<PAGE> 1
As filed with the Securities and Exchange Commission on January 20, 2000.
Registration No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
CENTERSTATE BANKS OF FLORIDA, INC.
(Name of Small Business Issuer as specified in its charter)
<TABLE>
<S> <C> <C>
FLORIDA 6711 59-3606741
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification Number)
</TABLE>
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
----------
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 Community National Bank of Pasco 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. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
- ---------------------------------- ---------------------- ---------------------- ---------------------- ----------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT (2) PRICE (1) FEE (2)
- ---------------------------------- ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 983,407 shares (1) $7.966 $7,834,000 $2,068.18
================================== ====================== ====================== ====================== ======================
</TABLE>
(1) The maximum number of full shares issuable upon consummation of the
transaction described herein.
(2) Computed in accordance with Rule 457(f)(2) solely for the purpose of
calculating the registration fee based upon the book value at September
30, 1999, of the securities to be received by the Registrant if the
proposed merger described herein is consummated.
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.
<PAGE> 2
---------------------------------------
PROXY STATEMENT FOR COMMUNITY NATIONAL BANK
OF PASCO COUNTY
---------------------------------------
PROSPECTUS OF CENTERSTATE BANKS OF FLORIDA, INC.
---------------------------------------
Dear Community National Bank of Pasco County shareholder:
This proxy statement/prospectus is being furnished to you because you
own common stock of Community National Bank of Pasco County. The board of
directors of Community National Bank has approved a merger whereby Community
National Bank will become a subsidiary of Centerstate Banks of Florida, Inc. In
the merger, you will receive 2.02 shares of Centerstate Banks of Florida common
stock for each share of Community National Bank 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 Polk
County, headquartered in Winter Haven, Florida, and First National Bank of
Osceola County, headquartered in Kissimmee, Florida. The closing of the
Community National Bank merger is conditioned upon the simultaneous closing by
Centerstate Banks of Florida of the First National Bank of Polk County and First
National Bank of Osceola County mergers. Upon the consummation of these mergers,
Community National Bank, First National Bank of Polk County, and First National
Bank of Osceola County will operate as separate subsidiaries of Centerstate
Banks of Florida.
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 Community National Bank's
principal executive offices, 6930 Gall Blvd., Zephyrhills, Florida 33541-2513.
We cannot complete the merger unless holders of at least two-thirds of Community
National Bank 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 Community National Bank, we urge
you to vote "FOR" approval and adoption of the merger.
James H. White James S. Stalnaker, Jr.
Chairman of the Board President and Chief Executive Officer
----------------------------------------------
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 Community National Bank on or about
________, 2000.
<PAGE> 3
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TABLE OF CONTENTS
Page
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QUESTIONS AND ANSWERS ABOUT THE MERGER ................................................ 1
SUMMARY ............................................................................... 2
Parties to the merger................................................... 2
Meeting to be held on ___________, 2000................................. 2
Voting at a special meeting............................................. 2
The merger.............................................................. 2
Recommendation of the Community National Bank board of directors........ 3
The merger agreement.................................................... 3
Federal income tax consequences......................................... 3
Rights of dissenting shareholders....................................... 3
Regulatory approvals.................................................... 3
Conditions to the merger................................................ 3
Termination of the merger agreement..................................... 3
Centerstate Banks of Florida to use pooling of interests
accounting treatment............................................ 4
FIRST NATIONAL BANK OF OSCEOLA COUNTY AND
FIRST NATIONAL BANK OF POLK COUNTY MERGERS.............................. 5
THE SPECIAL MEETING.................................................................... 15
General................................................................. 15
Date, time and place of the special meeting............................. 15
Shares outstanding and entitled to vote; record date.................... 15
Vote required to approve merger......................................... 15
Voting and solicitation of proxies...................................... 15
THE MERGER............................................................................. 17
General information about the merger.................................... 17
Background of the merger................................................ 17
Recommendation of the Community National Bank board..................... 20
Opinion of financial advisor............................................ 21
Interest of certain persons in the merger............................... 27
Effectiveness of the merger............................................. 27
Regulatory approvals for the merger..................................... 27
Rights of dissenting shareholders............................... ....... 28
Resales of Centerstate Banks of Florida common stock
to be received by affiliates of Community National Bank......... 29
Accounting treatment of the merger...................................... 29
Federal income tax consequences of the merger........................... 29
How to exchange Community National Bank stock certificates
for Centerstate Banks of Florida................................ 30
Conduct of business pending the merger.................................. 31
Conditions for the merger............................................... 32
Expenses and fees related to the merger................................. 33
Amendment, waiver and termination....................................... 33
</TABLE>
i
<PAGE> 4
<TABLE>
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Page
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DIFFERENCE IN RIGHTS OF CENTERSTATE BANKS OF FLORIDA
AND COMMUNITY NATIONAL BANK SHAREHOLDERS............................... 35
Authorized capital stock............................................... 35
Voting................................................................. 36
Shareholders' meetings................................................. 36
Dividend rights........................................................ 36
Appraisal rights....................................................... 37
Control share and fair price laws...................................... 37
MARKET AND DIVIDEND INFORMATION....................................................... 38
Stock trading information.............................................. 38
Dividends.............................................................. 39
DESCRIPTION OF CENTERSTATE BANKS OF FLORIDA........................................... 39
Conduct of business prior to the merger................................ 39
Conduct of business following the merger............................... 39
Directors.............................................................. 40
Executive officers..................................................... 40
Property............................................................... 41
Employees.............................................................. 41
Legal proceedings...................................................... 42
BUSINESS OF COMMUNITY NATIONAL BANK................................................... 42
COMMUNITY NATIONAL BANK MANAGEMENT'S DISCUSSION AND ANALYSIS.......................... 49
SUPERVISION AND REGULATION............................................................ 69
DESCRIPTION OF CAPITAL STOCK.......................................................... 75
General................................................................ 75
Common shares.......................................................... 75
Preferred shares....................................................... 75
Indemnification provisions............................................. 76
LEGAL OPINION......................................................................... 76
EXPERTS............................................................................... 77
ADDITIONAL INFORMATION................................................................ 77
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
</TABLE>
ii
<PAGE> 5
Appendices
Appendix A: Agreement to Merge Among Community National Bank of Pasco
County, Centerstate Banks of Florida, Inc. and Community
Interim National Bank of Pasco County
Appendix B: Opinion of Allen C. Ewing & Co.
Appendix C: Excerpts from Section 215a of the National Bank Act
Appendix D: Information on First National Bank of Osceola County
Appendix E: Information on First National Bank of Polk County
iii
<PAGE> 6
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL HAPPEN IN THE MERGER?
A: Community National Bank 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 Community National Bank, First National Bank of Polk
County and First National Bank of Osceola County. There are certain
differences in owning shares of Centerstate Banks of Florida compared
to Community National Bank. You should carefully review these
differences, which are discussed beginning on page 35.
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 Community National Bank 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 Community National Bank.
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 Community National Bank 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:
Community National Bank
James S. Stalnaker, Jr.
President and Chief Executive Officer
6930 Gall Blvd.
Zephyrhills, Florida 33541-2513
(813) 783-8122
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. In this proxy statement/prospectus the words
"we" and "us" refer to Centerstate Banks of Florida and Community National Bank
together.
PARTIES TO THE MERGER
Community National Bank is located in Pasco 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 Community National Bank is located at 6930
Gall Blvd., Zephyrhills, Florida 33541-2513. Its telephone number is (813)
783-8122.
Centerstate Banks of Florida has not yet conducted any business. It is
being organized to serve as a bank holding company for Community National Bank,
First National Bank of Polk County, and First National Bank of Osceola 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.
MEETING TO BE HELD ON ___________, 2000
The special meeting will be held on __________, ___________, 2000 at
____ p.m., local time, at the offices of Community National Bank at 6930 Gall
Blvd., Zephyrhills, Florida 33541-2513. See "The Special Meeting," on page ____.
VOTING AT A SPECIAL MEETING
You may vote at the special meeting only if you owned shares of
Community National Bank common stock at the close of business on __________,
___________, 2000. You may cast one vote for each share of Community National
Bank common stock owned at that date. In order to approve the merger, the
holders of at least two-thirds of the outstanding shares of Community National
Bank common stock must vote in favor of the merger. As of __________, 2000, the
Community National Bank directors, executive officers and their affiliates held
a total of 42.73% of the outstanding shares of Community National Bank.
Management of Community National Bank expects that these persons will vote in
favor of the merger.
THE MERGER
We propose a merger between Community National Bank and a subsidiary to
be formed by Centerstate Banks of Florida. After the merger, Community National
Bank will retain its name, officers and directors and continue its operations
from its same banking offices.
In the merger, for each share of Community National Bank common stock
you own, you will receive 2.02 shares of Centerstate Banks of Florida common
stock.
2
<PAGE> 8
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
Community National Bank common stock at the end of the month prior to
effectiveness of the merger.
RECOMMENDATION OF THE COMMUNITY NATIONAL BANK BOARD OF DIRECTORS
The board of directors of Community National Bank believes that the
merger is in the best interest of Community National Bank shareholders, and
unanimously recommends a vote FOR approval of the merger. See "The Merger -
Recommendation of the Community National Bank Board," page 20.
THE MERGER AGREEMENT
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.
FEDERAL INCOME TAX CONSEQUENCES
We expect that the exchange of shares by Community National Bank
shareholders generally to be tax free to Community National Bank, Centerstate
Banks of Florida and Community National Bank 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 Community National Bank 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.
RIGHTS OF DISSENTING SHAREHOLDERS
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.
REGULATORY APPROVALS
The merger must be approved by the Board of Governors of the Federal
Reserve System and the Office of the Comptroller of the Currency. Applications
for the required approvals have been filed and are pending at this time. We
cannot guarantee that these approvals will be received or whether conditions
will be attached to these approvals.
CONDITIONS TO THE MERGER
Several conditions must be satisfied or waived before the merger can be
completed, including approval by the shareholders of Community National Bank.
Please see "The Merger Agreement - Conditions for the merger" beginning on page
32 for a list of the conditions that must be satisfied.
TERMINATION OF THE MERGER AGREEMENT
We may terminate the merger agreement at any time without completing
the merger, even after you have approved it.
3
<PAGE> 9
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 Community National Bank 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 TO USE POOLING OF INTERESTS ACCOUNTING TREATMENT
We intend to treat the merger as a pooling of interests for accounting
purposes.
4
<PAGE> 10
FIRST NATIONAL BANK OF OSCEOLA COUNTY AND
FIRST NATIONAL BANK OF POLK COUNTY MERGERS
On December 10, 1999, Centerstate Banks of Florida entered into
separate merger agreements with First National Bank of Osceola County and First
National Bank of Polk County. These merger agreements provide for the two banks
to become subsidiaries of Centerstate Banks of Florida, along with Community
National Bank. The closings of the First National Bank of Osceola County and
First National Bank of Polk County transactions are subject to a number of
conditions, including prior approval of the transactions by the bank regulatory
agencies and by each of the bank's shareholders. Similar to the Community
National Bank 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 First National Bank of Osceola County provides
for shareholders of First National Bank of Osceola County to receive 2.00 shares
of Centerstate Banks of Florida common stock for each outstanding share of First
National Bank of Osceola County. The merger agreement between Centerstate Banks
of Florida and First National Bank of Polk County provides for shareholders of
First National Bank of Polk County to receive 1.62 shares of Centerstate Banks
of Florida common stock for each outstanding share of First National Bank of
Polk County.
Assuming the conversion of all Community National Bank common stock,
and the conversion of all First National Bank of Polk County and First National
Bank of Osceola County common stock in their mergers, the consummation of the
Community National Bank of Pasco County, First National Bank of Polk County and
First National Bank of Osceola County mergers would result in 34.6%, 29.2%, and
36.2% of the outstanding Centerstate Banks of Florida common stock being owned
by Community National Bank shareholders, First National Bank of Polk County
shareholders, and First National Bank of Osceola County shareholders,
respectively.
The merger transactions involving Community National Bank, First
National Bank of Osceola County and First National Bank of Polk 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 Community National Bank, First National Bank of
Osceola County and First National Bank of Polk County become subsidiaries of
Centerstate Banks of Florida.
Since the closing of the Community National Bank transaction is
conditioned upon the simultaneous closing by Centerstate Banks of Florida of the
First National Bank of Osceola County and First National Bank of Polk County
transactions, this proxy statement/prospectus also includes information on First
National Bank of Osceola County and First National Bank of Polk 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
First National Bank of Osceola County and First National Bank of Polk 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.
5
<PAGE> 11
COMMUNITY NATIONAL BANK OF PASCO COUNTY
SELECTED FINANCIAL DATA
The information presented below for the years ended December 31, 1994
and 1998 is derived in part from Community National Bank's audited financial
statements. The information for the nine months ended September 30, 1998 and
1999 is derived in part from Community National Bank's unaudited financial
statements and includes, in the opinion of management, all adjustments,
consisting only of normal recurring accruals, necessary to present fairly the
data for such periods. Operating results for the nine months ended September 30,
1999 are not necessarily indicative of the results that may be expected for any
other interim period or for the entire year ending December 31, 1999. 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
proxy statement/prospectus.
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<CAPTION>
Nine Months Ended
Sept 30 Years Ended December 31,
---------------------- -------------------------------------------------------------
(Dollars in thousands except for per share 1999 1998 1998 1997 1996 1995 1994
data)
- ------------------------------------------ --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Total Interest Income $ 4,892 $ 4,638 $ 6,274 $ 5,807 $ 5,089 $ 4,577 $ 3,367
Total Interest Expense (2,282) (2,301) (3,098) (2,957) (2,591) (2,359) (1,569)
--------- --------- --------- --------- --------- --------- ---------
$ 2,610 $ 2,337 $ 3,176 $ 2,850 $ 2,499 $ 2,218 $ 1,798
Provision for Loan Losses (9) (150) (150) (150) (135) (100) (132)
--------- --------- --------- --------- --------- --------- ---------
Net Interest Income After Provision for
Loan Losses $ 2,601 $ 2,187 $ 3,026 $ 2,700 $ 2,364 $ 2,118 $ 1,666
Noninterest Income 477 332 564 523 338 271 302
Noninterest Expense (2,385) (1,789) (2,495) (1,914) (1,772) (1,517) (1,353)
--------- --------- --------- --------- --------- --------- ---------
Income before Income Taxes $ 693 $ 730 $ 1,095 $ 1,309 $ 930 $ 872 $ 615
Income Taxes (255) (296) (393) (484) (341) (307) (229)
--------- --------- --------- --------- --------- --------- ---------
Net Income $ 438 $ 434 $ 702 $ 825 $ 589 $ 565 $ 386
========= ========= ========= ========= ========= ========= =========
PER COMMON SHARE DATA:
Basic Earnings Per Share $ 0.94 $ 0.95 $ 1.53 $ 1.97 $ 1.46 $ 1.40 $ 0.96
Diluted Earnings Per Share $ 0.90 $ 0.90 $ 1.45 $ 1.83 $ 1.38 $ 1.36 $ 0.94
Book Value Per Share $ 16.12 $ 15.58 $ 16.13 $ 14.86 $ 13.17 $ 11.93 $ 10.29
Tangible Book Value Per Share $ 16.18 $ 15.26 $ 15.74 $ 14.56 $ 13.11 $ 11.79 $ 10.52
Dividends $ 0.30 $ 0.25 $ 0.25 $ 0.17 $ 0.14 $ 0.12 $ 0.10
Actual Shares Outstanding 486,435 461,085 461,585 436,648 403,400 402,400 402,400
Weighted Average Shares Outstanding 465,417 456,845 458,049 418,129 402,973 402,400 402,400
Diluted Weighted Average Shares Outstanding 485,472 481,734 482,581 451,096 428,243 415,952 411,900
</TABLE>
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<TABLE>
<CAPTION>
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Assets $ 95,720 $ 85,897 $ 92,981 $ 79,965 $ 69,134 $ 60,846 $ 55,929
Total Loans, net 56,033 52,776 55,784 50,814 45,344 38,777 37,681
Total Deposits 85,220 76,838 84,647 71,671 63,623 55,779 51,491
Long-Term Debt 0 0 0 0 0 0 0
Short-Term Borrowings 2,211 1,458 653 1,488 0 0 0
Shareholders' Equity 7,842 7,184 7,447 6,488 5,313 4,802 4,142
Tangible Capital 7,869 7,037 7,267 6,358 5,287 4,745 4,235
Average Total Assets 93,937 82,144 83,776 75,199 65,864 59,114 49,731
Average Loans (net) 55,571 50,555 51,468 47,783 41,381 38,105 33,386
Average Interest Earning Assets 83,901 74,757 75,995 68,903 60,442 54,716 45,429
Average Deposits 85,340 73,723 75,398 68,452 60,740 54,547 45,219
Average Interest Bearing Deposits 74,349 64,604 65,982 60,407 53,732 48,483 40,218
Average Interest Bearing Liabilities 75,301 66,046 67,250 61,239 53,792 48,483 40,736
Average Shareholders' Equity 7,583 6,884 7,000 5,769 4,987 4,488 3,993
Nine Months Ended
Sept 30 Years Ended December 31,
---------------------- -------------------------------------------------------------
(Dollars in thousands except for per share 1999 1998 1998 1997 1996 1995 1994
data)
- ------------------------------------------ --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS:
Return on Average Assets 0.62% 0.70% 0.84% 1.10% 0.89% 0.96% 0.78%
Return on Average Equity 7.70% 8.41% 10.03% 14.30% 11.81% 12.59% 9.67%
Dividend Payout 31.88% 26.32% 16.31% 8.62% 9.58% 8.55% 10.42%
Efficiency (2) 77.26% 67.03% 66.71% 56.74% 62.46% 60.95% 64.43%
Net Interest Margin (3) 4.16% 4.18% 4.18% 4.14% 4.13% 4.05% 3.96%
Net Interest Spread (4) 3.74% 3.64% 3.65% 3.60% 3.60% 3.50% 3.56%
CAPITAL RATIOS:
Tier 1 Leverage Ratio 8.27% 8.36% 8.27% 8.07% 7.82% 7.84% 7.72%
Risk-Based Capital
Tier 1 14.03% 13.58% 13.73% 13.73% 13.42% 14.45% 13.84%
Total 15.29% 14.83% 14.98% 14.98% 14.68% 15.71% 15.09%
Average Equity to Average Assets 8.07% 8.38% 8.36% 7.67% 7.57% 7.59% 8.03%
ASSET QUALITY RATIOS:
Net Charge-Offs to Average Loans 0.02% 0.08% 0.07% 0.10% 0.23% 0.18% -0.05%
Allowance to Period End Loans 1.52% 1.63% 1.53% 1.46% 1.42% 1.57% 1.54%
Allowance for Loan Losses to
Nonperforming Loans 146.53% 151.65% 402.79% 115.44% 112.76% 234.98% 75.32%
Nonperforming Assets to Total Assets 0.62% 0.67% 0.23% 0.82% 0.84% 0.43% 1.40%
OTHER DATA:
Banking Locations 6 4 6 4 3 2 2
Full-Time Equivalent Employees 51 47 45 35 28 27 18
</TABLE>
1. Ratios, where appropriate, are presented on an annualized basis.
2. Efficiency ratio is non interest expense divided by the sum of net
interest income before the provision for loan loss plus non interest
income.
3. Net interest margin is net interest income divided by total average
earning assets.
4. 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 September 30, 1999 and December 31, 1998 and the income statements
for the years ended December 31, 1998 and 1997 and the nine months ended
September 30, 1999 and 1998 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
September 30, 1999
<TABLE>
<CAPTION>
FIRST NATIONAL/ COMMUNITY FIRST NATIONAL/
CENTERSTATE OSCEOLA NAT'L/PASCO POLK
----------- -------------- ------------- --------------
ASSETS
<S> <C> <C> <C> <C>
Cash and due from banks $ 1 $ 4,545,343 $ 6,174,798 $ 2,468,087
Federal funds sold 2,150,000 4,207,000 2,673,000
Investment securities available for sale 25,883,187 22,236,228 23,182,047
Investment securities held to maturity 3,537,952
Loans, net 65,813,796 56,033,412 40,180,058
Accrued interest receivable 742,807 711,989 516,071
Premises and equipment, net 4,456,821 5,954,581 2,596,466
Other real estate owned 208,295
Deferred income taxes 200,677 315,852 250,543
Prepaids and other assets 147,947 86,491 138,515
------------ ------------- ------------ -------------
Total assets $ 1 $ 107,478,530 $ 95,720,351 $ 72,213,082
============ ============= ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing $ $ 74,344,697 $ 74,430,885 $ 54,282,199
Noninterest bearing 21,611,724 10,789,505 10,816,226
------------ ------------- ------------ -------------
Total deposits 95,956,421 85,220,390 65,098,425
Securities sold under agreements
to repurchase 2,790,990 2,211,244 365,000
Accrued interest payable 111,410 124,546 66,821
Accounts payable and other
accrued expenses 80,738 322,298 123,526
------------ ------------- ------------ -------------
Total liabilities 98,939,559 87,878,478 65,653,772
------------ ------------- ------------ -------------
Stockholders' equity:
Common stock 1 2,555,875 2,434,175 2,378,125
Additional paid-in capital 2,763,787 2,559,580 2,500,034
Retained earnings 3,273,315 2,883,095 1,727,480
Accumulated other comprehensive income (54,006) (34,977) (46,329)
------------ ------------- ------------ -------------
Total stockholders' equity 1 8,538,971 7,841,873 6,559,310
------------ ------------- ------------ -------------
Total liabilities and stockholders' equity $ 1 $ 107,478,530 $ 95,720,351 $ 72,213,082
============ ============= ============ =============
<CAPTION>
ASSETS
ADJUSTMENTS COMBINED
------------ ----------
<S> <C> <C>
Cash and due from banks $ 13,188,229
Federal funds sold 9,030,000
Investment securities available for sale 71,301,462
Investment securities held to maturity 3,537,952
Loans, net 162,027,266
Accrued interest receivable 1,970,867
Premises and equipment, net 13,007,868
Other real estate owned 208,295
Deferred income taxes 767,072
Prepaids and other assets 372,953
------------
Total assets $275,411,964
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing $203,057,781
Noninterest bearing 43,217,455
------------
Total deposits 246,275,236
Securities sold under agreements
to repurchase 5,367,234
Accrued interest payable 302,777
Accounts payable and other
accrued expenses 526,562
------------
Total liabilities 252,471,809
============
Stockholders' equity:
Common stock 7,368,176
Additional paid-in capital 7,823,401
Retained earnings 7,883,890
Accumulated other comprehensive income (135,312)
------------
Total stockholders' equity 22,940,155
------------
Total liabilities and stockholders' equity $275,411,964
============
</TABLE>
9
<PAGE> 15
CENTERSTATE BANKS OF FLORIDA, INC.
Pro Forma Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
FIRST NATIONAL/ COMMUNITY FIRST NATIONAL/
ASSETS OSCEOLA NAT'L/PASCO POLK
--------------- ------------- ---------------
<S> <C> <C> <C>
Cash and due from banks $ 4,687,944 $ 3,787,574 $ 3,106,304
Federal funds sold 5,017,000 5,175,000 3,752,000
Investment securities available for sale 35,818,706 21,955,703 23,809,823
Investment securities held to maturity 2,555,226
Loans, net 56,591,397 55,783,943 39,414,516
Accrued interest receivable 753,990 666,606 533,345
Premises and equipment, net 3,714,825 5,294,524 2,701,899
Other real estate owned 34,672 203,179
Deferred income taxes 91,869 235,942 184,117
Prepaids and other assets 93,959 46,960 72,493
------------ ------------ ------------
Total assets $109,324,916 $ 92,980,924 $ 73,777,676
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing $ 78,886,965 $ 73,322,182 $ 57,359,893
Noninterest bearing 18,670,815 11,324,586 10,066,213
------------ ------------ ------------
Total deposits 97,557,780 84,646,768 67,426,106
Securities sold under agreements
to repurchase 3,978,073 652,948 255,000
Accrued interest payable 143,246 144,862 91,057
Accounts payable and other
accrued expenses 189,294 89,694 115,617
------------ ------------ ------------
Total liabilities 101,868,393 85,534,272 67,887,780
------------ ------------ ------------
Stockholders' equity:
Common stock 2,255,545 2,307,925 2,206,250
Additional paid-in capital 2,334,249 2,430,696 2,250,547
Retained earnings 2,741,285 2,591,424 1,364,345
Accumulated other comprehensive income 125,444 116,607 68,754
------------ ------------ ------------
Total stockholders' equity 7,456,523 7,446,652 5,889,896
------------ ------------ ------------
Total liabilities and stockholders' equity $109,324,916 $ 92,980,924 $ 73,777,676
============ ============ ============
<CAPTION>
ASSETS ADJUSTMENTS COMBINED
-------------- --------------
<S> <C> <C>
Cash and due from banks $ 11,581,823
Federal funds sold 13,944,000
Investment securities available for sale 81,584,232
Investment securities held to maturity 2,555,226
Loans, net 151,789,856
Accrued interest receivable 1,953,941
Premises and equipment, net 11,711,248
Other real estate owned 237,851
Deferred income taxes 511,928
Prepaids and other assets 213,412
--------------
Total assets $ 276,083,517
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing $209,569,040
Noninterest bearing 40,061,614
--------------
Total deposits 249,630,654
Securities sold under agreements
to repurchase 4,886,021
Accrued interest payable 379,165
Accounts payable and other
accrued expenses 394,605
--------------
Total liabilities 255,290,445
==============
Stockholders' equity:
Common stock 6,769,721
Additional paid-in capital 7,015,492
Retained earnings 6,697,054
Accumulated other comprehensive income 310,805
--------------
Total stockholders' equity 20,793,072
--------------
Total liabilities and stockholders' equity $ 276,083,517
==============
</TABLE>
10
<PAGE> 16
CENTERSTATE BANKS OF FLORIDA, INC.
Pro Forma Statement of Operations
For the Nine Month Period Ended September 30, 1999
<TABLE>
<CAPTION>
FIRST NATIONAL/ COMMUNITY FIRST NATIONAL/
CENTERSTATE OSCEOLA NAT'L/PASCO POLK ADJUSTMENTS COMBINED
----------- --------------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 4,086,715 3,756,223 2,610,461 $10,453,399
Investment securities 1,364,759 928,884 1,003,904 3,297,547
Federal funds sold 129,945 206,698 119,377 456,020
------- ---------- ---------- ---------- -----------
TOTAL INTEREST INCOME 0 5,581,419 4,891,805 3,733,742 14,206,966
------- ---------- ---------- ---------- -----------
INTEREST EXPENSE
Deposits 2,357,005 2,256,364 1,507,428 6,120,797
Securities sold under agreements
to repurchase 99,592 25,874 12,315 137,781
------- ---------- ---------- ---------- -----------
TOTAL INTEREST EXPENSE 0 2,456,597 2,282,238 1,519,743 6,258,578
------- ---------- ---------- ----------
NET INTEREST INCOME 0 3,124,822 2,609,567 2,213,999 7,948,388
Provision for loan losses 99,000 9,000 63,000 171,000
------- ---------- ---------- ---------- -----------
NET INTEREST INCOME AFTER
LOAN LOSS PROVISION 0 3,025,822 2,600,567 2,150,999 7,777,388
------- ---------- ---------- ---------- -----------
NON INTEREST INCOME
Service charges on deposit accounts 519,922 431,091 173,351 1,124,364
Other service charges and fees 130,550 45,688 93,003 269,241
------- ---------- ---------- ---------- -----------
TOTAL NON INTEREST INCOME 0 650,472 476,779 266,354 1,393,605
------- ---------- ---------- ---------- -----------
NON INTEREST EXPENSE
Salaries, wages and employee benefits 1,215,246 1,079,930 769,828 3,065,004
Occupancy expense 366,930 302,497 189,567 858,994
Depreciation of premises and equipment 243,949 231,857 164,150 639,956
Stationery and printing supplies 118,527 58,175 67,121 243,823
Advertising and public relations 64,884 59,331 37,591 161,806
Data processing expense 211,133 180,091 168,900 560,124
Legal and professional fees 70,245 77,196 49,354 196,795
Other expenses 545,174 395,353 266,439 1,206,966
------- ---------- ---------- ---------- -----------
NON INTEREST EXPENSE 0 2,836,088 2,384,430 1,712,950 6,933,468
------- ---------- ---------- ---------- -----------
INCOME BEFORE INCOME TAXES 840,206 692,916 704,403 2,237,525
Provision for income taxes 308,176 255,194 255,656 819,026
------- ---------- ---------- ---------- ===========
NET INCOME $ 0 $ 532,030 $ 437,722 $ 448,747 $ 1,418,499
======= ========== ========== ========== ===========
Earnings per share of common stock:
Basic -- $ 0.56 $ 0.47 $ 0.59 $ 0.54
Diluted -- $ 0.54 $ 0.45 $ 0.57 $ 0.51
Average number of common shares
outstanding:
Basic 1 942,016 940,142 762,398 2,644,557
Diluted 1 991,478 976,613 791,736 2,759,828
</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/
OSCEOLA NAT'L/PASCO POLK ADJUSTMENTS COMBINED
-------------- ------------ -------------- ----------- ------------
INTEREST INCOME <C> <C>
<S> <C> <C> <C>
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 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 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 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 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 3,075,149 2,494,681 2,014,106 7,583,936
---------- ---------- ---------- -----------
INCOME BEFORE INCOME TAXES 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 $ 893,891 $ 701,663 $ 691,291 $ 2,286,845
========== ========== ========== ===========
Earnings per share of common stock:
Basic $ 1.00 $ 0.76 $ 0.98 $ 0.90
Diluted $ 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
CENTERSTATE BANKS OF FLORIDA, INC.
Pro Forma Statement of Operations
For the year ended December 31, 1997
<TABLE>
<CAPTION>
FIRST NATIONAL/ COMMUNITY FIRST NATIONAL/
OSCEOLA NAT'L/PASCO POLK
-------------- ------------- --------------
INTEREST INCOME
<S> <C> <C> <C>
Loans $ 4,860,932 $4,546,805 $3,145,803
Investment securities 1,031,926 998,874 1,097,001
Federal funds sold 362,596 261,436 196,637
----------- ---------- ----------
TOTAL INTEREST INCOME 6,255,454 5,807,115 4,439,441
----------- ---------- ----------
INTEREST EXPENSE
Deposits 2,735,645 2,916,542 1,939,256
Securities sold under agreements
to repurchase 81,883 40,090 20,189
----------- ---------- ----------
TOTAL INTEREST EXPENSE 2,817,528 2,956,632 1,959,445
----------- ---------- ----------
NET INTEREST INCOME 3,437,926 2,850,483 2,479,996
Provision for loan losses 212,400 150,000 73,000
----------- ---------- ----------
NET INTEREST INCOME AFTER
LOAN LOSS PROVISION 3,225,526 2,700,483 2,406,996
----------- ---------- ----------
NON INTEREST INCOME
Service charges on deposit accounts 439,390 336,680 140,569
Other service charges and fees 90,309 36,849 68,822
Gain on sale of other real estate owned 148,985
Loss on sale of available for sale securities (5,874)
----------- ---------- ----------
TOTAL NON INTEREST INCOME 523,825 522,514 209,391
----------- ---------- ----------
NON INTEREST EXPENSE
Salaries, wages and employee benefits 1,205,179 893,967 802,415
Occupancy expense 427,171 195,728 214,413
Depreciation of premises and equipment 206,238 172,896 167,278
Stationery and printing supplies 109,984 64,677 83,164
Advertising and public relations 70,633 53,209 45,518
Data processing expense 198,819 109,566 132,931
Legal and professional fees 66,728 136,945 36,223
Other expenses 457,454 287,041 284,001
----------- ---------- ----------
TOTAL NON INTEREST EXPENSE 2,742,206 1,914,029 1,765,943
----------- ---------- ----------
NET INCOME BEFORE INCOME TAXES 1,007,145 1,308,968 850,444
Provision for income taxes 405,413 484,235 302,751
----------- ---------- ----------
NET INCOME $ 601,732 $ 824,733 $ 547,693
=========== ========== ==========
Earnings per share of common stock:
Basic $0.71 $0.98 $0.83
Diluted $0.66 $0.91 $0.78
Average number of common shares
outstanding:
Basic 851,644 844,621 650,885
Diluted 912,318 911,214 698,546
<CAPTION>
ADJUSTMENTS COMBINED
----------- -------------
INTEREST INCOME
<S> <C> <C>
Loans $12,553,540
Investment securities 3,127,801
Federal funds sold 820,669
-----------
TOTAL INTEREST INCOME 16,502,010
-----------
INTEREST EXPENSE
Deposits 7,591,443
Securities sold under agreements
to repurchase 142,162
-----------
TOTAL INTEREST EXPENSE 7,733,605
-----------
NET INTEREST INCOME 8,768,405
Provision for loan losses 435,400
-----------
NET INTEREST INCOME AFTER
LOAN LOSS PROVISION 8,333,005
-----------
NON INTEREST INCOME
Service charges on deposit accounts 916,639
Other service charges and fees 195,980
Gain on sale of other real estate owned
Loss on sale of available for sale securities
-----------
TOTAL NON INTEREST INCOME 1,255,730
-----------
NON INTEREST EXPENSE
Salaries, wages and employee benefits 2,901,561
Occupancy expense 837,312
Depreciation of premises and equipment 546,412
Stationery and printing supplies 257,825
Advertising and public relations 169,360
Data processing expense 441,316
Legal and professional fees 239,896
Other expenses 1,028,496
-----------
TOTAL NON INTEREST EXPENSE 6,422,178
-----------
NET INCOME BEFORE INCOME TAXES 3,166,557
Provision for income taxes 1,192,399
-----------
NET INCOME $ 1,974,158
===========
Earnings per share of common stock:
Basic $ 0.84
Diluted $ 0.78
Average number of common shares
outstanding:
Basic 2,355,150
Diluted 2,522,078
</TABLE>
13
<PAGE> 19
CENTERSTATE BANKS OF FLORIDA, INC.
Pro Forma Statement of Operations
For the nine month period ended September 30, 1998
<TABLE>
<CAPTION>
FIRST NATIONAL/ COMMUNITY FIRST NATIONAL/
OSCEOLA NAT'L/PASCO POLK
-------------- ------------- --------------
INTEREST INCOME
<S> <C> <C> <C>
Loans $3,864,760 $3,587,471 $2,577,351
Investment securities 1,010,700 817,155 943,084
Federal funds sold 515,654 233,372 240,937
---------- ---------- -----------
TOTAL INTEREST INCOME 5,391,114 4,637,998 3,761,372
---------- ---------- -----------
INTEREST EXPENSE
Deposits 2,481,065 2,250,329 1,648,927
Securities sold under agreements
to repurchase 54,146 50,533 30,578
---------- ---------- -----------
TOTAL INTEREST EXPENSE 2,535,211 2,300,862 1,679,505
---------- ---------- -----------
NET INTEREST INCOME 2,855,903 2,337,136 2,081,867
Provision for loan losses 96,000 150,000 39,000
---------- ---------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,759,903 2,187,136 2,042,867
---------- ---------- -----------
NON INTEREST INCOME
Service charges on deposit accounts 409,657 301,865 141,944
Other service charges and fees 92,910 29,901 56,951
---------- ---------- -----------
TOTAL NON INTEREST INCOME 502,567 331,766 198,895
---------- ---------- -----------
NON INTEREST EXPENSE
Salaries, wages and employee benefits 972,001 839,014 660,931
Occupancy expense 279,080 194,473 165,960
Depreciation of premises and equipment 196,600 157,069 166,300
Stationery and printing supplies 70,809 55,454 64,096
Advertising and public relations 54,515 30,641 41,770
Data processing expense 168,532 152,866 132,029
Legal and professional fees 71,385 74,713 55,853
Other expenses 403,469 285,205 249,672
---------- ---------- -----------
TOTAL NON INTEREST EXPENSE 2,216,391 1,789,435 1,536,611
---------- ---------- -----------
NET INCOME BEFORE INCOME TAXES 1,046,079 729,467 705,151
Provision for income taxes 387,096 295,538 220,587
---------- ---------- -----------
NET INCOME $ 658,983 $ 433,929 $ 484,564
========== ========== ===========
Earnings per share of common stock:
Basic $ 0.74 $ 0.47 $ 0.69
Diluted $ 0.69 $ 0.45 $ 0.65
Average number of common shares
outstanding:
Basic 892,258 922,746 706,399
Diluted 958,226 973,103 747,790
<CAPTION>
ADJUSTMENTS COMBINED
------------- -------------
INTEREST INCOME
<S> <C> <C>
Loans $10,029,582
Investment securities 2,770,939
Federal funds sold 989,963
-----------
TOTAL INTEREST INCOME 13,790,484
-----------
INTEREST EXPENSE
Deposits 6,380,321
Securities sold under agreements
to repurchase 135,257
-----------
TOTAL INTEREST EXPENSE 6,515,578
-----------
NET INTEREST INCOME 7,274,906
Provision for loan losses 285,000
-----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,989,906
-----------
NON INTEREST INCOME
Service charges on deposit accounts 853,466
Other service charges and fees 179,762
-----------
TOTAL NON INTEREST INCOME 1,033,228
-----------
NON INTEREST EXPENSE
Salaries, wages and employee benefits 2,471,946
Occupancy expense 639,513
Depreciation of premises and equipment 519,969
Stationery and printing supplies 190,359
Advertising and public relations 126,926
Data processing expense 453,427
Legal and professional fees 201,951
Other expenses 938,346
-----------
TOTAL NON INTEREST EXPENSE 5,542,437
-----------
NET INCOME BEFORE INCOME TAXES 2,480,697
Provision for income taxes 903,221
-----------
NET INCOME $ 1,577,476
===========
Earnings per share of common stock:
Basic $ 0.63
Diluted $ 0.59
Average number of common shares
outstanding:
Basic 2,521,673
Diluted 2,679,119
</TABLE>
14
<PAGE> 20
THE SPECIAL MEETING
GENERAL
This proxy statement/prospectus and the accompanying proxy card are
being mailed to you on or about _________, 2000. The Community National Bank
board of directors will be soliciting proxies from the holders of Community
National Bank 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 Community National Bank with a national banking subsidiary to
be organized by Centerstate Banks of Florida. The Community National Bank 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 Community National Bank, at
920 North Bermuda Avenue, Kissimmee, Florida 34741.
SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE
Only holders of record of Community National Bank 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 486,835 shares of Community National Bank 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 Community National Bank 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 Community National Bank common stock
outstanding.
As of __________, 2000, the Community National Bank directors,
executive officers and their affiliates owned 42.73% of the outstanding stock of
Community National Bank. Community National Bank management anticipates that
these persons will vote in favor of the merger.
VOTING AND SOLICITATION OF PROXIES
All shares of Community National Bank 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 Community National Bank 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
Community National Bank a written notice of revocation
15
<PAGE> 21
bearing a later date than the proxy, (2) duly executing a later dated proxy
relating to the same shares and delivering it to the Secretary of Community
National Bank 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 Community
National Bank, 6930 Gall Blvd., Zephyrhills, Florida 33541-2513, Attention:
James S. Stalnaker, Jr., or hand delivered to Mr. Stalnaker at or before the
taking of the vote at the special meeting.
Community National Bank 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 Community National Bank 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 Community National Bank
common stock held of record by such persons. Community National Bank may
reimburse these custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses they incur in connection with the solicitation.
16
<PAGE> 22
THE MERGER
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 Community
National Bank signed a merger agreement. The merger agreement provides that
Community National Bank will merge into an interim national banking subsidiary
to be formed by Centerstate Banks of Florida. After the merger, Community
National Bank 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
Community National Bank 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 Polk County and First National Bank of Osceola
County. The merger involving Community National Bank will not be completed
unless Centerstate Banks of Florida at the same time completes its mergers with
First National Bank of Polk County and First National Bank of Osceola County.
Thus, if the merger is completed, Centerstate Banks of Florida will have three
separate subsidiary banks consisting of Community National Bank, First National
Bank of Polk County, and First National Bank of Osceola County. For additional
information regarding First National Bank of Osceola County, see the information
beginning at Appendix D to this proxy statement/prospectus. For additional
information regarding First National Bank of Polk County, see the information
beginning at Appendix E to this proxy statement/prospectus. Also, additional
financial information regarding First National Bank of Polk County and First
National Bank of Osceola County is included under the section entitled "Index to
Financial Statements," beginning on page F-1.
Assuming the conversion of all Community National Bank common stock,
and the conversion of all First National Bank of Polk County and First National
Bank of Osceola County common stock in their mergers, the consummation of the
Community National Bank, First National Bank of Polk County and First National
Bank of Osceola County mergers would result in 34.6%, 29.2%, and 36.2% of the
outstanding Centerstate Banks of Florida common stock being owned by Community
National Bank shareholders, First National Bank of Polk County shareholders, and
First National Bank of Osceola 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 as separate
community banks in Central Florida. Mr. White currently serves as Chairman of
the Board of First National Bank of Osceola County and Community National Bank,
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 Bank of Polk County. Mr. White
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<PAGE> 23
has served as Chairman of the Board of First National Bank of Polk County since
its opening in 1992. The Organizers of First National Bank of Polk County were
aware of the interest by Community National Bank and First National Bank of
Osceola 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, Community National Bank, First National Bank of
Osceola County and First National Bank of Polk 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, Community National Bank, First National
Bank of Osceola County and First National Bank of Polk 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 o 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.
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<PAGE> 24
Ewing developing a report for presentation to the three banks as well as to
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 2.02 shares of Centerstate Banks of Florida common stock for each
outstanding share of Community National Bank, 2.00 shares of Centerstate Banks
of Florida common stock for each outstanding share of First National Bank of
Osceola County, and 1.62 shares of Centerstate Banks of Florida common stock for
each outstanding share of First National Bank of Polk 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
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 directors and
Centerstate Banks of Florida. In connection with the meeting, Allen C. Ewing had
advised Community National Bank that the conversion ratio is fair, from a
financial point of view, to the shareholders of Community National Bank.
Community National Bank's board then unanimously approved the merger agreement.
Community National Bank management also was authorized to execute the merger
agreement.
On November 18, 1999, the Board of Directors of First National Bank of
Polk 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 Polk County
directors and Centerstate Banks of Florida In connection with the meeting, Allen
C. Ewing had advised First National Bank of Polk County that the conversion
ratio is fair, from a financial point of view, to the shareholders of First
National Bank of Polk County. First National Bank of Polk County's board then
unanimously approved the merger agreement. First National Bank of Polk
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<PAGE> 25
County management also was authorized to execute the merger agreement.
On December 10, 1999, Centerstate Banks of Florida approved and entered
into the separate merger agreements with Community National Bank, First National
Bank of Osceola County, and First National Bank of Polk 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 COMMUNITY NATIONAL BANK BOARD
The Community National Bank board of directors has unanimously approved
the merger agreement and recommends that you vote FOR approval and adoption of
the merger agreement. The Community National Bank board of directors has
determined that the merger is in your best interest and in the best interest of
Community National Bank.
Without assigning any relative or specific weights to the factors, the
board of directors of Community National Bank considered the following material
factors:
- The terms of the merger agreement, including the conversion
ratio;
- The overall compatibility of operations and management of
Community National Bank, First National Bank of Polk County,
and First National Bank of Osceola County;
- The tax-free nature of the merger to Community National Bank
and the treatment of the merger as a pooling of interest for
accounting purposes;
- The likelihood of receiving requisite regulatory approvals;
- Economic and other conditions affecting the banking industry;
- That the merger will afford Community National Bank 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 First National Bank of Osceola County mergers,
would have greater financial resources than Community National
Bank;
- That after the merger, Community National Bank 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;.
- That the merger would increase the ability to compete with
other banks and financial service institutions not only
through a more expansion branch network and lending capacity,
but also through pricing reflecting the economies and cost
reductions afforded by a combination of the three
organizations; and
- That upon completion of the merger, Centerstate Banks of
Florida intends to qualify its shares to be eligible for
trading on the NASDAQ system.
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<PAGE> 26
Community National Bank 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 Community
National Bank shareholders. See "Opinion of financial advisor" below.
THE BOARD OF DIRECTORS OF COMMUNITY NATIONAL BANK UNANIMOUSLY
RECOMMENDS THAT COMMUNITY NATIONAL BANK SHAREHOLDERS VOTE FOR APPROVAL OF THE
MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
GENERAL
Community National Bank 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 First National Bank of Polk County to serve
as financial advisor in connection with the merger. Allen C. Ewing delivered to
Community National Bank 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 Community National Bank.
Allen C. Ewing is regularly engaged in the valuation of securities in
connection with mergers and acquisitions, underwritings, private placements,
trading and market making activities, and valuations for various other purposes
for commercial banks. The board of directors of Community National Bank 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
Community National Bank.
- Allen C. Ewing's opinion is directed to the board of directors
of Community National Bank and addresses only the fairness,
from a financial point of view, of the conversion ratio to the
shareholders of Community National Bank.
- Allen C. Ewing's opinion was based on information provided by
Community National Bank, First National Bank of Osceola
County, and First National Bank of Polk 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 First National Bank of Polk County at the
same time it completes its merger with Community
National Bank.
- Allen C. Ewing was not engaged to make any recommendations to
the board of directors of Community National Bank 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
Community National Bank to enter into the merger.
- Allen C. Ewing's opinion does not constitute a recommendation
to any Community National Bank shareholder as to how he or
she should vote on the merger.
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In connection with its opinion, Allen C. Ewing reviewed, analyzed and
relied upon the following information provided by the management of Community
National Bank, First National Bank of Osceola County, and First National Bank
of Polk 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
- 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 Community National Bank,
First National Bank of Osceola County, and First National Bank of Polk 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 Community National Bank,
First National Bank of Osceola County, and First National Bank of Polk 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,
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<PAGE> 28
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
Community National Bank, First National Bank of Osceola County, First National
Bank of Polk 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
2.02 shares of Centerstate Banks of Florida common stock for each outstanding
share of Community National Bank 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 1.62 shares of Centerstate Banks of Florida
common stock for each outstanding share of First National Bank of Polk 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
Community National Bank common stock outstanding will be converted into the
right to receive 2.02 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 Community National Bank, First
National Bank of Osceola County, and First National Bank of Polk County,
discounted cash flow analysis was not utilized by Allen C. Ewing.
CONTRIBUTION ANALYSIS. Allen C. Ewing calculated the contributions by
Community National Bank, First National Bank of Osceola County, and First
National Bank of Polk 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 Bank of Florida by the shareholders
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<PAGE> 29
from each of the three banks after the merger.
<TABLE>
<CAPTION>
First National First National
Bank of Osceola Bank of Polk Community
County County National Bank
Contribution to Contribution to Contribution to
Centerstate Centerstate Centerstate
------------------- -------------------- -----------------------
<S> <C> <C> <C>
AT OR FOR THE TRAILING TWELVE
MONTHS ENDED SEPTEMBER 30, 1999:
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%
AT OR FOR THE YEAR ENDING DECEMBER 31, 2000:
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%
First National First National
Bank of Osceola Bank of Polk Community
County County National Bank
------------------- -------------------- -----------------------
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 Community National Bank, First National Bank
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<PAGE> 30
of Osceola County, and First National Bank of Polk County. Allen C. Ewing's
analysis showed that the merger, compared to the continued operation of
Community National Bank on a stand-alone basis, would be:
- accretive to earnings per share and accretive to fully
diluted book value per share for the trailing twelve months
ended September 30, 1999;
- accretive to forecasted earnings per share and accretive to
fully diluted forecasted book value per share for the year
ending December 31, 1999; and
- accretive to forecasted earnings per share and accretive 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:
- accretive to earnings per share and dilutive to fully diluted
book value per share for the trailing twelve months ended
September 30, 1999;
- accretive to forecasted earnings per share and dilutive to
fully diluted forecasted book value per share for the year
ending December 31, 1999; and
- dilutive to forecasted earnings per share and 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 Polk County on a stand-alone basis, would
be:
- dilutive to earnings per share and dilutive to fully diluted
book value per share for the trailing twelve months ended
September 30, 1999;
- dilutive to forecasted earnings per share and dilutive to
fully diluted forecasted book value per share for the year
ending December 31, 1999; and
- dilutive to forecasted earnings per share and dilutive 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 Community National Bank common stock and concluded that no active
trading market exists for Community National Bank 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 Community National Bank, First National
Bank of Osceola
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<PAGE> 31
County, or First National Bank of Polk 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 Community
National Bank, First National Bank of Osceola County, and First National Bank
of Polk 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
Community National Bank. 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 Community
National Bank 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 Community
National Bank, First National Bank of Osceola County, First National Bank of
Polk County, or Centerstate Banks of Florida.
COMPENSATION OF ALLEN C. EWING
Community National Bank, First National Bank of Osceola County, and
First National Bank of Polk County have agreed to pay Allen C. Ewing a total
fee equal to $25,000 ($8,333 each) for financial advisory 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.
CONVERSION RATIO
As a result of the merger, each share of Community National Bank
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 2.02 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 Community National Bank common stock otherwise
entitled to a fractional share will be paid cash in lieu of such fractional
share based on the book value of Community National Bank common stock on the
last day of the month prior to or on the date the merger becomes effective.
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<PAGE> 32
INTEREST OF CERTAIN PERSONS IN THE MERGER
All of Community National Bank's directors and officers will obtain an
equity interest in Centerstate Banks of Florida in exchange for their shares of
Community National Bank 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 Community National Bank common stock owned by him or her as every
other Community National Bank shareholder. Directors and officers of Community
National Bank will be treated the same as other Community National Bank
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 Community National Bank" below.
Community National Bank has outstanding stock options covering 11,375
shares of Community National Bank 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 e number, of (1) the number of shares
of Community National Bank 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 Community National Bank common stock will receive Centerstate Banks of
Florida common stock in the merger in the same manner as any other Community
National Bank 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 Community National Bank 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 Community
National Bank.
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 Community National Bank 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
Community National Bank shareholders a 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 merger is subject to prior approval by the appropriate banking
regulatory authorities. An application was filed for approval of the merger
with the Board of Governors of the Federal Reserve System on December 17, 1999.
An application for approval of the merger also was filed with the Office of the
Comptroller of the Currency on December 17, 1999. The merger cannot be closed
in the absence of these regulatory approvals. Although there can be no
assurance, we believe that the required a regulatory approvals will be
obtained.
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<PAGE> 33
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 Community National Bank who wishes to exercise his or her dissenters'
rights:
- must either give written notice to the President of Community
National Bank, 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 Community National Bank for
appraisal; and
- must send his or her Community National Bank stock
certificates with the written request for appraisal.
The written notices and written requests to Community National Bank
should be addressed to: James S. Stalnaker, Jr., President and Chief Executive
Officer, Community National Bank of Pasco County, 6930 Gall Blvd., Zephyrhills,
Florida 33541-2513.
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 Community National Bank. The third 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 Community
National Bank.
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 Community
National Bank 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.
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<PAGE> 34
RESALES OF CENTERSTATE BANKS OF FLORIDA COMMON STOCK TO BE RECEIVED BY
AFFILIATES OF COMMUNITY NATIONAL BANK
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 Community National Bank 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 Community National Bank 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 Community National Bank 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 n concert, may make within any
three-month period.
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 will provide 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 Community National Bank 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
29
<PAGE> 35
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 Community National
Bank that the merger will have the following federal income tax consequences:
- No gain or loss will be recognized by Centerstate Banks of
Florida or Community National Bank as a result of the
transactions contemplated in the merger agreement;
- No gain or loss will be recognized by the shareholders of
Community National Bank as a result of their exchange of
Community National Bank 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 Community National Bank 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 Community National Bank common stock
exchanged therefor.
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 COMMUNITY NATIONAL BANK 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 Community National Bank common stock to be used to exchange shares of
Community National Bank 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
Community National Bank common stock will be deemed to represent only the right
to receive:
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<PAGE> 36
- 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 Community
National Bank 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, Community National Bank 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 Community National Bank 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;
- 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, Community National
Bank and Centerstate Banks of Florida have each agreed that it will not
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<PAGE> 37
- 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 Community National Bank 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 Polk County and First d National Bank of Osceola 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.
CONDITIONS FOR THE MERGER
The obligations of Community National Bank 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 Community
National Bank common stock;
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<PAGE> 38
- 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
Community National Bank 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 Community National Bank 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 Community
National Bank 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 Polk
County and First National Bank of Osceola 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 Community National Bank. In addition, the merger agreement may be
terminated at any time by either Centerstate Banks of Florida or Community
National Bank 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;
- if the merger fails to receive approval of the Community
National Bank 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
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<PAGE> 39
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 Community
National Bank.
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<PAGE> 40
DIFFERENCE IN RIGHTS OF CENTERSTATE BANKS OF BANKS OF FLORIDA
AND COMMUNITY NATIONAL BANK SHAREHOLDERS
As a result of the merger, shareholders of Community National Bank
will exchange their shares of common stock in Community National Bank for
shares of common stock in Centerstate Banks of Florida and will become
shareholders of Centerstate Banks of Florida. Community National Bank 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 Community National Bank 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 Community
National Bank.
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.
Community National Bank articles authorize the issuance of up to 509,500 shares
of Community National Bank 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
Community National Bank articles do not authorize the issuance of any shares of
Community National Bank 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 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
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<PAGE> 41
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 Community National Bank common stock is entitled to one
vote for each share of Community National Bank common stock held, except in the
election of directors. In all elections of directors, each Community National
Bank shareholder has the right to vote the number of shares of Community
National Bank 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.
Community National Bank may effect mergers or consolidations if the
holders of at least two-thirds of the outstanding shares of Community National
Bank 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 Community National Bank shareholders may be called
by the Board or any 20 or more shareholders owning, in the aggregate, not less
than 20% of the outstanding Community National Bank 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 Community National Bank common stock are entitled to
dividends when, as and if declared by Community National Bank'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 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
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<PAGE> 42
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 Community National Bank, First National Bank of Polk County and First
National Bank of Osceola 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 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-
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<PAGE> 43
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 Community National Bank, First National Bank of Polk County
and First National Bank of Osceola 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.
Community National Bank 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
Community National Bank common stock. Management of Community National Bank 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 Community National Bank common stock that occurred in transactions
known to Community National Bank since January 1, 1998:
<TABLE>
<CAPTION>
1998 1999
---- ----
HIGH LOW SHARES HIGH LOW SHARES
---- --- ------ ---- --- ------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $25.00 $23.00 2,200 $28.50 $28.50 200
2nd Quarter 30.00 25.00 2,320 30.00 28.50 600
3rd Quarter 28.00 28.00 2,500 32.00 32.00 500
4th Quarter 28.50 27.50 900 32.00 29.00 7,850
</TABLE>
The last sale of Community National Bank common stock of which
Community National Bank management had knowledge occurred on December 9, 1999
at a price of $29.00 per share. This also was the last sale prior to the
December 10, 1999 date of the merger agreement. As noted above, there is no
established public trading market for the shares of Community National Bank
common stock or Centerstate Banks of Florida common stock.
Community National Bank had approximately 282 shareholders of record
as of December 31, 1999.
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DIVIDENDS
Since Centerstate Banks of Florida has not commenced any business, it
has not paid any dividends. Community National Bank paid cash dividends of $.25
per share in 1998, and $.30 per share in 1999, respectively. The Centerstate
Banks of Florida board may consider the payment of regular quarterly dividends
following completion of the Community National Bank, First National Bank of
Polk County and First National Bank of Osceola 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 Community National Bank, First National Bank of Polk County and
First National Bank of Osceola 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
Community National Bank 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 Community National
Bank, First National Bank of Polk County and First National Bank of Osceola
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 Community National Bank, First National Bank of Polk County and
First National Bank of Osceola 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.
CONDUCT OF BUSINESS FOLLOWING THE MERGER
Following the merger, Centerstate Banks of Florida will own all of the
outstanding shares of Community National Bank, First National Bank of Polk
County and First National Bank of Osceola 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.
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DIRECTORS
The board of directors of Centerstate Banks of Florida consists of
seven persons, two of whom have been designated by each of Community National
Bank, First National Bank of Polk County, and First National Bank of Osceola
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 Community National
Bank of Pasco County, First National Bank
of Osceola County and First National Bank
of Polk 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>
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.
40
<PAGE> 46
<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
and Chief Executive Officer Executive Officer of Centerstate; Chairman
of the Board of Community National Bank of
Pasco County, First National Bank of
Osceola County and First National Bank of
Polk 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
Financial Officer 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 Community National Bank at
6930 Gall Blvd., Zephyrhills, Florida 33541-2513.
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.
41
<PAGE> 47
LEGAL PROCEEDINGS
Centerstate Banks of Florida is not a party to any legal proceeding.
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 September 30, 1999 and December 31, 1998 were $57.0 million, or 60% 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 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.
42
<PAGE> 48
Community National Bank's loans are concentrated in three major areas:
real estate loans, commercial loans, and consumer loans. At September 30, 1999,
84.9%, 10.7% and 4.4% 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 September 30, 1999 and December 31, 1998,
respectively, were made on a secured basis. As of September 30, 1999 and
December 31, 1998, 84.9% 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."
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 40.8% and 37.7% of Community
National Bank's total deposits at September 30, 1999 and December 31, 1998,
respectively. Approximately 59.2% and 62.3% of Community National Bank's
deposits at September 30, 1999 and
43
<PAGE> 49
December 31, 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 7.0% and 5.7% of Community
National Bank's total deposits at September 30, 1999 and December 31, 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 September 30, 1999, Community National Bank employed 51 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.
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)
</TABLE>
44
<PAGE> 50
<TABLE>
<CAPTION>
<S> <C> <C>
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>
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)
</TABLE>
45
<PAGE> 51
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
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 $100,000 in 1998.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS COMPENSATION COMPENSATION(1)
- ------------------ ---- --------- ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
James S. Stalnaker, 1998 $117,460 $ 0 $ 0 $20,098
President and Chief 1997 $107,460 $ 0 $ 0 $15,722
Executive Officer 1996 $ 97,691 $ 0 $ 0 $16,765
</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.
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
46
<PAGE> 52
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.
<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. 22,200 4.56%
James H. White 32,500 (9) 6.68%
P. O. Box 188
Haines City, FL 33845-0188
</TABLE>
47
<PAGE> 53
All directors and executive
officers as a group (15 persons) 208,028 42.73%
- ---------------------------
(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.
(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.
48
<PAGE> 54
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 a national
bank and is subject to the supervision of the Office of the Comptroller of the
Currency. At September 30, 1999, the Bank had total assets of $95.7 million,
total loans of $56.0 million, total deposits of $85.2 million, and total
shareholders' equity of $7.8 million. Net income for the nine months ended
September 30, 1999 and for the year ended December 31, 1998, was $438,000 and
$702,000 respectively, as compared with $434,000 and $825,000 for the nine
months ended September 30, 1998 and for the year ended December 31, 1997,
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 September 30, 1999 real estate loans were approximately 75% 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
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
Community National Bank's net income for the nine month period ended
September 30, 1999 was $438,000 compared to $434,000 for the nine month period
ending September 30, 1998. The net income per share for the periods ended
September 30, 1999 and 1998 were $0.94 ($0.90 diluted) and $0.95 ($0.90
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 the nine month period ended September 30, 1999
was 0.62% and 7.70% as compared to the ROA and ROE of 0.70% and 8.41% for the
nine month period ended September 30, 1998. The efficiency ratios for the two
periods ended September 30, 1999 and 1998 approximated 77% and 67%
respectively.
There were positive improvements in net interest income of
approximately $273,000 and in non interest income of approximately $145,000 in
the nine month period ending September 30, 1999 as compared to the same period
for 1998. The current provision for loan losses decreased by $141,000 and
49
<PAGE> 55
income tax expense decreased by $41,000. These positive impacts were offset by
the negative impacts resulting from a $596,000 increase in non-interest expense
for the nine month period ending September 30, 1999, compared to the same period
for 1998.
The improvement in 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 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.
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
Net income decreased $123,000, or 15%, to $702,000 in 1998 compared to
$825,000 in 1997. Earnings per share decreased $0.44 ($0.38 diluted), or 22%,
to $1.53 ($1.45 diluted) in 1998 compared to $1.97 ($1.83 diluted) in 1997. ROA
and ROE both decreased to 0.84% and 10.03% in 1998 compared to 1.10% and 14.30%
in 1997. Earnings per share was negatively impacted due to the issuance of
additional shares related to the exercise of stock options.
The increase in net income was due to an increase in net interest
margin $326,000, a decrease in income tax expense $91,000, and an increase in
non interest income $41,000. These positive effects on net income were offset by
an increase in non-interest expense $581,000. This was a result of Community
National Bank opening a new branch in November 1997 and two new branches in
October 1998.
NET INTEREST INCOME/MARGIN
Net interest income consists of interest and fee income generated by
earning assets, less interest expense.
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
Net interest income increased $273,000, or 12%, to $2,610,000 during
the nine month period ended September 30, 1999 compared to $2,337,000 for the
nine month period ended September 30, 1998. The $273,000 increase was a
combination of a $254,000 increase in interest income and a $19,000 decrease in
interest expense.
Average interest earning assets increased $9,144,000 to $83,901,000
during the nine month period ending September 30, 1999 compared to $74,757,000
for the nine month period ending September 30, 1998. Comparing these same two
periods, yield on average interest earning assets decreased from 8.29% to
7.80%. The increase in volume had a positive effect on the change in interest
income (+$535,000 volume variance), which was partially offset by the negative
impact resulting from the 0.49% decrease in average yields (-$281,000 rate
variance). The result was a $254,000 increase in interest income.
Average interest bearing liabilities increased $9,255,000 to
$75,301,000 during the nine month period ending September 30, 1999 compared to
$66,046,000 for the nine month period ending September 30, 1998. Comparing
these same two periods, the cost of average interest bearing liabilities
decreased from 4.66% to 4.05%. The increase in volume resulted in an increase
in interest expense (+$191,000
50
<PAGE> 56
volume variance), which was offset by the 0.61% decrease in average yields
(-$210,000 rate variance). The result was a $19,000 decrease in interest
expense.
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
Net interest income increased $326,000 or 11% to $3,176,000 during
1998 compared to $2,850,000 for 1997. The $326,000 increase was a combination
of a $467,000 increase in interest income and a $141,000 increase in interest
expense.
Average interest earning assets increased $7,092,000 to $75,995,000
during 1998 compared to $68,903,000 for 1997. Comparing these same two periods,
the yield on average interest earning assets decreased from 8.43% to 8.26%. The
increase in volume had a positive effect on the change in interest income
(+$537,000 volume variance), which was partially offset by the negative impact
resulting from the 0.17% decrease in average yields (-$70,000 rate variance).
The result was a $467,000 increase in interest income.
Average interest bearing liabilities increased $6,011,000 to
$67,250,000 during 1998 compared to $61,239,000 for 1997. Comparing these same
two periods, the cost of average interest bearing liabilities decreased from
4.83% to 4.61%. The increase in volume had an increasing effect on interest
expense (+$205,000 volume variance). The decrease in yield had a decreasing
effect on interest expense (-$64,000 rate variance). The result was a $141,000
increase in interest expense.
51
<PAGE> 57
AVERAGE BALANCES - YIELDS & RATES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------------------------------------------
1999 1998
------------------------------------- ------------------------------------
Average Interest Average Average Interest Average
Balance Inc / Exp Rate (1) Balance Inc / Exp Rate (1)
--------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal Funds Sold $ 5,681 $ 207 4.87% $ 5,679 $ 233 5.49%
Securities Available for Sale 22,649 929 5.48% 17,777 782 5.88%
Securities Held to Maturity 0 0 746 35 6.27%
Loans (2) (5) 55,571 3,756 9.04% 50,555 3,588 9.49%
--------- --------- -------- --------- --------- ---------
TOTAL EARNING ASSETS $ 83,901 $ 4,892 7.80% $ 74,757 $ 4,638 8.29%
All Other Assets 10,036 7,387
--------- ---------
TOTAL ASSETS $ 93,937 $ 82,144
========= =========
LIABILITIES & SHAREHOLDERS' EQUITY:
Deposits:
NOW & Money Markets $ 15,757 $ 204 1.73% $ 10,843 $ 135 1.66%
Savings 7,115 106 1.99% 5,049 76 2.01%
Time Deposits 51,477 1,946 5.05% 48,712 2,039 5.60%
Short Term Borrowings 952 26 3.65% 1,442 51 4.73%
--------- --------- --------- --------- --------- ---------
TOTAL INTEREST BEARING
LIABILITIES $ 75,301 $ 2,282 4.05% $ 66,046 $ 2,301 4.66%
Demand Deposits 10,991 9,119
Other Liabilities 62 95
Shareholders' Equity 7,583 6,884
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 93,937 $ 82,144
========= =========
NET INTEREST SPREAD (3) 3.74% 3.64%
========= =========
NET INTEREST INCOME $ 2,610 $ 2,337
========= =========
NET INTEREST MARGIN (4) 4.16% 4.18%
========= =========
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------
1998 1997
------------------------------------- ------------------------------------
Average Interest Average Average Interest Average
Balance Inc / Exp Rate (1) Balance Inc / Exp Rate (1)
--------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal Funds Sold $ 5,518 $ 296 5.36% $ 4,815 $ 261 5.42%
Securities Available for Sale 18,451 1,074 5.82% 12,382 746 6.02%
Securities Held to Maturity 558 35 6.27% 3,923 253 6.45%
Loans (2) (5) 51,468 4,869 9.46% 47,783 4,547 9.52%
--------- --------- --------- --------- --------- ---------
TOTAL EARNING ASSETS $ 75,995 $ 6,274 8.26% $ 68,903 $ 5,807 8.43%
All Other Assets 7,781 6,296
--------- ---------
TOTAL ASSETS $ 83,776 $ 75,199
========= =========
LIABILITIES & SHAREHOLDERS' EQUITY:
Deposits:
NOW & Money Markets $ 11,248 $ 187 1.66% $ 8,997 $ 159 1.77%
Savings 5,272 105 1.99% 4,080 82 2.01%
Time Deposits 49,461 2,747 5.55% 47,330 2,676 5.65%
Short Term Borrowings 1,269 59 4.65% 832 40 4.81%
--------- --------- --------- --------- --------- ---------
TOTAL INTEREST BEARING
LIABILITIES $ 67,250 $ 3,098 4.61% $ 61,239 $ 2,957 4.83%
Demand Deposits 9,417 8,045
Other Liabilities 109 146
Shareholders' Equity 7,000 5,769
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 83,776 $ 75,199
========= =========
NET INTEREST SPREAD (3) 3.65% 3.60%
========= =========
NET INTEREST INCOME $ 3,176 $ 2,850
========= =========
NET INTEREST MARGIN (4) 4.18% 4.14%
========= =========
</TABLE>
(1) Nine month data presented on an annualized basis.
(2) Interest income on average loans includes loan fee recognition of
$139,000 and $126,000 for the nine month periods ended September 30 1999
and 1998, and $185,000 and $175,000 for the years ended December 31,
1998 and 1997. 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.
(5) Loan balances are net of deferred fees/cost of origination and reserve
for loan loss allowances.
52
<PAGE> 58
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Net Change Sept 30, 1998-1999 Net Change Dec 31, 1998 - 1999
----------------------------------- -----------------------------------
Net Net
Volume (1) Rate (2) Change Volume (1) Rate (2) Change
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Federal Funds sold $ 0 $ (26) $ (26) $ 38 $ (3) $ 35
Securities Available for Sale 214 (67) 147 366 (38) 328
Securities Held to Maturity (35) 0 (35) (217) (1) (218)
Loans 356 (188) 168 351 (29) 322
----------------------------------- ----------------------------------
TOTAL INTEREST INCOME $ 535 $(281) $ 254 $ 537 $(70) $ 467
----------------------------------- ----------------------------------
INTEREST EXPENSE
Deposits
NOW & Money Market Accounts $ 61 $ 8 $ 69 $ 40 $(12) $ 28
Savings 31 (1) 30 24 (1) 23
Time Deposits 116 (209) (93) 120 (49) 71
Short-Term Borrowings (17) (8) (25) 21 (2) 19
----------------------------------- ----------------------------------
TOTAL INTEREST EXPENSE $ 191 $(210) $ (19) $ 205 $(64) $ 141
----------------------------------- ----------------------------------
NET INTEREST INCOME $ 345 $ (72) $ 273 $ 332 $ (6) $ 326
=================================== ==================================
</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.
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
The provision for loan loss expense decreased $141,000, or 94%, to
$9,000 during the nine month period ending September 30, 1999, as compared to
$150,000 for the comparable period in 1998. The difference was due primarily to
a change in management's assessments of conditions of individual borrowers and
the overall portfolio composition. At September 30, 1999 the allowance for loan
losses totaled $866,000, or 1.52%, of total loans outstanding compared to
$875,000, or 1.63%, of total loans outstanding at September 30, 1998.
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
The provision for loan loss expense was $150,000 for the year ended
December 31, 1998 and for the year ended December 31, 1997. At December 31, 1998
the allowance for loan losses totaled $866,000,
53
<PAGE> 59
or 1.53%, of total loans outstanding compared to $755,000, or 1.46%, of total
loans outstanding at December 31, 1997.
Management believes that Community National Bank's allowance for loan
losses was adequate at September 30, 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>
Nine Months Ended Years Ended
Sept 30 Dec 31
-------------------------- -----------------------
1999 1998 1998 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Balance at Beginning of Year $ 866 $ 755 $ 755 $ 654
Loans Charged-Off:
Commercial, Financial & Agricultural 0 (11) (11) (20)
Real Estate, Mortgage (54) (19) (28) (10)
Consumer 0 (2) (4) (29)
-------------------------- --------------------------
Total Loans Charged-Off $ (54) $ (32) $ (43) $ (59)
-------------------------- --------------------------
Recoveries on Loans Previously
Charged-Off:
Commercial, Financial & Agricultural $ 42 $ 2 $ 2 $ 9
Real Estate, Mortgage 2 0 0 1
Consumer 1 0 2 0
-------------------------- --------------------------
Total Loan Recoveries $ 45 $ 2 $ 4 $ 10
-------------------------- --------------------------
Net Loans Charged-Off $ (9) $ (30) $ (39) $ (49)
-------------------------- --------------------------
Provision for Loan Losses Charged
to Expense $ 9 $ 150 $ 150 $ 150
-------------------------- --------------------------
Ending Balance $ 866 $ 875 $ 866 $ 755
========================== ==========================
Total Loans Outstanding $ 57,013 $ 53,764 $ 56,764 $ 51,683
Average Loans Outstanding $ 56,584 $ 51,488 $ 52,414 $ 48,638
Allowance for Loan Losses to Loans
Outstanding 1.52% 1.63% 1.53% 1.46%
Net Charge-offs to Average Loans
Outstanding (annualized) 0.02% 0.08% 0.07% 0.10%
</TABLE>
NON-INTEREST INCOME
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
Non interest income for the nine months ended September 30, 1999
increased $145,000 or 44%
54
<PAGE> 60
to $477,000 as compared to $332,000 for the same period in 1998. Most of this
increase ($129,000) was due to an increase in service fees from various deposit
accounts.
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
Non interest income for 1998 increased by $41,000 or 8%, to $564,000
as compared to $523,000 for 1997. The net increase was comprised of a $88,000
increase in service fees on various deposit accounts, a $49,000 decrease from
gain on sale of other real estate owned, and a $2,000 net increase from other
miscellaneous fees.
NON-INTEREST EXPENSE
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
Non-interest expense increased $596,000 (33%) for the nine months
ended September 30, 1999, to $2,385,000 compared to $1,789,000 for the same
period in 1998. The increase was a result of a $241,000 increase in
compensation and related employee costs. Office occupancy and related equipment
expenses increased $184,000. All other expenses combined increased by $171,000
as summarized in the table below - Non Interest Expenses. These increases were
primarily due to the opening of two new branches in October 1998.
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
Non-interest expense increased $581,000 (30%) to $2,495,000 during
1998 compared to $1,914,000 for 1997. The increase was a result of a $238,000
increase in compensation and related employee expenses. Data processing service
expense increased $100,000 and office occupancy and related equipment expenses
increased by $118,000. All other expenses combined increased by $125,000 as
summarized in the table below - Non Interest Expenses. These increases are
primarily due to the opening of one new branch office in November 1997 and two
new branch offices in October 1998.
NON INTEREST EXPENSES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Nine months ended Year ended
Sept 30 Dec 31
----------------------------------- ------------------------------------
1999 1998 Incr/(Decr) 1998 1997 Incr/(Decr)
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salary, wages and employee benefits $1,080 $ 839 $241 $1,132 $ 894 $ 238
Occupancy expense 303 194 109 272 196 76
Depreciation of premises and equipment 232 157 75 215 173 42
Stationary and printing supplies 58 55 3 83 65 18
Advertising and public relations 59 31 28 48 53 (5)
Data processing expense 180 153 27 209 109 100
Legal & professional fees 77 75 2 115 137 (22)
Other operating expenses 396 285 111 421 287 134
----------------------------------- ----------------------------------
Total non interest expenses $2,385 $1,789 $596 $2,495 $1,914 $ 581
----------------------------------- ----------------------------------
</TABLE>
55
<PAGE> 61
INCOME TAX PROVISION
The income tax provision for the nine month period ended September 30,
1999 was $255,000, an effective tax rate of 36.8%, as compared to $296,000 for
the nine month period ended September 30, 1998, an effective tax rate of 40.5%.
The income tax provision for the year ended December 31, 1998, was
$393,000, an effective tax rate of 35.9%, as compared to $484,000 for the year
ended December 31, 1997, an effective tax rate of 37.0%. The reduction in the
effective tax rate in 1998 compared to 1997 was primarily the result of higher
amounts of non deductible items in 1997 compared to 1998.
NET INCOME
Net income for the years ended December 31, 1998, and 1997 was $702,000
and $825,000, respectively. Net income for the nine month periods ended
September 30, 1999 and 1998 was $438,000 and $434,000 respectively.
FINANCIAL CONDITION
As of September 30, 1999, the Community National Bank had total assets
of $95.7 million, compared to $93.0 million and $80.0 million as of December 31,
1998, and 1997, respectively. Net loans outstanding on September 30, 1999, were
$56.0 million, compared to $55.8 million and $50.8 million as of December 31,
1998, and 1997, respectively.
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 it 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
nine-month period ending September 30, 1999, were $55,571,000, or 66.2% of
earning assets as compared to $51,468,000 or 67.7% of earning assets for
December 31, 1998 and $47,783,000, or 69.3% of earning assets, for December 31,
1997. This represented an average loan to average deposit ratio of 65.2%,
68.3%, and 69.8% for September 30, 1999, December 31, 1998, and December 31,
1997, respectively.
As of September 30, 1999, Community National Bank had total loans, net
of deferred fees/costs, of $56,899,000 as compared to $56,650,000 at December
31, 1998, an increase of $249,000, or 0.4%. The growth in loans in the
nine-month period was mainly due to the general growth in the market and the
calling efforts of the loan officers. As of September 30, 1999, commercial,
financial and agricultural loans totaled $6,093,000, or 10.7%, of the loan
portfolio. Real estate construction loans totaled $5,756,000, or 10.1%, of the
loan portfolio. Real estate mortgage loans totaled $42,542,000 or 74.8% of the
loan portfolio. Installment and consumer loans totaled $2,508,000, or 4.4% of
the loan portfolio.
As of December 31, 1998, Community National Bank had total loans, net
of deferred fees/costs, of $56,650,000 as compared to $51,569,000 at December
31, 1997, an increase of $5,081,000, or 9.8%. The growth was mainly due to
general growth in the market and the calling efforts of the loan officers. As
of December 31, 1998, commercial, financial and agricultural loans totaled
$7,690,000, or 13.6%, of the loan portfolio. Real estate construction loans
totaled $4,698,000, or 8.3%, of the loan portfolio. Real estate mortgage loans
totaled $42,598,000, or 75.2% of the loan portfolio. Installment and consumer
loans totaled $1,664,000, or 2.9% 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
56
<PAGE> 62
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 September 30, December 31,
- ----------------------------------------- -------------------------- ------------------------------
1999 1998 1998 1997
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Commercial, Financial & Agricultural $ 6,093 $ 6,816 $ 7,690 $ 6,116
Real Estate - Construction 5,756 3,563 4,698 2,978
Real Estate - Mortgage 42,542 41,655 42,598 41,007
Installment & Consumer Lines 2,508 1,617 1,664 1,468
------------ ------------ ------------- -------------
Total Loans, Net of Deferred fees/costs $ 56,899 $ 53,651 $ 56,650 $ 51,569
Less: Allowance for Loan Losses (866) (875) (866) (755)
------------ ------------ ------------- -------------
Net Loans $ 56,033 $ 52,776 $ 55,784 $ 50,814
============ ============ ============= =============
</TABLE>
LOAN MATURITY SCHEDULE
(Dollars are in Thousands)
(Based on Contractual Maturities)
<TABLE>
<CAPTION>
September 30, 1999
-----------------------------------------------------------------
0 - 12 1 - 5 Over 5
Months Years Years Total
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
All Loans other Than Construction $ 32,549 $ 17,327 $ 2,073 $ 51,949
Real Estate - Construction 5,064 0 0 5,064
------------ ----------- ----------- ------------
Total $ 37,613 $ 17,327 $ 2,073 $ 57,013
============ =========== =========== ============
Fixed Interest Rate $ 5,967 $ 17,327 $ 2,073 $ 25,367
Variable Interest Rate 31,646 0 0 31,646
------------ ----------- ----------- ------------
Total $ 37,613 $ 17,327 $ 2,073 $ 57,013
============ =========== =========== ============
<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>
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
57
<PAGE> 63
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 problems
and to maintaining a sufficient allowance. At September 30, 1999, the allowance
for loan losses was $866,000, or 1.5% of total loans outstanding, net of
deferred fees/costs, compared to $866,000, or 1.5% at December 31, 1998, and
$755,000, or 1.5%, at December 31, 1997.
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 September 30, 1999, increased
$14,000, or 2%, to $591,000, compared to $577,000 on the same date in 1998.
Non-performing loans, plus other real estate owned, as a percentage of total
assets at September 30, 1999, and 1998, was .62% and .67%, respectively.
Management believes that the allowance for loan losses was adequate at
September 30, 1999.
Total non-performing assets decreased by $439,000 to $215,000 in 1998
from $654,000 in 1997. Non-performing assets, as a percentage of total assets
decreased to .23% in 1998 from .82% in 1997.
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 September 30, 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>
September 30, December 31,
-------------------------- --------------------------
1999 1998 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Non-Accrual Loans $ 201 $ 212 $ 180 $ 290
Past Due Loans 90 Days or More
and Still Accruing Interest 390 38 0 5
Other Real Estate Owned 0 327 35 359
-------- -------- -------- --------
Total Non-Performing Assets $ 591 $ 577 $ 215 $ 654
======== ======== ======== ========
Percent of Total Assets 0.62% 0.67% 0.23% 0.82%
======== ======== ======== ========
Allowance for Loan Losses $ 866 $ 875 $ 866 $ 755
======== ======== ======== ========
Allowance for Loan Losses to
Nonperforming Loans 146.53% 151.65% 402.79% 115.44%
======== ======== ======== ========
</TABLE>
58
<PAGE> 64
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998 December 31, 1997
----------------------- ----------------------- -----------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Each Each Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, Financial & Agricultural $ 259 11% $ 264 14% $ 428 12%
Real Estate Construction 78 10% 60 8% 32 6%
Real Estate - Mortgage 364 75% 385 75% 284 79%
Consumer 165 4% 157 3% 11 3%
--------- --------- --------- --------- --------- ---------
Total $ 866 100% $ 866 100% $ 755 100%
========= ========= ========= ========= ========= =========
</TABLE>
Deposits and Funds Purchased
Total deposits as of September 30, 1999, were $85,220,000 compared to
$76,838,000 on December 31, 1998, an increase of $8,382,000 or 11%, during the
nine month period ended September 30, 1999. Total deposits for the year ended
December 31, 1998, increased by $12,976,000 or 18%, as compared to total
deposits of $71,671,000 at December 31, 1997. 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 are in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
---------------------- --------------------------------------------------
1999 1998 1997
---------------------- --------------------------------------------------
Average Average Average
Balance Rate Balance Rate Balance Rate
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $ 10,991 0.00% $ 9,417 0.00% $ 8,045 0.00%
Interest-bearing demand
Deposits 15,757 1.73% 11,248 1.66% 8,997 1.77%
Savings deposits 7,115 1.99% 5,272 1.99% 4,080 2.01%
Time deposits 51,477 5.05% 49,461 5.55% 47,330 5.65%
--------- --------- --------- --------- --------- ---------
Total Average Deposits $ 85,340 3.53% $ 75,398 4.03% $ 68,452 4.26%
========= ========= ========= ========= ========= =========
</TABLE>
59
<PAGE> 65
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Sept 30, 1999 Dec 31, 1998
------------- ------------
<S> <C> <C>
Three Months or Less $3,919 $3,141
Three Through Six Months 3,270 1,456
Six Through Twelve Months 1,191 2,670
Over Twelve Months 1,599 1,106
----------- -----------
Total $9,979 $8,373
=========== ===========
</TABLE>
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
periods ended September 30, 1999 and 1998 was approximately $952,000 and
$1,442,000, respectively. Interest expense for the same periods was
approximately $35,000 and $68,000, respectively, resulting in an average rate
paid of 3.65% and 4.73% for the nine-month periods ended September 30, 1999 and
1998, respectively. The daily average balance for the period ended December 31,
1998, and 1997 was approximately $1,269,000 and $832,000, respectively.
Interest expense for these periods was approximately $59,000 and $40,000,
respectively, resulting in an average rate paid of 4.65% and 4.81% for the
years ended 1998 and 1997, 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>
NINE MONTHS ENDED
September 30, 1999 $ 2,848 $ 952 3.64% $ 2,211 3.64%
September 30, 1998 $ 1,785 $ 1,442 4.68% $ 1,458 4.68%
YEAR ENDED DECEMBER 31,
1998 $ 1,526 $ 1,269 4.63% $ 653 4.63%
1997 $ 1,576 $ 832 4.85% $ 1,488 4.82%
</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 the Community National
Bank has the ability at the
60
<PAGE> 66
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
$22,236,000 at September 30, 1999, $21,956,000 at December 31, 1998, and
$14,186,000 at December 31, 1997, 23%, 24% and 18% respectively 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 September 30, 1999, or December 31, 1998. At December 31,
1997 the held to maturity portfolio was $3,001,000.
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 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
$56,000 on September 30, 1999, a net unrealized gain of approximately $187,000
on December 31, 1998 and a net unrealized gain of approximately $56,000 on
December 31, 1997.
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 investment securities, weighted average yield by range of maturities, and
distribution of investment securities for the periods provided.
61
<PAGE> 67
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998 December 31, 1997
---------------------- ---------------------- ----------------------
AVAILABLE-FOR-SALE Amortized Estimated Amortized Estimated Amortized Estimated
- ------------------ Cost Market Cost Market Cost Market
Value Value Value
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <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 $ 14,077 $ 14,075 $ 7,508 $ 7,576 $ 5,994 $ 6,003
Over One Through Five Years 8,074 8,020 13,120 13,239 8,015 8,062
Over Five Through Ten Years 0 0 0 0 0 0
Over Ten Years 0 0 1,000 1,000 0 0
Federal Reserve Bank Stock 141 141 141 141 121 121
--------- --------- --------- --------- --------- ---------
Total $ 22,292 $ 22,236 $ 21,769 $ 21,956 $ 14,130 $ 14,186
========= ========= ========= ========= ========= =========
HELD-TO-MATURITY
State and Political Subdivisions $ 0 $ 0 $ 0 $ 0 $ 3,001 $ 3,006
--------- --------- --------- --------- --------- ---------
Total $ 0 $ 0 $ 0 $ 0 $ 3,001 $ 3,006
========= ========= ========= ========= ========= =========
</TABLE>
WEIGHTED AVERAGE YIELD BY RANGE OF MATURITIES
(Average Yields on Securities Available For Sale
Were Calculated Based on Amortized Cost)
<TABLE>
<CAPTION>
Sept 30, 1999 Dec 31, 1998 Dec 31, 1997
-------------------------------------------------------------------
<S> <C> <C> <C>
One Year or Less 5.54% 6.10% 6.19%
Over One Through Five Years 5.29% 5.42% 6.06%
Over Five Through Ten Years 0.00% 0.00% 0.00%
Over Ten Years 0.00% 5.62% 0.00%
</TABLE>
DISTRIBUTION OF INVESTMENT SECURITIES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998 December 31, 1997
---------------------- ---------------------- -----------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
US Treasury Securities $ 16,591 $ 16,568 $ 15,076 $ 15,225 $ 13,508 $ 13,557
US Government Agencies 5,560 5,528 5,552 5,590 501 508
State, County, & Municipal 0 0 1,000 1,000 0 0
Mortgage-Backed Securities 0 0 0 0 0 0
Federal Reserve Bank Stock 141 141 141 141 121 121
--------- --------- --------- --------- --------- ---------
Total $ 22,292 $ 22,236 $ 21,769 $ 21,956 $ 14,130 $ 14,186
========= ========= ========= ========= ========= =========
</TABLE>
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 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
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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: yield, 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 September 30, 1999,
approximately 56% of total gross loans were adjustable rate and 61% of total
securities either reprice or mature in less than one year. Total deposit
liabilities consisted of approximately $23,971,000 (28%) in NOW, Money Market
Accounts and Savings, $50,457,000 (59%) in time deposits, and $10,790,000 (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 September 30, 1999 and December 31, 1998.
Community National Bank 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 Community
National Bank have to dispose of such instruments at December 31, 1998, and
September 30, 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 September
30, 1999, should not necessarily be considered to apply at subsequent dates.
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<PAGE> 69
RATE SENSITIVITY ANALYSIS
September 30, 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 $ 5,967 $ 4,162 $ 5,749 $ 7,294 $ 2,073 $ 25,245 $ 25,341
Average Interest Rate 8.63% 9.42% 8.87% 8.81% 8.26% 8.84%
Variable Rate Loans 31,129 256 242 139 0 31,766 31,766
Average Interest Rate 8.09% 7.42% 6.75% 6.75% 8.07%
Investment Securities (1)
Fixed Rate Securities 13,577 7,574 1,000 0 0 22,151 22,095
Average Interest Rate 5.42% 5.33% 5.73% 5.40%
Variable Rate Securities 0 0 0 0 0 0
Average Interest Rate
Federal Funds Sold 4,207 0 0 0 0 4,207 4,207
Average Interest Rate 4.86% 4.86%
Other Earning Assets (2) 141 0 0 0 0 141 141
Average Interest Rate 6.00% 6.00%
-------- -------- -------- -------- -------- -------- --------
Total Interest-Earning Assets $ 55,021 $ 11,992 $ 6,991 $ 7,433 $ 2,073 $ 83,510 $ 83,550
7.24% 6.79% 8.35% 8.77% 8.26% 7.43%
======== ======== ======== ======== ======== ========
INTEREST BEARING LIABILITIES
NOW Accounts $ 10,278 $ 0 $ 0 $ 0 $ 0 $ 10,278 $ 10,278
Average Interest Rate 1.04% 1.04%
Money Market Accounts 6,312 0 0 0 0 6,312 6,223
Average Interest Rate 2.72% 2.72%
Savings Accounts 7,383 0 0 0 0 7,383 7,383
Average Interest Rate 2.05% 2.05%
CDs $100,000 & Over 8,380 1,096 102 401 0 9,979 9,973
Average Interest Rate 4.74% 4.79% 5.24% 5.61% 4.79%
CDs Under $100,000 20,591 10,094 4,212 1,672 3,909 40,478 40,593
Average Interest Rate 4.51% 5.35% 5.69% 5.75% 5.74% 5.01%
Securities Sold Under
Repurchase Agreement 2,211 0 0 0 0 2,211 2,211
Average Interest Rate 3.63% 3.63%
-------- -------- -------- -------- -------- -------- --------
Total Interest-Bearing Liabilities $ 55,155 $ 11,190 $ 4,314 $ 2,073 $ 3,909 $ 76,641 $ 76,661
3.33% 5.30% 5.68% 5.72% 5.74% 3.94%
======== ======== ======== ======== ======== ========
</TABLE>
- --------------------
(1) Securities for sale are shown at their amortized cost.
(2) Represents interest earning Federal Reserve Bank Stock
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<PAGE> 70
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
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<PAGE> 71
Primary Use of Funds
Nine Month period ending September 30, 1999
The primary source of funds during the period included an increase in
deposits ($573,000), increase in borrowings from repurchase agreements
($1,558,000), exercise of stock options net of tax benefit ($255,000) and net
income ($438,000). The primary uses of funds during the period included a
decrease in cash and federal funds sold ($1,419,000), an increase in net loans
outstanding ($249,000), an increase in net investments outstanding ($280,000),
an increase in premises and equipment ($660,000), dividends paid ($146,000) and
other miscellaneous net uses ($70,000).
Twelve Month period ending 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 September 30, 1999, was $7,842,000, as
compared to $7,184,000 at September 30, 1998. Shareholders' equity was
$7,447,000 at December 31, 1998, as compared to $6,488,000 at December 31,
1997.
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, 1998, and 1997 compared
to September 30, 1999, were as follows:
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<PAGE> 72
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 SEPTEMBER 30, 1999:
Total Capital: (to Risk Weighted Assets): $8,571 15.3% $5,607 10.0% $2,964
Tier 1 Capital: (to Risk Weighted Assets): $7,868 14.0% $3,364 6.0% $4,504
Tier 1 Capital: (to Average Assets): $7,868 8.3% $4,759 5.0% $3,109
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
AS OF DECEMBER 31, 1997:
Total Capital: (to Risk Weighted Assets): $6,931 15.2% $4,569 10.0% $2,362
Tier 1 Capital: (to Risk Weighted Assets): $6,358 13.9% $2,741 6.0% $3,617
Tier 1 Capital: (to Average Assets): $6,358 8.1% $3,941 5.0% $2,417
</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
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<PAGE> 73
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.
SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
1999 1998 1997
(Dollars in Thousands except ----------------------- ------------------------------- ------------------------------
for per share data) 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
- ------------------------------------ ----------------------- ------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income $867 $859 $884 $839 $767 $780 $790 $714 $726 $713 $698
Provision for Loan Losses 6 (18) 21 0 30 60 60 0 60 45 45
----------------------- ------------------------------- ------------------------------
Net Interest Income after
provision for loan losses $861 $877 $863 $839 $737 $720 $730 $714 $666 $668 $653
Other Income (excluding
Security transactions) $169 $158 $149 $233 $123 $104 $104 $172 $174 $89 $87
Securities gains (losses), net $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Other expenses $791 $815 $778 $706 $599 $607 $583 $483 $472 $480 $479
----------------------- ------------------------------- ------------------------------
Income before income
tax expense $239 $220 $234 $366 $261 $217 $251 $403 $368 $277 $261
Income tax expense $90 $83 $88 $118 $98 $82 $95 $140 $140 $105 $99
----------------------- ------------------------------- ------------------------------
Net Income $149 $137 $146 $248 $163 $135 $156 $263 $228 $172 $162
======================= =============================== ==============================
Basic earnings per common share $0.32 $0.30 $0.32 $0.54 $0.36 $0.30 $0.36 $0.61 $0.57 $0.43 $0.40
Diluted earnings per common share $0.31 $0.28 $0.30 $0.51 $0.34 $0.28 $0.33 $0.57 $0.52 $0.39 $0.37
</TABLE>
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<PAGE> 74
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, Community National Bank, First National Bank of Polk County
and First National Bank of Osceola County. For purposes of this summary,
Community National Bank, First National Bank of Polk County and First National
Bank of Osceola 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
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<PAGE> 75
of the Federal Reserve to be permissible activities of bank holding companies.
Despite prior approval, the Federal Reserve has the power to order a holding
company or its subsidiaries to terminate any activity or terminate its
ownership or control of any subsidiary, when it has reasonable cause to believe
that 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
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<PAGE> 76
and not less than annually during the continuation of the relationship. The act
also provides for the functional regulation of bank securities activities. The
law repeals the exemption that banks were afforded from the definition of
"broker," and replaces it with a set of limited exemptions that allow the
continuation of some historical activities performed by banks. In addition, the
act amends the securities laws to include banks within the general definition
of dealer. Regarding new bank products, the law provides a procedure for
handling products sold by banks that have securities elements. In the area of
Community Reinvestment Act activities, the law generally requires that
financial institutions address the credit needs of low-to-moderate income
individuals and neighborhoods in the communities in which they operate. Bank
regulators are required to take the Community Reinvestment Act ratings of a
bank or of the bank subsidiaries of a holding company into account when acting
upon certain branch and bank merger and acquisition applications filed by the
institution. Under the law, financial holding companies and banks that desire
to engage in new financial activities are required to have satisfactory or
better Community Reinvestment Act ratings when they commence the new activity.
Most of the provisions of the law take effect on November 12, 1999,
with other provisions being phased in over a one to two year period thereafter.
It is anticipated that the effects of the law, while providing additional
flexibility to bank holding companies and banks, may result in additional
affiliation of different financial services providers, as well as increased
competition, resulting in lower prices, more convenience, and greater financial
products and services available to consumers.
Bank Regulation. 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
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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 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
Community National Bank 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".
72
<PAGE> 78
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;
- 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.
73
<PAGE> 79
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 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.
74
<PAGE> 80
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.
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
75
<PAGE> 81
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
- 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.
76
<PAGE> 82
EXPERTS
The financial statements of Community National Bank, First National
Bank of Osceola County, and First National Bank of Polk County at December 31,
1998 and for the year 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. The financial statements of
First National/Osceola at December 31, 1997 and for the year then ended have
been included herein and in the registration statement in reliance upon the
report of Graham & Cottrill, P.A., independent certified public accountants,
appearing elsewhere herein, and upon the authority of such firm as experts in
accounting and auditing. The financial statements of Community National Bank at
December 31, 1997 and for the year then ended have been included herein and in
the registration statement in reliance upon the report of Dwight Darby &
Company, independent certified public accountants, appearing elsewhere herein,
and upon the authority of such firm as experts in accounting and auditing. The
financial statements of First National Bank of Polk County at December 31, 1997
and for the year then ended have been included herein and in the registration
statement in reliance upon the report of G. T. Nunez & Associates, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of such firm as experts in accounting and auditing.
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 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.
77
<PAGE> 83
INDEX TO FINANCIAL STATEMENTS
CENTERSTATE BANKS OF FLORIDA, INC
<TABLE>
<S> <C>
Balance Sheet at September 30, 1999 (unaudited) and Note to Balance Sheet .................... F-3
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Independent Auditors' Report -- December 31, 1998 ............................................ F-4
Independent Auditors' Report -- December 31, 1997 ............................................ F-5
Balance Sheets at September 30, 1999 (unaudited) and at December 31, 1998 and 1997 ........... F-6
Statements of Operations for the nine months ended September 30, 1999 (unaudited) and 1998
(unaudited), and for the years ended December 31, 1998 and 1997 .......................... F-7
Statements of Changes in Stockholders' Equity and Comprehensive Income
for the nine months ended September 30, 1999 (unaudited) and 1998
(unaudited), and for the years ended December 31, 1998 and 1997 .......................... F-8
Statements of Cash Flows for the nine months ended September 30, 1999 (unaudited) and 1998
(unaudited), and for the years ended December 31, 1998 and 1997 .......................... F-9
Notes to the Financial Statements ............................................................ F-10
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Independent Auditors' Report -- December 31, 1998 ............................................ F-32
Independent Auditors' Report -- December 31, 1997 ............................................ F-33
Balance Sheets at September 30, 1999 (unaudited) and at December 31, 1998 and 1997 ........... F-34
Statements of Operations for the nine months ended September 30, 1999 (unaudited) and 1998
(unaudited), and for the years ended December 31, 1998 and 1997 .......................... F-35
Statements of Changes in Stockholders' Equity and Comprehensive Income
for the nine months ended September 30, 1999 (unaudited) and 1998
(unaudited), and for the years ended December 31, 1998 and 1997 .......................... F-36
Statements of Cash Flows for the nine months ended September 30, 1999 (unaudited) and 1998
(unaudited), and for the years ended December 31, 1998 and 1997 .......................... F-37
Notes to the Financial Statements ............................................................ F-38
</TABLE>
F-1
<PAGE> 84
FIRST NATIONAL BANK OF POLK COUNTY
<TABLE>
<S> <C>
Independent Auditors' Report -- December 31, 1998 .................................................. F-57
Independent Auditors' Report -- December 31, 1997 .................................................. F-58
Balance Sheets at September 30, 1999 (unaudited) and at December 31, 1998 and 1997 ................. F-59
Statements of Operations for the nine months ended September 30, 1999 (unaudited) and 1998
(unaudited), and for the years ended December 31, 1998 and 1997 ................................ F-60
Statements of Changes in Stockholders' Equity and Comprehensive Income
for the nine months ended September 30, 1999 (unaudited) and 1998
(unaudited), and for the years ended December 31, 1998 and 1997 ................................ F-61
Statements of Cash Flows for the nine months ended September 30, 1999 (unaudited) and 1998
(unaudited), and for the years ended December 31, 1998 and 1997 ................................ F-62
Notes to the Financial Statements .................................................................. F-63
</TABLE>
F-2
<PAGE> 85
CENTERSTATE BANKS OF FLORIDA, INC.
Balance Sheet
September 30, 1999
(Unaudited)
<TABLE>
<S> <C>
Cash $ 1
=========
Stockholders' equity $ 1
=========
</TABLE>
Note to Balance Sheet
(1) Organization
Centerstate Banks of Florida was formed as a Florida corporation on
September 20, 1999 to serve as a bank holding company for First National Bank of
Osceola County, First National Bank of Polk 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 Bank of Osceola County, First National Bank of
Polk 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.
F-3
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First National Bank of Osceola County
Kissimmee, Florida
We have audited the accompanying balance sheet of First National Bank of
Osceola County as of December 31, 1998 and the related statements of
operations, changes in stockholders' equity and comprehensive income and cash
flows for the year 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 audit.
We conducted our audit 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 audit provides 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, 1998, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Orlando, Florida
January 15, 1999
F-4
<PAGE> 87
GRAHAM & COTTRILL, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
110 EAST HILLCREST STREET
ORLANDO, FLORIDA 32801
----------
(407) 843-1681
(800) 342-2720
FACSIMILE (407) 423-3156
The Board of Directors
First National Bank of Osceola County
Kissimmee, Florida
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of First National Bank
of Osceola County (the "Bank") as of December 31, 1997 and the related
statements of operations, stockholders' equity and cash flows for the year 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 audit.
We conducted our audit 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 audit provides 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, 1997, the results of its operations,
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ GRAHAM & COTTRILL, P.A.
January 16, 1998
F-5
<PAGE> 88
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------- -------------------------------
ASSETS 1999 1998 1997
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and due from banks .................................... $ 4,545,343 $ 4,687,944 $ 2,344,670
Federal funds sold ......................................... 2,150,000 5,017,000 10,216,000
Investment securities available for sale ................... 25,883,187 35,818,706 14,667,408
Investment securities held to maturity (market
value of $ 3,484,850, $2,546,254 and
$3,011,830 as of September 30, 1999 (unaudited)
and as of December 31, 1998 and 1997, respectively ....... 3,537,952 2,555,226 3,002,679
Loans, less allowance for loan losses of $798,112,
$781,034 and $780,995 as of September 30, 1999
(unaudited) and as of December 31, 1998 and 1997,
respectively ............................................. 65,813,796 56,591,397 52,313,130
Accrued interest receivable ................................ 742,807 753,990 606,134
Bank premises and equipment, net ........................... 4,456,821 3,714,825 2,921,895
Deferred income taxes ...................................... 200,677 91,869 150,808
Prepaids and other assets .................................. 147,947 93,959 63,434
-------------- -------------- --------------
Total assets ................................... $ 107,478,530 $ 109,324,916 $ 86,286,158
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing ......................................... $ 74,344,697 $ 78,886,965 $ 65,556,297
Noninterest bearing ...................................... 21,611,724 18,670,815 12,951,485
-------------- -------------- --------------
Total deposits ................................. 95,956,421 97,557,780 78,507,782
Securities sold under agreements to repurchase ........... 2,790,990 3,978,073 1,044,200
Accrued interest payable ................................. 111,410 143,246 127,000
Accounts payable and accrued expenses .................... 80,738 189,294 249,324
-------------- -------------- --------------
Total liabilities .............................. 98,939,559 101,868,393 79,928,306
-------------- -------------- --------------
Stockholders' equity:
Common stock, $5 par value; 460,000 shares
authorized; 511,175, 451,109 and
435,500 shares as of September 30, 1999
(unaudited) and as of December 31, 1998 and 1997,
issued and outstanding, respectively .................. 2,555,875 2,255,545 2,177,500
Additional paid-in capital ............................. 2,763,787 2,334,249 2,200,078
Retained earnings ...................................... 3,273,315 2,741,285 1,960,171
Accumulated other comprehensive income ................. (54,006) 125,444 20,103
-------------- -------------- --------------
Total stockholders' equity ..................... 8,538,971 7,456,523 6,357,852
Commitments and contingent liabilities......................
-------------- -------------- --------------
Total liabilities and stockholders'
equity ....................................... $ 107,478,530 $ 109,324,916 $ 86,286,158
============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 89
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Statements of Operations
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------------------- -------------------------------
1999 1998 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans.............................. $ 4,086,715 $ 3,864,760 $ 5,160,699 $ 4,860,932
Investment securities .................................. 1,364,759 1,010,700 1,468,988 1,031,926
Federal funds sold ..................................... 129,945 515,654 636,830 362,596
-------------- -------------- -------------- --------------
Total interest income............................ 5,581,419 5,391,114 7,266,517 6,255,454
-------------- -------------- -------------- --------------
Interest expense:
Deposits ............................................... 2,357,005 2,481,065 3,349,948 2,735,645
Securities sold under agreement to repurchase .......... 99,592 54,146 103,563 81,883
-------------- -------------- -------------- --------------
Total interest expense........................... 2,456,597 2,535,211 3,453,511 2,817,528
-------------- -------------- -------------- --------------
Net interest income ............................. 3,124,822 2,855,903 3,813,006 3,437,926
Provision for loan losses .................................. 99,000 96,000 38,473 212,400
-------------- -------------- -------------- --------------
Net interest income after loan loss provision ... 3,025,822 2,759,903 3,774,533 3,225,526
-------------- -------------- -------------- --------------
Other income:
Service charges on deposit accounts .................... 519,922 409,657 584,789 439,390
Other service charges and fees ......................... 130,550 92,910 122,114 90,309
Loss on sale of available for sale securities .......... -- -- -- (5,874)
-------------- -------------- -------------- --------------
Total other income .............................. 650,472 502,567 706,903 523,825
-------------- -------------- -------------- --------------
Other expenses:
Salaries, wages and employee benefits .................. 1,215,246 972,001 1,373,971 1,205,179
Occupancy and equipment rental........................... 610,879 475,680 640,112 614,565
Other operating expenses................................ 1,009,963 768,710 1,061,066 922,462
-------------- -------------- -------------- --------------
Total other expenses ............................ 2,836,088 2,216,391 3,075,149 2,742,206
-------------- -------------- -------------- --------------
Income before income taxes ...................... 840,206 1,046,079 1,406,287 1,007,145
Provision for income taxes ................................. 308,176 387,096 512,396 405,413
-------------- -------------- -------------- --------------
Net income ...................................... $ 532,030 $ 658,983 $ 893,891 $ 601,732
============== ============== ============== ==============
Net Income per Share
Basic................................................... $ 1.13 $ 1.48 $ 2.00 $ 1.41
Diluted................................................. $ 1.07 $ 1.38 $ 1.86 $ 1.32
Average Number of Common Shares Outstanding
Basic................................................... 471,008 446,264 446,737 425,836
Diluted................................................. 495,739 479,113 481,677 456,159
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 90
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Statements of Changes in Stockholders' Equity and Comprehensive Income
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
ADDITIONAL
COMPREHENSIVE COMMON PAID-IN RETAINED
INCOME STOCK CAPITAL EARNINGS
------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1996
................................. $2,127,500 $ 2,127,500 $1,430,774
Dividends paid ............................................. -- -- (72,335)
Stock options exercised .................................... 50,000 50,000 --
Tax effect of tax deduction in excess of book
deduction on options exercised during the year ............ -- 22,578 --
Comprehensive income:
Net income ................................................ $ 601,732 -- -- 601,732
Other comprehensive income, net of tax
unrealized gain on securities ........................... $ 1,854
-----------
Comprehensive income ....................................... $ 603,586
===========
---------- ----------- ----------
Balance, December 31, 1997 ................................. $2,177,500 $ 2,200,078 $1,960,171
Dividends paid ............................................. -- -- (112,777)
Stock options exercised .................................... 78,045 78,045 --
Tax effect of tax deduction in excess of book
deduction on options exercised during the year ............ -- 56,126 --
Comprehensive income:
Net income ................................................ $ 897,491 -- -- 893,891
Other comprehensive income, net of tax
unrealized gain on securities ........................... 105,341 -- -- --
-----------
Comprehensive income ....................................... $ 1,002,832
=========== ---------- ----------- ----------
Balance, December 31, 1998 ................................. $2,555,545 $ 2,334,249 $2,741,285
Dividends paid ............................................. -- -- --
Stock options exercised .................................... 308,330 300,330 --
Tax effect of tax deduction in excess of book
deduction on options exercised during the year ............ -- 129,208 --
Comprehensive income:
Net income ................................................ $ 532,030 -- -- 532,030
Other comprehensive income, net of tax
unrealized loss on securities ........................... (179,450) -- -- --
-----------
Comprehensive income ....................................... $ 352,580
=========== ---------- ----------- ----------
Balance, September 30, 1999 ................................ $2,555,875 $ 2,763,787 $3,273,315
========== =========== ==========
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS'
INCOME EQUITY
------------- -----------
<S> <C> <C>
Balance, December 31, 1996.. ............................... $ 18,249 $ 5,704,023
Dividends paid ............................................. (72,335)
Stock options exercised .................................... -- 100,000
Tax effect of tax deduction in excess of book
deduction on options exercised during the year ............ -- 22,578
Comprehensive income:
Net income ................................................ -- 601,732
Other comprehensive income, net of tax
unrealized gain on securities ...........................
Comprehensive income ....................................... 1,854 1,854
----------- -----------
Balance, December 31, 1997 ................................. $ 20,103 $ 6,357,852
Dividends paid .............................................. -- (112,777)
Stock options exercised .................................... -- 159,090
Tax effect of tax deduction in excess of book
deduction on options exercised during the year ............ -- 56,126
Comprehensive income:
Net income ................................................ -- 839,891
Other comprehensive income, net of tax
unrealized gain on securities ........................... (105,341) (105,341)
Comprehensive income .......................................
----------- -----------
Balance, December 31, 1998 ................................. $ 125,444 $ 7,456,523
Dividends paid ............................................. -- --
Stock options exercised .................................... -- 600,060
Tax effect of tax deduction in excess of book
deduction on options exercised during the year ............ -- 129,208
Comprehensive income:
Net income ................................................ -- 532,030
Other comprehensive income, net of tax
unrealized loss on securities ........................... (179,456) (179,456)
Comprehensive income .......................................
----------- -----------
Balance, September 30, 1999 ................................ $ (54,086) $ 8,538,971
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 91
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Statements of Cash Flows
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------------- ----------------------------
1999 1998 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................................ $ 532,030 $ 658,983 $ 893,891 $ 601,732
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses ...................................... 99,000 96,000 38,473 212,400
Depreciation of premises and equipment ......................... 243,949 196,600 217,172 206,238
Net amortization/accretion of investment securities ............ 99,986 28,378 189,386 --
Net deferred loan origination fees ............................. 26,569 8,353 471 --
Deferred income taxes .......................................... (2,744) (25,250) (5,091) (21,249)
Net (gains) losses on sale of investment securities available
for sale ..................................................... (8,205) -- -- 5,874
Tax deduction in excess of book deduction on options
exercised ..................................................... 129,208 56,126 56,126 22,578
Cash provided by (used in) changes in:
(Increase) decrease in accrued interest receivable ............. 11,183 (138,720) (147,856) (71,361)
(Increase) decrease in prepaids and other assets ............... (53,988) (40,627) (30,525) 61,918
(Decrease) increase in accrued interest payable ................ (31,836) 12,408 16,246 3,624
(Decrease) increase in accounts payable and
accrued expenses .............................................. (108,556) (18,164) (60,030) 226,809
------------ ------------ ------------ ------------
Net cash provided by operating activities ..................... 936,596 834,087 1,168,263 1,248,563
------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchases of investment securities available for sale ............. (2,537,023) (26,475,329) (33,032,503) (8,269,367)
Proceeds from sales, maturities and calls of investment securities
available for sale ............................................. 12,112,521 10,940,935 10,853,955 9,493,906
Purchases of investment securities held to maturity................ (1,500,000) -- (1,058,438) (503,672)
Proceeds from maturities of investment securities held to maturity. 500,000 2,500,000 2,513,126 --
Increase in loans, net of repayments .............................. (9,347,968) (4,138,894) (4,317,211) (6,840,459)
Net purchases of premises and equipment ........................... (985,945) (866,706) (1,010,102) (137,681)
------------ ------------ ------------ ------------
Net cash used in investing activities ......................... (1,758,415) (18,039,994) (26,051,173) (6,257,273)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Net (decrease) increase in demand and savings deposits ............ (1,601,359) 19,024,197 19,049,998 11,169,041
Net (decrease) increase in securities sold under agreements
to repurchase .................................................. (1,187,083) 121,741 2,933,873 41,500
Stock options exercised ........................................... 600,660 156,090 156,090 100,000
Dividends paid .................................................... -- (112,777) (112,777) (72,335)
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities ........... (2,187,782) 19,189,251 22,027,184 11,238,206
------------ ------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents .......... (3,009,601) 1,983,344 (2,855,726) 6,229,496
Cash and cash equivalents, beginning of period ..................... 9,704,944 12,560,670 12,560,670 6,331,174
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period ........................... $ 6,695,343 $ 14,544,014 $ 9,704,944 $ 12,560,670
============ ============ ============ ============
Supplemental schedule of noncash transactions:
Market value adjustment-investment securities available
for sale
Market value adjustments-investments .......................... $ (84,385) $ 221,009 $ 201,129 $ 31,758
Deferred income tax liability ................................. 30,379 (81,110) (75,685) (11,655)
------------ ------------ ------------ ------------
Unrealized gain (loss) on investment securities
available for sale .................................. $ (54,006) $ 139,899 $ 125,444 $ 20,103
============ ============ ============ ============
Cash paid during the period for:
Interest .......................................................... $ 2,488,433 $ 2,522,803 $ 3,437,265 $ 2,813,904
============ ============ ============ ============
Income taxes ...................................................... $ 466,765 $ 408,496 $ 497,114 $ 177,275
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 92
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997
(Information insofar as it relates to the nine months ended
September 30, 1999 (unaudited))
(1) NATURE OF OPERATIONS AND 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) NATURE OF OPERATIONS
First National Bank of Osceola County (the "Bank") is an
independent community bank whose headquarters are located in
Osceola County, Florida, with three branches in Poinciana, St.
Cloud, and Ocoee, and whose customers are primarily located in the
Central Florida area.
(B) BASIS OF ACCOUNTING
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles.
(C) 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.
(D) 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. Gains and losses on the
sale of securities are recorded on the trade date and are
determined using the specific identification method.
(E) 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.
Interest on loans is computed by using the simple interest
method on daily balances of the principal amounts outstanding.
Loan origination fees, net of related costs, are capitalized and
recognized in income over the contractual life of the loans,
adjusted for estimated prepayments based on the Bank's historical
prepayment experience.
Commitment fees and costs relating to the commitments are
recognized over the commitment period on a straight-line basis.
If the commitment is exercised during the commitment period, the
remaining unamortized commitment fee at the time of exercise is
recognized over the life of the loan as an adjustment of yield.
F-10
<PAGE> 93
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
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. Impaired loans are written down to the extent
that principal is judged to be uncollectible and, 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, are written
down to the lower of cost or collateral value. Impairment losses
are included in the allowance for loan losses.
(F) 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 loan.
The Bank provides for a general allowance for losses inherent in
the portfolio by the above categories, which consists of two
components. General loss percentages are calculated based upon
historical analyses. A supplemental portion of the allowance is
calculated for inherent losses which probably exist as of the
evaluation date even though they might not have been identified
by the more objective processes used for the portion of the
allowance described above. 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.
Specific allowances are provided in the event that the specific
collateral analysis on each classified loan indicates that the
probable 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.
F-11
<PAGE> 94
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
The Bank records impairment in the value of its loans as an
addition to the allowance for loan losses. Any changes in the
value of impaired loans due to the passage of time or revisions
in estimates are reported as adjustments to provision expense in
the same manner in which impairment initially was recognized.
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.
(G) 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.
(H) 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.
(I) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board
established Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income." This Statement
establishes standards for reporting and display of comprehensive
income and its components in a full set of financial statements.
This Statement requires that an enterprise classify items or
other comprehensive income by nature in a financial statement,
and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital
in the equity section of a balance sheet.
The Bank adopted this Statement effective January 1, 1998 with
the 1997 financial statements reclassified to reflect this
adoption. The Bank's other comprehensive income is the unrealized
gain/(loss) on investment securities available for sale.
(J) 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.
F-12
<PAGE> 95
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
(K) 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.
(L) EFFECT OF NEW PRONOUNCEMENTS
In June 1997, the FASB issued Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related
Information". This Statement requires that a public business
enterprise report financial and descriptive information about its
reportable operating segments. Operating segments are components
of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in
assessing performance. This Statement is effective for fiscal
years beginning after December 15, 1997. The Company adopted the
Statement effective January 1, 1998, however, the Company has
only one reportable segment.
In June 1998, 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 Company.
In October 1998, the FASB issued Financial Accounting Standards
No. 134, "Accounting for Mortgage-Backed Securities Retained
after the Securitization of Mortgage Loans Held for Sale by a
Mortgage Banking Enterprise." This Statement requires that after
the securitization of a mortgage loan held for sale, an entity
engaged in mortgage banking activities classify the resulting
mortgage-backed security as a trading security. The Statement is
effective for the first fiscal quarter beginning after December
15, 1998. The Company does not expect the adoption of this
Statement to have any impact on its financial statements.
(M) RECLASSIFICATION
Certain amounts in the 1997 and 1998 financial statements have
been reclassified to conform with the September 30, 1999
presentation.
F-13
<PAGE> 96
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
(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 as of September 30, 1999 (unaudited) and as of
December 31, 1998 and 1997 are as follows:
INVESTMENT SECURITIES AVAILABLE FOR SALE:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 (UNAUDITED)
--------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities ........... $ 15,567,172 $ 12,070 $ 37,972 $ 15,641,270
Obligations of U.S.
government agencies .............. 8,265,050 -- 58,403 8,206,567
Municipals ......................... 2,000,000 -- -- 2,000,000
Federal reserve bank stock ......... 135,350 -- -- 135,350
------------- ------------- ------------- -------------
$ 25,967,572 12,070 96,455 25,883,187
============= ============= ============= =============
DECEMBER 31, 1998
-------------------------------------------------------------------
U.S. Treasury securities ........... $ 19,621,138 $ 153,434 $ -- $ 19,774,573
Obligations of U.S.
government agencies ............ 15,861,089 53,664 5,969 15,908,784
Federal reserve bank stock ......... 135,350 -- -- 135,350
------------- ------------- ------------- -------------
$ 35,617,577 $ 207,098 $ 5,969 $ 35,818,706
============= ============= ============= =============
DECEMBER 31, 1997
-------------------------------------------------------------------
U.S. Treasury securities ........... $ 10,259,063 $ 25,963 $ -- $ 10,285,026
Obligations of U.S.
government agencies ............ 4,248,973 5,795 -- 4,254,732
Federal reserve bank stock ......... 127,650 -- -- 127,650
------------- ------------- ------------- -------------
$ 14,635,650 $ 31,758 $ -- $ 14,667,408
============= ============= ============= =============
</TABLE>
F-14
<PAGE> 97
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
The amortized cost and estimated market values of investment securities
held to maturity as of September 30, 1999 (unaudited) and as of December
31, 1998 and 1997 are as follows:
INVESTMENT SECURITIES HELD TO MATURITY:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 (UNAUDITED)
--------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Obligations of U.S.
government agencies ............. $ 3,537,952 $ -- $ 53,102 $ 3,484,850
------------- ------------- ------------- -------------
$ 3,537,952 $ -- $ 53,102 $ 3,484,850
============= ============= ============= =============
DECEMBER 31, 1998
-------------------------------------------------------------------
U.S. Treasury securities ........... $ 2,054,537 $ -- $ 12,658 $ 2,041,879
Obligations of U.S.
government agencies ............ 500,689 3,686 -- 504,375
------------- ------------- ------------- -------------
$ 2,555,226 $ 3,686 $ 12,658 $ 2,546,254
============= ============= ============= =============
DECEMBER 31, 1997
-------------------------------------------------------------------
U.S. Treasury securities ........... $ 2,002,742 $ 7,888 $ -- $ 2,010,630
Obligations of U.S.
government agencies ............ 999,937 1,263 -- 1,001,200
------------- ------------- ------------- -------------
$ 3,002,679 $ 9,151 $ -- $ 3,011,830
============= ============= ============= =============
</TABLE>
F-15
<PAGE> 98
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
The amortized cost and estimated market value of investment securities
available for sale and held to maturity as of September 30, 1999
(unaudited) and for the years ended December 31, 1998 and 1997 by
contractual maturity, are shown below. Actual maturities will differ
from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
------------ ------------
<S> <C> <C>
SEPTEMBER 30, 1999 (UNAUDITED):
Investment securities available for sale:
Due in one year or less ........................ $ 15,670,107 $ 15,670,350
Due after one year through five years .......... 8,297,465 8,212,837
Due after ten years ............................ 2,000,000 2,000,000
------------ ------------
$ 25,967,572 $ 25,883,187
============ ============
DECEMBER 31, 1998:
Investment securities available for sale:
Due in one year or less ........................ $ 10,395,243 $ 10,439,570
Due after one year through five years .......... 25,222,334 25,379,136
------------ ------------
$ 35,617,577 $ 35,818,706
============ ============
DECEMBER 31, 1997:
Investment securities available for sale:
Due in one year or less ........................ $ 7,242,428 $ 7,255,974
Due after one year through five years .......... 7,265,572 7,283,784
------------ ------------
$ 14,508,000 $ 14,539,758
============ ============
SEPTEMBER 30, 1999 (UNAUDITED):
Investment securities held to maturity:
Due in one year or less ........................ $ -- $ --
Due after one year through five years .......... 3,537,952 3,484,850
------------ ------------
$ 3,537,952 $ 3,484,850
============ ============
DECEMBER 31, 1998:
Investment securities held to maturity:
Due in one year or less ........................ $ 500,689 $ 504,375
Due after one year through five years .......... 2,054,537 2,041,879
------------ ------------
$ 2,555,226 $ 2,546,254
============ ============
DECEMBER 31, 1997:
Investment securities held to maturity:
Due in one year or less ........................ $ 2,500,200 $ 2,504,485
Due after one year through five years .......... 502,479 507,345
------------ ------------
$ 3,002,679 $ 3,011,830
============ ============
</TABLE>
As of September 30, 1999, the Bank had $500,000, at cost, in securities
pledged to the State of Florida as collateral on public fund deposits and
for other purposes required or permitted by law. At December 31, 1998,
the Bank had pledged $250,000, 25% of cost, in investment securities
pledged to the Treasurer of the State of Florida; and $2,000,000 and
$5,500,000, at par value, at December 31, 1998 and 1997, respectively, in
investment securities pledged as collateral on repurchase agreements.
Accrued interest receivable includes $373,632, $448,064 and $263,584
as of September 30, 1999, December 31, 1998 and 1997, respectively,
related to investment securities.
F-16
<PAGE> 99
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
(3) LOANS
Major categories of loans included in the loan portfolio as of September
30, 1999 (unaudited) and as of December 31, 1998 and 1997 are:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- -------------------------------
1999 1998 1997
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Real estate:
Residential .................... $ 16,294,539 $ 17,055,229 $ 14,285,540
Commercial ..................... 28,505,097 20,799,754 18,702,294
Construction ................... 3,556,902 2,801,246 3,183,919
------------- ------------- -------------
Total real estate .......... 48,356,538 40,656,229 36,171,753
Commercial ......................... 10,875,691 10,827,888 11,242,999
Installment ........................ 6,556,919 5,831,592 5,656,484
Overdrafts ......................... 885,659 93,052 58,748
------------- ------------- -------------
66,674,807 57,408,761 53,129,984
Less:
Allowance for loan
losses ...................... 798,112 781,034 780,995
Deferred loan
origination fees ............ 62,899 36,330 35,859
------------- ------------- -------------
Net loans .................. $ 65,813,796 $ 56,591,397 $ 52,313,130
============= ============= =============
</TABLE>
The following is a summary of information regarding nonaccrual and
impaired loans as of September 30, 1999 (unaudited) and as of December
31, 1998 and 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------------------------------
1999 1998 1997
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Nonaccrual loans ................... $ 156,000 -- --
============= ============== =============
Recorded investment in impaired
loans ........................... $ -- -- --
============= ============== =============
Allowance for loan losses related to
impaired loans ................. $ -- -- --
============= ============== =============
</TABLE>
Accrued interest receivable includes $369,175, $305,926, and $342,550
related to loans as of September 30, 1999, December 31, 1998 and
December 31, 1997, respectively.
F-17
<PAGE> 100
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
<TABLE>
<CAPTION>
INTEREST INTEREST AVERAGE
INCOME NOT INCOME RECORDED
RECOGNIZED ON RECOGNIZED ON INVESTMENT IN
NONACCRUAL IMPAIRED IMPAIRED
LOANS LOANS LOANS
----------------- ----------------- -----------------
<S> <C> <C> <C>
FOR THE NINE MONTHS ENDED SEPTEMBER 30:
1999 (Unaudited) ...................... $ 6,824 $ -- $ --
================= ================= =================
FOR THE YEARS ENDED DECEMBER 31:
1998 ................................. $ 4,497 $ -- $ 747,000
================= ================= =================
1997 ................................. $ -- $ -- $ 81,000
================= ================= =================
</TABLE>
Certain directors and officers and their related interests were indebted
to the Bank as summarized below as of September 30, 1999 (unaudited) and
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------------
1999 1998 1997
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Balance, beginning of period ............ $ 1,653,797 $ 1,587,000 $ 1,573,000
Additional new loans .................... 915,246 1,471,480 615,354
Repayments on outstanding
loans ................................. 813,846 1,404,683 601,354
----------- ----------- -----------
Balance, end of period .................. $ 1,755,197 $ 1,653,797 $ 1,587,000
=========== =========== ===========
</TABLE>
As of September 30, 1999 (unaudited) and December 31, 1998 and
1997, directors and officers of the Bank and their related interests had
$913,374, $842,077 and $338,570, respectively, available in
lines of credit.
F-18
<PAGE> 101
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
Changes in the allowance for loan losses for the nine months ended
September 30, 1999 (unaudited) and for the years ended December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31,
------------ --------------------------
1999 1998 1997
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Balance, beginning of period............. $ 781,034 $ 780,995 $ 616,490
Provision charged to operations ......... 38,473
99,000 96,000
Loans charged-off ....................... (108,102) (55,198) (72,221)
Recoveries of previous
charge-offs ......................... 26,180 16,764 24,326
----------- ----------- -----------
Balance, end of period................... $ 798,112 $ 781,034 $ 780,995
=========== =========== ===========
</TABLE>
As of September 30, 1999, nonaccrual loans were $156,000. If interest due
on all nonaccrual loans as of September 30, 1999 had been accrued at the
original contract rates, estimated interest income would have been
increased by $6,824. In addition, there were no recorded investments for
impaired loans or related allowance as of September 30, 1999.
(4) PREMISES AND EQUIPMENT
A summary of premises and equipment as of September 30, 1999 (unaudited)
and as of December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31,
------------ ---------------------------
1999 1998 1997
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land .................................... $ 1,744,689 $ 1,732,098 $ 1,062,540
Building and building
improvements........................... 1,720,714 1,210,327 1,082,404
Furniture, fixtures and
equipment ............................. 1,653,515 1,267,758 1,185,940
Leasehold improvements .................. 266,887 244,020 211,377
----------- ----------- -----------
Total............................... 5,385,805 4,454,203 3,542,261
Less accumulated
depreciation .......................... 928,984 739,378 620,366
----------- ----------- -----------
Net premises and equipment.......... $ 4,456,821 $ 3,714,825 $ 2,921,895
=========== =========== ===========
</TABLE>
F-19
<PAGE> 102
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
(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 approximates 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 represent 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 (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.
F-20
<PAGE> 103
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
The following tables present the carrying amounts and estimated fair
values of the Bank's financial instruments.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 (UNAUDITED)
------------------------------
CARRYING
AMOUNT FAIR VALUE
------------ ------------
<S> <C> <C>
Financial assets:
Cash and due from banks and federal
funds sold ..................................... $ 6,695,343 $ 6,695,343
Investment securities available for sale ......... 25,883,187 25,883,187
Investment securities held to maturity ........... 3,537,952 3,484,850
Total loans ...................................... 66,611,908 65,256,112
Financial liabilities:
Deposits:
Without stated maturities ...................... $ 47,311,063 $ 47,311,063
With stated maturities ......................... 48,645,358 48,295,000
Securities sold under agreements to repurchase ... 2,790,900 2,790,900
Commitments:
Letter of credit ................................. $ 195,549 $ 195,549
Loan commitments................................. 9,883,860 9,883,860
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------
CARRYING
AMOUNT FAIR VALUE
------------ ------------
<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
Total loans ...................................... 57,372,431 57,531,034
Financial liabilities:
Deposits:
Without stated maturities ...................... $ 42,793,386 $ 42,793,386
With stated maturities ......................... 54,764,394 55,080,000
Securities sold under agreements to repurchase ... 3,978,073 3,978,073
Commitments:
Letter of credit ................................. $ 191,149 $ 191,149
Loan commitments................................. 6,028,801 6,028,801
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------
CARRYING
AMOUNT FAIR VALUE
------------ ------------
<S> <C> <C>
Financial assets:
Cash and due from banks and federal
funds sold ..................................... $12,560,670 $12,560,670
Investment securities available for sale ......... 14,667,408 14,667,408
Investment securities held to maturity ........... 3,002,679 3,011,830
Total loans ...................................... 53,094,000 53,047,000
Interest earned, not collected ................... 606,134 606,134
Financial liabilities:
Deposits:
Without stated maturities ..................... 31,553,359 31,553,359
With stated maturities ........................ 46,954,423 48,205,641
Securities sold under agreements to repurchase ... 1,044,200 1,044,200
</TABLE>
F-21
<PAGE> 104
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
(6) DEPOSITS
A detail of deposits as of September 30, 1999 (unaudited) and as of
December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
WEIGHTED
AVERAGE
INTEREST
1999 RATE
------------ ----------
(UNAUDITED)
<S> <C> <C>
Non-interest bearing demand deposits ........ $ 21,611,724 --%
Interest bearing:
Interest-bearing demand deposits .......... 15,517,026 1.01%
Savings deposits .......................... 10,182,313 1.65%
Time deposits less than $100,000 .......... 37,885,056 4.90%
Time deposits of $100,000 or greater ...... 10,760,302 5.18%
------------ ----------
$ 95,956,421 2.85%
============ ==========
<CAPTION>
DECEMBER 31,
----------------------------------------------
WEIGHTED
AVERAGE
INTEREST
1998 RATE 1997
------------ ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Non-interest bearing demand deposits ........ $ 18,670,815 --% $ 12,951,485
Interest bearing:
Interest-bearing demand deposits .......... 16,093,120 1.43% 13,574,565
Savings deposits .......................... 8,029,451 1.65% 5,027,309
Time deposits less than $100,000 .......... 43,203,321 5.43% 36,415,815
Time deposits of $100,000 or greater ...... 11,561,073 5.60% 10,538,608
------------ ---------- ------------
$ 97,557,780 3.09% $ 78,507,782
============ ========== ============
</TABLE>
The following table presents, by various interest rate categories, the
amount of certificate accounts as of September 30, 1999, maturing during
the periods reflected below:
<TABLE>
<CAPTION>
INTEREST RATE 1999 2000 2001 2002 2003 2004 TOTAL
- ------------------ ------------ --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1.00% - 3.99% $ 936,557 -- -- -- -- -- 936,557
4.00% - 4.99% 7,032,109 811,366 26,652 5,110 106,201 -- 7,981,348
5.00% - 5.99% 26,647,994 2,981,718 703,366 551,686 258,329 -- 31,143,093
6.00% - 6.99% 10,592,074 1,227,883 702,702 198,792 43,480 -- 12,764,931
7.00% - 7.45% 90,000 340,202 -- 67,932 -- -- 498,134
------------ --------- --------- --------- --------- ----------- -----------
$ 45,298,734 5,361,169 1,432,630 823,520 408,010 -- 53,324,063
============ ========= ========= ========= ========= =========== ===========
</TABLE>
F-22
<PAGE> 105
l
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
Included in interest-bearing deposits are certificates of deposit which
have remaining maturities as of September 30, 1999 (unaudited) and as
of December 31, 1998 and 1997 as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- -----------------------------
1999 1998 1997
------------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
One year ................................................... $ 38,556,072 $ 46,833,079 $ 33,762,420
Two years .................................................. 7,435,130 5,384,106 10,095,011
Three years ................................................ 225,023 1,398,041 1,374,780
Four years ................................................. 1,188,040 766,052 979,024
Five years ................................................. 710,043 383,116 743,188
Thereafter ................................................. 531,050 -- --
------------ ------------ ------------
$ 48,645,358 $ 54,764,394 $ 46,954,423
============ ============ ============
</TABLE>
A summary of interest expense on deposits and other borrowed money is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------------- -----------------------------
1999 1998 1998 1997
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest-bearing demand
deposits ................................ $ 183,421 $ 175,653 $ 231,130 $ 222,650
Savings deposits ............................ 177,208 129,517 181,338 85,030
Time deposits less than
$100,000 ............................... 1,570,701 1,673,416 2,269,057 1,867,270
Time deposits of $100,000 or
greater ................................. 425,675 502,480 668,423 560,695
Interest on other borrowed
money.................................... 99,592 54,146 103,563 81,883
------------ ------------ ------------ ------------
$ 2,456,597 $ 2,535,211 $ 3,453,511 $ 2,817,528
============ ============ ============ ============
</TABLE>
The Bank had deposits from directors, officers and employees and their
related interests of approximately $3,729,021, $1,280,453 and $1,186,000
as of September 30, 1999 (unaudited) and as of December 31, 1998 and
1997, respectively.
(7) OTHER BORROWINGS
The Bank enters into sales of securities under agreements to repurchase
substantially identical securities. These fixed-coupon agreements are
treated as secured borrowings, 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.
F-23
<PAGE> 106
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
Repurchase agreements averaged $3,540,164, $2,315,848 and $1,732,210
during the nine months ended September 30, 1999 (unaudited) and for the
years ended December 31, 1998 and 1997, respectively. The maximum amount
outstanding at any month-end for the corresponding periods was
$5,097,021, $4,729,620 and $3,285,100, respectively. Total interest
expense paid on repurchase agreements for the nine months ending
September 30, 1999 and 1998 (unaudited) and for the years ending December
31, 1998 and 1997 was $99,591, $54,146, $103,563 and $81,883,
respectively.
As of December 31, 1998 and September 30, 1999, 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, 1998, the outstanding balance was zero.
(8) INCOME TAXES
The provision for income taxes for the nine months ended September 30,
1999 (unaudited) and for the years ended December 31, 1998 and 1997
consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
SEPTEMBER 30, 1999 (UNAUDITED):
Federal $ 285,378 $ (2,239) $ 283,139
State 25,420 (383) 25,037
----------- ----------- -----------
$ 310,798 $ (2,622) $ 308,176
=========== =========== ===========
DECEMBER 31, 1998:
Federal $ 462,781 $ (4,784) $ 457,997
State 54,706 (307) 54,399
----------- ----------- -----------
$ 517,487 $ (5,091) $ 512,396
=========== =========== ===========
DECEMBER 31, 1997:
Federal $ 384,342 $ (18,929) $ 365,413
State 42,320 (2,320) 40,000
----------- ----------- -----------
$ 426,662 $ (21,249) $ 405,413
=========== =========== ===========
</TABLE>
F-24
<PAGE> 107
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
September 30, 1999 (unaudited) and December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------------
1999 1998 1997
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Unrealized loss on investments ........ $ 31,754 $ -- $ --
Allowance for loan losses ............. 258,883 256,862 250,945
Reserve for group insurance ........... -- -- 2,367
------------- ----------- -----------
Total deferred tax asset ........ 290,637 256,862 253,312
------------- ----------- -----------
Deferred tax liabilities:
Premises and equipment, due
to differences in
depreciation methods and
useful lives ............................ (89,960) (89,308) (90,849)
Unrealized gain on investment
securities available for
sale .............................. -- (75,685) (11,655)
------------- ----------- -----------
Total deferred tax
liability ..................... (89,960) (164,993) (102,504)
------------- ----------- -----------
Net deferred tax asset ............ $ 200,677 $ 91,869 $ 150,808
============= =========== ===========
</TABLE>
The Bank has recorded a deferred tax asset of $200,677, $91,869 and
$150,808 as of September 30, 1999 (unaudited) and as of December 31, 1998
and 1997, respectively. No valuation allowance as defined by SFAS 109 is
required as of September 30, 1999 (unaudited) and December 31, 1998 and
1997, because management believes that based on levels of historical
taxable income, projections for future taxable income and reversals of
deferred tax liabilities over the periods which the deferred tax assets
are deductible, it is more likely than not that the Bank will realize
the benefits of these deductible differences.
F-25
<PAGE> 108
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
A reconciliation between the provision for taxes and the "expected" tax
expense computed by applying the U.S. federal statutory corporate rate
of 34% to earnings before income taxes is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------------------- ---------------------------
1999 1998 1998 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax expense at statutory rate ........... $ 285,670 $ 358,603 $ 478,138 $ 342,429
State income taxes, net of federal
income tax benefits ................. 16,524 23,484 35,800 26,400
Other, primarily nondeductible
expenses, net ....................... 5,982 5,008 (1,542) 36,584
----------- ----------- ----------- -----------
Provision for income taxes .............. $ 308,176 $ 387,086 $ 512,396 $ 405,413
=========== =========== =========== ===========
</TABLE>
(9) RENT
The following is a schedule of future minimum annual rentals under the
noncancellable operating leases of the Bank's facilities as of September
30, 1999:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------------
<S> <C>
1999 .................................. $ 35,730
2000 .................................. 142,921
2001 .................................. 142,921
2002 .................................. 142,921
2003 .................................. 142,921
Thereafter ............................ 714,604
------------
$ 1,429,209
============
</TABLE>
Rent expense for the years ended December 31, 1998 and 1997 was $142,687
and $138,408, respectively, and is included in occupancy expense in the
accompanying consolidated statements of income. Operating lease income
from subleases of the Bank's premises for 1998 and 1997 amounted to
$6,250 and $10,200, respectively.
(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 and 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.
F-26
<PAGE> 109
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
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 risk-based capital and Tier I capital
(as defined in the regulations) to risk-weighted assets and Tier I
capital to adjusted total assets (as defined in the regulations).
Management believes, as of December 31, 1998, that the Bank meets all
capital adequacy requirements to which it is subject.
As of December 31, 1998, 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 Bank'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 PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISION
------------------------ ------------------------ ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
AS OF SEPTEMBER 30, 1999
(UNAUDITED):
Total risk-based capital (to risk
weighted assets) .............. $9,251,485 13.9% $5,308,480 >8% $6,635,600 >10%
- -
Tier I capital (to risk
weighted assets) .............. 8,453,373 12.7% 2,654,20 >4% 3,981,360 > 6%
- -
Tier I capital (to adjusted total
assets) ....................... 8,453,373 7.9% 4,280,840 >4% 5,351,050 > 5%
- -
</TABLE>
F-27
<PAGE> 110
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISION
----------------------- --------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998:
Total risk-based 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 adjusted total
assets) ....................... 7,289,402 6.7% 4,336,161 >4% 5,420,201 > 5%
- -
AS OF DECEMBER 31, 1997:
Total risk-based capital (to risk
weighted assets) .................. $7,009,000 13.0% $4,301,000 >8% $5,376,268 >10%
- -
Tier I capital (to risk weighted
assets ............................ 6,335,000 11.8% 2,155,000 >4% 3,252,218 > 6%
- -
Tier I capital (to adjusted total
assets) ........................... 6,335,000 7.3% 3,452,000 >4% 4,314,308 > 5%
- -
</TABLE>
(11) DIVIDENDS
The Board of Directors of the Bank declared cash dividends of $66,188,
$112,777 and $72,335 during the nine months ended September 30, 1999
(unaudited) and for the years ended December 31, 1998 and 1997,
respectively. Banking regulations limit the amount of dividends that may
be paid by the Bank without prior approval of the Bank's regulatory
agency.
(12) STOCK OPTION PLANS
The Bank currently has an incentive stock plan for its 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 option expires no later than September 18, 1999 and vesting
occurs at 20% on September 18th of each year. As of September 30, 1999
(unaudited) and December 31, 1998 and 1997, all directors options are
fully vested, with no additional options granted and 22,891 and 10,000
exercised during the nine month period ended September 30, 1999 and the
year ended December 31, 1997, respectively. There were 400 and 38,900
outstanding options as of September 30, 1999 (unaudited) and December 31,
1997, respectively.
F-28
<PAGE> 111
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
In addition, in 1989, the Bank authorized 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. In January
1998, the Bank granted an additional 1,000 options with an exercise
price of $20.00 per share (fair market value of the stock). The options
vest over a four year period beginning with the date of the grant and
expire in ten years. In October 1998, the Bank granted an additional
2,500 options with an exercise price of $25.00 per share (fair market
value of the stock). The options vest over a four year period beginning
with the date of grant and expire in ten years. During the nine month
period ended September 30, 1999 and the year ended December 31, 1997,
37,175 and 0 options were exercised, respectively, and none were granted
for either year. As of September 30, 1999 and December 31, 1997, there
were 5,506 and 41,075 options outstanding, of which 2,881 and 39,825
were vested.
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>
SEPTEMBER 30, DECEMBER 31,
----------------------- ---------------------------
1999 1998 1998 1997
--------- ------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income:
As reported ......... $ 532,030 $658,983 $893,891 $601,732
Pro forma ........... $ 529,687 $656,580 $887,746 $584,232
Basic net income
As reported .......... $ 1.13 $ 1.48 $ 2.00 $ 1.41
Pro forma ............ $ 1.12 $ 1.47 $ 1.99 $ 1.37
Diluted net income
As reported .......... $ 1.07 $ 1.38 $ 1.86 $ 1.32
Pro forma ............ $ 1.07 $ 1.37 $ 1.84 $ 1.28
</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 nine months ended September 30, 1999
and for the year ended December 31, 1998: annual dividend per share of
$0.25; expected volatility of 0%; risk-free interest rates of 4.73% and
expected lives of 10 years for the plan options.
A summary of the status of the Bank's stock option plan for the nine
months ended September 30, 1999 (unaudited) and for the years December
31, 1998 and 1997, and changes during the periods ended on those dates is
presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, Weighted Average
--------------- ---------------------------- Exercise Price
FIXED OPTIONS 1999 1998 1997 at December 31, 1997
---------------------------------------- ------------ ------------ ---------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Outstanding at beginning of period: ......... 65,972 79,975 89,975 $ 10
Granted ................................. -- 3,500 --
Exercised ............................... (60,066) (15,609) (10,000) $ 10
Forfeited ............................... -- (1,894) --
------------ ------------ ----------
Outstanding at end of period ................ 5,906 65,972 79,975 $ 10
------------ ------------ ----------
Options exercisable at end of period ........ 3,281 62,972 78,725
------------ ============ ==========
Weighted-average fair value of
options granted during the period
per share ............................... $ -- $ 6.67 $ --
============ ============ ==========
</TABLE>
F-29
<PAGE> 112
The following table summarizes information about fixed stock options
outstanding at September 30, 1999 (unaudited) and December 31, 1998:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------
WEIGHTED
NUMBER WEIGHTED WEIGHTED NUMBER AVERAGE EXERCISE
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT PRICE AT
RANGE OF SEPTEMBER 30, CONTRACTUAL EXERCISE SEPTEMBER 30, SEPTEMBER 30,
EXERCISE PRICES 1999 LIFE PRICE 1999 1999
--------------- -------------- ----------- -------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 10.00 406 1 year $ 10.00 406 $ 10.00
$14.00-415.00 2,000 7 years $ 14.67 1,750 $ 14.50
$20.00-$25.00 3,500 9 years $ 23.50 1,125 $ 23.50
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------------------------------------------------------------------------
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 1998 LIFE PRICE 1998 1998
--------------- -------------- ----------- -------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 10.00 60,472 1 year $ 10.00 60,472 $ 10.00
$14.00-$15.00 2,000 8 years $ 14.67 1,750 $ 14.50
$20.00-$25.00 3,500 10 years $ 23.50 1,125 $ 23.50
</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
contributes 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 nine months ended September
30, 1999 and 1998 (unaudited) and for the years ended December 31, 1998
and 1997, the Bank's contributions to the plan were $20,487, $18,403,
$32,267 and $34,785, respectively.
F-30
<PAGE> 113
FIRST NATIONAL BANK OF OSCEOLA COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997--Continued
(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 credit worthiness is evaluated
on a case-by-case basis. A summary of commitments to extend credit and
standby letters of credit written for the nine months ended September
30, 1999 and 1998 (unaudited) and for the years ended December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
Contract or Notional Amount
--------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
------------- -----------------------------
1999 1998 1997
------------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Standby letters of credit ......... $ 195,549 191,149 1,289,386
Available lines of credit ......... 9,883,960 6,028,801 7,072,527
</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 conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. Those
letters of credit are primarily issued to support public and private
borrowing arrangements. As of September 30, 1999 (unaudited) and December
31, 1998, essentially all letters of credit issued have expiration dates
within one year. As of December 31, 1997, approximately $1,145,000 of
these letters of credit had expiration dates greater than one year, with
all other letters of credit expiring within one year. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
(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 September 30, 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.
In addition, cash and cash equivalents in excess of federal deposit
insurance coverage amounted to approximately $12,300,000 at December 31,
1997. The bank has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash and
cash equivalents.
F-31
<PAGE> 114
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Community National Bank of Pasco County:
We have audited the accompanying balance sheet of Community National Bank of
Pasco County as of December 31, 1998 and the related statements of operations,
changes in stockholders' equity and comprehensive income and cash flows for the
year 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 audit.
We conducted our audit 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 audit provides 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, 1998, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Orlando, Florida
February 1, 1999
F-32
<PAGE> 115
INDEPENDENT AUDITORS' REPORT
January 14, 1998
Board of Directors
Community National Bank
of Pasco County
Zephyrhills, Florida
We have audited the accompanying statement of financial condition of
Community National Bank of Pasco County as of December 21, 1997, and the
related statement of income, changes in stockholders' equity, and cash flows
for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. These 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 audit provides 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 as of December 31, 1997, the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Dwight Darby & Company
---------------------------------------
Certified Public Accountants
F-33
<PAGE> 116
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------------------------
Assets 1999 1998 1997
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash and due from banks .............................. $ 6,174,798 $ 3,787,574 $ 3,557,064
Federal funds sold ................................... 4,207,000 5,175,000 3,720,000
Investment securities available for sale ............. 22,236,228 21,955,703 14,185,891
Investment securities held to maturity (market
value of $3,006,075 at December 31, 1997) ........ -- -- 3,000,846
Loans, less allowance for loan losses of $865,306,
$865,503 and $754,637 for the nine months ended
September 30, 1999 and for the years ended
December 31, 1998 and 1997, respectively.......... 56,033,412 55,783,943 50,813,641
Accrued interest receivable .......................... 711,989 666,606 609,410
Bank premises and equipment, net ..................... 5,954,581 5,294,524 3,450,588
Other real estate owned .............................. -- 34,672 359,254
Deferred income taxes ................................ 315,852 235,942 223,896
Prepaids and other assets ............................ 86,491 46,960 44,488
----------- ----------- -----------
$95,720,351 $92,980,924 $79,965,078
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing .............................. $10,789,505 $11,324,586 $ 9,281,953
Interest bearing ................................. 74,430,885 73,322,182 62,388,590
----------- ----------- -----------
Total deposits .......................... 85,220,390 84,646,768 71,670,543
Securities sold under agreements to repurchase ... 2,211,244 652,948 1,487,751
Accrued interest payable ......................... 124,546 144,862 141,957
Accounts payable and accrued expenses ............ 322,298 89,694 176,518
----------- ----------- -----------
Total liabilities ....................... 87,878,478 85,534,272 73,476,769
----------- ----------- -----------
Stockholders' equity:
Common stock, $5 par value; 5,000,000 shares
authorized; 486,435, 461,585 and 436,648
shares for the nine months ended
September 30, 1999 and for the years ended
December 31, 1998 and 1997, respectively,
issued and outstanding ........................ 2,434,175 2,307,925 2,183,240
Additional paid-in capital ....................... 2,559,580 2,430,696 2,265,349
Retained earnings ................................ 2,883,095 2,591,424 2,005,032
Accumulated other comprehensive income ........... (34,977) 116,607 34,688
----------- ----------- -----------
Total stockholders' equity .............. 7,841,873 7,446,652 6,488,309
Commitments and contingent liabilities
----------- ----------- -----------
Total liabilities and stockholders'
equity ............................... $95,720,351 $92,980,924 $79,965,078
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE> 117
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------ ------------------------
1999 1998 1998 1997
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans ................................................ $3,756,223 $3,587,471 $4,868,419 $4,546,805
Investment securities ................................ 928,884 817,155 1,108,953 998,874
Federal funds sold ................................... 206,698 233,372 296,312 261,436
---------- ---------- ---------- ----------
4,891,805 4,637,998 6,273,684 5,807,115
---------- ---------- ---------- ----------
Interest expense:
Deposits ............................................. 2,256,364 2,250,329 3,039,598 2,916,542
Securities sold under agreement to repurchase ........ 25,874 50,533 58,853 40,090
---------- ---------- ---------- ----------
2,282,238 2,300,862 3,098,451 2,956,632
---------- ---------- ---------- ----------
Net interest income ......................... 2,609,567 2,337,136 3,175,233 2,850,483
Provision for loan losses ................................ 9,000 150,000 150,000 150,000
---------- ---------- ---------- ----------
Net interest income after loan loss provision 2,600,567 2,187,136 3,025,233 2,700,483
---------- ---------- ---------- ----------
Other income:
Service charges on deposit accounts .................. 431,091 301,865 423,759 336,680
Other service charges and fees ....................... 45,688 29,901 41,098 36,849
Gain on sale of other real estate owned .............. -- -- 99,659 148,985
---------- ---------- ---------- ----------
476,779 331,766 564,516 522,514
---------- ---------- ---------- ----------
Other expenses:
Salaries, wages and employee benefits ................ 1,079,930 839,014 1,131,682 893,967
Occupancy expense .................................... 302,497 194,473 272,603 195,728
Depreciation of premises and equipment ............... 231,857 157,069 215,412 172,896
Stationary and printing supplies ..................... 58,175 55,454 83,034 64,677
Advertising and public relations ..................... 59,331 30,641 47,772 53,209
Data processing expense .............................. 180,091 152,866 208,688 109,566
Legal and professional fees .......................... 77,196 74,713 114,735 136,945
Other expenses ....................................... 395,353 285,205 420,755 287,041
---------- ---------- ---------- ----------
2,384,430 1,789,435 2,494,681 1,914,029
---------- ---------- ---------- ----------
Income before provision for income taxes .... 692,916 729,467 1,095,068 1,308,968
Provision for income taxes ............................... 255,194 295,538 393,405 484,235
---------- ---------- ---------- ----------
Net income .................................. $ 437,722 $ 433,929 $ 701,663 $ 824,733
========== ========== ========== ==========
Net Income per Share
Basic ................................................ $ 0.94 $ 0.95 $ 1.53 $ 1.97
Diluted .............................................. $ 0.90 $ 0.90 $ 1.45 $ 1.83
Average Number of Common Shares Outstanding
Basic ................................................ 465,417 456,805 458,049 418,129
Diluted .............................................. 483,472 481,734 483,581 451,096
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE> 118
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Statements of Changes in Stockholder' Equity and Comprehensive Income
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE COMMON CAPITAL RETAINED COMPREHENSIVE STOCKHOLDERS'
INCOME STOCK SURPLUS EARNINGS INCOME EQUITY
-------------- ---------- ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ...................... $2,017,000 2,017,000 1,253,222 26,094 5,313,316
Dividends paid .................................. -- -- (72,923) -- (72,923)
Stock options exercised ......................... 166,240 166,240 -- -- 322,480
Tax effect of tax deduction in excess of book
deduction on options exercised during the year -- 82,109 -- -- 82,109
Comprehensive income:
Net income ................................... $ 824,733 -- -- 824,733 -- 824,733
Other comprehensive income, net of tax
unrealized gain on securities ............ 8,594 -- -- -- 8,594 8,594
---------
Comprehensive income ............................ $ 833,327
=========
---------- ---------- ----------- --------- -----------
Balances, September 30, 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
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 .................................. -- -- (146,051) -- (146,051)
Stock options exercised ......................... 126,250 126,250 -- -- 252,500
Tax effect of tax deduction in excess of book
deduction on options exercised during the year -- 2,634 -- -- 2,634
Comprehensive income:
Net income ................................... $ 437,722 -- -- 437,722 -- 437,722
Other comprehensive income, net of tax
unrealized gain on securities ............ (151,584) -- -- -- (151,584) (151,584)
---------
Comprehensive income ............................ $ 286,138
=========
---------- ---------- ----------- --------- -----------
Balance, September 30, 1999 ..................... $2,434,175 $2,559,580 $ 2,883,095 $ (34,977) $ 7,841,873
========== ========== =========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE> 119
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Statements of Cash Flows
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------------------- ----------------------------
1999 1998 1998 1997
------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................ $ 437,722 $ 433,929 $ 701,663 $ 824,733
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses ........................... 9,000 150,000 150,000 150,000
Depreciation of premises and equipment .............. 231,857 157,069 215,412 172,896
Net amortization/accretion of investment securities . 58,299 8,837 17,571 2,217
Net deferred loan origination fees .................. (858) (2,114) (62) --
Provision for loss of other assets owned ............ -- -- -- (2,000)
Loss (gain) on sale of other real estate owned ...... 3,428 (643) (99,659) (148,985)
Deferred income taxes ............................... 11,547 (53,536) (61,139) (41,069)
Tax deduction in excess of book deduction on options
exercised ........................................ 2,634 40,662 40,662 --
Cash provided by (used in) changes in: .................... 82,109
Net change in accrued interest receivable ........... (45,383) (25,500) (57,196) (57,036)
Net change in prepaids and other assets ............. (39,531) (9,267) (2,472) (37,002)
Net change in accrued interest payable .............. (20,316) (1,857) 2,905 23,502
Net change in accounts payable and accrued expenses . 232,604 100,189 (86,824) 14,668
------------ ------------ ------------ -----------
Net cash provided by operating activities ........ 881,003 797,769 820,861 984,033
------------ ------------ ------------ -----------
Cash flows from investing activities:
Purchases of investment securities available for sale ..... (6,081,865) (13,923,376) (15,955,525) (8,027,148)
Proceeds from callable investment securities available
for sale ............................................... 1,000,000 1,000,000 2,300,000 --
Proceeds from maturities of investment securities available
for sale ............................................... 3,500,000 5,500,000 6,000,000 6,000,000
Proceeds from sales of investment securities available
for sale ............................................... 1,000,000 -- -- --
Proceeds from maturities of investment securities held
to maturity ............................................ -- 3,000,000 3,000,000 1,000,000
Increase in loans, net of repayments ...................... (257,611) (2,110,496) (5,086,240) (5,386,764)
Purchases of premises and equipment ....................... (891,914) (1,433,114) (2,059,348) (937,244)
Proceeds from sale of other real estate owned ............. 31,244 32,663 390,241 40,250
------------ ------------ ------------ -----------
Net cash used in investing activities ............ (1,700,146) (7,934,323) (11,410,872) (7,310,906)
------------ ------------ ------------ -----------
Cash flows from financing activities:
Net increase in demand and savings deposits ............... 573,622 5,167,722 12,976,225 8,047,930
Net (decrease) increase in other borrowings ............... 1,558,296 (29,862) (834,803) 1,487,751
Stock options exercised ................................... 252,500 244,370 249,370 414,589
Dividends paid ............................................ (146,051) (115,271) (115,271) (72,923)
------------ ------------ ------------ -----------
Net cash provided by financing activities ...... 2,238,367 5,266,959 12,275,521 9,877,347
------------ ------------ ------------ -----------
Net increase in cash and due from banks ........ 1,419,224 (1,869,595) 1,685,510 3,550,474
Cash and cash equivalents, beginning of period ................ 8,962,574 7,277,064 7,277,064 3,726,590
------------ ------------ ------------ -----------
Cash and cash equivalents, end of period ...................... $ 10,381,798 $ 5,407,469 $ 8,962,574 $ 7,277,064
============ ============ ============ ===========
Supplemental schedule of noncash transactions:
Market value adjustment-investment securities available-
for-sale ...............................................
Market value adjustments-investments ................ $ (56,081) $ 204,866 $ 186,960 $ 55,948
Deferred income tax liability ....................... 21,104 (77,849) (70,353) (21,260)
------------ ------------ ------------ -----------
Unrealized gain (loss) on investments
available-for-sale ......................... $ (34,977) $ 127,017 $ 116,607 $ 34,688
============ ============ ============ ===========
Transfer of loan to other real estate owned ............ $ -- $ -- $ 34,000 $ 77,062
============ ============ ============ ===========
Other supplemental disclosures: Cash paid during the year for:
Interest ............................................... $ 2,302,554 $ 2,302,719 $ 3,095,546 $ 2,933,130
============ ============ ============ ===========
Income taxes ........................................... $ 206,145 $ 303,522 $ 368,750 $ 371,637
============ ============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE> 120
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997
(Information insofar as it relates to the nine months ended
September 30, 1999 and 1998 (unaudited))
(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 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.
Loan origination fees, net of related costs, are capitalized
and recognized in income over the contractual life of the
loans, adjusted for estimated prepayments based on the Bank's
historical prepayment experience.
Commitment fees and costs relating to the commitments are
recognized over the commitment period on a straight-line
basis. If the commitment is exercised during the commitment
period, the remaining unamortized commitment fee at the time
of exercise is recognized over the life of the loan as an
adjustment of yield.
F-38
<PAGE> 121
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements -- Continued
December 31, 1998 and 1997
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. Impaired loans are written down to
the extent that principal is judged to be uncollectible and,
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, are 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
loan. The Bank provides for a general allowance for losses
inherent in the portfolio by the above categories, which
consists of two components. General loss percentages are
calculated based upon historical analyses. A supplemental
portion of the allowance is calculated for inherent losses
which probably exist as of the evaluation date even though
they might not have been identified by the more objective
processes used for the portion of the allowance described
above. 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.
Specific allowances are provided in the event that the
specific collateral analysis on each classified loan indicates
that the probable 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.
F-39
<PAGE> 122
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements -- Continued
December 31, 1998 and 1997
The Bank records impairment in the value of its loans as an
addition to the allowance for loan losses. Any changes in the
value of impaired loans due to the passage of time or
revisions in estimates are reported as adjustments to
provision expense in the same manner in which impairment
initially was recognized.
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
In June 1997, the Financial Accounting Standards Board
established Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income." This Statement
establishes standards for reporting and display of
comprehensive income and its components in a full set of
financial statements. This Statement requires that an
enterprise classify items or other comprehensive income by
nature in a financial statement, and display the accumulated
balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section
of a balance sheet.
The Bank adopted this Statement effective January 1, 1998 with
the 1997 financial statements reclassified to reflect the
adoption. The Bank's other comprehensive income is the
unrealized gain/(loss) on investment securities available for
sale.
(H) 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.
F-40
<PAGE> 123
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements -- Continued
December 31, 1998 and 1997
(I) 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.
(J) EFFECT OF NEW PRONOUNCEMENTS
In June 1997, the FASB issued Financial Accounting Standards
No. 131, "Disclosure about Segments of an Enterprise and
Related Information". This Statement requires that a public
business enterprise report financial and descriptive
information about its reportable operating segments. Operating
segments are components of an enterprise about which separate
financial information is available that is evaluated regularly
by the chief operating decision make in deciding how to
allocate resources and in assessing performance. This
Statement is effective for fiscal years beginning after
December 15, 1997. The Company adopted the Statement effective
January 1, 1998, however, the Company has only one reportable
segment.
In June 1998, 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 Company.
In October 1998, the FASB issued Financial Accounting
Standards No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise." This Statement
requires that after the securitization of a mortgage loan held
for sale, an entity engaged in mortgage banking activities
classify the resulting mortgage-backed security as a trading
security. The Statement is effective for the first fiscal
quarter beginning after December 15, 1998. The Company does
not expect the adoption of this Statement to have any impact
on its consolidated financial statements.
(K) RECLASSIFICATION
Certain amounts in the 1997 and 1998 financial statements have
been reclassified to conform with the September 30, 1999
presentation.
F-41
<PAGE> 124
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements -- Continued
December 31, 1998 and 1997
(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 nine months ended September 30, 1999
(unaudited) and for the years ended December 31, 1998 and 1997 are as
follows:
INVESTMENT SECURITIES AVAILABLE FOR SALE:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 (UNAUDITED)
----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities . $16,590,903 $ 10,516 $ (33,899) $16,567,520
Obligations of U.S.
government agencies .... 5,560,456 470 (33,168) 5,527,758
Federal reserve bank stock 140,950 -- -- 140,950
----------- -------- ------------ -----------
$22,292,309 $ 10,986 $ (67,067) $22,236,228
=========== ======== ============ ===========
----------------------------------------------------
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
=========== ======== =========== ===========
DECEMBER 31, 1997
----------------------------------------------------
U.S. Treasury securities . $13,507,921 $49,632 $ 212 $15,337,341
Obligations of U.S.
government agencies .. 500,972 6,528 -- 507,500
Federal reserve bank stock 121,050 -- -- 121,050
----------- ------- ----------- -----------
$14,129,943 $56,160 $ 212 $14,185,891
=========== ======= =========== ===========
</TABLE>
F-42
<PAGE> 125
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements -- Continued
December 31, 1998 and 1997
The amortized cost and estimated market values of investment securities
held to maturity at December 31, 1997:
INVESTMENT SECURITIES HELD TO MATURITY:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
1997:
U.S. Treasury securities . $2,500,892 4,583 -- 2,505,475
Obligations of U.S.
government agencies .. 499,954 646 -- 500,600
---------- ----- --------- ---------
$3,000,846 5,229 -- 3,006,075
========== ===== ========= =========
</TABLE>
The amortized cost and estimated market value of investment securities
available for sale for the nine months ended September 30, 1999
(unaudited) and for the years ended December 31, 1998 and 1997 by
contractual maturity, are below:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 (UNAUDITED)
------------------------------
AMORTIZED ESTIMATED
COST MARKET VALUE
----------- ------------
<S> <C> <C>
Investment securities available for sale:
Due in one year or less ............. $14,218,318 $14,215,748
Due after one year through five years 8,073,991 8,020,480
----------- -----------
$22,292,309 $22,236,228
=========== ===========
DECEMBER 31, 1998
---------------- ------------
Investment securities available for sale:
Due in one year or less ............. $ 8,147,879 $ 8,210,505
Due after one year through five years 13,620,864 13,745,198
----------- -----------
$21,768,743 $21,955,704
=========== ===========
<CAPTION>
DECEMBER 31, 1997
------------------------------
AMORTIZED ESTIMATED
COST MARKET VALUE
----------- ------------
<S> <C> <C>
Investment securities available for sale:
Due in one year or less ............. $ 6,114,462 $ 6,123,860
Due after one year through five years 8,015,481 8,062,031
----------- -----------
$14,129,943 $14,185,891
=========== ===========
DECEMBER 31, 1997
---------------- ------------
Investment securities held to maturity:
Due in one year or less ............. $ 3,000,846 $ 3,006,075
Due after one year through five years -- --
----------- -----------
$ 3,000,846 $ 3,006,075
=========== ===========
</TABLE>
At September 30, 1999 (unaudited) and at December 31, 1998 and 1997,
the Bank had $2,000,000, $2,023,915 and $3,551,861, respectively, in
securities pledged to the State of Florida as collateral on public
fund deposits; and for other purposes.
F-43
<PAGE> 126
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements -- Continued
December 31, 1998 and 1997
(3) LOANS
Major categories of loans included in the loan portfolio for the nine
months ended September 30, 1999 (unaudited) and for the years
ended December 31, 1998 and 1997 are:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------------------------
1999 1998 1997
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Real estate:
Residential ........... $21,793,499 $23,590,905 $25,593,687
Commercial ............ 20,862,060 19,121,381 15,524,421
Construction .......... 5,756,335 4,697,886 2,978,253
----------- ----------- -----------
Total real estate 48,411,894 47,410,172 44,096,361
Commercial ............... 6,093,136 7,689,922 6,115,991
Installment .............. 2,492,889 1,654,245 1,464,355
Overdrafts ............... 14,700 9,866 6,392
----------- ----------- -----------
57,012,619 56,764,205 51,683,099
Less:
Allowance for loan
losses ............ 865,306 865,503 754,637
Deferred loan
origination fees .. 113,901 114,759 114,821
----------- ----------- -----------
Net loans ....... $56,033,412 $55,783,943 $50,813,641
=========== =========== ===========
</TABLE>
Certain principal stockholders, directors and officers and their
related interests were indebted to the Bank as summarized below for the
nine months ended September 30, 1999 (unaudited) and for the
years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ------------------------
1999 1998 1997
------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Balance, beginning of period .. $1,973,214 $2,172,197 $1,454,561
Additional new loans .......... 797,102 1,192,571 1,437,872
Repayments on outstanding loans 725,291 617,181 720,236
---------- ---------- ----------
Balance, end of period......... $2,045,025 $2,747,587 $2,172,197
========== ========== ==========
</TABLE>
F-44
<PAGE> 127
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements -- Continued
December 31, 1998 and 1997
All such loans were made in the ordinary course of business. For the
nine months ended September 30, 1999 (unaudited) and for the years
ended December 31, 1998 and 1997, principal stockholders, directors and
officers of the Bank and their related interests had $830,533,
$194,900, $169,909, respectively, available in lines of credit.
Changes in the allowance for loan losses for the nine months ended
September 30, 1999 (unaudited) and for the years ended December 31,
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- -----------------------
1999 1998 1997
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Balance, beginning of period ..... $ 865,503 $ 754,637 $ 654,332
Provision charged to operations .. 9,000 150,000 150,000
Loans charged-off ................ (53,926) (42,808) (59,197)
Recoveries of previous charge-offs 44,729 3,674 9,502
--------- --------- ---------
Balance, end of period ........... $ 865,306 $ 865,503 $ 754,637
========= ========= =========
</TABLE>
For the nine months ended September 30, 1999 (unaudited) and for the
years ended December 31, 1998 and 1997, nonaccrual loans were $201,141,
$180,003 and $290,272, respectively. If interest due on all nonaccrual
loans for the nine months ended September 30, 1999 and for the years
ended December 31, 1998 and 1997 had been accrued at the original
contract rates, estimated interest income would have been increased by
$18,607, $6,881 and $4,600 for the nine months ended September 30, 1999
and for the years ended December 31, 1998 and 1997, respectively.
The recorded investment in loans for which impairment has been
recognized and the related allowance for loan losses for the nine
months ended September 30, 1999 and for the years ended December 31,
1998 and 1997 were $813,000 and $15,000, $596,000 and $54,000 and
$1,202,000 and $93,000, respectively. The average recorded investment
in impaired loans during the nine months ended September 30, 1999 and
for the years ended December 31, 1998 and 1997 was $1,043,000, $899,000
and 1,176,755, respectively. Interest income recognized on impaired
loans for the nine months ended September 30, 1999 and 1998 and for the
years ended December 31, 1998 and 1997 was $62,300, $53,300, $40,005
and $102,238, respectively.
F-45
<PAGE> 128
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements -- Continued
December 31, 1998 and 1997
(4) PREMISES AND EQUIPMENT
A summary of premises and equipment for the nine months ended September
30, 1999 (unaudited) and for the years ended December 31, 1998 and 1997
is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ------------------------
1999 1998 1997
------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Land ............................ $1,682,576 $1,109,845 $ 806,698
Building ........................ 3,931,552 3,710,891 2,331,270
Furniture, fixtures and equipment 1,706,760 1,524,662 1,103,446
Construction in progress ........ -- 87,008 131,654
---------- ---------- ----------
7,320,888 6,432,406 4,373,068
Less accumulated
depreciation ................ 1,366,307 1,137,882 922,480
---------- ---------- ----------
$5,954,581 $5,294,524 $3,450,588
========== ========== ==========
</TABLE>
(5) DEPOSITS
A detail of deposits for the nine months ended September 30, 1999
(unaudited) and for the years ended December 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
WEIGHTED
AVERAGE
INTEREST
1999 RATE
----------- --------
(UNAUDITED)
<S> <C> <C>
Non-interest bearing deposits ......... $10,789,505 --%
Interest bearing:
Interest-bearing demand deposits ... 16,590,241 1.6%
Savings deposits ................... 7,383,492 2.0%
Time deposits less than $100,000 ... 40,478,575 4.5%
Time deposits of $100,000 or greater 9,978,577 4.7%
----------- ---
$85,220,390 3.2%
=========== ===
</TABLE>
F-46
<PAGE> 129
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements -- Continued
December 31, 1998 and 1997
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
1998 RATE 1997 RATE
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Non-interest bearing deposits ......... $11,324,586 --% $ 9,281,953 --%
Interest bearing:
Interest-bearing demand deposits ... 14,213,877 1.7% 9,119,593 1.7%
Savings deposits ................... 6,411,103 2.0% 4,288,161 2.0%
Time deposits less than $100,000 ... 44,323,979 4.7% 41,765,836 4.8%
Time deposits of $100,000 or greater 8,373,223 4.9% 7,215,000 5.0%
----------- --- ----------- ---
$84,646,768 3.4% $71,670,543 3.6%
=========== === =========== ===
</TABLE>
The following table presents, by various interest rate categories, the
amount of certificate accounts maturing during the periods reflected
below:
<TABLE>
<CAPTION>
INTEREST RATE 1999 2000 2001 2002 2003 2004 TOTAL
------------- ----------- ---------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1.00% - 3.99% $ 508,725 4,213 -- -- -- -- 512,938
4.00% - 4.99% 8,184,357 13,404,104 4,287,028 1,072,420 672,617 77,475 27,698,001
5.00% - 5.99% 5,763,734 8,961,102 2,855,925 714,423 448,082 51,613 18,794,879
6.00% - 6.99% 1,058,404 1,645,542 524,438 131,191 82,282 9,477 3,451,334
----------- ---------- --------- --------- --------- ---------- ----------
$15,515,220 24,014,961 7,667,391 1,918,034 1,202,981 138,565 50,457,152
=========== ========== ========= ========= ========= ========== ==========
</TABLE>
Included in interest-bearing deposits are certificates of deposit which
have remaining maturities for the nine months ended September 30, 1999
(unaudited) and for the year ended December 31, 1998 as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
One year ........... 28,971,032 29,745,046
Two years .......... 11,190,011 12,658,064
Three years ........ 4,314,056 4,624,012
Four years ......... 2,073,029 2,269,018
Five years ......... 3,909,024 3,401,062
---------- ----------
50,457,152 52,697,202
========== ==========
</TABLE>
F-47
<PAGE> 130
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements -- Continued
December 31, 1998 and 1997
A summary of interest expense on deposits and other borrowed money is
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------ ------------------------
1999 1998 1998 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest-bearing demand
deposits ............... $ 203,917 $ 135,895 $ 186,682 $ 159,713
Savings deposits ........... 106,099 75,508 105,377 81,445
Time deposits less than
$100,000 ............... 1,760,889 1,837,653 2,484,703 2,409,615
Time deposits of $100,000 or
greater ................ 185,459 201,273 262,836 265,769
Interest on other borrowed
money .................. 25,874 50,533 58,853 40,090
---------- ---------- ---------- ----------
$2,282,238 $2,300,862 $3,098,451 $2,956,632
========== ========== ========== ==========
</TABLE>
The Bank had deposits from directors, officers and employees and their
related interests of approximately $1,137,000, $931,000 and $636,000
for the nine months ended September 30, 1999 (unaudited) and for the
years ended December 31, 1998 and 1997, respectively.
(6) 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.
The repurchase agreements were to repurchase the identical securities
as those which were sold. Repurchase agreements averaged $952,134,
$1,268,558 and $832,203 during the nine months ended September 30, 1999
(unaudited) and for the years ended December 31, 1998 and 1997,
respectively. The maximum amount outstanding at any month-end for the
corresponding periods was $2,848,705, $1,525,913 and $1,575,512,
respectively. Total interest expense paid on repurchase agreements for
the nine months ended September 30, 1999 and 1998 (unaudited) for the
years ending December 31, 1998 and 1997 was $25,874, $50,533, $58,853
and $40,090, respectively.
The Bank has available repurchase lines equal to the amount of all
unpledged investment securities.
F-48
<PAGE> 131
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements -- Continued
December 31, 1998 and 1997
(7) INCOME TAXES
The provision for income taxes for the nine months ended September 30,
1999 and 1998 (unaudited) and for the years ended December 31, 1998 and
1997 consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- --------- --------
<S> <C> <C> <C>
SEPTEMBER 30, 1999 (UNAUDITED):
Federal ....................... $ 248,048 $ (20,190) $227,858
State ......................... 30,792 (3,456) 27,336
--------- --------- --------
$ 278,840 $ (23,646) $255,194
========= ========= ========
DECEMBER 31, 1998:
Federal ....................... $ 397,901 $ (52,234) $345,667
State ......................... 56,643 (8,905) 47,738
--------- --------- --------
$ 454,544 $ (61,139) $393,405
========= ========= ========
DECEMBER 31, 1997:
Federal ....................... $ 458,873 $ (35,067) $423,806
State ......................... 66,431 (6,002) 60,429
--------- --------- --------
$ 525,304 $ (41,069) $484,235
========= ========= ========
</TABLE>
F-49
<PAGE> 132
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements -- Continued
December 31, 1998 and 1997
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities for
the nine months ended September 30, 1999 (unaudited) and for the years
ended December 31, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------- ---------
1999 1998 1997
---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Unrealized loss on investment
securities ................ $ 21,103 $ -- $ --
Deferred tax assets:
Allowance for loan losses . 297,424 294,038 243,624
Deferred loan fees ........ 42,861 43,184 40,509
--------- --------- ---------
Total deferred tax asset $ 361,388 337,222 176,135
--------- --------- ---------
Deferred tax liabilities:
Accretion of discount on
investments ........... (512) (3,498) (13,049)
Unrealized gain on
investment securities
available for sale .... -- (70,353) (21,472)
Premises and equipment due
to differences in
depreciation method and
useful lives .......... (45,024) (27,429) (25,716)
Other .......................... -- -- --
--------- --------- ---------
Total deferred tax
liability ......... (45,536) (101,280) (60,237)
--------- --------- ---------
Net deferred tax asset $ 315,852 $ 235,942 $ 223,896
========= ========= =========
</TABLE>
The Company has recorded a deferred tax asset of $315,852, $235,942 and
$223,896 for the nine months ended September 30, 1999 (unaudited) and
for the years ended December 31, 1998 and 1997, respectively. No
valuation allowance as defined by SFAS 109 is required at September 30,
1999 (unaudited) and December 31, 1998 and 1997, because management
believes that based on levels of historical taxable income, projections
for future taxable income and reversals of deferred tax liabilities
over the periods which the deferred tax assets are deductible, it is
more likely than not that the Bank will realize the benefits of these
deductible differences.
F-50
<PAGE> 133
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements -- Continued
December 31, 1998 and 1997
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>
SEPTEMBER 30, DECEMBER 31,
1999 1998 1998 1997
-------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
"Expected" tax expense .................. $235,591 $279,245 $ 372,323 $ 445,049
State income taxes, net of federal income
tax benefits ........................ 18,042 14,652 32,879 47,123
Other ................................... 1,561 1,641 (11,797) (7,937)
-------- -------- --------- ---------
$255,194 $295,538 $ 393,405 $ 484,235
======== ======== ========= =========
</TABLE>
(8) 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, 1998, that the Bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 1998, 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.
F-51
<PAGE> 134
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements -- Continued
December 31, 1998 and 1997
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 SEPTEMBER 30, 1999
UNAUDITED):
Total capital (to risk
weighted assets) ...... $8,571,000 15.29% $4,485,520 =>.0% $5,606,900 =>10.0%
Tier I capital (to risk
weighted assets) ...... 7,868,000 14.03% 2,242,760 =>4.0% 3,364,140 => 6.0%
Tier I capital (to average
assets) ............... 7,868,000 8.39% 3,807,480 =>4.0% 4,759,350 => 5.0%
</TABLE>
F-52
<PAGE> 135
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Notes to the Financial Statements -- Continued
December 31, 1998 and 1997
<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, 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%
AS OF DECEMBER 31, 1997:
Total capital (to risk
weighted assets) ...... $6,931,000 15.17% $3,655,040 =>8.0% $4,568,800 =>10.0%
Tier I capital (to risk
weighted assets) ...... 6,358,000 13.92% 1,827,520 =>4.0% 2,741,280 => 6.0%
Tier I capital (to average
assets) ............... 6,358,000 8.07% 3,152,600 =>4.0% 3,940,750 => 5.0%
</TABLE>
(9) DIVIDENDS
The Board of Directors of the Bank declared cash dividends of $115,271,
$115,271 and $72,923 for the nine months ended September 30, 1999
(unaudited) and for the years ended December 31, 1998 and 1997,
respectively. Banking regulations limit the amount of dividends that
may be paid by the Company without prior approval of the Bank's
regulatory agency.
(10) 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 September 30, 1999 (unaudited) and December 31,
1998, there were 6,000 and 7,000, respectively, options vested and
outstanding. No additional options were granted and 1,000 were
exercised during the nine month period ended September 30, 1999.
F-53
<PAGE> 136
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Note to the Financial Statements -- Continued
December 31, 1998 and 1997
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 option expires in ten years from the date of the grant.
As of September 30, 1999 (unaudited) and December 31, 1998, there were
5,375 and 32,000 shares outstanding with 4,875 and 29,750 shares
vested, respectively. During the nine month period ended September 30,
1999, no additional shares were granted, there were no forfeitures and
24,625 shares were exercised.
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>
SEPTEMBER 30, DECEMBER 31,
------------------- ------------------
1999 1998 1998 1997
-------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income:
As reported.................... $437,722 433,929 701,663 824,733
Pro forma...................... 698,966 822,036
Basic net income
As reported.................... $ 0.94 $ 0.95 $ 1.53 $ 1.97
Pro forma...................... $ 0.94 $ 0.94 $ 1.53 $ 1.97
Diluted net income
As reported.................... $ 0.90 $ 0.90 $ 1.45 $ 1.83
Pro forma...................... $ 0.90 $ 0.90 $ 1.45 $ 1.82
</TABLE>
There were no options granted during the nine months ended September
30, 1999 and 1998 (unaudited) and for the years ended December 31, 1998
or 1997, therefore, there is no fair value of options granted.
A summary of the status of the Bank's stock option plan for the nine
months ended September 30, 1999 (unaudited) and for the years ended
December 31, 1998 and 1997, and changes during the nine months ended
September 30, 1999 (unaudited) and for the years ended December 31,
1998 and 1997 on those dates is presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- -------------------
FIXED OPTIONS 1999 1998 1997
- -------------------------------------- ------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Outstanding at beginning of period: . 37,000 67,607 100,935
Granted .......................... -- -- --
Exercised ........................ (25,625) (24,937) (33,248)
Forfeited ........................ -- -- --
--------- ------- -------
Outstanding at end of period ........ 11,375 42,750 67,867
--------- ------- -------
Options exercisable at period-end .... 10,875 40,500 61,062
--------- ======= =======
Weighted-average fair value of
options granted during the period
per share ........................ $ -- -- --
========= ======= =======
</TABLE>
F-54
<PAGE> 137
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Note to the Financial Statements -- Continued
December 31, 1998 and 1997
The following table summarizes information about fixed stock options
outstanding for the nine months ended September 30, 1999 (unaudited)
and for the year December 31, 1998:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------
WEIGHTED
NUMBER WEIGHTED WEIGHTED NUMBER AVERAGE EXERCISE
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT PRICE AT
RANGE OF SEPTEMBER 30, CONTRACTUAL EXERCISE SEPTEMBER 30, SEPTEMBER 30,
EXERCISE PRICES 1999 LIFE PRICE 1999 1999
- --------------- -------------- ----------- -------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$10.00-$12.81 11,350 2.9 years $10.49 10,875 $10.49
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------------------------
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 1998 1998
- --------------- -------------- ----------- -------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$10.00-$12.81 42,750 2.5 years $10.12 40,500 $10.00
</TABLE>
(11) 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 $14,902, $13,206, $17,756 and $13,780
for the nine months ended September 30, 1999 and 1998 and for the years
ended December 31, 1998 and 1997, respectively. The Bank's contribution
to the profit sharing portion of the plan was $33,000, $35,083, $24,783
and $59,758 for nine months ended September 30, 1999 and 1998
(unaudited) and for the years ended December 31, 1998 and 1997,
respectively.
(12) 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 credit worthiness is
evaluated on a case-by-case basis. A summary of commitments to extend
credit and standby letters of credit written for the nine months ended
September 30, 1999 (unaudited) and for the years ended December 31,
1998 and 1997 are as follows:
F-55
<PAGE> 138
COMMUNITY NATIONAL BANK OF PASCO COUNTY
Note to the Financial Statements -- Continued
December 31, 1998 and 1997
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ----------------------
1999 1998 1997
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Standby letters of credit $ 324,795 401,295 783,723
Available lines of credit 8,536,826 4,697,456 2,571,680
</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.
(13) 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, 1998,
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.
F-56
<PAGE> 139
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First National Bank of Polk County:
We have audited the accompanying balance sheet of First National Bank of Polk
County as of December 31, 1998 and the related statements of operations, changes
in stockholders' equity and comprehensive income and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides 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, 1998, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Orlando, Florida
January 22, 1999
F-57
<PAGE> 140
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
First National Bank of Polk County
We have audited the accompanying statement of condition of First National Bank
of Polk County as of December 31, 1997, and the related statement of income,
changes in stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the First National Bank of Polk
County's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides 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 as of December 31, 1997, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
January 27, 1998
/s/ GT Nunez
F-58
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------- GTN -------------------------------------------------------------
900 Ingraham Avenue, Haines City, FL 33844 Tel:(941)422-4861 Fax: (941)421-9830 E-mail: GTNCPA'[email protected]
</TABLE>
<PAGE> 141
FIRST NATIONAL BANK OF POLK COUNTY
Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- -------------------------
Assets 1999 1998 1997
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash and due from banks .......................... $ 2,468,087 $ 3,106,304 $ 2,602,062
Federal funds sold ............................... 2,673,000 3,752,000 4,566,000
Investment securities available for sale ......... 23,182,047 23,809,823 18,646,836
Loans, less allowance for loan losses of $636,028,
$688,503, and $653,750 for
September 30, 1999 (unaudited) and December 31,
1998 and 1997, respectively .................. 40,180,058 39,414,516 34,497,300
Accrued interest receivable ...................... 516,071 533,345 483,910
Premises and equipment, net ...................... 2,596,466 2,701,899 2,994,487
Other real estate owned .......................... 208,295 --
Deferred income taxes ............................ 250,543 184,117 110,178
Prepaids and other assets ........................ 138,515 72,493 24,681
------------ ----------- -----------
$ 72,213,082 $73,777,676 $63,925,454
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing ............................. $ 54,282,199 $57,359,893 $51,374,944
Noninterest bearing ........................... 10,816,226 10,066,213 7,079,391
------------ ----------- -----------
Total deposits ..................... 65,098,425 67,426,106 58,454,335
Securities sold under agreements to repurchase 365,000 255,000 389,000
Accrued interest payable ..................... 66,821 91,057 95,922
Accounts payable and accrued expenses ........ 123,526 115,617 85,466
------------ ----------- -----------
Total liabilities .................. 65,653,772 67,887,780 59,024,723
------------ ----------- -----------
Stockholders' equity:
Common stock, $5 par value; 5,000,000 shares
authorized; 475,625, 441,250 and 412,500
shares or for the nine months ended
September 30, 1999 (unaudited)
and as of December 31, 1998
and 1997, issued and outstanding,
respectively............................... 2,378,125 2,206,250 2,062,500
Additional paid-in capital ................... 2,500,034 2,250,547 2,074,435
Retained earnings ............................ 1,727,480 1,364,345 739,242
Accumulated other comprehensive income ....... (46,329) 68,754 24,554
------------ ----------- -----------
Total stockholders' equity ......... 6,559,310 5,889,896 4,900,731
Commitments and contingent liabilities
------------ ----------- -----------
Total liabilities and stockholders'
equity ........................... $ 72,213,082 $73,777,676 $63,925,454
============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE> 142
FIRST NATIONAL BANK OF POLK COUNTY
Statements of Operations
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------------- --------------------------
1999 1998 1998 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest income:
Loans ................................................ $2,610,461 $2,577,351 $3,452,295 $3,145,803
Investment securities ................................ 1,003,904 943,084 1,254,071 1,097,001
Federal funds sold ................................... 119,377 240,937 291,839 196,637
---------- ---------- ---------- ----------
Total interest income ....................... 3,733,742 3,761,372 4,998,205 4,439,441
---------- ---------- ---------- ----------
Interest expense:
Deposits ............................................. 1,507,428 1,648,927 2,198,379 1,939,256
Securities sold under agreement to repurchase ........ 12,315 30,578 33,975 20,189
---------- ---------- ---------- ----------
Total interest expense ...................... 1,519,743 1,679,505 2,232,354 1,959,445
---------- ---------- ---------- ----------
Net interest income ......................... 2,213,999 2,081,867 2,765,851 2,479,996
Provision for loan losses ................................ 63,000 39,000 39,000 73,000
---------- ---------- ---------- ----------
Net interest income after loan loss provision 2,150,999 2,042,867 2,726,851 2,406,996
---------- ---------- ---------- ----------
Other income:
Service charges on deposit accounts .................. 173,351 141,944 195,016 140,569
Other service charges and fees ....................... 93,003 56,951 79,701 68,822
---------- ---------- ---------- ----------
266,354 198,895 274,717 209,391
---------- ---------- ---------- ----------
Other expenses:
Salaries, wages and employee benefits ................ 769,828 660,931 887,138 802,415
Occupancy expense .................................... 189,567 165,960 215,842 214,413
Depreciation of premises and equipment ............... 164,150 166,300 212,826 167,278
Stationary and printing supplies ..................... 67,121 64,096 77,193 83,164
Advertising and public relations ..................... 37,591 41,770 56,837 45,518
Data processing expense .............................. 168,900 132,029 185,072 132,931
Legal and professional fees .......................... 49,354 55,853 52,288 36,223
Other operating expenses ............................. 266,439 249,672 326,910 284,001
---------- ---------- ---------- ----------
1,712,950 1,536,611 2,014,106 1,765,943
---------- ---------- ---------- ----------
Income before provision for income taxes .... 704,403 705,151 987,462 850,444
Provision for income taxes ............................... 255,656 220,587 296,171 302,751
========== ========== ========== ==========
Net income .................................. $ 448,747 $ 484,564 $ 691,291 $ 547,693
========== ========== ========== ==========
Net Income per Share
Basic................................................. $ 0.95 $ 1.11 $ 1.58 $ 1.35
Diluted............................................... $ 0.92 $ 1.05 $ 1.49 $ 1.27
Average Number of Common Shares Outstanding
Basic................................................. 470,616 436,049 437,360 406,719
Diluted............................................... 488,726 461,599 462,603 431,201
</TABLE>
See accompanying notes to financial statements.
F-60
<PAGE> 143
FIRST NATIONAL BANK OF POLK COUNTY
Statements of Changes in Stockholder' Equity and Comprehensive Income
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE COMMON CAPITAL RETAINED COMPREHENSIVE STOCKHOLDERS'
INCOME STOCK SURPLUS EARNINGS INCOME EQUITY
------------- ---------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ....................... $2,012,500 2,012,500 232,299 54,153 4,311,452
Dividends paid ................................... -- -- (40,750) -- (40,750)
Stock options exercised .......................... 50,000 50,000 -- -- 100,000
Tax effect of tax deduction in excess of book
deduction on options exercised during the year -- 11,935 -- -- 11,935
Comprehensive income:
Net income ................................... $ 547,693 -- -- 547,693 -- 547,693
Other comprehensive income, net of tax
unrealized gain on securities ............ (29,599) -- -- -- (29,599) (29,599)
-------------
Comprehensive income ............................. $ 518,094
============= --------- --------- --------- ------------- -------------
Balance, September 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
unrealized gain on securities ............ (44,200) -- -- -- (44,200) (44,200)
-------------
Comprehensive income ............................. $ 735,491
============= ---------- --------- ---------- ------------- -------------
Balance, 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 .......................... 171,875 171,875 -- -- 343,750
Tax effect of tax deduction in excess of book
deduction on options exercised during the year -- 77,612 -- -- 77,612
Comprehensive income:
Net income ................................... $ 448,747 -- -- 448,747 -- 448,747
Other comprehensive income, net of tax
unrealized loss on securities ............ (115,083) -- -- -- (115,083) (115,083)
-------------
Comprehensive income ............................. $ 333,664
=============
---------- --------- ---------- ------------- -------------
Balance, September 30, 1999 ..................... $2,378,125 2,500,034 1,727,480 (46,329) 6,559,310
========== ========= ========== ============= =============
</TABLE>
See accompanying notes to financial statements.
F-61
<PAGE> 144
FIRST NATIONAL BANK OF POLK COUNTY
Statements of Cash Flows
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------------- ----------------------------
1999 1998 1998 1997
----------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income .................................................. $ 448,747 $ 484,564 $ 691,291 $ 547,693
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses .............................. 63,000 39,000 39,000 73,000
Depreciation of premises and equipment ................. 164,150 166,300 212,828 165,538
Net accretion of discounts on investment securities .... 52,667 (15,346) (12,300) --
Net deferred loan origination fees ..................... 9,888 18,227 20,366 8,487
Gain on sale of other real estate owned ................ (10,535) -- -- --
Write down of other real estate owned .................. -- -- 9,227 --
Deferred income taxes .................................. 2,970 (89,512) (101,847) --
Tax deduction in excess of book deduction on options
exercised ........................................... 77,612 32,362 32,362 11,935
Cash provided by (used in) changes in:
Net change in accrued interest receivable .............. 17,274 15,444 (49,435) (28,403)
Net change in prepaids and other assets ................ (66,022) (56,213) (47,812) 17,184
Net change in accrued interest payable ................. (24,236) (11,770) (4,865) 6,554
Net change in accounts payable and accrued expenses .... 7,909 140,264 30,151 (121,684)
----------- ------------ ------------ -----------
Net cash provided by operating activities ........... 743,424 723,320 818,966 680,304
----------- ------------ ------------ -----------
Cash flows from investing activities:
Maturities of investment securities available for sale ...... 5,457,321 12,015,366 12,521,191 6,500,000
Call of investment securities available for sale ............ 2,000,000 1,000,000 1,500,000 --
Purchases of investment securities .......................... (7,066,691) (16,082,537) (19,099,770) (7,540,759)
Increase in loans, net of repayments ........................ (1,013,011) (4,333,134) (5,188,988) (4,916,973)
Purchases of premises and equipment ......................... (58,717) (192,068) (196,655) (681,391)
Proceeds from sale of other real estate owned ............... 180,000 -- 276,415 --
----------- ------------ ------------ -----------
Net cash used in investing activities ............... (501,098) (7,592,373) (10,187,807) (6,639,123)
----------- ------------ ------------ -----------
Cash flows from financing activities:
Net (decrease) increase in demand and savings deposits ...... (2,327,681) 5,398,609 8,971,771 9,104,674
Net (decrease) increase in other borrowings ................. 110,000 (128,000) (134,000) 52,000
Stock options exercised ..................................... 343,750 287,500 287,500 100,000
Dividends paid .............................................. (85,612) (66,188) (66,188) (40,750)
----------- ------------ ------------ -----------
Net cash provided by (used in) financing
activities ..................................... (1,959,543) 5,491,921 9,059,083 9,215,924
----------- ------------ ------------ -----------
Net increase (decrease) in cash and due from banks (1,717,217) (1,377,132) (309,758) 3,257,105
Cash and cash equivalents, beginning of period .................. 6,858,304 7,168,062 7,168,062 3,910,957
----------- ------------ ------------ -----------
Cash and cash equivalents, end of period ........................ $ 5,141,087 $ 5,790,930 $ 6,858,304 $ 7,168,062
=========== ============ ============ ===========
Supplemental schedule of noncash transactions:
Market value adjustment-investment securities available-
for-sale .................................................
Market value adjustments-investments ................... $ (74,244) $ 130,138 $ 110,235 $ 38,127
Deferred income tax liability .......................... 27,915 (47,630) (41,481) (13,573)
----------- ------------ ------------ -----------
Unrealized gain (loss) on investments
available-for-sale ............................. $ (46,329) $ 82,508 $ 68,754 $ 24,554
=========== ============ ============ ===========
Transfer of loan to other real estate owned .............. $ 174,581 $ -- $ 212,406 $ --
=========== ============ ============ ===========
Cash paid during the year for:
Interest ................................................. $ 1,543,979 $ 1,691,275 $ 2,237,219 $ 1,952,891
=========== ============ ============ ===========
Income taxes ............................................. $ 249,629 $ 262,792 $ 357,513 $ 407,190
=========== ============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-62
<PAGE> 145
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997
(Information insofar as it relates to the nine months ended
September 30, 1999 and 1998 (unaudited))
(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 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
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.
(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.
Loan origination fees, net of related costs, are capitalized and
recognized in income over the contractual life of the loans,
adjusted for estimated prepayments based on the Bank's historical
prepayment experience.
Commitment fees and costs relating to the commitments are
recognized over the commitment period on a straight-line basis. If
the commitment is exercised during the commitment period, the
remaining unamortized commitment fee at the time of exercise is
recognized over the life of the loan as an adjustment of yield.
F-63
<PAGE> 146
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
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. Impaired
loans are written down to the extent that principal is judged to
be uncollectible and, 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, are 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 loan. The Bank
provides for a general allowance for losses inherent in the
portfolio by the above categories, which consists of two
components. General loss percentages are calculated based upon
historical analyses. A supplemental portion of the allowance is
calculated for inherent losses which probably exist as of the
evaluation date even though they might not have been identified by
the more objective processes used for the portion of the allowance
described above. 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.
Specific allowances are provided in the event that the specific
collateral analysis on each classified loan indicates that the
probable 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.
F-64
<PAGE> 147
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
The Bank records impairment in the value of its loans as an
addition to the allowance for loan losses. Any changes in the
value of impaired loans due to the passage of time or revisions in
estimates are reported as adjustments to provision expense in the
same manner in which impairment initially was recognized.
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
In June 1997, the Financial Accounting Standards Board established
Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income." This Statement establishes
standards for reporting and display of comprehensive income and
its components in a full set of financial statements. This
Statement requires that an enterprise classify items or other
comprehensive income by nature in a financial statement, and
display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital
in the equity section of a balance sheet.
The Bank adopted this Statement effective January 1, 1998 with the
1997 financial statements reclassified to reflect this adoption.
The Bank's other comprehensive income is the unrealized
gain/(loss) on investment securities available for sale.
(H) 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.
F-65
<PAGE> 148
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
(I) 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.
(J) EFFECT OF NEW PRONOUNCEMENTS
In June 1997, the FASB issued Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related
Information". This Statement requires that a public business
enterprise report financial and descriptive information about its
reportable operating segments. Operating segments are components
of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating
decision make in deciding how to allocate resources and in
assessing performance. This Statement is effective for fiscal
years beginning after December 15, 1997. The Company adopted the
Statement effective January 1, 1998, however, the Company has only
one reportable segment.
In June 1998, 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 Company.
In October 1998, the FASB issued Financial Accounting Standards
No. 134, "Accounting for Mortgage-Backed Securities Retained after
the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise." This Statement requires that after the
securitization of a mortgage loan held for sale, an entity engaged
in mortgage banking activities classify the resulting
mortgage-backed security as a trading security. The Statement is
effective for the first fiscal quarter beginning after December
15, 1998. The Company does not expect the adoption of this
Statement to have any impact on its consolidated financial
statements.
(K) RECLASSIFICATIONS
Certain amounts in the 1997 and 1998 financial statements have
been reclassified to conform with the September 30, 1999
presentation.
(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 nine months ended September 30, 1999
(unaudited) and for the years ended December 31, 1998 and 1997 are as
follows:
F-66
<PAGE> 149
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
INVESTMENT SECURITIES AVAILABLE FOR SALE:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 (UNAUDITED)
--------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities . $ 12,535,672 $ 6,988 $ 28,425 $12,514,235
Obligations of U.S.
government agencies .. 9,576,570 465 53,273 9,523,762
Municipals ............... 1,000,000 -- -- 1,000,000
Federal Reserve Bank stock 144,050 -- -- 144,050
------------ ---------- ----------- -----------
$ 23,256,292 $ 7,453 $ 81,698 $23,182,047
============ ========== =========== ===========
DECEMBER 31, 1998
--------------------------------------------------------
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
============ ========== =========== ===========
DECEMBER 31, 1997
--------------------------------------------------------
U.S. Treasury securities . $ 14,486,746 $ 38,127 $ -- $14,524,873
Obligations of U.S.
government agencies .. 4,002,013 -- -- 4,002,013
Federal reserve bank stock 119,950 -- -- 119,950
------------ ---------- ----------- -----------
$ 18,608,709 $ 38,127 $ -- $18,646,836
============ ========== =========== ===========
</TABLE>
F-67
<PAGE> 150
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
The amortized cost and estimated market value of investment securities
available for sale for the nine months ended September 30, 1999
(unaudited) and for the years ended December 31, 1998 and 1997 by
contractual maturity are listed below:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 (UNAUDITED)
-----------------------------
AMORTIZED ESTIMATED
COST MARKET VALUE
----------- ------------
<S> <C> <C>
Investment securities available for sale:
Due in one year or less ............. $18,239,006 $18,208,127
Due after one year through five years 4,017,286 3,973,920
Due after ten years ................. 1,000,000 1,000,000
----------- -----------
$23,256,292 $23,182,047
=========== ===========
DECEMBER 31, 1998
---------------------------
Investment securities available for sale:
Due in one year or less ............. $ 8,649,107 $ 8,689,995
Due after one year through five years 15,050,481 15,119,828
----------- -----------
$23,699,588 $23,809,823
=========== ===========
DECEMBER 31, 1997
---------------------------
Investment securities available for sale:
Due in one year or less ............. $13,093,558 $13,116,570
Due after one year through five years 5,515,151 5,530,266
----------- -----------
$18,608,709 $18,646,836
=========== ===========
</TABLE>
At September 30, 1999 and at December 31, 1998 and 1997, the Bank had
$1,750,000, $1,750,000 and $1,989,980, at cost, respectively, in securities
pledged to the State of Florida as collateral on public fund deposits and for
other purposed required or permitted by law.
F-68
<PAGE> 151
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
(3) LOANS
Major categories of loans included in the loan portfolio at and September
30, 1999 (unaudited) and December 31, 1998 and 1997 are:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------------------------
1999 1998 1997
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Real estate:
Residential ......... $17,659,343 $15,623,778 $13,225,586
Commercial .......... 10,999,881 10,166,172 9,961,255
Construction ........ 1,151,507 1,800,438 1,562,980
----------- ----------- -----------
Total real estate 29,810,731 27,590,388 24,749,821
Commercial .............. $ 4,249,230 5,433,823 3,962,480
Installment ............. 6,513,214 6,788,342 6,250,691
Equity lines of credit .. 343,165 306,565 237,481
Overdrafts .............. 7,959 82,253 28,536
----------- ----------- -----------
40,924,299 40,201,371 35,229,009
Less:
Allowance for loan
losses ........... 636,028 688,530 653,750
Deferred loan
origination fees . 108,213 98,325 77,959
----------- ----------- -----------
Net loans ....... $40,180,058 $39,414,516 $34,497,300
=========== =========== ===========
</TABLE>
The following is a summary of information regarding nonaccrual and
impaired loans for the nine months ended September 30, 1999
(unaudited) and for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------------------
1999 1998 1997
------------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Nonaccrual loans .................... $201,000 $452,832 $ --
======== ======== ========
Recorded investment in impaired
loans ........................... $551,992 $778,407 $208,057
======== ======== ========
Allowance for loan losses related to
impaired loans .................. $585,694 $716,347 $ 13,411
======== ======== ========
</TABLE>
F-69
<PAGE> 152
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
<TABLE>
<CAPTION>
INTEREST INTEREST AVERAGE
INCOME NOT INCOME RECORDED
RECOGNIZED ON RECOGNIZED ON INVESTMENT IN
NONACCRUAL IMPAIRED IMPAIRED
LOANS LOANS LOANS
------------- ------------- -------------
<S> <C> <C> <C>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30:
1999 (Unaudited) ........... $ 8,690 $ 17,957 $ 321,768
============= ============= =============
FOR THE YEARS ENDED DECEMBER 31:
1998 ....................... $ 4,497 $ -- $ 747,000
============= ============= =============
1997 ....................... $ -- $ -- $ 46,000
============= ============= =============
</TABLE>
Certain principal stockholders, directors and officers and their related
interests were indebted to the Bank as summarized below at September 30,
1999 (unaudited) and December 31, 1998 and 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------------------------
1999 1998 1997
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Balance, beginning of period.. $ 2,588,361 $ 2,429,671 $ 2,140,540
Additional new loans ......... 10,000 1,416,572 274,800
Repayments on outstanding
loans .................... 1,218 1,257,882 14,331
----------- ----------- -----------
Balance, end of period........ $ 2,597,143 $ 2,588,361 $ 2,429,671
=========== =========== ===========
</TABLE>
All such loans were made in the ordinary course of business. For the nine months
ended September 30, 1999 (unaudited) and December 31, 1998 and 1997,
principal stockholders, directors and officers of the Bank and their related
interests had $3,469,497, $864,592 and $876,099, respectively,
available in lines of credit.
F-70
<PAGE> 153
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
Changes in the allowance for loan losses for the nine months ended September 30,
1999 (unaudited) and for the years ended December 31, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ----------------------
1999 1998 1997
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Balance, beginning of period...... $ 688,530 $653,750 $613,013
Provision charged to operations .. 63,000 39,000 73,000
Loans charged-off ................ (117,256) (23,601) (50,722)
Recoveries of previous charge-offs 1,754 19,381 18,459
--------- -------- --------
Balance, end of period............ $ 636,028 $688,530 $653,750
========= ======== ========
</TABLE>
For the nine months ended September 30, 1999 (unaudited) and for the years ended
December 31, 1998 and 1997, nonaccrual loans were $201,000, $452,832 and $-0-,
respectively. If interest due on all nonaccrual loans for the nine months ended
September 30, 1999 (unaudited) and as of December 31, 1998 and 1997 had been
accrued at the original contract rates, estimated interest income would have
been increased by $8,690, $4,497 and $-0- in September 30, 1999 (unaudited) and
December 31, 1998 and 1997, respectively.
The recorded investment in loans for which impairment has been recognized and
the related allowance for loan losses for the nine months ended September 30,
1999 (unaudited) and as of December 31, 1998 and 1997 were $551,992, $76,423,
$778,407 and $208,057, $716,347 and $13,411, respectively. The average recorded
investment in impaired loans during the nine months ended September 30, 1999
(unaudited) and as of December 31, 1998 and 1997 was $321,768, $747,000 and
$46,000, respectively. Interest income recognized on impaired loans for the nine
months ended September 30, 1999 and for the years ended December 31, 1998 and
1997 was $17,957, $-0-, and $-0-, respectively.
(4) PREMISES AND EQUIPMENT
A summary of premises and equipment for the nine months ended September
30, 1999 (unaudited) and for the years ended December 31, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ------------------------
1999 1998 1997
------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Land .................. $ 941,507 $ 757,346 $ 997,346
Building and building
improvements ...... 1,652,492 1,836,652 1,851,318
Furniture, fixtures and
equipment ......... 1,159,599 1,100,883 937,401
---------- ---------- ----------
3,753,598 3,694,881 3,786,065
Less accumulated
depreciation ...... 1,157,132 992,982 791,578
---------- ---------- ----------
$2,596,466 $2,701,899 $2,994,487
========== ========== ==========
</TABLE>
F-71
<PAGE> 154
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
(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, 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.
F-72
<PAGE> 155
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
The following tables present the carrying amounts and estimated fair
values of the Bank's financial instruments.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 (UNAUDITED)
-----------------------------
CARRYING
AMOUNT FAIR VALUE
----------- -----------
<S> <C> <C>
Financial assets:
Cash and due from banks and federal
funds sold ............................................. $ 5,141,087 $ 5,141,087
Investment securities available for sale ................. 23,182,047 23,182,047
Loans (carrying amount less allowance
for loan losses of $636,028) ........................... 40,180,058 40,849,000
Financial liabilities:
Deposits:
Without stated maturities .............................. $29,489,139 $29,489,139
With stated maturities ................................. 24,793,060 24,790,000
Securities sold under agreement to repurchase ............ 365,000 365,000
Commitments:
Letter of credit ......................................... $ 446,000 $ 446,000
Loan commitments ......................................... 7,012,000 7,012,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------
CARRYING
AMOUNT FAIR VALUE
------------ -----------
<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 $658,503) ........................... 39,414,516 39,414,516
Financial liabilities:
Deposits:
Without stated maturities .............................. $29,370,419 $29,370,419
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 $ 200,000
Loan commitments ......................................... 4,038,203 4,038,203
</TABLE>
F-73
<PAGE> 156
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
(6) DEPOSITS
A detail of deposits for the nine months ended September 30, 1999
(unaudited) and for the years ended December 31, 1998 and 1997
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
WEIGHTED
AVERAGE
INTEREST
1999 RATE
------------ --------
(UNAUDITED)
<S> <C> <C>
Non-interest bearing deposits ............... $ 10,816,226 0%
Interest bearing:
Interest-bearing demand deposits .......... 24,544,344 2.85%
Savings deposits .......................... 4,944,795 1.19%
Time deposits less than $100,000 .......... 21,536,136 4.63%
Time deposits of $100,000 or greater ...... 3,256,924 4.52%
------------ --------
$ 65,098,425 3.15%
============ ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
1998 RATE 1997 RATE
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Non-interest bearing deposits .............. $ 10,066,213 0% $ 7,079,391 0%
Interest bearing:
Interest-bearing demand deposits ......... 25,077,507 2.65% 18,513,207 2.52%
Savings deposits ......................... 4,292,912 1.75% 3,700,742 2.00%
Time deposits less than $100,000 ......... 24,383,845 5.13% 25,618,826 5.36%
Time deposits of $100,000 or greater ..... 3,605,629 5.22% 3,542,169 5.36%
------------ -------- ------------ -------
$ 67,426,106 3.51% $ 58,454,335 3.60%
============ ======== ============ =======
</TABLE>
The following table presents, by various interest rate categories, the amount of
certificate accounts maturing during the periods reflected below:
<TABLE>
<CAPTION>
INTEREST RATE 1999 2000 2001 2002 2003 2004 TOTAL
------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1.00% - 3.99% $ 1,540 161 -- -- -- -- 1,701
4.00% - 4.99% 3,481 11,513 984 216 51 138 16,383
5.00% - 5.99% 840 1,560 582 1,186 342 -- 4,510
6.00% - 6.99% 313 1,686 -- 200 -- -- 2,199
-------- -------- -------- -------- -------- -------- --------
$ 6,174 14,920 1,566 1,602 393 138 24,793
======== ======== ======== ======== ======== ======== ========
</TABLE>
F-74
<PAGE> 157
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
Included in interest-bearing deposits are certificates of deposit which
have remaining maturities for the nine months ended September 30, 1999
(unaudited) and for the years ended December 31, 1998 as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------------
1999 1998
------------- --------------
<S> <C> <C>
One year ............................... $ 18,851,001 $ 20,100,111
Two years .............................. 3,803,014 5,050,078
Three years ............................ 1,605,008 1,189,023
Four years ............................. 396,012 1,310,106
Five years ............................. 138,025 340,156
------------- -------------
$ 24,793,060 $ 27,989,474
============= =============
</TABLE>
A summary of interest expense on deposits and other borrowed money is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------- -------------------------
1999 1998 1998 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest-bearing demand
deposits ...................... $ 514,350 $1,358,546 $ 613,574 $ 265,284
Savings deposits .................. 46,973 59,589 78,558 60,304
Time deposits less than $100,000 .. 818,295 100,388 1,333,051 1,394,809
Time deposits of $100,000 or
greater ....................... 127,810 130,404 173,196 218,859
Interest on other borrowed money... 12,315 30,578 33,975 20,189
---------- ---------- ---------- ----------
$1,519,743 $1,679,505 $2,232,354 $1,959,445
========== ========== ========== ==========
</TABLE>
The Bank had deposits from directors, officers and employees and their
related interests of approximately $1,420,182, $1,506,131 and $1,567,797
for the nine months ended September 30, 1999 (unaudited) and for the
years ended December 31, 1998 and 1997, 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.
F-75
<PAGE> 158
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
The repurchase agreements were to repurchase similar securities as those
which were sold. Repurchase agreements averaged $384,278, $682,822 and
$411,212 during the nine months ended September 30, 1999 (unaudited) and
for the years ended December 31, 1998 and 1997, respectively. The maximum
amount outstanding at any month-end for the corresponding periods was
$734,000, $1,161,000 and $646,000, respectively. Total interest expense
paid on repurchase agreements for the nine months ended September 30,
1999 and 1998 (unaudited) and for the years ended December 31, 1998 and
1997 was $12,315, $30,578, $33,975 and $20,186, 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 nine months ended September 30,
1999 (unaudited) and for the years ended December 31, 1998 and 1997
consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- --------- --------
SEPTEMBER 30, 1999 (UNAUDITED):
<S> <C> <C> <C>
Federal ................... $ 227,062 $ 2,538 $229,600
State ..................... 25,622 434 26,056
--------- --------- --------
$ 252,684 $ 2,972 $255,656
========= ========= ========
DECEMBER 31, 1998:
Federal ................... $ 344,241 $ (80,219) $264,022
State ..................... 53,777 (21,628) 32,149
--------- --------- --------
$ 398,018 $(101,847) $296,171
========= ========= ========
DECEMBER 31, 1997:
Federal ................... $ 267,895 $ 5,804 $273,699
State ..................... 34,856 (5,804) 29,052
--------- --------- --------
$ 302,751 $ -- $302,751
========= ========= ========
</TABLE>
F-76
<PAGE> 159
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities for the
nine months ended September 30, 1999 (unaudited) and for the years ended
December 31, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------
1999 1998 1997
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Unrealized loss on
investments ................ $ 27,917 $ -- $ --
Allowance for loan losses ...... 218,837 227,139 212,463
Nonaccrual interest ............ 1,694 1,694 --
Deferred loan fees ............. 40,721 37,000 29,338
-------- -------- --------
Deferred tax asset ...... 289,169 265,833 241,801
Valuation allowance ............ -- -- 65,666
-------- -------- --------
Total deferred tax asset .. 289,169 265,833 176,135
-------- -------- --------
Deferred tax liabilities:
Depreciation ................... 38,626 40,235 40,236
Unrealized gain on investment
securities available for sale -- 41,481 13,573
Other .......................... -- -- 12,148
-------- -------- --------
Total deferred tax
Liability ............... 38,626 81,716 65,957
-------- -------- --------
Net deferred tax asset ..... $250,543 $184,117 $110,178
======== ======== ========
</TABLE>
The Company has recorded a deferred tax asset of $250,543, $184,117 and
$110,178 for the nine months ended September 30, 1999 (unaudited) and as
of December 31, 1998 and 1997, respectively. No valuation allowance as
defined by SFAS 109 is required at September 30, 1999 (unaudited)
December 31, 1998. Management believes the valuation allowance is no
longer necessary because it is more likely than not the deferred tax
asset will be recovered based on projections of future taxable income and
reversal of deferred tax liabilities over the periods which the deferred
tax assets are deductible.
F-77
<PAGE> 160
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
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>
SEPTEMBER 30, DECEMBER 31,
------------------------ -----------------------
1999 1998 1998 1997
--------- --------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
"Expected" tax expense .............. $ 239,497 $ 251,803 $ 335,737 $289,151
Tax exempt interest ................. (2,066) (2,535) (3,381) --
State income taxes, net of federal
income tax benefits ............. 17,197 11,040 17,878 13,600
Valuation allowance ................. -- (49,250) (65,666) --
Other ............................... 1,028 9,529 11,603 --
--------- --------- --------- --------
$ 255,656 $ 220,587 $ 296,171 $302,751
========= ========= ========= ========
</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, 1998, that the Bank meets all capital adequacy requirements to which
it is subject.
As of December 31, 1998, 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.
F-78
<PAGE> 161
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
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 SEPTEMBER 30, 1999
(UNAUDITED):
Total capital (to risk
weighted assets) ....... $7,012,000 18.1% $3,100,000 =>.0% $3,874,000 =>10.0%
Tier I capital (to risk
weighted assets) ....... 6,526,000 16.8% 1,550,000 =>4.0% 2,325,000 =>6.0%
Tier I capital (to average
assets) ................ 6,526,000 8.9% 2,934,000 =>4.0% 3,668,000 =>5.0%
AS OF DECEMBER 31, 1998:
Total capital (to risk
weighted assets) ....... $6,315,000 16.05% $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%
AS OF DECEMBER 31, 1997:
Total capital (to risk
weighted assets) ....... $5,301,000 15.70% $2,701,000 =>8.0% $3,376,700 =>10.0%
Tier I capital (to risk
weighted assets) ....... 4,876,000 14.44% 1,351,000 =>4.0% 2,026,020 =>6.0%
Tier I capital (to average
assets) ................ 4,876,000 7.63% 2,556,360 =>4.0% 3,195,450 =>5.0%
</TABLE>
F-79
<PAGE> 162
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
(10) DIVIDENDS
The Board of Directors of the Company declared cash dividends of
$85,612, $66,188 and $40,750 for the nine months ended September 30,
1999 (unaudited) and for the years ended 1998 and 1997, respectively.
Banking regulations limit the amount of dividends that may be paid by
the Company 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 options expires no later than December 31, 2002 and vesting
occurs at the time of grant. As of December 31, 1998, there were 34,375
options vested and outstanding. No additional options were granted and
28,750 were exercised during the year.
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 option expires in ten years from the date of the
grant. During January 1998, the Bank granted an additional 1,000 options
with an exercise price of $16.00 per share (fair market value of the
stock). An additional 1,000 options were granted at $17.50 per share
(fair market value of the stock) in July 1998. As of December 31, 1998,
there were 31,175 shares outstanding with 28,575 shares vested. During
1998, 1,225 were forfeited due to terminations.
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>
SEPTEMBER 30, DECEMBER 31,
-------------------- ---------------------
1999 1998 1998 1997
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income:
As reported ............. $ 448,747 484,564 691,291 547,693
Pro forma ............... $ 444,155 480,089 685,445 543,548
Basic net income:
As reported ............. $ 0.95 1.11 1.58 1.35
Pro forma ............... $ 0.94 1.10 1.57 1.34
Dilutes net income:
As reported ............. $ 0.92 1.05 1.49 1.27
Pro forma ............... $ 0.91 1.04 1.48 1.26
</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 for the nine months ended September 30, 1998
(unaudited) and for the years ended December 31, 1998 and 1997,
respectively; annual dividend yield of $0.18 expected volatility of 0
percent; risk-free interest rate of 4.30 percent, and expected lives of
10 years for the plan options.
F-80
<PAGE> 163
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
A summary of the status of the Bank's stock option plan for the nine
months ended September 30, 1999 (unaudited) and for the years ended
December 31, 1998 and 1997, and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- -------------------
FIXED OPTIONS 1999 1998 1997
- ------------------------------------------------ ------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Outstanding at beginning of period: ............ 71,950 93,525 100,525
Granted .................................... -- 2,000 3,000
Exercised .................................. (34,375) (28,750) (10,000)
Forfeited .................................. (125) (1,225) --
------- ------- -------
Outstanding at end of period ................... 37,450 65,550 93,525
------- ------- -------
Options exercisable at end of period ........... 36,100 62,950 89,025
------- ======= =======
Weighted-average fair value of
options granted during the period
per share .................................. $ -- 5.52 5.82
======= ======= =======
</TABLE>
The following table summarizes information about fixed stock options
outstanding at September 30, 1999 (unaudited) and December 31, 1998:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------
WEIGHTED
NUMBER WEIGHTED WEIGHTED NUMBER AVERAGE EXERCISE
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT PRICE AT
RANGE OF SEPTEMBER 30, CONTRACTUAL EXERCISE SEPTEMBER 30, SEPTEMBER 30,
EXERCISE PRICES 1999 LIFE PRICE 1999 1999
- ---------------- -------------- ----------- -------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$10.00 - $17.50 37,450 3.29 years $ 10.61 36,100 $10.61
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------------
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 1998 LIFE PRICE 1998 1998
- ----------------- -------------- ----------- -------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$10.00 - $17.50 65,550 2.8 years $10.35 62,950 $10.35
</TABLE>
F-81
<PAGE> 164
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
(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 nine months ended September 30, 1999
(unaudited) and for the years ended December 31, 1998 and 1997 was
$36,000, $45,299 and $36,333, respectively.
The Bank also has a 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 nine months ended September 30,
1999 and 1998 (unaudited) and for the year ended December 31, 1998 and
1997 were $9,834, $10,595, $14,123 and $11,580, 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 credit worthiness is evaluated on a
case-by-case basis. A summary of commitments to extend credit and standby
letters of credit written for the nine months ended September 30, 1999
and 1998 (unaudited) and for the years ended December 31, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------------------------
1999 1998 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Standby letters of credit $ 446,000 200,000 175,000
Available lines of credit 7,012,000 4,038,203 5,341,378
</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.
F-82
<PAGE> 165
FIRST NATIONAL BANK OF POLK COUNTY
Notes to the Financial Statements
December 31, 1998 and 1997 -- Continued
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.
(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, 1998, 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.
F-83
<PAGE> 166
APPENDIX A
Agreement to Merge Among Community National Bank of Pasco County,
Centerstate Banks of Florida, Inc. and Community Interim National Bank
of Pasco County
<PAGE> 167
AGREEMENT TO MERGE
AMONG
COMMUNITY NATIONAL BANK OF PASCO COUNTY
CENTERSTATE BANKS OF FLORIDA, INC.
AND
COMMUNITY INTERIM NATIONAL BANK OF PASCO COUNTY
<PAGE> 168
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <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 Community National Bank Shares............................. 4
Section 2.2 Community National Bank 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 CINB Shares......................................................................... 6
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF
COMMUNITY NATIONAL BANK............................................................. 7
Section 3.1 Representations and Warranties of Community National Bank........................... 7
(a) Organization, Qualification, and Corporate Power.................................... 7
(b) Capitalization...................................................................... 7
(c) Community National Bank 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................................................................... 14
(q) Absence of Certain Changes or Events................................................ 14
(r) Reports............................................................................. 14
(s) Statements True and Correct......................................................... 14
(t) Environmental Matters............................................................... 15
(u) Labor Matters....................................................................... 16
</TABLE>
<PAGE> 169
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <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...................................................................... 17
(c) CBF Subsidiaries.................................................................... 17
(d) Authorization of Transaction........................................................ 17
(e) Noncontravention.................................................................... 17
(f) Statements True and Correct......................................................... 18
ARTICLE V - COVENANTS AND AGREEMENTS........................................................................... 18
Section 5.1 Covenants........................................................................... 18
(a) Current Information................................................................. 18
(b) Regulatory Matters and Approvals.................................................... 19
(c) Tax Opinion......................................................................... 20
(d) Conduct of Business Prior to the Effective Time of the Merger....................... 20
(e) Forbearance......................................................................... 20
(f) Issuance of Securities.............................................................. 21
(g) No Acquisitions..................................................................... 22
(h) Other Actions....................................................................... 22
(i) Government Filings.................................................................. 22
(j) Tax-Free Reorganization Treatment................................................... 22
(k) Full Access......................................................................... 22
(1) Notice of Material Adverse Developments............................................. 22
(m) Exclusivity......................................................................... 23
(n) Filings with the Offices............................................................ 23
(o) Press Releases...................................................................... 23
(p) Agreements of Affiliates............................................................ 23
(q) Miscellaneous Agreements and Consents............................................... 24
(r) Indemnification..................................................................... 24
(s) Fairness Opinions................................................................... 24
(t) Employee Benefit Plans.............................................................. 25
ARTICLE VI - CONDITIONS TO THE OBLIGATIONS OF
COMMUNITY NATIONAL BANK AND CBF..................................................... 25
Section 6.1 Conditions to Obligation to Close................................................... 25
(a) Conditions to Obligation of CBF..................................................... 25
(b) Conditions to Obligation of Community National Bank................................. 26
ARTICLE VII - TERMINATION...................................................................................... 27
Section 7.1 Termination......................................................................... 27
(a) Termination of Agreement............................................................ 27
(b) Effect of Termination............................................................... 28
</TABLE>
<PAGE> 170
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE VIII - MISCELLANEOUS................................................................................... 28
Section 8.1 Miscellaneous....................................................................... 28
(a) Survival............................................................................ 28
(b) No Third Party Beneficiaries........................................................ 28
(c) Entire Agreement.................................................................... 29
(d) Successors and Assigns.............................................................. 29
(e) Counterparts........................................................................ 29
(f) Headings............................................................................ 29
(g) Notices............................................................................. 29
(h) Governing Law....................................................................... 30
(i) Amendments and Waivers.............................................................. 30
(j) Severability........................................................................ 30
(k) Expenses............................................................................ 30
(l) Construction........................................................................ 31
(m) Incorporation of Exhibits and Schedules............................................. 31
(n) Jurisdiction and Venue.............................................................. 31
(o) Remedies Cumulative................................................................. 31
</TABLE>
<PAGE> 171
AGREEMENT TO MERGE
AMONG
COMMUNITY NATIONAL BANK OF PASCO COUNTY,
CENTERSTATE BANKS OF FLORIDA, INC.
AND
COMMUNITY INTERIM NATIONAL BANK OF PASCO COUNTY
This Agreement to Merge (the "Agreement") is dated as of the 10th day
of December, 1999 by and among COMMUNITY NATIONAL BANK OF PASCO COUNTY, a
national banking association ("Community National Bank") and CENTERSTATE BANKS
OF FLORIDA, INC., a Florida corporation ("CBF"); to be joined in by COMMUNITY
INTERIM NATIONAL BANK OF PASCO 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
("CINB"). Community National Bank, CBF and CINB are individually referred to in
this Agreement as a "Party" and collectively as the "Parties."
BACKGROUND
The respective Boards of Directors of Community National Bank and CBF
deem it in the best interests of Community National Bank and CBF, respectively,
and of their respective shareholders, that Community National Bank and CINB
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 Community National
Bank, as herein provided.
This Agreement is between (A) Community National Bank, being located
at 6930 Gall Boulevard, City of Zephyrhills, County of Pasco, in the State of
Florida, with a capital of $7,834,175, consisting of (i) 2,434,175 shares of
common stock divided into 486,835 shares of common stock, each of $5.00 par
value, (ii) surplus of $2,557,000, and (iii) undivided profits of $2,843,000 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 Community National Bank and
other banks; and (C) CINB, to be located at 6930 Gall Boulevard, Zephyrhills,
FL 33541-2513, 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> 172
ARTICLE I
THE MERGER
Section 1.1 Consummation of Merger; Closing Date. (a) Subject to the
provisions hereof, Community National Bank shall be merged with and into CINB
(which has heretofore and shall hereinafter be referred to as the "Merger"),
under the charter of Community National Bank, pursuant to 12 U.S.C. ss.215a of
the National Bank Act, and CINB 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 Community National Bank of Pasco 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 Community National Bank 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 Community National Bank 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 6930 Gall Boulevard, Zephyrhills, FL 33541-2513, and at its legally
established branches.
Section 1.2 Effect of Merger. At the Effective Time of the Merger,
Community National Bank shall be merged with and into CINB, under the charter
of Community National Bank, and the separate existence of Community National
Bank 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
2
<PAGE> 173
be taken and deemed to be transferred to and vested in the Surviving Bank
without further act or deed. The 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 Community National Bank last in office shall execute and deliver
or cause to be executed and delivered in the name of Community National Bank
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 Community National Bank.
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 Community National Bank 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 Community National Bank of Pasco County.
Section 1.6 Capitalization of Surviving Bank. As of the Effective
Time of the Merger, the Surviving Bank shall have 509,900 shares of common
stock, par value $5.00 per share, authorized of which 486,835 shares shall be
issued and outstanding (plus shares of Community National Bank 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 Community National Bank 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 Community National Bank, par value $5.00 per
share (the "Community National Bank Shares"):
(a) All Community National Bank Shares which are held by
Community National Bank 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 Community National Bank Shares (as hereinafter defined), each
Community National Bank Share outstanding immediately prior to the Effective
Time of the Merger shall be converted into the right to receive 2.02 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 Community
National Bank 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 Community National Bank 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 Community National Bank 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. Community National Bank shall give CBF prompt notice upon
receipt by Community National Bank of any written objection to the Merger and
any written demands for payment of the fair or appraised value of Community
National Bank Shares, and of withdrawals of such demands, and any other
instruments provided to Community National Bank 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 Community
National Bank 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 Community National Bank
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 Community National Bank 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 Community National Bank Stock Options and Related
Matters. As of the Effective Time of the Merger, all rights with respect to the
Community National Bank Shares issuable pursuant to the exercise of stock
purchase options ("Community National Bank Options") granted by Community
National Bank, 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
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restrictions contained in the plan or agreement, if any, under which such
Community National Bank Options were issued. Each holder of a Community
National Bank 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 Community National Bank Shares covered
by such Community National Bank 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 Community National Bank 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 Community National Bank Shares at which
such Community National Bank 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 Community National Bank 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 Community National Bank 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
Community National Bank 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 Community National Bank Shares transmittal
materials (the "Letter of Transmittal") for use in exchanging their
certificates formerly representing Community National Bank Shares for the
consideration provided for in this Agreement. The Letter of Transmittal shall
contain instructions with respect to the surrender of certificates representing
Community National Bank Shares and the receipt of the consideration
contemplated by this Agreement and shall require each holder of Community
National Bank Shares to transfer good and marketable title to such Community
National Bank 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 Community National Bank shall be closed as to holders of Community
National Bank Shares immediately prior to the Effective Time of the Merger and
no transfer of Community National Bank Shares by any such holder shall
thereafter be made or recognized and each outstanding certificate formerly
representing Community National Bank Shares shall, without any action on the
part of any holder thereof, no longer represent Community National Bank 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 Community National Bank Shares represented
thereby were converted in the Merger.
(c) In the event that any holder of Community National Bank
Shares is unable to deliver the certificate which represents such holder's
Community National Bank Shares, CBF, in the absence of actual notice that any
Community National Bank 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 Community National Bank 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 Community National Bank 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 Community National Bank 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 Community National Bank 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 Community National Bank
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
Community National Bank, CBF, CINB, the Surviving Bank, nor any other person
acting on their behalf shall be liable to a holder of Community National Bank
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 CINB Shares. The shares of CINB 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 486,835 shares of common stock, each of $5.00 par
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value (plus shares of Community National Bank Shares issued by Community
National Bank after September 30, 1999).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMMUNITY NATIONAL BANK
Section 3.1 Representations and Warranties of Community National
Bank. Community National Bank 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 Community National Bank and
delivered to CBF prior to the date of this Agreement (the "Community National
Bank Disclosure Schedule"). The Community National Bank 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.
Community National Bank is a national banking association duly organized,
validly existing, and in good standing under the laws of the United States.
Community National Bank 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"). Community National Bank 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.
Community National Bank 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 Community National Bank are attached hereto as Schedule 3(a).
Community National Bank 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 Community
National Bank.
(b) Capitalization. The authorized capital stock of Community
National Bank consists of 509,900 Community National Bank Shares, of which
486,835 Community National Bank Shares are issued and outstanding on the date
of this Agreement. There are no other classes of capital stock of Community
National Bank authorized. Community National Bank holds no Community National
Bank Shares as treasury stock. All of the issued and outstanding Community
National Bank Shares have been duly authorized and are validly issued, fully
paid and nonassessable. None of the outstanding Community National Bank Shares
has been issued in violation of any preemptive rights of the current or past
stockholders of Community National Bank. Except with respect to the 5,750
Community National Bank Shares issuable pursuant to the Community National Bank
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 Community National Bank is a party or which
are binding upon Community National Bank or, to the Knowledge
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of Community National Bank, any other party providing for the issuance, voting,
transfer, disposition, or acquisition of any of the capital stock of Community
National Bank. There are no outstanding or authorized stock appreciation,
phantom stock or similar rights with respect to Community National Bank. 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) Community National Bank Subsidiaries. Community National
Bank 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. Community National Bank 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 Community National Bank cannot consummate the Merger
unless and until all requisite approvals are received from the Regulatory
Authorities and the approval of the shareholders of Community National Bank has
been obtained. Subject to the foregoing sentence, (i) this Agreement has been
duly executed and delivered by Community National Bank and this Agreement
constitutes a valid and binding agreement of Community National Bank,
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 Community National Bank 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
Community National Bank, and (iii) the Board of Directors of Community National
Bank 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, Community
National Bank 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 Community National Bank.
(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 Community National Bank is
subject or any provision of the Articles of Association or Bylaws of Community
National Bank 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 Community National Bank 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
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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 Community National Bank. 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. Community National Bank has
delivered to CBF prior to the execution of this Agreement copies of the
following financial statements of Community National Bank (collectively
referred to herein as the "Community National Bank Financial Statements"): (i)
audited balance sheets of Community National Bank 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 Community National Bank at September 30, 1999, and the related
unaudited statements of (A) income and (B) shareholders' equity for the period
then ended.
The Community National Bank Financial Statements (as of
the dates thereof and for the periods covered thereby): (i) have been prepared
from the books and records of Community National Bank, 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 Community
National Bank 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. Community National Bank 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 Community National Bank
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 Community National Bank). Since September 30, 1999, Community
National Bank has not incurred or paid any obligation or liability which would
be material to the Condition of Community National Bank, except in the Ordinary
Course of Business.
(h) Brokers' Fees. Neither Community National Bank nor any of
its officers, directors or employees, has any liability or obligation to pay
any fees or commissions to, or has
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employed, any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
(i) Taxes.
(i) All federal, state, local and foreign tax
returns required to be filed by or on behalf of Community National Bank 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. Community National Bank 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 Community National Bank. 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) Community National Bank 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 Community National Bank 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
Community National Bank Financial Statements.
(iv) Deferred taxes of Community National Bank
have been provided for in the Community National Bank Financial Statements in
accordance with GAAP, subject in the case of interim financial statements to
normal recurring year-end adjustments.
(v) All taxes which Community National Bank 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 Community National Bank, except where the failure of any of
which, individually or in the aggregate, would not have a material adverse
effect on the Condition of Community National Bank.
(j) Allowance for Loan or Credit Losses. The allowance
for loan or credit losses ("Allowance") shown on the balance sheet of Community
National Bank as of September 30, 1999 included in the Community National Bank
Financial Statements was, and the Allowance shown on the balance sheets of
Community National Bank as of dates subsequent to the execution of this
Agreement will to the Knowledge of Community National Bank 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
Community National Bank and other extensions of credit (including letters of
credit and commitments to make loans or extend credit) by Community National
Bank, except where the failure of the Allowance to be so adequate would not
have a material adverse effect on the Condition of Community National Bank.
(k) Properties; Insurance. Community National Bank 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 Community National Bank
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 Community National
Bank. All buildings, and all fixtures, equipment and other property and
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assets which are material to its business and which are held under leases or
subleases by Community National Bank 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 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 Community National Bank 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 Community National Bank, and the fidelity bonds in
effect as to which Community National Bank is a named insured, are described in
Schedule 3(k) hereto. Substantially all of Community National Bank's equipment
in regular use has been well maintained and is in good and serviceable
condition, reasonable wear and tear excepted.
(1) Material Contracts. Neither Community National Bank 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 Community National Bank 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 Community National Bank to compete in any line of business or which involves
any restriction of the geographical area in which Community National Bank 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. Community National Bank 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 Community National Bank 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) Community National Bank 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 Community
National Bank, 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 Community National Bank.
(ii) Community National Bank has not received any
written notification or communication from any Regulatory Authorities (A)
asserting that Community National Bank 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 Community National Bank, (B) threatening to revoke
any license, franchise, permit or governmental authorization which is material
to the Condition of Community
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National Bank, (C) requiring or threatening to require Community National Bank,
or indicating that Community National Bank 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 Community National Bank, 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 of Community National Bank, 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").
Community National Bank has not consented to, entered into, agreed to enter
into, or been made subject to, any Regulatory Agreement. Community National
Bank has no Knowledge that any Regulatory Authority is considering imposing on
Community National Bank any Regulatory Agreement.
(o) Employee Benefit Plans.
(i) The Community National Bank 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
Community National Bank 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 "Community
National Bank Benefit Plans"). No Community National Bank 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 Community National Bank 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 Community National Bank Benefit Plans and descriptions of all unwritten
Community National Bank Benefit Plans listed in the Community National Bank
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
Community National Bank Disclosure Schedule.
(iii) All the Community National Bank 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 Community National Bank 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
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trusts, as applicable, under the Internal Revenue Code, and all such
governmental approvals continue in full force and effect. To the Knowledge of
Community National Bank, neither Community National Bank nor any administrator
or fiduciary of any Community National Bank 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 Community National Bank, 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
Community National Bank, no oral or written representation or communication
with respect to any aspect of the Community National Bank Benefit Plans has
been made to employees of Community National Bank 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 Community National Bank 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 Community National Bank
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 Community
National Bank Benefit Plans.
(iv) To the Knowledge of Community National
Bank, 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 Community National Bank 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)
Community National Bank maintains or contributes to or has maintained or
contributed to or was required to maintain or contribute to for the benefit of
employees of Community National Bank; 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 Community National Bank.
(v) For any given ERISA Plan relating to
Community National Bank, 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 Community National Bank Benefit Plan is
subject to the rules of the PBGC.
(vi) As of the Effective Time, Community
National Bank will not have any material current or future liability under any
Community National Bank Benefit Plan that was not reflected in the Community
National Bank Financial Statements.
(vii) No Community National Bank 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 Community National Bank 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 Community National Bank 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.
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(p) Legal Proceedings. There are no actions, suits or
proceedings instituted or pending or, to the Knowledge of Community National
Bank, threatened (or unasserted but considered probable of assertion and which
if asserted would have at least a reasonable probability of an unfavorable
outcome) against Community National Bank, or against any property, asset,
interest or right of Community National Bank, that have a reasonable
probability either individually or in the aggregate of having a material
adverse effect on the Condition of Community National Bank.
(q) Absence of Certain Changes or Events. Since September
30, 1999, the businesses of Community National Bank has been operated only in
the ordinary course consistent with past 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 Community National Bank;
(ii) any declaration, setting aside or payment of any dividend or distribution
(whether in cash, stock or property) in respect of the Community National Bank
Shares or any redemption or other acquisition of the Community National Bank
Shares by Community National Bank or any split, combination or reclassification
of Community National Bank 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
Community National Bank that has had, or is reasonably likely to have, a
material adverse effect on the Condition of Community National Bank.
(r) Reports. Since September 30, 1999, Community National
Bank 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 Community National Bank in this Agreement, no written
statement or certificate included in an Exhibit or Schedule by Community
National Bank in connection with this Agreement, and no written statement or
certificate to be furnished by Community National Bank 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 Community National Bank for inclusion
in the definitive proxy materials to be mailed to Community National Bank
shareholders in connection with the Special Community National Bank 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
Community National Bank, 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 Community National Bank 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.
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(t) Environmental Matters.
(i) To the Knowledge of Community National
Bank, 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 Community National
Bank.
(ii) To the Knowledge of Community National
Bank, there is no suit, claim, action or proceeding, pending or threatened,
before any court, governmental agency or board or other forum in which
Community National Bank or any Participation Facility 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 (as hereinafter defined) or oil whether or not occurring at
or on a site owned, leased or operated by Community National Bank or any
Participation Facility except as would not, either individually or in the
aggregate, result in a material adverse effect on the Condition of Community
National Bank.
(iii) To the Knowledge of Community National
Bank, 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 Community
National Bank.
(iv) To the Knowledge of Community National
Bank, 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 Community National Bank.
(v) During the period of (A) Community National
Bank's ownership or operation of any of its current properties, (B) Community
National Bank's participation in the management of any Participation
Facilities, or (C) Community National Bank's holding of a Security Interest in
a Loan Property, to the Knowledge of Community National Bank, 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 Community National Bank. Prior to the period of (A) Community National
Bank's ownership or operation of any of its current properties, (B) Community
National Bank's participation in the management of any Participation Facility,
or (C) Community National Bank holding of a Security Interest in a Loan
Property, to the Knowledge of Community National Bank, 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 Community National Bank.
(vi) The following definitions apply for
purposes of this Section 3(t): (A) "Loan Property" means any real property in
which Community National Bank holds a Security
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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 Community National Bank 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. Community National Bank 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 Community National Bank.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CBF
Section 4.1 Representations and Warranties of CBF. CBF represents and
warrants to Community National Bank 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 Community National Bank
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, CINB (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 CINB, or the
character or location or the properties and assets owned or leased by CINB,
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
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adverse effect on the Condition of CBF on a consolidated basis. CINB, 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. There are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to CBF.
(c) CBF Subsidiaries. Except for CINB (and other interim
banking associations organized to facilitate consummation of the merger
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,
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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 Community
National Bank 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 Community National
Bank shareholders in connection with the Special Community National Bank
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 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 Community
National Bank 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
Community National Bank 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.
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(b) Regulatory Matters and Approvals.
(i) Bank Regulatory Matters. CBF and Community
National Bank 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.
(ii) Definitive Proxy Materials. Community
National Bank shall prepare a proxy statement which shall consist of the
Community National Bank definitive proxy materials relating to the Special
Community National Bank Meeting (the "Proxy Statement"). The Proxy Statement
shall contain the affirmative recommendation of the Board of Directors of
Community National Bank in favor of the adoption of this Agreement and the
approval of the Merger. CBF shall provide to Community National Bank such
information and assistance in connection with the preparation of the Proxy
Statement as Community National Bank may reasonably request. Community National
Bank 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 Community National Bank by CBF
for use therein. In connection with the Special Community National Bank
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 Community National Bank shareholders in connection with such meeting.
(iii) Shareholder Approvals. Community National
Bank shall call a special meeting of its shareholders (the "Special Community
National Bank Meeting") and mail to them the Proxy Statement (as soon as
reasonably practicable following a determination by Community National Bank and
CBF that such special meeting should be called) in order that Community
National Bank 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 CINB, 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 Community National Bank
shareholders in the Merger. Community National Bank 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.
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(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 Community National Bank shareholders, Community National
Bank and CBF shall each use all reasonable efforts to obtain a written opinion
from an accounting or law firm selected by Community National Bank and CBF, to
the effect that the exchange of Community National Bank Shares, to the extent
exchanged for CBF Shares as contemplated herein, shall not give rise to gain or
loss to the holders of such Community National Bank 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 Community National Bank 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 Community National Bank 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 Community
National Bank 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
Community National Bank 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
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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 Community National Bank may amend the
stock option plans pursuant to which the Community National Bank Options were
issued to provide that the Community National Bank Options shall not terminate
as a result of the Merger); with the understanding that entering into any new
employment contracts, 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 Community National Bank Shares, pursuant to
outstanding Community National Bank 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
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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 Community National Bank 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 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.
(1) 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
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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 Community
National Bank 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
Community National Bank likewise shall have 20 business days after CBF gives
any written notice pursuant to this Section 5(l) within which to exercise any
right Community National Bank 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, 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. Community National Bank shall
deliver to CBF a letter identifying all persons whom Community National Bank
believes to be, at the time the Merger is submitted to a vote of the Community
National Bank shareholders, "affiliates" of Community National Bank for
purposes of Rule 145 under the Securities Act. Community National Bank 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
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<PAGE> 194
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
Community National Bank 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, Community National Bank 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
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 Community
National Bank (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 Community National Bank 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) Community National Bank shall use all
reasonable efforts to obtain an opinion from a firm selected by it that the
terms of the Merger are fair to Community National Bank shareholders
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from a financial point of view (the "Community National Bank 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. Community National Bank and CBF
shall use their best efforts to coordinate the conversion of each Community
National Bank 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 Community National Bank 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.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF
COMMUNITY NATIONAL BANK 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 Community National Bank
and the number of Dissenting Community National Bank Shares shall not exceed 5%
of the number of Community National Bank 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) Community National Bank 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 Community National
Bank and/or CBF to
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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 Community
National Bank 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
Community National Bank Financial Statements;
(vii) Community National Bank 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 Community
National Bank 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 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 Community National Bank 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
Polk County and First National Bank of Osceola 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 Community National Bank.
The obligations of Community National Bank 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 Community National Bank
and the number of Dissenting Community National Bank Shares shall not exceed 5%
of the number of Community National Bank 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 Community National Bank;
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(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 Community National
Bank (and no such judgment, order, decree, stipulation, injunction or charge
shall be in effect);
(vi) CBF shall have delivered to Community
National Bank 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;
(vii) 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 Community National Bank;
(viii) Community National Bank shall have received
the Tax Opinion in a form reasonably satisfactory to Community National Bank;
and
(ix) CBF shall close simultaneously with the
Effective Time of the Merger the acquisitions by CBF of First National Bank of
Polk County and First National Bank of Osceola County.
Community National Bank 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 Community National Bank at any time prior to the Effective
Time of the Merger in the event Community National Bank is in breach, and
Community National Bank may terminate this Agreement by giving written notice
to CBF at any time prior to the Effective Time of the Merger in
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the event CBF or CINB 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, Community
National Bank may terminate this Agreement by giving written notice to CBF;
(iv) If a material adverse development shall
have occurred affecting the Condition of Community National Bank, CBF may
terminate this Agreement by giving written notice to Community National Bank;
(v) Community National Bank and CBF each may
terminate this Agreement by giving written notice to the other Party at any
time after (i) the Community National Bank Special Meeting in the event this
Agreement or the Merger fails to receive the requisite Community National Bank
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 Community National Bank shareholders and (ii) the provisions
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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.
(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:
<TABLE>
<S> <C>
If to CBF or CINB: 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 Community National Bank: James S. Stalnaker, Jr.
President and Chief Executive Officer
Community National Bank of Pasco County
6930 Gall Boulevard
Zephyrhills, FL 33541-2513
Facsimile: (813) 783-3599
</TABLE>
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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 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
30
<PAGE> 201
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.
(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.
<TABLE>
<CAPTION>
CENTERSTATE BANKS OF FLORIDA, INC. COMMUNITY NATIONAL BANK OF
PASCO COUNTY
<S> <C>
/s/ James H. White /s/ James S. Stalnaker, Jr.
- ---------------------------------------- ---------------------------------------
James H. White, Chairman of the Board James S. Stalnaker, Jr.
President and Chief Executive Officer President and Chief Executive Officer
Attest: Attest:
/s/ George H. Carefoot /s/ Elizabeth J. Bowen
- ---------------------------------------- ---------------------------------------
George H. Carefoot, Secretary Elizabeth J. Bowen, Cashier
</TABLE>
31
<PAGE> 202
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
----------------------------------
STATE OF FLORIDA
COUNTY OF PASCO
The foregoing instrument was acknowledged before me this 10th day of
December, 1999, by James S. Stalnaker, Jr. and Elizabeth J. Bowen, President
and Chief Executive Officer, and Cashier, respectively, of Community National
Bank of Pasco County.
/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
----------------------------------
32
<PAGE> 203
JOINDER
Community Interim National Bank of Pasco 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 to provided to be done by it.
IN WITNESS WHEREOF, Community Interim National Bank of Pasco County
has caused this undertaking to be made by its duly authorized officers as of
this ____ day of _____________,________.
COMMUNITY INTERIM NATIONAL
BANK OF PASCO COUNTY
-------------------------------------
James S. Stalnaker, Jr.
President and Chief Executive Officer
Attest:
-------------------------------------
Elizabeth J. Bowen, Cashier
STATE OF FLORIDA
COUNTY OF PASCO
The foregoing instrument was acknowledged before me this _____ day of
__________, _____, by James S. Stalnaker, Jr., and Elizabeth J. Bowen,
President and Chief Executive Officer, and Cashier, respectively, of Community
Interim National Bank of Pasco County.
--------------------------------------
Printed Name:
-------------------------
Notary Public, State of Florida
Personally Known [ ] or Produced Identification [ ]
Type of Identification Produced
------------------------------------
33
<PAGE> 204
SCHEDULE 1.4
TO
AGREEMENT TO MERGE
NAMES AND ADDRESSES OF DIRECTORS AND EXECUTIVE OFFICERS
OF SURVIVING BANK
DIRECTORS EXECUTIVE OFFICERS
James H. Bingham James S. Stalnaker, Jr.
P. O. Box 1681 35124 Sidesaddle Trail
Dade City, FL 33526 Dade City, FL 33523
G. Robert Blanchard, Sr. Timothy A. Pierson
1414 Swan Ave., Suite 201 36549 Laurel Oak Lane
Tampa, FL 33606 Dade City, FL 33525
Pavitar S. Cheema Elizabeth J. Bowen
38023 Medical Center Dr. 40037 Sunburst Drive
Zephyrhills, FL 33541 Dade City, FL 33525
Emory R. Guess Linda A. Jones
103 CR 532C 7133 Peninsula Drive
Bushnell, FL 33513 New Port Richey, FL 34652
Larry S. Hersch Thomas M. Ward
P. O. Box 1046 6439 Huntington Drive
Dade City, FL 33526 Zephyrhills, FL 33541
Michael R. Langley James H. White
10392 CR 561A P. O. Box 188
Clermont, FL 34711 Haines City, FL 33845-0188
Carol Madill Lockey
3909 Northampton Way
Tampa, FL 33624
Jean M. Murphy
6941 Murphy Rd.
Zephyrhills, FL 33540
Ronald E. Oakley
P. O. Box 4170
Lake Wales, FL 33853
James S. Stalnaker, Jr.
35124 Sidesaddle Trail
Dade City, FL 33523
James H. White
P. O. Box 188
Haines City, FL 33845-0188
<PAGE> 205
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; 509,900
shares authorized; 486,835 shares issued and
outstanding $2,434,175
Capital surplus 2,557,000
Net unrealized gains/losses on securities held
as available-for-sale (35,000)
Retained earnings 2,878,000
----------
Total Shareholders' Equity $7,834,175
==========
</TABLE>
<PAGE> 206
APPENDIX B
Opinion of Allen C. Ewing & Co.
<PAGE> 207
December 22, 1999
The Board of Directors
Community National Bank of Pasco County
6930 Gall Boulevard
Zephyrhills, Florida 33539
Members of the Board:
Community National Bank of Pasco County ("Community National/Pasco"),
Centerstate Banks of Florida, Inc., a registered bank holding company
("Centerstate"), and Community Interim National Bank of Pasco 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 Community
National/Pasco 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 Community National/Pasco ("Community
National/Pasco Common Stock") will be converted in the Merger into the right to
receive 2.02 (the "Conversion Ratio") shares of common stock, par value $0.01
per share, of Centerstate ("Centerstate Common Stock"). Each option to purchase
Community National/Pasco 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 First National Bank of Polk
County ("First National/Polk") and First National Bank of Osceola County
("First National/Osceola"). Community National/Pasco, First National/Polk 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 Community National/Pasco.
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
<PAGE> 208
companies in connection with mergers and acquisitions, underwritings, private
placements, trading and market making activities, and valuations for various
other purposes.
Allen C. Ewing & Co. was engaged by the Board of Directors of
Community National/Pasco (the "Board") as financial advisor to Community
National/Pasco 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 Community National/Pasco. 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 First National/Polk 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 Community National/Pasco, Centerstate,
Interim Bank, First National/Polk and First National/Osceola, including, among
other things, the following: (i) the Agreement; (ii) Annual Reports to
Shareholders and audited financial statements for Community National/Pasco,
First National/Polk and First National/Osceola for the three years ended
December 31, 1998; (iii) certain unaudited interim financial information for
Community National/Pasco, First National/Polk and First National/Osceola for
various periods during 1999; (iv) other financial information concerning the
business and operations of Community National/Pasco, First National/Polk 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 Community National/Pasco, First National/Polk
and First National/Osceola. We have also held discussions with the management
of Community National/Pasco, First National/Polk 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 Community National/Pasco, First
National/Polk 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
<PAGE> 209
the time periods currently estimated by management. We have also assumed,
without independent verification, that the allowances for loan and other losses
of Community National/Pasco, Centerstate, Interim Bank, First National/Polk 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 Community National/Pasco, Centerstate, Interim Bank, First
National/Polk and First National/Osceola, nor have we examined any individual
loan, property, or securities files. We have also assumed that Community
National/Pasco, Centerstate, Interim Bank, First National/Polk and First
National/Osceola have taken the necessary steps to address Year 2000 issues.
Ewing makes no representations with respect to Year 2000 readiness for
Community National/Pasco, Centerstate, Interim Bank, First National/Polk 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 Community National/Pasco, Centerstate,
Interim Bank, First National/Polk 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 Community National/Pasco. 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 First National/Polk and First National/Osceola.
This letter is directed to the Board of Directors of Community
National/Pasco and does not constitute a recommendation as to how any
shareholder of Community National/Pasco 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> 210
APPENDIX C
Excerpts from Section 215a of the National Bank Act
<PAGE> 211
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> 212
(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> 213
APPENDIX D
Information on First National Bank of Osceola County
<PAGE> 214
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 September 30, 1999 and December 31, 1998 were $66.6 million, or 62% 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> 215
First National/Osceola's loans are concentrated in three major areas: real
estate loans, commercial loans, and consumer loans. At September 30, 1999, 72%,
16% and 12% 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 September 30, 1999 and December 31, 1998, respectively, were made on a
secured basis. As of September 30, 1999 and December 31, 1998, 72% 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> 216
comprised 49% and 43% of First National/Osceola's total deposits at September
30, 1999 and December 31, 1998, respectively. Approximately 51% and 57% of First
National/Osceola's deposits at September 30, 1999 and December 31, 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 11% and 12% of First National/Osceola's total deposits at
September 30, 1999 and December 31, 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 September 30, 1999, First National/Osceola employed 54 full-time and
one 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> 217
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> 218
<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
$100,000 in 1998.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS COMPENSATION COMPENSATION(1)
- ------------------ ---- --------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Thomas E. White, 1998 $114,000 $14,000 -- $4,680
President and Chief 1997 $112,000 $ 6,990 -- $4,480
Executive Officer 1996 $107,100 $ 9,400 -- $4,242
</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> 219
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%
Samuel L. Lupfer, IV 9,025 (4) 1.77%
</TABLE>
6
<PAGE> 220
<TABLE>
<S> <C> <C>
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> 221
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 a national bank and is subject to the supervision of
the Office of the Comptroller of the Currency. At September 30, 1999, First
National / Osceola had total assets of $107.5 million, total loans of $65.8
million, total deposits of $96.0 million, and total shareholders' equity of $8.5
million. Net income for the nine months ended September 30, 1999, and for the
year ended December 31, 1998, was $532,000 and $894,000 respectively, as
compared with $659,000 and $602,000 for the nine months ended September 30, 1998
and for the year ended December 31, 1997, respectively.
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
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
First National / Osceola's net income for the nine month period ended
September 30, 1999 was $532,000 compared to net income of $659,000 for the nine
month period ended September 30, 1998. The per share net income for the periods
ended September 30, 1999 and 1998 were $1.13 $(1.07 diluted) and $1.48 $(1.38
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 nine month period ended September 30, 1999
(annualized) was 0.65% and 9.08%, as compared to the ROA and ROE of 0.89% and
12.92%, for the nine month period ended September 30, 1998. The efficiency
ratios for the two periods ended September 30, 1999 and 1998 approximated 75%
and 66%
8
<PAGE> 222
respectively.
Net income decreased approximately $127,000, or 19%, to $532,000 during
the nine month period ended September 30, 1999, compared to $659,000 for the
same period during 1998. However, both net interest income and non-interest
income increased by a combined amount of approximately $417,000 which was offset
by an increase of approximately $620,000 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.
Income tax expense decreased by approximately $79,000.
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.
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
Net income increased approximately $292,000, or 49%, to $894,000 in
1998, compared to $602,000 in 1997. Earnings per share increased $0.59 $(0.54
diluted), or 42% to $2.00 $(1.86 diluted) in 1998 compared to $1.41 $(1.32
diluted) in 1997. ROA and ROE both increased to 0.88% and 12.88% in 1998,
compared to 0.75% and 10.06% in 1997. The increase in earnings per share was
negatively impacted due to the issuance of additional shares related to the
exercise of stock options, primarily in 1998.
The increase in net income was due to an increase in net interest
margin $375,000, a decrease in the loan loss provision $174,000, and an
increase in non-interest income $183,000. These positive effects on net
income were partially offset by an increase in non-interest expense $333,000
and an increase in income tax expense $107,000, primarily due to the
continuing growth in activity resulting from two new branches that began
operating in June of 1996 and October of 1996.
NET INTEREST INCOME/MARGIN
Net interest income consists of interest and fee income generated by
earning assets, less interest expense.
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
Net interest income increased $268,000, or 9%, to $3,124,000 during the
nine month period ended September 30, 1999, compared to $2,856,000 for the nine
month period ended September 30, 1998. The $268,000 increase was a combination
of a $190,000 increase in interest income and a $78,000 decrease in interest
expense.
Average interest earning assets increased $8,702,000 to $99,104,000
during the nine month period ending September 30, 1999, compared to $90,402,000
for the nine month period ending September 30, 1998. Comparing these same two
periods, yield on average interest earning assets decreased from 7.97% to 7.53%.
The increase in volume had a positive effect on the change in interest income
(+$666,000 volume variance), however, this was partially offset by the negative
impact resulting from the 0.44% decrease in average yields (-$476,000 rate
variance). The result was a $190,000 increase in interest
9
<PAGE> 223
income.
Average interest bearing liabilities increased $8,218,000 to
$81,719,000 during the nine month period ending September 30, 1999, compared to
$73,501,000 for the nine month period ending September 30, 1998. Comparing these
same two periods, the cost of average interest bearing liabilities decreased
from 4.61% to 4.02%. The increase in volume resulted in an increase in interest
expense (+$195,000 volume variance), which was partially offset by the 0.59%
decrease in average yields (-$273,000 rate variance). The result was a $78,000
decrease in interest expense. Refer to the tables Average Balances - Yields &
Rates, and Analysis Of Changes In Interest Income And Expenses below.
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
Net interest income increased $375,000 or 11% to $3,812,000 during 1998
compared to $3,437,000 for 1997. The $375,000 increase was a combination of a
$1,011,000 increase in interest income and a $636,000 increase in interest
expense.
Average interest earning assets increased $19,941,000 to $92,600,000
during 1998 compared to $72,659,000 for 1997. Comparing these same two periods,
the yield on average interest earning assets decreased from 8.61% to 7.85%. The
increase in volume had a positive effect on the change in interest income
(+$1,368,000 volume variance), however, this was partially offset by the
negative impact resulting from the 0.76% decrease in average yields (-$357,000
rate variance). The result was a $1,011,000 increase in interest income.
Average interest bearing liabilities increased $14,566,000 to
$75,659,000 during 1998 compared to $61,093,000 for 1997. Comparing these same
two periods, the cost of average interest bearing liabilities decreased from
4.61% to 4.57%. The increase in volume had an increasing effect on interest
expense (+$649,000 volume variance). The decrease in yield had an increasing
effect on interest expense (-$13,000 rate variance). The result was a $636,000
increase in interest expense.
10
<PAGE> 224
AVERAGE BALANCES - YIELDS & RATES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------------------------------------
1999 1998
--------------------------------------- -----------------------------------
Average Interest Average Average Interest Average
Balance Inc / Exp Rate (1) Balance Inc / Exp Rate (1)
-------- --------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal Funds Sold $ 3,515 $ 130 4.94% $13,868 $ 516 4.97%
Securities Available for Sale 31,134 1,230 5.28% 21,000 945 6.02%
Securities Held to Maturity 3,012 135 5.99% 1,522 65 5.71%
Loans (2) 61,443 4,086 8.89% 54,012 3,865 9.57%
-------- ------ ---- ------- ------ ----
TOTAL EARNING ASSETS $ 99,104 $5,581 7.53% $90,402 $5,391 7.97%
All Other Assets 9,882 8,731
-------- -------
TOTAL ASSETS $108,986 $99,133
======== =======
LIABILITIES & SHAREHOLDERS' EQUITY:
Deposits:
NOW & Money Markets $ 16,196 $ 183 1.51% $13,895 $ 176 1.69%
Savings 9,463 177 2.50% 6,379 130 2.72%
Time Deposits 52,520 1,997 5.07% 51,617 2,175 5.63%
Short Term Borrowings 3,540 100 3.78% 1,610 54 4.48%
TOTAL INTEREST BEARING -------- ------ ---- ------- ------ ----
LIABILITIES $ 81,719 $2,457 4.02% $73,501 $2,535 4.61%
Demand Deposits 19,084 16,966
Other Liabilities 367 1,866
Shareholders' Equity 7,816 6,800
-------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $108,986 $99,133
======== =======
NET INTEREST SPREAD (3) 3.51% 3.36%
==== ====
NET INTEREST INCOME $3,124 $2,856
====== ======
NET INTEREST MARGIN (4) 4.21% 4.22%
==== ====
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------------------
1998 1997
--------------------------------------- -----------------------------------
Average Interest Average Average Interest Average
Balance Inc / Exp Rate (1) Balance Inc / Exp Rate (1)
-------- --------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal Funds Sold $ 12,790 $ 637 4.98% $ 6,494 $ 363 5.59%
Securities Available for Sale 23,485 1,379 5.87% 14,528 844 5.81%
Securities Held to Maturity 1,716 90 5.24% 2,716 188 6.92%
Loans (2) 54,609 5,160 9.45% 48,921 4,860 9.93%
-------- ------ ---- ------- ------ ----
TOTAL EARNING ASSETS $ 92,600 $7,266 7.85% $72,659 $6,255 8.61%
All Other Assets 8,750 7,295
-------- -------
TOTAL ASSETS $101,350 $79,954
======== =======
LIABILITIES & SHAREHOLDERS' EQUITY:
Deposits:
NOW & Money Markets $ 14,164 $ 231 1.63% $12,407 $ 223 1.80%
Savings 6,722 181 2.69% 3,846 85 2.21%
Time Deposits 52,457 2,938 5.60% 43,108 2,428 5.63%
Short Term Borrowings 2,316 104 4.49% 1,732 82 4.73%
-------- ------ ---- ------- ------ ----
TOTAL INTEREST BEARING
LIABILITIES $ 75,659 $3,454 4.57% $61,093 $2,818 4.61%
Demand Deposits 17,213 12,667
Other Liabilities 1,537 210
Shareholders' Equity 6,941 5,984
-------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $101,350 $79,954
======== =======
NET INTEREST SPREAD (3) 3.28% 4.00%
==== ====
NET INTEREST INCOME $3,812 $3,437
====== ======
NET INTEREST MARGIN (4) 4.12% 4.73%
==== -====
</TABLE>
(1) Nine month data presented on an annualized basis.
(2) Interest income on average loans includes loan fee recognition of $175,000
and $144,000 for the nine month periods ended September 30, 1999 and 1998
and $208,000 and $182,000 for the years ended December 31, 1998 and 1997.
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.
11
<PAGE> 225
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Net Change Sept 30, 1998 - 1999 Net Change Dec 31, 1997 - 1998
--------------------------------------- -------------------------------------------
Net Net
Volume (1) Rate (2) Change Volume (1) Rate (2) Change
---------- -------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Federal Funds sold $(385) $ (1) $(386) $ 352 $ (78) $ 274
Securities Available for Sale 456 (171) 285 520 15 535
Securities Held to Maturity 64 6 70 (69) (29) (98)
Loans 532 (311) 221 565 (265) 300
----- ----- ----- ------- ----- -------
TOTAL INTEREST INCOME $ 666 $(476) $ 190 $ 1,368 $(357) $ 1,011
----- ----- ----- ------- ----- -------
INTEREST EXPENSE
Deposits
NOW & Money Market $ 29 $ (22) $ 7 $ 32 $ (24) $ 8
Accounts
Savings 63 (16) 47 64 32 96
Time Deposits 38 (216) (178) 527 (17) 510
Short-Term Borrowings 65 (19) 46 28 (6) 22
----- ----- ----- ------- ----- -------
TOTAL INTEREST EXPENSE $ 195 $(273) $ (78) $ 649 $ (13) $ 636
----- ----- ----- ------- ----- -------
NET INTEREST INCOME $ 471 $(203) $ 268 $ 719 $(344) $ 375
===== ===== ===== ======= ===== =======
</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.
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
The provision for loan loss expense increased $3,000, or 3%, to $99,000
during the nine month period ending September 30, 1999, as compared to $96,000
for the comparable period in 1998, due to an increase in general lending
activity. At September 30, 1999 the allowance for loan losses totaled $798,000,
or 1.20%, of total loans outstanding, compared to $858,000, or 1.50%, of total
loans outstanding at September 30, 1998.
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
The provision for loan loss expense decreased $174,000, or 82%, to
$38,000 during 1998, as compared to $212,000 for 1997. The decrease was
primarily due to a change in management's assessments of conditions of
individual borrowers and the overall portfolio composition. At December 31,
1998, the provision for loan losses totaled $781,000, or 1.36%, of total loans
outstanding, compared to $781,000, or 1.47%, of total loans outstanding at
December 31, 1997.
12
<PAGE> 226
Management believes that First National / Osceola's allowance for loan
losses was adequate at September 30, 1999. The following sets forth certain
information on First National / Osceola's allowance for loan losses for the
periods presented.
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
Sept 30 Dec 31
1999 1998 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at Beginning of Year $ 781 $ 781 $ 781 $ 616
Loans Charged-Off:
Commercial, Financial & Agricultural (56) (3) (20) (48)
Real Estate, Mortgage 0 (4) (4) 0
Consumer (52) (25) (31) (24)
-------- -------- -------- --------
Total Loans Charged-Off $ (108) $ (32) $ (55) $ (72)
-------- -------- -------- --------
Recoveries on Loans Previously Charged-Off
Commercial, Financial & Agricultural $ 8 $ 3 $ 3 $ 19
Real Estate, Mortgage 4 8 9 0
Consumer 14 2 5 5
-------- -------- -------- --------
Total Loan Recoveries $ 26 $ 13 $ 17 $ 24
-------- -------- -------- --------
Net Loans Charged-Off $ (82) $ (19) $ (38) $ (48)
-------- -------- -------- --------
Provision for Loan Losses Charged
to Expense $ 99 $ 96 $ 38 $ 213
-------- -------- -------- --------
Ending Balance $ 798 $ 858 $ 781 $ 781
======== ======== ======== ========
Total Loans Outstanding $ 66,612 $ 57,206 $ 57,372 $ 53,094
Average Loans Outstanding $ 61,443 $ 54,012 $ 54,609 $ 48,921
Allowance for Loan Losses to Loans Outstanding 1.20% 1.50% 1.36% 1.47%
Net Charge-offs to Average Loans
Outstanding (annualized) 0.18% 0.05% 0.07% 0.10%
</TABLE>
NON-INTEREST INCOME
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
Non-interest income for the nine months ended September 30, 1999
increased $148,000 or 29% to $650,000 as compared to $502,000 for the same
period in 1998. Most of this increase $(110,000) was due to an increase in
service fees from various deposit accounts. The remaining increases related to
increases in ATM charges $(27,000), and other miscellaneous fees $(11,000).
13
<PAGE> 227
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
Non-interest income for 1998 increased by $183,000 or 35%, to $707,000
as compared to $524,000 for 1997. The net increase was comprised of a $145,000
increase in service fees on various deposit accounts, a $32,000 increase in ATM
related fees, and other miscellaneous fees of $6,000.
NON-INTEREST EXPENSE
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
Non-interest expense increased $620,000 (30%) for the nine months ended
September 30, 1999, to $2,836,000 compared to $2,216,000 for the same period in
1998. The increase was a result of a $243,000 increase in compensation and
related employee benefits, a $135,000 increase in occupancy and related
equipment expenses, with the remaining increases in non-interest expense
(approximately $241,000) 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.
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
Non-interest expense increased $333,000 (12%) to $3,075,000 during 1998
compared to $2,742,000 for 1997. The increase was a result of a $169,000
increase in salary, wages and employee benefits and a $164,000 increase in other
non-interest expenses as summarized in the table below - Non-Interest Expenses.
Much of the increase was associated with the continued operations of the two new
branches that began operations in June 1996 and October 1996, as well as funding
the continuing growth of First National/Osceola.
NON INTEREST EXPENSE
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended Sept 30 Years Ended Dec 31
-------------------------------- -------------------------------
1999 1998 Incr(Decr) 1998 1997 Incr(Decr)
------ ------ ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Salary, wages and employee benefits $1,215 $ 972 $243 $1,374 $1,205 $169
Occupancy expense 421 312 109 423 427 (4)
Depreciation of premises and equipment 190 164 26 217 206 11
Stationery and printing supplies 119 71 48 100 110 (10)
Advertising and public relations 65 55 10 75 71 4
Data processing expense 211 169 42 233 199 34
Legal & professional fees 75 71 4 97 67 30
Other operating expenses 540 402 138 556 457 99
------ ------ ---- ------ ------ ----
Total other operating expenses $2,836 $2,216 $620 $3,075 $2,742 $333
====== ====== ==== ====== ====== ====
</TABLE>
INCOME TAX PROVISION
The income tax provision for the nine month period ended September 30,
1999 was $308,000, an effective tax rate of 36.7%, as compared to $387,000 for
the nine month period ended September 30,
14
<PAGE> 228
1998, an effective tax rate of 37.0%.
The income tax provision for the year ended December 31, 1998, was
$512,000, an effective tax rate of 36.4%, as compared to $405,000 for the year
ended December 31, 1997, an effective tax rate of 40.2%. The reduction in the
effective tax rate in 1998 compared to 1997 was primarily the result of higher
amounts of non deductible items in 1997 compared to 1998.
NET INCOME
Net income for the years ended December 31, 1998, and 1997 was
$894,000 and $602,000, respectively. Net income for the nine month periods
ended September 30, 1999 and 1998, was $521,000 and $700,000 respectively.
FINANCIAL CONDITION
As of September 30, 1999, the Bank had total assets of $107.5 million,
compared to $109.3 million and $86.3 million as of December 31, 1998, and 1997,
respectively. Net loans outstanding on September 30, 1999, were $65,814,000
compared to $56,591,000 and $52,313,000 as of December 31, 1998, and 1997,
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
nine-month period ending September 30, 1999, were $61,443,000, or 62% of earning
assets, as compared to $54,609,000, or 59% of earning assets, for December 31,
1998, and $48,921,000, or 67% of earning assets, for December 31, 1997. This
represented an average loan to average deposit ratio of 63%, 60%, and 68% for
September 30, 1999, December 31, 1998, and December 31, 1997, respectively.
As of September 30, 1999, First National/Osceola had total loans of
$66,612,000, net of unearned discount, as compared to $57,372,000 at December
31, 1998, an increase of $9,240,000, or 16%. The growth in loans in the
nine-month 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 $10,876,000, or 17% of the loan portfolio. Real estate
construction loans totaled $3,557,000, or 5% of the loan portfolio. Real estate
mortgage loans totaled $44,737,000, or 67% of the loan portfolio. Installment
and consumer loans totaled $7,442,000, or 11% of the loan portfolio.
As of December 31, 1998, loans totaled $57,372,000 million, net of
unearned discount, as compared to $53,094,000 at December 31, 1997, an increase
of $4,278,000, or 8%. The growth was mainly due to general growth in the market
and the calling efforts of the loan officers. Commercial, financial and
agricultural loans totaled $10,828,000 or 19% of the loan portfolio. Real estate
construction loans totaled $2,801,000, or 5% of the loan portfolio. Real estate
mortgage loans totaled $37,818,000, or 66% of the loan portfolio. Installment
and consumer loans totaled $5,925,000, 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.
15
<PAGE> 229
LOAN PORTFOLIO COMPOSITION
(Dollars are in Thousands)
<TABLE>
<CAPTION>
TYPES OF LOANS September 30, December 31,
--------------------------- ---------------------------
1999 1998 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Commercial, Financial & Agricultural $ 10,876 $ 11,070 $ 10,828 $ 11,243
Real Estate - Construction 3,557 3,334 2,801 3,184
Real Estate - Mortgage 44,737 36,548 37,818 32,952
Installment & Consumer Lines 7,442 6,254 5,925 5,715
-------- -------- -------- --------
Total Loans, Net of Unearned Discount $ 66,612 $ 57,206 $ 57,372 $ 53,094
Less: Allowance for Loan Losses (798) (858) (781) (781)
-------- -------- -------- --------
Net Loans $ 65,814 $ 56,348 $ 56,591 $ 52,313
======== ======== ======== ========
</TABLE>
LOAN MATURITY SCHEDULE
(Dollars are in Thousands)
<TABLE>
<CAPTION>
September 30, 1999
---------------------------------------------------------
0 - 12 1 - 5 Over 5
Months Years Years Total
------- ------- ------ -------
<S> <C> <C> <C> <C>
All Loans other Than Construction $35,569 $19,701 $7,785 $63,055
Real Estate - Construction 3,557 0 0 3,557
------- ------- ------ -------
Total $39,126 $19,701 $7,785 $66,612
======= ======= ====== =======
Fixed Interest Rate $ 4,793 $19,701 $7,785 $32,279
Variable Interest Rate 34,333 0 0 34,333
------- ------- ------ -------
Total $39,126 $19,701 $7,785 $66,612
======= ======= ====== =======
</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 $36,789 $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>
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
16
<PAGE> 230
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
September 30, 1999, the allowance for loan losses was $798,000, or 1.2% of
total loans outstanding, net of unearned income, compared to $781,000, or 1.4%,
at December 31, 1998, and $781,000, or 1.5%, at December 31, 1997.
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 September 30, 1999, increased
$82,000, or 48%, to $253,000, compared to $171,000 as of December 31, 1998.
Non-performing loans, plus other real estate owned, as a percentage of total
assets at September 30, 1999, and December 31,1998, was .24% and .16%,
respectively. The increase in non-performing assets was mainly attributable to
the previous low level. Management believes that the allowance for loan losses
on September 30, 1999 was adequate.
Total non-performing assets as of December 31, 1998 increased $129,000,
or 307%, to $171,000, compared to $42,000 as of December 31, 1997.
Non-performing loans, plus other real estate owned, as a percentage of total
assets at December 31, 1998, and December 31, 1997, was .16% and .04%,
respectively.
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 September 30, 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.
NON-PERFORMING ASSETS
(Dollars are in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
------------------------ -----------------------
1999 1998 1998 1997
------- ------- ------ -------
<S> <C> <C> <C> <C>
Non-Accrual Loans $ 0 $ 0 $ 0 $ 0
Past Due Loans 90 Days or More
and Still Accruing Interest 253 276 171 42
Other Real Estate Owned 0 0 0 0
------- ------- ------ -------
Total Non-Performing Assets $ 253 $ 276 $ 171 $ 42
======= ======= ====== =======
Percent of Total Assets 0.24% 0.26% 0.16% 0.04%
======= ======= ====== =======
Allowance for Loan Losses $ 798 $ 858 $ 781 $ 781
======= ======= ====== =======
Allowance for Loan Losses to
Nonperforming Loans 315% 311% 457% 1859%
======= ======= ====== =======
</TABLE>
17
<PAGE> 231
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998 December 31, 1997
--------------------- ----------------------- ----------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Each Each Each
Category Category Category
to to to
Amount Total Amount Total Amount Total
Loans Loans Loans
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, Financial & Agricultural $592 16% $ 47 19% $117 21%
Real Estate Construction 0 5% 9 5% 10 6%
Real Estate - Mortgage 70 67% 407 66% 333 62%
Consumer 30 12% 26 10% 24 11%
Unallocated 106 0% 292 0% 297 0%
---- --- ---- --- ---- ---
Total $798 100% $781 100% $781 100%
==== === ==== === ==== ===
</TABLE>
Deposits and Funds Purchased
Total deposits decreased $1,602,000 (1.6%) to $95,956,000 as of
September 30, 1999, compared to $97,558,000 on December 31, 1998. Total deposits
increased $19,050,000 (24%) to $97,558,000 as of December 31, 1998, compared to
$78,508,000 on December 31, 1997. 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 tables below
summarize selected deposit information for the periods indicated.
SELECTED STATISTICAL INFORMATION FOR DEPOSITS
(Dollars are in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
------------------- --------------------------------------------
1999 1998 1997
------------------- --------------------------------------------
Average Average Average
Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $19,084 0.00% $17,213 0.00% $12,667 0.00%
Interest-bearing demand
deposits 16,196 1.51% 14,164 1.63% 12,407 1.80%
Savings deposits 9,463 2.50% 6,722 2.69% 3,846 2.21%
Time deposits 52,520 5.07% 52,457 5.60% 43,108 5.63%
------- ---- ------- ---- ------- ----
Total Average Deposits $97,263 3.24% $90,556 3.70% $72,028 3.80%
======= ==== ======= ==== ======= ====
</TABLE>
18
<PAGE> 232
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Sept 30, 1999 Dec 31, 1998
------------- ------------
<S> <C> <C>
Three Months or Less $ 2,772 $ 4,256
Three Through Six Months 3,211 3,410
Six Through Twelve Months 3,509 2,677
Over Twelve Months 1,268 1,218
------- -------
Total $10,760 $11,561
======= =======
</TABLE>
Repurchase Agreements
First National / Osceola 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 agreements for the periods ended September 30,
1999 and 1998, was approximately $3,540,000 and $1,610,000 respectively.
Interest expense for the same periods was approximately $99,600 and $54,100,
respectively, resulting in an average rate paid of 3.76% and 4.50% for the
nine-month periods ended September 30, 1999 and 1998, respectively. The daily
average balance for the years ended December 31, 1998, and 1997 was
approximately $2,316,000 and $1,732,000, respectively. Interest expense for
these periods was approximately $104,000 and $82,000, respectively, resulting in
an average rate paid of 4.48% and 4.73% for the years ended 1998 and 1997,
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>
NINE MONTHS ENDED
September 30, 1999 $5,097 $3,540 3.78% $2,791 4.75%
September 30, 1998 1,552 1,610 4.48% 1,166 5.04%
YEAR ENDED DECEMBER 31,
1998 4,729 2,316 4.49% 3,978 4.50%
1997 3,285 1,732 4.73% 1,044 5.87%
</TABLE>
- -------------
(1) Consists of Securities sold under agreements to repurchase
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 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
19
<PAGE> 233
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
$25,883,000 at September 30, 1999, $35,819,000 at December 31, 1998, and
$14,667,000 at December 31, 1997, or 24%, 33% and 17%, respectively, of total
assets. The held to maturity portfolio totaled $3,538,000 at September 30, 1999,
$2,555,000 at December 31, 1998 and $3,003,000 at December 31, 1997, or 3%, 2%
and 3%, 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 $84,000 on September 30, 1999, a net unrealized
gain of approximately $201,000 on December 31, 1998 and a net unrealized gain of
approximately $31,000 on December 31, 1997.
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 investment securities,
weighted average yield by range of maturities, and distribution of investment
securities for the periods provided.
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998 December 31, 1997
---------------------- ---------------------- -----------------------
Amortized Estimated Amortized Estimated Amortized Estimated
AVAILABLE-FOR-SALE Cost Market Cost Market Cost Market
Value Value Value
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <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 $15,535 $15,535 $10,395 $10,440 $ 7,242 $ 7,256
Over One Through Five Years 8,298 8,213 23,088 23,244 7,266 7,283
Over Five Through Ten Years 0 0 0 0 0 0
Over Ten Years 2,000 2,000 2,000 2,000 0 0
Federal Reserve Bank Stock 135 135 135 135 128 128
------- ------- ------- ------- ------- -------
Total $25,968 $25,883 $35,618 $35,819 $14,636 $14,667
======= ======= ======= ======= ======= =======
</TABLE>
20
<PAGE> 234
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY
U.S. Government Agencies and
Treasuries
One Year or Less $ 0 $ 0 $ 501 $ 504 $2,500 $2,504
Over One Through Five Years 3,538 3,485 2,054 2,042 503 508
------ ------ ------ ------ ------ ------
Total $3,538 $3,485 $2,555 $2,546 $3,003 $3,012
====== ====== ====== ====== ====== ======
</TABLE>
WEIGHTED AVERAGE YIELD BY RANGE OF MATURITIES
(AVERAGE YIELDS ON SECURITIES AVAILABLE FOR SALE
ARE CALCULATED BASED ON AMORTIZED COST)
<TABLE>
<CAPTION>
Sept 30, 1999 Dec 31, 1998 Dec 31, 1997
------------- ------------ ------------
<S> <C> <C> <C>
One Year or Less 5.34% 5.80% 6.14%
Over One Through Five Years 5.16% 5.34% 5.94%
Over Five Through Ten Years 0.00% 0.00% 0.00%
Over Ten Years 5.51% 5.77% 0.00%
</TABLE>
DISTRIBUTION OF INVESTMENT SECURITIES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998 December 31, 1997
------------------------ ------------------------ ------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE:
US Treasury Securities $15,567 $15,541 $19,621 $19,775 $10,259 $10,285
US Government Agencies 8,002 7,952 13,502 13,550 4,249 4,254
State, County, & Municipal 2,000 2,000 2,000 2,000 0 0
Mortgage-Backed Securities 264 255 360 359 0 0
Federal Reserve Bank Stock 135 135 135 135 128 128
------- ------- ------- ------- ------- -------
Total $25,968 $25,883 $35,618 $35,819 $14,636 $14,667
======= ======= ======= ======= ======= =======
HELD TO MATURITY:
US Treasury Securities $ 0 $ 0 $ 2,054 $ 2,042 $ 1,000 $ 1,001
US Government Agencies 3,538 3,485 501 504 2,003 2,011
------- ------- ------- ------- ------- -------
Total $ 3,538 $ 3,485 $ 2,555 $ 2,546 $ 3,003 $ 3,012
======= ======= ======= ======= ======= =======
</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.
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.
21
<PAGE> 235
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, appropriate 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 September 30, 1999,
approximately 50% of total gross loans were adjustable rate and 69% of total
securities either reprice or mature in less than one year. Total financing
liabilities consisted of approximately $25,699,000 (27%) in NOW, Money Market
Accounts and Savings, $48,645,000 (51%) in time deposits, and $21,612,000 (22%)
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. Total financing 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
September 30, 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 September
30, 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 September 30, 1999, should not
necessarily be considered to apply at subsequent dates.
22
<PAGE> 236
RATE SENSITIVITY ANALYSIS
September 30, 1999
(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 $ 4,793 $3,676 $4,464 $5,781 $5,781 $ 7,778 $32,273 $32,178
Average Interest Rate 8.35% 9.35% 9.01% 8.41% 8.41% 8.10% 8.52%
Variable Rate Loans 32,280 0 0 0 0 0 32,280 32,280
Average Interest Rate 8.46% 8.46%
Investment Securities (1)
Fixed Rate Securities 20,057 5,549 1,764 0 0 2,000 29,370 29,233
Average Interest Rate 5.75% 5.72% 5.77% 5.45% 5.72%
Variable Rate Securities 0 0 0 0 0 0 0
Average Interest Rate
Federal Funds Sold 2,150 0 0 0 0 0 2,150 2,150
Average Interest Rate 4.31% 4.31%
Other Earning Assets (2) 135 0 0 0 0 0 135 135
Average Interest Rate 6.00% 6.00%
------- ------ ------ ------ ------ ------- ------- -------
Total Interest-Earning Assets $59,415 $9,225 $6,228 $5,781 $5,781 $ 9,778 $96,208 $95,976
7.38% 7.17% 8.09% 8.41% 8.41% 7.55% 7.55%
======= ====== ====== ====== ====== ======= =======
INTEREST BEARING LIABILITIES
NOW Accounts $ 9,294 $ 0 $ 0 $ 0 $ 0 $ 0 $ 9,294 $ 9,294
Average Interest Rate 1.00% 1.00%
Money Market Accounts 6,223 0 0 0 0 0 6,223 6,223
Average Interest Rate 2.00% 2.00%
Savings Accounts 10,182 0 0 0 0 10,182 10,182
Average Interest Rate 1.65% 1.65%
CDs $100,000 & Over 9,492 1,137 0 131 0 0 10,760 10,828
Average Interest Rate 5.13% 5.63% 5.00% 5.18%
CDs Under $100,000 29,064 6,298 225 1,057 710 531 37,885 37,467
Average Interest Rate 4.80% 5.12% 5.95% 5.61% 5.36% 5.05% 4.90%
Securities Sold Under
Repurchase Agreement 2,791 0 0 0 0 0 2,791 2,791
Average Interest Rate 3.78% 3.78%
------- ------ ------ ------ ------ ------- ------- -------
Total Interest-Bearing Liabilities $67,046 $7,435 $ 225 $1,188 $ 710 $ 531 $77,135 $76,785
3.54% 5.20% 5.95% 5.54% 5.36% 5.05% 3.77%
======= ====== ====== ====== ====== ======= =======
</TABLE>
- -----------------
(1) Securities available for sale are shown at their amortized cost.
(2) Represents interest earning Federal Reserve Bank Stock
23
<PAGE> 237
RATE SENSITIVITY ANALYSIS
September 30, 1999
(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 5146
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> 238
Primary Use of Funds
Nine Month period ending September 30, 1999
The primary source of funds during the period included maturity/sale of
investments $(1,444,000), decrease in federal funds sold and other cash items
$(7,849,000), exercise of stock options net of tax benefit $(713,000), increase
in borrowings from repurchase agreements $(1,625,000) and net income $(522,000).
The primary uses of funds during the period included a decrease in deposits
$(1,463,000), an increase in net loans outstanding $(9,466,000), increase in
premises and equipment $(865,000), and other miscellaneous net uses $(246,000).
Twelve Month period ending December 31, 1998
The primary source of funds during the period included net growth in
deposits $(19,050,000), exercise of stock options net of tax benefit $(212,000),
an increase in borrowings from repurchase agreements $(2,934,000), decrease in
federal funds sold and other cash items $(2,856,000), and net income $(894,000).
The primary uses of funds during the period included an increase in investments
outstanding $(20,704,000), an increase in net loans outstanding $(4,278,000), an
increase in premises and equipment $(793,000), dividends paid $(113,000), and
other miscellaneous net uses $(58,000).
CAPITAL RESOURCES
Shareholders' equity at September 30, 1999, was $8,511,000 as compared
to $7,390,000 at September 30, 1998, and $7,457,000 at December 31, 1998, as
compared to $6,358,000 at December 31, 1997.
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, 1998, and 1997 compared to
September 30, 1999, were as follows:
25
<PAGE> 239
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 SEPTEMBER 30, 1999:
Total Capital: (to Risk Weighted Assets): $9,251 13.9% $6,636 10.0% $2,615
Tier 1 Capital: (to Risk Weighted Assets): $8,453 12.7% $3,981 6.0% $4,472
Tier 1 Capital: (to Average Assets): $8,453 7.9% $5,350 5.0% $3,103
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
AS OF DECEMBER 31, 1997:
Total Capital: (to Risk Weighted Assets): $7,009 13.0% $5,376 10.0% $1,633
Tier 1 Capital: (to Risk Weighted Assets): $6,335 11.8% $3,232 6.0% $3,103
Tier 1 Capital: (to Average Assets): $6,335 7.3% $4,314 5.0% $2,021
</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 / Osceola's earnings from such activities.
26
<PAGE> 240
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.
SELECTED QUARTERLY DATA
(Dollars are in Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
(Dollars in Thousands except ---------------------- ----------------------------- -------------------------
for per share data) 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
------ ------ ---- ------- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income $1,085 $1,065 $ 974 $ 956 $ 980 $ 951 $ 925 $ 901 $ 876 $ 847 $ 814
Provision for Loan Losses 24 38 37 (58) 27 27 42 0 58 77 77
------ ------ ----- ------- ----- ----- ----- ----- ----- ----- -----
Net Interest Income after
provision for loan losses $1,061 $1,027 $ 937 $ 1,014 $ 953 $ 924 $ 883 $ 901 $ 818 $ 770 $ 737
Non-Interest Income 226 223 202 205 177 168 157 150 125 136 112
Non-Interest Expenses 1,017 944 875 859 769 727 720 715 709 660 658
------ ------ ----- ------- ----- ----- ----- ----- ----- ----- -----
Income before income
tax expense $ 270 $ 306 $ 264 $ 360 $ 361 $ 365 $ 320 $ 336 $ 234 $ 246 $ 191
Income tax expense 92 116 100 125 166 93 128 154 84 96 71
------ ------ ----- ------- ----- ----- ----- ----- ----- ----- -----
Net Income $ 178 $ 190 $164 $ 235 $ 195 $ 272 $ 192 $ 182 $ 150 $ 150 $ 120
====== ====== ===== ======= ===== ===== ===== ===== ===== ===== =====
Basic earnings per common share $ 0.36 $ 0.41 $0.36 $ 0.52 $0.43 $0.61 $0.44 $0.43 $0.35 $0.35 $0.28
Diluted earnings per common share $ 0.35 $ 0.38 $0.33 $ 0.49 $0.40 $0.57 $0.40 $0.40 $0.33 $0.33 $0.26
</TABLE>
27
<PAGE> 241
APPENDIX E
Information on First National Bank of Polk County
<PAGE> 242
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
September 30, 1999 and December 31, 1998 were $40.8 million, or 56% of total
assets, and $40.1 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 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.
<PAGE> 243
First National/Polk's loans are concentrated in three major areas: real
estate loans, commercial loans, and consumer loans. At September 30, 1999,
69.7%, 12.1% and 18.2% 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 September 30, 1999 and December 31, 1998, respectively, were made on a
secured basis. As of September 30, 1999 and December 31, 1998, 75.3% and 75.4%,
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.
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 61.9%
2
<PAGE> 244
and 58.5% of First National/Polk's total deposits at September 30, 1999 and
December 31, 1998, respectively. Approximately 38.1% and 41.5% of First
National/Polk's deposits at September 30, 1999 and December 31, 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 5.1% of First National/Polk's total deposits at both September 30,
1999 and December 31, 1998. 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 September 30, 1999, First National/Polk employed 32 full-time and two
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.
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.
3
<PAGE> 245
<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
processer)
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
</TABLE>
4
<PAGE> 246
<TABLE>
<S> <C> <C>
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>
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
$100,000 in 1998.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS COMPENSATION
COMPENSATION(1) ---- --------- ------ ------------
<S> <C> <C> <C> <C> <C>
George H. Carefoot, 1998 $117,520 $8,500 -0- 4,700
President and Chief 1997 $113,000 $8,500 -0- 4,520
Executive Officer 1996 $107,069 $4,375 -0- 4,283
</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.
5
<PAGE> 247
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
37,450 shares of First National/Polk Common Stock were outstanding as of the
date of this Proxy Statement (including options for 24,000 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 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%
</TABLE>
6
<PAGE> 248
<TABLE>
<S> <C> <C>
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>
- ------------------
(1) Information related to beneficial ownership is based upon the information
available to First National/Polk.
(2) Includes options to acquire 24,000 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.
7
<PAGE> 249
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 a national bank and is
subject to the supervision of the Office of the Comptroller of the Currency. At
September 30, 1999, the Bank had total assets of $72.2 million, total loans of
$40.2 million, total deposits of $65.1 million, and total shareholders' equity
of $6.5 million. Net income for the nine months ended September 30, 1999 and for
the year ended December 31, 1998, was $449,000 and $691,000 respectively, as
compared with $485,000 and $548,000 for the nine months ended September 30, 1998
and for the year ended December 31, 1997, 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 September 30, 1999 real estate loans were approximately 70% 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, and residential real estate loans in particular, is
expected to continue.
RESULTS OF OPERATIONS
NET INCOME
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
First National / Polk's net income for the nine month periods ended
September 30, 1999 was $449,000 compared to $485,000 for the nine month period
ending September 30, 1998. The net income per share for the periods ended
September 30, 1999 and 1998 were $0.95 $(0.92 diluted) and $1.11 $(1.05
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 it's employees, as well as a non qualified
stock option plan for it's directors.
First National / Polk's return on average assets ("ROA") and return on
average equity ("ROE") for the nine month period ended September 30, 1999 was
0.80% and 9.42% as compared to the ROA and ROE of 0.93% and 12.06% for the nine
month period ended September 30, 1998. The efficiency ratios for the two periods
ended September 30, 1999 approximated 69% and 67% respectively.
8
<PAGE> 250
There were positive improvements in net interest income of
approximately $133,000 and in non interest income of approximately $68,000 in
the nine month period ending September 30, 1999 as compared to the same period
for 1998. These positive impacts were partially offset by the negative impacts
resulting from a $24,000 increase in the loan loss provision, a $177,000
increase in non interest expense, and a $36,000 increase in income tax expense
for the nine month period ending September 30, 1999, compared to the same period
for 1998.
The improvement in 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 primarily due to an increase in compensation
expense, insurance expenses/premiums and other related employee expenses.
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
Net Income increased $143,000 or 26% to $691,000 in 1998 compared to
$548,000 in 1997. Earnings per share increased $0.23 $(0.22 diluted) or 17% to
$1.58 $(1.49 diluted) in 1998 compared to $1.35 $(1.27 dilutive) in 1997. ROA
and ROE both increased to 0.99% and 12.66% in 1998 compared to 0.92% and 12.00%
in 1997. The increase in earnings per share was negatively impacted, relative to
the increase in net income, due to the issuance of additional shares related to
the exercise of stock options, primarily in 1998.
The increase in net income was due to an increase in net interest
margin $286,000, a decrease in the loan loss provision $34,000, a decrease in
income tax expense $6,000, and an increase in non interest income $65,000. These
positive effects on net income were partially offset by an increase in non
interest expense $248,000.
NET INTEREST INCOME/MARGIN
Net interest income consists of interest and fee income generated by
earning assets, less interest expense.
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
Net interest income increased $133,000 or 6% to $2,114,000 during the
nine month period ended September 30, 1999 compared to $2,081,000 for the nine
month period ended September 30, 1998. The $133,000 increase was a combination
of a $27,000 decrease in interest income and a $160,000 decrease in interest
expense.
Average interest earning assets increased $4,825,000 to $68,458,000
during the nine month period ending September 30, 1999 compared to $63,633,000
for the nine month period ending September 30, 1998. Comparing these same two
periods, yield on average interest earning assets decreased from 7.90% to 7.29%.
The increase in volume had a positive effect on the change in interest income
(+$301,000 volume variance), however, this was more than offset by the negative
impact resulting from the 0.61% decrease in average yields (-$337,000 rate
variance). The result was a $27,000 decrease in interest income.
9
<PAGE> 251
Average interest bearing liabilities increased $2,248,000 to
$57,194,000 during the nine month period ending September 30, 1999 compared to
$54,946,000 for the nine month period ending September 30, 1998. Comparing these
same two periods, the cost of average interest bearing liabilities decreased
from 4.09% to 3.55%. Although there was an increase in volume, the resulting
volume variance was a decrease of interest expense of approximately $10,000. The
reason was because of the mixture of the components. Average balances of higher
rate certificate of deposit accounts decreased, while lower cost deposits
increased, thereby resulting in a decrease to interest expense. Refer to the
tables Average Balances - Yields & Rates, and Analysis of Changes In Interest
Income and Expenses below. The 0.54% decrease in average cost of interest
bearing liabilities resulted in a decrease in interest expense (rate variance)
of approximately $150,000. The result was a $160,000 decrease in interest
expense.
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
Net interest income increased $286,000 or 11.5% to $2,766,000 during
1998 compared to $2,346,000 for 1997. The $286,000 increase was a combination of
a $559,000 increase in interest income and a $273,000 increase in interest
expense.
Average interest earning assets increased $9,816,000 to $63,969,000
during 1998 compared to $54,153,000 for 1997. Comparing these same two periods,
the yield on average interest earning assets decreased from 7.95% to 7.62%. The
increase in volume had a positive effect on the change in interest income
(+$727,000 volume variance), however, this was partially offset by the negative
impact resulting from the 0.33% decrease in average yields (-$156,000 rate
variance). The result was a $571,000 increase in interest income.
Average interest bearing liabilities increased $7,775,000 to
$55,169,000 during 1998 compared to $47,394,000 for 1997. Comparing these same
two periods, the cost of average interest bearing liabilities decreased from
4.13% to 4.05%. The increase in volume had an increasing effect on interest
expense (+$104,000 volume variance). The increase in yield had an increasing
effect on interest expense (+$169,000 rate variance). The result was a $273,000
increase in interest expense.
10
<PAGE> 252
AVERAGE BALANCES - YIELDS & RATES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------------------------------------
1999 1998
-------------------------------------- --------------------------------------
Average Interest Average Average Interest Average
Balance Inc / Exp Rate (1) Balance Inc / Exp Rate (1)
------- --------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal Funds Sold $ 3,322 $ 119 4.79% $ 5,926 $ 241 5.44%
Securities Available for Sale 25,522 1,004 5.26% 21,376 943 5.90%
Loans (2) (5) 39,614 2,611 8.81% 36,331 2,577 9.48%
------- ------ ---- ------- ------ ----
TOTAL EARNING ASSETS $68,458 $3,734 7.29% $63,633 $3,761 7.90%
All Other Assets 6,405 5,863
------- -------
TOTAL ASSETS $74,863 $69,496
======= =======
LIABILITIES & SHAREHOLDERS' EQUITY:
Deposits:
NOW & Money Markets $25,972 $ 514 2.65% $21,539 $ 455 2.82%
Savings 4,700 47 1.34% 3,988 60 2.01%
Time Deposits 26,138 947 4.84% 28,608 1,134 5.30%
Short Term Borrowings 384 12 4.18% 811 31 5.11%
------- ------ ---- ------- ------ ----
TOTAL INTEREST
BEARING LIABILITIES $57,194 $1,520 3.55% $54,946 $1,680 4.09%
Demand Deposits 11,039 8,923
Other Liabilities 274 267
Shareholders' Equity 6,356 5,360
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $74,863 $69,496
======= =======
NET INTEREST SPREAD (3) 3.74% 3.81%
==== ====
NET INTEREST INCOME $2,214 $2,081
====== ======
NET INTEREST MARGIN (4) 4.32% 4.37%
==== ====
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------------------
1998 1997
-------------------------------------- --------------------------------------
Average Interest Average Average Interest Average
Balance Inc / Exp Rate (1) Balance Inc / Exp Rate (1)
------- --------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal Funds Sold $ 5,462 $ 292 5.35% $ 3,637 $ 197 5.42%
Securities Available for Sale 21,516 1,254 5.83% 17,975 1,097 6.10%
Securities Held to Maturity 0 0 0.00% 0 0 0.00%
Loans, Net Unearned (2) 36,991 3,452 9.33% 32,541 3,145 9.66%
Interest Bearing Deposits 0 0 0.00% 0 0 0.00%
------- ------ ---- ------- ------ ----
TOTAL EARNING ASSETS $63,969 $4,998 7.81% $54,153 $4,439 8.20%
All Other Assets 5,932 5,320
------- -------
TOTAL ASSETS $69,901 $59,473
======= =======
LIABILITIES & SHAREHOLDERS' EQUITY:
Deposits:
NOW & Money Markets $21,948 $ 614 2.80% $13,953 $ 265 1.90%
Savings 4,026 78 1.94% 3,015 60 1.99%
Time Deposits 28,512 1,506 5.28% 30,015 1,614 5.38%
Short Term Borrowings 683 34 4.98% 411 20 4.87%
Notes Payable & Debentures 0 0 0.00% 0 0 0.00%
------- ------ ---- ------- ------ ----
TOTAL INTEREST
BEARING LIABILITIES $55,169 $2,232 4.05% $47,394 $1,959 4.13%
Demand Deposits 9,000 7,251
Other Liabilities 276 260
Shareholders' Equity 5,456 4,568
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $69,901 $59,473
======= =======
NET INTEREST SPREAD (3) 3.77% 4.06%
==== ====
NET INTEREST INCOME $2,766 $2,480
====== ======
NET INTEREST MARGIN (4) 4.32% 4.58%
==== ====
</TABLE>
(1) Nine month data presented on an annualized basis.
(2) Interest income on average loans includes loan fee recognition of $88,000
and $96,000 for the nine month periods ended September 30 1999 and 1998,
and $122,000 and $134,000 for the years ended December 31, 1998 and 1997.
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.
(5) Loan balances are net of deferred fees/cost of origination and receive for
loan loss allowances.
11
<PAGE> 253
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Net Change Sept 30, 1998 - 1999 Net Change Dec 31, 1998 - 1999
------------------------------------ ------------------------------------
Net Net
Volume (1) Rate (2) Change Volume (1) Rate (2) Change
---------- -------- ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Federal Funds sold $ (106) $ (16) $ (122) $ 98 $ (2) $ 96
Securities Available for Sale 183 (122) 61 216 (59) 157
Loans 233 (199) 34 430 (124) 306
------ ------ ------ ------ ------ ------
TOTAL INTEREST INCOME $ 310 $ (337) $ (27) $ 745 $ (186) $ 559
------ ------ ------ ------ ------ ------
INTEREST EXPENSE
Deposits
NOW & Money Market Accounts $ 94 $ (35) $ 59 $ 152 $ 197 $ 349
Savings 11 (24) (13) 20 (2) 18
Time Deposits (98) (89) (187) (81) (27) (108)
Short-Term Borrowings (16) (3) (19) 13 1 14
------ ------ ------ ------ ------ ------
TOTAL INTEREST EXPENSE $ (10) $ (150) $ (160) $ 104 $ 169 $ 273
------ ------ ------ ------ ------ ------
NET INTEREST INCOME $ 320 $ (187) $ 133 $ 640 $ (354) $ 286
====== ====== ====== ====== ====== ======
</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.
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
The provision for loan loss expense increased $24,000, or 62%, to
$63,000 during the nine month period ending September 30, 1999, as compared to
$39,000 for the comparable period in 1998, due to an increase in general
lending activity. The increase is due primarily to net charge-offs of $115,000
during the nine month period ended September 30, 1999 compared to $1,000 in net
charge-offs during the nine month period ended September 30, 1998. At September
30, 1999 the allowance for loan losses totaled $636,000 or 1.56% of total loans
outstanding compared to $692,000 or 1.75% of total loans outstanding at
September 30, 1998.
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
The provision for loan loss expense decreased $34,000, or 47%, to
$39,000 during 1998, as compared to $73,000 for 1997. The decrease was
primarily due to a change in management's assessments of conditions of
individual borrowers and the overall portfolio composition. At December 31,
1998 the provision for loan losses totaled $688,000 or
12
<PAGE> 254
1.72% of total loans outstanding compared to $654,000 or 1.86% of total loans
outstanding at December 31, 1997.
Management believes that First National / Polk's allowance for loan
losses at September 30, 1999. The following sets forth certain information on
First National / Polk's allowance for loan losses for the periods presented.
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
Sept 30 Dec 31
--------------------------- ---------------------------
1999 1998 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at Beginning of Year $ 688 $ 654 $ 654 $ 613
Loans Charged-Off:
Commercial, Financial & Agricultural (86) 0 0 0
Real Estate, Mortgage (25) 0 (5) (50)
Consumer (6) (19) (19) (1)
--------- --------- --------- ---------
Total Loans Charged-Off $ (117) $ (19) $ (24) $ (51)
--------- --------- --------- ---------
Recoveries on Loans Previously
Charged-Off:
Commercial, Financial & Agricultural $ 0 $ 0 $ 0 $ 10
Real Estate, Mortgage 0 17 17 9
Consumer 2 1 2 0
--------- --------- --------- ---------
Total Loan Recoveries $ 2 $ 18 $ 19 $ 19
--------- --------- --------- ---------
Net Loans Charged-Off $ (115) $ (1) $ (5) $ (32)
--------- --------- --------- ---------
Provision for Loan Losses Charged
to Expense $ 63 $ 39 $ 39 $ 73
--------- --------- --------- ---------
Ending Balance $ 636 $ 692 $ 688 $ 654
========= ========= ========= =========
Total Loans Outstanding $ 40,816 $ 39,465 $ 40,103 $ 35,151
Average Loans Outstanding $ 40,406 $ 38,598 $ 39,717 $ 34,968
Allowance for Loan Losses to Loans
Outstanding 1.56% 1.75% 1.72% 1.86%
Net Charge-offs to Average Loans
Outstanding (annualized) 0.38% 0.00% 0.01% 0.09%
</TABLE>
NON-INTEREST INCOME
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
Non interest income for the nine months ended September 30, 1999
increased $68,000 or 34% to $267,000 as compared to $199,000 for the same period
in 1998. Most of this increase $(31,000) was due to an increase in
service fees from various deposit accounts. The remaining increase relates to
increases in
13
<PAGE> 255
ATM charges $(12,000), and other miscellaneous fees $(25,000).
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
Non-interest income for 1998 increased by $65,000 or 31%, to $274,000
as compared to $209,000 for 1997. The net increase was comprised of a $54,000
increase in service fees on various deposit accounts and a $11,000 increase from
other service charges and fees.
NON-INTEREST EXPENSE
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
Non-interest expense increased $177,000 (12%) for the nine months ended
September 30, 1999, to $1,713,000 compared to $1,536,000 for the same period in
1998. The increase was a result of a $109,000 increase in compensation and
related employee benefits, due to an increase of a net 3 full time equivalent
employees along with normal salary increases. Medical and life insurance
premiums and expenses contributed to this increase as well as the normal
relationship of payroll taxes to gross payroll. Data processing service expense
increased $37,000 primarily due to the Bank switching from manual check sorting
and stuffing in house, to outsourcing this function with an automated processor.
Occupancy expense increased $24,000 and the remaining non interest expense
variances net to $7,000 as summarized in the table below - Non Interest
Expenses.
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
Non-interest expense increased $248,000 (14%) to $2,014,000 during 1998
compared to $1,766,000 for 1997. The increase was a result of a $85,000 increase
in compensation and related employee benefits, due to changes in staffing along
with normal salary increases. Medical and life insurance premiums and expenses
have contributed to this increase as well as the normal relationship of payroll
taxes to gross payroll. Data processing service expense increased $52,000
primarily due to the Bank switching from manual check sorting and stuffing in
house, to outsourcing this function with an automated processor. Depreciation of
premises and equipment increased $46,000 primarily due to the completion of the
Bank's newest branch office building in the third quarter of 1997, as well as
the replacement and addition of equipment partially related to year 2000
upgrades. Prior to moving into the permanent building, the branch office
operated out of a temporary facility effective January 1997. Advertising and
public relations increased $11,000, Director fees increased $10,000, Legal and
Accounting increased $16,000 and the remaining non interest expense variances
net to approximately $28,000. See Non Interest Expenses table below.
14
<PAGE> 256
NON INTEREST EXPENSES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Nine months ended Year ended
Sept 30 Dec 31
------------------------------------- ------------------------------------
1999 1998 Incr/(Decr) 1998 1997 Incr/(Decr)
------ ------ ----------- ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Salary, wages and employee benefits $ 770 $ 661 $ 109 $ 887 $ 802 $ 85
Occupancy expense 190 166 24 216 215 1
Depreciation of premises and equipment 164 166 (2) 213 167 46
Stationary and printing supplies 67 64 3 77 83 (6)
Advertising and public relations 38 42 (4) 57 46 11
Data processing expense 169 132 37 185 133 52
Legal & professional fees 49 56 (7) 52 36 16
Other operating expenses 266 249 17 327 284 43
------ ------ ----- ------ ------ -----
Total non interest expenses $1,713 $1,527 $ 177 $2,014 $1,766 $ 248
------ ------ ----- ------ ------ -----
</TABLE>
INCOME TAX PROVISION
The income tax provision for the nine month period ended September 30,
1999 was $256,000, an effective tax rate of 36.3%, as compared to $220,000 for
the nine month period ended September 30, 1998, an effective tax rate of 31.2%.
The income tax provision for the year ended December 31, 1998, was
$296,000, an effective tax rate of 30.0%, as compared to $302,000 for the year
ended December 31, 1997, an effective tax rate of 35.5%.
NET INCOME
Net income for the years ended December 31, 1998, and 1997 was
$691,000 and $548,000, respectively. Net income for the nine month periods
ended September 30, 1999 and 1998 was $449,000 and $485,000 respectively.
FINANCIAL CONDITION
As of September 30, 1999, the First National / Polk had total assets of
$72.2 million, compared to $73.8 million and $63.9 million as of December 31,
1998, and 1997, respectively. Net loans outstanding on September 30, 1999, were
$40.2 million, compared to $39.4 million and $34.5 million as of December 31,
1998, and 1997, respectively.
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 it 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
nine-month period ending September 30, 1999, were $39,614,000, or 57.9% of
earning assets as compared to $36,991,000 or 57.8% of earning assets for
December 31, 1998 and $32,541,000 or 60.1% of earning assets for December 31,
1997. This represented an average loan to average deposit ratio of 58.4%, 58.3%,
and 60.0% for September 30, 1999, December 31, 1998, and December 31, 1997
respectively.
As of September 30, 1999, First National / Polk had total loans net of
deferred fees/costs of $40,816,000 as compared to $40,103,000 at December 31,
1998, an increase of $713,000, or 1.8%. The growth in loans in the nine-month
period was mainly due to the general growth in the market and the
15
<PAGE> 257
calling efforts of the loan officers. As of September 30, 1999, commercial,
financial and agricultural loans totaled $4,928,000 or 12.1% of the loan
portfolio. Real estate construction loans totaled $1,152,000 or 2.8% of the loan
portfolio. Real estate mortgage loans totaled $27,298,000 or 66.9% of the loan
portfolio. Installment and consumer loans totaled $7,438,000 or 18.2% of the
loan portfolio.
As of December 31, 1998, First National / Polk had total loans net of
deferred fees/costs of $40,103,000 as compared to $35,151,000 at December 31,
1997, an increase of $4,952,000 or 14.1%. The growth was mainly due to general
growth in the market and the calling efforts of the loan officers. 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 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 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 September 30, December 31,
------------------------- -------------------------
1999 1998 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Commercial, Financial & Agricultural $ 4,928 $ 4,928 $ 5,433 $ 3,962
Real Estate - Construction 1,152 2,521 1,801 1,563
Real Estate - Mortgage 27,298 24,919 25,692 23,109
Installment & Consumer Lines 7,438 7,097 7,177 6,517
-------- -------- -------- --------
Total Loans, Net of Deferred fees/costs $ 40,816 $ 39,465 $ 40,103 $ 35,151
Less: Allowance for Loan Losses (636) (692) (688) (654)
-------- -------- -------- --------
Net Loans $ 40,180 $ 38,773 $ 39,415 $ 34,497
======== ======== ======== ========
</TABLE>
LOAN MATURITY SCHEDULE
(Dollars are in Thousands)
<TABLE>
<CAPTION>
September 30, 1999
---------------------------------------------------
0 - 12 1 - 5 Over 5
Months Years Years Total
------- ------- ------ -------
<S> <C> <C> <C> <C>
All Loans other Than Construction $21,605 $12,401 $5,658 $39,664
Real Estate - Construction 1,152 0 0 1,152
------- ------- ------ -------
Total $22,757 $12,401 $5,658 $40,816
======= ======= ====== =======
Fixed Interest Rate $ 70 $ 4,291 $5,221 $ 9,582
Variable Interest Rate 22,687 8,110 437 31,234
======= ======= ====== =======
Total $22,757 $12,401 $5,658 $40,816
======= ======= ====== =======
</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 $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>
16
<PAGE> 258
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 September 30, 1999, the allowance for
loan losses was $636,000, or 1.6% of total loans outstanding, net of unearned
income, compared to $688,000, or 1.7% at December 31, 1998, and $654,000, or
1.9%, at December 31, 1997.
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 September 30, 1999, increased
$227,000, or 123%, to $411,000, compared to $184,000 on the same date in 1998.
Non-performing loans, plus other real estate owned, as a percentage of total
assets at September 30, 1999, and 1998, was .57% and .26%, respectively. The
increase in non-performing assets was mainly attributable to the previous very
low level and a series of recent defaults. Management believes that First
National / Polk's allowance for loan losses was adequate at September 30, 1999.
Total non-performing assets increased by $657,000 to $657,000 in 1998
from $-0- in 1997. Non-performing assets, as a percentage of total assets
increased to .89% in 1998 from 0% in 1997. The increase in non-performing assets
was mainly attributable to the previous very low level. Year end loans, net of
deferred fees/costs and the allowance for loan losses, were $39,415,000 as
compared to $34,497,000 in 1997, representing an increase of $4,918,000 or
14.3%.
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 September 30, 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
First National/Polk's non performing Assets and Allocation of Allowance for
loan losses for the periods provided.
17
<PAGE> 259
NON PERFORMING ASSETS
(Dollars are in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
----------------- -----------------
1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Non-Accrual Loans $201 $184 $452 $ 0
Past Due Loans 90 Days or More
and Still Accruing Interest 2 0 2 0
Other Real Estate Owned 208 0 203 0
---- ---- ---- ----
Total Non-Performing Assets $411 $184 $657 $ 0
==== ==== ==== ====
Percent of Total Assets 0.57% 0.26% 0.89% 0.00%
==== ==== ==== ====
Allowance for Loan Losses $636 $692 $688 $654
==== ==== ==== ====
Allowance for Loan Losses to
Nonperforming Loans 154.74% 376.09% 104.72% 0.00%
==== ==== ==== ====
</TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998 December 31, 1997
---------------------- ---------------------- ------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Each Each Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, Financial & Agricultural $333 12% $410 14% $413 11%
Real Estate Construction 63 3% 59 4% 42 4%
Real Estate - Mortgage 139 67% 153 65% 148 67%
Consumer 66 17% 66 17% 51 18%
Unallocated 35 1% 0 0% 0 0%
---- --- ---- --- ---- ---
Total $636 100% $688 100% $654 100%
==== === ==== === ==== ===
</TABLE>
Deposits and Funds Purchased
Total deposits as of September 30, 1999, were $65,098,000 compared to
$67,426,000 on December 31, 1998, a decrease of $2,328,000 or 3%, during the
nine month period ended September 30, 1999. Total deposits for the year ended
December 31, 1998, increased by $8,972,000 or 15.3%, as compared to total
deposits of $58,454,000 at December 31, 1997. 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 Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
-------------------- --------------------------------------------
1999 1998 1997
-------------------- --------------------------------------------
Average Average Average
Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
Demand deposits $11,039 0.00% $ 9,000 0.00% $ 7,251 0.00%
Interest-bearing demand
Deposits 25,972 2.80% 21,948 2.80% 13,953 1.90%
Savings deposits 4,700 1.34% 4,026 1.94% 3,015 1.99%
Time deposits 26,138 4.84% 28,512 5.28% 30,015 5.38%
------- ---- ------- ---- ------- ----
Total Average Deposits $67,849 2.97% $63,486 3.46% $54,234 3.58%
======= ==== ======= ==== ======= ====
</TABLE>
18
<PAGE> 260
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
(Dollars are in Thousands)
<TABLE>
<CAPTION>
Sept 30, 1999 Dec 31, 1998
------------- -------------
<S> <C> <C>
Three Months or Less $ 946 $1,408
Three Through Six Months 1,091 990
Six Through Twelve Months 676 780
Over Twelve Months 544 428
------ ------
Total $3,257 $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 periods ended September 30, 1999 and 1998
was approximately $384,000 and $811,000, respectively. Interest expense for the
same periods was approximately $12,000 and $31,000, respectively, resulting in
an average rate paid of 4.26% and 5.03% for the nine-month periods ended
September 30, 1999 and 1998, respectively. The daily average balance for the
period ended December 31, 1998, and 1997 was approximately $683,000 and
$411,000, respectively. Interest expense for these periods was approximately
$34,000 and $20,000, respectively, resulting in an average rate paid of 4.97%
and 4.91% for the years ended 1998 and 1997, 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>
NINE MONTHS ENDED
September 30, 1999 $ 734 $384 4.26% $365 4.28%
September 30, 1998 $1,161 $811 5.03% $261 4.86%
YEAR ENDED DECEMBER 31,
1998 $1,161 $683 4.97% $255 4.85%
1997 $ 567 $411 4.91% $389 4.85%
</TABLE>
- -----------------
(1) Consists of Securities sold under agreements to repurchase
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.
19
<PAGE> 261
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 $23,182,000
at September 30, 1999, $23,810,000 at December 31, 1998, and $18,647,000 at
December 31, 1997, 32%, 32% and 29% 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 it's held to
maturity portfolio at September 30, 1999, December 31, 1998 and December 31,
1997.
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 $74,000 on September 30, 1999, a
net unrealized gain of approximately $110,000 on December 31, 1998 and a net
unrealized gain of approximately $38,000 on December 31, 1997.
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 investment securities,
weighted average yield by range of maturities, and distribution of investment
securities for the period provided.
20
<PAGE> 262
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998 December 31, 1997
-------------------------- -------------------------- -------------------------
Amortized Estimated Amortized Estimated Amortized Estimated
AVAILABLE-FOR-SALE Cost Market Value Cost Market Value Cost Market Value
--------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Government Agency
and Corporations and Obligations of
State and Political Subdivisions:
One Year or Less $18,122 $18,064 $ 8,649 $ 8,690 $12,974 $12,997
Over One Through Five Years 4,990 4,974 14,918 14,987 5,515 5,530
Over Five Through Ten Years 0 0 0 0 0 0
Over Ten Years 0 0 0 0 0 0
Federal Reserve Bank Stock 144 144 133 133 120 120
------- ------- ------- ------- ------- -------
Total $23,256 $23,182 $23,700 $23,810 $18,609 $18,647
======= ======= ======= ======= ======= =======
HELD-TO-MATURITY
------- ------- ------- ------- ------- -------
Total $ 0 $ 0 $ 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>
Sept 30, 1999 Dec 31, 1998 Dec 31, 1997
------------- ------------ ------------
<S> <C> <C> <C>
One Year or Less 5.33% 5.75% 6.15%
Over One Through Five Years 4.76% 5.37% 6.01%
Over Five Through Ten Years 0.00% 0.00% 0.00%
Over Ten Years 0.00% 0.00% 0.00%
</TABLE>
DISTRIBUTION OF INVESTMENT SECURITIES
(Dollars are in Thousands)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998 December 31, 1997
----------------------- ----------------------- -----------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
US Treasury Securities $12,536 $12,514 $ 8,535 $ 8,597 $14,487 $14,530
US Government Agencies 8,997 8,962 12,995 13,040 4,002 3,997
State, County, & Municipal 1,000 1,000 1,000 1,000 0 0
Mortgage-Backed Securities 579 562 1,037 1,040 0 0
Federal Reserve Bank Stock 144 144 133 133 120 120
------- ------- ------- ------- ------- -------
Total $23,256 $23,182 $23,700 $23,810 $18,609 $18,647
======= ======= ======= ======= ======= =======
</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. 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.
21
<PAGE> 263
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: yield, 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 September 30, 1999,
approximately 77% of total gross loans were adjustable rate, 83% 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 $29,489,000 (45%) in NOW, Money Market
Accounts and Savings, $24,793,000 (38%) in time deposits, and $10,816,000 (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
September 30, 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, 1998, and September 30,
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 September 30, 1999, should not
necessarily be considered to apply at subsequent dates.
22
<PAGE> 264
RATE SENSITIVITY ANALYSIS
September 30, 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 $ 70 $ 68 $ 202 $1,714 $2,307 $5,221 $ 9,582 $ 9,615
Average Interest Rates 9.05% 9.40% 8.70% 9.15% 8.90% 8.45% 8.70%
Variable Rate Loans 22,687 1,473 1,107 5,361 169 437 31,234 31,234
Average Interest Rates 8.43% 8.66% 8.63% 8.33% 9.35% 8.10% 8.43%
Investment Securities (1)
Fixed Rate Securities 18,096 4,016 0 0 0 0 22,112 22,038
Average Interest Rates 5.19% 4.76% 5.11%
Variable Rate Securities 1,000 0 0 0 0 0 1,000 1,000
Average Interest Rates 5.51% 5.51%
Federal Funds Sold 2,673 0 0 0 0 0 2,673 2673
Average Interest Rates 5.13% 5.36%
Other Earning Assets (2) 144 0 0 0 0 0 144 144
Average Interest Rates 6.00% 6.00%
---------- --------- ------ ------ ------ ------ ------- -------
Total Interest-Earning Assets $ 44,670 $ 5,557 $1,309 $7,075 $2,476 $5,658 $66,745 $66,704
6.88% 5.85% 8.64% 8.53% 8.92% 7.98% 7.19%
========== ========= ====== ====== ====== ====== =======
INTEREST BEARING LIABILITIES
NOW Accounts $ 10,750 $ 0 $ 0 $ 0 $ 0 $ 0 $10,750 $10,750
Average Interest Rates 0.95% 0.95%
Money Market Accounts 13,794 0 0 0 0 0 13,794 13,794
Average Interest Rates 4.33% 4.33%
Savings Accounts 4,945 0 0 0 0 0 4,945 4,945
Average Interest Rates 1.19% 1.19%
CDs $100,000 & Over 2,715 210 200 132 0 0 3,257 3,255
Average Interest Rates 4.34% 4.53% 6.25% 5.55% 4.52%
CDs Under $100,000 16,126 3,593 1,405 264 138 0 21,526 21,535
Average Interest Rates 4.69% 4.74% 5.59% 5.19% 4.70% 4.63%
Securities Sold Under
Repurchase Agreements 365 0 0 0 0 0 365 365
Average Interest Rates 4.63% 4.63%
---------- --------- ------ ------ ------ ------ ------- -------
Total Interest-Bearing
Liabilities $ 48,695 $ 3,803 $1,605 $ 396 $ 138 $ 0 $54,637 $54,644
3.39% 4.73% 5.67% 5.31% 4.70% 3.58%
========== ========= ====== ====== ====== ====== =======
</TABLE>
- --------------
(1) Securities available for sale are shown at their amortized cost.
(2) Represents interest earning Federal Reserve Bank Stock.
23
<PAGE> 265
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 3,752
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.
24
<PAGE> 266
Primary Use of Funds
Nine Month period ending September 30, 1999
The primary source of funds during the period included maturity/sale of
investments $(628,000), decrease in federal funds sold and other cash items
$(1,717,000), exercise of stock options net of tax benefit $(421,000) and net
income $(449,000). The primary uses of funds during the period included a
decrease in deposits $(2,328,000), an increase in net loans outstanding
$(765,000), dividends paid $(86,000) and other miscellaneous net uses $(36,000).
Twelve Month period ending December 31, 1998
The primary source of funds during the period included net growth in
deposits $(8,972,000), exercise of stock options net of tax benefit $(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 September 30, 1999, was $6,559,000, as compared
to $5,697,000 at September 30, 1998. Shareholders' equity was $5,890,000 at
December 31, 1998, as compared to $4,901,000 at December 31, 1997.
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, 1998, and 1997 compared to
September 30, 1999, were as follows:
25
<PAGE> 267
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 SEPTEMBER 30, 1999:
Total Capital: (to Risk Weighted Assets): $7,012 18.1% $3,874 10.0% $3,138
Tier 1 Capital: (to Risk Weighted Assets): $6,526 16.8% $2,325 6.0% $4,201
Tier 1 Capital: (to Average Assets): $6,526 8.9% $3,668 5.0% $2,858
AS OF DECEMBER 31, 1998:
Total Capital: (to Risk Weighted Assets): $6,315 16.1% $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
AS OF DECEMBER 31, 1997:
Total Capital: (to Risk Weighted Assets): $5,301 15.7% $3,377 10.0% $1,924
Tier 1 Capital: (to Risk Weighted Assets): $4,876 14.4% $2,026 6.0% $2,850
Tier 1 Capital: (to Average Assets): $4,876 7.6% $3,195 5.0% $1,681
</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."
26
<PAGE> 268
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.
SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
1999 1998 1997
(Dollars in Thousands except ---------------------- ------------------------------- -------------------------------
for per share data) 3Q 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 739 $ 757 $ 718 $ 684 $ 703 $ 690 $ 689 $ 639 $ 616 $ 643 $ 582
Provision for Loan Losses 6 28 29 0 0 19 20 3 10 30 30
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Interest Income after
provision for loan losses $ 733 $ 729 $ 689 $ 684 $ 703 $ 671 $ 669 $ 636 $ 606 $ 613 $ 552
Other Income (excluding
Security transactions) $ 86 $ 90 $ 91 $ 76 $ 72 $ 65 $ 61 $ 55 $ 56 $ 48 $ 50
Securities gains (losses), net $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other expenses $ 567 $ 574 $ 572 $ 478 $ 527 $ 516 $ 493 $ 411 $ 446 $ 452 $ 457
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income before income
Tax expense $ 252 $ 245 $ 208 $ 282 $ 248 $ 220 $ 237 $ 280 $ 216 $ 209 $ 145
Income tax expense $ 92 $ 90 $ 76 $ 38 $ 91 $ 80 $ 87 $ 100 $ 77 $ 74 $ 51
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Income $ 160 $ 155 $ 132 $ 244 $ 157 $ 140 $ 150 $ 180 $ 139 $ 135 $ 94
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Basic earnings per common share $0.34 $0.33 $0.28 $0.55 $0.36 $0.32 $0.34 $0.44 $0.34 $0.33 $0.23
Diluted earnings per common share $0.33 $0.31 $0.27 $0.52 $0.34 $0.30 $0.32 $0.41 $0.32 $0.31 $0.22
</TABLE>
27
<PAGE> 269
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,
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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 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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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
2.3 - Agreement to Merge between Centerstate Banks of Florida,
Community National Bank of Pasco County and Community
Interim National Bank of Pasco County (attached as Appendix
A to the proxy statement/prospectus)
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 - Consent of Dwight Darby & Company
23.5 - Consent of Graham & Cottrill, P.A.
23.6 - G. T. Nunez & Associates
23.7 - Consent of KPMG LLP
24 - Power of Attorney (included with signature pages to this
Registration Statement)
27.1 - Financial Data Schedule
27.2 - Financial Data Schedule
99.1 - Notice of Special Meeting of Community National Bank of
Pasco County Shareholders
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<PAGE> 272
99.2 - Proxy of Community National Bank of Pasco County
(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 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
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<PAGE> 273
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> 274
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 Zephyrhills, Florida,
on January 20, 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 January 20, 2000
- ------------------
James H. White
</TABLE>
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<PAGE> 275
<TABLE>
<S> <C> <C>
/s/ G. Robert Blanchard, Sr. Director January 20, 2000
- ----------------------------
G. Robert Blanchard, Sr.
/s/ James H. Bingham Director January 20, 2000
- ----------------------------
James H. Bingham
/s/ Terry W. Donley Director January 20, 2000
- ----------------------------
Terry W. Donley.
/s/ W. Bryan Judge, Jr. Director January 20, 2000
- ----------------------------
W. Bryan Judge, Jr.
/s/ Samuel L. Lupfer, IV Director January 20, 2000
- ----------------------------
Samuel L. Lupfer, IV
/s/ J. Thomas Rocker Director January 20, 2000
- ----------------------------
J. Thomas Rocker
</TABLE>
II-7
<PAGE> 276
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C> <C>
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
2.3 - Agreement to Merge between Centerstate Banks of Florida,
Community National Bank of Pasco County and Community Interim
National Bank of Pasco County (attached as Appendix A to the
proxy statement/prospectus)
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 - Consent of Dwight Darby & Company
23.5 - Consent of Graham & Cottrill, P.A.
23.6 - G. T. Nunez & Associates
23.7 - Consent of KPMG LLP
24 - Power of Attorney (included with signature pages to this
Registration Statement)
27.1 - Financial Data Schedule
27.2 - Financial Data Schedule
</TABLE>
<PAGE> 277
<TABLE>
<S> <C> <C>
99.1 - Notice of Special Meeting of Community National Bank of Pasco
County Shareholders
99.2 - Proxy of Community National Bank of Pasco County
</TABLE>
<PAGE> 1
Exhibit 2.1
AGREEMENT TO MERGE
AMONG
FIRST NATIONAL BANK OF OSCEOLA COUNTY
CENTERSTATE BANKS OF FLORIDA, INC.
AND
FIRST INTERIM NATIONAL BANK OF OSCEOLA COUNTY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <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/Osceola Shares.............................. 4
Section 2.2 First National/Osceola 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/OSCEOLA.................................... 7
Section 3.1 Representations and Warranties of First National/Osceola........................... 7
(a) Organization, Qualification, and Corporate Power................................... 7
(b) Capitalization..................................................................... 7
(c) First National/Osceola 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............................................... 14
(r) Reports............................................................................ 14
(s) Statements True and Correct........................................................ 14
(t) Environmental Matters.............................................................. 14
(u) Labor Matters...................................................................... 15
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <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..................... 20
(e) Forbearance....................................................................... 20
(f) Issuance of Securities............................................................ 21
(g) No Acquisitions................................................................... 21
(h) Other Actions..................................................................... 22
(i) Government Filings................................................................ 22
(j) Tax-Free Reorganization Treatment................................................. 22
(k) Full Access....................................................................... 22
(1) Notice of Material Adverse Developments........................................... 22
(m) Exclusivity....................................................................... 23
(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/OSCEOLA 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/Osceola................................ 26
ARTICLE VII - TERMINATION.............................................................................. 27
Section 7.1 Termination....................................................................... 27
(a) Termination of Agreement.......................................................... 27
(b) Effect of Termination............................................................. 28
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <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> 5
AGREEMENT TO MERGE
AMONG
FIRST NATIONAL BANK OF OSCEOLA COUNTY,
CENTERSTATE BANKS OF FLORIDA, INC.
AND
FIRST INTERIM NATIONAL BANK OF OSCEOLA COUNTY
This Agreement to Merge (the "Agreement") is dated as of the 10th day
of December, 1999 by and among FIRST NATIONAL BANK OF OSCEOLA COUNTY, a
national banking association ("First National/Osceola") and CENTERSTATE BANKS
OF FLORIDA, INC., a Florida corporation ("CBF"); to be joined in by FIRST
INTERIM NATIONAL BANK OF OSCEOLA 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/Osceola, 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/Osceola and CBF
deem it in the best interests of First National/Osceola and CBF, respectively,
and of their respective shareholders, that First National/Osceola 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/Osceola, as herein provided.
This Agreement is between (A) First National/Osceola, being located at
920 North Bermuda Avenue, City of Kissimmee, County of Osceola, in the State of
Florida, with a capital of $8,399,367, consisting of (i) 2,555,875 shares of
common stock divided into 511,175 shares of common stock, each of $5.00 par
value, (ii) surplus of $2,634,579, and (iii) undivided profits of $3,208,913 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/Osceola and
other banks; and (C) FINB, to be located at 920 North Bermuda Avenue,
Kissimmee, Florida 34741, with a capital of $200,000, divided into 2,000 shares
of common stock, each of $100 par value, surplus of $40,000, 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> 6
ARTICLE I
THE MERGER
Section 1.1 Consummation of Merger; Closing Date. (a) Subject to
the provisions hereof, First National/Osceola 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/Osceola, 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 Osceola 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/Osceola 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/Osceola 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 920 North Bermuda Avenue, Kissimmee, FL 34741, and at its legally
established branches.
Section 1.2 Effect of Merger. At the Effective Time of the Merger,
First National/Osceola shall be merged with and into FINB, under the charter of
First National/Osceola, and the separate existence of First National/Osceola
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> 7
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/Osceola last in office shall execute and deliver or
cause to be executed and delivered in the name of First National/Osceola 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/Osceola.
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/Osceola 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 Osceola County.
Section 1.6 Capitalization of Surviving Bank. As of the Effective
Time of the Merger, the Surviving Bank shall have 550,000 shares of common
stock, par value $5.00 per share, authorized of which 511,175 shares shall be
issued and outstanding (plus shares of First National/Osceola 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/Osceola 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/Osceola, par value $5.00 per
share (the "First National/Osceola Shares"):
(a) All First National/Osceola Shares which are held by
First National/Osceola 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/Osceola Shares (as hereinafter defined), each First
National/Osceola Share outstanding immediately prior to the Effective Time of
the Merger shall be converted into the right to receive 2.00 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/Osceola
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/Osceola 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/Osceola 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/Osceola shall give CBF prompt notice upon
receipt by First National/Osceola of any written objection to the Merger and
any written demands for payment of the fair or appraised value of First
National/Osceola Shares, and of withdrawals of such demands, and any other
instruments provided to First National/Osceola 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/Osceola 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/Osceola 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/Osceola 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/Osceola Stock Options and Related
Matters. As of the Effective Time of the Merger, all rights with respect to the
First National/Osceola Shares issuable pursuant to the exercise of stock
purchase options ("First National/Osceola Options") granted by First
National/Osceola, and which are outstanding at the Effective Time of Merger
shall be converted
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into options for CBF Shares (the "Merger Options") in compliance with any
restrictions contained in the plan or agreement, if any, under which such First
National/Osceola Options were issued. Each holder of a First National/Osceola
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/Osceola Shares covered by such First
National/Osceola 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/Osceola 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/Osceola Shares at which such
First National/Osceola 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/Osceola 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/Osceola 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/Osceola 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/Osceola Shares transmittal
materials (the "Letter of Transmittal") for use in exchanging their
certificates formerly representing First National/Osceola 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/Osceola Shares and the receipt of the consideration contemplated
by this Agreement and shall require each holder of First National/Osceola
Shares to transfer good and marketable title to such First National/Osceola
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/Osceola shall be closed as to holders of First
National/Osceola Shares immediately prior to the Effective Time of the Merger
and no transfer of First National/Osceola Shares by any such holder shall
thereafter be made or recognized and each outstanding certificate formerly
representing First National/Osceola Shares shall, without any action on the
part of any holder thereof, no longer represent First National/Osceola 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/Osceola Shares represented
thereby were converted in the Merger.
(c) In the event that any holder of First National/Osceola
Shares is unable to deliver the certificate which represents such holder's
First National/Osceola Shares, CBF, in the absence of actual notice that any
First National/Osceola 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/Osceola 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/Osceola 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/Osceola 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/Osceola 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/Osceola
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/Osceola, CBF, FINB, the Surviving Bank, nor any other person
acting on their behalf shall be liable to a holder of First National/Osceola
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 511,175 shares of common stock, each of $5.00 par
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value (plus shares of First National/Osceola Shares issued by First National/
Osceola after September 30, 1999).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIRST NATIONAL/OSCEOLA
Section 3.1 Representations and Warranties of First National/
Osceola. First National/Osceola 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/Osceola and
delivered to CBF prior to the date of this Agreement (the "First
National/Osceola Disclosure Schedule"). The First National/Osceola 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/Osceola is a national banking association duly organized, validly
existing, and in good standing under the laws of the United States. First
National/Osceola 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/Osceola 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/Osceola
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/Osceola are attached hereto as Schedule 3(a). First National/Osceola
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/Osceola.
(b) Capitalization. The authorized capital stock of First
National/Osceola consists of 550,000 First National/Osceola Shares, of which
511,175 First National/Osceola Shares are issued and outstanding on the date of
this Agreement. There are no other classes of capital stock of First
National/Osceola authorized. First National/Osceola holds no First
National/Osceola Shares as treasury stock. All of the issued and outstanding
First National/Osceola Shares have been duly authorized and are validly issued,
fully paid and nonassessable. None of the outstanding First National/Osceola
Shares has been issued in violation of any preemptive rights of the current or
past stockholders of First National/Osceola. Except with respect to the 2,650
First National/Osceola Shares issuable pursuant to the First National/Osceola
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/Osceola is a party or which
are binding upon First National/Osceola or, to the Knowledge of First
National/Osceola, any other party
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providing for the issuance, voting, transfer, disposition, or acquisition of
any of the capital stock of First National/Osceola. There are no outstanding or
authorized stock appreciation, phantom stock or similar rights with respect to
First National/Osceola. 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/Osceola Subsidiaries. First
National/Osceola 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/Osceola 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/Osceola 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/Osceola has
been obtained. Subject to the foregoing sentence, (i) this Agreement has been
duly executed and delivered by First National/Osceola and this Agreement
constitutes a valid and binding agreement of First National/Osceola,
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/Osceola 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/Osceola, and (iii) the Board of Directors of First National/Osceola
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/Osceola
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/Osceola.
(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/Osceola is
subject or any provision of the Articles of Association or Bylaws of First
National/Osceola 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/Osceola 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,
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breach, default, acceleration, termination, modification, cancellation, failure
to give notice, or Security Interest would not have a material adverse effect
on the Condition of First National/Osceola. 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/Osceola has
delivered to CBF prior to the execution of this Agreement copies of the
following financial statements of First National/Osceola (collectively referred
to herein as the "First National/Osceola Financial Statements"): (i) audited
balance sheets of First National/Osceola 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/Osceola at September 30, 1999, and the related unaudited
statements of (A) income and (B) shareholders' equity for the period then
ended.
The First National/Osceola 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/Osceola, 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/Osceola 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/Osceola 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/Osceola 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/Osceola). Since September 30, 1999, First National/Osceola
has not incurred or paid any obligation or liability which would be material to
the Condition of First National/Osceola, except in the Ordinary Course of
Business.
(h) Brokers' Fees. Neither First National/Osceola 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/Osceola 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/Osceola 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/Osceola. 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/Osceola 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/Osceola 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/Osceola Financial Statements.
(iv) Deferred taxes of First National/Osceola have
been provided for in the First National/Osceola 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/Osceola 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/Osceola, 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/Osceola.
(j) Allowance for Loan or Credit Losses. The allowance for
loan or credit losses ("Allowance") shown on the balance sheet of First
National/Osceola as of September 30, 1999 included in the First
National/Osceola Financial Statements was, and the Allowance shown on the
balance sheets of First National/Osceola as of dates subsequent to the
execution of this Agreement will to the Knowledge of First National/Osceola 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/Osceola and other extensions of credit (including
letters of credit and commitments to make loans or extend credit) by First
National/Osceola, except where the failure of the Allowance to be so adequate
would not have a material adverse effect on the Condition of First
National/Osceola.
(k) Properties; Insurance. First National/Osceola 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/Osceola
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/Osceola. 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/Osceola 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
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creditors' rights generally and except that the availability of the equitable
remedy of specific performance or 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/Osceola 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/Osceola, and the fidelity bonds in
effect as to which First National/Osceola is a named insured, are described in
Schedule 3(k) hereto. Substantially all of First National/Osceola's equipment
in regular use has been well maintained and is in good and serviceable
condition, reasonable wear and tear excepted.
(1) Material Contracts. Neither First National/Osceola 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/Osceola 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/Osceola to compete in any line of business or which involves
any restriction of the geographical area in which First National/Osceola 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/Osceola 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/Osceola 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/Osceola 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/Osceola, 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/Osceola.
(ii) First National/Osceola has not received any
written notification or communication from any Regulatory Authorities (A)
asserting that First National/Osceola 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/Osceola, (B) threatening to revoke
any license, franchise, permit or governmental authorization which is material
to the Condition of First National/Osceola, (C) requiring or threatening to
require First National/Osceola, or indicating that First National/Osceola 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
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First National/Osceola, 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 of First
National/Osceola, 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/Osceola has not consented to, entered
into, agreed to enter into, or been made subject to, any Regulatory Agreement.
First National/Osceola has no Knowledge that any Regulatory Authority is
considering imposing on First National/Osceola any Regulatory Agreement.
(o) Employee Benefit Plans.
(i) The First National/Osceola 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/Osceola 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/Osceola Benefit Plans"). No First National/Osceola 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/Osceola 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/Osceola Benefit Plans and descriptions of all unwritten First
National/Osceola Benefit Plans listed in the First National/Osceola 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/Osceola Disclosure Schedule.
(iii) All the First National/Osceola 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/Osceola 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/Osceola, neither First
National/Osceola nor any administrator or fiduciary of any First
National/Osceola 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/Osceola, CBF or any affiliate thereof to any direct or
indirect liability for a
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breach of any fiduciary, co-fiduciary or other duty under ERISA. To the
Knowledge of First National/Osceola, no oral or written representation or
communication with respect to any aspect of the First National/Osceola Benefit
Plans has been made to employees of First National/Osceola 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/Osceola
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/Osceola 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/Osceola Benefit Plans.
(iv) To the Knowledge of First National/Osceola, 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/Osceola 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/Osceola 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/Osceola; 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/Osceola.
(v) For any given ERISA Plan relating to First
National/Osceola, 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/Osceola Benefit Plan is subject to
the rules of the PBGC.
(vi) As of the Effective Time, First National/Osceola
will not have any material current or future liability under any First
National/Osceola Benefit Plan that was not reflected in the First
National/Osceola Financial Statements.
(vii) No First National/Osceola 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/Osceola 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/Osceola 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/Osceola, 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/Osceola, or against any
property, asset, interest or right of First National/Osceola, that have a
reasonable probability either individually or in the aggregate of having a
material adverse effect on the Condition of First National/Osceola.
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(q) Absence of Certain Changes or Events. Since September
30, 1999, the businesses of First National/Osceola has been operated only in
the ordinary course consistent with past 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/Osceola; (ii)
any declaration, setting aside or payment of any dividend or distribution
(whether in cash, stock or property) in respect of the First National/Osceola
Shares or any redemption or other acquisition of the First National/Osceola
Shares by First National/Osceola or any split, combination or reclassification
of First National/Osceola 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/Osceola that has had, or is reasonably likely to have, a material
adverse effect on the Condition of First National/Osceola.
(r) Reports. Since September 30, 1999, First
National/Osceola 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/Osceola in this Agreement, no written statement
or certificate included in an Exhibit or Schedule by First National/Osceola in
connection with this Agreement, and no written statement or certificate to be
furnished by First National/Osceola 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/Osceola for inclusion in the definitive proxy
materials to be mailed to First National/Osceola shareholders in connection
with the Special First National/Osceola 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/Osceola, 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/Osceola 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/Osceola, 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/Osceola.
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(ii) To the Knowledge of First National/Osceola, 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/Osceola or any Participation Facility 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 (as hereinafter defined) or oil whether or not occurring at
or on a site owned, leased or operated by First National/Osceola 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/Osceola.
(iii) To the Knowledge of First National/Osceola, 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/Osceola.
(iv) To the Knowledge of First National/Osceola, 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/Osceola.
(v) During the period of (A) First National/Osceola's
ownership or operation of any of its current properties, (B) First
National/Osceola's participation in the management of any Participation
Facilities, or (C) First National/Osceola's holding of a Security Interest in a
Loan Property, to the Knowledge of First National/Osceola, 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/Osceola. Prior to the period of (A) First National/Osceola's
ownership or operation of any of its current properties, (B) First
National/Osceola's participation in the management of any Participation
Facility, or (C) First National/Osceola holding of a Security Interest in a
Loan Property, to the Knowledge of First National/Osceola, 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/Osceola.
(vi) The following definitions apply for purposes of
this Section 3(t): (A) "Loan Property" means any real property in which First
National/Osceola 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/Osceola 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/Osceola 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,
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to its Knowledge, threatened, any of which would have, individually or in the
aggregate, a material adverse effect on the Condition of First
National/Osceola.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CBF
Section 4.1 Representations and Warranties of CBF. CBF represents
and warrants to First National/Osceola 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/Osceola
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 Shares 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
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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. 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
banking associations organized to facilitate consummation of the merger
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/Osceola pursuant to this Agreement contains any untrue statement of
material fact or
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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/Osceola shareholders
in connection with the Special First National/Osceola 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 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/Osceola 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/Osceola 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/Osceola 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,
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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.
(ii) Definitive Proxy Materials. First
National/Osceola shall prepare a proxy statement which shall consist of the
First National/Osceola definitive proxy materials relating to the Special First
National/Osceola Meeting (the "Proxy Statement"). The Proxy Statement shall
contain the affirmative recommendation of the Board of Directors of First
National/Osceola in favor of the adoption of this Agreement and the approval of
the Merger. CBF shall provide to First National/Osceola such information and
assistance in connection with the preparation of the Proxy Statement as First
National/Osceola may reasonably request. First National/Osceola 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/Osceola by CBF for use therein.
In connection with the Special First National/Osceola 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/Osceola
shareholders in connection with such meeting.
(iii) Shareholder Approvals. First National/Osceola
shall call a special meeting of its shareholders (the "Special First
National/Osceola Meeting") and mail to them the Proxy Statement (as soon as
reasonably practicable following a determination by First National/Osceola and
CBF that such special meeting should be called) in order that First
National/Osceola 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/Osceola
shareholders in the Merger. First National/Osceola 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/Osceola shareholders, First National/Osceola and
CBF shall each use all reasonable efforts to obtain a written opinion from an
accounting or law firm selected by First National/Osceola and CBF, to the
effect that the exchange of First National/Osceola 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/Osceola 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
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Opinion"). The Tax Opinion shall be reasonably satisfactory to each of First
National/Osceola 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/Osceola 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/Osceola 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/Osceola 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
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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/Osceola may amend the stock option plans pursuant to which the First
National/Osceola Options were issued to provide that the First National/Osceola
Options shall not terminate as a result of the Merger); with the understanding
that entering into any new employment contracts, 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/Osceola Shares, pursuant to outstanding
First National/Osceola 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/Osceola in its
fiduciary capacity, (iv) investments made
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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 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.
(1) 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/Osceola 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/Osceola 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/Osceola 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
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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, 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/Osceola shall
deliver to CBF a letter identifying all persons whom First National/Osceola
believes to be, at the time the Merger is submitted to a vote of the First
National/Osceola shareholders, "affiliates" of First National/Osceola for
purposes of Rule 145 under the Securities Act. First National/Osceola 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/Osceola 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/Osceola 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
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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
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/Osceola (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/Osceola 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/Osceola 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/Osceola shareholders from a
financial point of view (the "First National/Osceola 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/Osceola and CBF
shall use their best efforts to coordinate the conversion of each First
National/Osceola 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/Osceola 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/OSCEOLA 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/Osceola
and the number of Dissenting First National/Osceola Shares shall not exceed 5%
of the number of First National/Osceola 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/Osceola 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/Osceola 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/Osceola 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/Osceola Financial Statements.
(vii) First National/Osceola 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/Osceola
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/Osceola 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 Polk
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/Osceola. The
obligations of First National/Osceola 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/Osceola and the
number of Dissenting First National/Osceola Shares shall not exceed 5% of the
number of First National/Osceola 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/Osceola;
(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/Osceola (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/Osceola 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;
(vii) 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/Osceola;
(viii) First National/Osceola shall have received
the Tax Opinion in a form reasonably satisfactory to First National/Osceola;
and
(ix) CBF shall close simultaneously with the
Effective Time of the Merger the acquisitions by CBF of First National Bank of
Polk County and Community National Bank of Pasco County.
First National/Osceola 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/Osceola at any time prior to the Effective
Time of the Merger in the event First National/Osceola is in breach, and First
National/Osceola 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/Osceola 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/Osceola, CBF may terminate
this Agreement by giving written notice to First National/Osceola;
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(v) First National/Osceola and CBF each may
terminate this Agreement by giving written notice to the other Party at any
time after (i) the First National/Osceola Special Meeting in the event this
Agreement or the Merger fails to receive the requisite First National/Osceola
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/Osceola 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.
28
<PAGE> 33
(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:
<TABLE>
<S> <C>
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/Osceola: Thomas E. White
President and Chief Executive Officer
First National Bank of Osceola County
920 North Bermuda Avenue
Kissimmee, Florida 34741
Facsimile: (407) 847-8482
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
</TABLE>
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> 34
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> 35
(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.
<TABLE>
<CAPTION>
CENTERSTATE BANKS OF FLORIDA, INC. FIRST NATIONAL BANK OF OSCEOLA
COUNTY
<S> <C>
/s/ James H. White /s/ Thomas E. White
- ---------------------------------------- ------------------------------------------
James H. White, Chairman of the Board Thomas E. White
President and Chief Executive Officer President and Chief Executive Officer
Attest: Attest:
/s/ George H. Carefoot /s/ Linda J. Davidson
- ---------------------------------------- ------------------------------------------
George H. Carefoot, Secretary Linda J. Davidson, Senior Vice President
and Cashier
</TABLE>
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> 36
STATE OF FLORIDA
COUNTY OF OSCEOLA
The foregoing instrument was acknowledged before me this 10th day of
December, 1999, by Thomas E. White and Linda J. Davidson, President and Chief
Executive Officer, and Senior Vice President and Cashier, respectively, of
First National Bank of Osceola County.
/s/ John P. Greeley
-------------------------------------
Printed Name: /s/ John P. Greeley
-----------------------
Notary Public, State of Florida
Personally Known [ ] or Produced Identification [ ]
Type of Identification Produced
-------------------------------
32
<PAGE> 37
JOINDER
First Interim National Bank of Osceola 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 Osceola County has
caused this undertaking to be made by its duly authorized officers as of this
____ day of _____________,______.
FIRST INTERIM NATIONAL BANK OF
OSCEOLA COUNTY
-----------------------------------------
Thomas E. White
President and Chief Executive Officer
Attest:
-----------------------------------------
Linda J. Davidson, Cashier
STATE OF FLORIDA
COUNTY OF OSCEOLA
The foregoing instrument was acknowledged before me this _____ day of
__________, _____, by Thomas E. White and Linda J. Davidson, the President and
Chief Executive Officer, and Cashier, respectively, of First Interim National
Bank of Osceola County.
----------------------------------------
Printed Name:
---------------------------
Notary Public, State of Florida
Personally Known [ ] or Produced Identification [ ]
Type of Identification Produced
-------------------------------
33
<PAGE> 38
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>
O. Sam Ackley James W. Burns
3295 Royal Oak Drive 512 Wheatstone Place
Titusville, FL 32789-4847 Orlando, FL 32835
James C. Chapman Linda J. Davidson
3650 N. Canoe Creek Road 740 Maderia Ct.
Kenansville, FL 34739 Kissimmee, FL 34758
A. Gerald Divers James H. White
P. O. Box One P. O. Box 188
Tampa, FL 33601 Haines City, FL 33845-0188
Bryan W. Judge Thomas E. White
251 Fowler Boulevard 1472 Regal Court
Kissimmee, FL 34744 Kissimmee, FL 34744
Danny L. Lackey
1600 S. Lyndell Drive
Kissimmee, FL 34741
Sara S. Lewis
4501 Neptune Road
St. Cloud, FL 34769
Samuel L. Lupfer, IV
222 Church Street
Kissimmee, FL 34741
R. Stephen Miles, Jr.
100 Church Street
Kissimmee, FL 34741
Charles H. Parsons
220 E. Monument Ave., B
Kissimmee, FL 34741
E. Hampton Sessions
P. O. Box 421404
Kissimmee, FL 34742-1404
Larry L. Walter
809 E. Church Street, Suite 200
Kissimmee, FL 34744
</TABLE>
34
<PAGE> 39
James H. White
P. O. Box 188
Haines City, FL 33845-0188
Thomas E. White
1472 Regal Court
Kissimmee, FL 34744
35
<PAGE> 40
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; 550,000
shares authorized; 511,175 shares issued and
outstanding $2,555,875
Capital surplus 2,634,579
Net unrealized gains/losses on securities held
as available-for-sale (84,650)
Retained earnings 3,293,563
----------
Total Shareholders' Equity $8,399,367
=========
</TABLE>
<PAGE> 41
SCHEDULE 1.7
TO
AGREEMENT TO MERGE
ARTICLES OF ASSOCIATION AND BYLAWS OF THE SURVIVING BANK
<PAGE> 1
Exhibit 2.2
AGREEMENT TO MERGE
AMONG
FIRST NATIONAL BANK OF POLK COUNTY
CENTERSTATE BANKS OF FLORIDA, INC.
AND
FIRST INTERIM NATIONAL BANK OF POLK COUNTY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C> <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> 3
<TABLE>
Page
----
<S> <C> <C> <C> <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> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C> <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> 5
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> 6
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> 7
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.
3
<PAGE> 8
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.
(1) 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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<PAGE> 25
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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<PAGE> 26
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.
(1) 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,
22
<PAGE> 27
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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<PAGE> 28
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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<PAGE> 30
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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<PAGE> 31
(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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<PAGE> 32
(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:
<TABLE>
<S> <C>
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
</TABLE>
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
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<PAGE> 34
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> 35
(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.
<TABLE>
<CAPTION>
CENTERSTATE BANKS OF FLORIDA, INC. FIRST NATIONAL BANK OF POLK
COUNTY
<S> <C>
/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
</TABLE>
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> 36
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: /s/ Dorothy Pogue
----------------------------
Notary Public, State of Florida
Personally Known [X] or Produced Identification [ ]
Type of Identification Produced
----------------------------
32
<PAGE> 37
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> 38
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> 39
Ralph T. Stalnaker, Jr.
15 Canterbury Drive
Haines City, FL 33844
James H. White
P.O. Box 188
Haines City, FL 33845-0188
<PAGE> 40
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> 1
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
CENTERSTATE BANKS OF FLORIDA, INC.
The undersigned, being of legal age and desiring to form a
corporation (hereinafter referred to as the "Corporation") pursuant to the
provisions of the Florida Business Corporation Act, as amended (such Act, as
amended from time to time, is hereinafter referred to as the "Act"), executes
the following Articles of Incorporation.
ARTICLE I
Name
The name of the Corporation is Centerstate Banks of Florida, Inc.
ARTICLE II
Duration
This Corporation shall commence its existence immediately upon the
filing of these Articles of Incorporation and shall have perpetual duration
unless sooner dissolved according to law.
ARTICLE III
Purpose and General Powers
The general purpose of the Corporation shall be the transaction of
any and all lawful business for which corporations may be incorporated under
the Act. The Corporation shall have all of the powers enumerated in the Act and
all such other powers as are not specifically prohibited to corporations for
profit under the laws of the State of Florida.
<PAGE> 2
ARTICLE IV
Capital Stock
A. Number and Class of Shares Authorized; Par Value.
The Corporation is authorized to issue the following shares of
capital stock:
(1) Common Stock. The aggregate number of shares of common stock
(referred to in these Articles of Incorporation as "Common Stock") which the
Corporation shall have authority to issue is 20,000,000 with a par value of
$0.01 per share.
(2) Preferred Stock. The aggregate number of shares of preferred
stock (referred to in these Articles of Incorporation as "Preferred Stock")
which the Corporation shall have authority to issue is 5,000,000 with a par
value of $.01 per share.
B. Description of Remaining Shares of Preferred Stock.
The terms, preferences, limitations and relative rights of the
shares of Preferred Stock are as follows:
(1) Dividends on the outstanding shares of Preferred Stock shall be
declared and paid or set apart for payment before any dividends shall be
declared and paid or set apart for payment on the outstanding shares of Common
Stock with respect to the same quarterly period. Dividends on any shares of
Preferred Stock shall be cumulative only if and to the extent determined by
resolution of the Board of Directors, as provided below. In the event of any
liquidation, dissolution, or winding up of the affairs of the Corporation,
whether voluntary or involuntary, the outstanding shares of Preferred Stock
shall have preference and priority over the outstanding shares of Common Stock
for payment of the amount, if any, to which shares of each outstanding series
of Preferred Stock may be entitled in accordance with the terms and rights
thereof and each holder of Preferred Stock shall be entitled to be paid in full
such amount, or have a sum sufficient for the payment in full set aside, before
any such payments shall be made to the holders of Common stock.
(2) The Board of Directors is expressly authorized at any time and
from time to time to provide for the issuance of shares of Preferred Stock in
one or more series, with such voting powers, full or limited (including, by way
of illustration and not limitation, in excess of one vote per share), or
without voting powers, and with such designations, preferences and relative
participating, option or other rights, qualifications, limitations or
restrictions, as shall be fixed and determined in the resolution or resolutions
providing for the issuance thereof adopted by the Board of Directors, and as
are not stated and expressed in these Articles of Incorporation or any
amendment hereto, including (but without limiting the generality of the
foregoing) the following:
2
<PAGE> 3
(a) The distinctive designation of such series and the number
of shares which shall constitute such series, which number may be
increased (except where otherwise provided by the Board of Directors in
creating such series) or decreased (but not below the number of shares
thereof then outstanding) from time to time by resolution of the Board of
Directors; and
(b) The rate and manner of payment of dividends payable on
shares of such series, including the dividend rate, date of declaration
and payment, whether dividends shall be cumulative, and the conditions
upon which and the date from which such dividends shall be cumulative;
and
(c) Whether shares of such series shall be redeemed, the time
or times when, and the price or prices at which, shares of such series
shall be redeemable, the redemption price, the terms and conditions of
redemption, and the sinking fund provisions, if any, for the purchase or
redemption of such shares; and
(d) The amount payable on shares of such series and the rights
of holders of such shares in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation;
and
(e) The rights, if any, of the holders of shares of such series
to convert such shares into, or exchange such shares for, shares of
Common Stock, other securities, or shares of any other class or series of
Preferred Stock and the terms and conditions of such conversion or
exchange; and
(f) The voting rights, if any, and whether full or limited, of
the shares of such series, which may include no voting rights, one vote
per share, or such higher number of votes per share as may be designated
by the Board of Directors; and
(g) The preemptive or preferential rights, if any, of the
holders of shares of such series to subscribe for, purchase, receive, or
otherwise acquire any part of any new or additional issue of stock of any
class, whether now or hereafter authorized, or of any bonds, debentures,
notes, or other securities of the Corporation, whether or not convertible
into shares of stock with the Corporation.
(3) Except in respect of the relative rights and preferences that
may be provided by the Board of Directors as hereinbefore provided, all
shares of Preferred Stock shall be identical, and each share of a series
shall be identical in all respects with the other shares of the same
series. When payment of the consideration for which shares of Preferred
Stock are to be issued shall have been received by the Corporation, such
shares shall be deemed to be fully paid and nonassessable.
3
<PAGE> 4
C. Common Stock Voting Rights.
Each record holder of Common Stock shall be entitled to one vote for
each share held. Holders of Common Stock shall have no cumulative voting rights
in any election of directors of the Corporation.
D. Preemptive Rights.
Holders of Common Stock shall not have as a matter of right any
preemptive or preferential right to subscribe for, purchase, receive, or
otherwise acquire any part of any new or additional issue of stock of any
class, whether now or hereafter authorized, or of any bonds, debentures, notes,
or other securities of the Corporation, whether or not convertible into shares
of stock of the Corporation.
ARTICLE V
Initial Registered Office and Agent; Principal Place of Business
The initial registered office of this Corporation shall be located
at the City of Winter Haven, County of Polk and State of Florida, and its
address there shall be, at present, 7722 SR 544 East, Winter Haven, FL 33881,
and the initial registered agent of the Corporation at that address shall be
James H. White. The Corporation may change its registered agent or the location
of its registered office, or both, from time to time without amendment of these
Articles of Incorporation. The principal place of business and the mailing
address of the Corporation shall be: 7722 SR 544 East, Winter Haven, FL 33881.
ARTICLE VI
Initial Board of Directors
The initial Board of Directors of the Corporation shall consist of
one director. The name and street address of the initial director of this
Corporation is:
James H. White
7722 SR 544 East
Winter Haven, FL 33881
4
<PAGE> 5
The number of Directors of this Corporation shall be the number from
time to time fixed by the Shareholders, or by the Directors, in accordance with
the terms and conditions of the Bylaws, but at no time shall said number of
Directors be less than one.
ARTICLE VII
Incorporator
The name and street address of the person signing these Articles of
Incorporation as Incorporator are:
James H. White
7722 SR 544 East
Winter Haven, FL 33881
ARTICLE VIII
Bylaws
The power to adopt, alter, amend or repeal bylaws shall be vested in
the Board of Directors.
ARTICLE IX
Amendment
This Corporation reserves the right to amend or repeal any
provisions contained in these Articles of Incorporation, or any amendment
hereto, and any right conferred upon the shareholders is subject to this
reservation.
ARTICLE X
Headings and Captions
The headings or captions of these various Articles of Incorporation
are inserted for convenience and none of them shall have any force or effect,
and the interpretation of the various articles shall not be influenced by any
of said headings or captions.
5
<PAGE> 6
IN WITNESS WHEREOF, the undersigned does hereby make and file these
Articles of Incorporation declaring and certifying that the facts stated herein
are true, and hereby subscribes thereto and hereunto sets his hand and seal
this 7th day of September, 1999.
/s/ James H. White
-----------------------------------------
James H. White
STATE OF FLORIDA
COUNTY OF POLK
The foregoing instrument was acknowledged before me this 7th day of
September, 1999, by JAMES H. WHITE.
/s/ Barbara McHugh
-----------------------------------------
Printed Name: Barbara McHugh
----------------------------
Notary Public, State of Florida
Personally Known |X| or Produced Identification [ ]
Type of Identification Produced
------------------------------------------
6
<PAGE> 7
CERTIFICATE DESIGNATING PLACE OF BUSINESS FOR THE
SERVICE OF PROCESS WITHIN FLORIDA AND REGISTERED
AGENT UPON WHOM PROCESS MAY BE SERVED
In compliance with Sections 48.091 and 607.0501, Florida
Statutes, the following is submitted:
Centerstate Banks of Florida, Inc. (the "Corporation")
desiring to organize as a domestic corporation or qualify under the laws of the
State of Florida has named and designated James H. White as its Registered
Agent to accept service of process within the State of Florida with its
registered office located at 7722 SR 544 East, Winter Haven, FL 33881.
ACKNOWLEDGMENT
Having been named as Registered Agent for the Corporation at
the place designated in this Certificate, I hereby agree to act in this
capacity; and I am familiar with and accept the obligations relating to service
as a registered agent, as the same may apply to the Corporation; and I further
agree to comply with the provisions of Florida Statutes, Section 48.091 and all
other statutes, all as the same may apply to the Corporation relating to the
proper and complete performance of my duties as Registered Agent.
Dated this 7th day of September, 1999
/s/ James H. White
-----------------------------------------
James H. White, Registered Agent
7
<PAGE> 1
Exhibit 3.2
===============================================================================
BYLAWS
OF
CENTERSTATE BANKS OF FLORIDA, INC.
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Caption Page
- ------- ------- ----
<S> <C> <C>
ARTICLE I - Meeting of Shareholders............................................ 1
Section 1 Annual Meeting................................................................. 1
Section 2 Special Meetings............................................................... 1
Section 3 Place.......................................................................... 1
Section 4 Notice of Meeting.............................................................. 1
Section 5 Notice of Adjourned Meetings................................................... 2
Section 6 Waiver of Notice............................................................... 2
Section 7 Record Date.................................................................... 2
Section 8 Shareholders' List for Meeting................................................. 2
Section 9 Voting Entitlement of Shares................................................... 3
Section 10 Proxies........................................................................ 3
Section 11 Shareholder Quorum and Voting.................................................. 4
Section 12 Voting Trusts.................................................................. 4
Section 13 Shareholders' Agreements....................................................... 4
ARTICLE II - Directors......................................................... 5
Section 1 General Powers................................................................. 5
Section 2 Qualifications of Directors.................................................... 5
Section 3 Number......................................................................... 5
Section 4 Election and Term.............................................................. 5
Section 5 Vacancy on Board............................................................... 5
Section 6 Removal of Directors by Shareholders........................................... 5
Section 7 Compensation................................................................... 5
Section 8 Presumption of Assent.......................................................... 5
Section 9 Directors' Meetings............................................................ 6
Section 10 Notice of Meetings............................................................. 6
Section 11 Waiver of Notice............................................................... 6
Section 12 Quorum and Voting.............................................................. 6
Section 13 Action by Directors Without a Meeting.......................................... 6
Section 14 Adjournments................................................................... 6
Section 15 Participation by Conference Telephone.......................................... 6
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Section Caption Page
- ------- ------- ----
<S> <C> <C>
ARTICLE III - Board Committees................................................. 7
Section 1 Standing Committees............................................................ 7
Section 2 Audit Committee................................................................ 7
Section 3 Compensation Committee......................................................... 7
Section 4 Loan Committee................................................................. 7
Section 5 Other Committees............................................................... 7
Section 6 Alternate Member Vacancies..................................................... 7
Section 7 Prohibited Committee Actions................................................... 7
Section 8 Tenure........................................................................ 8
Section 9 Meetings...................................................................... 9
Section 10 Quorum........................................................................ 9
Section 11 Action Without a Meeting...................................................... 9
Section 12 Procedures.................................................................... 9
Section 13 Limitation.................................................................... 9
ARTICLE IV - Officers.......................................................... 9
Section 1 Officers, Election and Terms of Office......................................... 9
Section 2 Resignation and Removal of Officers............................................ 10
Section 3 Vacancies...................................................................... 10
Section 4 Chief Executive Officer........................................................ 10
Section 5 Chairman of the Board.......................................................... 10
Section 6 Vice Chairman.................................................................. 11
Section 7 President...................................................................... 11
Section 8 Vice President................................................................. 11
Section 9 Secretary...................................................................... 11
Section 10 Treasurer...................................................................... 12
Section 11 Delegation of Duties........................................................... 12
ARTICLE V - Stock Certificates................................................. 12
Section 1 Issuance....................................................................... 12
Section 2 Signatures; Form............................................................... 12
Section 3 Transfer of Stock.............................................................. 13
Section 4 Lost Certificates.............................................................. 14
ARTICLE VI - Indemnification................................................... 14
Section 1 Definitions.................................................................... 14
Section 2 Indemnification of Officers, Directors, Employees
and Agents................................................................. 15
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Section Caption Page
- ------- ------- ----
<S> <C>
ARTICLE VII - General Provisions............................................... 18
Section 1 Fiscal Year.................................................................... 18
Section 2 Seal........................................................................... 18
Section 3 Amendment of Bylaws............................................................ 18
CERTIFICATE OF ADOPTION...................................................... 18
</TABLE>
iii
<PAGE> 5
BYLAWS
OF
CENTERSTATE BANKS OF FLORIDA, INC.
ARTICLE I
Meeting of Shareholders
Section 1. Annual Meeting. The annual meeting of the
shareholders of the Corporation shall be held following the end of the
Corporation's fiscal year at such time as shall be determined by the Board of
Directors. The annual meeting shall be held for the election of directors of
the Corporation and the transaction of any business which may be brought before
the meeting. The annual meeting of the shareholders for any year shall be held
no later than thirteen months after the last preceding annual meeting of
shareholders. The failure to hold the annual meeting at the time stated shall
not affect the validity of any corporate action and shall not work a forfeiture
of or dissolution of the Corporation. Annual meetings shall be held at the
Corporation's principal office unless stated otherwise in the notice of the
annual meeting.
Section 2. Special Meetings. Special meetings of the
shareholders shall be held when directed by the Chairman of the Board, the
President, or the Board of Directors, or when requested in writing by the
holders of not less than one-third of all the votes entitled to be cast on any
issue proposed to be considered at the proposed special meeting. Shareholders
should sign, date, and deliver to the Corporation's Secretary one or more
written demands for the meeting describing the purpose or purposes for which it
is to be held. A meeting requested by shareholders shall be called for a date
not less than ten nor more than sixty days after the request is made. The call
for the meeting shall be issued by the Secretary, unless the Chairman of the
Board, the President, the Board of Directors, or shareholders requesting the
calling of the meeting shall designate another person to do so.
Section 3. Place. Meetings of shareholders may be held either
within or without the State of Florida. Unless otherwise directed by the Board
of Directors, meetings of the shareholders shall be held at the principal
offices of the Corporation in the State of Florida.
Section 4. Notice of Meeting. The Corporation shall notify
shareholders in writing of the date, time, and place of each annual and special
shareholders' meeting no fewer than ten or more than sixty days before the
meeting date. Notice of a shareholders' meeting may be communicated or
delivered to any shareholder in person, or by teletype, telegraph or other form
of electronic communication, or by mail, by or at the direction of the Chairman
of the Board, the President, the Secretary, or the officer or persons calling
the meeting. If notice is mailed, it shall be deemed to be delivered when
deposited in the United States mail, addressed to the shareholder at his
address as it appears on the stock transfer books of the Corporation, with
postage thereon prepaid.
<PAGE> 6
Section 5. Notice of Adjourned Meetings. When an annual or
special shareholders' meeting is adjourned to a different date, time or place,
notice need not be given of the new date, time or place if the new date, time
or place is announced at the meeting before an adjournment is taken, and any
business may be transacted at the adjourned meeting that might have been
transacted on the original date of the meeting. If, however, after the
adjournment the Board of Directors fixes a new record date for the adjourned
meeting, a notice of the adjourned meeting must be given to persons who are
shareholders as of the new record date who are entitled to notice of the
meeting.
Section 6. Waiver of Notice. A shareholder may waive any
notice required by the Articles of Incorporation or Bylaws before or after the
date and time stated in the notice. The waiver must be in writing, be signed by
the shareholder entitled to the notice, and be delivered to the Corporation for
inclusion in the minutes or filing with the corporate records. Attendance by a
shareholder at a meeting waives objection to lack of notice or defective notice
of the meeting, unless the shareholder at the beginning of the meeting objects
to holding the meeting or transacting business at the meeting.
Section 7. Record Date. For the purpose of determining the
shareholders entitled to notice of a shareholders' meeting, to demand a special
meeting, to vote, or to take any other action, the Board of Directors may fix
the record date for any such determination of shareholders.
The record date for determining shareholders entitled to
demand a special meeting is the date the first shareholder delivers his demand
to the Corporation. The record date for determining shareholders entitled to
take action without a meeting is the date the first signed written consent is
delivered to the Corporation under Section 4 of this Article. A record date for
purposes of this Section may not be more than seventy days before the meeting
or action requiring a determination of shareholders.
If the stock transfer books are not closed and no record date
is fixed for the determination of shareholders entitled to notice or to vote at
a meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination of
shareholders.
When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this Section, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date for the adjourned meeting.
Section 8. Shareholders' List for Meeting. After fixing a
record date for a meeting, the Corporation shall prepare an alphabetical list
of the names of all its shareholders who are entitled to notice of a
shareholders' meeting, arranged by voting group with the address of, and the
number and class and series, if any, of shares held by each. The shareholders'
list shall be available for inspection by any shareholder for a period of ten
days prior to the meeting or such shorter time as exists between the record
date and the meeting and continuing through the meeting at the
2
<PAGE> 7
Corporation's principal office, at a place identified in the meeting notice in
the city where the meeting will be held, or at the office of the Corporation's
transfer agent or registrar. A shareholder or his agent or attorney is entitled
on written demand to inspect the list, during regular business hours and at the
shareholder's expense, during the period it is available for inspection.
The Corporation shall make the shareholders' list available
at the meeting, and any shareholder or his agent or attorney is entitled to
inspect the list at any time during the meeting or any adjournment.
Section 9. Voting Entitlement of Shares. Except as provided
otherwise in the Articles of Incorporation or herein, each outstanding share,
regardless of class, is entitled to one vote on each matter submitted to vote
at a meeting of the shareholders. Shares standing in the name of another
corporation, domestic or foreign, may be voted by such officer, agent, or proxy
as the bylaws of the corporate shareholder may prescribe or, in the absence of
any applicable provision, by such person as the board of directors of the
corporate shareholder may designate. In the absence of any such designation or
in case of conflicting designation by the corporate shareholder, the Chairman
of the Board, the President, any Vice President, the Secretary, and the
Treasurer of the corporate shareholder, in that order, shall be presumed to be
fully authorized to vote such shares.
Shares entitled to vote which are held by an administrator,
executor, guardian, personal representative, or conservator may be voted by
him, either in person or by proxy, without a transfer of such shares into his
name. Shares standing in the name of a trustee may be voted by him, either in
person or by proxy, but no trustee shall be entitled to vote shares held by him
without a transfer of such shares into his name or the name of his nominee.
Shares held by or under the control of a receiver, a trustee
in bankruptcy proceedings, or an assignee for the benefit of creditors may be
voted by him without the transfer thereof into his name.
Nothing herein contained shall prevent trustees or other
fiduciaries holding shares registered in the name of a nominee from causing
such shares to be voted by such nominee as the trustee or other fiduciary may
direct. Such nominee may vote shares as directed by a trustee or other
fiduciary without the necessity of transferring the shares to the name of the
trustee or other fiduciary.
Section 10. Proxies. A shareholder, other person entitled
to vote on behalf of a shareholder pursuant to law, or attorney in fact, may
vote the shareholder's shares in person or by proxy.
A shareholder may appoint a proxy to vote or otherwise act
for him by signing an appointment form, either personally or by his attorney in
fact. An executed telegram or cablegram appearing to have been transmitted by
such person, or a photographic, photostatic, telecopy or equivalent
reproduction of an appointment form is a sufficient appointment form. An
appointment of a proxy is effective when received by the Secretary or other
officer authorized to tabulate votes
3
<PAGE> 8
and is valid for up to eleven months unless a longer period is expressly
provided in the appointment form.
The death or incapacity of a shareholder appointing a proxy
does not affect the right of the Corporation to accept the proxy's authority
unless notice of the death or incapacity is received by the Secretary or other
officer or agent authorized to tabulate votes before the proxy exercises his
authority under the appointment.
Section 11. Shareholder Quorum and Voting. A majority of the
votes entitled to be cast on the matter by the voting group, constitutes a
quorum of that voting group at a meeting of shareholders. If a quorum exists,
action on a matter (other than the election of directors) by a voting group is
approved if the votes cast within the voting group favoring the action exceed
the votes cast opposing the action, unless the Articles of Incorporation or
applicable law requires a greater number of affirmative votes. After a quorum
has been established at a shareholders' meeting, a subsequent withdrawal of
shareholders, so as to reduce the number of shares entitled to vote at the
meeting below the number required for a quorum, shall not affect the validity
of any action taken at the meeting or any adjournment thereof.
Section 12. Voting Trusts. One or more shareholders may
create a voting trust, conferring on a trustee the right to vote or otherwise
act for them, by signing an agreement setting out the provisions of the trust
(which may include anything consistent with its purpose) and transferring their
shares to the trustee. When a voting trust agreement is signed, the trustee
shall prepare a list of the names and addresses of all owners of beneficial
interests in the trust, together with the number and class of shares each
transferred to the trust, and deliver copies of the list and agreement to the
Corporation's principal office. After filing a copy of the list and agreement
in the Corporation's principal office, such copy shall be open to inspection by
any shareholder of the Corporation or any beneficiary of the trust under the
agreement during business hours.
A voting trust is valid for not more than ten years after its
effective date, provided that all or some of the parties to a voting trust may
extend it for additional terms of not more than ten years each by signing an
extension agreement and obtaining the voting trustee's written consent to the
extension. An extension is valid for the period set forth therein, up to ten
years, from the date the first shareholder signs the extension agreement. The
voting trustee must deliver copies of the extension agreement and list of
beneficial owners to the Corporation's principal office. An extension agreement
binds only those parties signing it.
Section 13. Shareholders' Agreements. Two or more
shareholders may provide for the manner in which they will vote their shares by
signing an agreement for that purpose. When a shareholders' agreement is
signed, the shareholders parties thereto shall deliver copies of the agreement
to the Corporation's principal office. After filing a copy of the agreement in
the Corporation's principal office, such copy shall be open to inspection by
any shareholder of the Corporation, or any party to the agreement during
business hours.
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ARTICLE II
Directors
Section 1. General Powers. All corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of its Board of Directors.
Section 2. Qualifications of Directors. Directors must be
natural persons who are eighteen years of age or older but need not be
residents of this state or shareholders of the Corporation.
Section 3. Number. The Board of Directors of the Corporation
as of the date of adoption of these Bylaws shall consist of seven members. The
number of directors may be increased or decreased from time to time by action
of the Board of Directors, but no decrease shall have the effect of shortening
the terms of any incumbent director. Directors are elected at each annual
meeting of shareholders.
Section 4. Election and Term. At the first annual meeting of
shareholders and at each annual meeting thereafter, the shareholders shall
elect directors to hold office until the next succeeding annual meeting. Each
director shall hold office for the term for which such director is elect and
until such director's successor shall have been elected and qualified or until
such director's earlier resignation, removal from office, or death.
Section 5. Vacancy on Board. Any vacancy occurring on the
Board of Directors, including a vacancy from an increase in the number of
directors, may be filled by the affirmative vote of a majority of the remaining
directors, though less than a quorum of the Board of Directors. A director
elected to fill a vacancy shall hold office only until the next election of
directors by the shareholders.
Section 6. Removal of Directors by Shareholders. The
shareholders may remove one or more directors with or without cause. A director
may be so removed by the shareholders at a meeting of shareholders, provided
the notice of the meeting states that the purpose, or one of the purposes, of
the meeting is removal of the director with cause.
Section 7. Compensation. The Board of Directors shall have
authority to fix the compensation of directors.
Section 8. Presumption of Assent. A director of the
Corporation who is present at a meeting of the Board of Directors at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless such director votes against such action or abstains
from voting in respect thereto because of an asserted conflict of interest.
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Section 9. Directors' Meetings. The Board of Directors may
hold regular or special meetings in or out of the state. Meetings of the Board
of Directors may be called at any time by the Chairman of the Board, by the
President, or by directors constituting at least one-fourth of the full Board
of Directors.
Section 10. Notice of Meetings. Regular meetings of the Board
of Directors may be held without notice of the date, time, place or purpose of
the meetings. Special meetings of the Board of Directors must be preceded by at
least two days' notice of the date, time and place of the meeting. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
Section 11. Waiver of Notice. Notice of a meeting of the
Board of Directors need not be given to any director who signs a waiver of
notice either before or after the meeting. Attendance of a director at a
meeting shall constitute a waiver of notice of such meeting and waiver of any
and all objections to the place of the meeting, the time of the meeting, or the
manner in which it has been called or convened, except when a director states,
at the beginning of the meeting or promptly upon arrival at the meeting, any
objection to the transaction of business because the meeting is not lawfully
called or convened.
Section 12. Quorum and Voting. A majority of the number of
directors fixed by these Bylaws shall constitute a quorum for the transaction
of business. If a quorum is present when a vote is taken, the affirmative vote
of a majority of directors present is the act of the Board of Directors.
Section 13. Action by Directors Without a Meeting. Any action
required or permitted by law to be taken at a Board of Directors' meeting or
committee meeting may be taken without a meeting if action is taken by all
members of the Board or the committee. The action must be evidenced by one or
more written consents describing the action taken and signed by each director
or committee member. Action taken shall be effective when the last director
signs the consent, unless the consent specifies a different effective date. The
consent signed shall have the effect of a meeting vote and may be described as
such in any document.
Section 14. Adjournments. A majority of the directors
present, whether or not a quorum exists, may adjourn any meeting of the Board
of Directors to another time and place. Notice of any such adjourned meeting
shall be given to the directors who were not present at the time of the
adjournment and, unless the time and place of the adjourned meeting are
announced at the time of the adjournment, to the other directors.
Section 15. Participation by Conference Telephone. Members of
the Board of Directors may participate in a meeting of such Board by means of a
conference telephone or similar communications equipment by which all persons
participating in the meeting can hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
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ARTICLE III
Board Committees
Section 1. Standing Committees. The Board of Directors shall
have and maintain as standing committees of the Board an Audit Committee, a
Compensation Committee and a Loan Committee. The Board of Directors shall at
the annual meeting following the Corporation's annual meeting of shareholders
and may at such other times as the Board may determine, elect the members of
each such committee, all of whom shall be directors of the Corporation,
designate one of the members of each such committee as chairman of the
committee, and prescribe the duties of each committee, which duties shall be
consistent with these Bylaws.
Section 2. Audit Committee. The Audit Committee shall
consist of not less than two directors, none of whom shall be officers or
employees of the Corporation or any direct or indirect subsidiary or affiliate
of the Corporation. The Audit Committee shall select and approve the terms and
scope of engagement of the independent certified accountants of the Corporation
and shall have such other duties as may from time to time be prescribed by the
Board of Directors. The independent auditor of the Corporation, if any, shall
report directly to the Audit Committee.
Section 3. Compensation Committee. The Compensation
Committee shall consist of not less than two directors. The Compensation
Committee shall serve as the Board committee responsible for administering any
compensation and benefit plans of the Corporation and shall have such other
duties as may from time to time be prescribed by the Board of Directors.
Section 4. Loan Committee. The Loan Committee shall consist
of not less than two directors. The Loan Committee shall have the power to
establish and approve such loans, policies and procedures relating to the
lending operations of any direct and indirect subsidiary or affiliate of the
Corporation as determined in accordance with such guidelines established by the
Board of Directors from time to time.
Section 5. Other Committees. The Board of Directors may by
resolution establish such other committees composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Corporation and may prescribe the composition, duties, and procedures thereof.
Section 6. Alternate Member Vacancies. The Board of
Directors may designate one or more directors as alternate members of any
committee, and such alternate members may act in the place and stead of any
absent member or members at any meeting of such committee. The Board of
Directors may fill any vacancy or vacancies occurring in any committee.
Section 7. Prohibited Committee Actions. Notwithstanding
any other provision of these Bylaws, no committee of the Board of Directors
shall have the authority to:
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(a) Approve or recommend to shareholders actions or
proposals required by law, the Articles of Incorporation, or these Bylaws to be
approved by the shareholders.
(b) Fill vacancies on the Board of Directors or any
committee thereof.
(c) Adopt, amend, or repeal the Bylaws.
(d) Authorize or approve the reacquisition of any
shares of capital stock of the Corporation unless pursuant to a general formula
or method specified by the Board of Directors.
(e) Authorize or approve the issuance or sale or
contract for the sale of shares of capital stock, or determine the designation
and relative rights, preferences, and limitations of a voting group except that
the Board of Directors may authorize a committee (or a senior executive officer
of the Corporation) to do so within limits specifically prescribed by the Board
of Directors.
(f) Declare any dividend or distribution on the
capital stock of the Corporation, whether in cash or in kind.
(g) Authorize or approve any stock split, reverse
stock split, or other recapitalization of any class of capital stock of the
Corporation.
(h) Authorize or approve any agreement or plan
providing for a merger, acquisition, consolidation, or other business
combination involving the Corporation.
(i) Authorize or approve the sale of all or
substantially all of the assets of the Corporation.
(j) Authorize or approve any transaction in which
any member of such committee has any material beneficial interest.
(k) Authorize or approve any action described in
Article II, Section 16, of these Bylaws.
(l) Repeal or revoke any of the foregoing.
Section 8. Tenure. Each committee member shall
hold office until the next annual meeting of the Board of Directors following
his appointment and until a successor is designated, provided that any member
of a committee may be removed at any time with or without cause by resolution
adopted by a majority of the full Board of Directors. Any member of a committee
may resign from the committee at any time by giving written notice to the
Chairman of the Board or Secretary of the Corporation. Unless otherwise
specified therein, such resignation shall take effect upon receipt and
acceptance of such resignation shall not be necessary to make it effective.
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Section 9. Meetings. Regular meetings of a
committee may be held without notice at such times and places as the committee
or the Board of Directors may fix from time to time by resolution. Special
meetings of a committee may be called by the Chairman of the Board, by the
President, by the Chairman of the Committee, or by a majority of the members of
the committee. Special meetings of a committee must be preceded by at least 24
hours notice of the date, time and place of the meeting. Neither the business
to be transacted at, nor the purpose of, any regular or special meeting of the
committee need be specified in the notice or waiver of notice of such meeting.
Notice of a meeting of a committee need not be given to any member who signs a
waiver of notice either before or after the meeting. Attendance of a member at
a committee meeting shall constitute a waiver of notice of such meeting and
waiver of any and all objections to the place of the meeting, the time of the
meeting, or the manner in which it has been called or convened, except when a
director states, at the beginning of the meeting or promptly upon arrival at
the meeting, any objection to the transaction of business because the meeting
is not lawfully called or convened.
Section 10. Quorum. A majority of the members of a
committee shall constitute a quorum for the transaction of business at any
meeting thereof, and action by the committee must be authorized by the
affirmative vote of a majority of the members at the meeting at which such
action is taken.
Section 11. Action Without a Meeting. Any action
required or permitted to be taken by a committee at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the members of the committee.
Section 12. Procedures. Each committee may fix its
own rules of procedure which shall not be inconsistent with law or the Articles
of Incorporation or Bylaws of the Corporation, and shall keep regular minutes
of its proceedings and report the same to the Board of Directors at the Board
meeting next following the date the proceedings shall have occurred.
Section 13. Limitation. Neither the designation of
any committee of the Board of Directors, the delegation thereto of authority,
nor any action by such committee pursuant to such authority shall alone
constitute compliance by any member of the Board of Directors not a member of
the committee in question with his responsibility to act in good faith, in a
manner he or she reasonably believes to be in the best interest of the
Corporation, and with such care as an ordinarily prudent person in a like
position would use under similar circumstances.
ARTICLE IV
Officers
Section 1. Officers, Election and Terms of Office.
The principal officers of the Corporation shall consist of a Chief Executive
Officer, a President, a Chairman of the Board, one or more Vice Chairmen of the
Board, a President, one or more Vice Presidents, a Secretary, and a Treasurer,
each of whom shall be elected by the Board of Directors at the first meeting of
directors
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immediately following the annual meeting of shareholders of the Corporation,
and shall hold his or her respective office at the pleasure of the Board of
Directors or until the time of the next succeeding meeting of the Board
following the annual meeting of the shareholders. The Board of Directors shall
have the power to elect or appoint, for such term as it may see fit, such other
officers and assistant officers and agents as it may deem necessary, and to
prescribe such duties for them to perform as it may deem advisable. Any two or
more offices may be held by the same person. Failure to elect a Chairman of the
Board, Vice Chairman of the Board, President, Vice President, Secretary or
Treasurer shall not affect the existence of the Corporation.
Section 2. Resignation and Removal of Officers. An
officer may resign at any time by delivering notice to the Corporation. A
resignation is effective when the notice is delivered unless the notice
specifies a later effective date. If a resignation is made effective at a later
date and the Corporation accepts the future effective date, the Board of
Directors may fill the pending vacancy before the effective date if the Board
of Directors provides that the successor does not take office until the
effective date.
The Board of Directors may remove any officer at any
time with or without cause. Any officer or assistant officer, if appointed by
another officer, may likewise be removed by such officer. Removal of any
officer shall be without prejudice to the contract rights, if any, of the
person so removed; however, election or appointment of an officer or agent
shall not of itself create contract rights.
Section 3. Vacancies. Any vacancy, however
occurring, in any office may be filled by the Board of Directors.
Section 4. Chief Executive Officer. The Board of
Directors shall designate a Chief Executive Officer. The Chief Executive
Officer shall preside at all meetings of the shareholders of the Corporation.
Such person shall serve as the Chief Executive Officer of the Corporation and,
subject to the provisions of these Bylaws and any limitations imposed by the
Board of Directors, shall have general charge of the business, affairs, and
property of the Corporation and general supervision over its other officers,
agents, and employees. The Chief Executive Officer shall have the power and
authority to execute contracts, deeds, notes, mortgages, bonds, and other
instruments and documents in the name of the Corporation and on its behalf,
subject, however, to any limitations imposed by the Board of Directors. The
Chief Executive Officer shall report to the Board of Directors. Unless
otherwise expressly provided by the Board of Directors, the Chief Executive
Officer shall perform the duties and exercise the powers of the Chairman of the
Board during any absence or disability of such officer.
Section 5. Chairman of the Board. The Board of
Directors shall appoint one of its members to be Chairman of the Board. The
Chairman of the Board shall preside at all meetings of the Board of Directors
and shall generally have and perform such other duties as may from time to time
be conferred or assigned by the Board of Directors.
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Section 6. Vice Chairman. The Board of Directors
may appoint one or more of its members to be Vice Chairmen of the Board. In the
absence of the Chairman, the Vice Chairman (in such order of seniority as may
be determined by the Board of Directors, if any) shall preside at any meeting
of the shareholders and the Board of Directors, unless the Board of Directors
shall designate a Chairman Pro Tem for such purposes. The Vice Chairman shall
have the power and authority to execute contracts, deeds, notes, mortgages,
bonds, and other instruments and documents in the name of the Corporation and
on its behalf, subject, however, to any limitations imposed by the Board of
Directors. The Vice Chairman of the Board shall also have and may exercise such
further executive powers and duties as from time to time may be conferred upon
or assigned by the Board of Directors or, in the absence of such action by the
Board, by the Chief Executive Officer. The Vice Chairman shall report to the
Chief Executive Officer.
Section 7. President. Subject to the provisions of
these Bylaws and any limitations imposed by the Board of Directors, the
President shall have such general executive powers as usually pertain to such
office or as may be properly required by the Board of Directors. The President
shall have the power and authority to sign certificates evidencing the capital
stock of the Corporation and execute contracts, deeds, notes, mortgages, bonds,
and other instruments and documents in the name of the Corporation and on its
behalf, subject, however, to any limitations imposed by the Board of Directors.
If the offices of Chief Executive Officer and President are ever separated,
then the President shall report to the Chief Executive Officer. The President
shall, unless otherwise expressly provided by the Board of Directors, perform
the duties and exercise the powers of the Chief Executive Officer during any
disability of the Chief Executive Officer.
Section 8. Vice President. One or more Vice
Presidents may be designated by that title or such additional title or titles
as the Board of Directors may determine. A Vice President shall have the powers
and perform such duties as may be delegated to such Vice President by the Board
of Directors, or, in the absence of such action by the Board, then by the Chief
Executive Officer, the Chairman of the Board or the President. Each Executive
Vice President will report to the President and Chief Executive Officer. A Vice
President (in such order of seniority as may be determined by the Board of
Directors, if any) shall, except as may be expressly limited by action of the
Board of Directors, perform the duties and exercise the powers of the President
during the absence or disability of the President. Each Vice President shall at
all times have the power to sign all certificates of stock, execute all
contracts, deeds, notes, mortgages, bonds and other instruments and documents
in the name of the Corporation and on its behalf, subject to any limitations
imposed by the Board of Directors. A Vice President also shall have such powers
and perform such duties as usually pertain to such office or as may be properly
required by the Board of Directors.
Section 9. Secretary. The Secretary shall keep the
minutes of all meetings of the shareholders and the Board of Directors in a
book or books to be kept for such purposes, and also, when so requested, the
minutes of all meetings of committees in a book or books to be kept for such
purposes. The Secretary shall attend to giving and serving of all notices, and
such Secretary shall have charge of all books and papers of the Corporation,
except those hereinafter directed to be in charge of the Treasurer, or except
as otherwise expressly directed by the Board of Directors. The
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Secretary shall keep the stock certificate book or books. The Secretary shall
be the custodian of the seal of the Corporation. The Secretary shall sign with
the Chief Executive Officer all certificates of stock as the Secretary of the
Corporation and as Secretary affix or cause to be affixed thereto the seal of
the Corporation. The Secretary may sign as Secretary of the Corporation, with
the President in the name of the Corporation and on its behalf, all contracts,
deeds, mortgages, bonds, notes and other papers, instruments and documents,
except as otherwise expressly provided by the Board of Directors, and as such,
the Secretary shall affix the seal of the Corporation thereto when required
thereby. Under the direction of the Board of Directors, the Chairman of the
Board, any Vice Chairman of the Board, or the President, the Secretary shall
perform all the duties usually pertaining to the office of Secretary or the
Chief Executive Officer, and such Secretary shall perform such other duties as
may be prescribed by the Board of Directors. If at any time any person or
persons shall be designated as an Assistant Secretary of the Corporation, the
Secretary may delegate to such Assistant Secretary such duties and powers as
the Secretary may deem proper.
Section 10. Treasurer. The Treasurer shall have
the custody of all the funds and securities of the Corporation except as may be
otherwise provided by the Board of Directors, and the Treasurer shall make such
disposition of the funds and other assets of the Corporation as such Treasurer
may be directed by the Board of Directors. The Treasurer shall keep or cause to
be kept a record of all money received and paid out, and all vouchers and
receipts given therefor, and all other financial transactions of the
Corporation. The Treasurer shall have general charge of all financial books,
vouchers and papers belonging to the Corporation or pertaining to its business.
The Treasurer shall perform such other duties as are usually incident by law or
otherwise to the office of the Treasurer, and as such Treasurer may be directed
or required by the Board of Directors or the Chief Executive Officer. If at any
time any person shall be designated as Comptroller of the Corporation, the
Treasurer may delegate to such Comptroller such duties and powers as the
Treasurer may deem proper.
Section 10. Delegation of Duties. In the case of
the absence or disability of any officer of the Corporation, or in case of a
vacancy in any office or for any other reason that the Board of Directors may
deem sufficient, the Board of Directors, except as otherwise provided by law,
may delegate the powers or duties of any officer during the period of such
officer's absence or disability to any other officer or to any director.
ARTICLE V
Stock Certificates
Section 1. Issuance. Every holder of shares in the
Corporation shall be entitled to have a certificate, representing all shares to
which such holder is entitled. No certificate shall be issued for any share
until such share is fully paid.
Section 2. Signatures; Form. Certificates
representing shares in the Corporation shall be signed by the President or a
Vice President and the Secretary or an Assistant
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Secretary and may be sealed with the seal of the Corporation or a facsimile
thereof. The signatures of the President and the Secretary may be facsimiles if
the certificate is manually signed on behalf of a transfer agent or a
registrar, other than the Corporation itself or an employee of the Corporation.
In case any officer who signed or whose facsimile signature has been placed
upon such certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer at the date of its issuance.
Every certificate representing shares which are
restricted as to the sale, disposition or other transfer of such shares shall
state that such shares are restricted as to transfer and shall set forth or
fairly summarize such restrictions upon the certificate. Alternatively, each
certificate may state conspicuously that the Corporation will furnish to any
shareholder upon request and without charge a full statement of such
restrictions.
Section 3. Transfer of Stock. Shares of stock of
the Corporation shall be transferred on the books of the Corporation only upon
surrender to the Corporation of the certificate or certificates representing
the shares to be transferred accompanied by an assignment in writing of such
shares properly executed by the shareholder of record or his duly authorized
attorney in fact and with all taxes on the transfer having been paid. The
Corporation may refuse any requested transfer until furnished evidence
satisfactory to it that such transfer is proper. Upon the surrender of a
certificate for transfer of stock, such certificate shall be marked on its face
"Canceled." The Board of Directors may make such additional rules concerning
the issuance, transfer and registration of stock as it deems appropriate.
If any holder of any stock of the Corporation shall
have entered into an agreement with any other holder of any stock of the
Corporation or with the Corporation, or both, relating to a sale or sales or
transfer of any shares of stock of the Corporation, or wherein or whereby any
restriction or condition is imposed or placed upon or in connection with the
sale or transfer of any share of stock of the Corporation, and if a duly
executed or certified copy thereof shall have been filed with the Secretary of
the Corporation, none of the shares of stock covered by such agreement or to
which it relates, of any such contracting shareholder, shall be transferred
upon the books of the Corporation until there has been filed with the Secretary
of the Corporation evidence satisfactory to the Secretary of the Corporation of
compliance with such agreement, and any evidence of any kind or quality, of
compliance with the terms of such agreement which the Secretary deems
satisfactory or sufficient shall be conclusive upon all parties interested;
provided, however, that neither the Corporation nor any director, officer,
employee or transfer agent thereof shall be liable for transferring or
effecting or permitting the transfer of any such shares of stock contrary to or
inconsistent with the terms of any such agreement, in the absence of proof of
willful disregard thereof or fraud, bad faith or gross negligence on the part
of the party to be charged; provided, further, that the certificate of the
Secretary, under the seal of the Corporation, bearing the date of its issuance
by the Secretary, certifying that such an agreement is or is not on file with
the Secretary, shall be conclusive as to such fact so certified for a period of
five days from the date of such certificate, with respect to the rights of any
innocent purchaser or transferee for value of any such shares without actual
notice of the existence of any restrictive agreement.
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Section 4. Lost Certificates. Any shareholder
claiming a certificate of stock to be lost or destroyed shall make affidavit or
affirmation of the fact and the fact that such shareholder is the owner and
holder thereof, and give notice of the loss or destruction of same in such
manner as the Board of Directors may require, and shall give the Corporation a
bond of indemnity in form, and with one or more sureties satisfactory to the
Board of Directors, payable as may be required by the Board of Directors to
protect the Corporation and any person injured by the issuance of the new
certificate from any liability or expense which it or they may incur by reason
of the original certificate remaining outstanding, whereupon the President or a
Vice President and the Secretary or an Assistant Secretary may cause to be
issued a new certificate in the same tenor as the one alleged to be lost or
destroyed, but always subject to approval of the Board of Directors.
ARTICLE VI
Indemnification
Section 1. Definitions. For purposes of this
Article VI, the following terms shall have the meanings hereafter ascribed to
them:
(a) "agent" includes a volunteer.
(b) "Corporation" includes, in addition to the
resulting corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger, so that any person who
is or was a director, officer, employee, or agent of a constituent corporation,
or is or was serving at the request of a constituent corporation as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust or other enterprise, is in the same position with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(c) "expenses" includes counsel fees, including
those for appeal.
(d) "liability" includes obligations to pay a
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to any employee benefit plan), and expenses actually and reasonably
incurred with respect to a proceeding.
(e) "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.
(f) "serving at the request of the Corporation"
includes any service as a director, officer, employee, or agent of the
Corporation that imposes duties on such persons, including duties relating to
an employee benefit plan and its participants or beneficiaries.
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(f) "not opposed to the best interest of the
Corporation" describes the actions of a person who acts in good faith and in a
manner he reasonably believes to be in the best interests of the participants
and beneficiaries of an employee benefit plan.
(g) "other enterprises" includes employee benefit
plans.
Section 2. Indemnification of Officers, Directors,
Employees and Agents.
(a) The Corporation shall have power to indemnify
any person who was or is a party to any proceeding (other than an action by, or
in the right of, the Corporation), by reason of the fact that he is or was a
director, officer, employee, or agent of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against liability incurred in connection with such proceeding, including any
appeal thereof, if he 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 his conduct was unlawful. The termination of any proceeding by
judgment, order, settlement, or conviction or upon a plea of nolo contendere or
its equivalent shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in, or
not opposed to, the best interests of the Corporation or, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
(b) The Corporation shall have power to indemnify
any person, who was or is a party to any proceeding by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, or other
enterprise, 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.
Such indemnification shall be authorized if such person acted in good faith and
in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, except that no indemnification shall be made in
respect of any claim, issue, or matter as to which such person shall have been
adjudged to be liable unless, and only to the extent that, the court in which
such proceeding was brought, or any other court of competent jurisdiction,
shall determine upon application that, despite the adjudication of liability
but in view of all circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which such court shall deem
proper.
(c) To the extent that a director, officer,
employee, or agent of the Corporation has been successful on the merits or
otherwise in the defense of any proceeding referred to in subsection (a) or
subsection (b), or in the defense of any claim, issue, or matter therein, he
shall be indemnified against expenses actually and reasonably incurred by him
in connection therewith.
15
<PAGE> 20
(d) Any indemnification under subsection (a) or
subsection (b), unless pursuant to a determination by a court, shall be made by
the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee, or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth herein. Such determination shall be made:
1. By the Board of Directors by a majority
vote of a quorum consisting of directors who are not parties to such
proceeding;
2. If such a quorum is not obtainable or,
even if obtainable, by majority vote of a committee duly designated by the
Board of Directors (in which directors who are parties may participate)
consisting solely of two or more directors not at the time parties to the
proceeding;
3. By independent legal counsel:
a. Selected by the Board of
Directors prescribed in subsection (d)(1) or the committee prescribed in
subsection (d)(2);
b. If a quorum of the directors
cannot be obtained for subsection (d)(1) and a committee cannot be designated
for subsection (d)(2), selected by majority vote of the full Board of Directors
(in which directors who are parties may participate); or
4. By the shareholders by a majority vote
of a quorum consisting of shareholders who were not parties to such proceeding
or, if no such quorum is obtainable, by a majority vote of shareholders who
were not parties to such proceeding.
(e) 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, persons
designated by independent legal counsel shall evaluate the reasonableness of
expenses and may authorize indemnification.
(f) 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 such proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
he is ultimately found not to be entitled to indemnification by the Corporation
pursuant to this section. Expenses incurred by other employees and agents may
be paid in advance upon such terms or conditions that the Board of Directors
deems appropriate.
(g) The indemnification and advancement of expenses
provided pursuant to this Article are not exclusive, and the Corporation may
make any other or further indemnification or advancement of expenses of any of
its directors, officers, employees, or agents, under any bylaw,
16
<PAGE> 21
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
shall not be made to or on behalf of any director, officer, employee, or agent
if a judgment or other final adjudication establishes that his actions, or
omissions to act, were material to the cause of action so adjudicated and
constitute:
1. A violation of the criminal law, unless
the director, officer, employee, or agent had reasonable cause to believe his
conduct was lawful or had no reasonable cause to believe his conduct was
unlawful;
2. A transaction from which the director,
officer, employee, or agent derived an improper personal benefit;
3. In the case of a director, a
circumstance under which the liability provisions of Section 607.0834, Florida
Statutes, are applicable; or
4. 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 or in a
proceeding by or in the right of a shareholder.
(h) Indemnification and advancement of expenses as
provided in this Article 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 a person, unless otherwise provided when authorized or
ratified.
(i) Notwithstanding the failure of the Corporation
to provide indemnification, and despite any contrary determination of the Board
of Directors 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:
1. The director, officer, employee or
agent is entitled to mandatory indemnification, 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;
2. The director, officer, employee or agent
is entitled to indemnification or advancement of expenses, or both, by virtue
of the exercise by the Corporation of its power; or
17
<PAGE> 22
3. The director, officer, employee or agent
is fairly and reasonably entitled to indemnification or advancement of
expenses, or both, in view of all the relevant circumstances, regardless of
whether such person met the standard of conduct set forth herein.
ARTICLE VII
General Provisions
Section 1. Fiscal Year. The fiscal year of the Corporation
shall begin on the first day of January and end on the last day of December in
each year.
Section 2. Seal. The Board of Directors in its discretion
may adopt a seal for the Corporation in such form as may be determined from
time to time by the Board of Directors.
Section 3. Amendment of Bylaws. The Board of Directors
shall have the power to appeal, alter, amend, and rescind these Bylaws.
CERTIFICATE OF ADOPTION
I hereby certify that the foregoing Bylaws were duly adopted at a
meeting of the Board of Directors held on September 29, 1999.
/s/ James H. White
-----------------------------------------------
James H. White
Chairman, President and Chief Executive Officer
18
<PAGE> 1
EXHIBIT 4.1
(FORM OF STOCK CERTIFICATE - FRONT SIDE)
NUMBER SHARES
CENTERSTATE BANKS OF FLORIDA, INC.
ORGANIZED UNDER THE [CUSIP]
LAWS OF THE STATE OF FLORIDA SEE REVERSE
FOR CERTAIN
DEFINITIONS
THIS IS TO CERTIFY That __________________________________ is the owner
of _______ FULLY PAID SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE, OF
CENTERSTATE BANKS OF FLORIDA, INC.
transferable only on the books of the Corporation by the holders hereof in
person or by attorney duly authorized upon surrender of this certificate duly
endorsed or assigned. This certificate and the shares represented hereby are
subject to the laws of the State of Florida and to the Articles of
Incorporation and Bylaws of the Corporation as now or hereafter amended. This
certificate is not paid until countersigned by the Transfer Agent and the
Registrar.
WITNESS, the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
SECRETARY PRESIDENT
(SEAL)
COUNTERSIGNED AND REGISTERED: ------------------------------------------------
TRANSFER AGENT AND REGISTRAR
By:
-----------------------------
AUTHORIZED OFFICER
<PAGE> 2
(FORM OF STOCK CERTIFICATE - BACK SIDE)
The Corporation is authorized to issue more than one class of stock,
including a class of preferred stock which may be issued in one or more series.
The Corporation will furnish to any stockholder, upon written request and
without charge, a full statement of the designations, rights, preferences, and
limitations of the shares of each class authorized to be issued and, with
respect to the issuance of any preferred stock to be issued in series, the
relative rights and preferences between the shares of each series as far as the
rights and preferences have been fixed and determined and the authority of the
Board of Directors to fix and determine the relative rights and preferences of
subsequent series.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _____ Custodian ____________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act __________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above
list.
For value received, ________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[GRAPHIC]
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP
CODE, OF ASSIGNEE)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE> 3
_________ shares of the capital stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint ______________________________
Attorney to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated ______________________
NOTICE: THE SIGNATURE(S) OF THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE> 1
EXHIBIT 5
January 17, 20000
Centerstate Banks of Florida, Inc.
7722 SR 544 East
Winter Haven, Florida 33881
Gentlemen:
This opinion is issued in connection with the filing by Centerstate
Banks of Florida, Inc. (the "Company") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), of a
Registration Statement on Form S-4, as amended (the "Registration Statement"),
with respect to the offer and sale of shares of common stock, par value $.01
per share, of the Company (the "Shares") pursuant to an Agreement to Merge
among Community National Bank of Pasco County, Centerstate Banks of Florida,
Inc. and Community Interim National Bank of Pasco County (the "Agreement").
We have examined the originals, or certified, conformed or
reproduction copies, of such records, agreements, instruments and documents as
we have deemed relevant or necessary as the basis for the opinion hereinafter
expressed. In all such examinations, we have assumed the genuineness of all
signatures on original or certified copies and the conformity to original or
certified copies of all copies submitted to us as conformed or reproduction
copies. As to various questions of fact relevant to such opinion, we have
relied upon, and assumed the accuracy of, certificates and oral or written
statements and other information of or from public officials, officers or
representatives of the Company, and others.
Based upon the foregoing and subject to the limitations set forth
herein, we are of the opinion that the Shares, when issued, delivered and paid
for in accordance with the Registration Statement, the Articles of
Incorporation of the Company, and the Agreement will be legally issued, fully
paid and nonassessable Shares of common stock of the Company.
The opinion expressed herein is limited to the laws of the State of
Florida.
<PAGE> 2
Centerstate Banks of Florida, Inc.
January 17, 2000
Page 25
- --------------------------
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Opinion" in the Prospectus forming a part of the Registration Statement.
In giving this consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act.
Very truly yours,
SMITH, MACKINNON, GREELEY, BOWDOIN,
EDWARDS, BROWNLEE & MARKS, P.A.
/s/ John P. Greeley
-----------------------------------
By: John P. Greeley
<PAGE> 1
EXHIBIT 8
January 12, 2000
Board of Directors
Community National Bank of Pasco County
6930 Gall Blvd.
Zephrhills, FL
Ladies and Gentlemen:
You have requested the opinion of KPMG LLP (KPMG) regarding certain federal
income tax consequences of the proposed merger of Community National Bank of
Pasco County, ("Community National Bank") with and into Community Interim
National Bank of Pasco County, ("CINB"), 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,
CINB, Community National Bank, and the shareholders of Community National Bank
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 among CBF, CINB, and Community National Bank 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
- --------
1 All section references are to the Internal Revenue Code of 1986, as amended,
and the regulations thereunder, unless otherwise indicated.
<PAGE> 2
Community National Bank of Pasco County
January 12, 2000
Page 2
by subsequent legislative, regulatory, administrative, or judicial decisions.
Any such changes, 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
Community National Bank is a national banking association located at 6930 Gall
Boulevard, City of Zephyrhills, County of Pasco, in the State of Florida, with
a capital of $7,834,175, consisting of (i) 2,434,175 shares of common stock
divided into 486,835 shares of common stock, each of $5.00 par value, (ii)
surplus of $2,557,000, and (iii) undivided profits of $2,843,000 as of
September 30, 1999.
CBF is a Florida Corporation, which has been organized for purposes of serving
as a bank holding company for Community National Bank and other banks.
CINB is to be located at 6930 Gall Boulevard, Zephyrhills, Florida 33541-2513,
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, CINB, and Community National Bank represent to KPMG that the following
transactions will be undertaken for valid corporate business purposes:
I. Community National Bank will merge with and into CINB under the charter of
Community National Bank, 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 Community National Bank shall cease and CINB shall
be the Surviving Bank. 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 Community National Bank Common Stock (other than
shares as to which dissenters' rights have been perfected) will be
converted into 2.02 shares of CBF Common Stock, subject to adjustment as
specified in Section 2.1 of the Agreement. If options to acquire Community
<PAGE> 3
Community National Bank of Pasco County
January 12, 2000
Page 3
National Bank 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 Community National Bank Common Stock issued on
such exercise will be converted to the right to receive shares of CBF at
the Closing.
III. In lieu of issuing fractional shares of CBF Common Stock, holders of
Community National Bank 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 Community National Bank 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
Community National Bank 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 Community National Bank shareholder pursuant to the Merger will be
approximately equal to the fair market value of Community National Bank
Common Stock surrendered in the Merger.
2. Community National Bank has not made any distributions to its stockholders
or redeemed any of its stock prior to, and in connection with, the Merger.
3. CINB 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 Community National Bank immediately prior to the
transaction. For purposes of this representation, amounts paid by
Community National Bank to dissenters, amounts paid by Community National
Bank to shareholders who receive cash or other property, Community
National Bank assets used to pay its reorganization expenses and all
redemptions and distributions (except for regular, normal dividends) made
by Community National Bank immediately preceding the transfer, will be
included as assets of Community National Bank held immediately prior to
the transaction.
4. Prior to the transaction, CBF will be in control of CINB within the
meaning of section 368(c).
5. Following the transaction, CINB will not issue additional shares of its
stock that would result in CBF losing control of CINB within the meaning
of section 368(c).
<PAGE> 4
Community National Bank of Pasco County
January 12, 2000
Page 4
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 CINB; to merge CINB with and
into another corporation; to sell or otherwise dispose of the stock of
CINB; or to cause CINB to sell or otherwise dispose of any of the assets
of Community National Bank acquired in the transaction, except for
dispositions made in the ordinary course of business or transfers
described in section 368(a)(2)(C).
8. The liabilities of Community National Bank assumed by CINB and the
liabilities, if any, to which the transferred assets of Community National
Bank are subject were incurred by Community National Bank in the ordinary
course of its business.
9. Following the Merger, CINB will continue the historic business of
Community National Bank or use a significant portion of Community National
Bank historic business assets in its business.
10. CBF, CINB, Community National Bank, and the shareholders of Community
National Bank will pay their respective expenses, if any, incurred in
connection with the Merger.
11. There is no intercorporate indebtedness existing between CBF and Community
National Bank or between CINB and Community National Bank 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. Community National Bank 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 Community National Bank transferred
to CINB will equal or exceed the sum of the liabilities assumed by CINB
plus the amount of liabilities, if any, to which the transferred assets
are subject.
15. No stock of CINB 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
Community National Bank 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 Community National Bank
shareholders in exchange for
<PAGE> 5
Community National Bank of Pasco County
January 12, 2000
Page 5
their shares of Community National Bank Common Stock. The fractional share
interests of each Community National Bank shareholder will be aggregated,
and no Community National Bank 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
Community National Bank will be separate consideration for, or allocable
to, any of their shares of Community National Bank 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;
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 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. Provided the merger of Community National Bank with and into CINB
qualifies as a statutory merger pursuant to the National Bank Act, the
acquisition by CINB of all of the assets of Community National Bank solely
in exchange for CBF Common Stock and the assumption by CINB of the
liabilities of Community National Bank plus the liabilities to which
Community National Bank assets may be subject, will qualify as a
reorganization under sections 368(a)(1)(A) and 368(a)(2)(D). Community
National Bank, CBF, and CINB will each be a party to reorganization within
the meaning of section 368(b).
2. No gain or loss will be recognized by Community National Bank on the
transfer of substantially all of its assets to CINB in the Merger in
exchange for CBF Common Stock and the assumption by CINB of the
liabilities of Community National Bank plus the liabilities to which
Community National Bank assets may be subject. Sections 361(a) and 357(a).
3. No gain or loss will be recognized by either CBF or CINB upon the
acquisition by CINB of all of the assets of Community National Bank in the
Merger in exchange for CBF Common Stock and the assumption by CINB of the
liabilities of Community National Bank plus the liabilities to which
Community National Bank assets may be subject. Sections 1032(a); Reg.
section 1.1032-2.
4. The basis of the assets of Community National Bank received by CINB in the
Merger will be the same in the hands of CINB as the basis of such assets
in the hands of Community National Bank immediately prior to the Merger.
Section 362(b).
5. The holding period of the assets of Community National Bank received by
CINB in the Merger will, in each instance, include the period during which
such assets were held by
<PAGE> 6
Community National Bank of Pasco County
January 12, 2000
Page 6
Community National Bank immediately prior to the Merger. Section 1223(2).
6. No gain or loss will be recognized by a shareholder of Community National
Bank 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 Community National Bank Common Stock in the Merger. Section
354(a)(1).
7. The basis of the CBF Common Stock received by a shareholder of Community
National Bank (including any fractional share interest to which the
shareholder may be entitled) will equal the basis of the Community
National Bank Common Stock surrendered in exchange therefor. Section
358(a)(1).
8. The holding period of the CBF Common Stock received by a shareholder of
Community National Bank (including any fractional share interest to which
the shareholder may be entitled) will include the holding period of
Community National Bank Common Stock surrendered in exchange therefor,
provided the Community National Bank 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 Community National Bank 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 Community National Bank shareholder exercises statutory
dissenters' rights and receives cash for all of his or her Community
National Bank 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 Community National Bank enumerated in section 381(c)
will be taken into account by CBF and CINB 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.
Very truly yours,
KMPG LLP
Thomas W. Avent, Jr.
Partner
<PAGE> 1
Exhibit 10.1
CENTERSTATE BANKS OF FLORIDA, INC.
OFFICERS' AND EMPLOYEES' STOCK OPTION PLAN
ARTICLE I
Definitions
As used herein, the following terms have the meanings hereinafter set
forth unless the context clearly indicates to the contrary:
(a) "Board" or "Board of Directors" shall mean the board
of directors of the Company.
(b) "Change of Control" shall mean (i) the acquisition,
other than from the Company, by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 35% or more of the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors (the "Company Voting
Securities"), provided, however, that any acquisition by the Company or any of
its subsidiaries, or any employee benefit plan (or related trust) of the
Company or its subsidiaries, or any corporation with respect to which,
following such acquisition, more than 50% of the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by the individuals and entities who were the beneficial owners of
the Company Voting Securities immediately prior to such acquisition in
substantially the same proportion as their ownership, immediately prior to such
acquisition, of the Company Voting Securities shall not constitute a Change of
Control; or (ii) individuals who, as of the date hereof, constitute the Board
(as of the date hereof the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purposes, any such individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the Directors of the Company (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act); or (iii) approval
by the shareholders of the Company of a reorganization, merger or
consolidation, in each case, with respect to which the individuals and entities
who were the beneficial owners of the Company Voting Securities immediately
prior to such reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such reorganization, merger or
consolidation, or a complete
<PAGE> 2
liquidation or dissolution of the Company or of the sale or other disposition
of all or substantially all of the assets of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended, unless otherwise specifically provided herein.
(d) "Company" shall mean Centerstate Banks of Florida,
Inc., a Florida corporation, and its successors.
(e) "Disinterested Person" shall have the meaning
attributable to such term in Rule 16b-3 under the Securities Exchange Act of
1934, or any successor provision thereto.
(f) "Employee" shall mean any individual who is employed
with the Company or any of its Subsidiaries as an officer or employee.
(g) "Incentive Stock Option" shall have the meaning given
to it by Section 422 of the Code.
(h) "Nonstatutory Stock Option" shall mean any Option
granted by the Company pursuant to this Plan which is not an Incentive Stock
Option.
(i) "Option" shall mean an option to purchase Stock granted
by the Company pursuant to the provisions of this Plan.
(j) "Option Price" shall mean the purchase price of each
share of Stock subject to Option, as defined in Section 5.2 hereof.
(k) "Optionee" shall mean an Employee who has received an
Option granted by the Company hereunder.
(l) "Plan" shall mean this Centerstate Banks of Florida,
Inc. Officers' and Employees' Stock Option Plan.
(m) "Service" shall mean the tenure of an individual as an
Employee of the Company or any of its Subsidiaries or any predecessor
(including tenure with a corporation or other entity prior to the date that it
became a Subsidiary).
(n) "Stock" shall mean the common stock of the Company, par
value $.01 per share, or, in the event that the outstanding shares of Stock are
hereafter changed into or exchanged for shares of a different class of stock or
securities of the Company or some other corporation, such other stock or
securities.
2
<PAGE> 3
(o) "Stock Option Agreement" shall mean the agreement
between the Company and the Optionee under which the Optionee may purchase
Stock pursuant to the Plan.
(p) "Stock Option Committee" shall mean the committee
administering the Plan, pursuant to Article III hereof.
(q) "Subsidiary" shall mean any corporation or other entity
which qualifies as a subsidiary of a corporation under the definition of
"subsidiary corporation" contained in Section 424(f) of the Code.
ARTICLE II
The Plan
2.1 Name. This plan shall be known as the "Centerstate Banks of
Florida, Inc. Officers' and Employees' Stock Option Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests of
the Company and its shareholders by affording to Employees an opportunity to
acquire or increase their proprietary interest in the Company by the grant of
Options to such Employees under the terms set forth herein. By encouraging such
Employees to become owners of Stock of the Company, the Company seeks to
motivate, retain, and attract those highly competent individuals upon whose
judgment, initiative, leadership, and continued efforts the success of the
Company and its Subsidiaries in large measure depends.
2.3 Effective Date. The Plan shall become effective on September 29,
1999 (which is the same date the Plan was adopted by the Company's shareholders
and Board of Directors).
2.4 Participants. Only Employees of the Company and its Subsidiaries
shall be eligible to receive Options under the Plan.
ARTICLE III
Plan Administration
3.1 Stock Option Committee. This Plan shall be administered by the
Compensation Committee of the Board of Directors of the Company (the "Stock
Option Committee"), which shall consist of at least two members of the Board
who are Disinterested Persons and who are each an "outside director" (as such
term is used in Treasury Regulation Section 1.162-27(e)(3)) during the time
that they serve on such Stock Option Committee.
3
<PAGE> 4
3.2 Power of the Stock Option Committee. The Stock Option Committee
shall have full authority and discretion: (a) to determine, consistent with the
provisions of this Plan, which of the Employees will be granted Options to
purchase any shares of Stock which may be issued and sold hereunder as provided
in Section 4.1 hereof, the times at which Options shall be granted, and the
number of shares of Stock covered by each Option; (b) to determine the Option
Price (subject to Section 5.2 hereof) and other terms and provisions of each
respective Stock Option Agreement, which need not be identical; (c) to
determine whether the Options granted pursuant to this Plan shall be Incentive
Stock Options or Nonstatutory Stock Options; (d) to construe and interpret the
Plan; and (e) to make all other determinations and take all other actions
deemed necessary or advisable for the proper administration of the Plan. All
such actions and determinations shall be conclusively binding upon all persons
for all purposes. Unless otherwise indicated by the Stock Option Committee,
Options granted pursuant to this Plan shall be Incentive Stock Options.
ARTICLE IV
Shares of Stock Subject to Plan
4.1 Limitations. Subject to adjustment pursuant to the provisions of
Section 4.3 hereof, the number of shares of Stock which may be issued and sold
hereunder pursuant to Stock Option Agreements shall not exceed Three Hundred
Sixty Five Thousand (365,000) shares. Shares subject to Options which terminate
or expire prior to exercise shall be available for future Options.
4.2 Options Granted Under Plan. Shares of Stock with respect to
which an Option granted hereunder shall have been exercised shall not again be
available for Option hereunder. If Options granted hereunder shall terminate
for any reason without being wholly exercised, then the Stock Option Committee
shall have the discretion to grant new Options to Optionees hereunder covering
the number of shares to which such terminated Options related.
4.3 Stock Adjustments; Mergers. Notwithstanding Section 4.1, in the
event the outstanding shares of Stock are increased or decreased or changed
into or exchanged for a different number or kind of shares or other securities
of the Company or of any other corporation by reason of any merger, sale of
stock, consolidation, liquidation, recapitalization, reclassification, stock
split up, combination of shares, or stock dividend, the total number of shares
set forth in Section 4.1 shall be proportionately and appropriately adjusted by
the Board. If the Company continues in existence, the number and kind of shares
that are subject to any Option and the Option Price per share shall be
proportionately and appropriately adjusted without any change in the aggregate
price to be paid therefor upon exercise of the Option. If the Company will not
remain in existence or a majority of its Stock will be purchased or acquired by
a single purchaser or group of purchasers acting together, then the Board may
(i) declare that all Options shall terminate 30 days after the Board gives
written notice to all Optionees of their immediate right to exercise all
Options then outstanding (without regard to limitations on exercise otherwise
contained in the Options), or (ii) notify all Optionees that all Options
granted under the Plan shall apply with appropriate adjustments as determined
by the Board to the securities of the
4
<PAGE> 5
successor corporation to which holders of the numbers of shares subject to such
Options would have been entitled, or (iii) some combination of aspects of (i)
and (ii). The determination by the Board as to the terms of any of the
foregoing adjustments shall be conclusive and binding. Any fractional shares
resulting from any of the foregoing adjustments under this section shall be
disregarded and eliminated.
4.4 Change of Control. Upon a Change of Control, all Options granted
under the Plan shall become exercisable immediately notwithstanding the
provisions of the respective Option agreements regarding exercisability.
ARTICLE V
Options
5.1 Option Grant and Agreement. Each Option granted hereunder shall
be evidenced by minutes of a meeting of the Stock Option Committee authorizing
the same and by a written Stock Option Agreement dated as of the date of grant
and executed by the Company and the Optionee, which Stock Option Agreement
shall set forth such terms and conditions as may be determined by the Stock
Option Committee to be consistent with the Plan and shall indicate whether the
Option that it evidences is intended to be an Incentive Stock Option or a
Nonstatutory Stock Option.
5.2 Option Price. The Option Price of each share of Stock subject to
Option shall not be less than the fair market value of the Stock on the date of
grant. If the Stock is traded on a national securities exchange or on the
NASDAQ National Market System ("NMS") at the date of grant, then the fair
market value of the Stock on the date of grant shall be equal to the closing
price of such Stock as quoted on such exchange or market as of the trading day
immediately preceding the effective date of such grant. If the Stock is not
traded on a national securities exchange or the NMS at the date of grant, then
the fair market value of the Stock on the date of grant shall be determined in
good faith by the Board of Directors using any reasonable method, which shall
include consideration of market quotations to the extent available.
5.3 Option Exercise. Options may be exercised in whole or in part
from time to time with respect to whole shares only, within the period
permitted for the exercise thereof. Notwithstanding any other provision in this
Plan, no option granted under the Plan may be exercised more than ten (10)
years after the date on which it is granted. Options shall be exercised by: (i)
written notice of intent to exercise the Option with respect to a specific
number of shares of Stock which is delivered by hand delivery or registered or
certified mail, return receipt requested, to the Company at its principal
office; and (ii) payment in full to the Company at such office of the amount of
the Option Price for the number of shares of Stock with respect to which the
Option is then being exercised. Payment of the Option Price shall be made in
cash, certified check, cashier's check, or personal check (and if made by
personal check the shares of Stock issued upon exercise of the Option shall be
held by the Company until the check has cleared); provided, however, that if at
the time of exercise of the Option
5
<PAGE> 6
the Stock is traded on a national securities exchange or on the NMS, all or
part of the Option Price may also be paid by delivery to the Company of shares
of Stock previously acquired by the Optionee, which shall be valued for such
purpose at the closing price of such Stock as quoted on such exchange or market
as of the trading day immediately preceding the date of exercise. In addition
to and at the time of payment of the Option Price, the Optionee shall, if and
to the extent requested by the Company, pay to the Company in cash the full
amount of all federal, state, and local withholding or other employment taxes,
if any, applicable to the taxable income of the Optionee resulting from such
exercise, and any sales, transfer, or similar taxes imposed with respect to the
issuance or transfer of shares of Stock in connection with such exercise.
5.4 Nontransferability of Option. No Option shall be transferred by
an Optionee otherwise than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act, or the rules thereunder
(a "Qualified Domestic Order"). During the lifetime of an Optionee, the Option
shall be exercisable only by the Optionee or the Optionee's legal guardian or
personal representative.
5.5 Effect of Death, Disability, Retirement, or Other Termination of
Service.
(a) If an Optionee's Service with the Company and its
Subsidiaries shall be terminated for "cause," as defined
in Section 5.5(b) hereof, then no Options held by such
Optionee, which are unexercised in whole or in part, may
be exercised on or after the date on which such Optionee
is first notified in writing by the Company of such
termination for cause.
(b) For purposes of this Section 5.5, termination for "cause"
shall mean termination for the Optionee's personal
dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, violation of any law, rule, or
regulation (other than traffic violations or similar
offenses) affecting the Company or its Subsidiaries,
violation of any agreement or order with any bank
regulatory agency, failure by the Optionee after receipt
of written notice from the Company to perform Optionee's
stated duties with the Company or its Subsidiaries, or
such other circumstances as the Company and/or its
Subsidiaries determines as resulting in the Optionee's
termination of employment for "cause."
(c) If an Optionee's Service with the Company and its
Subsidiaries shall be terminated for any reason other than
for cause (as defined in Section 5.5(b) hereof) and other
than normal or early retirement at or after age fifty-five
(55) or the disability (as defined in Section 5.5(f)
hereof) or death of the Optionee, then: (i) no Options
held by such Optionee which are unexercised in whole or in
part may be exercised on or after the effective date of
such termination or, if later, ten (10) days after the
date that the Optionee, if terminated by the Company and
its Subsidiaries, receives written notice of termination;
and (ii)
6
<PAGE> 7
the Stock Option Committee may, but shall not be obligated
to, allow the Optionee to exercise within such time any or
all of the Options, if any, held by the Optionee which
would not yet otherwise be exercisable.
(d) If an Optionee's Service with the Company and its
Subsidiaries shall be terminated by reason of normal or
early retirement at or after age fifty-five (55), then the
Optionee shall have the right to exercise the Optionee's
Options for ninety (90) days after the date of such
termination, but only to the extent that such Options were
exercisable at the date of such termination; provided,
however, that the Stock Option Committee may, but shall
not be obligated to, allow such Optionee to exercise
within such time any or all of the Options, if any, held
by the Optionee which would not yet otherwise be
exercisable.
(e) If an Optionee's Service with the Company and its
Subsidiaries shall be terminated by reason of the death or
disability (as defined in Section 5.5(f) hereof) of the
Optionee, then the personal representative or
administrator of the estate of the Optionee or the person
or persons to whom an Option granted hereunder shall have
been validly transferred by the personal representative or
administrator pursuant to the Optionee's will or the laws
of descent and distribution, as the case may be, shall
have the right to exercise all of the Optionee's Options
for ninety (90) days after the date of such termination,
including any Options not yet otherwise exercisable as of
the date of such termination.
(f) For purposes of this Section 5.5, the terms "disability"
and "disabled" shall have the meaning set forth in the
principal disability insurance policy or similar program
then maintained by the Company on behalf of Employees or,
if no such policy or program is then in existence, the
meaning then used by the United States Government in
determining persons eligible to receive disability
payments under the social security system of the United
States.
(g) No transfer of an Option by the Optionee by will, the laws
of descent and distribution, or a Qualified Domestic Order
shall be effective to bind the Company unless the Company
shall have been furnished with written notice thereof and
an authenticated copy of the will or the Qualified
Domestic Order and/or such other evidence as the Company
may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or
transferees of the terms and conditions of such Option.
5.6 Rights as Shareholder. An Optionee or a transferee of an Option
shall have no rights as a shareholder with respect to any shares of Stock
subject to such Option prior to the purchase of such shares by exercise of such
Option as provided herein.
7
<PAGE> 8
5.7 Investment Intent. Upon or prior to the exercise of all or any
portion of an Option, the Optionee shall furnish to the Company in writing such
information or assurances as, in the Company's opinion, may be necessary to
enable it to comply fully with the Securities Act of 1933, as amended, and the
rules and regulations thereunder and any other applicable statutes, rules, and
regulations. Without limiting the foregoing, if a registration statement is not
in effect under the Securities Act of 1933, as amended, with respect to the
shares of Stock to be issued upon exercise of an Option, the Company shall have
the right to require, as a condition to the exercise of such Option, that the
Optionee represent to the Company in writing that the shares to be received
upon exercise of such Option will be acquired by the Optionee for investment
and not with a view to distribution and that the Optionee agree, in writing,
that such shares will not be disposed of except pursuant to an effective
registration statement, unless the Company shall have received an opinion of
counsel reasonably acceptable to it to the effect that such disposition is
exempt from the registration requirements of the Securities Act of 1933, as
amended. The Company shall have the right to endorse on certificates
representing shares of Stock issued upon exercise of an Option such legends
referring to the foregoing representations and restrictions or any other
applicable restrictions on resale or disposition as the Company, in its
discretion, shall deem appropriate.
ARTICLE VI
Incentive Stock Options
6.1 Requirements. All Incentive Stock Options granted pursuant to
the terms of this Plan shall be subject to the additional limitations and
restrictions as set forth in the Code and in this Article VI. Any Option
granted pursuant to this Plan which does not fulfill all of the provisions of
this Article VI shall not be an Incentive Stock Option and thus shall be a
Nonstatutory Stock Option.
6.2 Grant Period. All Incentive Stock Options granted hereunder must
be granted within ten (10) years from the Effective Date set forth in Section
2.3 which represents the earlier of: (a) the date the Plan was adopted by the
Board; or (b) the date the Plan is approved by the shareholders of the Company.
6.3 Eligibility. The Stock Option Committee shall determine which
Employees shall receive Incentive Stock Options. No member of the Stock Option
Committee shall be eligible to receive Incentive Stock Options. Incentive Stock
Options may not be granted to any Employee who, at the time the Incentive Stock
Option is granted, owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company unless: (a)
such Incentive Stock Option by its terms is not exercisable after the
expiration of five (5) years from the date of its grant; and (b) the Option
Price of the shares covered by such Incentive Stock Option is not less than one
hundred and ten percent (110%) of the fair market value of such shares on the
date that such Incentive Stock Option is granted.
8
<PAGE> 9
6.4 Special Rule Regarding Exercisability. If, for any reason, any
Option granted hereunder which is intended to be an Incentive Stock Option
shall exceed the limitation on exercisability contained in the Code at any
time, such Options shall nevertheless be exercisable, but: (a) any exercise of
such Option shall be deemed to be an exercise of an Incentive Stock Option
first until the portion of such Option qualifying as an Incentive Stock Option
shall have been exercised in full; and (b) the portion of such Option in excess
of the foregoing limitation on exercisability shall be deemed to be a
Nonstatutory Stock Option.
ARTICLE VII
Nonstatutory Stock Options
The Stock Option Committee may grant Nonstatutory Stock Options under
this Plan. Such Nonstatutory Stock Options must fulfill all of the requirements
of all provisions of this Plan except for those contained in Article VI hereof.
Subject to the approval and acceptance of the Stock Option Committee in its
discretion, any Employee who is granted a Nonstatutory Stock Option pursuant to
this Plan shall be entitled to elect to surrender all or any part of such
Nonstatutory Stock Option to the Company and receive, in exchange, an Incentive
Stock Option covering the same number of shares as those with respect to which
the Nonstatutory Stock Option was surrendered. Any such election shall be valid
and effective only upon its approval and acceptance by the Stock Option
Committee, which may impose additional terms as a condition to its approval.
ARTICLE VIII
Stock Certificates
The Company shall not be required to issue or deliver any certificate
for shares of Stock purchased upon the exercise of any Option granted hereunder
or of any portion thereof, prior to fulfillment of all of the following
conditions:
(a) The admission of such shares to listing on all stock
exchanges on which the Stock is then listed, if any;
(b) The completion of any registration or other qualification
of such shares under any federal or state law or under the rulings or
regulations of the Securities and Exchange Commission or any other governmental
regulatory agency, which the Company shall in its sole discretion determine to
be necessary or advisable;
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency which the Company shall in its sole
discretion determine to be necessary or advisable; and
9
<PAGE> 10
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Company from time to time may establish for
reasons of administrative convenience.
ARTICLE IX
Termination, Amendment, and Modification of Plan
The Board may at any time terminate, and may at any time and from time
to time and in any respect amend or modify, the Plan; provided, however, that
no such action of the Board without approval of the shareholders of the Company
may increase the total number of shares of Stock subject to the Plan except as
contemplated in Section 4.3 hereof or alter the class of persons eligible to
receive Options under the Plan, and provided further that no termination,
amendment, or modification of the Plan shall without the written consent of the
Optionee of such Option adversely affect the rights of the Optionee with
respect to an outstanding Option or the unexercised portion thereof.
Notwithstanding any other provision in this Plan, the Company's
primary federal bank regulator shall at any time have the right to direct the
Company to require Optionees to exercise their Options or forfeit their Options
if the Company's capital falls below the minimum requirements, as determined by
such federal bank regulator.
ARTICLE X
Miscellaneous
10.1 Continued Employment Not Presumed. This Plan and any document
describing this Plan and the grant of any Option hereunder shall not give any
Optionee or other employee a right to continued employment by the Company or
its Subsidiaries or affect the right of the Company or its Subsidiaries to
terminate the employment of any such person with or without cause.
10.2 Other Compensation Plans. The adoption of the Plan shall not
affect any other stock option or incentive or other compensation plans in
effect for the Company or its Subsidiaries, nor shall the Plan preclude the
Company or its Subsidiaries from establishing any other forms of incentive or
other compensation for directors, officers, or employees of the Company or its
Subsidiaries.
10.3 Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company.
10.4 Singular, Plural; Gender. Whenever used herein, nouns in the
singular shall include the plural, and the masculine pronoun shall include the
feminine gender.
10
<PAGE> 11
10.5 Applicable Law. This Plan shall be governed by and construed
in accordance with the laws of the State of Florida.
10.6 Headings, etc., No Part of Plan. Headings of Articles and
Sections hereof are inserted for convenience and reference; they constitute no
part of the Plan.
10.7 Severability. If any provision or provisions of this Plan shall
be held to be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
CENTERSTATE BANKS OF FLORIDA, INC.
By: /s/ James H. White
-----------------------------------------
James H. White, Chairman, President and
Chief Executive Officer
11
<PAGE> 1
EXHIBIT 21
Subsidiaries of Centerstate Banks of Florida
None
<PAGE> 1
EXHIBIT 23.1
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
January 20, 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
January 20, 2000
<PAGE> 1
EXHIBIT 23.4
January 20, 2000
The Board of Directors
Centerstate Banks of Florida
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ DWIGHT DARBY & COMPANY
<PAGE> 1
EXHIBIT 23.5
The Board of Directors
Centerstate Banks of Florida
Kissimmee, Florida
We consent to the use of our report included herein (or incorporated by
reference) and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ GRAHAM & COTTRILL, P.A.
Orlando, Florida
January 18, 2000
<PAGE> 1
EXHIBIT 23.6
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/ G. T. NUNEZ & ASSOCIATES
January 20, 2000
<PAGE> 1
Exhibit 23.7
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
January 20, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,787,574
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,175,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,955,703
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 56,649,446
<ALLOWANCE> 885,503
<TOTAL-ASSETS> 92,980,924
<DEPOSITS> 84,646,768
<SHORT-TERM> 652,948
<LIABILITIES-OTHER> 234,556
<LONG-TERM> 0
0
0
<COMMON> 2,307,927
<OTHER-SE> 5,138,727
<TOTAL-LIABILITIES-AND-EQUITY> 92,980,924
<INTEREST-LOAN> 4,868,419
<INTEREST-INVEST> 1,405,265
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,273,684
<INTEREST-DEPOSIT> 3,098,451
<INTEREST-EXPENSE> 3,098,451
<INTEREST-INCOME-NET> 3,175,233
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 564,516
<INCOME-PRETAX> 2,494,681
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.18
<LOANS-NON> 180,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 755,000
<CHARGE-OFFS> (43,000)
<RECOVERIES> 4,000
<ALLOWANCE-CLOSE> 866,000
<ALLOWANCE-DOMESTIC> 150,000
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</TABLE>
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,174,798
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,207,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,236,228
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<INVESTMENTS-MARKET> 0
<LOANS> 56,898,718
<ALLOWANCE> (865,306)
<TOTAL-ASSETS> 95,720,351
<DEPOSITS> 85,220,390
<SHORT-TERM> 2,211,244
<LIABILITIES-OTHER> 446,844
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0
0
<COMMON> 2,434,175
<OTHER-SE> 5,407,698
<TOTAL-LIABILITIES-AND-EQUITY> 95,720,351
<INTEREST-LOAN> 3,756,223
<INTEREST-INVEST> 1,135,582
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,891,805
<INTEREST-DEPOSIT> 2,282,238
<INTEREST-EXPENSE> 2,282,238
<INTEREST-INCOME-NET> 2,609,567
<LOAN-LOSSES> 9,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,384,430
<INCOME-PRETAX> 692,916
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 437,722
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.16
<LOANS-NON> 201,000
<LOANS-PAST> 390,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 868,000
<CHARGE-OFFS> (54,000)
<RECOVERIES> 45,000
<ALLOWANCE-CLOSE> 866,000
<ALLOWANCE-DOMESTIC> 9,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
COMMUNITY NATIONAL BANK OF PASCO COUNTY
6930 GALL BLVD.
ZEPHYRHILLS, FLORIDA 33541-2513
(813) 783-8122
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON _________, 2000
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders of
Community National Bank of Pasco County ("Bank") will be held at
__________________ on ________, ________, 2000, at _____ a.m. local time, for
the following purposes:
1. Approve Agreement to Merge. To consider and vote upon a proposal to
approve the Agreement to Merge ("Agreement") by and between Community National
Bank of Pasco County ("Bank"), Centerstate Banks of Florida, Inc.
("Centerstate") and Community Interim National Bank of Pasco County
("Interim"), which provides for the reorganization of the Bank into a holding
company structure, pursuant to (i) the acquisition of the Bank by Centerstate
by means of a merger of the Bank with and into Interim, and (ii) the conversion
of each of the issued and outstanding shares of common stock of the Bank into
the right to receive 2.02 shares of common stock of Centerstate, all as more
fully described in the accompanying Proxy Statement/Prospectus.
2. Other business. To transact such other business as may properly come
before the Special Meeting or any adjournments or postponements thereof.
Only shareholders of record at the close of business on ___________,
2000 are entitled to notice of, and to vote at, the Special Meeting.
A shareholder who either (i) votes against the approval of the
Agreement or (ii) gives written notice to the Bank, at or prior to the Special
Meeting, that he or she dissents from the Agreement, will be entitled to
payment in cash of the value of the shares held by such shareholder. However,
the Board of Directors reserves the right to terminate and not consummate the
Merger if the number of shares purporting to dissent from the Merger makes the
Merger inadvisable.
Your attention is directed to the attached Proxy Statement.
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE HOLDING COMPANY FORMATION.
By Order of the Board of Directors
Zephyrhills, Florida James H. White
_____________, 2000 Chairman of the Board
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE,
AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT IN THE ENCLOSED RETURN
ENVELOPE IN ORDER TO INSURE THAT YOUR SHARES WILL BE REPRESENTED AT THE SPECIAL
MEETING. THE AFFIRMATIVE VOTE OF HOLDERS OF AT LEAST TWO-THIRDS OF THE
OUTSTANDING SHARES OF BANK COMMON STOCK IS REQUIRED FOR APPROVAL OF THE HOLDING
COMPANY FORMATION.
<PAGE> 1
Exhibit 99.2
PROXY CARD
REVOCABLE PROXY
COMMUNITY NATIONAL BANK OF PASCO COUNTY
PROXY SOLICITED BY AND ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON ________, 2000.
The undersigned hereby appoints _____________________ and
___________________, or either of them with individual power of substitution,
proxies to vote all shares of the Common Stock of Community National Bank of
Pasco County (the "Bank") which the undersigned may be entitled to vote at the
Special Meeting of Shareholders to be held at the_____________________________,
___________, Florida, on _______, ________, 2000, at _______ a.m., and at any
adjournment or postponement thereof.
SAID PROXIES WILL VOTE ON THE PROPOSALS SET FORTH IN THE NOTICE OF
SPECIAL MEETING AND PROXY STATEMENT/PROSPECTUS AS SPECIFIED ON THIS CARD. IF A
VOTE IS NOT SPECIFIED, SAID PROXIES WILL VOTE IN FAVOR OF AGREEMENT TO MERGE
LISTED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS. IF ANY OTHER MATTERS
PROPERLY COME BEFORE THE SPECIAL MEETING, SAID PROXIES WILL VOTE ON SUCH
MATTERS IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR:
1. To authorize, adopt and approve the Agreement to Merge between
Centerstate Banks of Florida, Inc., Community National Bank of Pasco
County, and Community Interim National Bank of Pasco County.
FOR AGAINST ABSTAIN
------ ------ -------
<PAGE> 2
PLEASE MARK, SIGN BELOW, DATE AND RETURN
THIS PROXY PROMPTLY IN THE ENVELOPE
FURNISHED.
PLEASE SIGN EXACTLY AS NAME APPEARS ON YOUR
STOCK CERTIFICATE. WHEN SHARES ARE HELD BY
JOINT TENANTS, BOTH SHOULD SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE
GIVE FULL TITLE AS SUCH. IF A CORPORATION,
PLEASE SIGN IN FULL CORPORATE NAME BY
PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP
NAME BY AUTHORIZED PERSON.
SHARES
-----------------
DATED , 2000
-----------
-----------------------------------
SIGNATURE
-----------------------------------
SIGNATURE IF HELD JOINTLY
-----------------------------------
PLEASE PRINT OR TYPE YOUR NAME
[ ] PLEASE MARK HERE IF YOU INTEND TO ATTEND THE 2000 SPECIAL MEETING OF
SHAREHOLDERS.
PLEASE RETURN YOUR SIGNED PROXY
TO:
COMMUNITY NATIONAL BANK OF PASCO COUNTY
6930 GALL BLVD.
ZEPHYRHILLS, FLORIDA 33541-2513
ATTN: JAMES S. STALNAKER, JR.
