by U.S. Treasury
securities with market values of $1,497,380 and $1,525,465 at December
31, 1999 and 1998, respectively.
The repurchase agreements were to repurchase similar securities as those,
which were sold. Repurchase agreements averaged $346,205 and $682,822 for
the years ended December 31, 1999 and 1998, respectively. The maximum
amount outstanding at any month-end for the corresponding periods was
$433,000 and $1,161,000, respectively. Total interest expense paid on
repurchase agreements for the years ended December 31, 1999 and 1998 was
$15,397 and $33,975, respectively.
The Bank has available repurchase lines equal to the amount of all
unpledged investment securities.
(8) INCOME TAXES
The provision for income taxes for the years ended December 31, 1999 and
1998 consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- --------- --------
<S> <C> <C> <C>
DECEMBER 31, 1999:
Federal $ 331,924 $ 2,894 $334,818
State 39,530 493 40,023
--------- --------- --------
$ 371,452 $ 3,387 $374,841
========= ========= ========
DECEMBER 31, 1998:
Federal $ 344,241 $ (80,219) $264,022
State 53,777 (21,628) 32,149
--------- --------- --------
$ 398,018 $(101,847) $296,171
========= ========= ========
</TABLE>
(Continued)
F-74
<PAGE> 152
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities for the
years ended December 31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Unrealized loss on investment securities available for
sale $ 40,458 $ --
Allowance for loan losses 217,178 227,139
Nonaccrual interest 6,598 1,694
Deferred loan fees 40,552 37,000
-------- --------
Deferred tax asset 304,786 265,833
Valuation allowance -- --
-------- --------
Net deferred tax asset 304,786 265,833
-------- --------
Deferred tax liabilities:
Depreciation 42,117 40,235
Unrealized gain on investment securities
available for sale -- 41,481
Other -- --
-------- --------
Total deferred tax liability 42,117 81,716
-------- --------
Net deferred tax asset $262,669 $184,117
======== ========
</TABLE>
The Bank has recorded a deferred tax asset of $262,669 and $184,117 for
the years December 31, 1999 and 1998, respectively. No valuation
allowance as defined by SFAS 109 is required at December 31, 1999 and
1998. Management believes that a valuation allowance is not necessary
because it is more likely than not the deferred tax asset is realizable.
(Continued)
F-75
<PAGE> 153
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
A reconciliation between the actual tax expense and the "expected" tax
expense (computed by applying the U.S. federal corporate rate of 34% to
earnings before income taxes) is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
"Expected" tax expense $ 346,982 $ 335,737
Tax exempt interest (2,923) (3,381)
State income taxes, net of federal income tax
benefits 26,119 17,878
Valuation allowance -- (65,666)
Other 4,663 11,603
--------- ---------
$ 374,841 $ 296,171
========= =========
</TABLE>
(9) REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets. Management believes, as of December
31, 1999, that the Bank meets all capital adequacy requirements to which
it is subject.
As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain total risk-based,
Tier I risk-based, Tier I leverage ratios as set forth in the table.
There are no conditions or events since that notification that management
believes have changed the institution's category.
(Continued)
F-76
<PAGE> 154
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------------ -------------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------ ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Total capital (to risk
weighted assets) $ 7,423,000 18.26% $ 3,251,600 >8.0% $ 4,064,500 >10.0%
- -
Tier I capital (to risk
weighted assets) 6,913,000 17.01% 1,625,800 >4.0% 2,438,700 > 6.0%
- -
Tier I capital (to average
assets) 6,913,000 9.19% 3,008,923 >4.0% 3,761,153 > 5.0%
- -
AS OF DECEMBER 31, 1998:
Total capital (to risk
weighted assets) $ 6,315,000 16.00% $ 3,147,200 >8.0% $ 3,934,000 >10.0%
- -
Tier I capital (to risk
weighted assets) 5,821,000 14.80% 1,573,600 >4.0% 2,360,400 > 6.0%
- -
Tier I capital (to average
assets) 5,821,000 8.19% 2,844,040 >4.0% 3,555,050 > 5.0%
- -
</TABLE>
(10) DIVIDENDS
The Board of Directors of the Bank declared cash dividends of $85,612 and
$66,188 for the years ended December 31, 1999 and 1998, respectively.
Banking regulations limit the amount of dividends that may be paid by the
Bank without prior approval of the Bank's regulatory agency.
(11) STOCK OPTION PLANS
The Bank currently has an incentive stock plan for the directors and
employees. In March 1991, the Bank authorized 97,500 common shares for
future options for each director under an incentive stock option and
non-statutory stock option plan. The number of options granted to each
director shall not exceed 7,500. Options were granted at $10.00 per share
(fair market value of the stock). Each option provides that the
underlying option expires no later than December 31, 2002 and vesting
occurs at the time of grant. As of December 31, 1999 and 1998, there were
0 and 34,375 options vested and outstanding, respectively. No additional
options were granted and 34,375 were exercised during the year ended
December 31, 1999.
(Continued)
F-77
<PAGE> 155
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
In addition, in March 1991, the Bank granted options for a total of
40,250 shares under a stock option plan to key employees of the Bank.
Options were granted at a minimum price of $10.00 per share or fair
market value of the stock at the date of grant. Each option provides a
vesting period of 25% at the date of grant and 25% for each year of
service thereafter. The options expire in ten years from the date of the
grant. As of December 31, 1999 and 1998, there were 26,450 and 37,575
shares outstanding with 25,400 and 34,975 shares vested, respectively.
During 1999 and 1998, 125 and 1,225 options, respectively, were forfeited
due to terminations. No additional options were granted and 11,000 were
exercised during the year ended December 31, 1999.
At December 31, 1998, the Bank has two stock-based compensation plans,
which are described above. The Bank applies APB Opinion No. 25 and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its stock option plan. Had
compensation cost for the Bank's stock-based compensation plans been
determined consistent with FASB Statement No. 123, the Bank's net income
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
--------- --------
<S> <C> <C>
Net income:
As reported $ 645,694 691,291
Pro forma 638,788 685,445
Diluted earnings per share:
As reported 1.32 1.49
Pro forma 1.31 1.48
</TABLE>
The fair value of each option granted is estimated on the date of grant
using the minimum value method with the following weighted-average
assumptions used for grants for the years ended December 31, 1999 and
1998, respectively; dividend yield of 1.0 percent and 3.0 percent;
expected volatility of -0- percent; risk-free interest rates of 6.20
percent and 4.73 percent, respectively, and expected lives of 10 years
for the plan options.
(Continued)
F-78
<PAGE> 156
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
A summary of the status of the Bank's stock option plan for the years
ended December 31, 1999 and 1998, and changes during the years ended on
those dates is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
FIXED OPTIONS 1999 1998
---------------------------------------------- -------- -------
<S> <C> <C>
Outstanding at beginning of year: 71,950 99,925
Granted -- 2,000
Exercised (45,375) (28,750)
Forfeited (125) (1,225)
-------- -------
Outstanding at end of year 26,450 71,950
-------- -------
Options exercisable at end of year 25,400 69,350
======== =======
Weighted-average fair value of options granted
during the year per share $ -- $ 5.27
======== =======
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER WEIGHTED WEIGHTED NUMBER AVERAGE EXERCISE
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT PRICE AT
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, DECEMBER 31,
EXERCISE PRICES 1999 LIFE PRICE 1999 1999
- --------------- -------------- ----------- -------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
$10.00 - $17.50 26,450 3.0 years $10.86 25,400 $10.86
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER WEIGHTED WEIGHTED NUMBER AVERAGE EXERCISE
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT PRICE AT
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, DECEMBER 31,
EXERCISE PRICES 1998 LIFE PRICE 1998 1998
- --------------- -------------- ----------- -------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
$10.00 - $17.50 71,950 2.8 years $10.35 69,350 $10.35
</TABLE>
(Continued)
F-79
<PAGE> 157
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
(12) EMPLOYEE BENEFIT PLAN
The Bank has a qualified profit sharing plan covering all officers and
employees. Under the plan, profits are distributed based on the Bank's
actual return on capital compared to benchmarks established annually by
the Board. The plan, available to employees and officers generally after
completing one year of service, consists of a current cash award
component and a deferred award component. The deferred award component
vests ten percent for the first four years and the remaining sixty
percent at the end of year five. The total amount accrued and funded
under this plan for the years ended December 31, 1999 and 1998 was
$36,154 and $45,299, respectively.
The Bank also has an I.R.C. Section 401-(k) deferred compensation plan,
whereby the Bank matches 50% of the employees' contributions up to 6% of
compensation. Employees are fully vested after six years of service. The
Bank's contributions to this plan for the year ended December 31, 1999
and 1998 were $12,978 and $14,123, respectively.
(13) CREDIT COMMITMENTS
The Bank has outstanding at any time a significant number of commitments
to extend credit. These arrangements are subject to strict credit control
assessments and each customer's creditworthiness is evaluated on a
case-by-case basis. A summary of commitments to extend credit and standby
letters of credit written for the years ended December 31, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
---------- ---------
<S> <C> <C>
Standby letters of credit $ 468,400 200,000
Available lines of credit 3,249,559 4,038,203
Unfunded firm loan commitments - variable rate 2,878,181 3,536,768
</TABLE>
Because many commitments expire without being funded in whole or part,
the contract amounts are not estimates of future cash flows.
The majority of loan commitments have terms up to one year and have
variable interest rates.
Credit risk represents the accounting loss that would be recognized at
the reporting date if counterparties failed completely to perform as
contracted. The credit risk amounts are equal to the contractual amounts,
assuming that the amounts are fully advanced and that the collateral or
other security is of no value.
The Bank's policy is to require customers to provide collateral prior to
the disbursement of approved loans. The amount of collateral obtained, if
it is deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, real estate and
income providing commercial properties.
(Continued)
F-80
<PAGE> 158
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
Standby letters of credit are contractual commitments issued by the Bank
to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
(14) CONCENTRATIONS OF CREDIT RISK
Most of the Bank's business activity is with customers located within
Polk County and portions of adjacent counties. The majority of commercial
and mortgage loans are granted to customers residing in this area.
Generally, commercial loans are secured by real estate, and mortgage
loans are secured by either first or second mortgages on residential or
commercial property. As of December 31, 1999, substantially all of the
Bank's loan portfolio was secured. Although the Bank has a diversified
loan portfolio, a substantial portion of its debtors' ability to honor
their contracts is dependent upon the economy of Polk County and portions
of adjacent counties. The Bank does not have significant exposure to any
individual customer or counterparty.
(15) BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ----------
<S> <C> <C> <C>
For the year ended 1999:
BASIC EARNINGS PER SHARE:
Net income $ 645,694 472,662 $ 1.37
=========
EFFECT OF DILUTIVE SECURITIES:
Stock options -- 15,493
---------- --------
DILUTED EARNINGS PER SHARE:
Income and assumed conversions $ 645,694 488,155 $ 1.32
========== ======== =========
For the year ended 1998:
BASIC EARNINGS PER SHARE:
Net income $ 691,291 437,360 $ 1.58
=========
EFFECT OF DILUTIVE SECURITIES:
Stock options -- 25,243
---------- --------
DILUTED EARNINGS PER SHARE:
Income and assumed conversions $ 691,291 462,603 $ 1.49
=========== ======== =========
</TABLE>
(Continued)
F-81
<PAGE> 159
FIRST NATIONAL BANK OF POLK COUNTY
Notes to Financial Statements
December 31, 1999 and 1998
(16) MERGER NEGOTIATIONS
The Bank's Board of Directors has approved a merger whereby the Bank will
become a subsidiary of Centerstate Banks of Florida, Inc.
("Centerstate"). In the merger, the shareholders of the Bank will receive
1.62 shares of Centerstate common stock for each Bank common share owned.
Centerstate has not yet commenced any business. It has, however, entered
into similar merger agreements with First National Bank of Osceola County
("Osceola") and Community National Bank of Pasco County ("Pasco"). The
closing of the Bank's merger is conditioned upon the simultaneous closing
by Centerstate and the Osceola and Pasco mergers. Upon the consummation
of these mergers, the Bank, Osceola and Pasco will operate as separate
subsidiaries of Centerstate.
F-82
<PAGE> 160
APPENDIX A
Agreement to Merge Among First National Bank of Polk County,
Centerstate Banks of Florida, Inc. and First Interim National Bank of Polk
County
<PAGE> 161
AGREEMENT TO MERGE
AMONG
FIRST NATIONAL BANK OF POLK COUNTY
CENTERSTATE BANKS OF FLORIDA, INC.
AND
FIRST INTERIM NATIONAL BANK OF POLK COUNTY
<PAGE> 162
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - THE MERGER............................................................................................2
Section 1.1 Consummation of Merger; Closing Date...................................................2
Section 1.2 Effect of Merger.......................................................................2
Section 1.3 Further Assurances.....................................................................3
Section 1.4 Directors and Officers.................................................................3
Section 1.5 Name of Surviving Bank.................................................................3
Section 1.6 Capitalization of Surviving Bank.......................................................3
Section 1.7 Articles of Association and Bylaws.....................................................3
Section 1.8 Absence of Trust Powers................................................................3
ARTICLE II - CONVERSION OF SHARES.................................................................................4
Section 2.1 Manner of Conversion of First National/Polk Shares....................................4
Section 2.2 First National/Polk Stock Options and Related Matters..................................4
Section 2.3 Fractional Shares......................................................................5
Section 2.4 Effectuating Conversion................................................................5
Section 2.5 Laws of Escheat........................................................................6
Section 2.6 CBF Shares.............................................................................6
Section 2.7 FINB Shares............................................................................6
ARTICLE III - REPRESENTATIONS AND WARRANTIES
OF FIRST NATIONAL/POLK.................................................................7
Section 3.1 Representations and Warranties of First National/Polk..................................7
(a) Organization, Qualification, and Corporate Power.......................................7
(b) Capitalization.........................................................................7
(c) First National/Polk Subsidiaries.......................................................8
(d) Authorization of Transaction...........................................................8
(e) Noncontravention.......................................................................8
(f) Financial Statements...................................................................9
(g) Undisclosed Liabilities................................................................9
(h) Brokers' Fees..........................................................................9
(i) Taxes.................................................................................10
(j) Allowance for Loan or Credit Losses...................................................10
(k) Properties; Insurance.................................................................10
(1) Material Contracts....................................................................11
(m) Material Contract Defaults............................................................11
(n) Compliance with Laws..................................................................11
(o) Employee Benefit Plans................................................................12
(p) Legal Proceedings.....................................................................13
(q) Absence of Certain Changes or Events..................................................13
(r) Reports...............................................................................14
(s) Statements True and Correct...........................................................14
(t) Environmental Matters.................................................................14
(u) Labor Matters.........................................................................15
</TABLE>
<PAGE> 163
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF CBF..............................................................16
Section 4.1 Representations and Warranties of CBF.................................................16
(a) Organization, Qualification, and Corporate Power......................................16
(b) Capitalization........................................................................16
(c) CBF Subsidiaries......................................................................17
(d) Authorization of Transaction..........................................................17
(e) Noncontravention......................................................................17
(f) Statements True and Correct...........................................................17
ARTICLE V - COVENANTS AND AGREEMENTS............................................................................18
Section 5.1 Covenants.............................................................................18
(a) Current Information...................................................................18
(b) Regulatory Matters and Approvals......................................................18
(c) Tax Opinion...........................................................................19
(d) Conduct of Business Prior to the Effective Time of the Merger.........................19
(e) Forbearance...........................................................................20
(f) Issuance of Securities................................................................21
(g) No Acquisitions.......................................................................21
(h) Other Actions.........................................................................21
(i) Government Filings....................................................................22
(j) Tax-Free Reorganization Treatment.....................................................22
(k) Full Access...........................................................................22
(1) Notice of Material Adverse Developments...............................................22
(m) Exclusivity...........................................................................22
(n) Filings with the Offices..............................................................23
(o) Press Releases........................................................................23
(p) Agreements of Affiliates..............................................................23
(q) Miscellaneous Agreements and Consents.................................................23
(r) Indemnification.......................................................................24
(s) Fairness Opinions.....................................................................24
(t) Employee Benefit Plans................................................................24
ARTICLE VI - CONDITIONS TO THE OBLIGATIONS OF
FIRST NATIONAL/POLK AND CBF..........................................................25
Section 6.1 Conditions to Obligation to Close.....................................................25
(a) Conditions to Obligation of CBF.......................................................25
(b) Conditions to Obligation of First National/Polk.......................................26
ARTICLE VII - TERMINATION.......................................................................................27
Section 7.1 Termination...........................................................................27
(a) Termination of Agreement..............................................................27
(b) Effect of Termination.................................................................28
</TABLE>
<PAGE> 164
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VIII - MISCELLANEOUS.....................................................................................28
Section 8.1 Miscellaneous.........................................................................28
(a) Survival..............................................................................28
(b) No Third Party Beneficiaries..........................................................28
(c) Entire Agreement......................................................................28
(d) Successors and Assigns................................................................28
(e) Counterparts..........................................................................29
(f) Headings..............................................................................29
(g) Notices...............................................................................29
(h) Governing Law.........................................................................29
(i) Amendments and Waivers................................................................29
(j) Severability..........................................................................30
(k) Expenses..............................................................................30
(l) Construction..........................................................................30
(m) Incorporation of Exhibits and Schedules...............................................30
(n) Jurisdiction and Venue................................................................30
(o) Remedies Cumulative...................................................................31
</TABLE>
<PAGE> 165
AGREEMENT TO MERGE
AMONG
FIRST NATIONAL BANK OF POLK COUNTY,
CENTERSTATE BANKS OF FLORIDA, INC.
AND
FIRST INTERIM NATIONAL BANK OF POLK COUNTY
This Agreement to Merge (the "Agreement") is dated as of the 10th day
of December, 1999 by and among FIRST NATIONAL BANK OF POLK COUNTY, a national
banking association ("First National/Polk") and CENTERSTATE BANKS OF FLORIDA,
INC., a Florida corporation ("CBF"); to be joined in by FIRST INTERIM NATIONAL
BANK OF POLK COUNTY, an interim national banking association to be organized as
a wholly-owned subsidiary of CBF under the laws of the United States and to
become a party to this Agreement upon its organization ("FINB"). First
National/Polk, CBF and FINB are individually referred to in this Agreement as a
"Party" and collectively as the "Parties."
BACKGROUND
The respective Boards of Directors of First National/Polk and CBF deem
it in the best interests of First National/Polk and CBF, respectively, and of
their respective shareholders, that First National/Polk and FINB merge pursuant
to this Agreement in a transaction that qualifies as a reorganization pursuant
to Section 368(a) of the Internal Revenue Code of 1986 (the "Internal Revenue
Code") (the "Merger"), and the Boards of Directors of the Parties have approved
this Agreement and the Merger, which provides for CBF to issue shares of its
common stock to the shareholders of First National/Polk, as herein provided.
This Agreement is between (A) First National/Polk, being located at
7722 SR 544 East, City of Haines City, County of Polk, in the State of Florida,
with a capital of $6,479,543, consisting of (i) 2,378,125 shares of common stock
divided into 475,625 shares of common stock, each of $5.00 par value, (ii)
surplus of $2,422,422, and (iii) undivided profits of $1,678,996 as of September
30, 1999, acting pursuant to a resolution of its board of directors, adopted by
the vote of a majority of its directors, pursuant to the authority given by and
in accordance with the provisions of the Act of November 7, 1918, as amended (12
U.S.C. 215(a)); (B) CBF, which has been organized for purposes of serving as a
bank holding company for First National/Polk and other banks; and (C) FINB, to
be located at 7722 SR 544 East, Winter Haven, Florida 33881, with a capital of
$100,000, divided into 1,000 shares of common stock, each of $100 par value,
surplus of $20,000, and no undivided profits, acting pursuant to a resolution to
be adopted by its Board of Directors, and by the vote of a majority of its
directors, pursuant to the authority given by and in accordance with the
provisions of the Act of November 7, 1918, as amended (12 U.S.C. 215(a)).
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, representations, warranties and agreements herein contained, the
Parties agree as follows:
1
<PAGE> 166
ARTICLE I
THE MERGER
Section 1.1 Consummation of Merger; Closing Date. (a) Subject to
the provisions hereof, First National/Polk shall be merged with and into FINB
(which has heretofore and shall hereinafter be referred to as the "Merger"),
under the charter of First National/Polk, pursuant to 12 U.S.C. ss.215a of the
National Bank Act, and FINB shall be the surviving corporation (sometimes
hereinafter referred to as "Surviving Bank" when reference is made to it after
the Effective Time of the Merger (as defined below)). The name of the Surviving
Bank shall be First National Bank of Polk County, and the business of the
Surviving Bank shall be that of a national banking association. The Merger shall
become effective on the date and at the time set forth in the Certificate of
Merger relating to the Merger issued by the Office of the Comptroller of the
Currency (the "OCC") (such time is hereinafter referred to as the "Effective
Time of the Merger"). Subject to the terms and conditions hereof, unless
otherwise agreed upon by First National/Polk and CBF, the Effective Time of the
Merger shall occur on the 10th business day following the later to occur of (i)
the effective date (including the expiration of any applicable waiting period)
of the last required Consent (as defined below) of any Regulatory Authority (as
defined below) having authority over the transactions contemplated pursuant to
this Agreement, (ii) the date on which the shareholders of First National/Polk
approve the transactions contemplated by this Agreement, and (iii) the date of
the satisfaction or waiver of all other conditions precedent to the transactions
contemplated by this Agreement. As used in this Agreement, "Consent" shall mean
a consent, approval, authorization, waiver, clearance, exemption or similar
affirmation by any person pursuant to any contract, permit, law, regulation or
order, and "Regulatory Authorities" shall mean, collectively, the OCC, the
Florida Department of Banking and Finance (the "Florida Department"), the Office
of Thrift Supervision ("OTS"), the Federal Trade Commission (the "FTC"), the
United States Department of Justice (the "Justice Department"), the Board of
Governors of the Federal Reserve System (the "FRB"), the Federal Deposit
Insurance Corporation (the "FDIC"), the National Association of Securities
Dealers, Inc., all national securities exchanges and the Securities and Exchange
Commission (the "SEC").
(b) The closing of the Merger (the "Closing") shall take
place at such location as the Parties hereto shall determine at 10:00 a.m. local
time on the day that the Effective Time of the Merger occurs, or such other
date, time and place as the Parties may agree (the "Closing Date"). Subject to
the provisions of this Agreement, at the Closing there shall be delivered to
each of the Parties hereto the opinions, certificates and other documents and
instruments required to be so delivered pursuant to this Agreement.
(c) After the Effective Time of the Merger, the business
of the Surviving Bank shall be conducted at its main office which shall be
located at 7722 SR 544 East, Winter Haven, FL 33881, and at its legally
established branches.
Section 1.2 Effect of Merger. At the Effective Time of the
Merger, First National/Polk shall be merged with and into FINB, under the
charter of First National/Polk, and the separate existence of First
National/Polk shall cease. The Surviving Bank shall be that of a national
banking association. Except as otherwise provided in this Agreement, the
Surviving Bank shall have all the rights, privileges, immunities and powers and
shall be subject to all the duties and liabilities of a banking association
organized under the laws of the United States and shall thereupon and thereafter
possess all other privileges, immunities and franchises of a private, as well as
of a public nature, of each of the constituent corporations. All property (real,
personal and mixed) and all debts on whatever account, including subscriptions
to shares, and all choses in action, all and every other interest, of or
belonging to or due to each of the constituent corporations so merged shall be
taken and deemed to be transferred to and vested in the Surviving Bank without
further act or deed. The
2
<PAGE> 167
title to any real estate, or any interest therein, vested in any of the
constituent corporations shall not revert or be in any way impaired by reason of
the Merger. Except as otherwise provided in this Agreement, the Surviving Bank
shall thenceforth be responsible and liable for all the liabilities and
obligations of each of the constituent corporations so merged and any claim
existing or action or proceeding pending by or against either of the constituent
corporations may be prosecuted as if the Merger had not taken place or the
Surviving Bank may be substituted in its place. Neither the rights of creditors
nor any liens upon the property of any constituent corporation shall be impaired
by the Merger.
Section 1.3 Further Assurances. From and after the Effective Time
of the Merger, as and when requested by the Surviving Bank, the officers and
directors of First National/Polk last in office shall execute and deliver or
cause to be executed and delivered in the name of First National/Polk such deeds
and other instruments and take or cause to be taken such further or other
actions as shall be necessary in order to vest or perfect in or confirm of
record or otherwise to the Surviving Bank title to and possession of all of the
property, interests, assets, rights, privileges, immunities, powers, franchises
and authority of First National/Polk.
Section 1.4 Directors and Officers. From and after the Effective
Time of the Merger and until their successors shall be duly elected and
qualified, James H. Bingham, G. Robert Blanchard, Sr., Terry W. Donley, W. Bryan
Judge, Jr., Samuel L. Lupfer, IV, J. Thomas Rocker and James H. White shall
serve as the CBF Board of Directors (or, if any one or more of such Directors is
unwilling or unable to serve as a Director of CBF, such substitute Director as
the then remaining directors of CBF shall determine). From and after the
Effective Time of the Merger and until their successors shall be duly elected
and qualified, the directors and executive officers of the Surviving Bank shall
consist of those individuals who were serving as directors and executive
officers, respectively, of First National/Polk as of the Effective Time of the
Merger. The names and addresses of the Directors and executive officers of the
Surviving Bank are attached hereto as Schedule 1.4. From and after the Effective
Time of the Merger and until their successors shall be duly elected and
qualified: James H. White shall serve as Chairman of the Board, President and
Chief Executive Officer, G. Robert Blanchard, Sr. shall serve as Vice Chairman
of the Board, and George H. Carefoot shall serve as Secretary.
Section 1.5 Name of Surviving Bank. The name of the Surviving
Bank shall be First National Bank of Polk County.
Section 1.6 Capitalization of Surviving Bank. As of the Effective
Time of the Merger, the Surviving Bank shall have 5,000,000 shares of common
stock, par value $5.00 per share, authorized of which 475,625 shares shall be
issued and outstanding (plus shares of First National/Polk common stock issued
after September 30, 1999), all of which shall be owned by CBF. The Surviving
Bank shall have no other classes of capital stock authorized or outstanding. As
of the Effective Time of the Merger, the capital, surplus and retained earnings
of the Surviving Bank shall be as set forth on Schedule 1.6. Preferred stock
shall not be issued by the Surviving Bank.
Section 1.7 Articles of Association and Bylaws. The Articles of
Association and Bylaws under which the Surviving Bank will operate are attached
hereto as Schedule 1.7.
Section 1.8 Absence of Trust Powers. The Surviving Bank shall not
have trust powers.
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ARTICLE II
CONVERSION OF SHARES
Section 2.1 Manner of Conversion of First National/Polk Shares.
Subject to the provisions hereof, as of the Effective Time of the Merger and by
virtue of the Merger and without any further action on the part of the holder of
any shares of common stock of First National/Polk, par value $5.00 per share
(the "First National/Polk Shares"):
(a) All First National/Polk Shares which are held by
First National/Polk as treasury stock, if any, shall be canceled and retired and
no consideration shall be paid or delivered in exchange therefor.
(b) Subject to the terms and conditions of this
Agreement, including, without limitation, Section 2.3 hereof and except with
regard to Dissenting First National/Polk Shares (as hereinafter defined), each
First National/Polk Share outstanding immediately prior to the Effective Time of
the Merger shall be converted into the right to receive 1.62 shares of common
stock of CBF, par value $.01 per share (the "CBF Shares"). The applicable amount
of CBF Shares issuable in the Merger for each First National/Polk Share pursuant
to this Section, as may be adjusted as provided herein, shall be hereinafter
referred to as the "Conversion Ratio." The Conversion Ratio, including the
number of CBF Shares issuable in the Merger, shall be subject to an appropriate
adjustment in the event of any stock split, reverse stock split, dividend
payable in CBF Shares, reclassification or similar distribution whereby CBF
issues CBF Shares or any securities convertible into or exchangeable for CBF
Shares without receiving any consideration in exchange therefor, provided that
the record date of such transaction is a date after the date of this Agreement
and prior to the Effective Time of the Merger.
(c) Each outstanding First National/Polk Share, the
holder of which has perfected dissenters' rights in accordance with the
provisions of the National Bank Act (the "Dissent Provisions") and has not
effectively withdrawn or lost such holder's right to such appraisal (the
"Dissenting First National/Polk Shares"), shall not be converted into or
represent a right to receive the CBF Shares issuable in the Merger but the
holder thereof shall be entitled only to such rights as are granted by the
Dissent Provisions. First National/Polk shall give CBF prompt notice upon
receipt by First National/Polk of any written objection to the Merger and any
written demands for payment of the fair or appraised value of First
National/Polk Shares, and of withdrawals of such demands, and any other
instruments provided to First National/Polk pursuant to the Dissent Provisions
(any shareholder duly making such demand being hereinafter called a "Dissenting
Shareholder"). Each Dissenting Shareholder who becomes entitled, pursuant to the
Dissent Provisions, to payment of fair value of any First National/Polk Shares
held by such Dissenting Shareholder shall receive payment therefor from the
Surviving Bank (but only after the amount thereof shall have been agreed upon or
at the times and in the amounts required by the Dissent Provisions) and all of
such Dissenting Shareholder's First National/Polk Shares shall be canceled. If
any Dissenting Shareholder shall have failed to perfect or shall have
effectively withdrawn or lost such right to demand payment of fair or appraised
value, the First National/Polk Shares held by such Dissenting Shareholder shall
thereupon be deemed to have been converted into the right to receive the
consideration to be issued in the Merger as provided by this Agreement.
Section 2.2 First National/Polk Stock Options and Related
Matters. As of the Effective Time of the Merger, all rights with respect to the
First National/Polk Shares issuable pursuant to the exercise of stock purchase
options ("First National/Polk Options") granted by First National/Polk and which
are outstanding at the Effective Time of Merger shall be converted into options
for CBF Shares (the "Merger Options") in compliance with any restrictions
contained in the plan or
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agreement, if any, under which such First National/Polk Options were issued.
Each holder of a First National/Polk Option shall have the right to acquire as
of the Effective Time of the Merger a number of CBF Shares equal to the product
(rounded up to the next whole share) of (i) the number of First National/Polk
Shares covered by such First National/Polk Option immediately prior to the
Effective Time of the Merger and (ii) the Conversion Ratio; and the exercise
price per share of the CBF Shares at which such First National/Polk Option is
exercisable shall be an amount (rounded up to the next whole cent) computed by
dividing (i) the exercise price per share of the First National/Polk Shares at
which such First National/Polk Option is exercisable immediately prior to the
Effective Time of the Merger by (ii) the Conversion Ratio.
Section 2.3 Fractional Shares. Notwithstanding any other
provision of this Agreement, each holder of First National/Polk Shares converted
pursuant to the Merger who would otherwise have been entitled to receive a
fraction of a CBF Share (after taking into account all certificates delivered by
such holder), shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of such CBF Share, multiplied by the book
value per First National/Polk Share as of the end of the calendar month
immediately preceding or occurring on the Effective Time of the Merger. No such
holder shall be entitled to dividends, voting rights or any other rights as a
shareholder in respect of any fractional share.
Section 2.4 Effectuating Conversion. (a) CBF, or such other
institution as CBF may designate, shall serve as the exchange agent (the
"Exchange Agent"). The Exchange Agent may employ sub-agents in connection with
performing its duties. After the Effective Time of the Merger, CBF shall cause
the Exchange Agent to deliver the consideration to be paid by CBF for the First
National/Polk Shares, along with the appropriate cash payment in lieu of
fractional interests in CBF Shares. As promptly as practicable after the
Effective Time of the Merger, the Exchange Agent shall send or cause to be sent
to each former holder of record of First National/Polk Shares transmittal
materials (the "Letter of Transmittal") for use in exchanging their certificates
formerly representing First National/Polk Shares for the consideration provided
for in this Agreement. The Letter of Transmittal shall contain instructions with
respect to the surrender of certificates representing First National/Polk Shares
and the receipt of the consideration contemplated by this Agreement and shall
require each holder of First National/Polk Shares to transfer good and
marketable title to such First National/Polk Shares to CBF, free and clear of
all liens, claims and encumbrances.
(b) At the Effective Time of the Merger, the stock
transfer books of First National/Polk shall be closed as to holders of First
National/Polk Shares immediately prior to the Effective Time of the Merger and
no transfer of First National/Polk Shares by any such holder shall thereafter be
made or recognized and each outstanding certificate formerly representing First
National/Polk Shares shall, without any action on the part of any holder
thereof, no longer represent First National/Polk Shares. If, after the Effective
Time of the Merger, certificates are properly presented to CBF, such
certificates shall be exchanged for the consideration contemplated by this
Agreement into which the First National/Polk Shares represented thereby were
converted in the Merger.
(c) In the event that any holder of First National/Polk
Shares is unable to deliver the certificate which represents such holder's First
National/Polk Shares, CBF, in the absence of actual notice that any First
National/Polk Shares theretofore represented by any such certificate have been
acquired by a bona fide purchaser, may, in its discretion, deliver to such
holder the consideration contemplated by this Agreement and the amount of cash
representing fractional CBF Shares to which such holder is entitled in
accordance with the provisions of this Agreement upon the presentation of all of
the following:
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(i) An affidavit or other evidence to the
reasonable satisfaction of CBF that any such certificate has been lost,
wrongfully taken or destroyed;
(ii) Such security or indemnity as may be
reasonably requested by CBF to indemnify and hold CBF harmless; and
(iii) Evidence to the satisfaction of CBF that
such holder is the owner of the First National/Polk Shares theretofore
represented by each certificate claimed by such holder to be lost, wrongfully
taken or destroyed and that such holder is the person who would be entitled to
present each such certificate for exchange pursuant to this Agreement.
(d) In the event that the delivery of the consideration
contemplated by this Agreement and the amount of cash representing fractional
CBF Shares are to be made to a person other than the person in whose name any
certificate representing First National/Polk Shares surrendered is registered,
such certificate so surrendered shall be properly endorsed (or accompanied by an
appropriate instrument of transfer), with the signature(s) appropriately
guaranteed, and otherwise in proper form for transfer, and the person requesting
such delivery shall pay any transfer or other taxes required by reason of the
delivery to a person other than the registered holder of such certificate
surrendered or establish to the satisfaction of CBF that such tax has been paid
or is not applicable.
(e) No holder of First National/Polk Shares shall be
entitled to receive any dividends or distributions declared or made with respect
to the CBF Shares with a record date before the Effective Time of the Merger.
Neither the consideration contemplated by this Agreement, any amount of cash
representing fractional CBF Shares nor any dividend or other distribution with
respect to CBF Shares where the record date thereof is on or after the Effective
Time of the Merger shall be paid to the holder of any unsurrendered certificate
or certificates representing First National/Polk Shares as provided for by this
Agreement. Subject to applicable laws, following surrender of any such
certificate or certificates, there shall be paid to the holder of the
certificate or certificates then representing CBF Shares issued in the Merger,
without interest at the time of such surrender, the consideration contemplated
by this Agreement, the amount of any cash representing fractional CBF Shares and
the amount of any dividends or other distributions with respect to CBF Shares to
which such holder is entitled as a holder of CBF Shares.
Section 2.5 Laws of Escheat. If any of the consideration due or
other payments to be paid or delivered to the holders of First National/Polk
Shares is not paid or delivered within the time period specified by any
applicable laws concerning abandoned property, escheat or similar laws, and if
such failure to pay or deliver such consideration occurs or arises out of the
fact that such property is not claimed by the proper owner thereof, CBF shall be
entitled to dispose of any such consideration or other payments in accordance
with applicable laws concerning abandoned property, escheat or similar laws. Any
other provision of this Agreement notwithstanding, none of First National/Polk,
CBF, FINB, the Surviving Bank, nor any other person acting on their behalf shall
be liable to a holder of First National/Polk Shares for any amount paid or
property delivered in good faith to a public official pursuant to and in
accordance with any applicable abandoned property, escheat or similar law.
Section 2.6 CBF Shares. The one CBF Share issued and outstanding
at the Effective Time of the Merger shall be cancelled and thus shall not be
outstanding after the Merger.
Section 2.7 FINB Shares. The shares of FINB common stock, par
value $100 per share, issued and outstanding at the Effective Time of the Merger
shall be converted as a result of, and upon the Effective Time of the Merger,
into 475,625 shares of common stock, each of $5.00 par
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value (plus shares of First National/Polk Shares issued by First National/Polk
after September 30, 1999).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIRST NATIONAL/POLK
Section 3.1 Representations and Warranties of First
National/Polk. First National/Polk represents and warrants to CBF that the
statements contained in this Article III are correct and complete as of the date
of this Agreement and shall be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article III), except (i) representations and
warranties which are confined to a specified date shall speak only as of such
date, (ii) as expressly contemplated by this Agreement, or (iii) as set forth in
the disclosure schedule prepared by First National/Polk and delivered to CBF
prior to the date of this Agreement (the "First National/Polk Disclosure
Schedule"). The First National/Polk Disclosure Schedule has been arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article III.
(a) Organization, Qualification, and Corporate Power.
First National/Polk is a national banking association duly organized, validly
existing, and in good standing under the laws of the United States. First
National/Polk is duly authorized to engage in the business of banking in Florida
as an insured bank under the Federal Deposit Insurance Act, as amended (the
"FDIA"). First National/Polk is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction in which the nature of its
business or the ownership or leasing of its properties requires such
qualification except where the lack of such qualification would not have a
material adverse effect on its (i) business, financial condition or results of
operations, or (ii) ability to consummate the transactions contemplated by this
Agreement (together, its "Condition"); it being understood and agreed that, for
purposes of this Agreement, a material adverse effect on the Condition of a
Party shall not include a decline in results of operations resulting from any
change in law, rule, regulation or GAAP which impacts banks or bank holding
companies generally in a substantially similar manner. First National/Polk has
full corporate power and authority to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it. True and
complete copies of the Articles of Association and the Bylaws of First
National/Polk are attached hereto as Schedule 3(a). First National/Polk has in
effect all federal, state, local and foreign governmental, regulatory and other
authorizations, permits and licenses necessary for it to own or lease its
properties and assets and to carry on its business as now conducted, the absence
of which, individually or in the aggregate, would have a material adverse effect
on the Condition of First National/Polk.
(b) Capitalization. The authorized capital stock of First
National/Polk consists of 5,000,000 First National/Polk Shares, of which 475,625
First National/Polk Shares are issued and outstanding on the date of this
Agreement. There are no other classes of capital stock of First National/Polk
authorized. First National/Polk holds no First National/Polk Shares as treasury
stock. All of the issued and outstanding First National/Polk Shares have been
duly authorized and are validly issued, fully paid and nonassessable. None of
the outstanding First National/Polk Shares has been issued in violation of any
preemptive rights of the current or past stockholders of First National/Polk.
Except with respect to the 37,450 First National/Polk Shares issuable pursuant
to the First National/Polk Options, there are no outstanding or authorized
options, warrants, rights, contracts, calls, puts, rights to subscribe,
conversion rights, or other agreements or commitments to which First
National/Polk is a party or which are binding upon First National/Polk or, to
the Knowledge of First National/Polk, any other party providing for the
issuance, voting, transfer,
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disposition, or acquisition of any of the capital stock of First National/Polk.
There are no outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to First National/Polk. For purposes of this
Agreement, the term "Knowledge" means actual knowledge after reasonable
investigation of the Chairman, President, Chief Financial Officer, Chief
Accounting Officer or any Executive or Senior Vice President of such Party.
(c) First National/Polk Subsidiaries. First National/Polk
has no Subsidiary or Subsidiaries. For purposes of this Agreement, the term
"Subsidiary" means all those corporations, associations or other entities of
which the entity in question owns or controls 5% or more of the outstanding
equity securities either directly or through an unbroken chain of entities as to
each of which 5% or more of the outstanding equity securities is owned directly
or indirectly by its parent; provided, however, there shall not be included any
such entity acquired through foreclosure, any such entity which owns or operates
an automatic teller machine interchange network, any such entity the equity
securities of which are owned or controlled in a fiduciary capacity or any such
entity which is a general industry association or group.
(d) Authorization of Transaction. First National/Polk has
full power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations hereunder;
provided, however, that First National/Polk cannot consummate the Merger unless
and until all requisite approvals are received from the Regulatory Authorities
and the approval of the shareholders of First National/Polk has been obtained.
Subject to the foregoing sentence, (i) this Agreement has been duly executed and
delivered by First National/Polk and this Agreement constitutes a valid and
binding agreement of First National/Polk, enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency and other similar
laws affecting creditors' rights generally, general equitable principles and the
discretion of courts in granting equitable remedies, (ii) the performance by
First National/Polk of its obligations under this Agreement and the consummation
of the Merger and the other transactions provided for under this Agreement have
been or will be duly and validly authorized by all necessary corporate action on
the part of First National/Polk, and (iii) the Board of Directors of First
National/Polk has approved the execution, delivery and performance of this
Agreement and the consummation of the Merger and the other transactions provided
for under this Agreement. Other than to or from the Regulatory Authorities or to
or from the Internal Revenue Service ("IRS") or the Pension Benefit Guaranty
Corporation ("PBGC") with respect to any employee benefit plans, First
National/Polk does not need to give any notice to, make any filing with, or
obtain any authorization, consent or approval of any government or governmental
agency in order for the Parties to consummate the transactions contemplated by
this Agreement, except where the failure to give notice, to file, or to obtain
any authorization, consent, or approval would not have a material adverse effect
on the Condition of First National/Polk.
(e) Noncontravention. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) subject to the receipt of the approvals
contemplated in Section 3(d) above, violate any statute, regulation, rule,
judgment, order, decree, stipulation, injunction, charge, or other restriction
of any government, governmental agency, or court to which First National/Polk is
subject or any provision of the Articles of Association or Bylaws of First
National/Polk or (ii) with the passing of time or the giving of notice or both,
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any contract, lease, sublease, license,
franchise, permit, indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, Security Interest, or other obligation to which
First National/Polk is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Security Interest upon any
of its assets) except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, failure to give notice,
or Security Interest would
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not have a material adverse effect on the Condition of First National/Polk. For
purposes of this Agreement, the term "Security Interest" means any mortgage,
pledge, security interest, encumbrance, charge, or other lien, other than (a)
mechanics, materialmen, and similar liens, (b) liens for taxes not yet due and
payable or for taxes that the taxpayer is contesting in good faith through
appropriate proceedings, (c) liens arising under workers compensation,
unemployment insurance, social security, retirement, and similar legislation,
(d) liens on goods in transit incurred pursuant to documentary letters of
credit, (e) purchase money liens and liens securing rental payments under
capital lease arrangements, and (f) other liens arising in the Ordinary Course
of Business and not incurred in connection with the borrowing of money. For
purposes of this Agreement, the term "Ordinary Course of Business" means the
ordinary course of business consistent with past custom and practice (including
with respect to quantity and frequency).
(f) Financial Statements. First National/Polk has
delivered to CBF prior to the execution of this Agreement copies of the
following financial statements of First National/Polk (collectively referred to
herein as the "First National/Polk Financial Statements"): (i) audited balance
sheets of First National/Polk at December 31, 1998 and 1997, and the related
statements of (A) income, (B) shareholders' equity and (C) cash flows for the
years then ended and the notes thereto as reported upon by its independent
certified public accountants, and (ii) unaudited balance sheet of First
National/Polk at September 30, 1999, and the related unaudited statements of (A)
income and (B) shareholders' equity for the period then ended.
The First National/Polk Financial Statements (as of
the dates thereof and for the periods covered thereby): (i) have been prepared
from the books and records of First National/Polk, which in all material
respects account for those transactions which in accordance with good business
practices and applicable banking and other legal requirements are required to be
accounted for, and (ii) present fairly in all material respects the financial
position and the results of operations and cash flows of First National/Polk as
of the dates and for the periods indicated, in accordance with GAAP, applied on
a basis consistent with prior periods except as disclosed in the notes thereto
or, in the case of unaudited quarterly statements, subject to normal recurring
year-end adjustments that are not material and the absence of certain footnote
and cash flow information.
(g) Undisclosed Liabilities. First National/Polk has no
liability (whether known or unknown, whether absolute or contingent, whether
liquidated or unliquidated, and whether due or to become due), including any
liability for taxes, except for (i) liabilities for future disbursements on
letters of credit, lines of credit and similar instruments or unfunded loan
commitments, (ii) liabilities accrued or reserved against in the balance sheet
dated as of September 30, 1999 included in the First National/Polk Financial
Statements or reflected in the notes thereto, and (iii) liabilities which have
arisen after September 30, 1999 in the Ordinary Course of Business or in
connection with the transactions provided for in this Agreement (none of which
relates to any breach of contract, breach of warranty, tort, infringement, or
violation of law or arose out of any charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand and none of which,
individually or in the aggregate, materially and adversely affect the Condition
of First National/Polk). Since September 30, 1999, First National/Polk has not
incurred or paid any obligation or liability which would be material to the
Condition of First National/Polk, except in the Ordinary Course of Business.
(h) Brokers' Fees. Neither First National/Polk nor any of
its officers, directors or employees, has any liability or obligation to pay any
fees or commissions to, or has employed, any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
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(i) Taxes.
(i) All federal, state, local and foreign tax
returns required to be filed by or on behalf of First National/Polk have been
timely filed or requests for extensions have been timely filed, granted and have
not expired, for periods ending on or before September 30, 1999, and all such
returns filed are true, complete and accurate in all material respects. First
National/Polk has timely paid or caused to be paid all taxes shown to be due on
such tax returns. There is no audit, examination, deficiency or refund
litigation or matter in controversy with respect to any taxes currently pending
involving First National/Polk. All material tax, interest, additions, and
penalties due with respect to completed and settled examinations or concluded
litigation have been paid, accrued or provided for.
(ii) First National/Polk has not executed an
extension or waiver of any statute of limitations on the assessment or
collection of any material tax due that is currently in effect.
(iii) Adequate provision for any federal, state,
local or foreign taxes due or to become due for First National/Polk for any
period or periods through and including September 30, 1999, has been made and is
reflected on the September 30, 1999 financial statements included in the First
National/Polk Financial Statements.
(iv) Deferred taxes of First National/Polk have
been provided for in the First National/Polk Financial Statements in accordance
with GAAP, subject in the case of interim financial statements to normal
recurring year-end adjustments.
(v) All taxes which First National/Polk is
required by law to withhold or to collect for payment have been duly withheld
and collected, and have been paid to the proper governmental entity or are being
withheld by First National/Polk, except where the failure of any of which,
individually or in the aggregate, would not have a material adverse effect on
the Condition of First National/Polk.
(j) Allowance for Loan or Credit Losses. The allowance
for loan or credit losses ("Allowance") shown on the balance sheet of First
National/Polk as of September 30, 1999 included in the First National/Polk
Financial Statements was, and the Allowance shown on the balance sheets of First
National/Polk as of dates subsequent to the execution of this Agreement will to
the Knowledge of First National/Polk be, in each case as of the dates thereof,
adequate to provide for losses relating to or inherent in the loan and lease
portfolios (including accrued interest receivable) of First National/Polk and
other extensions of credit (including letters of credit and commitments to make
loans or extend credit) by First National/Polk, except where the failure of the
Allowance to be so adequate would not have a material adverse effect on the
Condition of First National/Polk.
(k) Properties; Insurance. First National/Polk has good
and marketable title free and clear of all material liens, encumbrances,
charges, defaults or equities of whatever character to all of the properties and
assets, tangible or intangible, reflected in the First National/Polk Financial
Statements, except for liens disclosed in such Financial Statements, those
arising in the Ordinary Course of Business after September 30, 1999 or liens
which are not reasonably likely to have, individually or in the aggregate, a
material adverse effect on the Condition of First National/Polk. All buildings,
and all fixtures, equipment and other property and assets which are material to
its business and which are held under leases or subleases by First National/Polk
are held under valid instruments enforceable in accordance with their respective
terms (except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
and except that the availability of the equitable remedy of specific performance
or
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injunctive relief is subject to the discretion of the court before which any
proceedings may be brought). The real property owned and used as facilities by
First National/Polk has never been used for the handling, treatment, storage or
disposal of any hazardous or toxic substance as defined under any applicable
state or federal law. All policies of fire, theft, liability and other insurance
maintained with respect to the assets or businesses of First National/Polk, and
the fidelity bonds in effect as to which First National/Polk is a named insured,
are described in Schedule 3(k) hereto. Substantially all of First
National/Polk's equipment in regular use has been well maintained and is in good
and serviceable condition, reasonable wear and tear excepted.
(l) Material Contracts. Neither First National/Polk nor
any of its assets, businesses or operations as of the date of this Agreement is
a party to, or is bound or affected by, or receives benefits under, any of the
following (whether written or oral and excluding agreements for the extension of
credit by First National/Polk made in the Ordinary Course of Business): (i) any
employment agreement or understanding (including any understandings or
obligations with respect to severance or termination pay liabilities or fringe
benefits) with any present or former officer, director, or employee, including
in any such person's capacity as a consultant (other than those which are
terminable at will without any further amount being payable thereunder), (ii)
any other agreement with any officer, director, employee, or affiliate, (iii)
any agreement with any labor union, (iv) any agreement which limits the ability
of First National/Polk to compete in any line of business or which involves any
restriction of the geographical area in which First National/Polk may carry on
its business (other than as may be required by law or applicable regulatory
authorities), or (v) any agreement, contract, arrangement or commitment with
annual payments aggregating $20,000 or more.
(m) Material Contract Defaults. First National/Polk is
not in default, and has not received any written notice or has any Knowledge
that any other party is in default, in any material respect under any contract,
lease, sublease, license, franchise, permit, indenture, agreement, or mortgage
for borrowed money, or instrument of indebtedness (except, as to the foregoing,
extensions of credit by First National/Polk in the Ordinary Course of Business),
and there has not occurred any event that with the lapse of time or the giving
of notice or both would constitute such a default.
(n) Compliance with Laws.
(i) First National/Polk is in compliance in all
respects with all laws, regulations, reporting and licensing requirements and
orders applicable to its business or to its employees conducting its business,
with any Regulatory Agreements (as hereinafter defined) applicable to First
National/Polk, and with its internal policies and procedures, except where the
breach or violation of any of which, individually or in the aggregate, would not
have a material adverse effect on the Condition of First National/Polk.
(ii) First National/Polk has not received any
written notification or communication from any Regulatory Authorities (A)
asserting that First National/Polk is not in substantial compliance with any of
the statutes, regulations, or ordinances which such Regulatory Authority
enforces which as a result of such noncompliance would have a material adverse
effect on the Condition of First National/Polk, (B) threatening to revoke any
license, franchise, permit or governmental authorization which is material to
the Condition of First National/Polk, (C) requiring or threatening to require
First National/Polk, or indicating that First National/Polk may be required, to
enter into or be subject to a cease and desist order, agreement, memorandum of
understanding or any other agreement or undertaking (or to cause its Board of
Directors to adopt any resolutions) restricting or limiting or purporting to
restrict or limit in any manner the operations of First National/Polk,
including, without limitation, any restriction on the payment of dividends, or
(D) directing, restricting or limiting, or purporting to direct, restrict or
limit in any manner the operations
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of First National/Polk, including, without limitation, any restriction on the
payment of dividends (any such notice, communication, order, agreement,
memorandum, resolutions or undertaking described in this sentence herein
referred to as a "Regulatory Agreement"). First National/Polk has not consented
to, entered into, agreed to enter into, or been made subject to, any Regulatory
Agreement. First National/Polk has no Knowledge that any Regulatory Authority is
considering imposing on First National/Polk any Regulatory Agreement.
(o) Employee Benefit Plans.
(i) The First National/Polk Disclosure Schedule
lists every pension, retirement, profit-sharing, deferred compensation, stock
option, employee stock ownership, severance pay, vacation, bonus or other
incentive plan, any other written or unwritten employee program, arrangement,
agreement or understanding, whether arrived at through collective bargaining or
otherwise, any medical, vision, dental or other health plan, any life insurance
plan, any golden parachute or other executive compensation plan, or any other
employee benefit plan or fringe benefit plan, including, without limitation, any
"employee benefit plan" as that term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (a "Benefit Plan"
or, collectively, "Benefit Plans"), currently or expected to be adopted,
maintained by, sponsored in whole or in part by, or contributed to by First
National/Polk or any ERISA Affiliate (as herein defined) for the benefit of its
employees, retirees, dependents, spouses, directors, independent contractors or
other beneficiaries and under which any of its employees, retirees, dependents,
spouses, directors, independent contractors or other beneficiaries are eligible
to participate (collectively, the "First National/Polk Benefit Plans"). No First
National/Polk Benefit Plan is or has been a multi-employer plan within the
meaning of Section 3(37) and Section 4001(a)(3) of ERISA. For purposes of this
Section 4(o), the term "ERISA Affiliate" means each trade or business (whether
or not incorporated) which together with First National/Polk is treated as a
single employer under Section 414(b), (c), (m) or (o) of the Internal Revenue
Code.
(ii) True, correct and complete copies of all
written First National/Polk Benefit Plans and descriptions of all unwritten
First National/Polk Benefit Plans listed in the First National/Polk Disclosure
Schedule and all trust agreements or other funding arrangements, including
insurance contracts, all amendments thereto and, where applicable, with respect
to any such plans or plan amendments, all determination letters, rulings,
opinion letters, information letters, or advisory opinions issued by the IRS or
the United States Department of Labor after December 31, 1974, annual reports or
returns, audited or unaudited financial statements, actuarial valuations, and
summary annual reports for the most recent three plan years, the most recent
summary plan descriptions and any material modifications thereto, have
previously been delivered to CBF or will be attached to the First National/Polk
Disclosure Schedule.
(iii) All the First National/Polk Benefit Plans
and the related trusts are in material compliance with, and have been
administered in material compliance with, the provisions of ERISA, the
provisions of the Internal Revenue Code and all other applicable laws, rules and
regulations and collective bargaining agreements. Any required governmental
approvals for the First National/Polk Benefit Plans have been obtained,
including, but not limited to, favorable determination letters on the
qualification of the ERISA Plans and tax exemption of related trusts, as
applicable, under the Internal Revenue Code, and all such governmental approvals
continue in full force and effect. To the Knowledge of First National/Polk,
neither First National/Polk nor any administrator or fiduciary of any First
National/Polk Benefit Plan or agent or delegate of any of the foregoing has
engaged in any transaction or acted or failed to act in any manner which could
subject First National/Polk, CBF or any affiliate thereof to any direct or
indirect liability for a breach of any fiduciary, co-fiduciary or other duty
under ERISA. To the Knowledge of First National/Polk, no oral or written
representation or communication with respect to any aspect of the First
National/Polk
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Benefit Plans has been made to employees of First National/Polk prior to the
Effective Time of the Merger which is not in accordance with the written or
otherwise pre-existing terms and provisions of such First National/Polk Benefit
Plans in effect at the time of such communication. There are no unresolved
claims or disputes under the terms of, or in connection with, the First
National/Polk Benefit Plans and no action, legal or otherwise, has been
commenced with respect to any claim under the terms of, or in connection with,
the First National/Polk Benefit Plans.
(iv) To the Knowledge of First National/Polk, no
"party in interest" (as defined in Section 3(14) of ERISA) or "disqualified
person" (as defined in Section 4975(e)(2) of the Internal Revenue Code) of any
First National/Polk Benefit Plan has engaged in any "prohibited transaction"
(within the meaning of Section 4975(c) of the Internal Revenue Code or Section
406 of ERISA). There has been no (A) "reportable event" (as defined in Section
4043 of ERISA), or event described in Section 4062(e) or Section 4063(a) of
ERISA, or (B) termination or partial termination, withdrawal or partial
withdrawal with respect to any of the ERISA Plans which: (1) First National/Polk
maintains or contributes to or has maintained or contributed to or was required
to maintain or contribute to for the benefit of employees of First
National/Polk; or (2) which has been maintained or contributed to or was
required to be maintained or contributed to by any member of a controlled group
of trades or business as defined in ERISA Section 4001(a)(14) which has, since
January 1, 1975, included First National/Polk.
(v) For any given ERISA Plan relating to First
National/Polk, all assets of such plan are carried at their fair market value,
to the extent required by the plan document and applicable law, and the fair
market value of such plan's assets equals or exceeds the present value of all
benefits (whether vested or not) accrued to date by all present or former
participants in such plan. No First National/Polk Benefit Plan is subject to the
rules of the PBGC.
(vi) As of the Effective Time, First
National/Polk will not have any material current or future liability under any
First National/Polk Benefit Plan that was not reflected in the First
National/Polk Financial Statements.
(vii) No First National/Polk Benefit Plan provides
for welfare benefits (as defined in ERISA Section 3(1)) to employees after
retirement other than as may be required by Section 601 et seq. of ERISA.
(viii) Each First National/Polk Benefit Plan may be
terminated by the Surviving Bank in its sole discretion on or after the Closing
Date without liability of any kind or description arising from either such
termination or any action attributable to the Surviving Bank.
(ix) The execution of, or performance of the
transactions contemplated by, this Agreement will not create, accelerate or
increase any obligations under the First National/Polk Benefit Plans, and will
not require or cause to be payable any payment which is or would be an "excess
parachute payment" under Section 28OG of the Internal Revenue Code.
(p) Legal Proceedings. There are no actions, suits or
proceedings instituted or pending or, to the Knowledge of First National/Polk,
threatened (or unasserted but considered probable of assertion and which if
asserted would have at least a reasonable probability of an unfavorable outcome)
against First National/Polk, or against any property, asset, interest or right
of First National/Polk, that have a reasonable probability either individually
or in the aggregate of having a material adverse effect on the Condition of
First National/Polk.
(q) Absence of Certain Changes or Events. Since September
30, 1999, the businesses of First National/Polk has been operated only in the
ordinary course consistent with past
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practices and since such date there has not been, occurred or arisen: (i) any
damage, destruction, loss or casualty whether or not covered by insurance which
has had or is reasonably likely to have a material adverse effect on the
Condition of First National/Polk; (ii) any declaration, setting aside or payment
of any dividend or distribution (whether in cash, stock or property) in respect
of the First National/Polk Shares or any redemption or other acquisition of the
First National/Polk Shares by First National/Polk or any split, combination or
reclassification of First National/Polk Shares declared or made; (iii) any
extraordinary losses required by GAAP to be disclosed as such that have been
suffered and not adequately reserved against, whether or not in the Ordinary
Course of Business; (iv) any material assets mortgaged, pledged or subjected to
any lien, charge or other encumbrance; (v) any agreement to do any of the
foregoing; or (vi) any other event, development or condition of any character
including any change in results of operations, financial condition, method of
accounting or accounting practices, nature of business, or manner of conducting
the business of First National/Polk that has had, or is reasonably likely to
have, a material adverse effect on the Condition of First National/Polk.
(r) Reports. Since September 30, 1999, First
National/Polk has filed all reports and statements, together with any amendments
required to be made with respect thereto, that it was required to file with any
Regulatory Authority. Each such report and statement, including the financial
statements, exhibits and schedules thereto, at the time of filing thereof
complied in all material respects with the laws and rules and regulations
applicable to it and did not contain any untrue statement of material fact or
omit to state any material fact necessary to make the statements made, in the
light of the circumstances under which they were made, not misleading.
(s) Statements True and Correct. No representation or
warranty made by First National/Polk in this Agreement, no written statement or
certificate included in an Exhibit or Schedule by First National/Polk in
connection with this Agreement, and no written statement or certificate to be
furnished by First National/Polk to CBF pursuant to this Agreement contains any
untrue statement of material fact or omits to state a material fact necessary to
make the statements made, in the light of the circumstances under which they
were made, not misleading. None of the information supplied or to be supplied by
First National/Polk for inclusion in the definitive proxy materials to be mailed
to First National/Polk shareholders in connection with the Special First
National/Polk Meeting (as defined in Section 5(b)(iii)), or in any other
documents to be filed with any Regulatory Authority in connection with the
transactions contemplated hereby, will at the respective time such documents are
filed fail to comply in all material respects with the laws and rules and
regulations applicable to First National/Polk, contain any untrue statement of a
material fact, or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. All documents that First National/Polk is responsible for
filing with any Regulatory Authority in connection with the Merger will comply
as to form in all material respects with the provisions of applicable law.
(t) Environmental Matters.
(i) To the Knowledge of First National/Polk, the
Participation Facilities, and the Loan Properties (each as hereinafter defined)
are, and have been, in compliance with all applicable laws, rules, regulations,
standards and requirements of the United States Environmental Protection Agency
("EPA") and of state and local agencies with jurisdiction over pollution or
protection of the environment, except for violations which, either individually
or in the aggregate, do not or would not result in a material adverse effect on
the Condition of First National/Polk.
(ii) To the Knowledge of First National/Polk,
there is no suit, claim, action or proceeding, pending or threatened, before any
court, governmental agency or board or other forum in which First National/Polk
or any Participation Facility has been or, with respect to threatened
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proceedings, may be, named as a defendant (A) for alleged noncompliance
(including by any predecessor), with any environmental law, rule or regulation
or (B) relating to the release into the environment of any Hazardous Material
(as hereinafter defined) or oil whether or not occurring at or on a site owned,
leased or operated by First National/Polk or any Participation Facility except
as would not, either individually or in the aggregate, result in a material
adverse effect on the Condition of First National/Polk.
(iii) To the Knowledge of First National/Polk,
there is no suit, claim, action or proceeding, pending or threatened, before any
court, governmental agency or board or other forum in which any Loan Property
has been or, with respect to threatened proceedings, may be, named as a
defendant (A) for alleged noncompliance (including by any predecessor) with any
environmental law, rule or regulation or (B) relating to the release into the
environment of any Hazardous Material or oil whether or not occurring at or on a
site owned, leased or operated by a Loan Property, except where such
noncompliance or release does not or would not result, either individually or in
the aggregate, in a material adverse effect on the Condition of First
National/Polk.
(iv) To the Knowledge of First National/Polk,
there is no reasonable basis for any suit, claim, action or proceeding as
described in subsection (ii) or (iii) of this Section 3(t) except as would not,
individually or in the aggregate, have a material adverse effect on the
Condition of First National/Polk.
(v) During the period of (A) First
National/Polk's ownership or operation of any of its current properties, (B)
First National/Polk's participation in the management of any Participation
Facilities, or (C) First National/Polk's holding of a Security Interest in a
Loan Property, to the Knowledge of First National/Polk, there has been no
release of Hazardous Material or oil in, on, under or affecting such properties,
except where such release does not or would not result, either individually or
in the aggregate, in a material adverse effect on the Condition of First
National/Polk. Prior to the period of (A) First National/Polk's ownership or
operation of any of its current properties, (B) First National/Polk's
participation in the management of any Participation Facility, or (C) First
National/Polk holding of a Security Interest in a Loan Property, to the
Knowledge of First National/Polk, there was no release of Hazardous Material or
oil in, on, under or affecting any such property, Participation Facility or Loan
Property, except where such release does not or would not result, either
individually or in the aggregate, in a material adverse effect on the condition
of First National/Polk.
(vi) The following definitions apply for purposes
of this Section 3(t): (A) "Loan Property" means any real property in which First
National/Polk holds a Security Interest and, where required by the context, said
term means the owner or operator of such property; (B) "Participation Facility"
means any facility in which First National/Polk participates in the management
and where required by the context, said term means the owner or operator of such
property; and (C) "Hazardous Material" means any pollutant, contaminant, or
hazardous substance under the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. ss.9601 et seq. or any similar state
law.
(u) Labor Matters. First National/Polk is not a party to,
or bound by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is it the subject of
any material proceeding asserting that it has committed an unfair labor practice
or seeking to compel it to bargain with any labor organization as to wages or
conditions of employment nor is there any strike or other labor dispute
involving it pending or, to its Knowledge, threatened, any of which would have,
individually or in the aggregate, a material adverse effect on the Condition of
First National/Polk.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CBF
Section 4.1 Representations and Warranties of CBF. CBF represents
and warrants to First National/Polk that the statements contained in this
Article IV are correct and complete as of the date of this Agreement and shall
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article IV), except (i) representations and warranties which are
confined to a specified date shall speak only as of such date, (ii) as expressly
contemplated by this Agreement, or (iii) as set forth in the disclosure schedule
prepared by CBF and delivered to First National/Polk prior to the date of this
Agreement (the "CBF Disclosure Schedule"). The CBF Disclosure Schedule has been
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article IV.
(a) Organization, Qualification, and Corporate Power. CBF
is a corporation duly organized, validly existing, and in good standing under
the laws of Florida. CBF is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction in which the nature of its business
or the ownership or leasing of its properties requires such qualification except
where the lack of such qualification would not have a material adverse effect on
its Condition. CBF has full corporate power and authority to carry on the
business in which it is engaged and to own and use the properties owned and used
by it. True and complete copies of the Articles of Incorporation and the Bylaws
of CBF are attached hereto as Schedule 4(a). CBF has in effect all federal,
state, local and foreign governmental, regulatory and other authorizations,
permits and licenses necessary for it to own or lease its properties and assets
and to carry on its business as now conducted, the absence of which,
individually or in the aggregate, would have a material adverse effect on the
Condition of CBF on a consolidated basis.
As of the Effective Time of the Merger, FINB (i) will
be an interim national banking association duly organized, validly existing and
in good standing under the laws of the United States (ii) will have the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as proposed to be conducted pursuant to this
Agreement, and (iii) will be licensed or qualified to do business in each
jurisdiction which the nature of the business conducted or to be conducted by
FINB, or the character or location or the properties and assets owned or leased
by FINB, make such licensing or qualification necessary, except where the
failure to be so licensed or qualified (or steps necessary to cure such failure)
would not have a material adverse effect on the Condition of CBF on a
consolidated basis. FINB, as of the Effective Time of the Merger, will have in
effect all federal, state, local and foreign governmental, regulatory or other
authorizations, permits and licenses necessary for it to own or lease its
properties and assets and to carry on its business as proposed to be conducted,
the absence of which, either individually or in the aggregate, would have a
material adverse effect on the Condition of CBF on a consolidated basis.
(b) Capitalization. The authorized capital stock of CBF
consists of (i) 20,000,000 CBF Shares, of which one CBF Share is issued and
outstanding on the date of this Agreement, and (ii) 5,000,000 shares of
preferred stock, $.01 par value, none of which are issued and outstanding on the
date of this Agreement. There are no other classes of capital stock of CBF
authorized. CBF holds no CBF Shares as treasury stock. All of the issued and
outstanding CBF Shares have been duly authorized and are validly issued, fully
paid and nonassessable. None of the outstanding CBF Shares has been issued in
violation of any preemptive rights of the current or past stockholders of CBF.
There are no outstanding or authorized options, warrants, rights, contracts,
calls, puts, rights to subscribe, conversion rights, or other agreements or
commitments to which CBF is a party or which are binding upon CBF or, to the
Knowledge of CBF, any other party providing for the issuance, voting, transfer,
disposition, or acquisition of any of the capital stock of CBF.
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There are no outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to CBF.
(c) CBF Subsidiaries. Except for FINB (and other interim
national banking associations organized to facilitate consummation of the
mergers referred to in Sections 6(a)(xiii) and 6(b)(xi)), which at the Effective
Time of the Merger will be organized as a wholly-owned subsidiary of CBF, CBF
has no Subsidiary or Subsidiaries.
(d) Authorization of Transaction. CBF has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder; provided, however, that
CBF cannot consummate the Merger unless and until all requisite approvals are
received from the Regulatory Authorities. Subject to the foregoing sentence, (i)
this Agreement has been duly executed and delivered by CBF and this Agreement
constitutes a valid and binding agreement of CBF, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency and
other similar laws affecting creditors' rights generally, general equitable
principles and the discretion of courts in granting equitable remedies, (ii) the
performance by CBF of its obligations under this Agreement and the consummation
of the Merger and the other transactions provided for under this Agreement have
been or will be duly and validly authorized by all necessary corporate action on
the part of CBF, and (iii) the Board of Directors of CBF has approved the
execution, delivery and performance of this Agreement and the consummation of
the Merger and the other transactions provided for under this Agreement. Other
than to or from the Regulatory Authorities or to or from the IRS or the PBGC
with respect to any employee benefit plans, CBF does not need to give any notice
to, make any filing with, or obtain any authorization, consent or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement, except where the failure to give
notice, to file, or to obtain any authorization, consent, or approval would not
have a material adverse effect on the Condition of CBF on a consolidated basis.
(e) Noncontravention. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) subject to the receipt of the approvals
contemplated in Section 4(d) above, violate any statute, regulation, rule,
judgment, order, decree, stipulation, injunction, charge, or other restriction
of any government, governmental agency, or court to which CBF is subject or any
provision of the Articles of Incorporation or Bylaws of CBF or (ii) with the
passing of time or the giving of notice or both, conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any contract, lease, sublease, license, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of indebtedness,
Security Interest, or other obligation to which CBF is a party or by which it is
bound or to which any of its assets is subject (or result in the imposition of
any Security Interest upon any of its assets) except where the violation,
conflict, breach, default, acceleration, termination, modification,
cancellation, failure to give notice, or Security Interest would not have a
material adverse effect on the Condition of CBF on a consolidated basis.
(f) Statements True and Correct. No representation or
warranty made by CBF in this Agreement, no written statement or certificate
included in an Exhibit or Schedule by CBF in connection with this Agreement, and
no written statement or certificate to be furnished by CBF to First
National/Polk pursuant to this Agreement contains any untrue statement of
material fact or omits to state a material fact necessary to make the statements
made, in the light of the circumstances under which they were made, not
misleading. None of the information supplied or to be supplied by CBF for
inclusion in the definitive proxy materials to be mailed to First National/Polk
shareholders in connection with the Special First National/Polk Meeting (as
defined in Section 5(b)(iii)), or in any other documents to be filed with any
Regulatory Authority in connection with
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the transactions contemplated hereby, will at the respective time such documents
are filed fail to comply in all material respects with the laws and rules and
regulations applicable to CBF, contain any untrue statement of a material fact,
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. All documents that CBF is responsible for filing with any Regulatory
Authority in connection with the Merger will comply as to form in all material
respects with the provisions of applicable law.
ARTICLE V
COVENANTS AND AGREEMENTS
Section 5.1 Covenants. Except as otherwise set forth in the
Disclosure Schedules, the Parties agree as follows with respect to the period
from and after the execution of this Agreement until the earlier of the
consummation of the transactions contemplated by this Agreement or the
termination of this Agreement:
(a) Current Information. During the period from the date
of this Agreement to the Effective Time of the Merger, each Party shall, and
shall cause its representatives to, confer on a regular and frequent basis with
representatives of the other. Within twenty (20) days after the end of each
calendar month beginning after the date of this Agreement, each of First
National/Polk and CBF shall deliver to the other copies of their respective
unaudited balance sheets and statements of income, and any other financial or
statistical information submitted by management to the Board of Directors of
First National/Polk or CBF (other than information provided to a Board of
Directors specifically in connection with its consideration of the Merger, this
Agreement, and the transactions contemplated hereby) for or in the preceding
fiscal month. All such financial statements shall be prepared in accordance with
the books and records of such Party, shall be complete and accurate in all
material respects, shall present fairly the financial position and the results
of operations of that Party as of and for the periods indicated, and shall be
prepared in accordance with GAAP, subject to normal recurring year-end
adjustments and the absence of certain footnote information in the unaudited
statements.
(b) Regulatory Matters and Approvals.
(i) Bank Regulatory Matters. CBF and First
National/Polk shall cause to be promptly prepared and filed with the FRB, the
FDIC, and the OCC, applications for their approval of the Merger and with any
other Regulatory Authority having jurisdiction any other applications for
approvals or Consents which may be necessary for the consummation of the Merger.
The Parties shall provide copies of all such applications and notices to the
others for review prior to submission or filing with the appropriate Regulatory
Authorities. Each Party agrees to promptly review and provide any comments on
such applications and notices to the others. Each Party shall use its best
efforts to take or cause to be taken all actions necessary for such applications
and notices to be approved and shall provide the others with copies of all
correspondence and notices to or from such agencies concerning such applications
and notices. No Consent obtained which is necessary to consummate the
transactions contemplated by this Agreement shall be conditioned or restricted
in a manner which in the reasonable judgment of a Party would (A) unduly impair
or restrict the operations, or would have a material adverse effect on the
Condition, of CBF or the Surviving Bank, or (B) render consummation of the
Merger unduly burdensome; provided, that such Party has used its reasonable
efforts (it being understood that such reasonable efforts shall not include the
threatening or commencement of any litigation) to cause such conditions or
restrictions to be removed or modified as appropriate.
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(ii) Definitive Proxy Materials. First
National/Polk shall prepare a proxy statement which shall consist of the First
National/Polk definitive proxy materials relating to the Special First
National/Polk Meeting (the "Proxy Statement"). The Proxy Statement shall contain
the affirmative recommendation of the Board of Directors of First National/Polk
in favor of the adoption of this Agreement and the approval of the Merger. CBF
shall provide to First National/Polk such information and assistance in
connection with the preparation of the Proxy Statement as First National/Polk
may reasonably request. First National/Polk shall not be liable for any untrue
statement of a material fact or omission to state a material fact in the Proxy
Statement made in reliance upon, or in conformity with, information furnished to
First National/Polk by CBF for use therein. In connection with the Special First
National/Polk Meeting, the Parties shall file the proxy statement with such
Regulatory Agencies as may be required by law in order for such materials to be
furnished to First National/Polk shareholders in connection with such meeting.
(iii) Shareholder Approvals. First National/Polk
shall call a special meeting of its shareholders (the "Special First
National/Polk Meeting") and mail to them the Proxy Statement (as soon as
reasonably practicable following a determination by First National/Polk and CBF
that such special meeting should be called) in order that First National/Polk
shareholders may consider and vote upon the adoption of this Agreement and the
approval of the Merger in accordance with applicable law. CBF, as sole
shareholder of FINB, agrees to vote in favor of adoption of this Agreement and
approval of the Merger.
(iv) Securities Act Matters. CBF will prepare
and file with the SEC a Registration Statement under the Securities Act in
connection with the CBF Shares to be issued to First National/Polk shareholders
in the Merger. First National/Polk and CBF shall each promptly furnish all
information concerning it and the holders of its outstanding shares as the other
may reasonably request from time to time in connection with the preparation of
the Registration Statement. The Parties shall use their reasonable efforts to
cause the Registration Statement to become effective under the Securities Act as
soon as reasonably practicable after the filing thereof and to take any action
required to be taken under applicable state, Blue Sky or securities laws in
connection with the issuance of the CBF Shares upon consummation of the Merger.
(v) Other Governmental Matters. Subject to the
last sentence of Section 5(b)(i), each of the Parties shall take any additional
action that may be necessary, proper, or advisable in connection with any other
notice to, filings with, and authorizations, consents, and approvals of
governments and governmental agencies that it may be required to give, make or
obtain in connection with the transactions contemplated by this Agreement.
(c) Tax Opinion. On or before the date the Proxy
Statement is mailed to First National/Polk shareholders, First National/Polk and
CBF shall each use all reasonable efforts to obtain a written opinion from an
accounting or law firm selected by First National/Polk and CBF, to the effect
that the exchange of First National/Polk Shares, to the extent exchanged for CBF
Shares as contemplated herein, shall not give rise to gain or loss to the
holders of such First National/Polk Shares, or gain or loss to CBF with respect
to such exchange (except to the extent of any cash paid in lieu of fractional
shares), and accordingly, the Merger will constitute a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code (the "Tax
Opinion"). The Tax Opinion shall be reasonably satisfactory to each of First
National/Polk and CBF in form and substance.
(d) Conduct of Business Prior to the Effective Time of
the Merger. During the period from the date of this Agreement to the Effective
Time of the Merger, except as set forth in the First National/Polk or CBF
Disclosure Schedules, or with the prior written consent of the other Parties, or
as expressly contemplated or permitted by this Agreement, each of First
National/Polk
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and CBF shall (i) conduct its business in, and only in, the usual, regular and
ordinary course consistent with past practices, (ii) use its reasonable best
efforts to maintain and preserve intact its business organization, employees and
advantageous business relationships and retain the services of its officers and
key employees, and (iii) take no action which would materially adversely affect
or delay the ability of any Party to obtain any necessary approvals of any
Regulatory Authority or other governmental authority required for the
transactions contemplated hereby or to perform its covenants and agreements
under this Agreement.
(e) Forbearance. During the period from the date of this
Agreement to the Effective Time of the Merger, except as set forth in the First
National/Polk or CBF Disclosure Schedules, or except as expressly contemplated
or permitted by this Agreement, no Party shall, or permit its Subsidiaries to,
without the prior written consent of the other Parties:
(i) Other than in the Ordinary Course of
Business, incur any indebtedness for borrowed money (other than short-term
indebtedness incurred to refinance short-term indebtedness; it being understood
and agreed that incurrence of indebtedness in the Ordinary Course of Business
shall include, without limitation, the creation of deposit liabilities,
purchases of federal funds, sales of certificates of deposit and entering into
repurchase agreements), assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any other individual,
corporation or other entity, or make any loan or advance other than in the
Ordinary Course of Business;
(ii) Adjust, split, combine or reclassify any
capital stock; make, declare or pay any dividend (except in accordance with past
practice) or make any other distribution on, or directly or indirectly redeem,
purchase or otherwise acquire, any shares of its capital stock or any securities
or obligations convertible into or exchangeable for any shares of its capital
stock, or, grant any stock options or stock appreciation rights or grant any
individual, corporation or other entity any right to acquire any shares of its
capital stock;
(iii) Sell, transfer, mortgage, encumber or
otherwise dispose of any of its material properties or assets to any individual,
corporation or other entity, or cancel, release or assign any material
indebtedness to any such person or any claims held by any such person, except
(A) in the Ordinary Course of Business, or (B) as set forth in a Disclosure
Schedule pursuant to contracts or agreements in force at the date of this
Agreement;
(iv) Except for transactions in the Ordinary
Course of Business, make any material investment in, either by purchase of stock
or securities, contributions to capital, property transfers, or purchase of
property or assets, any other individual, corporation or other entity;
(v) Except for transactions in the Ordinary
Course of Business, enter into or terminate any material contract or agreement,
or make any change in any of its material leases or contracts, other than
renewals of contracts and leases without material adverse changes of terms;
(vi) Increase in any material manner the
compensation or fringe benefits of any of its employees or pay any bonus or
pension or retirement allowance not required by any existing plan or agreement
to any such employees, or become a party to, amend or commit itself to any
pension, retirement, profit-sharing or welfare benefit plan or agreement or
employment agreement with or for the benefit of any employee, other than in the
Ordinary Course of Business (except that First National/Polk may amend the stock
option plans pursuant to which the First National/Polk Options were issued to
provide that the First National/Polk Options shall not terminate as a result of
the Merger); with the understanding that entering into any new employment
contracts,
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or renewing or amending any existing employment contracts, shall be deemed
outside the Ordinary Course of Business;
(vii) Amend its Articles of Incorporation,
Articles of Association, or its bylaws;
(viii) Enter into any new line of business;
(ix) Change its lending, investment,
asset/liability management or other material banking policies in any respect
which is material, including without limitation, policies and procedures
relating to calculating and funding the Allowance;
(x) Incur or commit to any capital expenditure
or any obligations or liabilities in connection therewith other than capital
expenditures and obligations or liabilities incurred or committed to in the
Ordinary Course of Business;
(xi) Change its methods of accounting in effect
at December 31, 1998, except as required by generally accepted accounting
principles, or its fiscal year; or
(xii) Agree to, or make any commitment to, take any
of the actions prohibited by this Section 5(e).
(f) Issuance of Securities. Except as set forth in a
Disclosure Schedule or as contemplated by this Agreement, no Party shall or
shall permit any of its Subsidiaries to issue, deliver or sell, or authorize or
propose the issuance, delivery or sale of, any shares of its capital stock of
any class, any voting debt or any securities convertible into or exercisable for
or any rights, warrants or options to acquire, any such shares or voting debt,
or enter into any agreement with respect to any of the foregoing, other than (i)
the issuance of First National/Polk Shares, pursuant to outstanding First
National/Polk Options, in each case as in effect on the date of this Agreement
and in each case in accordance with their present terms; (ii) the issuance of
CBF Shares pursuant to outstanding CBF Options or CBF Warrants, in each case as
in effect on the date of this Agreement and in each case in accordance with
their present terms; (iii) issuances by a Subsidiary of its capital stock to its
parent; and (iv) the issuance by a Party of any shares of its capital stock in a
transaction approved by the Parties pursuant to Section 5(g).
(g) No Acquisitions. Other than acquisitions which may be
mutually agreed upon in writing by the Parties, no Party shall or shall permit
any of its Subsidiaries to acquire or agree to acquire, by merging or
consolidation with or by purchasing a substantial equity interest in, or by
purchasing a substantial portion of the assets, or assuming a substantial
portion of the liabilities of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof or otherwise acquire or agree to acquire any assets in each case which
are material, individually or in the aggregate, to such Party and its
Subsidiaries taken as a whole; provided, however, that the foregoing shall not
prohibit (i) internal reorganizations, consolidations or dissolutions involving
only existing Subsidiaries, (ii) foreclosure and other acquisitions related to
previously contracted debt, in each case in the Ordinary Course of Business,
(iii) acquisitions of control by First National/Polk in its fiduciary capacity,
(iv) investments made by small business investment corporations, acquisitions of
financial assets and merchant banking activities, in each case in the Ordinary
Course of Business, or (v) the creation of new Subsidiaries organized to conduct
or continue activities otherwise permitted by this Agreement.
(h) Other Actions. No Party shall or shall permit any of
its Subsidiaries to take any action that, or fail to take any action the failure
of which, results in any of its representations and
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warranties set forth in this Agreement being or becoming untrue in any material
respect, or in any of the conditions set forth in this Agreement not being
satisfied or in a violation of any provision of this Agreement which would
adversely affect the ability of any of them to obtain any of the Regulatory
Approvals, except in every case as may be required by applicable law.
(i) Government Filings. Each Party shall file all
reports, applications and other documents required to be filed with the
appropriate bank regulators between the date hereof and the Effective Time of
the Merger and shall make available to the other Party copies of all such
reports promptly after the same are filed.
(j) Tax-Free Reorganization Treatment. No Party shall
take or cause to be taken any action, whether before or after the Effective Time
of the Merger, which would disqualify the Merger as a "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code.
(k) Full Access. Each Party shall and shall cause each of
its Subsidiaries to permit representatives of the others to have full access at
all reasonable times, and in a manner so as not to interfere with the normal
business operations of such Party and its Subsidiaries, to all premises,
properties, books, records, contracts, tax records, and documents of or
pertaining to each of such Party and its Subsidiaries. Each Party agrees to
furnish any other Party and its advisers with such financial operating data and
other information with respect to its business, properties and employees as such
Party shall, from time to time, reasonably request. No investigation by a Party
shall affect the representations and warranties of any other Party to this
Agreement, and each such representation and warranty shall survive any such
investigation.
(l) Notice of Material Adverse Developments. Each Party
shall give prompt written notice to the other Parties of any material adverse
effect on its Condition, or any material adverse development affecting the
assets, liabilities, business, financial condition, operations, results of
operations, or future prospects of such Party and its Subsidiaries taken as a
whole, including without limitation (i) any material change in its business or
operations, (ii) any material complaints, investigations or hearings (or
communications indicating that the same may be contemplated) of any Regulatory
Authority, (iii) the institution or the threat of material litigation involving
such Party, or (iv) any event or condition that might be reasonably expected to
cause any of such Party's representations and warranties set forth herein not to
be true and correct in all material respects as of the Closing Date. Each Party
shall also give prompt written notice to the other Parties of any other material
adverse development affecting the ability of such Party to consummate the
transactions contemplated by this Agreement. Any such notices shall be
accompanied by copies of any and all pertinent documents, correspondence and
similar papers relevant to a complete understanding of such material adverse
development, which shall be promptly updated as necessary. CBF shall have 20
business days after First National/Polk gives any written notice pursuant to
this Section 5(l) within which to exercise any right CBF may have to terminate
this Agreement pursuant to Section 7(a)(iv) below by reason of the material
adverse development, and First National/Polk likewise shall have 20 business
days after CBF gives any written notice pursuant to this Section 5(l) within
which to exercise any right First National/Polk may have to terminate this
Agreement pursuant to Section 7(a)(iii) below by reason of the material adverse
development. Unless one of the Parties terminates this Agreement within the
aforementioned period, the written notice of a material development shall be
deemed to have amended the Disclosure Schedule, to have qualified the
representations and warranties contained herein, and to have cured any
misrepresentation or breach of warranty that otherwise might have existed
hereunder by reason of the material adverse development.
(m) Exclusivity. Except as specifically permitted or
contemplated by this Agreement, the Parties shall not (and shall not cause or
permit any of their Subsidiaries to) solicit,
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initiate, encourage, entertain, consider, or participate in the negotiation,
discussion or submission of any proposal or offer from any person (other than a
Party) relating to any (i) liquidation, dissolution, or recapitalization, (ii)
merger or consolidation, (iii) acquisition or purchase of 25% or more of
securities or assets, or (iv) similar transaction or business combination
involving any of the Parties and/or its Subsidiaries, or their respective assets
(the foregoing transactions referred to in subclauses (i) through (iv),
inclusive, are referred to in this Agreement as an "Acquisition Proposal");
provided, however, that each Party shall be entitled to entertain, consider, and
participate in negotiations and discussions regarding, and furnish any
information with respect to, any effort or attempt by any person to do or seek
to do any of the foregoing to the extent that the Board of Directors of such
Party determines in good faith, based upon the written advice of its legal
counsel, that the failure to so consider or participate in such negotiations or
discussions would be inconsistent with the fiduciary obligations of the
directors of such Party to the shareholders of such Party. The Party shall give
all of the other Parties prompt notice of any such negotiations and discussions.
Each Party shall notify others immediately if any person (other than a Party)
makes any proposal, offer, inquiry, or contact with respect to any Acquisition
Proposal.
(n) Filings with the Offices. Upon the terms and subject
to the conditions of this Agreement, the Parties shall execute and file any and
all documents in connection with the Merger for filing with any Federal and
state offices.
(o) Press Releases. Each Party shall consult with each
other as to the form and substance of any press release or other public
disclosure materially related to this Agreement, the Merger or any other
transaction contemplated hereby; provided, however, that any Party may make any
public disclosure it believes in good faith is required by law or regulation.
(p) Agreements of Affiliates. First National/Polk shall
deliver to CBF a letter identifying all persons whom First National/Polk
believes to be, at the time the Merger is submitted to a vote of the First
National/Polk shareholders, "affiliates" of First National/Polk for purposes of
Rule 145 under the Securities Act. First National/Polk shall use its best
efforts to cause each person who is identified as an "affiliate" in the letter
referred to above to deliver to CBF prior to the Effective Time of the Merger a
written agreement providing that each such person shall agree not to sell,
transfer or otherwise dispose of the CBF Shares to be received by such person in
the Merger, except in compliance with the applicable provisions of the
Securities Act and until such time as the financial results covering at least 30
days of combined operations of CBF and First National/Polk have been published
within the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies. Prior to the Effective Time of the Merger, First
National/Polk shall amend and supplement such letter and use its reasonable best
efforts to cause each additional person who is identified as an "affiliate" to
execute a written agreement as set forth in this Section 5(p).
(q) Miscellaneous Agreements and Consents. Subject to the
terms and conditions of this Agreement, each of the Parties hereto agrees to use
its respective best efforts to take, or cause to be taken, all action, and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as expeditiously as reasonably
practicable, including, without limitation, using their respective reasonable
best efforts to lift or rescind any injunction or restraining order or other
order adversely affecting the ability of the Parties to consummate the
transactions contemplated hereby. Each Party shall, and shall cause each of
their respective Subsidiaries to, use their reasonable best efforts to obtain
all approvals and Consents of all third parties and Regulatory Authorities
necessary or, in the reasonable opinion of any Party, desirable for the
consummation of the transactions contemplated by this Agreement. No Consent
obtained which is necessary to consummate the transactions contemplated by this
Agreement shall be conditioned or restricted in a manner which in the reasonable
judgment of a Party would (A) unduly impair or restrict the
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operations, or would have a material adverse effect on the Condition, of CBF or
the Surviving Bank, or (B) render consummation of the Merger unduly burdensome;
provided, that such Party has used its reasonable efforts (it being understood
that such reasonable efforts shall not include the threatening or commencement
of any litigation) to cause such conditions or restrictions to be removed or
modified as appropriate.
(r) Indemnification.
(i) After the Effective Time of the Merger, CBF
shall cause the Surviving Bank to indemnify, defend and hold harmless the
present and former officers, directors, employees and agents of First
National/Polk (each, an "Indemnified Party") after the Effective Time of the
Merger against all losses, expenses, claims, damages or liabilities arising out
of actions or omissions occurring on or prior to the Effective Time of the
Merger (including, without limitation, the transactions contemplated by this
Agreement) to the full extent then permitted under, and in accordance with the
terms and conditions of, the Florida Business Corporation Act and by the
Articles of Association and Bylaws of First National/Polk as in effect on the
date hereof, including provisions relating to advances of expenses incurred in
the defense of any action or suit. CBF shall cause the Surviving Bank to apply
such rights of indemnification in good faith and to the fullest extent permitted
by applicable law.
(ii) If the Surviving Bank or any of its
successors or assigns (A) shall consolidate with or merge into any other
corporation or entity and shall not be the continuing or surviving corporation
or entity of such consolidation or merger, or (B) shall transfer all or
substantially all of its properties and assets to any individual, corporation or
other entity, then and in each such case, CBF shall cause the Surviving Bank to
cause proper provision to be made so that the successors and assigns of the
Surviving Bank shall assume the obligations set forth in this Section 5(r).
(s) Fairness Opinions. On or before 10 days prior to the
date of the Proxy Statement, (i) First National/Polk shall use all reasonable
efforts to obtain an opinion from a firm selected by it that the terms of the
Merger are fair to First National/Polk shareholders from a financial point of
view (the "First National/Polk Fairness Opinion"), and (ii) CBF shall have the
right to obtain an opinion from a firm selected by it that the terms of the
Merger are fair to CBF shareholders from a financial point of view (the "CBF
Fairness Opinion").
(t) Employee Benefit Plans. First National/Polk and CBF
shall use their best efforts to coordinate the conversion of each First
National/Polk Benefit Plan into similar plans of the Surviving Bank, to the
extent similar plans are maintained by the Surviving Bank, and to make available
for eligibility for First National/Polk employees all benefit plans and policies
maintained by the Surviving Bank following the Effective Time of the Merger with
such employees receiving credit for past service with a Party prior to the
Effective Time of the Merger for purposes of eligibility for participation,
vesting, and years of service, under such benefit plans and policies.
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ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF FIRST NATIONAL/POLK AND CBF
Section 6.1 Conditions to Obligation to Close.
(a) Conditions to Obligation of CBF. The obligation of
CBF to consummate the transactions to be performed by it in connection with the
Closing are subject to satisfaction of the following conditions:
(i) This Agreement and the Merger shall have
received the requisite approval of the shareholders of First National/Polk and
the number of Dissenting First National/Polk Shares shall not exceed 5% of the
number of First National/Polk Shares issued and outstanding immediately prior to
the Effective Time of the Merger;
(ii) The Parties shall have procured all
approvals, authorizations and Consents specified in Section 5(b) above and the
Disclosure Schedules, including but not limited to all necessary consents,
authorizations and approvals of Regulatory Authorities which, with respect to
those from the Regulatory Authorities, shall not contain provisions which (A)
unduly impair or restrict the operations, or would have a material adverse
effect on the Condition, of CBF or the Surviving Bank, or (B) render
consummation of the Merger unduly burdensome, in each case as determined in the
reasonable discretion of CBF;
(iii) The representations and warranties set forth
in Article III above shall be true and correct in all material respects at and
as of the Closing Date;
(iv) First National/Polk shall have performed and
complied in all material respects with all its covenants required to be complied
with hereunder through the Closing;
(v) No action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction wherein an
unfavorable judgment, order, decree, stipulation, injunction, or charge could
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation, or (C) affect adversely the right after the
Effective Time of the Merger of the Surviving Bank to own, operate, or control
substantially all of the assets and operations of First National/Polk and/or CBF
to own, operate, or control substantially all of the assets and operations of
the Surviving Bank (and no such judgment, order, decree, stipulation,
injunction, or charge shall be in effect);
(vi) The shareholders' equity of First
National/Polk on the last day of the calendar month immediately preceding the
Closing Date, as determined in accordance with GAAP before any adjustments
required pursuant to Statement of Financial Accounting Standards No. 115 ("FAS
115"), shall not be less than the amount set forth in the September 30, 1999
First National/Polk Financial Statements;
(vii) First National/Polk shall have delivered to
CBF a certificate (without qualification as to knowledge or materiality or
otherwise) to the effect that each of the conditions specified above in Section
6(a)(i) through (vi) is satisfied in all respects;
(viii) All actions to be taken by First
National/Polk in connection with consummation of the transactions contemplated
hereby and all certificates, opinions, instruments,
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and other documents required to effect the transactions contemplated hereby
shall be reasonably satisfactory in form and substance to CBF;
(ix) CBF shall have received the Tax Opinion in a
form reasonably satisfactory to CBF;
(x) CBF shall have received the CBF Fairness
Opinion;
(xi) CBF shall have received a letter, dated as
of the Effective Time of the Merger, from an accounting firm selected by CBF and
First National/Polk to the effect that the Merger will qualify for
pooling-of-interests accounting treatment if closed and consummated in
accordance with this Agreement; and
(xii) CBF shall close simultaneously with the
Effective Time of the Merger the acquisitions by CBF of First National Bank of
Osceola County and Community National Bank of Pasco County.
CBF may waive any condition specified in this Section 6(a) if it
executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of First National/Polk. The
obligations of First National/Polk to consummate the transactions to be
performed by it in connection with the Closing is subject to satisfaction of the
following conditions:
(i) This Agreement and the Merger shall have
received the requisite approval of the shareholders of First National/Polk and
the number of Dissenting First National/Polk Shares shall not exceed 5% of the
number of First National/Polk Shares issued and outstanding immediately prior to
the Effective Time of the Merger;
(ii) The Parties shall have procured all of the
third party approvals, authorizations and consents specified in Section 5(b)
above, and the Disclosure Schedules, including but not limited to all necessary
consents, authorizations and approvals of Regulatory Authorities which, with
respect to those from the Regulatory Authorities, shall not contain provisions
which (A) unduly impair or restrict the operations, or would have a material
adverse effect on the Condition, of CBF or the Surviving Bank, or (B) render
consummation of the Merger unduly burdensome, in each case as determined in the
reasonable discretion of First National/Polk;
(iii) The representations and warranties set forth
in Article IV above shall be true and correct in all material respects at and as
of the Closing Date;
(iv) CBF shall have performed and complied in all
material respects with all its covenants required to be complied with hereunder
through the Closing;
(v) No action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction wherein an
unfavorable judgment, order, decree, stipulation, injunction, or charge could
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation, or (C) affect adversely the right after the
Effective Time of the Merger of the Surviving Bank, to own, operate, or control
substantially all of the assets and operations of First National/Polk (and no
such judgment, order, decree, stipulation, injunction or charge shall be in
effect);
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(vi) CBF shall have delivered to First
National/Polk a certificate (without qualification as to knowledge or
materiality or otherwise) to the effect that each of the conditions specified in
Section 6(b)(i) through (vii) is satisfied in all respects;
(v) All actions to be taken by CBF in connection
with consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to
First National/Polk;
(vi) First National/Polk shall have received the
Tax Opinion in a form reasonably satisfactory to First National/Polk; and
(vii) CBF shall close simultaneously with the
Effective Time of the Merger the acquisitions by CBF of First National Bank of
Osceola County and Community National Bank of Pasco County.
First National/Polk may waive any condition specified in this Section
6(b) if it executes a writing so stating at or prior to the Closing.
ARTICLE VII
TERMINATION
Section 7.1 Termination.
(a) Termination of Agreement. Any of the Parties may
terminate this Agreement with the prior authorization of its Board of Directors
(whether before or after approval of its or any other Party's shareholders) as
provided below:
(i) The Parties may terminate this Agreement by
mutual written consent at any time prior to the Effective Time of the Merger;
(ii) CBF may terminate this Agreement by giving
written notice to First National/Polk at any time prior to the Effective Time of
the Merger in the event First National/Polk is in breach, and First
National/Polk may terminate this Agreement by giving written notice to CBF at
any time prior to the Effective Time of the Merger in the event CBF or FINB is
in breach, of any representation, warranty, or covenant contained in this
Agreement in any material respect. Each Party shall have the right to cure any
such breach, if such breach is capable of being cured, within 15 days after
receipt of written notice of such breach or within any such longer period
mutually agreed to in writing by the Parties hereto ("Cure Period"); provided,
however, that in no event shall the Cure Period extend beyond December 31, 2000;
(iii) If a material adverse development shall have
occurred affecting the Condition of CBF on a consolidated basis, First
National/Polk may terminate this Agreement by giving written notice to CBF;
(iv) If a material adverse development shall have
occurred affecting the Condition of First National/Polk, CBF may terminate this
Agreement by giving written notice to First National/Polk;
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(v) First National/Polk and CBF each may
terminate this Agreement by giving written notice to the other Party at any time
after (i) the First National/Polk Special Meeting in the event this Agreement or
the Merger fails to receive the requisite First National/Polk shareholder
approval, or (ii) the denial, and any final appeal or rehearing thereof (or if
any denial by such authority is not appealed within the time limit for appeal),
of any approval from a Regulatory Authority necessary to permit the Parties to
consummate the Merger and the transactions contemplated by this Agreement or if
any Consent shall be conditioned or restricted in the manner provided in the
last sentence of Section 5(b)(i); and
(vi) Any Party may terminate this Agreement by
giving written notice to the other Parties at any time after December 31, 2000
if the Effective Time of the Merger has not yet then occurred and such
termination was approved by a two-thirds vote of such Party's full Board of
Directors.
(b) Effect of Termination. If any Party terminates this
Agreement pursuant to Section 7(a) above, all obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach); provided, however, that
the confidentiality provisions contained in Section 5(k) above, and the expense
provisions in 8(k) below, shall survive any such termination.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Miscellaneous.
(a) Survival. None of the representations, warranties,
and covenants of the Parties (other than the provisions in Article II above
concerning issuance of CBF Shares and the provisions in Section 5(r) above
concerning insurance and indemnification) shall survive the Effective Time of
the Merger.
(b) No Third Party Beneficiaries. This Agreement shall
not confer any rights or remedies upon any person other than the Parties and
their respective successors and permitted assigns; provided, however, that (i)
the provisions in Article II above concerning issuance of CBF Shares are
intended for the benefit of First National/Polk shareholders and (ii) the
provisions in Section 5(r) above concerning insurance and indemnification are
intended for the benefit of the individuals specified and their respective legal
representatives.
(c) Entire Agreement. This Agreement (including the
documents referred to herein) constitutes the entire agreement among the Parties
and supersedes any prior understandings, agreements, or representations by or
among the Parties, written or oral, that may have related in any way to the
subject matter hereof.
(d) Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either this
Agreement or any of its rights, interests, or obligations hereunder without the
prior written approval of the other Parties.
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(e) Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(f) Headings. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) Notices. All notices, requests, consents and other
communications required or permitted under this Agreement shall be in writing
(including telex and telegraphic communication) and shall be (as elected by the
person giving such notice) hand delivered by messenger or courier service,
delivered by facsimile transmission, or mailed (airmail if international) by
registered or certified mail (postage prepaid), return receipt requested,
addressed to:
If to CBF or FINB: James H. White
Chairman of the Board, President and Chief
Executive Officer
Centerstate Banks of Florida, Inc.
7722 State Road 544 East
Winter Haven, Florida 33881
Facsimile: (941) 421-6663
If to First National/Polk: George H. Carefoot
President and Chief Executive Officer
First National Bank of Polk County
7722 SR 544 East
Winter Haven, Florida 33881
Facsimile: (407) 421-6663
and, in all cases, with copies to: John P. Greeley, Esquire
Smith, Mackinnon, Greeley, Bowdoin,
Edwards, Brownlee & Marks, P.A.
255 S. Orange Avenue, Suite 800
Orlando, FL 32801
Facsimile: (407) 843-2448
or to such other address as any Party may designate by notice complying with the
terms of this Section. Each such notice shall be deemed delivered (a) on the
date delivered if by hand delivery; (b) on the date of transmission with
confirmed answer back if by telex, facsimile or other telegraphic method; and
(c) on the date upon which the return receipt is signed or delivery is refused
or the notice is designated by the postal authorities as not deliverable, as the
case may be, if mailed.
(h) Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of Florida
without regard to principles of conflict of laws.
(i) Amendments and Waivers. To the extent permitted by
law, the Parties may amend any provision of this Agreement at any time prior to
the Effective Time of the Merger by a subsequent writing signed by each of the
Parties upon the approval of their respective Boards of Directors; provided,
however, that after approval of this Agreement by a Party's shareholders, there
shall be made no amendment in the Conversion Ratio in a manner that adversely
affects the
29
<PAGE> 194
economic value of the Merger to such shareholders without their further
approval. No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by all of the Parties. No waiver by any
Party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the remaining terms and provision
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction. If the final judgment of a
court of competent jurisdiction declares that any term or provision hereof is
invalid or unenforceable, the Parties agree that the court making the
termination of invalidity or unenforceability shall have the power to reduce the
scope, duration, or area of the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provisions with a
term or provisions that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
(k) Expenses. Each Party shall bear its own expenses in
connection with the negotiation and execution of this Agreement and the
implementation and effectiveness of the Merger. Notwithstanding the foregoing,
if any legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any provision of this Agreement, the
successful or prevailing Party or Parties shall be entitled to recover
reasonable attorneys' fees, sales and use taxes, court costs and all expenses
even if not taxable as court costs (including, without limitation, all such
fees, taxes, costs and expenses incident to arbitration, appellate, bankruptcy
and post-judgment proceedings), incurred in that action or proceeding, in
addition to any other relief to which such Party or Parties may be entitled.
Attorneys' fees shall include, without limitation, paralegal fees, investigative
fees, administrative costs, sales and use taxes and all other charges billed by
the attorney to the prevailing Party.
(l) Construction. The language used in this Agreement
shall be deemed to be the language chosen by the Parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
Party. Any reference to any federal, state, local or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context otherwise requires.
(m) Incorporation of Exhibits and Schedules. The Exhibits
and Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
(n) Jurisdiction and Venue. The Parties acknowledge that
a substantial portion of negotiations and anticipated performance and execution
of this Agreement occurred or shall occur in Polk County, Florida, and that,
therefore, without limiting the jurisdiction or venue of any other federal or
state courts, each of the Parties irrevocably and unconditionally (a) agrees
that any suit, action or legal proceeding arising out of or relating to this
Agreement may be brought in a state or federal court of record in Polk County;
(b) consents to the jurisdiction of each such Court in any suit, action or
proceeding; (c) waives any objection which it may have to the laying of venue of
any such suit, action or proceeding in any of such courts; and (d) agrees that
service of any court paper may be effected on such Party by mail, as provided in
this Agreement, or in such other manner as may be provided under applicable laws
or court rules in said state.
30
<PAGE> 195
(o) Remedies Cumulative. Except as otherwise expressly
provided herein, no remedy herein conferred upon any Party is intended to be
exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise. No single
or partial exercise by any Party of any right, power or remedy hereunder shall
preclude any other or further exercise thereof.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement and
have affixed their respective seals as of the date first above written, each by
its President and Chief Executive Officer and attested to by its Cashier or
Secretary, pursuant to a resolution of its Board of Directors, acting by a
majority.
CENTERSTATE BANKS OF FLORIDA, INC. FIRST NATIONAL BANK OF POLK
COUNTY
/s/ James H. White /s/ George H. Carefoot
- -------------------------------------- -------------------------------------
James H. White, Chairman of the Board George H. Carefoot
President and Chief Executive Officer President and Chief Executive Officer
Attest: Attest:
/s/ George H. Carefoot /s/ Lynn C. Briske
- -------------------------------------- -------------------------------------
George H. Carefoot, Secretary Lynn C. Briske, Cashier
STATE OF FLORIDA
COUNTY OF POLK
The foregoing instrument was acknowledged before me this 10th day of
December, 1999, by James H. White and George H. Carefoot, Chairman of the Board,
President and Chief Executive Officer, and Secretary, respectively, of
Centerstate Banks of Florida, Inc.
/s/ John P. Greeley
----------------------------------
Printed Name: /s/ John P. Greeley
---------------------
Notary Public, State of Florida
Personally Known [X] or Produced Identification [ ]
Type of Identification Produced
------------------------------
31
<PAGE> 196
STATE OF FLORIDA
COUNTY OF POLK
The foregoing instrument was acknowledged before me this 10th day of
December, 1999, by George H. Carefoot and Lynn C. Briske, President and Chief
Executive Officer, and Cashier, respectively, of First National Bank of Polk
County.
/s/ Dorothy Pogue
----------------------------------
Printed Name: Dorothy Pogue
--------------------
Notary Public, State of Florida
Personally Known [X] or Produced Identification [ ]
Type of Identification Produced
--------------------------------
32
<PAGE> 197
JOINDER
First Interim National Bank of Polk County hereby joins in the foregoing
Agreement, undertakes that it be bound thereby and that it will duly perform all
the acts and things therein referred or provided to be done by it.
IN WITNESS WHEREOF, First Interim National Bank of Polk County has caused
this undertaking to be made by its duly authorized officers as of this ____ day
of _____________, ____.
FIRST INTERIM NATIONAL BANK OF
POLK COUNTY
-------------------------------------
George H. Carefoot
President and Chief Executive Officer
Attest:
-------------------------------------
Lynn C. Briske, Cashier
STATE OF FLORIDA
COUNTY OF POLK
The foregoing instrument was acknowledged before me this _____ day of
__________, _____, by George H. Carefoot and Lynn C. Briske, President and Chief
Executive Officer, and Cashier, respectively, of First Interim National Bank of
Polk County.
-------------------------------------
Printed Name:
------------------------
Notary Public, State of Florida
Personally Known [ ] or Produced Identification [ ]
Type of Identification Produced
-------------------------------
33
<PAGE> 198
SCHEDULE 1.4
TO
AGREEMENT TO MERGE
NAMES AND ADDRESSES OF DIRECTORS AND EXECUTIVE OFFICERS
OF SURVIVING BANK
<TABLE>
<CAPTION>
DIRECTORS EXECUTIVE OFFICERS
- --------- ------------------
<S> <C>
George H. Carefoot George H. Carefoot
313 Hamilton Shore Drive 313 Hamilton Shore Drive
Winter Haven, FL 33881 Winter Haven, FL 33881
Bruce A. Davis Lynn C. Briske
P. O. Box 622 702 Pinnacle Drive
Haines City, FL 33845 Haines City, FL 33844
Terry W. Donley Joyce W. Lovelace
2235 Crump Road 13 Pine Forest Circle
Winter Haven, FL 33881 Haines City, FL 33844
Bruce B. Ingram James H. White
7400 State Rd 544 P. O. Box 188
Winter Haven, FL 33881 Haines City, FL 33845-0188
Jack A. Kuder
11000 Placiado Rd.
Placiado, FL 33946
Charlie N. Long, Jr.
270 Lakeview Blvd.
Lake Alfred, FL 33850
Edward D. Mathews
1000 US Hwy 27 N
Haines City, FL 33844
Louis W. McKnight
P. O. Box 708
Davenport, FL 33837
William K. Pou, Jr.
P. O. Box 904
Mulberry, FL 33860
J. Thomas Rocker
2740 Sequoyah Drive
Haines City, FL 33844
Joy C. Sims
415 Dyson Road
Haines City, FL 33844
</TABLE>
<PAGE> 199
Ralph T. Stalnaker, Jr.
15 Canterbury Drive
Haines City, FL 33844
James H. White
P.O. Box 188
Haines City, FL 33845-0188
<PAGE> 200
SCHEDULE 1.6
TO
AGREEMENT TO MERGE
CAPITALIZATION OF SURVIVING BANK
The capital stock, capital surplus and retained earnings of the Surviving
Bank shall be the following amounts adjusted, however, for earnings and expenses
and shares issued between September 30, 1999 and the Effective Time of the
Merger:
<TABLE>
<S> <C>
Common Stock, $5.00 par value; 5,000,000
shares authorized; 475,625 shares issued and
outstanding $ 2,378,125
Capital surplus 2,422,422
Net unrealized gains/losses on securities held
as available-for-sale (46,329)
Retained earnings 1,725,325
-----------
Total Shareholders' Equity $ 6,479,543
===========
</TABLE>
<PAGE> 201
APPENDIX B
Opinion of Allen C. Ewing & Co.
<PAGE> 202
December 22, 1999
The Board of Directors
First National Bank of Polk County
Post Office Box 188
Haines City, Florida 33845
Members of the Board:
First National Bank of Polk County ("First National/Polk"),
Centerstate Banks of Florida, Inc., a registered bank holding company
("Centerstate"), and First Interim National Bank of Polk County, an interim
banking association to be organized as a wholly-owned subsidiary of Centerstate
("Interim Bank"), have entered into a definitive agreement to merge dated as of
December 10, 1999 (the "Agreement"), providing for First National/Polk to merge
with and into Interim Bank (the "Merger"). The Agreement provides, among other
things, that each share of outstanding common stock, par value $5.00 per share,
of First National/Polk ("First National/Polk Common Stock") will be converted
in the Merger into the right to receive 1.62 (the "Conversion Ratio") shares of
common stock, par value $0.01 per share, of Centerstate ("Centerstate Common
Stock"). Each option to purchase First National/Polk Common Stock outstanding
at the Effective Time of the Merger shall be converted into an option to
purchase Centerstate Common Stock in accordance with a formula set forth in the
Agreement.
The Agreement also provides that Centerstate shall close
simultaneously with the Effective Time of the Merger (as defined in the
Agreement) the acquisitions by Centerstate of Community National Bank of Pasco
County ("Community National/Pasco") and First National Bank of Osceola County
("First National/Osceola"). First National/Polk, Community National/Pasco and
First National/Osceola will become wholly-owned subsidiaries of Centerstate.
Reference should be made to the Agreement for a more complete description of
the terms and conditions of the Merger.
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, of the Conversion Ratio to the
shareholders of First National/Polk.
Allen C. Ewing & Co. is a registered broker-dealer under the
Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. As part of its investment banking business, Allen C.
Ewing & Co. is regularly engaged in the valuation of securities of banking and
thrift companies in connection with mergers and acquisitions, underwritings,
private placements, trading and market making activities, and valuations for
various other purposes.
<PAGE> 203
Allen C. Ewing & Co. was engaged by the Board of Directors of First
National/Polk (the "Board") as financial advisor to First National/Polk for the
limited purposes of (i) assisting in the determination of the Conversion Ratio
contained in the Agreement and (ii) rendering an opinion as to the fairness,
from a financial point of view, of the Conversion Ratio to the shareholders of
First National/Polk. Consistent with the limited scope of our engagement, we
did not make any recommendations to the Board as to alternative strategies to
the Board's business decision to enter into the Merger. Allen C. Ewing & Co.
was also engaged by the Boards of Directors of Community National/Pasco and
First National/Osceola for the same limited purposes described in this
paragraph.
In arriving at the opinion expressed in this letter, we have reviewed,
analyzed, and relied upon information and material bearing upon the Merger and
the financial and operating condition of First National/Polk, Centerstate,
Interim Bank, Community National/Pasco and First National/Osceola, including,
among other things, the following: (i) the Agreement; (ii) Annual Reports to
Shareholders and audited financial statements for First National/Polk,
Community National/Pasco and First National/Osceola for the three years ended
December 31, 1998; (iii) certain unaudited interim financial information for
First National/Polk, Community National/Pasco and First National/Osceola for
various periods during 1999; (iv) other financial information concerning the
business and operations of First National/Polk, Community National/Pasco and
First National/Osceola furnished to us by senior management from each
respective institution for purposes of our analysis, including certain internal
forecasts for each; and (v) certain adjustments for nonrecurring income and
expenses for various periods for First National/Polk, Community National/Pasco
and First National/Osceola. We have also held discussions with the management
of First National/Polk, Community National/Pasco and First National/Osceola
concerning their respective operations, financial condition, and prospects, as
well as the results of regulatory examinations.
We have considered financial, economic, regulatory, and other factors
as we have deemed relevant and appropriate under the circumstances, including
among others the following: (i) certain publicly available information
concerning the financial terms of certain mergers and acquisitions of other
financial institutions in Florida and the financial position and operating
performance of the institutions acquired in those transactions; and (ii)
certain publicly available information concerning the trading of, and the
trading market for, the publicly-traded common stocks of certain other
financial institutions. We have taken into account our assessment of general
economic, market, and financial conditions, our experience in other
transactions, our experience in securities valuation and our knowledge of the
banking industry.
In conducting our review and arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of all of the financial and
other information provided to us or publicly available, including that referred
to above, and we have not attempted independently to verify such information.
We have relied upon the management of First National/Polk, Community
National/Pasco and First National/Osceola, respectively, as to the
reasonableness and achievability (and the assumptions and bases therein) of the
financial and operational forecasts and projections, as well as the adjustments
for nonrecurring income and expenses, provided to us by the respective
companies. We have assumed that such forecasts, projections, and adjustments
reflect the best currently available estimates and judgments of management and
that such forecasts and projections will be realized in the amounts and in the
time periods currently estimated by management. We have also assumed, without
independent verification, that the allowances for loan and other losses of
First National/Polk, Centerstate, Interim Bank, Community National/Pasco and
First National/Osceola are adequate to cover any such losses. We have not made
or obtained any inspections, evaluations, or appraisals of any of the assets or
liabilities of First National/Polk, Centerstate, Interim Bank, Community
National/Pasco and First National/Osceola, nor have we examined any individual
loan, property, or securities files. We have also assumed that First
National/Polk, Centerstate, Interim Bank, Community National/Pasco and First
National/Osceola have taken the necessary steps to address Year 2000 issues.
Ewing
<PAGE> 204
makes no representations with respect to Year 2000 readiness for First
National/Polk, Centerstate, Interim Bank, Community National/Pasco or First
National/Osceola.
In the ordinary course of its business as a broker-dealer, Allen C.
Ewing & Co. may, from time to time, purchase securities from, and sell
securities to, banking and thrift companies and as a market maker in securities
may from time to time have a long or short position in, and buy or sell, debt
or equity securities of banking and thrift companies for its own account and
for the accounts of its customers. As of the date of this letter, Allen C.
Ewing & Co. has no such positions in First National/Polk, Centerstate, Interim
Bank, Community National/Pasco or First National/Osceola.
Based upon and subject to the foregoing, we are of the opinion that
the Conversion Ratio is fair, from a financial point of view, to the
shareholders of First National/Polk. This opinion is necessarily based upon our
limited scope and conditions as they exist and can be evaluated on the date of
this letter and the information made available to us through such date. This
opinion is also necessarily contingent upon execution of the Agreement and the
provisions therein, including, among other things, the provision requiring
Centerstate to close simultaneously with the Effective Time of the Merger the
acquisitions by Centerstate of Community National/Pasco and First
National/Osceola.
This letter is directed to the Board of Directors of First
National/Polk and does not constitute a recommendation as to how any
shareholder of First National/Polk should vote in connection with the Merger.
Very truly yours,
ALLEN C. EWING & CO.
By: /s/ Brian C. Beach
-----------------------------------
Brian C. Beach
Executive Vice President
<PAGE> 205
APPENDIX C
Excerpts from Section 215a of the National Bank Act
<PAGE> 206
SS.215A. MERGER OF NATIONAL BANKS OR STATE BANKS INTO
NATIONAL BANKS
(A) APPROVAL OF COMPTROLLER, BOARD AND SHAREHOLDERS; MERGER AGREEMENT;
NOTICES; CAPITAL STOCK; LIABILITY OF RECEIVING ASSOCIATION
One or more national banking associations or one or more State banks,
with the approval of the Comptroller, under an agreement not inconsistent with
this subchapter, may merge into a national banking association located within
the same State, under the charter of the receiving association. The merger
agreement shall --
(1) be agreed upon in writing by a majority of the board of
directors of each association or State bank participating in the plan
of merger;
(2) be ratified and confirmed by the affirmative vote of the
shareholders of each such association or State bank owning at least
two-thirds of its capital stock outstanding, or by a greater
proportion of such capital stock in the case of a State bank if the
laws of the State where it is organized so require, at a meeting to be
held on the call of the directors, after publishing notice of the
time, place, and object of the meeting for four consecutive weeks in a
newspaper of general circulation published in the place where the
association or State bank is located, or, if there is no such
newspaper, then in the newspaper of general circulation published
nearest thereto, and after sending such notice to each shareholder of
record by certified or registered mail at least ten days prior to the
meeting, except to those shareholders who specifically waive notice,
but any additional notice shall be given to the shareholders of such
State bank which may be required by the laws of the State where it is
organized. Publication of notice may be waived, in cases where the
Comptroller determines that an emergency exists justifying such
waiver, by unanimous action of the shareholders of the association or
State banks;
(3) specify the amount of the capital stock of the receiving
association, which shall not be less than that required under existing
law for the organization of a national bank in the place in which it
is located and which will be outstanding upon completion of the
merger, the amount of stock (if any) to be allocated, and cash (if
any) to be paid, to the shareholders of the association or State bank
being merged into the receiving association; and
(4) provide that the receiving association shall be liable for
all liabilities of the association or State bank being merged into the
receiving association.
(B) DISSENTING SHAREHOLDERS
If a merger shall be voted for at the called meetings by the necessary
majorities of the shareholders of each association or State bank participating
in the plan of merger, and thereafter the merger shall be approved by the
Comptroller, any shareholder of any association or State bank to be merged into
the receiving association who has voted against such merger at the meeting of
the association or bank of which he is a stockholder; or has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of merger, shall be entitled to receive the value of the shares
so held by him when such merger shall be approved by the Comptroller upon
written request made to the receiving association at any time before thirty
days after the date of consummation of the merger, accompanied by the surrender
of his stock certificates.
C-1
<PAGE> 207
(C) VALUATION OF SHARES
The value of the shares of any dissenting shareholder shall be
ascertained, as of the effective date of the merger, by an appraisal made by a
committee of three persons, composed of (1) one selected by the vote of the
holders of the majority of the stock, the owners of which are entitled to
payment in cash; (2) one selected by the directors of the receiving
association; and (3) one selected by the two so selected. The valuation agreed
upon by any two of the three appraisers shall govern. If the value so fixed
shall not be satisfactory to any dissenting shareholder who has requested
payment, that shareholder may, within five days after being notified of the
appraised value of his shares, appeal to the Comptroller, who shall cause a
reappraisal to be made which shall be final and binding as to the value of the
shares of the appellant.
(D) APPLICATION TO SHAREHOLDERS OF MERGING ASSOCIATIONS: APPRAISAL BY
COMPTROLLER; EXPENSES OF RECEIVING ASSOCIATION; SALE AND RESALE OF
SHARES; STATE APPRAISAL AND MERGER LAW
If, within ninety days from the date of consummation of the merger,
for any reason one or more of the appraisers is not selected as herein
provided, or the appraisers fail to determine the value of such shares, the
Comptroller shall upon written request of any interested party cause an
appraisal to be made which shall be final and binding on all parties. The
expenses of the Comptroller in making the reappraisal or the appraisal, as the
case may be, shall be paid by the receiving association. The value of the
shares ascertained shall be promptly paid to the dissenting shareholders by the
receiving association. The shares of stock of the receiving association which
would have been delivered to such dissenting shareholders had they not
requested payment shall be sold by the receiving association at an advertised
public auction, and the receiving association shall have the right to purchase
any of such shares at such public auction, if it is the highest bidder
therefor, for the purpose of reselling such shares within thirty days
thereafter to such person or persons and at such price not less than par as its
board of directors by resolution may determine. If the shares are sold at
public auction at a price greater than the amount paid to the dissenting
shareholders, the excess in such sale price shall be paid to such dissenting
shareholders. The appraisal of such shares of stock in any State bank shall be
determined in the manner prescribed by the law of the State in such cases,
rather than as provided in this section, if such provision is made in the State
law; and no such merger shall be in contravention of the law of the State under
which such bank is incorporated. The provisions of this subsection shall apply
only to shareholders of (and stock owned by them in) a bank or association
being merged into the receiving association.
C-2
<PAGE> 208
APPENDIX D
Information on Community National Bank of Pasco County
<PAGE> 209
BUSINESS OF COMMUNITY NATIONAL BANK
GENERAL
Community National Bank was organized as a national banking
association on November 3, 1989. Community National Bank provides a range of
consumer and commercial banking services to individuals, businesses and
industries. The basic services offered by Community National Bank include:
demand interest bearing and noninterest bearing accounts, money market deposit
accounts, NOW accounts, time deposits, safe deposit services, credit cards,
cash management, direct deposits, notary services, money orders, night
depository, travelers' checks, cashier's checks, domestic collections, savings
bonds, bank drafts, drive-in tellers, and banking by mail. In addition,
Community National Bank makes secured and unsecured commercial and real estate
loans and issues stand-by letters of credit. Community National Bank provides
automated teller machine ("ATM") cards, as a part of the HONOR ATM network,
thereby permitting customers to utilize the convenience of larger ATM networks.
Community National Bank does not have trust powers and, accordingly, no trust
services are provided.
The revenues of Community National Bank are primarily derived from
interest on, and fees received in connection with, real estate and other loans,
and from interest and dividends from investment and mortgage-backed securities,
and short-term investments. The principal sources of funds for Community
National Bank's lending activities are its deposits, repayment of loans, and
the sale and maturity of investment securities. The principal expenses of
Community National Bank are the interest paid on deposits, and operating and
general administrative expenses.
As is the case with banking institutions generally, Community National
Bank's operations are materially and significantly influenced by general
economic conditions and by related monetary and fiscal policies of financial
institution regulatory agencies, including the Federal Reserve and the OCC.
Deposit flows and costs of funds are influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
affected by the demand for financing of real estate and other types of loans,
which in turn is affected by the interest rates at which such financing may be
offered and other factors affecting local demand and availability of funds.
Community National Bank faces strong competition in the attraction of deposits
(its primary source of lendable funds) and in the origination of loans. See
"Competition."
LENDING ACTIVITIES
Community National Bank offers a range of lending services, including
real estate, consumer and commercial loans, to individuals and small businesses
and other organizations that are located in or conduct a substantial portion of
their business in the Bank's market area. Community National Bank's total loans
at December 31, 1999 and 1998 were $62.8 million, or 66% of total assets, and
$56.7 million, or 61% of total assets, respectively. The interest rates charged
on loans vary with the degree of risk, maturity, and amount of the loan, and
are further
<PAGE> 210
subject to competitive pressures, money market rates, availability of funds,
and government regulations. Community National Bank has no foreign loans or
loans for highly leveraged transactions.
Community National Bank's loans are concentrated in three major areas:
real estate loans, commercial loans, and consumer loans. At December 31, 1999,
82.1%, 13.7% and 4.2% and at December 31, 1998, 83.5%, 13.5%, and 3.0% of
Community National Bank's loan portfolio consisted of real estate, commercial
and consumer loans, respectively. In excess of 94% and 95% of Community
National Bank's loans at December 31, 1999 and 1998, respectively, were made on
a secured basis. As of December 31, 1999 and 1998, 82.1% and 83.5%,
respectively of the loan portfolio consisted of loans secured by mortgages on
real estate.
Community National Bank's commercial loans include loans to
individuals and small-to-medium sized businesses located primarily in Pasco,
Sumter and Lake Counties for working capital, equipment purchases, and various
other business purposes. A majority of Community National Bank's commercial
loans are secured by equipment or similar assets, but these loans may also be
made on an unsecured basis. Commercial loans may be made at variable- or
fixed-interest rates. Commercial lines of credit are typically granted on a
one-year basis, with loan covenants and monetary thresholds. Other commercial
loans with terms or amortization schedules of longer than one year will
normally carry interest rates which vary with the prime lending rate and will
become payable in full and are generally refinanced in three to five years.
Community National Bank's real estate loans are secured by mortgages
and consist primarily of loans to individuals and businesses for the purchase,
improvement of or investment in real estate and for the construction of
single-family residential units or the development of single-family residential
building lots. These real estate loans may be made at fixed- or
variable-interest rates. Community National Bank generally does not make
fixed-interest rate commercial real estate loans for terms exceeding five
years. Loans in excess of five years generally have adjustable interest rates.
Community National Bank's residential real estate loans generally are repayable
in monthly installments based on up to a 30-year amortization schedule with
variable-interest rates.
Community National Bank's consumer loan portfolio consists primarily
of loans to individuals for various consumer purposes, but includes some
business purpose loans which are payable on an installment basis. The majority
of these loans are for terms of less than five years and are secured by liens
on various personal assets of the borrowers, but consumer loans may also be
made on an unsecured basis. Consumer loans are made at fixed- and
variable-interest rates, and are often based on up to a five-year amortization
schedule.
For additional information regarding Community National Bank's loan
portfolio, see "Community National Bank's Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Financial Condition."
2
<PAGE> 211
DEPOSIT ACTIVITIES
Deposits are the major source of Community National Bank's funds for
lending and other investment activities. Community National Bank considers the
majority of its regular savings, demand, NOW and money market deposit accounts
to be core deposits. These accounts comprised 42.5% and 37.7% of Community
National Bank's total deposits at December 31, 1999 and 1998, respectively.
Approximately 57.5% and 62.3% of Community National Bank's deposits at December
31, 1999 and 1998 were certificates of deposit. Generally, Community National
Bank attempts to maintain the rates paid on its deposits at a competitive
level. Time deposits of $100,000 and over made up 6.8% and 5.7% of Community
National Bank's total deposits at December 31, 1999 and 1998, respectively. The
majority of the deposits of Community National Bank are generated from Pasco,
Sumter and Lake Counties. Community National Bank does not accept brokered
deposits. For additional information regarding Community National Bank's
deposit accounts, see "Community National Bank's Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial
Condition."
EMPLOYEES
At December 31, 1999, Community National Bank employed 48 full-time
employees. The employees are not represented by a collective bargaining unit.
Community National Bank consider relations with its employees to be good.
PROPERTIES
The main office of Community National Bank is located at 6930 Gall
Blvd., Zephyrhills, Florida, in a two-story building of approximately 11,400
square feet, which is owned by Community National Bank. Community National Bank
also has a branch office of approximately 3,361 square feet in a single story
building located at 36239 St. Rd 54W, Zephyrhills, Florida; a branch office of
approximately 4,000 square feet in a single story building located at 114 West
Belt Avenue, Bushnell, Florida; a branch office of approximately 4,000 square
feet in a single story building located at 1017 South Main Street, Wildwood,
Florida; a branch office of approximately 3,361 square feet in a single story
building located at 1105 West Broad Street, Groveland, Florida; and a branch
office located at 1051 East Highway 50, Clermont, Florida, in a single story
building of approximately 4,000 square feet. All of Community National Bank's
branch offices are owned by it.
LITIGATION
In the ordinary course of operations, Community National Bank is a
party to various legal proceedings. Management does not believe there is any
proceeding against Community National Bank which, if determined adversely,
would have a material adverse effect on the financial condition or results of
operations of Community National Bank.
3
<PAGE> 212
MANAGEMENT
Board of Directors. The Board of Directors of Community National Bank
currently consists of 11 directors, each of whom holds office until the next
annual meeting of Community National Bank shareholders. The following table
sets forth certain information with respect to the directors of Community
National Bank.
<TABLE>
<CAPTION>
DIRECTOR OR OFFICER PRINCIPAL OCCUPATION AND BUSINESS
NAME AND AGE OF CNB SINCE EXPERIENCE DURING PAST FIVE YEARS
- --------------- -------------------- ---------------------------------
<S> <C> <C>
James H. Bingham, 51 1988 President of Bingham Realty, Inc.
(commercial real estate company)
G. Robert Blanchard, Sr., 72 1990 President and CEO of WRB Enterprises,
Inc. (diversified holding company)
Pavitar S. Cheema, 50 1988 Urologist for Pavitar S. Cheema, M.D.,
P.A.
Emory R. Guess, 59 1994 Owner of Emory Guess Realty (real
estate business)
Larry S. Hersch, 49 1988 Partner in Hersch & Kelly (law firm)
Michael R. Langley, 40 1997 President of Mike Langley Citrus (citrus
grower)
Carol Madill Lockey, 56 1994 Real Estate Investor
Jean M. Murphy, 67 1992 Owner of Freedom Travel (travel
agency)
Ronald E. Oakley, 54 1988 Vice President and Secretary of Oakley
Groves, Inc. (citrus harvester, hauler
and grower)
James S. Stalnaker, Jr., 45 1988 President and Chief Executive Officer
of Community National Bank
James H. White, 73 1988 Chairman of the Board of Community
National Bank, First National Bank of
Osceola County, and First National
Bank of Polk County
</TABLE>
4
<PAGE> 213
Executive Officers. The following sets forth information regarding the
executive officers of Community National Bank. The officers of Community
National Bank serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS
NAME AND AGE EXPERIENCE DURING PAST FIVE YEARS
- --------------------------- ---------------------------------
<S> <C>
James S. Stalnaker, Jr., 45 President and Chief Executive Officer
Timothy A. Pierson, 40 Executive Vice President
Elizabeth J. Bowen, 51 Sr. Vice President and Cashier
Linda A. Jones, 42 Sr. Vice President
Thomas M. Ward, 42 Sr. Vice President (June 1999 to present); Vice President
of First Union National Bank (1987 to June 1999)
James H. White, 73 Chairman of the Board of Community National Bank, First
National Bank of Osceola County, and First National Bank of
Polk County
</TABLE>
COMPENSATION AND BENEFITS
The table below sets forth certain information with respect to
compensation paid to Mr. Stalnaker (the President and Chief Executive Officer
of Community National Bank) during the years presented. No other executive
officer of Community National Bank received a total salary and bonus in excess
of $100,000 in 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS COMPENSATION COMPENSATION(1)
- ------------------ ---- --------- ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
James S. Stalnaker, 1999 $122,160 $ 0 $ 0 $ 11,108
President and Chief 1998 $117,460 $ 0 $ 0 $ 20,098
Executive Officer 1997 $107,460 $ 0 $ 0 $ 15,722
</TABLE>
- --------------
(1) Represents amounts contributed by Community National Bank to Mr.
Stalnaker's Section 401(k) savings plan accounts and Profit Sharing
Plan.
Non-employee directors of Community National Bank receive directors
fees of $250 for each Board and $100 committee meeting attended.
5
<PAGE> 214
Savings Plan
Community National Bank has a 401(k) savings plan covering
substantially all employees of Community National Bank. Under the provisions of
the plan, employees may contribute up to 15% of their compensation on a pre-tax
basis, subject to limits specified in the Internal Revenue Code. Community
National Bank may make, at the discretion of the Board of Directors, matching
contributions up to 3% of the employee's annual compensation and within various
limitations specified by the Code.
Profit Sharing Plan
Community National Bank has a Profit Sharing Plan covering
substantially all employees of Community National Bank. Under the provisions of
the plan, Community National Bank may make, at the discretion of the Board of
Directors, a cash payout and a deferred contribution to employees and officers,
annually.
Stock Option Plan
Community National Bank has an Officers' and Employees' Stock Option
Plan. Under the plan, options for an aggregate of 5,750 shares of Community
National Bank Common Stock were outstanding as of the date of this Proxy
Statement. The plan provides that options are granted at prices equal to market
value on the date of grant as determined by the Board of Directors, and become
exercisable over four years at the rate of 25% each year. The options remain
exercisable up to 10 years from the date of grant. The exercise prices for the
outstanding options range from $10.00 to $12.81 per share.
MANAGEMENT AND PRINCIPAL STOCK OWNERSHIP
Directors and Officers
The following table sets forth the beneficial ownership of outstanding
shares of Community National Bank Common Stock as of the date of this Proxy
Statement by Community National Bank's current directors, and by current
directors and executive officers as a group. Except as set forth below,
management of Community National Bank is not aware of any individual or group
that owns in excess of 5% of the outstanding shares of Community National Bank.
6
<PAGE> 215
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AMOUNT/NATURE OF PERCENT
(AND ADDRESS OF 5% OWNER) BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------------- ----------------------- --------
<S> <C> <C>
James H. Bingham 21,382(2) 4.39%
G. Robert Blanchard, Sr. 42,500(3) 8.73%
1414 Swan Ave., Suite 201
Tampa, FL 33606
Pavitar S. Cheema 25,725(4) 5.28%
38023 Medical Center Dr.
Zephyrhills, FL 33543
Emory R. Guess 300(5) 0.06%
Larry S. Hersch 11,162(6) 2.29%
Michael R. Langley 200 0.04%
Carol Madill Lockey 23,982(7) 4.93%
Jean M. Murphy 500 0.10%
Ronald E. Oakley 19,977(8) 4.10%
James S. Stalnaker, Jr. 15,200 3.12%
James H. White 32,500(9) 6.68%
P. O. Box 188
Haines City, FL 33845-0188
All directors and executive
officers as a group (15 persons) 201,028 41.26%
</TABLE>
- ---------------------------
(1) Information related to beneficial ownership is based upon the
information available to Community National Bank.
(2) Includes 11,025 held by a trust as to which he exercises voting and
investment power, 200 shares held jointly with his spouse, 100 shares
held by his spouse, 450 shares held by him as custodian for a minor
child, and 5 shares held by a company as to which shares he exercises
voting and investment power.
(3) Includes 39,800 shares held by a company as to which shares he
exercises voting and investment power, and 2,500 shares held by a
trust as to which shares he exercises voting and investment power.
(4) Consists of shares held jointly with spouse.
(5) Consists of shares held by a trust as to which the individual
exercises voting and investment power.
7
<PAGE> 216
(6) Includes 500 shares held by his spouse and 100 shares held as
custodian for minor children.
(7) Consists of 10,982 shares held by trusts as to which she exercises
voting and investment power, 9,000 held by her spouse, and 4,000
shares held by her spouse as custodian for minor children.
(8) Includes 12,300 shares held by a trust as to which he exercises voting
and investment power.
(9) Includes 14,000 shares held by his spouse, 5,800 shares held jointly
with his spouse, and 2,000 held by his individual retirement account.
8
<PAGE> 217
COMMUNITY NATIONAL BANK OF PASCO COUNTY
SELECTED FINANCIAL DATA
The information presented below for the years ended December 31, 1995,
through 1999 is derived in part from Community National Bank's audited
financial statements. This information does not purport to be complete and
should be read in conjunction with Community National Bank's financial
statements appearing elsewhere in this prospectus.
SELECTED FINANCIAL DATA
Years Ended December 31,
<TABLE>
<CAPTION>
----------------------------------------------------------------------
(Dollars in thousands except for per share data) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Total Interest Income $ 6,579 $ 6,274 $ 5,807 $ 5,089 $ 4,577
Total Interest Expense (3,042) (3,098) (2,957) (2,591) (2,359)
---------- ---------- ---------- ---------- ----------
$ 3,537 $ 3,176 $ 2,850 $ 2,499 $ 2,218
Provision for Loan Losses (9) (150) (150) (135) (100)
---------- ---------- ---------- ---------- ----------
Net Interest Income After Provision for
Loan Losses $ 3,528 $ 3,026 $ 2,700 $ 2,364 $ 2,118
Noninterest Income 655 564 523 338 271
Noninterest Expense (3,209) (2,495) (1,914) (1,772) (1,517)
---------- ---------- ---------- ---------- ----------
Income before Income Taxes $ 974 $ 1,095 $ 1,309 $ 930 $ 872
Income Taxes (355) (393) (484) (341) (307)
---------- ---------- ---------- ---------- ----------
Net Income $ 619 $ 702 $ 825 $ 589 $ 565
========== ========== ========== ========== ==========
PER COMMON SHARE DATA:
Basic Earnings Per Share $ 1.31 $ 1.53 $ 1.97 $ 1.46 $ 1.40
Diluted Earnings Per Share $ 1.27 $ 1.45 $ 1.83 $ 1.38 $ 1.36
Book Value Per Share $ 16.44 $ 16.13 $ 14.86 $ 13.17 $ 11.93
Tangible Book Value Per Share $ 16.51 $ 15.74 $ 14.56 $ 13.11 $ 11.79
Dividends $ 0.30 $ 0.25 $ 0.17 $ 0.14 $ 0.12
Actual Shares Outstanding 487,210 461,585 436,648 403,400 402,400
Weighted Average Shares Outstanding 471,830 458,049 418,129 402,973 402,400
Diluted Weighted Average Shares Outstanding 487,230 483,581 451,096 428,243 415,952
BALANCE SHEET DATA:
Assets $ 95,142 $ 92,981 $ 79,965 $ 69,134 $ 60,846
Total Loans, net 61,830 55,784 50,814 45,344 38,777
Total Deposits 85,425 84,647 71,671 63,623 55,779
Short-Term Borrowings 1,556 653 1,488 0 0
Shareholders' Equity 8,008 7,447 6,488 5,313 4,802
Tangible Capital 8,043 7,267 6,358 5,287 4,745
Average Total Assets 94,372 83,776 75,199 65,864 59,114
Average Loans (net) 56,395 51,468 47,783 41,381 38,105
Average Interest Earning Assets 83,899 75,995 68,903 60,442 54,716
Average Deposits 85,413 75,398 68,452 60,740 54,547
Average Interest Bearing Deposits 74,319 65,982 60,407 53,732 48,483
Average Interest Bearing Liabilities 75,569 67,250 61,239 53,792 48,483
Average Shareholders' Equity 7,672 7,000 5,769 4,987 4,488
</TABLE>
9
<PAGE> 218
SELECTED FINANCIAL DATA - continued
Years Ended December 31,
<TABLE>
<CAPTION>
---------------------------------------------------------------------
(Dollars in thousands except for per share data) 1999 1998 1997 1996 1995
- ------------------------------------------------ ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS:
Return on Average Assets 0.66% 0.84% 1.10% 0.89% 0.96%
Return on Average Equity 8.07% 10.03% 14.30% 11.81% 12.59%
Dividend Payout 22.87% 16.31% 8.62% 9.58% 8.55%
Efficiency (1) 76.55% 66.71% 56.74% 62.46% 60.95%
Net Interest Margin (2) 4.22% 4.18% 4.14% 4.13% 4.05%
Net Interest Spread (3) 3.82% 3.65% 3.60% 3.60% 3.50%
CAPITAL RATIOS:
Tier 1 Leverage Ratio 8.41% 8.20% 8.07% 7.82% 7.84%
Risk-Based Capital
Tier 1 12.85% 13.56% 13.73% 13.42% 14.45%
Total 14.10% 14.86% 14.98% 14.68% 15.71%
Average Equity to Average Assets 8.13% 8.36% 7.67% 7.57% 7.59%
ASSET QUALITY RATIOS:
Net Charge-Offs to Average Loans 0.01% 0.07% 0.10% 0.23% 0.18%
Allowance to Period End Loans 1.38% 1.53% 1.46% 1.42% 1.57%
Allowance for Loan Losses to
Nonperforming Loans 397.26% 402.79% 115.44% 112.76% 234.98%
Nonperforming Assets to Total Assets 0.23% 0.23% 0.82% 0.84% 0.43%
OTHER DATA:
Banking Locations 6 6 4 3 2
Full-Time Equivalent Employees 52 45 35 28 27
</TABLE>
(1) Efficiency ratio is non interest expense divided by the sum of net
interest income before the provision for loan loss plus non interest
income.
(2) Net interest margin is net interest income divided by total average
earning assets.
(3) Net interest spread is the difference between the average yield on
average earning assets and the average yield on average interest
bearing liabilities.
10
<PAGE> 219
COMMUNITY NATIONAL BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS COVERS IMPORTANT FACTORS
AFFECTING THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF COMMUNITY
NATIONAL BANK FOR THE PERIODS SHOWN. COMMUNITY NATIONAL BANK'S FINANCIAL
STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THIS ANALYSIS.
OVERVIEW
Community National Bank is a national bank chartered November 1989. It
provides traditional deposit and lending products and services to its
commercial and retail customers through six full service branches located
within Pasco County in central Florida. Community National Bank is subject to
the supervision of the Office of the Comptroller of the Currency. At December
31, 1999, the Bank had total assets of $95.1 million, total loans of $61.8
million, total deposits of $85.4 million, and total shareholders' equity of
$8.0 million. Net income for the years ended December 31, 1999 and 1998, was
$619,000 and $702,000 respectively.
Community National Bank is located in Pasco County, which is primarily
a retirement and agricultural community. Pasco county is contiguous to
Hillsborough County in which Tampa is located. Community National Bank's
locations are situated along Interstate 75 and Interstate 4 in small
communities.
At December 31, 1999, real estate loans were approximately 73% of
total gross loans outstanding. Of this amount, approximately half were
residential real estate loans and half were commercial real estate loans. Due
to the demographics of the market, the concentration in real estate loans is
expected to continue.
RESULTS OF OPERATIONS
NET INCOME
Year Ended December 31, 1999, Compared to the Year Ended December 31, 1998
Community National Bank's net income for the year ended December 31,
1999, was $619,000 compared to $702,000 for the year ending December 31, 1998.
The net income per share for 1999 and 1998 was $1.31 ($1.27 diluted) and $1.53
($1.45 diluted). The per share income was negatively impacted due to the
issuance of additional shares from the exercise of stock options. Community
National Bank has a qualified stock option plan for its employees, as well as a
non qualified stock option plan for its directors.
Community National Bank's return on average assets ("ROA") and return
on average equity ("ROE") for 1999 was 0.66% and 8.07% as compared to the ROA
and ROE of 0.84% and 10.03% for 1998. The efficiency ratios for 1999 and 1998
approximated 77% and 67% respectively.
There were positive improvements in net interest income of
approximately $361,000 and in non interest income of approximately $91,000
during 1999 as compared to 1998. The current provision for loan losses
decreased by $141,000 and income tax expense decreased by $38,000. These
positive impacts were offset by the negative impacts resulting from a $714,000
increase in non-interest expense in 1999 compared to 1998.
The improvement in net interest margin was primarily due to a
combination of increased interest
11
<PAGE> 220
earning assets and changes in interest bearing liabilities plus an increase in
non interest bearing demand deposits. The increase in non interest expense was
primarily due to an increase in compensation related expenses, occupancy and
other related expenses associated with the opening of two branch locations in
October 1998.
NET INTEREST INCOME/MARGIN
Net interest income consists of interest and fee income generated by
earning assets, less interest expense.
Year Ended December 31, 1999, Compared to Year Ended December 31, 1998
Net interest income increased $361,000 or 11% to $3,537,000 during
1999 compared to $3,176,000 for 1998. The $361,000 increase was a combination
of a $305,000 increase in interest income and a $56,000 decrease in interest
expense.
Average interest earning assets increased $7,904,000 to $83,899,000
during 1999 compared to $75,995,000 for 1998. Comparing these same two periods,
the yield on average interest earning assets decreased from 8.26% to 7.84%. The
increase in volume had a positive effect on the change in interest income
($639,000 volume variance), which was partially offset by the negative impact
resulting from the 0.42% decrease in average yields ($334,000 rate variance).
The result was a $305,000 increase in interest income.
Average interest bearing liabilities increased $8,319,000 to
$75,569,000 during 1999 compared to $67,250,000 for 1998. Comparing these same
two periods, the cost of average interest bearing liabilities decreased from
4.61% to 4.03%. The increase in volume had an increasing effect on interest
expense ($204,000 volume variance). The decrease in yield had a decreasing
effect on interest expense ($260,000 rate variance). The result was a $56,000
decrease in interest expense.
12
<PAGE> 221
AVERAGE BALANCES - YIELDS & RATES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------------
1999 1998
------------------------------------- ----------------------------------
Average Interest Average Average Interest Average
Balance Inc / Exp Rate Balance Inc / Exp Rate
----------- ----------- --------- --------- --------- ---------
ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Federal Funds Sold $ 5,077 $ 252 4.96% $ 5,518 $ 296 5.36%
Securities Available for Sale 22,427 1,224 5.46% 18,451 1,074 5.82%
Securities Held to Maturity 0 0 558 35 6.27%
Loans (2)(1) 56,395 5,103 9.05% 51,468 4,869 9.46%
-------- -------- ----- -------- -------- ----
TOTAL EARNING ASSETS $ 83,899 $ 6,579 7.84% $ 75,995 $ 6,274 8.26%
All Other Assets 10,473 7,781
======== ========
TOTAL ASSETS $ 94,372 $ 83,776
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY:
Deposits:
NOW & Money Markets $ 16,100 $ 278 1.73% $ 11,248 $ 187 1.66%
Savings 7,210 144 2.00% 5,272 105 1.99%
Time Deposits 51,009 2,568 5.03% 49,461 2,747 5.55%
Short Term Borrowings 1,250 52 4.16% 1,269 59 4.65%
-------- -------- ---- -------- -------- ----
TOTAL INTEREST BEARING
LIABILITIES $ 75,569 $ 3,042 4.03% $ 67,250 $ 3,098 4.61%
Demand Deposits 11,094 9,417
Other Liabilities 37 109
Shareholders' Equity 7,672 7,000
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 94,372 $ 83,776
======== ========
NET INTEREST SPREAD(3) 3.81% 3.65%
==== ====
NET INTEREST INCOME $ 3,537 $ 3,176
======== ========
NET INTEREST MARGIN(4) 4.22% 4.18%
====== ====
</TABLE>
(1) Loan balances are net of deferred fees/cost of origination and reserve
for loan loss allowances.
(2) Interest income on average loans includes loan fee recognition of
$205,000 and $185,000 for the years ended December 31, 1999 and 1998.
Generally, interest is not accrued on loans past due by more than 90
days.
(3) Represents the average rate earned on interest earning assets minus
the average rate paid on interest bearing liabilities.
(4) Represents net interest income divided by total earning assets.
13
<PAGE> 222
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Net Change 1998 - 1999
-------------------------------------
Net
Volume(1) Rate(2) Change
-------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Federal Funds sold $(24) $ (21) $ (45)
Securities Available for Sale 231 (81) 150
Securities Held to Maturity (34) 0 (34)
Loans 466 (232) 234
-------------------------------------
TOTAL INTEREST INCOME $639 $(334) $ 305
-------------------------------------
INTEREST EXPENSE
Deposits
NOW & Money Market Accounts 81 10 91
Savings 39 0 39
Time Deposits 86 (265) (179)
Short-Term Borrowings (2) (5) (7)
-------------------------------------
TOTAL INTEREST EXPENSE $204 $(260) $ (56)
-------------------------------------
NET INTEREST INCOME $435 $ (74) $ 361
=====================================
</TABLE>
(1) The volume variance reflects the change in the average balance
outstanding multiplied by the actual average rate during the prior
period.
(2) The rate variance reflects the change in the actual average rate
multiplied by the average balance outstanding during the current
period.
PROVISION FOR LOAN LOSSES
Management's policy is to maintain the allowance for loan losses at a
level sufficient to absorb inherent losses in the loan portfolio. The allowance
is increased by the provision for loan losses, which is a charge to current
period earnings, and net recoveries on prior period loan charge-offs. The
allowance is decreased by net charge-offs. In determining the adequacy of the
reserve for loan losses, management considers the conditions of individual
borrowers, Community National Bank's historical loan loss experience, the
general economic environment and the overall portfolio composition. As these
factors change, the level of loan loss provision changes.
Year Ended December 31, 1999, Compared to Year Ended December 31, 1998.
The provision for loan loss expense was $9,000 for the year ended
December 31, 1999, compared to $150,000 for the year ended December 31, 1998.
At December 31, 1999, the allowance for loan losses totaled $870,000, or 1.38%,
of total loans outstanding compared to $866,000, or 1.53%, of total loans
outstanding at December 31, 1998.
14
<PAGE> 223
Management believes that Community National Bank's allowance for loan
losses was adequate at December 31, 1999. The following sets forth certain
information on Community National Bank's allowance for potential future loan
losses for the periods presented.
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Years Ended
Dec 31
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Balance at Beginning of Year $ 866 $ 755
Loans Charged-Off:
Commercial, Financial & Agricultural 0 (11)
Real Estate, Mortgage (54) (28)
Consumer 0 (4)
---------- ----------
Total Loans Charged-Off $ (54) $ (43)
---------- ----------
Recoveries on Loans Previously
Charged-Off:
Commercial, Financial & Agricultural $ 43 $ 2
Real Estate, Mortgage 5 0
Consumer 1 2
---------- ----------
Total Loan Recoveries $ 49 $ 4
---------- ----------
Net Loans Charged-Off $ (5) $ (39)
---------- ----------
Provision for Loan Losses Charged
to Expense $ 9 $ 150
---------- ----------
Ending Balance $ 870 $ 866
========== ==========
Total Loans Outstanding (net of deferred fees/costs) $ 62,700 $ 56,650
Average Loans Outstanding $ 57,401 $ 52,414
Allowance for Loan Losses to Loans
Outstanding 1.38% 1.53%
Net Charge-offs to Average Loans
Outstanding 0.01% 0.07%
</TABLE>
NON-INTEREST INCOME
Year Ended December 31, 1999, Compared to Year Ended December 31, 1998
Non interest income for 1999 increased by $91,000 or 16%, to $655,000
as compared to $564,000 for 1998. The net increase was comprised of a $168,000
increase in service fees on various deposit accounts, a $103,000 decrease from
gain on sale of other real estate owned, and a $26,000 net increase from other
miscellaneous fees.
NON-INTEREST EXPENSE
Year Ended December 31, 1999, Compared to Year Ended December 31, 1998
Non-interest expense increased $714,000 (29%) to $3,209,000 during
1999 compared to $2,495,000 for 1998. The increase was a result of a $291,000
increase in compensation and related
15
<PAGE> 224
employee expenses. Office occupancy and related equipment expenses increased by
$248,000. All other expenses combined increased by $175,000 as summarized in
the table below -- Non Interest Expenses. These increases are primarily due to
the opening of two new branch offices in October 1998.
NON INTEREST EXPENSES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Year ended
Dec 31
---------------------------------------
1999 1998 Incr/(Decr)
-----------------------------------------
<S> <C> <C> <C>
Salary, wages and employee benefits $ 1,423 $ 1,132 $ 291
Occupancy expense 413 272 141
Depreciation of premises and equipment 322 215 107
Stationary and printing supplies 79 83 (4)
Advertising and public relations 80 48 32
Data processing expense 241 209 32
Legal & professional fees 112 115 (3)
Other operating expenses 539 421 118
--------------------------------------
Total non interest expenses $ 3,209 $ 2,495 $ 714
--------------------------------------
</TABLE>
INCOME TAX PROVISION
The income tax provision for the year ended December 31, 1999, was
$355,000 an effective tax rate of 36.4%, as compared to $393,000 for the year
ended December 31, 1998, an effective tax rate of 35.9%.
Net Income
Net income for the years ended December 31, 1999, and 1998 was
$619,000 and $702,000, respectively.
FINANCIAL CONDITION
As of December 31, 1999, Community National Bank had total assets of
$95.1 million, compared to $93.0 million as of December 31, 1998. Net loans
outstanding on December 31, 1999, were $61.8 million, compared to $55.8 million
as of December 31, 1998.
Loans
Lending related income is the most important component of Community
National Bank's net interest income and is the major contributor to
profitability. The loan portfolio is the largest component of earning assets,
and generates the largest portion of revenues. The absolute volume of loans and
the volume of loans as a percentage of earning assets are important
determinants of net interest margin as loans are expected to produce higher
yields than securities and other earning assets. Average loans during the year
ended December 31, 1999, were $56,395,000, or 67.2% of earning assets as
compared to $51,468,000 or 67.7% of earning assets for December 31, 1998. This
represented an average loan to average deposit ratio of 66.0% and 68.3% for
December 31, 1999, and December 31, 1998, respectively.
As of December 31,1999, Community National Bank had total loans, net
of deferred fees/costs, of $62,700,000 as compared to $56,650,000 at December
31, 1998, an increase of $6,050,000 or 10.7%. The
16
<PAGE> 225
growth in loans was mainly due to the general growth in the market and the
calling efforts of the loan officers. As December 31, 1999, commercial,
financial and agricultural loans totaled $8,581,000, or 13.7%, of the loan
portfolio. Real estate construction loans totaled $6,672,000 or 10.6%, of the
loan portfolio. Real estate mortgage loans totaled $44,806,000 or 71.5% of the
loan portfolio. Installment and consumer loans totaled $2,641,000 or 4.2% of
the loan portfolio.
Loan concentrations are considered by management to exist where there
are amounts loaned to multiple borrowers engaged in similar activities which
collectively could be similarly impacted by economic or other conditions and
when the total of such amounts would exceed 25% of total capital. Due to the
lack of diversified industry in the markets served, Community National Bank has
concentrations in geographic locations as well as in types of loans funded.
LOAN PORTFOLIO COMPOSITION
(Dollars are in Thousands)
<TABLE>
<CAPTION>
TYPES OF LOANS December 31,
-------------- -------------------------
1999 1998
---------- ----------
<S> <C> <C>
Commercial, Financial & Agricultural $ 8,581 $ 7,690
Real Estate - Construction 6,672 4,698
Real Estate - Mortgage 44,806 42,598
Installment & Consumer Lines 2,641 1,664
---------- ----------
Total Loans, Net of Deferred fees/costs $ 62,700 $ 56,650
Less: Allowance for Loan Losses (870) (866)
---------- ----------
Net Loans $ 61,830 $ 55,784
========== ==========
</TABLE>
LOAN MATURITY SCHEDULE
(Dollars are in Thousands)
(Based on Contractual Maturities)
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------
0 - 12 1 - 5 Over 5
Months Years Years Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
All Loans other Than Construction $ 35,842 $ 18,477 $ 2,933 $ 57,252
Real Estate - Construction 5,570 0 0 5,570
-------- -------- -------- --------
Total $ 41,412 $ 18,477 $ 2,933 $ 62,822
======== ======== ======== ========
Fixed Interest Rate $ 7,758 $ 17,937 $ 2,933 $ 28,628
Variable Interest Rate 33,654 540 0 34,194
-------- -------- -------- --------
Total $ 41,412 $ 18,477 $ 2,933 $ 62,822
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------
0 - 12 1 - 5 Over 5
Months Years Years Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
All Loans Other Than Construction $ 36,159 $ 14,203 $ 1,704 $ 52,066
Real Estate - Construction 4,698 0 0 4,698
-------- -------- -------- --------
Total $ 40,857 $ 14,203 $ 1,704 $ 56,764
======== ======== ======== ========
Fixed Interest Rate $ 4,929 $ 14,203 $ 1,704 $ 20,836
Variable Interest Rate 35,928 0 0 35,928
-------- -------- -------- --------
Total $ 40,857 $ 14,203 $ 1,704 $ 56,764
======== ======== ======== ========
</TABLE>
17
<PAGE> 226
Credit Quality
Community National Bank maintains an allowance for loan losses to
absorb inherent losses in the loan portfolio. The loans are charged against the
allowance when management believes collection of the principal is unlikely. The
allowance consists of amounts established for specific loans and is also based
on historical loan loss experience. The specific reserve element is the result
of a regular analysis of all loans and commitments based on credit rating
classifications. The historical loan loss element represents a projection of
possible future credit problems and is determined using loan loss experience of
each loan type. Management also weighs general economic conditions based on
knowledge of specific factors that may affect the collectibility of loans.
Community National Bank is committed to the early recognition of possible
problems and to maintaining a sufficient allowance. At December 31, 1999, the
allowance for loan losses was $870,000 or 1.4% of total loans outstanding, net
of deferred fees/costs, compared to $866,000, or 1.5% at December 31, 1998.
Non-performing assets consist of non-accrual loans, loans past due 90
days or more and still accruing interest, and other real estate owned. Loans
are placed on a non-accrual status when they are past due 90 days and
management believes the borrower's financial condition, after giving
consideration to economic conditions and collection efforts, is such that
collection of interest is doubtful. When a loan is placed on non-accrual
status, interest accruals cease and uncollected interest is reversed and
charged against current income. Subsequent collections reduce the principal
balance of the loan until the loan is returned to accrual status.
Total non-performing assets as of December 31, 1999, increased $4,000
or 2%, to $219,000 compared to $215,000 as of December 31, 1998. Non-performing
loans, plus other real estate owned, as a percentage of total assets at
December 31, 1999, and 1998 were 0.23% and 0.23% respectively. Management
believes that the allowance for loan losses was adequate at December 31, 1999.
Management is continually analyzing its loan portfolio in an effort to
recognize and resolve its problem assets as quickly and efficiently as
possible. As of December 31, 1999, management believes that it has identified
and adequately reserved for such problem assets. However, management recognizes
that many factors can adversely impact various segments of its market. As such,
management continuously focuses its attention on promptly identifying and
managing potential problem loans as they arise. The tables below summarize
Community National Bank's non performing assets and allocation of allowance for
loan losses for the periods provided.
NON PERFORMING ASSETS
(Dollars are in Thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
-----------------------
<S> <C> <C>
Non-Accrual Loans $ 215 $ 180
Past Due Loans 90 Days or More
and Still Accruing Interest 4 0
Other Real Estate Owned 0 35
-------- --------
Total Non-Performing Assets $ 219 $ 215
======== ========
Percent of Total Assets 0.23% 0.23%
======== ========
Allowance for Loan Losses $ 870 $ 866
======== ========
Allowance for Loan Losses to
Nonperforming Loans 397.26% 402.79%
======== ========
</TABLE>
18
<PAGE> 227
<TABLE>
<CAPTION>
Dec 31, 1999 Dec 31, 1998
------------ ------------
<S> <C> <C>
Restructured loans $ 0 $ 0
------ ------
Recorded investment in impaired loans $ 818 $ 596
------ ------
</TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
--------------------------- ----------------------------
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Commercial, Financial & Agricultural $ 230 14% $ 264 14%
Real Estate Construction 84 11% 60 8%
Real Estate - Mortgage 394 71% 385 75%
Consumer 162 4% 157 3%
Unallocated 0 0% 0 0%
-------- -------- -------- --------
Total $ 870 100% $ 866 100%
======== ======== ======== ========
</TABLE>
Deposits and Funds Purchased
Total deposits as of December 31, 1999, were $85,425,000 compared to
$84,647,000 on December 31, 1998, an increase of $778,000 or 0.9%. The Bank
does not rely on purchased or brokered deposits as a source of funds. Instead,
the generation of deposits within its market area serves as the Bank's
fundamental tool in providing a source of funds to be invested, primarily in
loans. The tables below summarize selected deposit information for the periods
indicated.
SELECTED STATISTICAL INFORMATION FOR DEPOSITS
(dollars in thousand)
<TABLE>
<CAPTION>
December 31, December 31,
--------------------------------------------------------
1999 1998
--------------------------------------------------------
Average Average
Balance Rate Balance Rate
--------- ---- --------- ----
<S> <C> <C> <C> <C>
Noninterest-bearing
Demand deposits $ 11,094 0.00% $ 9,417 0.00%
Interest-bearing demand
Deposits 16,100 1.73% 11,248 1.66%
Savings deposits 7,210 2.00% 5,272 1.99%
Time deposits 51,008 5.03% 49,461 5.55%
-------- ---- -------- ----
Total Average Deposits $ 85,412 3.50% $ 75,398 4.03%
======== ==== ======== ====
</TABLE>
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Dec 31, 1999 Dec 31, 1998
------------ ------------
<S> <C> <C>
Three Months or Less $ 3,548 $ 3,141
Three Through Six Months 1,991 1,456
Six Through Twelve Months 2,481 2,670
Over Twelve Months 1,876 1,106
========== ==========
Total $ 9,896 $ 8,373
========== ==========
</TABLE>
19
<PAGE> 228
Repurchase Agreements
Community National Bank enters into agreements to repurchase
("repurchase agreements") under which Community National Bank pledges
investment securities owned and under its control as collateral against the
one-day agreements. The daily average balance of these agreements for the years
ended December 31, 1999, and 1998 was approximately $1,250,000 and $1,269,000
respectively. Interest expense for the same periods was approximately $52,000
and $59,000, respectively, resulting in an average rate paid of 4.16% and
4.65%, respectively.
SCHEDULE OF SHORT-TERM BORROWINGS(1)
(dollars in thousands)
<TABLE>
<CAPTION>
Maximum Average Weighted
Outstanding Interest Rate Average
at any Average during the Ending Interest Rate
Month End Balance Year Balance at Year End
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1999 $2,848 $1,250 4.16% $1,556 4.20%
1998 $1,785 $1,269 4.65% $653 4.63%
</TABLE>
- -------------------------
(1) Consists of Securities sold under agreements to repurchase
Securities
Community National Bank accounts for investments at fair value except
for those securities, which Community National Bank has the positive intent and
ability to hold to maturity. Investments to be held for indefinite periods of
time and not intended to be held to maturity are classified as available for
sale and are carried at fair value. Unrealized holding gains and losses are
included as a separate component of stockholders' equity net of the effect of
income taxes. Realized gains and losses on investment securities available for
sale are computed using the specific identification method.
Securities that management has the intent and Community National Bank
has the ability at the time of purchase or origination to hold until maturity
are classified as investment securities held to maturity. Securities in this
category are carried at amortized cost adjusted for accretion of discounts and
amortization of premiums using the level yield method over the estimated life
of the securities. If a security has a decline in fair value below its
amortized cost that is other than temporary, then the security will be written
down to its new cost basis by recording a loss in the statement of operations.
Community National Bank does not engage in trading activities as
defined in Statement of Financial Accounting Standard No. 115.
Community National Bank's available for sale portfolio was $17,626,000
at December 31, 1999, (19% of total assets), and $21,956,000 at December 31,
1998, (24% of total assets). See the tables below for a summary of security
type, maturity and average yield distributions.
Community National Bank did not have any securities in its held to
maturity portfolio at December 31, 1999, or December 31, 1998.
Community National Bank uses its securities portfolio primarily as a
source of liquidity and a base from which to pledge assets for repurchase
agreements and public deposits. When the company's liquidity
20
<PAGE> 229
position exceeds expected loan demand, other investments are considered by
management as a secondary earnings alternative. Typically, management remains
short-term (under 5 years) in its decision to invest in certain securities. As
these investments mature, they will be used to meet cash needs or will be
reinvested to maintain a desired liquidity position. Community National Bank
has designated substantially all of its securities as available for sale to
provide flexibility, in case an immediate need for liquidity arises. The
composition of the portfolio offers management full flexibility in managing its
liquidity position and interest rate sensitivity, with the intent to minimize
the adverse impact on its regulatory capital levels. The available for sale
portfolio is carried at fair market value and had a net unrealized loss of
approximately $145,000 as of December 31, 1999, a net unrealized gain of
approximately $187,000 on December 31, 1998.
Community National Bank invests primarily in direct obligations of the
United States, obligations guaranteed as to the principal and interest by the
United States and obligations of agencies of the United States. In addition,
Community National Bank enters into federal funds transactions with its
principal correspondent banks, and acts as a net seller of such funds. The
Federal Reserve Bank also requires equity investments to be maintained by
Community National Bank. The tables below summarize the maturity distribution
of securities, weighted average yield by range of maturities, and distribution
of securities for the periods provided.
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------------------------------------
Amortized Estimated Amortized Estimated
AVAILABLE-FOR-SALE Cost Market Value Cost Market Value
------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government Agencies
and Corporations and Obligations of
State and Political Subdivisions:
One Year or Less $ 9,579 $ 9,522 $ 7,508 $ 7,576
Over One Through Five Years 8,051 7,963 13,120 13,239
Over Five Through Ten Years 0 0 0 0
Over Ten Years 0 0 1,000 1,000
Federal Reserve Bank Stock 141 141 141 141
-------- -------- -------- --------
Total $ 17,771 $ 17,626 $ 21,769 $ 21,956
======== ======== ======== ========
</TABLE>
WEIGHTED AVERAGE YIELD BY RANGE OF MATURITIES
(Average yields on securities available for sale were calculated
based on amortized cost)
<TABLE>
<CAPTION>
Dec 31, 1999 Dec 31, 1998
-----------------------------------------
<S> <C> <C>
One Year or Less 5.17% 6.10%
Over One Through Five Years 5.61% 5.42%
Over Five Through Ten Years 0.00% 0.00%
Over Ten Years 0.00% 5.62%
</TABLE>
DISTRIBUTION OF INVESTMENT SECURITIES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-----------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-----------------------------------------------------------
<S> <C> <C> <C> <C>
US Treasury Securities $ 11,576 $ 11,491 $ 15,076 $ 15,225
US Government Agencies 6,054 5,994 5,552 5,590
State, County, & Municipal 0 0 1,000 1,000
Mortgage-Backed Securities 0 0 0 0
Federal Reserve Bank Stock 141 141 141 141
-------- -------- -------- --------
Total $ 17,771 $ 17,626 $ 21,769 $ 21,956
======== ======== ======== ========
</TABLE>
21
<PAGE> 230
Liquidity and Interest Rate Sensitivity
Market and public confidence is the financial strength of Community
National Bank and financial institutions in general, and will largely determine
the institutions access to appropriate levels of liquidity. This confidence is
significantly dependent on Community National Bank's ability to maintain sound
asset quality and appropriate levels of capital reserves.
Liquidity is defined as the ability of Community National Bank to meet
anticipated customer demands for funds under credit commitments and deposit
withdrawals at a reasonable cost and on a timely basis. Management measures the
company's liquidity position by giving consideration to both on- and
off-balance sheet sources of and demands for funds on a daily and weekly basis.
Sources of liquidity include cash and cash equivalents, net of federal
requirements to maintain reserves against deposit liabilities; investment
securities eligible for pledging to secure borrowings from dealers and
customers pursuant to securities sold under repurchase agreements; loan
repayments; loan sales; deposits and certain interest rate-sensitive deposits;
and borrowings under overnight federal fund lines available from correspondent
banks. In addition to interest rate-sensitive deposits, Community National
Bank's primary demand for liquidity is anticipated fundings under credit
commitments to customers.
Interest rate sensitivity refers to the responsiveness of
interest-earning assets and interest-bearing 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,
including both floating rate instruments and instruments which are approaching
maturity. The measurement of Community National Bank's interest rate
sensitivity, or gap, is one of the principal techniques used in asset and
liability management. Management generally attempts to maintain a balance
between rate-sensitive assets and liabilities as the exposure period is
lengthened to minimize the overall interest rate risks to the company.
The asset mix of the balance sheet is evaluated continually in terms
of several variables: yields, credit quality, appropriate funding sources and
liquidity. Management of the liability mix of the balance sheet focuses on
expanding the various funding sources.
Community National Bank's gap and liquidity positions are reviewed
periodically by management to determine whether or not changes in policies and
procedures are necessary to achieve financial goals. At December 31, 1999,
approximately 54% of total gross loans were adjustable rate and 55% of total
securities either reprice or mature in less than one year. Total deposit
liabilities consisted of approximately $25,115,000 (29%) in NOW, Money Market
Accounts and Savings, $49,095,000 (58%) in time deposits, and $11,214,000 (13%)
in non interest bearing demand accounts. At December 31, 1998, approximately
64% of total gross loans were adjustable rate and 32% of total securities
either reprice or mature in less than one year. Total deposit liabilities
consisted of approximately $20,625,000 (24%) in NOW, Money Market Accounts and
Savings, $52,697,000 (63%) in time deposits, and $11,325,000 (13%) in non
interest bearing demand accounts. A rate sensitivity analysis is presented
below as of December 31, 1999, and December 31, 1998.
Community National Bank has prepared a table that presents the market
risk associated with financial instruments held by the company. In the "Rate
Sensitivity Analysis" table, rate sensitive assets and liabilities are shown by
maturity or repricing periods, separating fixed and variable interest rates.
The
22
<PAGE> 231
estimated fair value of each instrument category is also shown in the table.
While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that, were Community National
Bank have to dispose of such instruments at December 31, 1998, and December 31,
1999, the estimated fair values would necessarily have been achieved at that
date, since market values may differ depending on various circumstances. The
estimated fair values at December 31, 1998, and December 31, 1999, should not
necessarily be considered to apply at subsequent dates.
23
<PAGE> 232
RATE SENSITIVITY ANALYSIS
December 31, 1999
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Est. Fair
0-1 Yr 1-2 Yrs 2-3 Yrs 3-4 Yrs 4 Yrs + TOTAL Value
------- ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans
Fixed Rate Loans $ 7,758 $ 2,987 $6,940 $8,089 $2,933 $28,707 $28,803
Average Interest Rate 8.45% 9.41% 8.93% 8.80% 8.34% 8.75%
Variable Rate Loans 33,638 79 322 139 0 34,178 34,178
Average Interest Rate 8.26% 7.25% 6.88% 6.75% 8.24%
Investment Securities(1)
Fixed Rate Securities 9,550 7,000 1,000 0 0 17,550 17,484
Average Interest Rate 5.17% 5.59% 5.73% 5.37%
Variable Rate Securities 0 0 0 0 0 0
Average Interest Rate
Federal Funds Sold 931 0 0 0 0 931 931
Average Interest Rate 4.96% 4.96%
Other Earning Assets(2) 141 0 0 0 0 141 141
Average Interest Rate 6.00% 6.00%
------- ------- ------ ------ ------ ------- -------
Total Interest-Earning Assets $52,018 $10,066 $8,262 $8,228 $2,933 $81,507 $81,537
7.66% 6.74% 8.46% 8.77% 8.34% 7.76%
======= ======= ====== ====== ====== =======
INTEREST BEARING LIABILITIES
NOW Accounts $10,950 $ 0 $ 0 $ 0 $ 0 $10,950 $10,950
Average Interest Rate 1.06% 1.06%
Money Market Accounts 6,526 0 0 0 0 6,526 6,526
Average Interest Rate 2.71% 2.71%
Savings Accounts 7,640 0 0 0 0 7,640 7,640
Average Interest Rate 1.99% 1.99%
CDs $100,000 & Over 8,020 1,272 302 202 100 9,896 9,908
Average Interest Rate 4.95% 5.71% 6.19% 6.05% 6.00% 5.12%
CDs Under $100,000 28,010 8,052 1,745 1,095 297 39,199 39,071
Average Interest Rate 4.69% 5.16% 5.77% 5.73% 4.68% 4.86%
Securities Sold Under
Repurchase Agreement 1,556 0 0 0 0 1,556 1,556
Average Interest Rate 4.19% 4.19%
------- ------- ------ ------ ------ ------- -------
Total Interest-Bearing
Liabilities $62,702 $ 9,324 $2,047 $1,297 $ 397 $75,767 $75,651
3.54% 5.24% 5.83% 5.78% 5.01% 3.86%
======= ======= ====== ====== ====== =======
</TABLE>
- ----------------------------
(1) Securities available for sale are shown at their amortized cost.
(2) Represents interest earning Federal Reserve Bank Stock.
24
<PAGE> 233
RATE SENSITIVITY ANALYSIS
December 31, 1998
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Est. Fair
0-1 Yr 1-2 Yrs 2-3 Yrs 3-4 Yrs 4 Yrs + TOTAL Value
------- ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans
Fixed Rate Loans $ 4,929 $ 5,042 $3,384 $5,640 $1,407 $20,402 $20,729
Average Interest Rate 9.19% 9.74% 9.56% 9.13% 8.08% 9.29%
Variable Rate Loans 35,807 474 81 0 0 36,362 36,362
Average Interest Rate 8.28% 7.50% 7.25% 8.27%
Investment Securities(1)
Fixed Rate Securities 7,007 10,620 2,001 1,000 1,000 21,628 21,816
Average Interest Rate 6.01% 5.34% 6.07% 5.73% 5.62% 5.66%
Variable Rate Securities 0 0 0 0 0 0
Average Interest Rate
Federal Funds Sold 5,175 0 0 0 0 5,175 5175
Average Interest Rate 5.72% 5.72%
Other Earning Assets(2) 141 0 0 0 0 141 141
Average Interest Rate 6.00% 6.00%
------- ------- ------ ------ ------ ------- -------
Total Interest-Earning Assets $53,059 $16,136 $5,466 $6,640 $2,407 $83,708 $84,223
7.81% 6.78% 8.25% 8.62% 7.06% 7.68%
======= ======= ====== ====== ====== =======
INTEREST BEARING LIABILITIES
NOW Accounts $ 9,032 $ 0 $ 0 $ 0 $ 0 $ 9,032 $ 9,032
Average Interest Rates 1.08% 1.08%
Money Market Accounts 5,182 0 0 0 0 5,182 5,182
Average Interest Rates 2.28% 2.28%
Savings Accounts 6,411 0 0 0 0 6,411 6,411
Average Interest Rates 1.85% 1.85%
CDs $100,000 & Over 7,266 602 103 302 100 8,373 8,477
Average Interest Rates 5.23% 5.61% 6.02% 6.02% 6.09% 5.31%
CDs Under $100,000 22,479 12,056 4,521 1,967 3,301 44,324 45,111
Average Interest Rates 5.11% 5.71% 5.66% 5.82% 5.88% 5.42%
Securities Sold Under
Repurchase Agreement 653 0 0 0 0 653 653
Average Interest Rates 4.63% 4.63%
------- ------- ------ ------ ------ ------- -------
Total Interest-Bearing Liabilities $51,023 $12,658 $4,624 $2,269 $3,401 $73,975 $74,866
3.71% 5.71% 5.67% 5.85% 5.89% 4.34%
======= ======= ====== ====== ====== =======
</TABLE>
- --------------------
(1) Securities for sale are shown at their amortized cost.
(2) Represents interest earning Federal Reserve Bank Stock
25
<PAGE> 234
Primary Sources and Uses of Funds
Year ended December 31, 1999
The primary source of funds during the period included net growth in
deposits ($778,000), increase in borrowings from repurchase agreements
($903,000), decrease in net investments outstanding ($4,331,000), decrease in
cash and federal funds sold ($497,000), exercise of stock options net of tax
benefit ($296,000), and net income ($619,000). The primary uses of funds during
the period included an increase in net loans outstanding ($6,046,000), an
increase in premises and equipment ($767,000), dividends paid ($146,000) and
other miscellaneous net uses ($465,000).
Year ended December 31, 1998
The primary source of funds during the period included net growth in
deposits ($12,976,000), exercise of stock options net of tax benefit
($290,000), net income ($702,000), and other miscellaneous net sources
($251,000). The primary uses of funds during the period included an increase in
investments outstanding ($4,769,000), an increase in net loans outstanding
($4,970,000), an increase in cash and federal funds sold ($1,686,000), an
increase in premises and equipment ($1,844,000), a decrease in borrowings from
repurchase agreements ($835,000), and dividends paid ($115,000).
CAPITAL RESOURCES
Shareholders' equity at December 31, 1999, was $8,008,000, as compared
to $7,447,000 at December 31, 1998.
The Comptroller has established risk-based capital requirements for
national banks. These guidelines are intended to provide an additional measure
of a bank's capital adequacy by assigning weighted levels of risk to asset
categories. Banks are also required to systematically maintain capital against
such "off- balance sheet" activities as loans sold with recourse, loan
commitments, guarantees and standby letters of credit. These guidelines are
intended to strengthen the quality of capital by increasing the emphasis on
common equity and restricting the amount of loan loss reserves and other forms
of equity such as preferred stock that may be included in capital. Community
National Bank's goal is to maintain its current status as a "well-capitalized
institution" as that term is defined by its regulators.
Under the terms of the guidelines, banks must meet minimum capital
adequacy based upon both total assets and risk adjusted assets. All banks are
required to maintain a minimum ratio of total capital to risk-weighted assets
of 8% and a minimum ratio of Tier 1 capital to risk-weighted assets of 4%.
Adherence to these guidelines has not had an adverse impact on Community
National Bank. Selected capital ratios at December 31, 1999, and 1998 were as
follows:
CAPITAL RATIOS
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Actual Well Capitalized
--------------------------------------- Excess
Amount Ratio Amount Ratio Amount
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Total Capital: (to Risk Weighted Assets): $8,827 14.1% $5,007 10.0% $3,820
Tier 1 Capital: (to Risk Weighted Assets): $8,043 12.9% $2,504 6.0% $5,539
Tier 1 Capital: (to Average Assets): $8,043 8.4% $3,827 5.0% $4,216
</TABLE>
26
<PAGE> 235
<TABLE>
<S> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1998:
Total Capital: (to Risk Weighted Assets): $7,966 14.9% $5,360 10.0% $2,606
Tier 1 Capital: (to Risk Weighted Assets): $7,267 13.6% $3,216 6.0% $4,051
Tier 1 Capital: (to Average Assets): $7,267 8.2% $4,431 5.0% $2,836
</TABLE>
EFFECTS OF INFLATION AND CHANGING PRICES
The accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of
money over time due to inflation. Unlike most industrial companies, virtually
all of the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates generally have a more significant impact on
the performance of a financial institution than the effects of general levels
of inflation. Although interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services, increases
in inflation generally have resulted in increased interest rates. In addition,
inflation affects financial institutions' increased cost of goods and services
purchased, the cost of salaries and benefits, occupancy expense, and similar
items. Inflation and related increases in interest rates generally decrease the
market value of investments and loans held and may adversely affect liquidity,
earnings, and shareholders' equity. Commercial and other loan originations and
refinancings tend to slow as interest rates increase, and can reduce Community
National Bank's earnings from such activities.
ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, the Bank adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 provides new accounting and reporting
standards for reporting and displaying comprehensive income and its components
in a full set of general-purpose financial statements. The adoption of this
standard did not have a material impact on reported results of operations of
Community National Bank.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes accounting and
reporting standards for derivative instruments (including certain derivative
instruments imbedded in other contracts). The statement is effective for fiscal
years beginning after June 15, 1999. The financial impact of the adoption of
this statement has not been determined. However, the effect of the adoption of
the statement is not expected to be material. In June 1999, the FASB issued
SFAS No. 137, which delays implementation of SFAS No. 133 for one year.
Quarterly Financial Information
The following table sets forth, for the periods indicated, certain
consolidated quarterly financial information for Community National Bank. This
information is derived from Community National Bank's unaudited financial
statements, which include, in the opinion of management, all normal recurring
adjustments which management considers necessary for a fair presentation of the
results for such periods. This information should be read in conjunction with
Community National Bank's Financial Statements included elsewhere in this
Prospectus. The results for any quarter are not necessarily indicative of
results for future periods.
27
<PAGE> 236
SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
1999 1998
(Dollars in Thousands except --------------------------------------- ----------------------------------
for per share data) 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
- --------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 927 $ 867 $ 859 $ 884 $ 839 $ 767 $ 780 $ 790
Provision for Loan Losses 0 6 (18) 21 0 30 60 60
----- ----- ----- ----- ----- ----- ----- -----
Net Interest Income
after provision for loan losses $ 927 $ 861 $ 877 $ 863 $ 839 $ 737 $ 720 $ 730
Other Income (excluding
security transactions) $ 181 $ 169 $ 158 $ 149 $ 233 $ 123 $ 104 $ 104
Securities gains (losses), net $ (2) $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other expenses $ 825 $ 791 $ 815 $ 778 $ 706 $ 599 $ 607 $ 583
----- ----- ----- ----- ----- ----- ----- -----
Income before income
tax expense $ 281 $ 239 $ 220 $ 234 $ 366 $ 261 $ 217 $ 251
Income tax expense $ 94 $ 90 $ 83 $ 88 $ 118 $ 98 $ 82 $ 95
----- ----- ----- ----- ----- ----- ----- -----
Net Income $ 187 $ 149 $ 137 $ 146 $ 248 $ 163 $ 135 $ 156
===== ===== ===== ===== ===== ===== ===== =====
Basic earnings per common share $0.38 $0.32 $0.30 $0.32 $0.54 $0.36 $0.30 $0.36
Diluted earnings per common share $0.38 $0.31 $0.28 $0.30 $0.51 $0.34 $0.28 $0.33
</TABLE>
28
<PAGE> 237
APPENDIX E
Information on First National Bank of Osceola County
<PAGE> 238
BUSINESS OF FIRST NATIONAL/OSCEOLA
GENERAL
First National/Osceola was organized as a national banking association
on September 13, 1989. First National/Osceola provides a range of consumer and
commercial banking services to individuals, businesses and industries. The
basic services offered by First National/Osceola include: demand interest
bearing and noninterest bearing accounts, money market deposit accounts, NOW
accounts, time deposits, safe deposit services, credit cards, cash management,
direct deposits, notary services, money orders, night depository, travelers'
checks, cashier's checks, domestic collections, savings bonds, bank drafts,
drive-in tellers, and banking by mail. In addition, First National/Osceola
originates real estate loans, secured and unsecured commercial loans, and
issues stand-by letters of credit. First National/Osceola provides automated
teller machine ("ATM") cards, as a part of the HONOR ATM network, thereby
permitting customers to utilize the convenience of larger ATM networks. First
National/Osceola does not have trust powers and, accordingly, no trust
services are provided.
The revenues of First National/Osceola are primarily derived from
interest on, and fees received in connection with, real estate and other
loans, and from interest and dividends from investment and mortgage-backed
securities, and short-term investments. The principal sources of funds for
First National/Osceola's lending activities are its deposits, repayment of
loans, and the sale and maturity of investment securities. The principal
expenses of First National/Osceola are the interest paid on deposits, and
operating and general administrative expenses.
As is the case with banking institutions generally, First
National/Osceola's operations are materially and significantly influenced by
general economic conditions and by related monetary and fiscal policies of
financial institution regulatory agencies, including the Federal Reserve and
the OCC. Deposit flows and costs of funds are influenced by interest rates on
competing investments and general market rates of interest. Lending activities
are affected by the demand for financing of real estate and other types of
loans, which in turn is affected by the interest rates at which such financing
may be offered and other factors affecting local demand and availability of
funds. First National/Osceola faces strong competition in the attraction of
deposits (its primary source of lendable funds) and in the origination of
loans. See "Competition."
LENDING ACTIVITIES
First National/Osceola offers a range of lending services, including
real estate, consumer and commercial loans, to individuals and small
businesses and other organizations that are located in or conduct a
substantial portion of their business in the Bank's market area. First
National/Osceola's total loans at December 31, 1999 and 1998 were $71.0
million, or 65.3% of total assets, and $57.4 million, or 52.5% of total
assets, respectively. The interest rates charged on loans vary with the degree
of risk, maturity, and amount of the loan, and are further subject to
competitive pressures, money market rates, availability of funds, and
government regulations. First National/Osceola has no foreign loans or loans
for highly leveraged transactions.
<PAGE> 239
First National/Osceola's loans are concentrated in three major areas:
real estate loans, commercial loans, and consumer loans. At December 31, 1999,
73%, 17% and 10% and at December 31, 1998, 71%, 19%, and 10% of First
National/Osceola's loan portfolio consisted of real estate, commercial and
consumer loans, respectively. In excess of 95% of First National/Osceola's
loans at December 31, 1999 and 1998, respectively, were made on a secured
basis. As of December 31, 1999 and 1998, 73% and 71%, respectively of the loan
portfolio consisted of loans secured by mortgages on real estate.
First National/Osceola's commercial loans include loans to individuals
and small-to- medium sized businesses located primarily in Osceola and Orange
Counties for working capital, equipment purchases, and various other business
purposes. A majority of First National/Osceola's commercial loans are secured
by equipment or similar assets, but these loans may also be made on an
unsecured basis. Commercial loans may be made at variable- or fixed-interest
rates. Commercial lines of credit are typically granted on a one-year basis,
with loan covenants and monetary thresholds. Other commercial loans with terms
or amortization schedules of longer than one year will normally carry interest
rates which vary with the prime lending rate and will become payable in full
and are generally refinanced in five to ten years.
First National/Osceola's real estate loans are secured by mortgages and
consist primarily of loans to individuals and businesses for the purchase,
improvement of or investment in real estate and for the construction of
single-family residential units or the development of single-family
residential building lots. These real estate loans may be made at fixed- or
variable-interest rates. First National/Osceola generally does not make
fixed-interest rate commercial real estate loans for terms exceeding five
years. Loans in excess of five years generally have adjustable interest rates.
First National/Osceola's residential real estate loans generally are repayable
in monthly installments based on up to a 25-year amortization schedule with
variable-interest rates.
First National/Osceola's consumer loan portfolio consists primarily of
loans to individuals for various consumer purposes, but includes some business
purpose loans which are payable on an installment basis. The majority of these
loans are for terms of less than five years and are secured by liens on
various personal assets of the borrowers, but consumer loans may also be made
on an unsecured basis. Consumer loans are made at fixed interest rates, and
are often based on up to a five-year amortization schedule.
For additional information regarding First National/Osceola's loan
portfolio, see "First National/Osceola's Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Financial Condition."
DEPOSIT ACTIVITIES
Deposits are the major source of First National/Osceola's funds for
lending and other investment activities. First National/Osceola considers the
majority of its regular savings, demand, NOW and money market deposit accounts
to be core deposits. These accounts
2
<PAGE> 240
comprised 49% and 43% of First National/Osceola's total deposits at December
31, 1999 and 1998, respectively. Approximately 51% and 57% of First
National/Osceola's deposits at December 31, 1999 and 1998 were certificates of
deposit. Generally, First National/Osceola attempts to maintain the rates paid
on its deposits at a competitive level. Time deposits of $100,000 and over
made up 12% and 12% of First National/Osceola's total deposits at December 31,
1999 and 1998, respectively. The majority of the deposits of First
National/Osceola are generated from Osceola and Orange Counties. First
National/Osceola does not accept brokered deposits. For additional information
regarding First National/Osceola's deposit accounts, see "First
National/Osceola's Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Financial Condition."
EMPLOYEES
At December 31, 1999, First National/Osceola employed 58 full-time and
two part-time employees. The employees are not represented by a collective
bargaining unit. First National/Osceola consider relations with its employees
to be good.
PROPERTIES
The main office of First National/Osceola is located at 920 North
Bermuda Avenue, Kissimmee, Florida, in a two-story building of approximately
12,000 square feet, which is leased by First National/Osceola under a lease
which, with renewal options, expires in 2009. First National/Osceola also has
a branch office of approximately 2,800 square feet in a one-story building
located at 2801 13th Street, St. Cloud, Florida; a branch office of
approximately 3,700 square feet in a one-story building located at 850 Cypress
Parkway, Poinciana, Florida; a branch office of approximately 3,700 square
feet in a one-story building located at 15 Silver Star Road E., Ocoee,
Florida; a branch office located at 12285 South Orange Blossom Trail, Orlando,
Florida, in a one-story building of approximately 3,700 square feet; and a
drive-in facility at 100 Ruby Avenue, Kissimmee, Florida. All of First
National/Osceola's branch offices are owned by it.
LITIGATION
In the ordinary course of operations, First National/Osceola is a party
to various proceedings. Management does not believe there is any proceeding
pending against First National/Osceola which, if determined adversely, would
have a material adverse effect on the financial condition or results of
operations of First National/Osceola.
MANAGEMENT
Board of Directors. The Board of Directors of First National/Osceola
currently consists of 13 directors, each of whom holds office until the next
annual meeting of First National/Osceola
3
<PAGE> 241
shareholders. The following table sets forth certain information with respect
to the directors of First National/Osceola.
<TABLE>
<CAPTION>
DIRECTOR OR OFFICER
OF FIRST NATIONAL/OSCEOLA PRINCIPAL OCCUPATION AND BUSINESS
NAME AND AGE SINCE EXPERIENCE DURING PAST FIVE YEARS
- ------------------- -------------------------- ---------------------------------
<S> <C> <C>
O. Sam Ackley, 50 1989 Chief Executive Officer of Ackley
Group (credit card processing)
James C. Chapman, 49 1998 President of Chapco, Inc. (ranching
and fencing)
A. Gerald Divers, 64 1989 President of The Bank of Tampa
Bryan W. Judge, 72 1989 Self-employed, farming (1994-
present); Chief Executive Officer of
Judge Farms (1965-1994)
Danny L. Lackey, 55 1998 General Manager of Bronson's
Partnership (ranching)
Sara S. Lewis, 61 1998 Owner of Travel Store (travel)
Samuel L. Lupfer, IV, 44 1989 President of Lupfer-Frakes, Inc.
(insurance)
R. Stephen Miles, Jr., 58 1989 Attorney, Overstreet, Miles, Rich &
Cumbie, P.A. (1997-present); Miles
& Cumbie (1975-1997)
Charles H. Parsons, 69 1989 Architect, Parsons Design &
Development, P.A.
E. Hampton Sessions, 54 1989 Chief of Radiology, Osceola
Regional Medical Center (1996-
present); private practice physician
Larry L. Walter, 47 1989 President and Chief Executive
Officer of Hanson Walter &
Associates (engineering)
</TABLE>
4
<PAGE> 242
<TABLE>
<S> <C> <C>
James H. White, 73 1989 Chairman of the Board of First
National/Osceola, Community
National Bank of Pasco County, and
First National Bank of Polk County
Thomas E. White, 45 1989 President and Chief Executive
Officer of First National/Osceola
</TABLE>
Executive Officers. The following sets forth information regarding the
executive officers of First National/Osceola. The officers of First
National/Osceola serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS
NAME AND AGE EXPERIENCE DURING PAST FIVE YEARS
- --------------------- --------------------------------------------
<S> <C>
James W. Burns, 50 Senior Vice President, Branch Administration
Linda J. Davidson, 51 Senior Vice President, Cashier
Thomas E. White, 45 President and Chief Executive Officer
James H. White, 73 Chairman of 3 Central Florida Banks
</TABLE>
COMPENSATION AND BENEFITS
The table below sets forth certain information with respect to
compensation paid to Thomas E. White (the President and Chief Executive
Officer of First National/Osceola) during the years presented. No other
executive officer of First National/Osceola received a total salary and bonus
in excess of $100,000 in 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS COMPENSATION COMPENSATION(1)
- ------------------ ---- --------- ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Thomas E. White, 1999 $122,451 $14,000 - $2,451
President and Chief 1998 $114,000 $14,000 - $4,680
Executive Officer 1997 $112,000 $ 6,990 - $4,480
</TABLE>
- ------------------------
(1) Represents amounts contributed by First National/Osceola to Mr.
White's Section 401(k) savings plan account.
Non-employee directors of First National/Osceola receive directors fees
of $200 for each Board meeting attended and $100 for each Committee meeting
attended.
5
<PAGE> 243
Savings Plan
First National/Osceola has a 401(k) savings plan covering substantially
all employees of First National/Osceola. Under the provisions of the plan,
employees may contribute up to 15% of their compensation on a pre-tax basis,
subject to limits specified in the Internal Revenue Code. First
National/Osceola may make, at the discretion of the Board of Directors,
matching contributions up to 3% of the employee's annual compensation and
within various limitations specified by the Code.
Stock Option Plans
First National/Osceola has a Directors' Stock Option Plan and an
Officers' and Employees' Stock Option Plan. Under the plans, options for an
aggregate of 2,650 shares of First National/Osceola Common Stock were
outstanding as of the date of this Proxy Statement. The plans provide that
options are granted at prices equal to market value on the date of grant as
determined by the Board of Directors, and become exercisable over five years
at the rate of 20% each year. The options remain exercisable up to 10 years
from the date of grant. The exercise prices for the outstanding options range
from $10 to $24 per share.
MANAGEMENT AND PRINCIPAL STOCK OWNERSHIP
Directors and Officers
The following table sets forth the beneficial ownership of outstanding
shares of First National/Osceola Common Stock as of the date of this Proxy
Statement by First National/Osceola's current directors, and by current
directors and executive officers as a group. Except as set forth below,
management of First National/Osceola is not aware of any individual or group
that owns in excess of 5% of the outstanding shares of First National/Osceola.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AMOUNT/NATURE OF PERCENT
(AND ADDRESS OF 5% OWNER) BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------------- ----------------------- --------
<S> <C> <C>
O. Sam Ackley 6,250 1.22%
James C. Chapman 125 0.03%
A. Gerald Divers 600 0.12%
Bryan W. Judge 15,714 (2) 3.07%
Danny L. Lackey 5,852 (3) 1.15%
Sara S. Lewis 125 0.03%
</TABLE>
6
<PAGE> 244
<TABLE>
<S> <C> <C>
Samuel L. Lupfer, IV 9,025 (4) 1.77%
R. Stephen Miles, Jr. 4,500 (5) 0.88%
Charles H. Parsons 6,250 1.22%
E. Hampton Sessions 12,203 (6) 2.39%
Larry L. Walter 11,300 (7) 2.21%
James H. White 35,000 (8) 6.85%
1st National Bank of Polk County
P. O. Box 188
Haines City, FL 33845-0188
Thomas E. White 26,000 (9) 5.09%
1472 Regal Court
Kissimmee, FL 34744
All directors and executive 136,494 26.70%
officers as a group (15 persons)
</TABLE>
- ------------------------
(1) Information related to beneficial ownership is based upon the
information available to First National/Osceola.
(2) Includes 15,514 shares held jointly with his spouse.
(3) Includes 5,000 shares owned by a partnership as to which shares he
exercises voting and investment power.
(4) Includes 8,825 shares held jointly with his spouse.
(5) Includes 2,800 shares held jointly with his spouse, and 1,500 shares
held by his IRA.
(6) Includes 2,353 shares held by a trust as to which shares he exercises
voting and investment power.
(7) Includes 11,100 shares held jointly with his spouse.
(8) Includes 16,000 shares held jointly with his spouse and 11,500 shares
held by his spouse.
(9) Includes 2,500 shares held by a partnership as to which shares he
exercises voting and investment power, and 300 shares held as
custodian for minor children.
7
<PAGE> 245
FIRST NATIONAL BANK OF OSCEOLA COUNTY
SELECTED FINANCIAL DATA
The information presented below for the years ended December 31, 1995
through 1999 is derived in part from First National/Osceola's audited financial
statements. This information does not purport to be complete and should be read
in conjunction with First National/Osceola's financial statements appearing
elsewhere in this prospectus.
SELECTED FINANCIAL DATA
Years Ended December 31,
<TABLE>
<CAPTION>
(Dollars in thousands except for per share data) 1999 1998 1997 1996 1995
- ------------------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Total Interest Income $ 7,530 $ 7,266 $ 6,255 $ 5,241 $ 4,673
Total Interest Expense (3,256) (3,454) (2,818) (2,457) (2,223)
--------- --------- --------- --------- ---------
$ 4,274 $ 3,812 $ 3,437 $ 2,784 $ 2,450
Provision for Loan Losses (186) (38) (212) (299) (126)
--------- --------- --------- --------- ---------
Net Interest Income After Provision for
Loan Losses $ 4,088 $ 3,774 $ 3,225 $ 2,485 $ 2,324
Noninterest Income 897 707 524 337 269
Noninterest Expense (3,913) (3,075) (2,742) (2,151) (1,710)
--------- --------- --------- --------- ---------
Income before Income Taxes $ 1,072 $ 1,406 $ 1,007 $ 671 $ 883
Income Taxes (391) (512) (405) (253) (323)
--------- --------- --------- --------- ---------
Net Income $ 681 $ 894 $ 602 $ 418 $ 560
========= ========= ========= ========= =========
PER COMMON SHARE DATA:
Basic Earnings Per Share $ 1.42 $ 2.00 $ 1.41 $ 0.98 $ 1.32
Diluted Earnings Per Share $ 1.36 $ 1.86 $ 1.32 $ 0.93 $ 1.27
Book Value Per Share $ 16.55 $ 16.53 $ 14.60 $ 13.41 $ 12.65
Tangible Book Value Per Share $ 16.51 $ 16.16 $ 14.55 $ 13.36 $ 12.52
Dividends $ 0.31 $ 0.25 $ 0.17 $ 0.14 $ 0.12
Actual Shares Outstanding 511,175 451,109 435,500 425,500 425,500
Weighted Average Shares Outstanding 481,135 446,737 425,836 425,500 425,500
Diluted Weighted Average Shares Outstanding 500,084 481,677 456,159 448,999 440,016
BALANCE SHEET DATA:
Assets $ 108,734 $ 109,325 $ 86,286 $ 74,193 $ 62,628
Total Loans, net 70,161 56,591 52,313 45,685 34,756
Total Deposits 94,822 97,558 78,508 67,339 52,200
Short-Term Borrowings 5,263 3,978 1,044 1,003 4,809
Shareholders' Equity 8,459 7,457 6,358 5,704 5,381
Tangible Capital 8,441 7,289 6,335 5,686 5,327
Average Total Assets 108,881 101,350 79,954 67,385 58,967
Average Loans (net) 63,737 54,609 48,921 39,243 32,318
Average Interest Earning Assets 99,448 92,600 72,660 61,810 54,934
Average Deposits 96,821 90,556 72,028 58,049 48,959
Average Interest Bearing Deposits 77,425 73,343 59,361 48,148 41,692
Average Interest Bearing Liabilities 81,158 75,659 61,093 51,708 46,421
Average Shareholders' Equity 7,953 6,941 5,984 5,580 5,058
</TABLE>
8
<PAGE> 246
SELECTED FINANCIAL DATA - Continued
Years Ended December 31,
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
(Dollars in thousands except for per share data) 1999 1998 1997 1996 1995
- ------------------------------------------------ -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS:
Return on Average Assets 0.63% 0.88% 0.75% 0.62% 0.95%
Return on Average Equity 8.56% 12.88% 10.06% 7.49% 11.07%
Dividend Payout 21.90% 12.49% 12.03% 14.25% 9.12%
Efficiency(1) 75.67% 68.05% 69.22% 68.92% 62.89%
Net Interest Margin(2) 4.30% 4.12% 4.73% 4.50% 4.46%
Net Interest Spread(3) 3.28% 4.00% 3.73% 3.71% 3.56%
CAPITAL RATIOS:
Tier 1 Leverage Ratio 7.83% 6.68% 7.46% 7.70% 8.61%
Risk-Based Capital
Tier 1 12.18% 12.49% 11.86% 12.17% 14.56%
Total 13.33% 13.74% 13.12% 13.43% 16.81%
Average Equity to Average Assets 7.30% 6.85% 7.48% 8.28% 8.58%
ASSET QUALITY RATIOS:
Net Charge-Offs to Average Loans 0.27% 0.07% 0.10% 0.93% 0.39%
Allowance to Period End Loans 1.12% 1.36% 1.47% 1.37% 1.47%
Allowance for Loan Losses to
Nonperforming Loans 1478% 457% 1859% 1044% 536%
Nonperforming Assets to Total Assets 0.05% 0.16% 0.04% 0.08% 0.15%
OTHER DATA:
Banking Locations 6 4 4 4 2
Full-Time Equivalent Employees 58 44 39 37 23
</TABLE>
(1) Efficiency ratio is non interest expense divided by the sum of net
interest income before the provision for loan loss plus non interest
income.
(2) Net interest margin is net interest income divided by total average
earning assets.
(3) Net interest spread is the difference between the average yield on average
earning assets and the average yield on average interest bearing
liabilities.
9
<PAGE> 247
First National/Osceola
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS COVERS IMPORTANT FACTORS
AFFECTING THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF FIRST
NATIONAL/OSCEOLA FOR THE PERIODS SHOWN. FIRST NATIONAL/OSCEOLA'S FINANCIAL
STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THIS ANALYSIS.
OVERVIEW
The First National Bank of Osceola County is a national bank chartered
September 1989. First National/Osceola provides traditional deposit and lending
products and services to its commercial and retail customers through five full
service branches located within Osceola County in central Florida. First
National/Osceola is subject to the supervision of the Office of the Comptroller
of the Currency. At December 31, 1999, First National/Osceola had total assets
of $108.7 million, total loans of $70.1 million, total deposits of $94.8
million, and total shareholders' equity of $8.5 million. Net income for the
year ended December 31, 1999, was $681,000, as compared with $894,000 for the
year ended December 31, 1998.
First National/Osceola is located in Osceola County, primarily in the
Kissimmee/St. Cloud area, which is contiguous to the southern edge of Orange
County. It is also contiguous with the city of Orlando, Florida. First
National/Osceola has three full service and one remote facility in Osceola
County. The remaining two full service facilities are located within Orange
County.
First National/Osceola's primary lending focus is small business
commercial lending, but also originates residential real estate loans and
consumer loans within Osceola and Orange counties. First National/Osceola does
not rely on purchased or broker deposits as a source of funds. Instead, the
generation of deposits within its market area serves as the fundamental tool in
providing a source of funds to be invested, primarily in loans.
RESULTS OF OPERATIONS
NET INCOME
Year Ended December 31, 1999, Compared to the Year Ended December 31, 1998
First National/Osceola's net income for the year ended December 31,
1999 was $681,000 compared to net income of $894,000 for the year ended
December 31, 1998. The per share net income for the years ended December 31,
1999 and 1998 was $1.42 ($1.36 diluted) and $2.00 ($1.86 diluted). Net income
overall was negatively impacted due to increased operating expenses resulting
primarily from opening a new branch early in 1999. The per share income was
also negatively impacted due to the issuance of additional shares from the
exercise of stock options, primarily in 1999. First National/Osceola has a
qualified stock option plan for its employees, as well as a non-qualified stock
option plan for its directors.
First National/Osceola's return on average assets ("ROA") and return
on average equity ("ROE") for the year ended December 31, 1999 was 0.63% and
8.56%, as compared to the ROA and ROE of 0.88% and 12.88% for the year ended
December 31, 1998. The efficiency ratios for the year ended December 31, 1999
and 1998 were 76% and 68%, respectively.
Net income decreased approximately $213,000 or 24% to $681,000 for the
year ended December
10
<PAGE> 248
31, 1999, compared to $894,000 for the same period during 1998. However, both
net interest income and non-interest income increased by a combined amount of
approximately $652,000, which was offset by an increase of approximately
$838,000 in non interest expenses, primarily due to the opening of a new branch
early in 1999, as well as investing in future growth by adding additional
employees and equipment in other areas of the bank. The provision for loan
losses decreased by $148,000 and income tax expense decreased by approximately
$121,000.
The improvement in net interest margin was primarily due to an
increase in average interest earning assets resulting from a growth in lending
activities. The increase in non-interest income was a result of an increase in
loan related fees as well as deposit related fees, both due to the overall
growth of the loan and deposit portfolios.
NET INTEREST INCOME/MARGIN
Net interest income consists of interest and fee income generated by
earning assets, less interest expense.
Year Ended December 31, 1999, Compared to Year Ended December 31, 1998
Net interest income increased $462,000 or 12% to $4,274,000 during the
year ended December 31, 1999 compared to $3,812,000 for the year ended December
31, 1998. The $462,000 increase was a combination of a $264,000 increase in
interest income and a $198,000 decrease in interest expense.
Average interest earning assets increased $6,848,000 to $99,448,000
during the year ended December 31, 1999, compared to $92,600,000 for the year
ended December 31, 1998. Comparing these same two periods, yield on average
interest earning assets decreased from 7.85% to 7.57%. The increase in volume
had a positive effect on the change in interest income ($797,000 volume
variance), however, this was partially offset by the negative impact resulting
from the 0.28% decrease in average yields ($533,000 rate variance). The result
was a $264,000 increase in interest income.
Average interest bearing liabilities increased $5,499,000 to
$81,158,000 during the year ended December 31, 1999, compared to $75,659,000
for the year ended December 31, 1998. Comparing these same two periods, the
cost of average interest bearing liabilities decreased from 4.57% to 4.01%. The
increase in volume resulted in an increase in interest expense ($121,000 volume
variance), which was partially offset by the 0.56% decrease in average yields
($319,000 rate variance). The result was a $198,000 decrease in interest
expense. Refer to the tables Average Balances -- Yields & Rates, and Analysis Of
Changes In Interest Income And Expenses below.
11
<PAGE> 249
AVERAGE BALANCES - YIELDS & RATES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------
1999 1998
---------------------------------- --------------------------------
Average Interest Average Average Interest Average
Balance Inc / Exp Rate Balance Inc / Exp Rate
--------- --------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal Funds Sold $ 2,995 $ 151 5.04% $ 12,790 $ 637 4.98%
Securities Available for Sale 27,970 1,537 5.50% 23,485 1,379 5.87%
Securities Held to Maturity 4,746 203 4.28% 1,716 90 5.24%
Loans(2)(1) 63,737 5,639 8.85% 54,609 5,160 9.45%
--------- -------- ---- -------- -------- ----
TOTAL EARNING ASSETS $ 99,448 $ 7,530 7.57% $ 92,600 $ 7,266 7.85%
All Other Assets 9,433 8,750
--------- --------
TOTAL ASSETS $ 108,881 $101,350
========= ========
LIABILITIES & SHAREHOLDERS' EQUITY:
Deposits:
NOW & Money Markets $ 16,292 $ 252 1.55% $ 14,164 $ 231 1.63%
Savings 9,706 242 2.49% 6,722 181 2.69%
Time Deposits 51,427 2,602 5.06% 52,457 2,938 5.60%
Short Term Borrowings 3,733 160 4.29% 2,316 104 4.49%
--------- -------- ---- -------- -------- ----
TOTAL INTEREST BEARING
LIABILITIES $ 81,158 $ 3,256 4.01% $ 75,659 $ 3,454 4.57%
Demand Deposits 19,396 17,213
Other Liabilities 374 1,537
Shareholders' Equity 7,953 6,941
--------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 108,881 $101,350
========= ========
NET INTEREST SPREAD(3) 3.56% 3.28%
==== ====
NET INTEREST INCOME $ 4,274 $ 3,812
======= ========
NET INTEREST MARGIN(4) 4.30% 4.12%
==== ====
</TABLE>
(1) Loan balances are net of deferred fees/cost of origination and reserve for
loan losses.
(2) Interest income on average loans includes loan fee recognition of $251,000
and $208,000 for years ended December 31, 1999 and 1998.
(3) Represents the average rate earned on interest earning assets minus the
average rate paid on interest bearing liabilities.
(4) Represents net interest income divided by total earning assets.
12
<PAGE> 250
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Net Change Dec 31, 1998 - 1999
---------------------------------
Net
Volume(1) Rate(2) Change
---------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Federal Funds sold $(488) $ 2 $(486)
Securities Available for Sale 263 (105) 158
Securities Held to Maturity 159 (46) 113
Loans 863 (384) 479
---------------------------------
TOTAL INTEREST INCOME $ 797 $(533) $ 264
---------------------------------
INTEREST EXPENSE
Deposits
NOW & Money Market Accounts $ 35 $ (14) $ 21
Savings 80 (19) 61
Time Deposits (58) (278) (336)
Short-Term Borrowings 64 (8) 56
---------------------------------
TOTAL INTEREST EXPENSE $ 121 $(319) $(198)
---------------------------------
NET INTEREST INCOME $ 676 $(214) $ 462
=================================
</TABLE>
(1) The volume variance reflects the change in the average balance outstanding
multiplied by the actual average rate during the prior period.
(2) The rate variance reflects the change in the actual average rate
multiplied by the average balance outstanding during the current period.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
Management's policy is to maintain the allowance for loan losses at a
level sufficient to absorb inherent losses in the loan portfolio. The allowance
is increased by the provision for loan losses, which is a charge to current
period earnings and decreased by charge-offs net of recoveries on prior period
loan charge-offs. In determining the adequacy of the reserve for loan losses,
management considers those levels maintained by conditions of individual
borrowers, the historical loan loss experience, the general economic
environment and the overall portfolio composition. As these factors change, the
level of loan loss provision changes.
Year Ended December 31, 1999, Compared to Year Ended December 31, 1998
The provision for loan loss expense increased $148,000 or 389% to
$186,000 during the year ended December 31, 1999, as compared to $38,000 for
the year ended December 31, 1998, due to an increase in general lending
activity. At December 31, 1999, the allowance for loan losses totaled $798,000,
or 1.12%, of total loans outstanding, compared to $781,000 or 1.36% of total
loans outstanding at December 31, 1998.
Management believes that First National/Osceola's allowance for loan
losses was adequate at December 31, 1999. The following sets forth certain
information on First National/Osceola's allowance for loan losses for the
periods presented.
13
<PAGE> 251
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
(In Thousands of Dollars)
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Balance at Beginning of Year $ 781 $ 781
Loans Charged-Off:
Commercial, Financial & Agricultural (148) (20)
Real Estate, Mortgage 0 (4)
Consumer (52) (31)
-------- --------
Total Loans Charged-Off $ (200) $ (55)
-------- --------
Recoveries on Loans Previously Charged-Off
Commercial, Financial & Agricultural $ 13 $ 3
Real Estate, Mortgage 4 9
Consumer 14 5
-------- --------
Total Loan Recoveries $ 31 $ 17
-------- --------
Net Loans Charged-Off $ (169) $ (38)
-------- --------
Provision for Loan Losses Charged
to Expense $ 186 $ 38
-------- --------
Ending Balance $ 798 $ 781
======== ========
Total Loans Outstanding (net of deferred fees/costs) $ 70,959 $ 57,372
Average Loans Outstanding $ 63,737 $ 54,609
Allowance for Loan Losses to Loans Outstanding 1.12% 1.36%
Net Charge-offs to Average Loans
Outstanding 0.27% 0.07%
</TABLE>
NON-INTEREST INCOME
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Non-interest income for 1999 increased by $190,000, or 27% to $897,000
as compared to $707,000 for 1998. The net increase was comprised of a $123,000
increase in service fees on various deposit accounts, a $42,000 increase in ATM
related fees, a $6,000 net gain on the sale of securities, and an increase of
approximately $19,000 in other miscellaneous fees.
NON-INTEREST EXPENSE
Year Ended December 31, 1999, Compared to Year Ended December 31, 1998
Non-interest expense increased $838,000 (27%) to $3,913,000 during the
year ended December 31, 1999, compared to $3,075,000 for the year ended
December 31, 1998. The increase was a result of a $291,000 increase in
compensation and related employee benefits, a $188,000 increase in occupancy
and related equipment expenses, with the remaining increases in non-interest
expense (approximately
14
<PAGE> 252
$359,000) summarized in the table below - Non-Interest Expenses. The primary
reasons for the increase in non interest expense was the new branch that began
operating early in 1999, as well as an increase in employees and equipment
required to sustain the overall growth of First National/Osceola.
NON INTEREST EXPENSE
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Years Ended Dec 31
-------------------------------
1999 1998 Incr(Decr)
-------------------------------
<S> <C> <C> <C>
Salary, wages and employee benefits $1,665 $1,374 $291
Occupancy expense 563 423 140
Depreciation of premises and equipment 265 217 48
Stationary and printing supplies 164 100 64
Advertising and public relations 82 75 7
Data processing expense 280 233 47
Legal & professional fees 101 97 4
Other operating expenses 793 556 237
------ ------ ----
Total other operating expenses $3,913 $3,075 $838
====== ====== ====
</TABLE>
INCOME TAXES PROVISION
The income tax provision for the year ended December 31, 1999, was
$391,000, an effective tax rate of 36.5%, as compared to $512,000 for the year
ended December 31, 1998, an effective tax rate of 36.4%.
Net Income
Net income for the years ended December 31, 1999, and 1998 was
$681,000 and $894,000, respectively.
FINANCIAL CONDITION
As of December 31, 1999, First National/Osceola had total assets of
$108.7 million, compared to $109.3 million as of December 31, 1998. Total net
loans and total deposits outstanding as of December 31, 1999, were $70.2
million and $94.8 million, respectively. Total net loans and total deposits
outstanding as of December 31, 1998 were $56.6 million and $97.6 million
respectively.
Loans
Lending-related income is the most important component of the First
National/Osceola's net interest income and is a major contributor to
profitability. The loan portfolio is the largest component of earning assets,
and it therefore generates the largest portion of revenues. The absolute volume
of loans and the volume of loans as a percentage of earning assets is an
important determinant of net interest margin as loans are expected to produce
higher yields than securities and other earning assets. Average loans during
the year ended December 31, 1999, were $63,737,000, or 64% of earning assets,
as compared to $54,609,000, or 59% of earning assets, for December 31, 1998.
This represented an average loan to average deposit ratio of 66% and 60% for
the years ended December 31, 1999 and 1998, respectively.
As of December 31, 1999, First National/Osceola had total loans of
$70,959,000, net of unearned discount, as compared to $57,372,000 at December
31, 1998, an increase of $13,587,000, or 24%. The
15
<PAGE> 253
growth in loans during this period was mainly due to the general growth in the
market and the calling efforts of the loan officers. Commercial, financial and
agricultural loans totaled $12,109,000, or 17% of the loan portfolio. Real
estate construction loans totaled $3,963,000, or 6% of the loan portfolio. Real
estate mortgage loans totaled $47,845,000, or 67% of the loan portfolio.
Installment and consumer loans totaled $7,042,000, or 10% of the loan
portfolio.
Loan concentrations are considered to exist where there are amounts
loaned to multiple borrowers engaged in similar activities, which collectively
should be similarly impacted by economic or other conditions and when the total
of such amounts would exceed 25% of total capital. Due to the lack of
diversified industry and the relative proximity of markets served, the Bank has
concentrations in geographic as well as in types of loans funded. The tables
below provide a summary of the loan portfolio composition and maturities for
the periods provided below.
LOAN PORTFOLIO COMPOSITION
(Dollars are in Thousands)
<TABLE>
<CAPTION>
TYPES OF LOANS December 31,
-----------------------------------------------------------------------------
1999 1998
-------- -------
<S> <C> <C>
Commercial, Financial & Agricultural $12,109 $10,828
Real Estate - Construction 3,963 2,801
Real Estate - Mortgage 47,845 37,818
Installment & Consumer Lines 7,042 5,925
------- -------
Total Loans, Net of Unearned Discount $70,959 $57,372
Less: Allowance for Loan Losses (798) (781)
======= =======
Net Loans $70,161 $56,591
======= =======
</TABLE>
LOAN MATURITY SCHEDULE
(Dollars are in Thousands)
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------
0 - 12 1 - 5 Over 5
Months Years Years Total
------- ------- ------- -------
<S> <C> <C> <C> <C>
All Loans other Than Construction $34,628 $22,022 $10,346 $66,996
Real Estate - Construction 3,963 0 0 3,963
------- ------- ------- -------
Total $38,591 $22,022 $10,346 $70,959
======= ======= ======= =======
Fixed Interest Rate $ 4,467 $22,022 $10,346 $36,835
Variable Interest Rate 34,124 0 0 34,124
------- ------- ------- -------
Total $38,591 $22,022 $10,346 $70,959
======= ======= ======= =======
<CAPTION>
December 31, 1998
----------------------------------------------
0 - 12 1 - 5 Over 5
Months Years Years Total
------- ------- ------- -------
<S> <C> <C> <C> <C>
All Loans other Than Construction $36,789 $17,121 $ 661 $54,571
Real Estate - Construction 2,801 0 0 2,801
------- ------- ------- -------
Total $39,590 $17,121 $ 661 $57,372
======= ======= ======= =======
Fixed Interest Rate $ 5,706 $17,121 $ 661 $23,488
Variable Interest Rate 33,884 0 0 33,884
------ ------- ------- ------
Total $39,590 $17,121 $ 661 $57,372
======= ======= ======= =======
</TABLE>
16
<PAGE> 254
Credit Quality
First National/Osceola maintains an allowance for loan losses to
absorb inherent losses in the loan portfolio. The loans are charged against the
allowance when management believes collection of the principal is unlikely. The
reserve consists of amounts established for specific loans and is also based on
historical loan loss experience. The specific reserve element is the result of
a regular analysis of all loans and commitments based on credit rating
classifications. The historical loan loss element represents a projection of
future credit problems and is determined using loan loss experience of each
loan type. Management also weighs general economic conditions based on
knowledge of specific factors that may affect the collectibility of loans.
First National/Osceola is committed to the early recognition of problems and to
maintaining a sufficient allowance. At December 31, 1999, the allowance for
loan losses was $798,000 or 1.1% of total loans outstanding, net of unearned
income, compared to $781,000 or 1.4%, at December 31, 1998.
Non-performing assets consist of non-accrual loans, loans past due 90
days or more and still accruing interest, and other real estate owned. Loans
are placed on a non-accrual status when they are past due 90 days and
management believes the borrower's financial condition, after giving
consideration to economic conditions and collection efforts, is such that
collection of interest is doubtful. When a loan is placed on non-accrual
status, interest accruals cease and uncollected interest is reversed and
charged against current income. Subsequent collections reduce the principal
balance of the loan until the loan is returned to accrual status.
Total non-performing assets as of December 31, 1999, decreased
$117,000 or 68% to $54,000, compared to $171,000 as of December 31, 1998.
Non-performing loans, plus other real estate owned, as a percentage of total
assets at December 31, 1999 and December 31,1998, was .05% and .16%,
respectively. Management believes that the allowance for loan losses on
December 31, 1999, was adequate.
Management is continually analyzing its loan portfolio in an effort to
recognize and resolve its problem assets as quickly and efficiently as
possible. As of December 31, 1999, management believes that it has identified
and adequately reserved for such problem assets. However, management recognizes
that many factors can adversely impact various segments of its market. As such
management continuously focuses its attention on promptly identifying and
providing for potential problem loans, as they arise. The tables below
summarize First National/Osceola's non performing assets and allocation of
allowance for loan losses for the periods provided.
17
<PAGE> 255
NON-PERFORMING ASSETS
(Dollars are in Thousands)
December 31,
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Non-Accrual Loans $ 0 $ 0
Past Due Loans 90 Days or More
and Still Accruing Interest 54 171
Other Real Estate Owned 0 0
----- -----
Total Non-Performing Assets $ 54 $ 171
===== =====
Percent of Total Assets 0.05% 0.16%
===== =====
Allowance for Loan Losses $ 798 $ 781
===== =====
Allowance for Loan Losses to
Nonperforming Loans 1478% 457%
===== =====
Dec 31, 1999 Dec 31, 1998
------------ ------------
<S> <C> <C>
Restructured loans $ 0 $ 0
------ ------
Recorded investment in impaired loans $ 0 $ 0
------ ------
</TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------- ------------------------
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
------- -------------- ------- -------------
<S> <C> <C> <C> <C>
Commercial, Financial & Agricultural $ 25 17% $ 47 9%
Real Estate Construction 0 6% 9 5%
Real Estate - Mortgage 228 67% 407 66%
Consumer 3 10% 26 10%
Unallocated 542 0% 292 0%
---- --- ---- ---
Total $798 100% $781 100%
==== === ==== ===
</TABLE>
Deposits and Funds Purchased
Total deposits decreased $2,736,000 (2.8%) to $94,822,000 as of
December 31, 1999, compared to $97,558,000 on December 31, 1998. First
National/Osceola does not rely on purchased or brokered deposits as a source of
funds. Instead, the generation of deposits within its market area serves as the
company's fundamental tool in providing a source of funds to be invested
primarily in loans. The table below summarizes selected deposit information for
the periods indicated.
18
<PAGE> 256
SELECTED STATISTICAL INFORMATION FOR DEPOSITS
(Dollars are in Thousands)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------- ----------------------
Average Average
Balance Rate Balance Rate
----------- ------ ----------- --------
<S> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $19,396 0.00% $17,213 0.00%
Interest-bearing demand
deposits 24,480 2.43% 21,104 1.09%
Savings deposits 9,706 2.49% 6,722 2.69%
Time deposits 43,239 5.22% 45,517 6.45%
------- ---- ------- ----
Total Average Deposits $96,821 3.20% $90,556 3.70%
======= ==== ======= ====
</TABLE>
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
(Dollars are in Thousands)
December 31,
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Three Months or Less $ 3,851 $ 4,256
Three Through Six Months 3,046 3,410
Six Through Twelve Months 3,184 2,677
Over Twelve Months 1,278 1,218
------- -------
Total $11,359 $11,561
======= =======
</TABLE>
Repurchase Agreements and Federal Reserve Bank Advances
First National/Osceola enters into agreements to borrow short term
funds via Federal Reserve Bank Advances and also enters into agreements to
repurchase ("repurchase agreements") under which the company pledges investment
securities owned and under its control as collateral against the one-day
agreements. The daily average balance of these short-term borrowing agreements
for the years ended December 31, 1999, and 1998, was approximately $3,705,000
and $2,316,000, respectively. Interest expense for the same periods was
approximately $160,000 and $104,000, respectively, resulting in an average rate
paid of 4.29% and 4.49% for the years ended December 31, 1999, and 1998,
respectively.
SCHEDULE OF SHORT-TERM BORROWINGS (1)
(dollars in thousands)
<TABLE>
<CAPTION>
Maximum Average Weighted
Outstanding Interest Rate Average
at any Average during the Ending Interest Rate
Month End Balance Year Balance at Year End
------------- ------------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1999 4,848 3,705 4.29% 5,263 4.41%
1998 4,729 2,316 4.49% 3,978 4.50%
</TABLE>
- -------------------------
(1) Consists of Securities sold under agreements to repurchase and Federal
Reserve Bank Advances
Securities
First National/Osceola accounts for investments at fair value except
for those securities which the company has the positive intent and ability to
hold to maturity. Investments to be held for indefinite
19
<PAGE> 257
periods of time and not intended to be held to maturity are classified as
available for sale and are carried at fair value. Unrealized holding gains and
losses are included as a separate component of stockholders' equity net of the
effect of income taxes. Realized gains and losses on investment securities
available for sale are computed using the specific identification method.
Securities that management has the intent and the company has the
ability at the time of purchase or origination to hold until maturity are
classified as investment securities held to maturity. Securities in this
category are carried at amortized cost adjusted for accretion of discounts and
amortization of premiums using the level yield method over the estimated life
of the securities. If a security has a decline in fair value below its
amortized cost that is other than temporary, then the security will be written
down to its new cost basis by recording a loss in the statement of operations.
First National/Osceola does not engage in trading activities as
defined in Statement of Financial Accounting Standard Number 115.
First National/Osceola's available for sale portfolio totaled
$22,039,000 at December 31, 1999 and $35,819,000 at December 31, 1998, or 20%
and 33%, respectively, of total assets. The held to maturity portfolio totaled
$3,532,000 at December 31, 1999, and $2,555,000 at December 31, 1998, or 3% and
2%, respectively, of total assets. See the tables below for a summary of
security type, maturity and average yield distributions.
First National/Osceola uses its securities portfolio primarily as a
source of liquidity and a base from which to pledge assets for repurchase
agreements and public deposits. When the company's liquidity position exceeds
expected loan demand, other investments are considered by management as a
secondary earnings alternative. Typically, management remains short-term (under
5 years) in its decision to invest in certain securities. As these investments
mature, they will be used to meet cash needs or will be reinvested to maintain
a desired liquidity position. The company has designated substantially all of
its securities as available for sale to provide flexibility, in case an
immediate need for liquidity arises. The composition of the portfolio offers
management full flexibility in managing its liquidity position and interest
rate sensitivity, without adversely impacting its regulatory capital levels.
The available for sale portfolio is carried at fair market value and had a net
unrealized loss of approximately $171,000 on December 31, 1999, and a net
unrealized gain of approximately $201,000 on December 31, 1998.
First National/Osceola invests primarily in direct obligations of the
United States, obligations guaranteed as to the principal and interest by the
United States and obligations of agencies of the United States. In addition,
the company enters into federal funds transactions with its principal
correspondent banks, and acts as a net seller of such funds. The Federal
Reserve Bank also requires equity investments to be maintained by First
National/Osceola. The tables below summarize the maturity distribution of
securities, weighted average yield by range of maturities, and distribution of
securities for the periods provided.
20
<PAGE> 258
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------- ------------------------
Amortized Estimated Amortized Estimated
AVAILABLE-FOR-SALE Cost Market Value Cost Market Value
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
Agencies and Corporations and Obligations of
State and Political Subdivisions:
One Year or Less $16,284 $16,210 $10,395 $10,440
Over One Through Five Years 5,770 5,673 23,088 23,244
Over Five Through Ten Years 0 0 0 0
Over Ten Years 0 0 2,000 2,000
Federal Reserve Bank Stock 156 156 135 135
------- ------- ------- -------
Total $22,210 $22,039 $35,618 $35,819
======= ======= ======= =======
HELD-TO-MATURITY
U.S. Government Agencies and Treasuries
One Year or Less $ 0 $ 0 $ 501 $ 504
Over One Through Five Years 3,532 3,457 2,054 2,042
------- ------- ------- -------
Total $ 3,532 $ 3,457 $ 2,555 $ 2,546
======= ======= ======= =======
</TABLE>
WEIGHTED AVERAGE YIELD BY RANGE OF MATURITIES
(Average Yields on Securities Available for Sale are
Calculated Based on Amortized Cost)
<TABLE>
<CAPTION>
Dec 31, 1999 Dec 31, 1998
------------ ------------
<S> <C> <C>
One Year or Less 5.27% 5.80%
Over One Through Five Years 5.41% 5.34%
Over Five Through Ten Years 0.00% 0.00%
Over Ten Years 0.00% 5.77%
</TABLE>
DISTRIBUTION OF INVESTMENT SECURITIES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------- ----------------------
Amortized Fair Amortized Fair
AVAILABLE-FOR-SALE Cost Value Cost Value
---------- -------- --------- --------
<S> <C> <C> <C> <C>
US Treasury Securities $13,804 $13,733 $19,621 $19,775
US Government Agencies 8,000 7,910 13,502 13,550
State, County, & Municipal 0 0 2,000 2,000
Mortgage-Backed Securities 250 240 360 359
Federal Reserve Bank Stock 156 156 135 135
------- ------- ------- -------
Total $22,210 $22,039 $35,618 $35,819
======= ======= ======= =======
HELD-TO-MATURITY
US Treasury Securities $ 0 $ 0 $ 2,054 $ 2,042
US Government Agencies 3,532 3,457 501 504
------- ------- ------- -------
Total $ 3,532 $ 3,457 $ 2,555 $ 2,546
======= ======= ======= =======
</TABLE>
Liquidity and Interest Rate Sensitivity
Market and public confidence in the financial strength of First
National/Osceola and financial institutions in general will largely determine
the company's access to appropriate levels of liquidity. This confidence is
significantly dependent on First National/Osceola's ability to maintain sound
asset quality and appropriate levels of capital reserves.
21
<PAGE> 259
Liquidity is defined as the ability to meet anticipated customer
demands for funds under credit commitments and deposit withdrawals at a
reasonable cost and on a timely basis. Management measures the liquidity
position by giving consideration to both on- and off-balance sheet sources of
and demands for funds on a daily and weekly basis.
Sources of liquidity include cash and cash equivalents, net of federal
requirements to maintain reserves against deposit liabilities; investment
securities eligible for pledging to secure borrowings from dealers and
customers pursuant to securities sold under repurchase agreements; loan
repayments; loan sales; deposits and certain interest rate-sensitive deposits;
and borrowings under overnight federal fund lines available from correspondent
banks. In addition to interest rate-sensitive deposits, the primary demand for
liquidity is anticipated fundings under credit commitments to customers.
Interest rate sensitivity refers to the responsiveness of
interest-earning assets and interest-bearing 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,
including both floating rate instruments and instruments which are approaching
maturity. The measurement of First National/Osceola's interest rate
sensitivity, or gap, is one of the principal techniques used in asset and
liability management. Management generally attempts to maintain a balance
between rate-sensitive assets and liabilities as the exposure period is
lengthened to minimize the overall interest rate risks to First
National/Osceola.
The asset mix of the balance sheet is evaluated continually in terms
of several variables: yield, credit quality, appropriates funding sources and
liquidity. Management of the liability mix of the balance sheet focuses on
expanding the various funding sources.
First National/Osceola's gap and liquidity positions are reviewed
periodically by management to determine whether or not changes in policies and
procedures are necessary to achieve financial goals. At December 31, 1999,
approximately 48% of total gross loans were adjustable rate and 74% of total
securities either reprice or mature in less than one year. Liabilities
consisted of approximately $26,737,000 (28%) in NOW, Money Market Accounts and
Savings, $48,070,000 (51%) in time deposits and $20,015,000 (21%) in
non-interest bearing demand accounts. At December 31, 1998, approximately 59%
of total gross loans were adjustable rate and 23% of total securities either
reprice or mature in less than one year. Liabilities consisted of approximately
$24,122,000 (25%) in NOW, Money Market Accounts and Savings, $54,764,000 (56%)
in time deposits, and $18,671,000 (19%) in non-interest bearing demand
accounts. A rate sensitivity analysis is presented below as of December 31,
1999 and December 31, 1998.
First National/Osceola has prepared a table which presents the market
risk associated with financial instruments held by the company. In the "Rate
Sensitivity Analysis" table, rate sensitive assets and liabilities are shown by
maturity or repricing periods, separating fixed and variable interest rates.
The estimated fair value of each instrument category is also shown in the
table. While these estimates of fair value are based on management's judgment
of the most appropriate factors, there is no assurance that, were First
National/Osceola to have disposed of such instruments at December 31, 1998, and
December 31, 1999, the estimated fair values would necessarily have been
achieved at that date, since market values may differ depending on various
circumstances. The estimated fair values at December 31, 1998, and December 31,
1999, should not necessarily be considered to apply at subsequent dates.
22
<PAGE> 260
RATE SENSITIVITY ANALYSIS
December 31, 1999
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Est. Fair
(Dollars in thousands) 0-1 Yr 1-2 Yrs 2-3 Yrs 3-4 Yrs 4-5 Yrs 5 Ys + TOTAL Value
- ---------------------- ------ ------- ------- ------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans
Fixed Rate Loans $ 4,467 $3,679 $4,182 $6,498 7,663 $10,304 $36,793 $36,697
Average Interest Rate 8.51% 9.22% 8.94% 8.54% 8.45% 8.17% 8.53%
Variable Rate Loans 34,124 0 0 0 0 0 34,124 32,280
Average Interest Rate 8.67% 8.67%
Investment Securities (1)
Fixed Rate Investments 16,285 5,520 250 0 0 0 22,055 21,883
Average Interest Rate 5.27% 5.53% 5.65% 5.34%
Variable Rate Investments 0 0 0 0 0 0 0
Average Interest Rate
Federal Funds Sold 0 0 0 0 0 0 0 0
Average Interest Rate 0.00%
Other Earning Assets (2) 156 0 0 0 0 0 156 156
Average Interest Rate 6.00% 6.00%
------ ------ ------ ------ ------ ------- ------- -------
Total Interest-Earning Assets $55,032 $9,199 $4,432 $6,498 7,663 $10,304 $93,128 $91,016
Average Interest Rate 7.64% 7.01% 8.75% 8.54% 8.45% 8.17% 7.82%
======= ====== ====== ====== ====== ======= ======= -------
INTEREST BEARING LIABILITIES
NOW $ 9,989 $ -- $ -- $ -- $ -- $ -- $ 9,989 $ 9,989
Average Interest Rate 1.03% 1.03%
Money Market 6,788 0 0 0 0 0 6,788 6,788
Average Interest Rate 2.76% 2.76%
Savings 9,960 0 0 0 0 9,960 9,960
Average Interest Rate 2.46% 2.46%
CDs $100,000 & Over 10,080 1,146 0 133 0 0 11,359 11,424
Average Interest Rate 5.30% 5.59% 5.00% 5.33%
CDs Under $100,000 28,533 5,969 1,097 622 490 0 36,711 36,787
Average Interest Rate 4.93% 5.24% 5.57% 5.20% 5.42% 5.01%
Securities Sold Under
Repurchase Agreement 2,263 0 0 0 0 0 2,263 2,263
Average Interest Rate 4.41% 4.41%
------- ------ ------ ------ ------ ------- ------- -------
Total Interest-Bearing Liabilities $67,613 $7,115 $1,097 755 490 $ -- $77,070 $77,211
Average Interest Rate 3.81% 5.30% 5.57% 5.16% 5.42% 4.00%
======= ====== ====== ====== ====== ======= =======
</TABLE>
- ---------------
(1) Securities available for sale are shown at their amortized cost.
(2) Represents interest earning Federal Reserve Bank Stock.
23
<PAGE> 261
RATE SENSITIVITY ANALYSIS
December 31, 1998
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Est. Fair
0-1 Yr 1-2 Yrs 2-3 Yrs 3-4 Yrs 4-5 Yrs 5 Ys + TOTAL Value
-------- -------- -------- -------- -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans
Fixed Rate Loans $ 5,706 $ 2,971 $ 5,015 $4,531 $4,531 $656 $ 23,410 $ 23,734
Average Interest Rate 8.45% 9.53% 9.29% 8.70% 8.70% 9.08% 8.88%
Variable Rate Loans 33,661 0 0 0 0 0 33,661 33,661
Average Interest Rate 8.12% 8.12%
Investment Securities (1)
Fixed Rate Securities 8,761 19,373 6,054 1,859 0 2,000 38,047 38,239
Average Interest Rate 6.07% 5.79% 5.69% 5.78% 5.70% 5.83%
Variable Rate Securities 0 0 0 0 0 0 0
Average Interest Rate
Federal Funds Sold 5,146 0 0 0 0 0 5,146 5,146
Average Interest Rate 5.37% 5.37%
Other Earning Assets (2) 135 0 0 0 0 0 135 135
Average Interest Rate 6.00% 6.00%
------- ------- ------- ------ ------ ------ --------- --------
Total Interest-Earning Assets $53,409 $22,344 $11,069 $6,390 $4,531 $2,656 $100,399 $100,915
7.55% 6.28% 7.32% 7.85% 8.70% 6.53% 7.29%
======= ======= ======= ====== ====== ====== ========
INTEREST BEARING LIABILITIES
NOW Accounts $ 9,196 $ 0 $ 0 $ 0 $ 0 $ 0 $ 9,196 $ 9,196
Average Interest Rate 1.00% 1.00%
Money Market Accounts 6,897 0 0 0 0 0 6,897 6,897
Average Interest Rate 2.00% 2.00%
Savings Accounts 8,029 0 0 0 0 0 8,029 8,029
Average Interest Rate 1.65% 1.65%
CDs $100,000 & Over 10,611 650 300 0 0 0 11,561 11,731
Average Interest Rate 5.57% 5.91% 6.00% 5.60%
CDs Under $100,000 36,222 4,734 1,098 766 383 0 43,203 43,784
Average Interest Rate 5.39% 5.61% 5.75% 5.75% 5.30% 5.43%
Securities Sold Under
Repurchase Agreement 3,978 0 0 0 0 0 3,978 3,978
Average Interest Rate 4.49% 4.49%
------- ------- ------- ------ ------ ------ -------- ---------
Total Interest-Bearing Liabilities $74,933 $ 5,384 $ 1,398 $ 766 $ 383 $ 0 $ 82,864 $ 83,615
4.12% 5.65% 5.80% 5.75% 5.30% 4.27%
======= ======= ======= ====== ====== ====== ========
</TABLE>
- -------------------
(1) Securities available for sale are shown at their amortized cost.
(2) Represents interest earning Federal Reserve Bank Stock.
24
<PAGE> 262
Primary Sources and Uses of Funds
Year ended December 31, 1999
The primary source of funds during the period included maturity/sale
of investments net of purchases ($12,803,000), decrease in federal funds sold
and other cash items ($2,171,000), exercise of stock options net of tax
benefit, ($712,000) increase in borrowings from repurchase agreements and
Federal Reserve Bank Advances ($1,285,000) and net income ($681,000). The
primary uses of funds during the period included a decrease in deposits
($2,736,000), an increase in net loans outstanding ($13,570,000), increase in
premises and equipment) ($719,000), dividends paid ($158,000), and other
miscellaneous net uses ($469,000).
CAPITAL RESOURCES
Shareholders' equity at December 31, 1999, was $8,459,000 compared to
$7,457,000 at December 31, 1998.
The Comptroller has established risk-based capital requirements for
national banks. These guidelines are intended to provide an additional measure
of a bank's capital adequacy by assigning weighted levels of risk to asset
categories. Banks are also required to systematically maintain capital against
such "off-balance sheet" activities as loans sold with recourse, loan
commitments, guarantees and standby letters of credit. These guidelines are
intended to strengthen the quality of capital by increasing the emphasis on
common equity and restricting the amount of loan loss reserves and other forms
of equity such as preferred stock that may be included in capital. First
National/Osceola's goal is to maintain its current status as a
"well-capitalized institution" as that term is defined by its regulators.
Under the terms of the guidelines, banks must meet minimum capital
adequacy based upon both total assets and risk adjusted assets. All banks are
required to maintain a minimum ratio of total capital to risk-weighted assets
of 8% and a minimum ratio of Tier 1 capital to risk-weighted assets of 4%.
Adherence to these guidelines has not had an adverse impact on First
National/Osceola. Selected capital ratios at December 31, 1999, and 1998 were
as follows:
CAPITAL RATIOS
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Actual Well Capitalized Excess
------------------ -------------------
Amount Ratio Amount Ratio Amount
------------------ ------------------- ------
<S> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Total Capital: (to Risk Weighted Assets): $9,239 13.3% $6,929 10.0% $2,310
Tier 1 Capital: (to Risk Weighted Assets): $8,441 12.2% $4,157 6.0% $4,284
Tier 1 Capital: (to Average Assets): $8,441 7.8% $5,389 5.0% $3,052
AS OF DECEMBER 31, 1998:
Total Capital: (to Risk Weighted Assets): $8,019 13.7% $5,835 10.0% $2,184
Tier 1 Capital: (to Risk Weighted Assets): $7,289 12.5% $3,501 6.0% $3,788
Tier 1 Capital: (to Average Assets): $7,289 6.7% $5,420 5.0% $1,869
</TABLE>
25
<PAGE> 263
EFFECTS OF INFLATION AND CHANGING PRICES
The accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of
money over time due to inflation. Unlike most industrial companies, virtually
all of the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates generally have a more significant impact on
the performance of a financial institution than the effects of general levels
of inflation. Although interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services, increases
in inflation generally have resulted in increased interest rates. In addition,
inflation affects financial institutions' increased cost of goods and services
purchased, the cost of salaries and benefits, occupancy expense, and similar
items. Inflation and related increases in interest rates generally decrease the
market value of investments and loans held and may adversely affect liquidity,
earnings, and shareholders' equity. Commercial and other loan originations and
refinancings tend to slow as interest rates increase, and can reduce First
National/Osceola's earnings from such activities.
ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, First National/Osceola adopted SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 provides new accounting and
reporting standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. The adoption
of this standard did not have a material impact on reported results of
operations of First National/Osceola.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes accounting and
reporting standards for derivative instruments (including certain derivative
instruments imbedded in other contracts). The statement is effective for fiscal
years beginning after June 15, 1999. The financial impact of the adoption of
this statement has not been determined. However, the effect of the adoption of
the statement is not expected to be material. In June of 1999, the FASB issued
SFAS No. 137, which delays implementation of SFAS No. 133 for one year.
Quarterly Financial Information
The following table sets forth, for the periods indicated, certain
consolidated quarterly financial information for First National/Osceola. This
information is derived from First National/Osceola's unaudited financial
statements which include, in the opinion of management, all normal recurring
adjustments which management considers necessary for a fair presentation of the
results for such periods. This information should be read in conjunction with
First National/Osceola's Financial Statements included elsewhere in this
Prospectus. The results for any quarter are not necessarily indicative of
results for future periods.
26
<PAGE> 264
SELECTED QUARTERLY DATA
(Dollars are in Thousands)
<TABLE>
<CAPTION>
(Dollars in Thousands except 1999 1998
for per share data) -------------------------------- ------------------------------
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
--------------------------------- -------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income $1,150 $1,085 $1,065 $ 974 $ 956 $ 980 $ 951 $ 925
Provision for Loan Losses 87 24 38 37 (58) 27 27 42
------ ------ ------ ----- ------- ------ ------ -----
Net Interest Income
after provision for loan losses $1,063 $1,061 $1,027 $ 937 $1,014 $ 953 $ 924 $ 883
Non-Interest Income 246 226 223 202 205 177 168 157
Non-Interest Expenses 1,077 1,017 944 875 859 769 727 720
------ ------ ------ ----- ------- ------ ------ -----
Income before income
tax expense $ 232 $ 270 $ 306 $ 264 $ 360 $ 361 $ 365 $ 320
Income tax expense 83 92 116 100 125 166 93 128
------ ------ ------ ----- ------- ------ ------ -----
Net Income $ 149 $ 178 $ 190 $ 164 $ 235 $ 195 $ 272 $ 192
====== ====== ====== ===== ======= ====== ====== =====
Basic earnings per common share $ 0.29 $ 0.36 $ 0.41 $0.36 $ 0.52 $0.43 $0.61 $0.44
Diluted earnings per common share $ 0.29 $ 0.35 $ 0.38 $0.33 $ 0.49 $0.40 $0.57 $0.40
</TABLE>
27
<PAGE> 265
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0850, Florida Statutes, grants a corporation the power to
indemnify its directors, officers, employees, and agents for various expenses
incurred resulting from various actions taken by its directors, officers,
employees, or agents on behalf of the corporation. In general, if an individual
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the action was
unlawful, then the corporation has the power to indemnify said individual who
was or is a party to any proceeding (including, in the absence of an
adjudication of liability (unless the court otherwise determines), any
proceeding by or in the right of the corporation) against liability expenses,
including counsel fees, incurred in connection with such proceeding, including
any appeal thereof (and, as to actions by or in the right of the corporation,
against expenses and amounts paid in settlement not exceeding, in the judgment
of the board of directors, the estimated expense of litigating the proceeding to
conclusion, actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof). To the extent that
a director, officer, employee, or agent has been successful on the merits or
otherwise in defense of any proceeding, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith. The term
"proceeding" includes any threatened, pending, or completed action, suit, or
other type of proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
Any indemnification in connection with the foregoing, unless pursuant
to a determination by a court, shall be made by the corporation upon a
determination that indemnification is proper in the circumstances because the
individual has met the applicable standard of conduct. The determination shall
be made (i) by the board of directors by a majority vote of a quorum consisting
of directors who are not parties to such proceeding; (ii) by majority vote of a
committee duly designated by the board of directors consisting solely of two or
more directors not at the time parties to the proceeding; (iii) by independent
legal counsel selected by the board of directors or such committee; or (iv) by
the shareholders by a majority vote of a quorum consisting of shareholders who
are not parties to such proceeding. Evaluation of the reasonableness of expenses
and authorization of indemnification shall be made in the same manner as the
determination that indemnification is permissible. However, if the determination
of permissibility is made by independent legal counsel, then the directors or
the committee shall evaluate the reasonableness of expenses and may authorize
indemnification. Expenses incurred by an officer or director in defending a
civil or criminal proceeding may be paid by the corporation in advance of the
final disposition of the proceeding upon receipt of an undertaking by or on
behalf of the director or officer to repay such amount if he is ultimately found
not to be entitled to indemnification by the corporation. Expenses incurred by
other employees and agents may be paid in advance upon such terms or conditions
that the board of directors deems appropriate.
Section 607.0850 also provides that the indemnification and advancement
of expenses provided pursuant to that Section are not exclusive, and a
corporation may make any other or further indemnification or advancement of
expenses of any of its directors, officers, employees, or agents, under any
bylaw, agreement, vote of shareholders or disinterested directors, or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office. However, indemnification or advancement of expenses
may not be made if a judgment or other final adjudication established that the
individual's actions, or omissions to act, were material to the cause of action
so adjudicated and constitute (i) a violation of the criminal law (unless the
individual had reasonable cause to believe his conduct was lawful or had no
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<PAGE> 266
reasonable cause to believe his conduct was unlawful); (ii) a transaction from
which the individual derived an improper personal benefit; (iii) in the case of
a director, a circumstance under which the liability provisions of Section
607.0834 are applicable; or (iv) willful misconduct or a conscious disregard for
the best interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor in a proceeding by or in the
right of a shareholder. Indemnification and advancement of expenses shall
continue as, unless otherwise provided when authorized or ratified, to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such person, unless
otherwise provided when authorized or ratified.
Section 607.0850 further provides that unless the corporation's
articles of incorporation provide otherwise, then notwithstanding the failure of
a corporation to provide indemnification, and despite any contrary determination
of the board or of the shareholders in the specific case, a director, officer,
employee, or agent of the corporation who is or was a party to a proceeding may
apply for indemnification or advancement of expenses, or both, to the court
conducting the proceeding, to the circuit court, or to another court of
competent jurisdiction. On receipt of an application, the court, after giving
any notice that it considers necessary, may order indemnification and
advancement of expenses, including expenses incurred in seeking court-ordered
indemnification or advancement of expenses, if it determines that (i) the
individual is entitled to mandatory indemnification under Section 607.0850 (in
which case the court shall also order the corporation to pay the director
reasonable expenses incurred in obtaining court-ordered indemnification or
advancement of expenses); (ii) the individual is entitled to indemnification or
advancement of expenses, or both, by virtue of the exercise by the corporation
of its power under Section 607.0850; or (iii) the individual is fairly and
reasonably entitled to indemnification or advancement of expenses, or both, in
view of all the relevant circumstances, regardless of whether the person met the
standard of conduct set forth in Section 607.0850. Further, a corporation is
granted the power to purchase and maintain indemnification insurance.
Article VI of the Bylaws of the Company provides for indemnification of
the Company's officers and directors and advancement of expenses. The text of
the indemnification provision contained in the such Bylaws is set forth in
Exhibit 3.2 to this Registration Statement. Among other things, indemnification
is granted to each person who is or was a director, officer or employee of the
Company and each person who is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation to the full extent
authorized by law. Article VI of the Company's Bylaws also sets forth certain
conditions in connection with any advancement of expenses and provision by the
Company of any other indemnification rights and remedies. The Company also is
authorized to purchase insurance on behalf of any person against liability
asserted whether or not the Company would have the power to indemnify such
person under the Bylaws.
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<PAGE> 267
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES
(A) EXHIBITS
2.1 - Agreement to Merge between Centerstate Banks of
Florida, First National Bank of Osceola County and
First Interim National Bank of Osceola County*
2.2 - Agreement to Merge between Centerstate Banks of
Florida, First National Bank of Polk County and First
Interim National Bank of Polk County (attached as
Appendix A to the proxy statement/prospectus)
2.3 - Agreement to Merge between Centerstate Banks of
Florida, Community National Bank of Pasco County and
Community Interim National Bank of Pasco County*
3.1 - Articles of Incorporation of Centerstate Banks of
Florida, Inc.*
3.2 - Bylaws of Centerstate Banks of Florida*
4.1 - Specimen Stock Certificate of Centerstate Banks of
Florida*
5 - Legal Opinion of Smith, Mackinnon, Greeley, Bowdoin,
Edwards, Brownlee & Marks, P.A. with respect to the
validity of the Common Stock being offered hereby*
8 - Tax Opinion of KPMG LLP
10.1 - Centerstate Banks of Florida Stock Option Plan*
21 - Subsidiaries of Centerstate Banks of Florida*
23.1 - Consent of KPMG LLP
23.2 - Consent of Allen C. Ewing & Co.
23.3 - Consent of Smith, Mackinnon, Greeley, Bowdoin,
Edwards, Brownlee & Marks, P.A. (included in Exhibit
5)*
23.4 - Omitted
23.5 - Omitted
23.6 - Omitted
23.7 - Consent of KPMG LLP
24 - Power of Attorney (included with signatures pages to
this Registration Statement)
27 - Financial Data Schedule (for SEC use only)
99.1 - Notice of Special Meeting of First National Bank of
Polk County Shareholders*
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<PAGE> 268
99.2 - Proxy of First National Bank of Polk County*
99.3 - Letter dated March 10, 2000 to Securities and Exchange
Commission from Dwight Darby & Company
- ---------------
* Previously filed with the Registration Statement
(B) FINANCIAL STATEMENTS
(1) Financial Statements are included in the proxy
statement/prospectus; see "Index to Financial Statements" in
the Prospectus.
Schedules are omitted for the reason that they are not required or are not
applicable, or the required information is shown in the financial statements or
notes thereto.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of the Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned Registrant will (1) file, during any period in which it
offers or sells securities, a post-effective amendment to this Registration
Statement to (i) include any prospectus required by Section 10(a)(3) of the
Securities Act; (ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the Registration Statement; and (iii) include any additional or changed
information on the plan of distribution; (2) for determining liability under the
Securities Act, treat each post-effective amendment as a new Registration
Statement of the securities offered, and the offering of securities at that time
to be the initial bona fide offering; and (3) file a post-effective amendment to
remove from registration any of the securities that remain unsold at the end of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the provisions described in Item 20, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such
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<PAGE> 269
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Registration Statement, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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<PAGE> 270
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed in its
behalf by the undersigned, thereunto duly authorized, in Winter Haven, Florida,
on March 21, 2000.
CENTERSTATE BANKS OF FLORIDA, INC.
/s/ James H. White
-------------------------------------------------
James H. White
Chairman, President and Chief Executive Officer
/s/ James J. Antal
--------------------------------------------------
James J. Antal
Senior Vice President and Chief Financial Officer
(principal financial officer and proposed
accounting officer)
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
James H. White and G. Robert Blanchard, Sr., for himself and not for one
another, and each and either of them and his substitutes, a true and lawful
attorney in his name, place and stead, in any and all capacities, to sign his
name to any and all amendments to this Registration Statement, including
post-effective amendments, and to cause the same to be filed with the Securities
and Exchange Commission, granting unto said attorneys and each of them full
power of substitution and full power and authority to do and perform any act and
thing necessary and proper to be done in the premises, as fully to all intents
and purposes as the undersigned could do if personally present, and each of the
undersigned for himself hereby ratifies and confirms all that said attorneys or
any one of them shall lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------- -------- --------------
<S> <C> <C>
/s/ James H. White Director March 21, 2000
- ---------------------------------
James H. White
/s/ G. Robert Blanchard, Sr. Director March 21, 2000
- ---------------------------------
G. Robert Blanchard, Sr.
</TABLE>
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<PAGE> 271
<TABLE>
<S> <C> <C>
/s/ James H. Bingham Director March 21, 2000
- ---------------------------------
James H. Bingham
/s/ Terry W. Donley Director March 21, 2000
- ---------------------------------
Terry W. Donley
/s/ W. Bryan Judge, Jr. Director March 21, 2000
- ---------------------------------
W. Bryan Judge, Jr.
/s/ Samuel L. Lupfer, IV Director March 21, 2000
- ---------------------------------
Samuel L. Lupfer, IV
/s/ J. Thomas Rocker Director March 21, 2000
- ---------------------------------
J. Thomas Rocker
</TABLE>
II-7
<PAGE> 1
EXHIBIT 8
(KPMG Logo)
111 North Orange Avenue, Suite 1600
P.O. Box 3031
Orlando, FL 32802
January 12, 2000
Board of Directors
First National Bank of Polk County
7722 SR544 East
Haines City, Florida
Ladies and Gentlemen:
You have requested the opinion of KPMG LLP (KPMG) regarding certain federal
income tax consequences of the proposed merger of First National Bank of Polk
County, ("First National/Polk") with and into First Interim National Bank of
Polk County, ("FINB"), a wholly owned subsidiary of Centerstate Banks of
Florida, Inc., ("CBF"), for stock of CBF (the "Merger"). Specifically, you have
requested us to opine that the form and substance of the Merger will constitute
a reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D)1 and to opine on
certain federal income tax consequences to CBF, FINB, First National/Polk, and
the shareholders of First National/Polk resulting from the Merger.
SCOPE OF THE OPINION
You have submitted for our consideration certain facts and representations as
to the Merger, which are specifically described below, and a copy of the
Agreement to Merge by and among CBF, FINB, and First National/Polk dated as of
December 10, 1999 (the "Agreement"). Capitalized terms not otherwise defined
herein are intended to have the same meaning as used in the Agreement. Our
opinion is based upon the FACTS AND REPRESENTATIONS set forth in this letter,
as well as the information contained in the Agreement. If any fact or
representation is not entirely complete or accurate, it is imperative that we
be informed immediately in writing because the incompleteness or inaccuracy
could cause us to change our opinion. We have not reviewed all the legal
documents necessary to effectuate the steps to be undertaken and we assume that
all steps will be effectuated under state and federal law and will be
consistent with the Agreement submitted to us.
The opinion contained herein is rendered only with respect to the enumerated
holdings set forth herein under the heading OPINION, and KPMG expresses no
opinion with respect to any other legal, federal, state, or local tax aspect of
the Merger.
This opinion is not binding upon the Internal Revenue Service, any tax
authority or any court, and no assurance can be given that a position contrary
to that expressed herein will not be asserted by a tax authority and ultimately
sustained by a court. In rendering our opinion, we are relying upon the
relevant provisions of the Internal Revenue Code of 1986, as amended, the
regulations thereunder, and judicial and administrative interpretations
thereof, which are subject to change or modification by subsequent legislative,
regulatory, administrative, or judicial decisions. Any such changes,
- ---------------
(1) All Section references are to the Internal Revenue Code of 1986, as amended,
and the regulations thereunder, unless otherwise indicated.
<PAGE> 2
[KPMG LOGO]
First National Bank of Polk County
January 12, 2000
Page 2
which can be retroactive in effect, could also have an effect on the validity
of our opinion. We assume no duty to inform you of any changes in our opinion
due to changes in law and changes in facts that occur subsequent to the
issuance of this letter.
FACTS AND REPRESENTATIONS
First National/Polk is a national banking association located at 7722 SR 544
East, City of Haines City, County of Polk, in the State of Florida, with a
capital of $6,479,543, consisting of (i) 2,378,125 shares of common stock
divided into 475,625 shares of common stock, each of $5.00 par value, (ii)
surplus of $2,422,422, and (iii) undivided profits of $1,678,996 as of
September 30, 1999. CBF, is a Florida corporation, which has been organized for
purposes of serving as a bank holding company for First National/Polk and other
banks.
FINB is an interim national banking association, to be located at 7722 SR 544
East, Winter Haven, Florida 33881, with a capital of $100,000, divided into
1,000 shares of common stock, each of $100 par value, surplus of $20,000, and
no undivided profits.
CBF, FINB, and First National/Polk represent to KPMG that the following
transactions will be undertaken for valid corporate business purposes:
I. First National/Polk will merge with and into FINB under the charter of
First National/Polk, pursuant to 12 U.S.C.ss.215a of the National Bank
Act (as previously defined, the "Merger"). Pursuant to the Merger, the
separate existence of First National/Polk shall cease and FINB shall
be the Surviving Bank. The Surviving Bank shall be that of national
banking association. The Surviving Bank shall have all the rights,
privileges, immunities and powers and shall be subject to all the
duties and liabilities of a banking association organized under the
laws of the United States and shall thereupon and thereafter possess
all other privileges, immunities and franchises of a private, as well
as of a public nature, of each of the constituent corporations. All
property (real, personal and mixed) and all debts on whatever account,
including subscriptions to shares, and all chooses in action, all and
every other interest, of or belonging to or due to each of the
constituent corporations so merged shall be taken and deemed to be
transferred to and vested in the Surviving Bank without further act or
deed.
II. At the Effective Time, by virtue of the Merger, each issued and
outstanding share of First National/Polk Common Stock (other than
shares as to which dissenters' rights have been perfected) will be
converted into 1.62 shares of CBF Common Stock, subject to adjustment
as specified in Section 2.1 of the Agreement. If options to acquire
First National/Polk Common Stock which are exercisable at the date of
the Agreement, or become exercisable prior to Closing, are exercised
prior to the Closing, the shares of First National/Polk Common Stock
issued on such exercise will be converted to the right to receive
shares of CBF at the Closing.
<PAGE> 3
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First National Bank of Polk County
January 12, 2000
Page 3
III. In lieu of issuing fractional shares of CBF Common Stock, holders of
First National/Polk Common Stock entitled to a fractional share of CBF
Common Stock as a result of the above exchange ratio will receive an
amount in cash as provided in Section 2.3 of the Agreement.
IV. Holders of First National/Polk Common Stock that take such steps as
are necessary to dissent to the Merger and that are entitled to
payment for their shares will be paid the value of such shares
pursuant to the Dissent Provisions of the National Bank Act.
The following additional representations have been made to KPMG by CBF and
First National/Polk in connection with the Merger. It is expressly understood
and agreed that KPMG has not independently verified the completeness and
accuracy of any of the following representations and that KPMG is relying on
these representations in rendering the opinions contained herein.
1. The fair market value of the CBF Common Stock and cash, if any,
received by each First National/Polk shareholder pursuant to the
Merger will be approximately equal to the fair market value of First
National/Polk Common Stock surrendered in the Merger.
2. First National/Polk has not made any distributions to its stockholders
or redeemed any of its stock prior to, and in connection with, the
Merger.
3. FINB will acquire at least 90 percent of the fair market value of the
net assets and at least 70 percent of the fair market value of the
gross assets held by First National/Polk immediately prior to the
transaction. For purposes of this representation, amounts paid by
First National/Polk to dissenters, amounts paid by First National/Polk
to shareholders who receive cash or other property, First
National/Polk assets used to pay its reorganization expenses and all
redemptions and distributions (except for regular, normal dividends)
made by First National/Polk immediately preceding the transfer, will
be included as assets of First National/Polk held immediately prior to
the transaction.
4. Prior to the transaction, CBF will be in control of FINB within the
meaning of Section 368(c).
5. Following the transaction, FINB will not issue additional shares of
its stock that would result in CBF losing control of FINB within the
meaning of Section 368(c).
6. Neither CBF nor a person related to CBF (nor any person acting on
behalf of, as agent for, or as a nominee of CBF or a person related to
CBF) has a plan or intention to reacquire any of CBF Common Stock
issued in the Merger. For this purpose, a related person is as defined
in Section 1.368-1(e)(3) of the Treasury Regulations.
7. CBF has no plan or intention to liquidate FINB; to merge FINB with and
into another corporation; to sell or otherwise dispose of the stock of
FINB; or to cause FINB to sell or otherwise dispose of any of the
assets of First National/Polk acquired in the transaction,
<PAGE> 4
[KPMG LOGO]
First National Bank of Polk County
January 12, 2000
Page 4
except for dispositions made in the ordinary course of business or
transfers described in Section 368(a)(2)(C).
8. The liabilities of First National/Polk assumed by FINB and the
liabilities, if any, to which the transferred assets of First
National/Polk are subject were incurred by First National/Polk in the
ordinary course of its business.
9. Following the Merger, FINB will continue the historic business of
First National/Polk or use a significant portion of First
National/Polk historic business assets in its business.
10. CBF, FINB, First National/Polk, and the shareholders of First
National/Polk will pay their respective expenses, if any, incurred in
connection with the Merger.
11. There is no intercorporate indebtedness existing between CBF and First
National/Polk or between FINB and First National/Polk that was issued,
acquired, or will be settled at a discount.
12. No two parties to the Merger are investment companies as defined in
Sections 368(a)(2)(F)(iii) and (iv).
13. First National/Polk is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A).
14. The fair market value of the assets of First National/Polk transferred
to FINB will equal or exceed the sum of the liabilities assumed by
FINB plus the amount of liabilities, if any, to which the transferred
assets are subject.
15. No stock of FINB will be issued in the transaction.
16. The payment of cash in lieu of fractional shares of CBF Common Stock is
solely for the purpose of avoiding the expense and inconvenience to
CBF of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash that will be paid in the
Merger to the First National/Polk shareholders instead of issuing
fractional shares of CBF Common Stock will not exceed one percent of
the total consideration that will be issued in the Merger to the First
National/Polk shareholders in exchange for their shares of First
National/Polk Common Stock. The fractional share interests of each
First National/Polk shareholder will be aggregated, and no First
National/Polk shareholder will receive cash in an amount equal to or
greater than the value of one full share of CBF Common Stock.
17. None of the compensation received by any shareholder-employees of
First National/Polk will be separate consideration for, or allocable
to, any of their shares of First National/Polk Common Stock. None of
the shares of CBF Common Stock received by any shareholder-employees
will be separate consideration for, or allocable to, any employment
agreement;
<PAGE> 5
[KPMG LOGO]
First National Bank of Polk County
January 12, 2000
Page 5
and the compensation paid to any shareholder-employees will be for
services actually rendered and will be commensurate with amounts paid
to third parties bargaining at arm's-length for similar services.
OPINIONS
Based solely upon consummation of the transaction in accordance with the
Agreement and the above FACTS AND REPRESENTATIONS, and subject to the above
SCOPE OF THE OPINION, it is the opinion of KPMG that:
1. The acquisition by FINB of all of the assets of First National/Polk
solely in exchange for CBF Common Stock and the assumption by FINB of
the liabilities of First National/Polk plus the liabilities to which
First National/Polk assets may be subject, will qualify as a
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D). First
National/Polk, CBF, and FINB will each be a party to reorganization
within the meaning of Section 368(b).
2. No gain or loss will be recognized by First National/Polk on the
transfer of substantially all of its assets to FINB in the Merger in
exchange for CBF Common Stock and the assumption by FINB of the
liabilities of First National/Polk plus the liabilities to which First
National/Polk assets may be subject. Sections 361(a) and 357(a).
3. No gain or loss will be recognized by either CBF or FINB upon the
acquisition by FINB of all of the assets of First National/Polk in the
Merger in exchange for CBF Common Stock and the assumption by FINB of
the liabilities of First National/Polk plus the liabilities to which
First National/Polk assets may be subject. Sections 1032(a); Reg.
Section 1.1032-2.
4. The basis of the assets of First National/Polk received by FINB in the
Merger will be the same in the hands of FINB as the basis of such
assets in the hands of First National/Polk immediately prior to the
Merger. Section 362(b).
5. The holding period of the assets of First National/Polk received by
FINB in the Merger will, in each instance, include the period during
which such assets were held by First National/Polk immediately prior
to the Merger. Section 1223(2).
6. No gain or loss will be recognized by a shareholder of First
National/Polk upon the receipt of solely CBF Common Stock (including
any fractional share interest to which the shareholder may be
entitled) in exchange for shares of First National/Polk Common Stock
in the Merger. Section 354(a)(1).
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First National Bank of Polk County
January 12, 2000
Page 6
7. The basis of the CBF Common Stock received by a shareholder of First
National/Polk (including any fractional share interest to which the
shareholder may be entitled) will equal the basis of the First
National/Polk Common Stock surrendered in exchange therefor. Section
358(a)(1).
8. The holding period of the CBF Common Stock received by a shareholder
of First National/Polk (including any fractional share interest to
which the shareholder may be entitled) will include the holding period
of First National/Polk Common Stock surrendered in exchange therefor,
provided the First National/Polk Common Stock was held by the
shareholder as a capital asset on the date of the Merger. Section
1223(1).
9. The payment of cash to First National/Polk shareholders in lieu of
fractional share interests of CBF Common Stock will be treated as if
the fractional shares were distributed as part of the Merger and then
were redeemed by CBF. These cash payments should be treated as
distributions in full payment in exchange for the stock redeemed, as
provided in Section 302(a). Rev. Rul. 66-365, 1966-2 C.B. 116.
10. Where a First National/Polk shareholder exercises statutory
dissenters' rights and receives cash for all of his or her First
National/Polk Common Stock, such cash will be treated as having been
received by the shareholder as a distribution in redemption of his or
her stock subject to the provisions and limitations of Section 302.
11. The tax attributes of First National/Polk enumerated in Section 381(c)
will be taken into account by CBF and FINB following the Merger.
Section 381(a)(2). These tax attributes will, however, be subject to
the provisions and limitations of Sections 381, 382, 383, and 384 and
the regulations thereunder.
/s/KPMG LLP
<PAGE> 1
EXHIBIT 23.1
[KPMG LETTERHEAD]
111 North Orange Avenue, Suite 1600
P.O. Box 3031
Orlando, FL 32802
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Centerstate Banks of Florida
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Orlando, Florida
March 13, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ALLEN C. EWING & CO.
Centerstate Banks of Florida, Inc.
Winter Haven, Florida
We hereby consent to the inclusion as Appendix B to this Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 for Centerstate Banks of Florida, Inc. of our letter to the Board of
Directors of First National Bank of Polk County, and to references made to such
letter and to the firm in the Proxy Statement/Prospectus.
ALLEN C. EWING & CO.
By: /s/ Brian C. Beach
------------------
Brian C. Beach
Executive Vice President
Jacksonville, Florida
March 14, 2000
<PAGE> 1
Exhibit 23.7
[KPMG LETTERHEAD]
111 North Orange Avenue, Suite 1600 Telephone 407 423 3428
P.O. Box 3031 Fax 407 648 8557
Orlando, FL 32802
The Board of Directors
Centerstate Banks of Florida
We consent to the use of our opinion included herein regarding certain Federal
tax consequences expected to result from the merger and to the reference to our
firm under the heading "Federal Income Tax Consequences of the Merger".
/s/ KPMG LLP
Orlando, Florida
March 15, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,729
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 737
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,625
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 62,700
<ALLOWANCE> 870
<TOTAL-ASSETS> 95,142
<DEPOSITS> 85,425
<SHORT-TERM> 1,556
<LIABILITIES-OTHER> 153
<LONG-TERM> 0
0
0
<COMMON> 2,436
<OTHER-SE> 5,572
<TOTAL-LIABILITIES-AND-EQUITY> 95,142
<INTEREST-LOAN> 5,103
<INTEREST-INVEST> 1,224
<INTEREST-OTHER> 252
<INTEREST-TOTAL> 6,579
<INTEREST-DEPOSIT> 2,990
<INTEREST-EXPENSE> 3,042
<INTEREST-INCOME-NET> 3,537
<LOAN-LOSSES> 9
<SECURITIES-GAINS> (3)
<EXPENSE-OTHER> 3,209
<INCOME-PRETAX> 974
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 619
<EPS-BASIC> 1.31
<EPS-DILUTED> 1.27
<YIELD-ACTUAL> 4.22
<LOANS-NON> 215
<LOANS-PAST> 4
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 818
<ALLOWANCE-OPEN> 866
<CHARGE-OFFS> 54
<RECOVERIES> 49
<ALLOWANCE-CLOSE> 870
<ALLOWANCE-DOMESTIC> 870
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.3
[LOGO]
Dwight Darby & Company
Certified Public Accountants
March 10, 2000
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street N.W.
Washington, D.C. 20540
Re: Centerstate Banks of Florida, Inc.
We have had the opportunity to review the disclosure by Centerstate Banks
of Florida, Inc. in the registration statement and agree with the statements
made by the issuer.
/s/ DWIGHT DARBY & COMPANY
Certified Public Accountants
611 South Magnolia Avenue * Tampa, Florida 33606-2799 * (813) 251-2411 * FAX
(813) 251-1338
C-Mail: [email protected] * www.dd cpa.com
Members American Institute of Certified Public Accountants * Florida Institute
of Certified Public Accountants
Independent Member B K R International
