<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 2000.
REGISTRATION STATEMENT NO. 333-35548
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
POST EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------
SOUTHERN COMMUNITY BANCORP
(Name of Small Business Issuer in its Charter)
Florida 6021 59-3619325
(State or Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Industrial Identification
Organization) Classification Code Number)
Number)
250 North Orange Avenue
Orlando, Florida 32801
(407) 648-1844
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
----------------------------
Charlie W. Brinkley, Jr.
Chairman and Chief Executive Officer
Southern Community Bancorp
250 North Orange Avenue
Orlando, Florida 32801
(407) 648-1844
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Alfred G. Smith, II, Esq. Rod Jones, Esq.
Shutts & Bowen LLP Shutts & Bowen LLP
201 S. Biscayne Boulevard, Suite 1500 20 North Orange Avenue, Suite 1000
Miami, Florida 33131 Orlando, Florida 32801
(305) 379-9147 (407) 849-4906
(305) 381-9982 (fax) (407) 425-8316 (fax)
<PAGE> 2
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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(c) 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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
----------------------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 30, 2000.
PROSPECTUS
SOUTHERN COMMUNITY BANCORP
850,000 Shares
Common Stock
We are offering a minimum of 620,000 shares, and a maximum of 850,000
shares, of our common stock. There is currently no public market for our common
stock, and we do not expect a public market to develop after the offering. The
price to the public in the offering is $16.50 per share. Each subscriber is
required to purchase a minimum of 1,000 shares.
INVESTING IN THE SHARES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.
We originally commenced the offering of our shares in July 2000. In
August 2000, we completed the sale of 200,000 as part of the offering. In
September 2000, we suspended the offering in order to amend the prospectus for
the offering to reflect the proposed merger between us and Peninsula Bancorp,
Inc., to modify the terms of the offering and to update the information in the
prospectus.
As of the date of this prospectus, the escrow agent for the offering is
holding $7,825,851 in subscription funds. We received these funds from
subscribers before we suspended the offering. The escrow agent will return these
subscription funds to these subscribers [three weeks from the effective date of
this prospectus], unless the subscribers reconfirm their subscriptions in
writing prior to that date. If the subscribers reconfirm their subscriptions,
the escrow agent will hold their subscription funds in the same manner as new
subscriptions.
We will deposit all amounts received from new subscribers into an
escrow account which we have established with SunTrust Bank, as escrow agent.
The escrow agent will hold and disburse the amounts deposited in the escrow
account subject to conditions which we have established. See "Summary - Escrow
Accounts" on page 3 for a description of these conditions.
We will not utilize an underwriter to offer the shares. Instead,
certain of our executive officers will offer the shares on our behalf on a "best
efforts" basis. These officers will not receive any commissions or additional
compensation for these efforts.
The expiration date of the offering is December 31, 2000. We also have
the right to cancel the offering at any time prior to the release of funds from
escrow. If we cancel the offering, the escrow agent will promptly return all
funds received from subscribers, without interest or deduction.
New subscribers, as well as existing subscribers who reconfirm their
subscriptions, may not revoke their subscriptions without our consent. We may
accept or reject any subscription offer, in whole or in part, in our discretion.
<PAGE> 4
<TABLE>
<CAPTION>
Underwriting Proceeds to Southern
Price to Public Commissions Community Bancorp
--------------- ------------ --------------------
<S> <C> <C> <C>
Per Share ....................... $16.50 None $16.50
Minimum Offering................. $10,230,000.00 None $10,230,000.00
Maximum Offering................. $14,025,000.00 None $14,025,000.00
</TABLE>
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 THE DISCLOSURES IN THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
YOU SHOULD NOTE THAT THE SHARES ARE NOT BANK ACCOUNTS OR DEPOSITS AND ARE NOT
FEDERALLY INSURED BY THE FDIC OR ANY STATE OR FEDERAL AGENCY.
The date of this prospectus is , 2000.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM
THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS
TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, "SOUTHERN
COMMUNITY BANCORP," "SOUTHERN," "WE," AND "OUR" REFER TO SOUTHERN COMMUNITY
BANCORP, A FLORIDA CORPORATION; PENINSULA" REFERS TO PENINSULA BANCORP. INC., A
FLORIDA CORPORATION; AND "PENINSULA BANK" REFERS TO PENINSULA BANK OF CENTRAL
FLORIDA, A FLORIDA BANK.
<PAGE> 5
TABLE OF CONTENTS
Prospectus Summary.................................................... 1
Risk Factors.......................................................... 7
Terms of Offering..................................................... 14
Use of Proceeds....................................................... 16
Dilution ............................................................. 17
Capitalization........................................................ 19
Dividend Policy....................................................... 20
Selected Financial Data............................................... 21
Management's Discussion and Analysis of Southern's
Results of Operations and Financial Condition................ 23
Business ............................................................. 40
Proposed Merger with Peninsula........................................ 48
Supervision And Regulation............................................ 60
Management............................................................ 66
Certain Transactions.................................................. 78
Securities Ownership of Certain Beneficial Owners and Management...... 79
Description of Capital Stock.......................................... 81
Shares Eligible For Future Sale....................................... 84
Legal Matters......................................................... 85
Experts ............................................................. 85
Where You Can Find More Information................................... 85
Index to Consolidated Financial Statements............................ F-1
Exhibit A - Subscription Agreement
Exhibit B - Amended and Restated Escrow Agreement
Exhibit C - Reconfirmation Letter
i
<PAGE> 6
PROSPECTUS SUMMARY
YOU SHOULD READ THIS SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
APPEARING ELSEWHERE IN THIS PROSPECTUS.
SOUTHERN COMMUNITY BANCORP
OUR BUSINESS
Southern Community Bancorp is a recently formed, Florida-based bank
holding company. We currently conduct substantially all of our activities
through Southern Community Bank. This bank commenced banking operations in
December 1998 and currently has a main office and three branches in the Orlando,
Florida area, and one branch in Bonita Springs, Florida.
We intend to expand our operations by opening a new bank in Bonita
Springs, Florida, in January 2001. The new bank will acquire the assets and
liabilities of the Bonita Springs branch of our existing bank. We believe that
the new bank will be more successful than a branch in attracting customers in
the southwest Florida market because most of the directors and officers of the
new bank will be residents of southwest Florida. We believe that many customers
will be attracted to the new bank by virtue of its local management.
In September 2000, we entered into a letter of intent with Peninsula
Bancorp, Inc. regarding the possible merger between us and Peninsula. Peninsula
is a bank holding company which owns Peninsula Bank of Central Florida.
Peninsula Bank currently operates two branches in the Daytona Beach, Florida
area. At September 30, 2000, Peninsula had total assets of approximately $46.7
million.
OUR STRATEGY
Our strategy is to target customers who are dissatisfied with the level
of service delivered by the multi-state banking organizations which have
recently acquired a large percentage of the banking business in Florida.
According to FDIC statistics, the ten largest banks in Florida at June 30, 1999,
controlled 64.7% of total deposits and included just one Florida-based
institution. Five years earlier, on June 30, 1994, the ten largest banks
controlled 55.9% of total deposits and included two Florida- based institutions.
By a different measure, the market share of the three largest banks in Florida
has increased from 40.5% at June 30, 1994 to 50.3% on June 30, 1999. As a result
of this consolidation, we believe that we have the ability to attract owners of
small and medium sized businesses, entrepreneurs, and other professional and
executive customers by providing personalized service and products tailored to
meet the needs of these customers.
As part of our strategy, we will attempt to operate our existing bank,
our proposed new bank, and any banks which we may open or acquire in the future,
in substantially the same manner as local community banks. Accordingly, we
expect that the board of directors and officers of each of our banks will
primarily consist of individuals who live within the communities served by each
bank. Additionally, we anticipate that all of the lending decisions for each
bank will be made by the board
<PAGE> 7
of directors and officers of that bank. Each bank will also seek to become an
active participant in the local community by supporting local charities and
civic organizations.
We expect to realize some of the benefits of larger banking
organizations. For example, we will operate each of our banks on the same data
processing system. Additionally, we plan to utilize a single human resources
department to handle employee benefits and related employment matters. We hope
to realize the benefits of economies of scale for these administrative
functions.
We may expand in the future by opening new banks, and by acquiring or
merging with existing banks, such as our proposed merger with Peninsula. We
expect that we would utilize our same strategy for establishing and growing
these banks by emphasizing personalized service and the community bank aspects
of our banks.
OUR EXISTING BANK
Our existing bank, Southern Community Bank, was formed by a group of
Orlando businessmen and bank executives who believed that there was significant
demand for an additional community bank in the Orlando area. Since opening in
December 1998, our existing bank has grown rapidly. As of September 30, 2000,
our existing bank had total assets of approximately $175.6 million. We expect
our existing bank will open two additional branches in the Orlando market during
the next 18 months.
OUR PROPOSED NEW BANK
We plan to open our proposed new bank, Southern Community Bank of
Southwest Florida, to serve the southwest Florida market, which consists of the
area between Naples and Ft. Myers, Florida. The Florida Department of Banking
and Finance has approved our application to organize the new bank, and the FDIC
has approved our application for deposit insurance. We have also applied to the
Board of Governors of the Federal Reserve System for permission to acquire all
of the capital stock of Southern Community Bank of Southwest Florida. Assuming
that we receive all required regulatory approvals and the offering is
successful, we expect to open the new bank in January 2001.
Our new bank will acquire the assets and liabilities of our branch in
the Bonita Springs, Florida, which our existing bank opened in July 2000. We
believe that the opening of this branch will accelerate our ability to grow the
new bank by providing it with a base of personnel, deposits, loans and customer
relationships.
OUR PROPOSED MERGER WITH PENINSULA
We have entered into a letter of intent with Peninsula regarding a
possible merger between us and Peninsula. Under the proposed terms of the
merger, each outstanding share of Peninsula's common stock would be converted
into .625 shares of our common stock. If we had completed the merger on
September 30, 2000, we would have issued 621,598 shares to the shareholders of
Peninsula in exchange for Peninsula's outstanding shares. Under the proposed
terms of the merger,
2
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we will also issue options to acquire shares of our common stock in exchange for
the outstanding options of Peninsula.
The merger is intended to qualify as a tax-free reorganization under
the Internal Revenue Code of 1986, as amended. The parties intend to account for
this transaction by using the purchase method of accounting.
The consummation of the merger is contingent upon the completion of due
diligence investigations by each of the parties, the negotiation and execution
of a definitive merger agreement, the receipt of all required regulatory
consents and the approval of the shareholders of Peninsula. Accordingly, there
can be no assurance that we will complete the merger or that we will complete it
on the terms set forth in the letter of intent.
OUR MANAGEMENT TEAM
Our management team includes individuals who have significant
experience serving our target markets. Our chairman and chief executive officer
is Charlie W. Brinkley, Jr., who has more than 21 years of banking experience in
the Central Florida market, including serving as the president of Southern Bank
of Central Florida for eight years and as the president of Colonial Bank -
Florida for two years. Our president and the head of our Orlando bank is John G.
Squires, who also has more than 21 years of experience in the Orlando banking
market, including serving as vice-chairman of Southern Bank of Central Florida
for eight years and as executive vice-president of Colonial Bank - Florida for
two years.
Our new bank in southwest Florida will be headed by Richard Garner, who
will serve as its chairman and chief executive officer. Mr. Garner has almost 30
years of banking experience in Florida, including more than nine years in the
southwest Florida market. Mr. Garner previously served as president of First
National Bank of Florida in Bonita Springs and as president of Colonial Bank -
Southwest Florida. The president and senior lending officer of the new bank will
be Joel Whittenhall, who has 19 years of banking experience in the southwest
Florida market, including service as the executive vice-president and senior
lending officer of First National Bank of Florida.
ESCROW ACCOUNTS
BACKGROUND. We originally established two escrow accounts with SunTrust
Bank as escrow agent for purposes of the offering. We established the first
escrow account for the purpose of capitalizing our proposed new bank, Southern
Community Bank of Southwest Florida. We established the second escrow account
for the principal purpose of providing additional working capital for our
existing bank, Southern Community Bank. We had the right to withdraw the funds
in the second escrow account after subscriptions for 200,000 shares were
deposited in the second escrow account. We also had the right to transfer
subscriptions for more than 200,000 shares from the second escrow account to the
first escrow account.
In August 2000, subscribers had deposited subscriptions for more than
200,000 shares in the second escrow account. We therefore elected to complete
the sale of 200,000 shares, by
3
<PAGE> 9
withdrawing $3,300,000 in subscription funds from the second escrow account. We
also elected to transfer all remaining subscription funds from the second escrow
account to the first escrow account.
We have now closed the second escrow account. Accordingly, we will
deposit all subscription funds received after the date of this prospectus in the
first escrow account.
RETURN OR RECONFIRMATION OF PREVIOUS SUBSCRIPTIONS. As of the date of
this prospectus, the escrow agent is holding $7,825,851 in subscriptions in the
first escrow account. This amount represents subscriptions for 474,294 shares.
The escrow agent will return these subscriptions to these subscribers [three
weeks from the effective date of this prospectus], unless these subscribers
reconfirm their subscriptions in writing before that date. If a subscriber
reconfirms his subscription before ________, 2000, then the escrow agent will
continue to hold and disburse the subscriber's funds on the same terms and
conditions as new subscribers.
ESCROW CONDITIONS. The escrow agent will hold and disburse all of the
amounts deposited in the first escrow account subject to the following
conditions:
o Unless we receive subscriptions, including reconfirmations of previous
subscriptions, for at least 620,000 shares on or before December 31,
2000, the escrow agent will return all subscription funds to
subscribers, without interest or deduction.
o If we receive subscriptions for at least 620,000 shares before December
31, 2000, then the escrow agent will continue to hold all subscription
funds until the earlier of our receipt of all required regulatory
approvals to open our proposed new bank or February 28, 2001.
o Unless we receive all required regulatory approvals before February 28,
2001, the escrow agent will return all subscription funds to
subscribers, without interest or deduction.
o If we receive all required regulatory approvals before February 28,
2001, the escrow agent will release the amounts in the first escrow
account to us, and we will contribute the proceeds to our proposed new
bank.
We have the right to accept or reject any subscription offer, in whole
or in part. Assuming that we accept the entire subscription offer made by a
subscriber, we will deposit the subscriber's subscription funds in the first
escrow account. If we do not accept the entire subscription offer, we will
promptly return the portion of the subscription offer which we did not accept,
without interest or deduction.
We will issue shares to subscribers at the same time as the escrow
agent releases the proceeds from each escrow account to us. As a result,
subscribers may receive shares at different times.
The escrow agent will invest all amounts deposited in escrow in a
money-market mutual fund managed by an affiliate of the escrow agent. We will
retain all interest and other income from the accounts, regardless of whether
the offering is completed or canceled.
4
<PAGE> 10
REASONS FOR SEPARATE ESCROW ACCOUNTS
We originally established two separate escrow accounts to facilitate
our goal of capitalizing our new bank with proceeds received from residents of
southwest Florida. To accomplish this goal, we initially encouraged subscribers
located in southwest Florida to designate that their subscription proceeds be
deposited in the first escrow account. We believed that these subscribers would
increase the likelihood of the new bank's success because these subscribers are
potential customers and business referral sources for the new bank. We
encouraged subscribers located in areas outside of southwest Florida to
designate that their subscription proceeds be deposited in the second escrow
account.
EACH SUBSCRIBER SHOULD BE AWARE THAT THE SUBSCRIBER IS ACQUIRING SHARES
IN OUR HOLDING COMPANY AND NOT ACQUIRING A DIRECT EQUITY INTEREST IN EITHER OUR
EXISTING BANK OR OUR PROPOSED NEW BANK.
AMENDMENTS TO PRIOR PROSPECTUS.
------------------------------
The Company has amended its original prospectus to describe the
proposed merger with Peninsula, to modify the terms of the offering, to offer
recission to existing subscribers and to update the information in the
prospectus.
The material amendments are as follows:
o DISCUSSION OF PROPOSED MERGER WITH PENINSULA. The Company has amended
the prospectus to discuss the proposed merger transaction with Peninsula. See
page __ for a discussion of the terms of the proposed merger.
o MODIFICATION OF OFFERING TERMS. The Company has amended the prospectus
to reflect the following changes to the terms of the offering:
o The original prospectus provided that the expiration date of
the offering would be September 30, 2000, although the Company
reserved the right to extend the expiration date to December
31, 2000. The amended prospectus now reflects that the
expiration date of the offering will be December 31, 2000.
o The original prospectus provided that the Company would return
all amounts in the first escrow account, unless the Company
received subscriptions for at least 610,000 shares deposited
in the first escrow account. The Company has amended the
prospectus to increase this minimum from 610,000 shares to
620,000 shares. The Company has made this change to insure
that the Company will have sufficient funds to pay the
anticipated organizational costs of its new bank, which have
increased from $500,000 to $700,000.
o The original prospectus provided that the Company would return
all the amounts in the first escrow account to subscribers,
unless the Company received all required regulatory approvals
to open its new bank on or before December 31, 2000. The
Company has amended the prospectus to change this date from
December 31, 2000 to February 28, 2001.
o The original prospectus provided that subscribers could
designate whether their subscription funds would be deposited
into the first or second escrow account. The Company has
amended the prospectus to reflect that the Company has closed
the second escrow account and that all new subscriptions will
be deposited in the first escrow account.
o The original prospectus described the offering of 1,050,000
shares. The Company amended the prospectus to reduce this
amount to 850,000 shares to reflect the prior sale of 200,000
shares.
o OFFER OF RECISSION. The Company has amended the prospectus in order to
offer each of the existing subscribers the right to rescind their subscriptions.
In particular, the escrow agent will return all subscribers funds which are
currently held in escrow three weeks after the effective date of the amended
prospectus, unless the existing subscribers reconfirm their original
subscriptions in writing.
o UPDATE OF FINANCIAL INFORMATION. The Company has amended the prospectus
to update the financial information in the prospectus as follows:
o The Company has deleted its interim financial statements for
the three month periods ended March 31, 2000 and 1999 and
replaced them with the Company's interim financial statements
for the nine months ended September 30, 2000 and 1999.
o The Company has updated the Management's Discussion and
Analysis of Results of Operations and Financial Condition to
update all information which was previously provided as of
March 31 to September 30, 2000.
o The Company has added audited financial statements for
Peninsula for the fiscal years ending December 31, 1999 and
1998.
o The Company has added unaudited interim financial statements
for Peninsula for the nine month periods ended September 30,
2000 and 1999.
o The Company has added pro forma financial information
reflecting the proposed merger of the Company and Peninsula.
o UPDATE OF OTHER INFORMATION. The Company has updated other information
in the prospectus as follows:
o The Company has amended the prospectus to reflect the opening
of its branch in Bonita Springs in July, 2000.
o The Company has amended the prospectus to reflect the purchase
of an additional parcel of real property in Naples, Florida.
o The Company has amended the prospectus to reflect the FDIC's
approval of the Company's application for deposit insurance
for its proposed new bank.
o The Company has amended the prospectus to describe the
Company's commitment to the Federal Reserve to maintain the
ratio of its total capital to risk-based assets at 10% or
greater for the three years after it opens its proposed new
bank.
o The Company has amended the prospectus to reflect that the
anticipated costs of the offering have increased from $100,000
to $160,000.
o The Company has amended the prospectus to reflect purchases of
shares made by its executive officers and directors as part of
the offering.
OUR ADDRESS AND TELEPHONE NUMBER
Our address is 250 N. Orange Avenue, Orlando, Florida, 32801 and our
telephone number is (407) 648-1844.
5
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THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered for Sale: We are offering a minimum of 620,000 shares, and a
maximum of 850,000 shares, of our
common stock. We have previously
completed the sale of 200,000
shares as part of the offering. See
"Description of Capital Stock" for
a description of the shares.
Price to Public: $16.50 per share
Shares to be Outstanding after the We will have a minimum of 1,710,408 shares, and a
Offering: maximum of 1,940,408 shares, outstanding after the
offering. These amounts do not
reflect any shares which we may
issue under outstanding stock
options or shares we may issue in
our proposed merger with Peninsula.
Use of Proceeds: We have previously received $3,300,000 from the sale of
200,000 shares as part of the offering. We contributed
$3,200,000 of these proceeds to our existing bank and
retained $100,000 to pay the anticipated expenses of the
offering. If the remainder of the offering is successful, we
will receive a minimum of $10,230,000 and a maximum of
$14,025,000 in additional proceeds. We will utilize these
proceeds to pay the remaining costs of the offering and to
capitalize our proposed new bank, Southern Community
Bank of Southwest Florida. Our new bank will use a
portion of this amount to reimburse the organizers for the
organizational costs of the new bank, which are estimated at
$700,000. See "Use of Proceeds."
Risk Factors: You should read the "Risk Factors" beginning on page 7
before deciding to invest in our shares.
</TABLE>
6
<PAGE> 12
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE RISKS BELOW AND OTHER INFORMATION IN THIS
PROSPECTUS BEFORE DECIDING TO INVEST IN OUR COMMON STOCK.
WE HAVE INCURRED A SUBSTANTIAL LOSS SINCE WE COMMENCED OPERATIONS AND WE MAY
CONTINUE TO INCUR LOSSES IN THE FUTURE.
We commenced banking operations on December 15, 1998. From that date
through September 30, 2000, we had an accumulated deficit of $1,216,000. This
deficit is primarily due to the costs of opening our existing bank and
establishing its business, including the opening of four branches. See
"Management's Discussion and Analysis of Southern's Financial Condition and
Results of Operations."
We currently expect to generate net earnings in 2000 and thereafter. We
may, however, incur losses in 2000 and in subsequent years if we are unable to
successfully grow and manage our existing bank or to open and grow our new bank.
In this regard, a newly formed bank ordinarily incurs operating losses in its
early periods of operations because of an inability to generate sufficient net
interest income to cover operating expenses. Those operating losses can be
significant and can occur for longer periods than planned depending on the
bank's ability to control operating expenses and generate net interest income.
In light of the foregoing, there is a risk that we may not achieve
profitability.
WE MAY ENCOUNTER UNEXPECTED FINANCIAL AND OPERATING PROBLEMS DUE TO OUR RAPID
GROWTH.
We have grown rapidly since we opened our existing bank in December
1998. As of December 31, 1999, we had total assets of $83.9 million. Our total
assets grew by 109.3%, to $175.6 million, by September 30, 2000. Since opening,
we have expanded to five offices, and expect to open two more offices in 2001.
Our rapid growth may result in unexpected financial and operating problems,
including problems in our loan portfolio due to its unseasoned nature and
problems in our operating procedures and policies which we have not yet
discovered.
We are currently planning to merge with Peninsula, which would further
accelerate our growth. At September 30, 2000, Peninsula had total assets of
$46.7 million. The addition of these assets would cause our total assets as of
September 30, 2000 to grow to $223.2 million on a pro forma basis, or an
additional 27.1%. Accordingly, the merger with Peninsula may exacerbate any
financial and operating problems which we may encounter as a result of our rapid
growth.
IF WE CANNOT OPEN OUR PROPOSED NEW BANK, IT IS LIKELY THAT OUR FUTURE OPERATING
RESULTS WILL BE ADVERSELY AFFECTED.
We filed applications with the Florida Department of Banking and the
FDIC for permission to open our proposed new bank. The Florida Department of
Banking and the FDIC have approved those applications. We have also filed an
application with the Federal Reserve to acquire the shares of this bank.
Although we believe that the Federal Reserve will approve our application, there
can
7
<PAGE> 13
be no assurance that it will be approved. Furthermore, we need to receive
subscriptions and reconfirmations of previous subscriptions for at least 620,000
shares in order to have the funds required to capitalize our new bank. If we do
not receive these subscriptions, we will not open the new bank, although we will
continue to operate our new branch in Bonita Springs, Florida. If we are unable
to open the new bank for any reason, it is likely that our future operating
results will be adversely affected.
OUR PROPOSED MERGER WITH PENINSULA PRESENTS ADDITIONAL RISKS FOR INVESTORS.
PENINSULA HAS INCURRED A SUBSTANTIAL LOSS SINCE IT COMMENCED OPERATIONS AND IT
MAY INCUR LOSSES IN THE FUTURE.
Peninsula commenced banking operations in October 1998. From that date
through September 30, 2000, Peninsula had an accumulated deficit of $463,000.
This deficit is primarily due to the cost of opening Peninsula Bank and
establishing its business, including the cost of opening two branches.
During the first nine months of 2000, Peninsula had net income of
$125,000. The ability of Peninsula to remain profitable in the future depends on
its ability to generate sufficient interest income to cover its operating
expenses. These operating expenses may be significant and losses could occur for
longer periods than planned. In light of the foregoing, there is a risk that
Peninsula Bank may not achieve consistent profitability. If Peninsula Bank is
not profitable in the future, our ability to become profitable would also be
adversely affected.
PENINSULA BANK MAY ENCOUNTER UNEXPECTED FINANCIAL AND OPERATING PROBLEMS DUE TO
ITS RAPID GROWTH.
Peninsula Bank has grown rapidly since it opened Peninsula Bank in
October 1998. As of December 31, 1999, Peninsula had total assets of $36.2
million. Its total assets grew by 29.0%, to $46.7 million, by September 30,
2000. Since opening, Peninsula Bank has expanded to two offices and expects to
open two more offices in 2001. Peninsula Bank's rapid growth may result in
unexpected operating problems, including problems with its loan portfolio due to
its short history and problems in its operating procedures and policies which
Peninsula has not yet discovered.
YOU WILL NOT KNOW WHETHER WE WILL COMPLETE THE PROPOSED MERGER WITH PENINSULA OR
ITS FINAL TERMS.
We have only entered into a non-binding letter of intent with Peninsula
regarding the proposed merger. As a result, either party may cancel the proposed
merger in its discretion. Furthermore, it is possible that we may renegotiate
the terms of the proposed merger. As a result, you will not know whether we will
complete the proposed merger with Peninsula or its final terms at the time that
you make a decision to purchase shares in the offering. It is possible that we
may complete merger on terms which you believe are inappropriate.
8
<PAGE> 14
IF WE COMPLETE THE PROPOSED MERGER WITH PENINSULA, WE MAY DISCOVER PROBLEMS WITH
PENINSULA AFTER THE MERGER FOR WHICH WE WILL HAVE NO EFFECTIVE REMEDY.
We intend to conduct a due diligence investigation of Peninsula before
we execute a binding merger agreement with Peninsula. We will also have the
right to cancel the merger agreement if we discover material problems with
Peninsula before the closing. However, after the completion of the merger, we
will not have any remedy if we discover problems with Peninsula. If these
problems were material, our financial condition and results would be adversely
affected.
YOU WILL NOT RECEIVE ANY INTEREST ON THE FUNDS DEPOSITED IN ESCROW EVEN IF THE
ESCROW AGENT RETURNS YOUR FUNDS.
We will deposit all funds received from subscribers with the escrow
agent for the offering. It is possible that the escrow agent could hold your
funds in escrow until February 28, 2001 before returning them to you. If the
escrow agent returns your subscription funds, you will not receive any interest
on your subscription funds. We will retain all interest and other income from
the escrow accounts, regardless of whether the offering is consummated or
canceled.
IF WE CANNOT ATTRACT ADDITIONAL DEPOSITS AND INCREASE OUR CAPITAL, WE WILL NOT
BE ABLE TO GROW.
We plan to significantly increase the level of our assets (including
our loan portfolio). Our ability to increase our assets depends in large part on
our ability to attract additional deposits at competitive rates. We intend to
seek additional deposits by offering deposit products which are competitive with
those offered by other financial institutions in our markets and by establishing
personal relationships with our customers. There can be no assurance that these
efforts will be successful.
Furthermore, our ability to increase our assets depends on our ability
to maintain adequate levels of capital. In this connection, federal and state
banking laws require each of our banks to maintain certain minimum levels of
capital relative to the size of their assets. We have also committed to the
Federal Reserve to maintain the ratio of our total capital to risk-based assets
at a minimum of 10% for a period of three years after opening our new bank. This
exceeds the statutory requirement of 8%. One of the purposes of the offering is
to provide our existing bank with additional capital in order to permit further
growth. If we do not obtain this additional capital, we would not be able to
grow the existing bank.
We will utilize the proceeds from the offering to capitalize our new
bank to be opened in Bonita Springs. If the offering is successful, we will
contribute a minimum of $10,230,000 to the new bank. This should permit the new
bank to grow significantly. However, our new bank may still encounter capital
problems if it grows at the rate we expect.
IF REAL ESTATE VALUES IN THE ORLANDO, FLORIDA AREA DECLINE, OUR LOAN PORTFOLIO
WOULD BE IMPAIRED.
A significant portion of our loan portfolio consists of residential and
commercial mortgages secured by real estate located in the Orlando, Florida
area. Real estate values and real estate markets are generally affected by,
among other things, changes in national, regional or local economic
9
<PAGE> 15
conditions, fluctuations in interest rates and the availability of loans to
potential purchasers, changes in the tax laws and other governmental statutes,
regulations and policies, and acts of nature. If real estate prices decline in
central Florida, the value of the real estate collateral securing our loans
could be reduced. Such a reduction in the value of our collateral could increase
the number of non-performing loans and adversely affect our financial
performance.
WE MAY NOT BE ABLE TO COMPETE WITH OUR LARGER COMPETITORS FOR LARGER CUSTOMERS
BECAUSE OUR LENDING LIMITS WILL BE LOWER THAN THEIRS.
We will be limited in the amount each of our banks can loan a single
borrower by the amount of each bank's capital. The legal lending limit for
secured loans is 25% of capital and surplus. Due to the relatively small size of
our existing bank and our proposed new bank, our lending limits will be
significantly less than those of our competitors. This may adversely affect our
ability to establish lending relationships with larger businesses in our target
markets.
IF ADVERSE ECONOMIC CONDITIONS IN OUR TARGET MARKETS EXIST FOR A PROLONGED
PERIOD, OUR FINANCIAL RESULTS COULD BE ADVERSELY AFFECTED.
Our success will significantly depend upon economic conditions in
central Florida and southwest Florida. A prolonged economic downturn or
recession in these markets could cause our non-performing assets to increase,
which would cause operating losses, impaired liquidity and the erosion of
capital. Such an economic dislocation or recession could result from a variety
of causes, including a prolonged downturn in various industries upon which these
markets depend, or natural disasters such as floods, tornadoes or hurricanes.
Adverse changes in the economy of these areas could have a material adverse
effect on our business, future prospects, financial condition or results of
operations.
WE DO NOT EXPECT TO PAY DIVIDENDS ON OUR COMMON STOCK FOR THE FORESEEABLE
FUTURE.
As a holding company, we will have no significant independent sources
of revenue. Accordingly, our principal source of funds will be cash dividends
and other payments that we receive from our bank subsidiaries. We expect that
our bank subsidiaries will retain their earnings in order to increase their
capital. Furthermore, our bank subsidiaries' ability to pay dividends is
restricted under Federal and state banking law. As a result, we do not
anticipate that we will pay dividends on our common stock in the foreseeable
future.
BECAUSE OUR MANAGEMENT ARBITRARILY DETERMINED THE OFFERING PRICE FOR THE SHARES,
THE OFFERING PRICE MAY EXCEED THE FAIR MARKET VALUE OF OUR SHARES.
Prior to the offering, there was no active trading market in our common
stock. Our Board of Directors arbitrarily determined the offering price without
the assistance of underwriters or other valuation experts. Our Board of
Directors considered our historic and expected growth, and general market
conditions, among other factors, in determining the offering price.
Nevertheless, the offering price bears no relationship to the amount of our
assets, book value, shareholders' equity or other typical criteria of value, and
may exceed the fair market value of our shares and price at which shares
10
<PAGE> 16
may be sold after the offering. Consequently, you may lose a portion of your
investment simply as a result of an inaccurately determined offering price.
FUTURE SALES OF OUR COMMON STOCK COULD DEPRESS THE PRICE OF OUR COMMON STOCK.
After the offering, the market price of our common stock could be
materially and adversely affected by the sale or the availability for sale of
shares now held by our existing shareholders. After the offering, we will have a
minimum of 1,710,408 shares and a maximum of 1,940,408 shares of common stock
outstanding. These amounts do not include shares which may be issued under
outstanding stock options or shares which we may issue in the proposed merger
with Peninsula.
Almost all of the shares which will be outstanding after the offering,
including all of the shares sold in the offering, will be eligible for sale in
the open market without restriction, except for shares held by our "affiliates."
At the present time, our directors and executive officers hold an aggregate of
466,712 of our outstanding shares, and have the right to purchase up to 84,800
additional shares. Our directors and executive officers have indicated that they
will subscribe to purchase, at a minimum, an additional 80,853 shares in the
offering. Additionally, the persons who will serve as directors of our new bank,
excluding our current directors, have indicated that they will subscribe to
purchase at least 66,425 shares. Following the offering, almost all of the
shares held by these affiliates will be eligible for sale in the public market
subject to compliance with certain volume limitations and other conditions of
Rule 144. Sales of a substantial number of shares of our common stock after this
offering could cause our stock price to fall. In addition, the sale of these
shares could impair our ability to raise capital through the sale of additional
stock.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK
VALUE OF YOUR SHARES.
Investors purchasing shares of common stock in this offering will incur
immediate and substantial dilution in their shares. If we sell a minimum of
620,000 shares in the offering, then the pro forma book value of one share of
common stock as of September 30, 2000 would have been $14.89, or $1.61 less than
the offering price of $16.50 per share. If we were to sell a maximum of 850,000
shares in the offering, then the pro forma book value as of September 30, 2000
would have been $15.08, or $1.42 less the offering price of $16.50 per share.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL WHICH COULD DILUTE YOUR OWNERSHIP.
We may need to raise additional capital in the future to support our
business, expand our operations, or maintain our minimum capital requirements as
set forth by our applicable bank regulatory agencies. At the present time, we do
expect to sell additional shares of common stock or other equity securities for
at least 12 months, other than any shares which we may issue under existing
stock options or in the proposed merger with Peninsula. However, we believe that
we will need to sell additional shares after that time in order to support the
planned expansion of our banks. If we do sell additional shares of common stock
to raise capital, the sale will dilute your ownership interest and such dilution
could be substantial.
11
<PAGE> 17
CERTAIN PROVISIONS OF FLORIDA LAW MAY DISCOURAGE OR PREVENT A TAKEOVER OF OUR
COMPANY AND RESULT IN A LOWER MARKET PRICE FOR OUR COMMON STOCK.
Florida law, as well as certain federal regulations, contain certain
anti-takeover provisions that apply to us. While these provisions may provide us
with flexibility in managing our business, they could discourage potential
buyers from seeking to acquire us, even though certain shareholders may wish to
participate in the transaction. These provisions could also adversely affect the
market price of our common stock. See "Description of Capital Stock --
Anti-Takeover Provisions" for a discussion of these anti-takeover provisions.
YOU MAY HAVE DIFFICULTY RESELLING YOUR SHARES BECAUSE IT IS UNLIKELY THAT A
PUBLIC MARKET FOR OUR SHARES WILL DEVELOP AFTER THE OFFERING.
There is no established public market for our common stock and we do
not expect a public market to develop in the future. We do not currently have
any brokers or other persons who make a market in our common stock and we do not
intend to solicit brokers to establish a market in the future. Additionally, we
do not intend to seek the listing of our shares on any securities exchange or
inclusion of our shares on NASDAQ.
The absence of a public market for our shares will make it difficult
for you to resell your shares and is likely to depress the prices which you
would receive from any sale of your shares.
OUR EXECUTIVE OFFICERS AND DIRECTORS WILL CONTINUE TO HAVE SUBSTANTIAL
CONTROL OVER OUR COMPANY AFTER THE OFFERING WHICH COULD DELAY OR PREVENT A
CHANGE OF CONTROL FAVORED BY OUR OTHER SHAREHOLDERS.
Our executive officers and directors, if acting together, would be able
to significantly influence all matters requiring approval by our shareholders,
including election of directors and the approval of mergers or other business
combination transactions. Our executive officers and directors beneficially own
466,712 of our outstanding shares, representing 42.8% of the total number of
shares outstanding as of September 30, 2000. Our current directors and executive
officers, and the persons who will serve as directors of our new bank, are
expected to subscribe to purchase a minimum of an additional 147,278 shares in
the offering. See "Security Ownership of Certain Beneficial Owners and
Management."
The interest of these shareholders may differ from the interests of
other shareholders, and these shareholders, acting together, would be able to
influence significantly all matters requiring approval by shareholders. As a
result, these shareholders could approve or cause us to take actions of which
you disapprove or that are contrary to your interests and those of other
investors.
12
<PAGE> 18
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this prospectus that are
subject to risks and uncertainties. These forward-looking statements include
information about possible or assumed future results of our operations or
performance after the offering. Also, when we use any of the words "believes,"
"expects," "anticipates," "intends," or "may" or similar expressions, we are
making forward-looking statements. Many possible events or factors could affect
our future financial results, and could cause those results or performances to
differ materially from those expressed in our forward-looking statements. These
possible events or factors include the following:
o legal and regulatory risks and uncertainties;
o economic, political and competitive forces affecting our
businesses, markets, constituencies or securities; and
o the risk that our analyses of these risks and forces could be
incorrect, or that the strategies we have developed to deal
with them may not succeed.
We recognize that all forward-looking statements are necessarily
speculative, speak only as of the date made, and advise potential investors that
various risks and uncertainties, such as those described above, could cause
actual results for future periods to differ materially. Although we believe that
the expectations reflected in such forward-looking statements are reasonable, we
can give no assurance that any expectations will prove to be correct.
13
<PAGE> 19
TERMS OF OFFERING
We are offering a minimum of 620,000 shares and a maximum of 850,000
shares of our common stock at a price of $16.50 per share.
MINIMUM SUBSCRIPTION
Each subscriber must agree to purchase a minimum of 1,000 shares.
PLAN OF DISTRIBUTION
We will not utilize an underwriter to offer the shares. Instead,
certain of our executive officers will offer the shares on our behalf on a "best
efforts" basis. These officers will not receive any commissions or additional
compensation for these efforts.
EXPIRATION DATE
The expiration date of the offering is December 31, 2000.
ESCROW TERMS
We will deposit all amounts received from each subscriber into an
escrow account which we have established with SunTrust Bank, as escrow agent.
The escrow agent will hold and disburse the amounts deposited in the escrow
account based on conditions which we have established. See "Summary - Escrow
Accounts" on page 3 for a description of the conditions of the escrow account. A
copy of the amended and restated escrow agreement between us and the escrow
agent is attached as Exhibit A to this prospectus.
ISSUANCE OF SHARES
We will issue shares to subscribers at the same time as the escrow
agent releases the subscription funds from each escrow account to us. As a
result, subscribers may receive shares at different times.
CANCELLATION OF OFFERING
We have the right to cancel the offering at any time prior to the
release of the subscription funds from either of the escrow accounts. If we
cancel the offering, the escrow agent will promptly return all subscription
funds to subscribers, without interest or deduction.
HOW TO SUBSCRIBE
You must take the following steps to subscribe for shares in the
offering:
14
<PAGE> 20
o You must complete and sign the Subscription Agreement which accompanies
this prospectus. A copy of the Subscription Agreement is attached as
Exhibit B to this prospectus.
o You must make full payment for the purchase price for the shares in
United States currency by check, bank draft or money order payable to
"SunTrust Bank - Southern Community Bancorp Escrow Account."
o You must deliver the executed Subscription Agreement, together with
full payment for the purchase price, in person or by mail, to the
address shown on the Subscription Agreement.
HOW TO RECONFIRM SUBSCRIPTIONS
As of the date of this prospectus, the escrow agent is holding
$7,825,851 received from previous subscribers. The escrow agent will return all
of these subscription funds on _________, 2000, unless the subscribers reconfirm
their subscriptions in writing before that date. A previous subscriber may
reconfirm his subscription by taking the following steps:
o The subscriber must complete and sign the Reconfirmation Letter which
accompanies this prospectus. A copy of the Reconfirmation Letter is
attached as Exhibit C to this prospectus.
o The subscriber must deliver the Reconfirmation Letter to us on or
before _____, 2000.
OTHER SUBSCRIPTION TERMS
We reserve the right to reject any subscription which is not fully paid
when we receive it. No subscription will be binding until we have accepted it,
and we may refuse to accept any subscription for shares, in whole or in part,
for any reason. In determining which subscriptions to accept, in whole or in
part, we may take into account the order in which we receive subscriptions and a
subscriber's potential to do business with, or to refer customers to, either or
both of the banks. In the event we reject all or part of your subscription
offer, the escrow agent will refund by mail all or the appropriate portion of
the amount paid by you with the subscription offer, without interest, promptly
after the rejection.
ADDITIONAL INFORMATION
If you have any questions about the offering or how to subscribe,
please call Charlie Brinkley or John Squires in Orlando at (407) 648-1844. If
you subscribe, you should retain a copy of the completed subscription documents
for your records.
15
<PAGE> 21
USE OF PROCEEDS
We have previously received $3,300,000 in proceeds from the offering.
We contributed $3,200,000 of these proceeds to our existing bank, and retained
$100,000 to cover anticipated expenses of the offering. Our existing bank
utilized these proceeds to fund loans and purchase investment securities.
If the remainder of the offering is successful, we will receive
additional proceeds in the minimum amount of $10,230,000 and the maximum amount
of $14,025,000. We will utilize a portion of these proceeds to pay any
additional offering expenses (which are estimated at $60,000) and the balance to
capitalize our new bank. The new bank will initially utilize these proceeds to
purchase marketable securities. The new bank will liquidate these securities as
necessary to make loans and to pay its start-up and operating expenses. The new
bank will also reimburse its organizers for the expenses incurred by them in
organizing the new bank, for such items as salaries, administrative costs, legal
fees, accounting fees and application fees. We currently estimate that these
expenses will be approximately $700,000.
16
<PAGE> 22
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma net tangible book value per share of our common
stock after the offering. Pro forma net tangible book value per share represents
the amount of our total tangible assets less total liabilities divided by the
pro forma number of shares of common stock outstanding. As of September 30,
2000, our net tangible book value, on a pro forma basis as adjusted for the sale
of a minimum of 620,000 shares and a maximum of 850,000 shares offered in the
offering, would have been approximately $14.89 per share in the case of a
minimum offering and $15.08 per share in the case of a maximum offering. The
following table illustrates this per share dilution.
<TABLE>
<CAPTION>
Minimum Maximum
Offering Offering
-------- --------
<S> <C> <C>
Offering price per share ..................................... $16.50 $16.50
Net book value per share as of September 30, $13.97 $13.97
2000 ........................................................
Increase per share attributable to new investors ............. $.92 $1.11
Pro forma net book value per share after the
offering ..................................................... $14.89 $15.08
Pro forma dilution per share to new investors $1.61 $1.42
</TABLE>
The following tables summarize on a pro forma basis as of September 30,
2000, the differences between the total consideration paid and the average price
per share paid by the existing shareholders prior to the offering and by new
investors in the offering.
<TABLE>
<CAPTION>
Minimum Offering
----------------
(620,000 Shares)
Shares Purchased Total Consideration
--------------------------- --------------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
shareholders 1,090,408 63.8% 16,556,120 61.8% $15.18
======
Investors in
the offering 620,000 36.2% 10,230,000 38.2% $16.50
--------- ------ ----------- ----- ======
Total 1,710,408 100.0% $26,796,120 100.0% $15.67
========= ====== =========== ====== ======
</TABLE>
17
<PAGE> 23
<TABLE>
<CAPTION>
MAXIMUM OFFERING
----------------
(850,000 Shares)
Shares Purchased Total Consideration
--------------------------- --------------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
shareholders 1,090,408 56.2% $16,556,120 54.1% $15.18
======
Investors in
the offering 850,000 43.8% 14,025,000 45.9% $16.50
---------- ------ ----------- ----- ======
Total 1,940,408 100.0% $30,581,120 100.0% $15.76
========= ====== =========== ===== ======
</TABLE>
The information presented above is as of September 30, 2000 and
excludes:
- Any shares which we may issue in the proposed merger with
Peninsula.
- 163,000 shares of our common stock issuable upon the exercise
of outstanding stock options.
- 13,000 shares reserved for issuance upon the exercise of stock
options which may be granted under our employee stock option
plan.
The issuance of common stock will result in further dilution to new
investors. See "Management - Stock Option Plans" and Note 11 of Notes to our
Consolidated Financial Statements.
18
<PAGE> 24
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
2000. Our capitalization is presented:
o on an actual basis; and
o on an as adjusted basis to give effect to:
o on the sale of a minimum of 620,000 shares in the
offering and the application of the net proceeds from
such shares; and
o the sale of a maximum of 850,000 shares in the
offering and the application of the net proceeds from
such shares.
This table should be read in conjunction with "Management's Discussion
and Analysis of Southern's Financial Condition and Results of Operations" and
our consolidated financial statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of September 30, 2000
------------------------------------------------
As Adjusted to As Adjusted to
Give Effect to Give Effect to
Sale of Sale of
Actual 620,000 Shares 850,000 Shares
------ ------------- -------------
(in thousands)
<S> <C> <C> <C>
Shareholders' equity: Common stock, $1.00 par value; 10,000,000 shares
authorized; 1,090,408 shares issued and outstanding (actual), 1,710,408
issued and outstanding (as adjusted for sale of 620,000 shares); 1,940,408
shares issued and outstanding (as adjusted for $ 1,090 $ 1,710 $ 1,940
sale of 850,000 shares)
Additional paid-in capital 15,466 25,076 28,641
Accumulated deficit and accumulated
other comprehensive (loss) (1,324) (1,324) (1,324)
-------- -------- --------
Total shareholders' equity 15,233 25,463 29,258
-------- -------- --------
Total capitalization $ 15,233 $ 25,463 $ 29,258
======== ======== ========
</TABLE>
The outstanding share information in the table above is as of September 30,
2000 and excludes:
- Any shares which we may issue as part of the proposed merger with
Peninsula.
- 163,000 shares of our common stock issuable upon the exercise of
outstanding stock options.
- 13,000 additional shares reserved for issuance upon the exercise of
stock options which may be granted under the Company's employee stock option
plan.
19
<PAGE> 25
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock, and we
do not intend to pay cash dividends in the foreseeable future. Instead, we
intend to retain any earnings to finance our growth.
We are a legal entity separate and distinct from our subsidiaries.
Substantially all of our revenues and cash flow, including funds available for
other offering expenses, will be in the form of fees which we charge to our
existing bank for management services. Funds available for payment of dividends
would principally consist of dividends paid to us by our banks. Due to the
developmental status of our existing bank, its ability to pay dividends to us is
severely limited. There are also statutory regulatory limitations on the amount
of dividends that may be paid by our existing bank to us. Our ability to receive
dividends from our proposed new bank will be subject to the same limitations.
See "Supervision and Regulation" for a discussion of the regulatory restrictions
on the payment of dividends by our banks to us.
20
<PAGE> 26
SELECTED FINANCIAL DATA
THE FOLLOWING TABLE SETS FORTH SELECTED CONSOLIDATED FINANCIAL DATA OF FOR
THE PERIOD FROM DECEMBER 15, 1998 TO DECEMBER 31, 1998, THE YEAR ENDED DECEMBER
31, 1999 AND THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999, AND SEPTEMBER 30,
2000. THE SELECTED FINANCIAL DATA SHOULD BE READ IN CONJUNCTION WITH
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF SOUTHERN'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
THERETO INCLUDED IN THIS PROSPECTUS.
The financial condition data as of December 31, 1998, and December 31, 1999,
and the operating data for the period from December 15, 1998 to December 31,
1998 and the year ended December 31, 1999 have been derived from our audited
consolidated financial statements included elsewhere in this prospectus, which
have been audited by Hacker, Johnson, Cohen and Greib PA, independent auditors.
The financial condition data as of September 30, 1999 and September 30, 2000 and
the operating data for the nine months ended September 30, 1999 and September
30, 2000 have been derived from our unaudited condensed consolidated financial
statements included elsewhere in this prospectus. The financial condition data
as of September 30, 1999 and September 30, 2000, and the operating data for the
nine months ended September 30, 1999 and September 30, 2000, have been derived
from our unaudited condensed consolidated financial statements which, in the
opinion of management, have been prepared on the same basis as the audited
consolidated financial statements and reflect all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of financial
position and operations. The historical results do not necessarily indicated the
results which you should expect in a future period.
<TABLE>
<CAPTION>
Southern Community Bancorp
---------------------------------------------------------------------------
December 31, December 31, September 30, September 30,
1998 1999 1999 2000
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
FINANCIAL CONDITION DATA
(Dollars in thousands)
Assets ............................. $16,606 $83,864 $70,797 $175,587
Securities available for sale....... -- $11,998 $10,351 $17,895
Loans receivable, net .............. $1,203 $61,363 $42,398 $128,708
Deposits ..................... $3,274 $65,063 $57,477 $157,435
Stockholders' equity ............... $12,233 $11,838 $12,270 $15,233
Book value per share................ $14.66 $13.39 $13.87 $13.97
Number of full service
customer facilities 1 4 3 5
</TABLE>
21
<PAGE> 27
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
SOUTHERN COMMUNITY BANCORP
-----------------------------------------------------------------
OPERATING DATA December
(Dollars in thousands except 15, 1998 to Year Ended Nine Months Nine Months
per share amounts) December December Ended March Ended March
31, 1998 31, 1999 31, 1999 31, 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income ........... $ 32 $ 3,399 $ 1,956 $ 8,075
Interest expense .......... 7 1,186 568 4,098
----------- ----------- ----------- -----------
Net interest income before
loan loss provision ....... 26 2,213 1,388 3,977
Provision for loan losses . 12 609 368 840
----------- ----------- ----------- -----------
Net interest income after
loan loss provision ....... 14 1,604 1,020 3,137
Other income .............. -- 116 63 481
Other expense ............. 84 3,216 2,243 3,602
----------- ----------- ----------- -----------
Income tax (benefit)
provision ................. (26) (554) (433) 6
----------- ----------- ----------- -----------
Net income (loss) ......... $ (44) $ (942) $ (727) $ 10
=========== =========== =========== ===========
Net income (loss) per
share, basic and diluted .. $ (0.05) $ (0.01) $ (0.85) $ .01
=========== =========== =========== ===========
Total shares outstanding at
end of period ............. 834,425 884,425 1,090,408 884,425
=========== =========== =========== ===========
</TABLE>
22
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF SOUTHERN'S
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN
THIS PROSPECTUS.
RESULTS OF OPERATIONS FOR THE PERIOD FROM DECEMBER 15, 1998 TO DECEMBER 31, 1998
Southern Community Bank commenced operations on December 15, 1998. Its
results of operations during the period from December 15, 1998 to December 31,
1998 reflect the start-up nature of its operations. For this 16 day period, we
had a net loss of $44,000, or $.05 per share. Our income consisted of $32,000 in
interest income, which was primarily generated by the bank's investment
portfolio. This amount was offset by $7,000 in interest expense on deposits and
other interest bearing liabilities and a $12,000 provision for loan losses. We
also had $84,000 in non-interest expense, primarily consisting of salary,
occupancy and data processing expenses.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
We incurred a net loss of $942,000 for the year ended December 31,
1999. Our performance in 1999, our first full year of operations, resulted in a
return on average shareholders' equity of (7.74%). Our results for 1999
continued to reflect the start-up nature of our operations.
During 1999, our total assets and liabilities grew significantly. Total
assets grew from $16.6 million at December 31, 1998 to $83.9 million at December
31, 1999. Total liabilities grew from $4.4 million to $72.0 million during the
same period. The growth in assets and liabilities was primarily the result of
the establishment of three new branch offices in 1999. This expansion has
enabled us to target additional markets and customers.
NET INTEREST INCOME. Our operating results depend primarily on our net
interest income, which is the difference between interest income on
interest-earning assets and interest expense on interest- bearing liabilities,
consisting primarily of deposits. Net interest income is determined by the
difference between yields earned on interest-earning assets and rates paid on
interest-bearing liabilities ("interest- rate spread") and the relative amounts
of interest-earning assets and interest-bearing liabilities. The bank's
interest-rate spread is affected by regulatory, economic and competitive factors
that influence interest rates, loan demand and deposit flows. In addition, the
bank's net earnings are also affected by the level of non-performing loans and
foreclosed real estate, as well as the level of its non-interest income, and its
non-interest expenses, such as salaries and employee benefits and occupancy
expense and income taxes.
The following table sets forth, for the periods indicated, information
regarding:
o the total dollar amount of interest and dividend income from
the bank's interest-earning assets and the resultant average
yields;
23
<PAGE> 29
o the total dollar amount of interest expense on
interest-bearing liabilities and the resultant average cost;
o net interest/dividend income; interest-rate spread;
o interest margin; and
o ratio of average interest-earning assets to average
interest-bearing liabilities.
24
<PAGE> 30
NET INTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>
Year Ended December 31, 1999
--------------------------------------------
Average Interest &
Balance Dividends Yield
------- ---------- -----
(Dollars in Thousands)
<S> <C> <C> <C>
Loans ............................... $26,915 $ 2,716 10.09%
Securities .......................... 6,088 398 6.54%
Other interest-earning assets(1) .... 5,776 285 4.93%
------- -------
Total Interest Earnings Assets ...... 38,779 3,399 8.77%
-------
Non-interest-earning assets ......... 5,950
-------
Total assets ........................ $44,729
=======
Savings and NOW deposits ............ $ 3,592 34 0.95%
Money Market Deposits ............... 9,124 363 3.98%
Time Deposits ....................... 13,985 772 5.52%
------- -------
Total Interest-bearing Deposits ..... 26,701 1,169 4.38%
Other Borrowings .................... 298 17 5.70%
------- -------
Total interest-bearing liabilities .. 26,999 1,186 4.39%
-------
Non-interest-bearing deposits ....... 4,766
Non-interest-bearing liabilities .... 797
Shareholders' Equity ................ 12,167
-------
Total liabilities and equity ........ $44,729
=======
Net Interest Income and Spread(2) ... $ 2,213 4.38%
======= =====
Net Interest Margin(3) .............. 5.71%
=====
Average interest-earning assets to
average interest-bearing liabilities 1.44
=======
</TABLE>
(1) Includes federal funds sold and Federal Home Loan Bank stock.
25
<PAGE> 31
(2) Represents the difference between average interest-earning assets and
average interest-bearing liabilities.
(3) Represents net interest income divided by average interest-earning
assets.
INTEREST INCOME AND EXPENSE. Interest income in 1999 was $3.4 million
and the weighted average yield on interest-earning assets was 8.77%. Interest
expense was $1.2 million in 1999 and the weighted-average rate paid on
interest-bearing liabilities was 4.39%.
PROVISION FOR LOAN LOSSES. The provision for loan losses totaled
$609,000 in 1999. See "- Allowance and Provision for Loan Losses."
NON-INTEREST INCOME. Non-interest income totaled $116,000 in 1999.
Non-interest income consists of service charges on deposit accounts and other
service charges and fees.
NON-INTEREST EXPENSES. Non-interest expenses for 1999 totaled
$3,216,000. This total was comprised of the following:
Personnel expense (which includes salaries and benefits) totaled
$1,464,000 or 45.5% of total non-interest expenses in 1999. During 1999, we
averaged 25 full time employees, although the number of employees grew to 40 by
December 31, 1999.
Net occupancy expense in 1999 totaled $804,000 or 25.0% of total
non-interest expenses. The principal reason for this total was the establishment
of three branch offices.
Other non-interest expenses for 1999 totaled $948,000 or 29.5% of
total non-interest expenses. Other non-interest expenses include data
processing, printing and office supplies, marketing and advertising,
professional fees and other expenses.
INCOME TAX BENEFIT. The income tax benefit totaled $554,000 in 1999 as
a result of the Southern Community Bancorp's net operating loss. See Note 9 to
the Consolidated Financial Statements of Southern Community Bancorp for more
information regarding the income tax benefit.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER
30, 2000
We had a consolidated net loss of $727,000 in the first nine months of
1999 compared to net earnings of $10,000 in the first nine months of 2000. Our
results in the first nine months of 1999 reflected the start-up nature of our
operations at that time. Our results of operations for the first nine months of
2000 include $542,000 in expense related to the organization of our new bank. In
the absence of this expense, our net income before taxes would have been
$558,000. This reflects our success in establishing our business in the Orlando
market. Results for the first nine months of 2000 were aided by a substantial
increase in the level of interest income due to the growth of our loan
portfolio. Our net loans grew from $42.4 million at September 30, 1999 to $128.7
million at September 30, 2000. Results for the first nine months of 2000 were
also positively impacted by a substantial increase in non-interest income
(consisting primarily of services charges on deposit accounts and other services
charges and fees).
26
<PAGE> 32
INTEREST INCOME AND EXPENSE. Interest income in the first nine months
of 1999 was $2.0 million compared to $8.1 million in first nine months of 2000.
Interest expense was $0.6 million in first nine months of 1999, compared to $4.1
million in first nine months 2000. The increase in these amounts was directly
attributable to the increase in loans, investment securities, and deposit
accounts.
PROVISION FOR LOAN LOSSES. The provision for loan losses totaled
$368,000 in first nine months of 1999 and $840,000 in 2000. See "- Allowance and
Provision for Loan Losses."
NON-INTEREST INCOME. Non-interest income totaled $63,000 in first nine
months of 1999 compared to $481,000 in first nine months in 2000. Non-interest
income consists of service charges on deposit accounts and other service charges
and fees.
NON-INTEREST EXPENSES. Non-interest expenses for 1999 totaled $2.2
million in the first nine months of 1999, and $3.6 million in the first nine
months of 2000, and was comprised of the following:
We have agreed to reimburse the organizers of our new bank for the
expenses which they have incurred in organizing the bank. Our obligation to the
organizers does not become binding until the new bank is opened. Through
September 30, 2000, these expenses were $542,000. We elected to record these
expenses in the third quarter of 2000 based upon the commencement of offering.
Salaries and employee benefits totaled $1.1 million or 49.1% of total
non-interest expenses in first nine months of 1999 and $1.4 million or 40.0% in
2000. These increases were the result of new employees, salary increases, higher
benefit costs and upgrading of personnel.
Occupancy and equipment expense in first nine months of 1999 totaled
$485,000 or 21.6% of total non-interest expenses and $689,000 or 19.1% in 2000.
The increase was due to the opening of one additional banking office during the
first nine months of 2000 as well as the impact of three banking offices which
were open throughout the first nine months of 2000.
Other non-interest expenses for first nine months of 1999 totaled
$658,000 or 29.3% of total non-interest expenses and $972,000 or 27.0% in 2000.
Other non-interest expenses include data processing, printing and office
supplies, marketing and advertising, professional fees and other expenses.
INCOME TAX PROVISION (BENEFIT). The income tax benefit totaled
$433,000 in first nine months of 1999 as a result of our net operating loss, and
a provision of $6,000 in 2000.
CAPITAL EXPENDITURES
Our capital expenditures are reviewed by our Board of Directors. We
make capital expenditures in order to improve our ability to provide quality
services to its customers. Capital expenditures equaled $2,592,000 in 1999, and
$3,711,000 for the first three quarters of 2000. These expenditures were
principally related to leasehold improvements and furniture and equipment
purchased for three new banking facilities opened during 1999, and the purchase
in 2000 of two parcels of land for future branch sites in Bonita Springs and
Naples, Florida.
27
<PAGE> 33
ASSET QUALITY AND CREDIT RISK
SECURITIES. We maintain a high quality investment portfolio, including
U.S. government agencies and mortgage-backed securities. We believe that these
securities have very little risk of default. At December 31, 1999, and September
30, 2000, all of the securities held in the investment portfolio were rated "A"
or better. All of these securities were classified "available for sale." A
rating of "A" or better means that the bonds are of "upper medium grade, with
strong ability to repay, possibly with some susceptibility to adverse economic
conditions or changing circumstances." Ratings are assigned by independent
rating agencies and are subject to the accuracy of reported information
concerning the issuers and the subjective judgment and analysis of the rating
agencies. They are not a guarantee of collectibility. At December 31, 1999,
approximately 21.4% of these securities matured in five years or less. As such,
we are subject to a significant risk of fluctuations in market value due to
changes in the general level of interest rates.
The following table sets forth information regarding the composition
of the investment portfolio at December 31, 1999 (amounts in thousands):
Securities of U.S. Government
agencies and corporations $10,058
Mortgage-backed securities 1,940
-------
Total Securities $11,998
=======
LOANS. We maintain a high quality portfolio of real estate, commercial
and consumer loans. All loans over individual lending limits are reviewed and
approved by our loan committee, which ensures that loans comply with applicable
credit standards. In most cases, we require collateral from borrowers. The type
and amount of collateral varies, but may include residential or commercial real
estate, deposits held by financial institutions, U.S. Treasury securities, other
marketable securities and personal property. We monitor collateral values to
ensure that they are maintained at proper levels.
As of December 31, 1999, approximately 63.5% of all our loans were
real estate loans secured by real estate in central Florida. This percentage
increased to 72.9% at September 30, 2000. This level of concentration could
present a potential credit risk because the ultimate collectibility of these
loans is susceptible to adverse changes in real estate market conditions in this
market. We have sought to address this risk by limiting most loans to a maximum
of 75% of the appraised value of the underlying real estate and maximum
amortization schedules of 20 years with balloons not exceeding 5 years.
The following table divides our loan portfolio into four categories.
Most of the loans are short- term and may be renewed or rolled over at maturity.
At that time, we undertake a complete review of the borrower's credit worthiness
and the value of any collateral. If these items are satisfactory, we will
generally renew the loan at prevailing interest rates. In addition to
outstanding loans, we enter into legally binding commitments to extend credit,
letters of credit and unused line of credit. These commitments equaled $30.4
million at December 31, 1999, and $56.2 million at September 30, 2000.
28
<PAGE> 34
TYPES OF LOANS
<TABLE>
<CAPTION>
December 31, 1999 September 30, 2000
--------------------------------- -------------------------------
Percentage of Percentage of
Amount Total Loans Amount Total Loans
-------- ----------- --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial............................ $19,122 30.8% $ 28,996 22.1%
Real estate........................... 26,451 42.7% 87,875 67.1%
Residential real estate............... 12,915 20.8% 9,419 7.2%
Consumer and other ................... 3,536 5.7% 4,624 3.5%
-------- ---------- --------- -------
Total loans........................... $62,024 100.0% 130,914 100.0%
------- ==------ ======= ======
Less:
Allowance for loan
losses.......................... (621) (1.461)
Net deferred loan fees.......... (40) (745)
--------- -----------
Loans receivable, net........... $61,363 $128,708
======= ========
</TABLE>
The following table sets forth information regarding the maturities of our
loans. For purposes of the table, demand loans are shown as being payable in one
year or less. The entire amount of a balloon loan is treated as maturing in the
year that the balloon payment is due.
29
<PAGE> 35
MATURITIES OF LOANS BASED ON CONTRACTUAL PRINCIPAL REPAYMENTS
<TABLE>
<CAPTION>
At December 31, 1999
-----------------------------------------------------------------
One Year Over One to Over Five
Total Loans: or Less Five Years Years Total
----------- ------- ----------- -------- ------
(in thousands)
<S> <C> <C> <C> <C>
Commercial................................ $9,619 $5,806 $3,697 $19,122
Commercial real estate.................... 5,644 6,087 14,720 26,451
Residential real estate................... 9,362 2,341 1,212 12,915
Consumer and other........................ 1,484 1,965 87 3,536
------- ------- ------- -------
Total..................................... $26,109 $16,199 $19,716 $62,024
======= ======= ======= =======
</TABLE>
Of the $35.9 million in loans due after one year, 59.3% have fixed
interest rates and 40.7% have adjustable rates.
COMMERCIAL LOANS. We make commercial loans primarily to businesses
located in central Florida. The credit risk associated with business lending is
influenced by general economic conditions, deterioration in a borrower's capital
position resulting in increasing debt to equity ratios, deterioration in a
borrower's cash position resulting in a liquidity problem, and decreasing
revenues due to inefficient operations of the borrower. These loans are
generally secured by corporate assets, marketable securities or other liquid
financial instruments. These loans totaled $15.6 million or 25.5% of total loans
at December 31, 1999 and $29.0 million or 22.1% of total loans at September 30,
2000.
REAL ESTATE LOANS. We make real estate loans from time to time for real
estate projects located in central Florida. The bank generally requires security
in the form of a mortgage on the underlying real property and the improvements
constructed thereon and personal guarantees. We attempt to limit our credit
exposure to 75% of the appraised value of the underlying real property. These
real estate loans totaled $42.7 million or 68.8% of total loans at December 31,
1999, and $97.3 million or 74.4% of total loans at September 30, 2000. Risks
associated with real estate loans include variations from vacancy projections,
delays in construction, environmental factors, reliability of subcontractors and
timing and reliability of inspections, and costs overruns.
We make real estate loans secured by commercial real estate, including
loans to acquire or refinance office buildings, warehouses and apartments. These
loans totaled $12.9 million or 20.8% of total loans at December 31, 1999 and
$44.0 million or 33.6% of total loans at September 30, 2000. Most of these loans
have a maturity of five years or less. Almost all of these loans are secured by
real property located in central Florida. These loans generally require a
loan-to-collateral value of not more than 75%.
30
<PAGE> 36
Residential real estate loans totaled $6.0 million or 9.7% of total
loans at December 31, 1999 and $9.4 million, or 7.3% of total loans at September
30, 2000. Residential real estate loans are predominately adjustable rate home
mortgages which generally require a loan-to-collateral value of not more than
90% and equity credit lines which generally limit the loan-to-collateral value
to not more than 90%. Most loans have a maximum term of five years. Almost all
of the residential real estate loans are secured by homes in central Florida.
CONSUMER LOANS AND OTHER. We offer consumer loans and personal and
secured loans. The security for these loans ordinarily consists of automobiles,
consumer goods, marketable securities, certificates of deposit and similar
items. These loans totaled $3.5 million or 5.7% of total loans at December 31,
1999 and $4.6 million or 3.5% of total loans at September 30, 2000. Risks
associated with installment loans include loss of employment of borrowers,
declines in the financial condition of borrowers resulting in delinquencies, and
rapid depreciation of loan collateral.
NON-PERFORMING ASSETS AND PAST DUE LOANS
Non-performing assets consist of non-accrual loans and residential and
commercial properties acquired in partial or total satisfaction of problem loans
which are known as "other real estate owned" or "OREO." Past due loans are loans
that are delinquent 30 days or more which are still accruing interest.
Maintaining a low level of non-performing assets is important to the
on-going success of any financial institution. Our credit review and approval
process is critical to its ability to minimize non- performing assets on a
long-term basis. In addition to the negative impact on interest income, non-
performing assets also increase operating costs due to the expense of collection
efforts. It is our policy to place all loans which are past due 90 days or more
on non-accrual status, subject to exceptions made on a case by case basis. As of
December 31, 1999, we had no such loans. On September 30, 2000, $146,000 in
loans which were nonperforming, and $308,000 in accruing loans which were past
due more than 90 days.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
We evaluate the adequacy of our allowance for loan losses as part of
our on-going credit review and approval process. The review process is intended
to identify, as early as possible, customers who may be facing financial
difficulties. Once identified, the extent of the client's financial difficulty
is carefully monitored by our credit administrator, who recommends to the
directors' loan committee the portion of any credit that needs a specific
reserve allocation or should be charged off. Other factors considered by the
loan committee in evaluating the adequacy of the allowance include overall loan
volume, historical net loan loss experience, the level and composition of
nonaccrual and past due loans, local economic conditions, and value of any
collateral. From time to time, specific amounts of the reserve are designated
for certain loans in connection with the loan review officer's analysis of the
adequacy of the allowance for loan losses.
While a portion of this allowance is typically intended to cover
specific loan losses, it is considered a general reserve which is available for
all credit-related purposes. The allowance is not a
31
<PAGE> 37
precise amount, but is derived based upon the above factors and represents
management's best estimate of the amount necessary to adequately cover probable
losses from current credit exposures. The provision for loan losses is a charge
against current earnings and is determined by management as the amount needed to
maintain an adequate allowance.
We believe that the overall credit quality of our loan portfolio is
strong, as evidenced by the fact that we have had non-performing loans of
$146,000 and no charge-offs through September 30, 2000. The low level of
non-performing loans and charge-offs may be due, in large part, to our
relatively short operating history. We expect that we will have additional
non-performing loans and charge-offs in the future as our loan portfolio
matures. However, we believe that our allowance for loan losses will be
sufficient to absorb these loan losses. To date, we have sought to maintain our
allowance for loan losses in excess of 1% of total loans. At December 31, 1999,
our allowance was $621,000 or 1.0% of total loans, compound to $1,461,000 or
1.1% of total loans at September 30, 2000.
The following table further summarizes the allocation of the allowance
for loan losses by type of loan at December 31, 1999 and September 30, 2000.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
December 31, 1999 September 30, 2000
------------------------ --------------------------
Percentage of Percentage of
Amount Total Loans Amount Total Loans
------ ------------- ------ -------------
(Dollars in thousands)
Commercial $191 30.8% $281 19.2%
Commercial real 605 41.4
estate 265 42.7
Residential real 175 12.0
estate 64 20.8
Consumer loans
and other 71 5.7 111 7.6
Unallocated
general reserves 30 -- 289 19.8
---- ----- ------ ----
Total allowance
for loan losses $621 100.0% $1,461 100%
==== ===== ====== ====
32
<PAGE> 38
The following table displays loan originations by type of loan and
principal reductions during the year ended December 31, 1999 and the nine months
ended September 30, 2000.
LOAN ORIGINATORS AND PRINCIPAL REDUCTIONS
<TABLE>
<CAPTION>
For the Nine
For the Year Ended Months Ended
December 31, 1999 September 30, 2000
----------------- -------------------
(in thousands)
<S> <C> <C>
Originations:
Commercial loans............................ $27,708 $26,966
Commercial real estate loans................ 38,413 48,886
Residential real estate loans............... 18,712 40,933
Consumer loans and other.................... 5,128 9,409
------- -------
Total loans originated............. 89,961
Principal reductions........................ (29,151) (54,304)
-------- --------
Increase in gross loans... $ 60,810 $ 68,890
======== ========
</TABLE>
FINANCIAL CONDITION
Our goal is to maintain a high quality and liquid balance sheet. We
seek to achieve this objective through a high quality portfolio of investment
securities with short to medium term maturities, and a high quality portfolio of
real estate, commercial and consumer loans. To date, we have not experienced any
loan losses primarily due to our short operating history. We expect that our
level of loan losses will increase in the future as our loan portfolio matures.
However, we believe that our allowance for loan losses will be sufficient to
absorb these loan losses.
SECURITIES. In 1999, securities averaged $6.1 million or 15.7% of total
earning assets. Our strategy for its investment account is to maintain a very
high quality portfolio with generally short-to medium-term maturities.
Securities where $12.0 million at December 31, 1999, and $17.9 million at
September 30, 2000. The growth in securities reflects overall increase in the
size of our existing bank. The following tables sets forth information regarding
the investment portfolio at December 31, 1999.
33
<PAGE> 39
REMAINING MATURITY AND AVERAGE YIELD OF INVESTMENT SECURITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
One to Five Five to Ten
Years Years Total
---------------------- ---------------------- --------------------------
Carrying Carrying Carrying
Value Yield Value Yield Value Yield
-------- ----- -------- ----- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities of U.S.
government agencies and
corporations......................... $2,565 5.52% $7,493 7.04% $10,058 6.71%
Mortgage-backed
securities........................... -- -- 1,940 6.56% 1,940 6.56%
--------- ------- ---------
Total.......................... $2,565 5.52% $9,433 6.95% $11,998 6.70%
====== ====== =======
</TABLE>
LOANS. Loans averaged $26.9 million in 1999. Loans grew from $1.2
million at December 31, 1998 to $61.4 million at December 31, 1999, and to
$128.7 million at September 30, 2000. This growth reflects the success of our
marketing efforts in the Orlando area. See " -Asset Quality and Credit Risk -
Loans."
INTEREST-BEARING LIABILITIES. Interest-bearing liabilities primarily
consist of deposits and federal funds purchased. Total interest-bearing
liabilities increased from $3.3 million at December 31, 1998 to $71.1 million at
December 31, 1999 and to $157.4 million at September 30, 2000. The growth in our
deposit portfolio was attributable to a campaign of seeking additional deposits
by offering relatively attractive rates on our deposit products. Total
interest-bearing liabilities averaged $27.0 million in 1999.
The following table sets forth information regarding our average
deposits for 1999.
AVERAGE DEPOSITS
1999
-------------------------
Amount Average Rate
------ -------------
(in thousands)
Demand deposits - non-interest bearing......... $4,766 --
Savings and NOW accounts....................... 3,592 0.95%
Money market accounts.......................... 9,124 3.98%
Time deposits.................................. 13,985 5.52%
------
Total deposits................................. $31,467 3.72%
=======
The following table summarizes the maturity of time deposits over
$100,000 at December 31, 1999.
34
<PAGE> 40
SUMMARY OF TIME DEPOSITS OVER $100,000 BY MATURITY
(in thousands)
December 31, 1999
-----------------
Three months or less..................................... $9,047
Three to Six months...................................... 1,956
Six to Twelve months..................................... 2,106
Over Twelve months....................................... 6,219
-------
Total.......................................... $19,328
=======
The following table sets forth the net deposit flows during the year ended
December 31, 1999:
NET DEPOSIT FLOWS
(in thousands)
Net increase before interest credited $60,985
Net credited 804
-------
Net deposit increase $61,789
=======
LIQUIDITY AND RATE SENSITIVITY
The principal functions of asset and liability management are to
provide for adequate liquidity, to manage interest rate exposure by maintaining
a prudent relationship between rate sensitive assets and liabilities and to
manage the size and composition of the balance sheet so as to maximize net
interest income.
Liquidity is the ability to provide funds at minimal cost to meet
fluctuating deposit withdrawals or loan demand. These demands are met by
maturing assets and the capacity to raise funds from internal and external
sources. We primarily utilize cash and federal funds sold to meet our liquidity
needs. Although not utilized in managing daily liquidity needs, the sale of
investment securities provides a secondary source of liquidity.
Fluctuating interest rates, increased competition and changes in the
regulatory environment continue to significantly affect the importance of
interest-rate sensitivity management. Rate sensitivity arises when interest
rates on assets change in a different period of time or a different proportion
than that of interest rates on liabilities. The primary objective of
interest-rate sensitivity management is to prudently structure the balance sheet
so that movements of interest rates on assets and liabilities are highly
correlated and produce a reasonable net interest margin even in periods of
volatile interest rates.
35
<PAGE> 41
Regular monitoring of assets and liabilities that are rate sensitive
within 90 days, one year and three years is an integral part of our
rate-sensitivity management process. It is our policy to maintain a reasonable
balance of rate-sensitive assets and liabilities on a cumulative one-year basis,
thus minimizing net interest income exposure to changes in interest rates. A
ratio of 1.0 represents perfect matching of interest-earning assets and
interest-bearing liabilities. Our sensitivity position at December 31, 1999 was
such that net interest income would decrease modestly if there were an increase
in short- term interest rates.
We monitor the interest rate risk sensitivity with traditional gap
measurements. The gap table has certain limitations in its ability to accurately
portray interest sensitivity; however, it does provide a static reading of our
interest rate risk exposure.
The following table shows the repricing structure of our balance sheet
at December 31, 1999 with each maturity interval referring to the earliest
repricing opportunity for each asset and liability. The earliest repricing
opportunity is the earlier of scheduled contractual maturities or the next reset
date. As of that date, we were liability sensitive. Liability sensitive means
interest sensitive liabilities subject to repricing exceeded interest sensitive
assets subject to repricing on a 365-day basis to the extent of $16.5 million.
This negative gap at December 31, 1999 was 19.67% of total assets. We targeted
gap position is in the range of negative 20 percent to positive 20 percent. We
measure our gap position as a percentage of our total assets.
36
<PAGE> 42
INTEREST RATE SENSITIVITY & GAP REPORT
DECEMBER 31, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Over 3 yrs.
3 Mos. 3 Mos. Over 1 yr. To over 5
or less to yr. To 3 yrs. 5 Yrs. Yrs. Total
-------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Loans(1) ................. $ 28,578 $ 8,414 $ 6,372 $ 9,497 $ 9,163 $ 62,024
Securities ............... -- -- -- 2,565 9,433 11,998
Other Interest-earning
assets(2) ................ 212 -- -- -- -- 212
-------- ------- -------- -------- -------- --------
Total Interest-bearing
assets ................... $ 28,790 $ 8,414 $ 6,372 $ 12,062 $ 18,596 $ 74,234
======== +====== ======== ======== ======== ========
Interest-bearing
Liabilities:
Savings and NOW
deposits(3) .............. $ 5,757 -- -- -- -- $ 5,757
Money-market
deposits(3) .............. 14,052 -- -- -- -- 14,052
Time deposits(3) ......... 19,582 $ 8,308 $ 6,569 $ 26 -- 34,485
Other Borrowings ......... 6,000 -- -- -- -- 6,000
-------- ------- -------- -------- -------- --------
Total Interest-bearing
Liabilities .............. 45,391 $ 8,308 $ 6,569 $ 26 -- $ 60,294
======== ======== ======== ======== ======== ========
GAP ...................... $(16,601) $ 106 $ (197) $ 12,036 $ 18,596 $ 13,940
======== ======== ======== ======== ======== ========
Cumulative GAP ........... $(16,601) $(16,495) $(16,692) $(4,656) $(13,490)
======== ======== ======== ======== ========
Ratio of interest-earning
assets to interest-bearing
liabilities .............. .63 1.01 .97 463.92 N/A 1.23
======== ====== ======== ======== ======== ========
Cumulative ratio of
interest-earning assets to
interest-bearing
liabilities .............. .63 .69 .72 .92 1.23
======== ====== ======== ======== ========
Cumulative GAP to
Total Assets ............. (19.80)% (19.67)% (19.90)% (5.55)% 16.62%
======== ====== ======== ======== ========
</TABLE>
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<PAGE> 43
NOTES TO PRECEDING TABLE
(1) In preparing the above table, adjustable-rate loans are included in the
period in which the interest rates are next scheduled to adjust rather
than in the period in which the loans mature. Fixed-rate loans are
scheduled, including repayment, according to their maturities.
(2) Includes Federal Home Loan Bank Stock, which reprices quarterly.
(3) Savings, NOW and money-market deposits are regarded as readily
accessible withdrawable accounts. Time deposits are scheduled according
to their respective maturity dates.
CAPITAL
One of our primary objectives is to maintain a strong capital position
to merit the confidence of customers, bank regulators and shareholders. A strong
capital position helps us withstand unforeseen adverse developments and take
advantage of attractive lending and investment opportunities when they raise.
Under the Federal Deposit Insurance Corporation's rules pertaining to
risk-based capital, our existing bank's ratio of tier one capital to
risk-weighted assets was 16.6% at December 31, 1999 and 9.88% at September 30,
2000, and the ratio of total capital to risk-weighted assets was 17.5% at
December 31, 1999 and 10.79% at September 30, 2000. These risk-based capital
ratios are in excess of the minimum requirements of 4% for tier one and 8% for
total risk-based capital ratios established by the federal regulations. We have
committed to the Federal Reserve that we will maintain a ratio of total capital
to risk-based assets of at least 10% for the three years following the opening
of Southern Community Bank of Southwest Florida.
Our leverage ratio (tier one capital to total average adjusted
quarterly assets) of 15.5% at December 31, 1999, was also well in excess of the
minimum 4% requirement.
The following table sets forth our required and actual capital amounts
and percentages at December 31,1999 (dollars in thousands):
<TABLE>
<CAPTION>
Actual Required
-------------------- ------------------
Amount % Amount %
------ ---- ------ ---
<S> <C> <C> <C> <C>
Tier 1 Capital
(to Risk-Weighted $11,551 16.6% $2,776 4.0%
Assets)
Total Capital
(to Risk-Weighted $12,172 17.5% $5,551 8.0%
Assets)
Tier 1 Capital
(to Total Assets) $11,551 15.5% $2,972 4.0%
</TABLE>
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<PAGE> 44
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared in accordance with GAAP, which requires the measurement of financial
position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation. Unlike most industrial companies, substantially all of our assets and
liabilities of are monetary in nature. As a result, interest rates have a more
significant impact on our performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services, since such prices are
affected by inflation to a larger extent than interest rates.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices
and rates. Our market risk arises primarily from interest rate risk inherent in
our lending and deposit taking activities. We have little or no risk related to
trading account, commodities or foreign exchange.
We actively monitor and manage our interest rate risk exposure. The
primary objective in managing interest-rate risk is to limit, within established
guidelines, the adverse impact of changes in interest rates on our net interest
income and capital, while adjusting our asset-liability structure to obtain the
maximum yield-cost spread on that structure. Management relies primarily on its
asset- liability structure to control interest rate risk. However, a sudden and
substantial increase in interest rates could adversely impact our earnings, to
the extent that the interest rates borne by assets and liabilities do not change
at the same speed, to the same extent, or on the same basis. There have been no
significant changes in our market risk exposure since December 31, 1999.
FUTURE ACCOUNTING REQUIREMENTS
Financial Accounting Standards 133 - ACCOUNTING FOR DERIVATIVE
INVESTMENTS AND HEDGING ACTIVITIES - requires companies to record derivatives on
the balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivatives and whether they qualify
for hedge accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows. We will be required to adopt this Statement effective
January 1, 2001. We do not anticipate that this Statement will have a material
impact on us.
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<PAGE> 45
BUSINESS
GENERAL
Southern Community Bancorp is a bank holding company which owns and
operates Southern Community Bank, a Florida bank based in Orlando, Florida. We
became a bank holding company on July 30, 1999 when we acquired all of the
shares of Southern Community Bank in a share exchange with the shareholders of
the bank.
We are in the process of establishing a new Florida bank, Southern
Community Bank of Southwest Florida, which will be based in Bonita Springs,
Florida. The opening of the new bank is contingent upon the approval of the
Florida Department of Banking and Finance, the FDIC, the Federal Reserve and the
success of the offering of our shares.
We have entered into a letter of intent regarding a possible merger
with Peninsula. The completion of this transaction is contingent upon a due
diligence investigation by each party, the negotiation and execution of a
definitive merger agreement, the receipt of required regulatory approvals and
the approval of the shareholders of Peninsula. There can be no assurance that we
will complete the merger.
The business of Peninsula and the proposed terms of the merger are
described in the section entitled "Proposed Merger With Peninsula," starting on
page 48.
STRATEGY
Our goal is to operate our existing bank and our new bank in the
substantially the same manner as local community banks, emphasizing local
leadership and local decision-making. The management of each bank will make its
own credit decisions. Each bank will price and market its own loan and deposit
products. Each bank will have its own board of directors, drawn mainly from
members of the local business community. Each board will have full authority
over the bank, in contrast to an "advisory" board which lacks authority. Each
bank will endeavor to be an active supporter of local charities and civic
organizations.
Our strategy is to capitalize on the opportunities created by the
recent consolidation in the Florida banking industry. We believe that this
consolidation has reduced the levels of personalized services as the larger
regional financial institutions have increasingly focused on larger corporate
customers, standardized loan and deposit products and other services. More
specifically, many financial institutions have centralized their loan approval
practices for small businesses, leaving less responsibility and authority with
the traditional loan officer. By virtue of their banking experience in Florida,
management believes that the most frequent customer complaints are based on a
lack of personalized service and turnover in lending personnel, which limits the
customer's ability to develop a relationship with his or her banker. As a result
of these factors, we believe there currently exists a significant opportunity to
attract and maintain customers who are dissatisfied with their banks. We also
believe we can attract experienced management personnel within our identified
markets.
Our holding company structure provides flexibility for the future
expansion of our banking business through the possible acquisition of other
financial institutions and the formation of new banks.
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<PAGE> 46
In addition, our holding company structure also makes it easier to raise
additional capital for our banks because we can issue securities without the
need for prior banking regulatory approval. Any such acquisitions will be
subject to regulatory approvals and other requirements. See "Supervision and
Regulation."
SOUTHERN COMMUNITY BANK
We currently conduct substantially all of our activities through
Southern Community Bank. Southern Community Bank is a Florida state-chartered
bank which commenced operations in December 1998. The bank seeks to emphasize
the needs of individuals and small to medium-sized businesses who desire high
levels of personalized attention and customer service. Southern Community Bank's
principal office is located in the central business district in Orlando,
Florida, and it maintains branch offices in the cities of Winter Park, Altamonte
Springs and Longwood, Florida. All of these offices are located within less than
one mile of Interstate Highway 4, which provides access from most communities
located in the northern portion of the Orlando metropolitan area. The bank
intends to establish two additional branch offices in central Florida within the
next 12 to 18 months, one to be located in the southwest Orlando area and the
other to be located in the vicinity of Lake Mary, Seminole County. The opening
of these branches is subject to the receipt of required regulatory approvals. At
September 30, 2000, the bank had total assets of approximately $175.6 million.
In July 2000, the bank opened a branch office in Bonita Springs in Lee
County, Florida. This branch office is located at the site where we propose to
open the main office of Southern Community Bank of Southwest Florida. Our
existing bank will operate this office as a branch office until our new bank
commences operations. At that time, we will transfer this office, and all
related personnel, assets and liabilities, to the new bank. We believe that the
opening of the Bonita Springs branch office will accelerate the growth of our
new bank by providing the new bank with an established facility, personnel and
customer relationships.
SOUTHERN COMMUNITY BANK OF SOUTHWEST FLORIDA
We are in the process of forming a new bank, Southern Community Bank of
Southwest Florida, which will serve the Bonita Springs market. We currently plan
to open the new bank in the February 2001. The opening of the new bank will
depend on our ability to receive subscriptions for at least 620,000 shares, and
compliance with any conditions imposed by the Florida Department of Banking and
Finance, the Federal Reserve and the FDIC. These conditions are generally
designed to ensure that a new bank has sufficient resources to begin its banking
operations in a safe and sound manner.
We expect to begin construction of the new bank's main office building
in November 2000 and to complete this construction in the summer of 2001.
Pending the completion of the permanent facility, the new bank will conduct
operations in a temporary modular facility located at this site.
Our existing bank purchased a site in North Naples, Collier County,
Florida, which will be used as an additional branch office of the new bank. We
will transfer this property to our new bank upon its opening.
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<PAGE> 47
SOUTHERN COMMUNITY INSURANCE AGENCY, INC.
We recently formed Southern Community Insurance Agency, Inc., as a
wholly owned subsidiary of our existing bank. Southern Community Insurance
Agency, Inc. will refer customers of our banks to another insurance agency,
Insurance Office of America, Inc., for the purchase of insurance products.
Insurance Office of America, Inc. will pay us a percentage of the commissions
generated from customers which we refer. Insurance Office of America, Inc. is
owned by one of our directors, John Ritenour. This subsidiary has also entered
into a similar arrangement with Chicago Title Insurance Company.
PRODUCTS AND SERVICES
We offer a broad array of traditional banking products and services to
our customers, including the products and services described below.
DEPOSITS. We offer a full range of interest bearing and non-interest
bearing accounts, including commercial and retail checking accounts, money
market accounts, individual retirement accounts, savings accounts, and other
time deposits of various types, ranging from daily money market accounts to
longer term certificates of deposit. We have tailored the rates and terms of our
accounts and time deposits to compete with the rates and terms in our principal
markets. We seek deposits from residents, businesses and employees of businesses
in these markets. The FDIC insures all of our accounts up to the maximum amount
permitted by law. In addition, we receive service charges which are competitive
with other financial institutions in our markets, covering such matters as
maintenance fees on checking accounts, per item processing fees on checking
accounts, returned check charges and other similar fees.
LENDING ACTIVITIES. We use our deposits, together with borrowings and
other sources of funds, to originate and purchase loans. We offer a full range
of short and medium-term small business and commercial, consumer and real estate
loans. We generally seek to allocate our loan portfolio as follows: 80% to real
estate loans; 15% to small business and commercial loans; and 5% to consumer
loans. We have a loan approval process which provides for various levels of
officer lending authority. When a loan amount exceeds an officer's lending
authority, it is reviewed by loan committee of the bank's board of directors
which has ultimate lending authority.
The risk of non-payment of loans is inherent in all loans. However, we
carefully evaluate all loan applicants and attempt to minimize our credit risk
exposure by use of thorough loan application and approval procedures that we
have established for each category of loan. In determining whether to make a
loan, we consider the borrower's credit history, analyze the borrower's income
and ability to service the loan, and evaluate the need for collateral to secure
recovery in the event of default. We maintain an allowance for loan losses based
upon assumptions and judgments regarding the ultimate collectibility of loans in
their portfolio and a percentage of the outstanding balances of specific loans
when their ultimate collectibility is considered questionable.
We direct our lending activities primarily to individuals and
businesses in our markets whose demand for funds fall within the bank's legal
lending limits and are also potential deposit customers. The following is a
description of each of the major categories of loans which we make:
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<PAGE> 48
COMMERCIAL LOANS. This category includes loans made to individuals,
partnerships or corporate borrowers for a variety of business purposes. We place
particular emphasis on loans to small to medium-sized professional firms, retail
and wholesale businesses, light industry and manufacturing concerns operating in
our markets. We consider "small businesses" to include commercial, professional
and retail businesses with annual gross sales of less than $20 million or annual
operating costs of less than $5 million. Our commercial loans include term loans
with variable interest rates secured by equipment, inventory, receivables and
real estate, as well as secured and unsecured working capital lines of credit.
Risks of these types of loans depend on the general business conditions of the
local economy and the borrower's ability to sell its products and services in
order to generate sufficient business profits to repay the loan under the agreed
upon terms and conditions. Personal guarantees may be obtained from the
principals of business borrowers and third parties to further support the
borrower's ability to service the debt and reduce the risk of non-payment.
CONSUMER AND INSTALLMENT LOANS. Consumer loans include lines of credit
and term loans secured by second mortgages on the residences of borrowers for a
variety of purposes, including home improvements, education and other personal
expenditures. Consumer loans also include installment loans to individuals for
personal, family and household purposes, including automobile loans to
individuals and pre-approved lines of credit. Consumer loans generally involve
more risk than first mortgage loans because the collateral for a defaulted loan
may not provide an adequate source of repayment of the principal. This risk is
due to the potential for damage to the collateral or other loss of value, while
the remaining deficiency often does not warrant further collection efforts. In
addition, consumer loan performance depends on the borrower's continued
financial stability and is, therefore, more likely to be adversely affected by
job loss, divorce, illness or personal bankruptcy.
REAL ESTATE LOANS. We make commercial real estate loans, construction
and development loans, and residential real estate loans. These loans include
commercial loans where we take a security interest in real estate out of an
abundance of caution and not as the principal collateral for the loan. Interest
rates for all categories may be fixed or adjustable, and will more than likely
be fixed for shorter-term loans. We will compete for real estate loans with
financial institutions and others who are well established and have greater
resources and lending limits. As a result, we may have to charge lower interest
rates to attract borrowers.
COMMERCIAL REAL ESTATE. We offer commercial real estate loans to
developers of both commercial and residential properties. We manage credit risk
associated with these loans by actively monitoring such measures as advance
rate, cash flow, collateral value and other appropriate credit factors. Risks
associated with commercial real estate loans include the general risk of the
failure of the commercial borrower, which are different for each type of
business and commercial entity. We evaluate each business on an individual basis
and attempt to determine such business' risks and credit profile. We attempt to
reduce credit risks in the commercial real estate portfolio by emphasizing loans
on owner-occupied office and retail buildings where the loan-to-value ratio,
established by independent appraisals, does not exceed 80%. In addition, we may
also require personal guarantees of the principal owners.
CONSTRUCTION AND DEVELOPMENT LOANS. We make construction and
development loans on a pre-sold and speculative basis. If the borrower has
entered into an arrangement to sell the property prior to beginning
construction, we consider the loan to be on a pre-sold basis. If the borrower
has not
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<PAGE> 49
entered into an agreement to sell the property prior to beginning construction,
we consider the loan to be on a speculative basis. We make residential and
commercial construction loans to builders and developers and consumers who wish
to build their own home. We limit the term of most construction and development
loans to 18 months, although we may structure the payments based on a longer
amortization basis. We base speculative loans on the borrower's financial
strength and cash flow position. We disburse loan proceeds based on the
percentage of completion and only after an experienced construction lender or
appraiser inspects the project. These loans generally command higher rates and
fees commensurate with the risks warranted in the construction lending field.
The risk in construction lending depends upon the performance of the builder,
building the project to the plans and specifications of the borrower and the
bank's ability to administer and control all phases of the construction
disbursements. Upon completion of the construction, we typically convert
construction loans to permanent loans.
RESIDENTIAL REAL ESTATE LOANS. We make residential real estate loans to
qualified individuals for the purchase of existing single-family residences in
the our markets. We make these loans in accordance with our appraisal policy and
real estate lending policy which detail maximum loan to value ratios and
maturities. We believe that these loan to value ratios are sufficient to
compensate us for fluctuations in real estate market value and minimize losses
that could result from a downturn in the residential real estate market. We sell
mortgage loans that do not conform to our policies in the secondary markets. The
risk of these loans depends on the salability of the loan to national investors
and on interest rate changes. We intend to limit interest rate risk and credit
risk on these loans by locking in the interest rate for each loan with the
secondary market investor and receiving the investor's underwriting approval
before originating the loan. We retain loans for our portfolios when there is
sufficient liquidity to fund the needs of the established customers and when
rates are favorable to retain the loans. The loan underwriting standards and
policies are generally the same for both loans sold in the secondary market and
those retained in our portfolio.
ASSET AND LIABILITY MANAGEMENT
Our primary assets are our loan portfolio and investment account. Our
liabilities consist primarily of deposits. Our objective is to support asset
growth primarily through the growth of core deposits, which include deposits of
all categories made by individuals, partnerships, corporations and other
entities. Consistent with the requirements of prudent banking necessary to
maintain liquidity, we seek to match maturities and rates of loans and the
investment portfolio with those of deposits, although exact matching is not
always possible. We seek to invest the largest portion of our assets in
commercial, consumer and real estate loans. We anticipate that we will limit our
loans to less than 75% of deposits and capital funds. This ratio may be
exceeded, however, in the initial period of operation. Our investment account
consists primarily of marketable securities of the United States Government,
federal agencies and state and municipal governments, generally with varied
maturities.
We monitor our asset/liability mix on a regular basis with a monthly
report detailing interest-sensitive assets and interest-sensitive liabilities
presented to their board of directors. The objective of this policy is to
control interest-sensitive assets and liabilities in order to minimize the
impact of substantial movements in interest rates on our banks' earnings.
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<PAGE> 50
CORRESPONDENT BANKING
Correspondent banking involves providing services by one bank to
another bank which, from an economic or practical standpoint, cannot provide
that service for itself. We may purchase correspondent services offered by
larger banks, including check collections, purchase of federal funds, securities
safekeeping, investment services, coin and currency supplies, overline and
liquidity loan participations, and sales of loans to or participations with
correspondent banks. We will sell loan participations to correspondent banks
with respect to loans which exceed our lending limits. As compensation for
services provided by a correspondent bank, we may maintain balances with
correspondents in non-interest bearing accounts.
OTHER SERVICES
Our other services include cash management services, safe deposit
boxes, traveler's checks, direct deposit of payroll and social security checks,
wire transfers, telephone banking, and automatic drafts for various accounts. We
offer a debit card, VISA and/or MasterCard credit card services through our
correspondent banks. We offer extended banking hours, both drive-in and lobby,
and an after-hours depository. We are associated with a shared network of
automated teller machines that customers may use throughout our market areas and
other regions. We are associated with third party Internet banking service
providers that enable us to provide customers with a cost effective, secure and
reliable Internet banking solution.
CUSTOMERS
We believe that the recent consolidation of the Florida banking
industry provides community- oriented community banks significant opportunities
to build successful, locally-oriented banks. We further believe that many of the
larger financial institutions do not provide the high level of personalized
services desired by many small and medium-sized businesses and their principals.
We intend to focus our marketing efforts on attracting small and medium-sized
businesses and individuals, including service companies, manufacturing
companies, commercial real estate developers, entrepreneurs and professionals,
such as physicians and attorneys.
Although we will concentrate our lending efforts on commercial
business, we also anticipate that we will attract a significant amount of
consumer business. We expect that many of our retail customers will be the
principals of our small and medium-sized business customers. These customers
comprise our private banking clients. We emphasize "relationship banking" in
order that each customer will identify and establish a comfort level with the
bank officers. We intend to develop our retail business with individuals who
appreciate a high level of personal service, contact with their lending officer
and responsive decision-making. We expect that most of our business will be
developed through our lending officers and local boards of directors and by
pursuing an aggressive strategy of calling on customers throughout the market
area.
COMPETITION
We are subject to intense competition in the Orlando market which we
currently serve, and expect to be subject to intense competition in the
southwest Florida market for our new bank. We face
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<PAGE> 51
substantial competition in all phases of our operations from a variety of
different competitors. This competition includes:
o large national and super-regional financial institutions which
have well-established branches and significant market share in
the communities we serve;
o finance companies, investment banking and brokerage firms, and
insurance companies that offer bank-like products;
o credit unions, which can offer highly competitive rates on
loans and deposits because they receive tax advantages not
available to commercial banks;
o other community banks, including start-up banks, that can
compete with us for customers who desire a high degree of
personal service; and
o technology-based financial institutions including large
national and super-regional banks offering on-line deposit,
bill payment, and mortgage loan application services.
Other existing community banks, and many new community bank start-ups,
have marketing strategies similar to ours. These other community banks may open
new branches in the communities we serve and compete directly for customers who
want the level of service offered by community banks. Other community banks also
compete for the same management personnel in Florida.
Various legislative actions in recent years have led to increased
competition among financial institutions. With the enactment of the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 and other laws and
regulations affecting interstate bank expansion, it is easier for financial
institutions located outside of the State of Florida to enter the Florida
market, including our targeted markets. In addition, recent legislative and
regulatory changes and technological advances have enabled customers to conduct
banking activities without regard to geographic barriers through computer and
telephone-based banking and similar services. There can be no assurance that the
United States Congress, or the Florida Legislature or the applicable bank
regulatory agencies will not enact legislation or promulgate rules that may
further increase competitive pressures on us. Our failure to compete effectively
for customers in our market areas could have a material adverse effect on our
business, future prospects, financial condition or results of operations.
FACILITIES
Our principal executive office is located at 250 North Orange Avenue,
Orlando, Florida. We share our office with the main office of Southern Community
Bank. These offices occupy approximately 6,000 square feet on the ground floor
of a high-rise office building. The main office is leased for a term of ten
years through June 30, 2008. We may extend the lease for up to an additional ten
years.
Southern Community Bank's Altamonte Springs branch is located in a
building containing approximately 4,182 square feet under a ground lease with an
initial term expiring on November 30, 2018. We may extend the lease until
November 30, 2028.
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<PAGE> 52
Southern Community Bank's Longwood branch is located in the Springs
Plaza Shopping Center in a space containing approximately 2,200 square feet
under a lease with an initial term expiring on December 8, 2003. We may extend
the lease until December 8, 2018.
Southern Community Bank owns its Winter Park branch, which occupies a
building containing approximately 4,850 square feet.
Southern Community Bank owns its Bonita Springs branch located at 9021
Bonita Beach Road, S.E., Bonita Springs, Florida. This branch currently operates
from a temporary facility, but we expect to start construction of a permanent
facility on this site in November 2000. We will transfer this facility to our
new bank when it commences operations.
The Bonita Springs property was formerly the site of a gas station at
which leaking underground fuel storage tanks caused some contamination of the
subsurface groundwater. The State of Florida has accepted this site for clean-up
under the State's remediation program, and the State has reserved $250,000 to
cover the estimated clean-up costs. Due to the relatively low priority level of
the site in the State's clean-up program, we cannot predict when the State will
commence or complete the clean- up of the site. We have received an
environmental engineering assessment of the contamination and the required
remediation. Based on this report, we believe that the clean-up of the site will
not disrupt our proposed banking services at the site.
We have entered into a contract to acquire an existing banking facility
in Naples, Florida for a purchase price of $1,550,000. We plan to use this
facility as a branch office for our new bank.
EMPLOYEES
We currently have approximately 55 full-time employees. We will hire
additional employees as needed to support our growth. We anticipate that our new
bank will hire eight additional full-time employees during its first year of
operations.
LEGAL PROCEEDINGS
From time to time, we are involved in litigation arising from the
ordinary course of our business, such as claims to collect past due loans. As of
the date of this prospectus, we are not engaged in any material legal
proceedings.
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<PAGE> 53
PROPOSED MERGER WITH PENINSULA
SUMMARY OF LETTER OF INTENT
In September 2000, we entered into a letter of intent with Peninsula
with respect to the possible merger of us and Peninsula. Under the proposed
terms of the merger, each outstanding share of the common stock of Peninsula
would be converted into the right to receive 0.625 shares of our common stock.
On September 30, 2000, Peninsula had a total of 994,556 shares outstanding. If
the merger had been completed on September 30, 2000, we would have issued
621,598 shares to the shareholders of Peninsula.
The consummation of the merger is contingent upon the execution and
delivery of a definitive merger agreement, the completion of a due diligence
investigation by each party, the approval of the shareholders of Peninsula and
the receipt of all required regulatory approvals. In light of the foregoing,
there can be no assurance we will complete the merger or complete it on the
terms set forth in the letter of intent. If all of these conditions are
fulfilled, we expect to complete the merger during the first quarter of 2001.
The letter of intent contains the following additional material terms:
o Southern will assume all of the outstanding stock options of Peninsula.
These options will be converted, utilizing the exchange ratio of .625,
into options to acquire shares of Southern's common stock. At the
present time, Peninsula has outstanding options which cover 68,900
shares of Peninsula's common stock. These options would be converted
into options covering 43,063 shares of Southern's common stock.
o Peninsula Bank will have the right to designate four members of its
board of directors, including its chief executive officer, to serve as
members as our board of directors.
o The board of directors of Peninsula will be entitled to designate the
grant of additional stock options to Peninsula's directors, executive
officers and key employees. These options may cover up to 20% of the
number of the shares of Southern issued in the merger (excluding shares
covered under outstanding options assumed by Southern in the merger).
BUSINESS OF PENINSULA
Peninsula is a bank holding company organized in April 1999. Peninsula
acquired Peninsula Bank in January 2000, and its principal activity to date has
been to provide advisory services to and to coordinate the general policies of
Peninsula Bank. The principal executive office of Peninsula is located at 1030
International Speedway Boulevard, Daytona Beach, Florida 32114, and its
telephone number is 904-252-2265.
Peninsula's only subsidiary is Peninsula Bank, which accounts for all
of Peninsula's consolidated assets. Peninsula Bank is a Florida state bank
organized in 1998. It seeks to emphasize the needs of individuals and small to
medium sized businesses.
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<PAGE> 54
The bank's principal office is located in Daytona Beach, Florida and it
maintains a branch office in Ormond Beach, Florida. Peninsula Bank intends to
establish an additional branch office in Port Orange, Florida within the next
two months and another branch office in Orange City in Volusia County within the
next 12 months. At September 30, 2000, Peninsula Bank had total assets of $46.8
million.
Peninsula Bank's primary service area is located in Daytona Beach in
the northeast section of Volusia County. The area contains both residential and
commercial developments, including both single family home developments as well
as multiple family home developments. The area has a number of small retail
centers and small office buildings, two major medical centers and other small
businesses and professional organizations, including manufacturing firms, retail
shops, accountants, attorneys, medical service providers, real estate firms and
insurance agencies. Peninsula Bank's main office is centrally located within
this area.
Peninsula Bank offers a traditional range of commercial and consumer
banking services to businesses, professionals and individuals located in its
primary service area.
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<PAGE> 55
PRO FORMA PER SHARE DATA
The following table summarizes the historical consolidated and pro
forma net earnings and net worth of Southern and Peninsula after giving effect
to the proposed merger at and for the nine- month period ended September 30,
2000 and at and for the year ended December 31, 1999. The pro forma data is
based on the aggregate purchase price of $10,256,000, represented by 621,598
Southern common shares, for all of the outstanding shares of Peninsula at
January 1, 2000 for the nine months ended September 30, 2000 and January 1, 1999
for the year ended December 31, 1999. Peninsula shares will be exchanged for
Southern common shares, using an exchange ratio of .625 shares of Southern for
each Peninsula share tendered. The information presented below is provided for
informational purposes only and is not necessarily indicative of the combined
financial position or results of operation which actually would have occurred if
the transaction had been consummated at the date and for the periods indicated
or which may be obtained in the future. This information should be read in
conjunction with the separate consolidated financial statements and notes
thereto of both Southern and Peninsula, the Management's Discussion and Analysis
of Southern's Financial Condition and Results of Operations, and the other
unaudited pro forma financial information, all included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
At or for the Nine Month At or for the
Period Ended Year Ended
September 30, 2000 December 31, 1999
------------------------ -----------------
(Dollars in thousands)
<S> <C> <C>
Shares outstanding at end of period:
Assumed number of shares of Southern
common stock issued 621,598 621,598
Shares of common stock of Southern
before acquisition 1,090,408 884,425
----------- -----------
Pro forma shares of Southern common stock
outstanding after acquisition 1,712,006 1,506,023
=========== ===========
Consolidated net earnings (loss):
Southern - historical $ 10 (942)
Peninsula - historical 125 (367)
Adjustments for the acquisition (8)(a) (11)(b)
----------- -----------
Combined entity - pro forma after
acquisition $ 127 (1,320)
=========== ===========
Consolidated stockholders' equity:
Southern - historical $ 15,233 11,838
Peninsula - historical 9,385 6,643
Net issuance of Southern common stock 10,256 (b) 10,256 (b)
Adjustments for the acquisition (9,385)(c) (6,643)(c)
Combined entity - pro forma after
acquisition $ 25,489 22,094
=========== ===========
Consolidated net loss per share, basic and diluted:
Southern - historical (d) $ .01 (1.10)
=========== ===========
Peninsula - historical (e) $ .14 (.50)
=========== ===========
Southern - proforma after acquisition $ .09 (.84)
=========== ===========
Peninsula - proforma after
acquisition (h) $ .06 (.55)
=========== ===========
</TABLE>
50
<PAGE> 56
<TABLE>
<CAPTION>
At or for the Nine Month At or for the
Period Ended Year Ended
September 30, 2000 December 31, 1999
------------------------ ------------------
(Dollars in thousands)
<S> <C> <C>
Consolidated net loss per share, basic and diluted:
Southern - historical $ -- --
============= ==========
Peninsula - historical $ -- --
============= ==========
Peninsula - proforma after
acquisition $ -- --
============= ==========
Consolidated net loss per share, basic and diluted:
Southern - historical (f) $ 13.97 13.39
============= ==========
Peninsula - historical (g) $ 9.44 9.03
============= ==========
Southern - proforma after acquisition $ 14.89 14.67
============= ==========
Peninsula - proforma after
acquisition (h) $ 9.31 9.17
============= ==========
</TABLE>
-------------------------------
(a) Reflects pro forma adjustments as detailed on the pro forma combined
statements of operations.
(b) Represents gross proceeds from issuance of 621,598 Southern's shares at
$16.50 per share.
(c) Represents elimination of stockholders' equity of Peninsula.
(d) Computed using 889,975 for September 30, 2000 and 855,25 for December
31, 1999 weighted-average shares outstanding.
(e) Computed using 908,324 for September 30, 2000 and 735,85 for December
31, 1999 weighted-average shares outstanding.
(f) Computed using 1,090,408 at September 30, 2000 and 884,425 at December
31, 1999 common shares outstanding.
(g) Computed using 994,556 at September 30, 2000 and 735,859 at December
31, 1999 common shares outstanding.
(h) Computed using the related Southern's proforma after acquisition amount
multiplied by the exchange ratio.
51
<PAGE> 57
PRO FORMA CONDENSED COMBINED CAPITALIZATION
The following table sets forth the capitalization of Southern at
September 30, 2000 and the pro forma capitalization of Southern, after giving
effect to the proposed merger assuming 621,598 shares of Southern shares are
issued in the merger. The information presented below should be read in
conjunction with the separate consolidated financial statements and notes
thereto of Southern and Peninsula, the Management's Discussion and Analysis of
Southern's Financial Condition and Results of Operations, and other unaudited
pro forma financial information, all included elsewhere in this prospectus.
<TABLE>
<CAPTION>
At September 30, 2000
-----------------------------------------------------------------------------
Proforma
Adjustments
for Acquisition
------------------------ Pro
Southern Peninsula Debit Credit Forma
--------- --------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Deposits $ 157,435 35,013 -- 73(1) 192,521
Other borrowings -- 1,783 -- -- 1,783
--------- ------- ------ ------ --------
Total $ 157,435 36,796 -- 73 194,304
========= ======= ====== ====== ========
Stockholders' equity:
Common stock $ 1,090 994 994(2) 622(3) 1,712
Additional paid-in capital 15,466 8,951 8,951(2) 9,634(3) 25,100
Accumulated deficit (1,216) (463) -- 468(2) (1,216)
Accumulated other comprehensive
income (loss) (107) (99) -- 99(2) (107)
--------- ------- ------ ------ --------
Total stockholders' equity $ 15,233 9,385 9,943 10,818 25,489
========= ======= ====== ====== ========
</TABLE>
---------------------
(1) Represents the write-up for the deposits of Peninsula to
estimated fair value.
(2) Reflects the elimination of the stockholders' equity of
Peninsula.
(3) Reflects the issuance of 621,598 shares of Southern common
stock at an assumed price of $16.50 per share as the
consideration issued in the merger.
52
<PAGE> 58
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following Pro Forma Condensed Combined Balance Sheet reflects the
consolidated balance sheet of Southern as of September 30, 2000, after giving
effect to the proposed merger of Peninsula with Southern. The transaction will
be accounted for as a purchase and is based on assumptions explained herein and
in the Notes to Pro Forma Condensed Combined Balance Sheet and Statement of
Operations. The information presented below should be read in conjunction with
the separate consolidated financial statements and notes thereto of Southern and
Peninsula, the Management's Discussion and Analysis of Financial Condition and
Results of Operations of Southern, and the other unaudited pro forma financial
information, all included elsewhere in this Prospectus.
53
<PAGE> 59
PRO FORMA CONDENSED COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, 1999
--------------------------------------------------------------------------------
Adjustments
for Acquisition
-----------------------------
Southern Peninsula Debit Credit Proforma
----------- ----------- ----------- ----------- -----------
(In thousands)
ASSETS
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 16,425 8,706 -- -- 25,131
Securities available for sale 17,895 5,258 -- -- 23,153
Federal Home Loan Bank stock 212 -- -- -- 212
Loans receivable, net 128,708 30,729 -- 214(2) 159,233
Premises and equipment, net 7,887 1,181 -- -- 9,068
Accrued interest receivable 954 269 -- -- 1,223
Deferred tax asset 729 135 115 -- 979
Goodwill -- -- 1,045(4) -- 1,045
Other assets 2,777 422 -- -- 3,199
----------- ----------- ----------- ----------- -----------
Total $ 175,587 46,700 1,160 214 223,233
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $ 19,479 4,649 -- -- 24,128
Savings, NOW and money-market deposits 49,267 7,143 -- -- 56,410
Time deposits 88,689 23,221 -- 73(3) 111,983
----------- ----------- ----------- ----------- -----------
Total deposits 157,435 35,013 -- 73 192,521
Other borrowings -- 1,783 -- -- 1,783
Other liabilities 2,919 521 -- -- 3,440
----------- ----------- ----------- ----------- -----------
Total liabilities 160,354 37,317 -- 73 197,744
----------- ----------- ----------- ----------- -----------
Stockholders' equity:
Common stock 1,090 994 994(5) 622(1) 1,712
Additional paid-in capital 15,466 8,951 8,951(5) 9,634(1) 25,100
Retained earnings (1,216) (463) -- 463(5) (1,216)
Accumulated other comprehensive
income (loss) (107) (99) -- 99(5) (107)
----------- ----------- ----------- ----------- -----------
Total stockholders' equity 15,233 9,383 9,945 10,818 25,489
----------- ----------- ----------- ----------- -----------
Total $ 175,587 46,700 9,945 10,889 223,233
=========== =========== =========== =========== ===========
Book value per share $ 13.97 9.44 14.89
=========== =========== ===========
Common shares outstanding 1,090,408 994,556 1,712,006
=========== =========== ===========
</TABLE>
54
<PAGE> 60
PRO FORMA CONDENSED COMBINED STATEMENTS OF EARNINGS
The following Pro Forma Condensed Combined Statements of Operations
reflect the consolidated results of operations of Southern for the year ended
December 31, 1999 and the nine- month period ended September 30, 2000, after
giving effect to the proposed acquisition of all of the outstanding stock of
Peninsula by Southern in a transaction which will be accounted for as a
purchase. The statements are based on the assumptions explained herein and in
the Notes to Unaudited Pro Forma Condensed Combined Balance Sheet and Statements
of Operations. The Pro Forma Condensed Combined Statements of Operations do not
necessarily reflect the results of operations as they would have been if
Southern and Peninsula had constituted a single entity during the year ended
December 31, 1999, or the nine-month period ended September 30, 2000. The
information presented below should be read in conjunction with the separate
consolidated financial statements and notes thereto of Southern and Peninsula,
the Management's Discussion and Analysis of Southern's Financial Condition and
Results of Operations, and the other unaudited pro forma financial information,
all included elsewhere in this prospectus. The historical results of operations
for the nine months ended September 30, 2000 are not necessarily indicative of
the results that may be expected for the entire fiscal year.
55
<PAGE> 61
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
---------------------------------------------------------------------------
Proforma
Adjustments
For Acquisition
--------------------------- Proforma
Southern Peninsula Debit Credit Combined
--------- --------- --------- --------- ---------
($ in Thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans receivable $ 6,929 1,852 -- 48(6) 8,829
Securities 827 229 -- -- 1,056
Other interest-earning asset 319 292 -- -- 611
--------- --------- --------- --------- ---------
Total interest income 8,075 2,373 -- 48 10,496
--------- --------- --------- --------- ---------
Interest expense:
Deposits 4,046 1,087 -- 19(7) 5,114
Other borrowings 52 49 -- -- 101
--------- --------- --------- --------- ---------
Total interest expense 4,098 1,136 -- 19 5,215
--------- --------- --------- --------- ---------
Net interest income 3,977 1,237 -- 67 5,281
Provision for loan losses 840 93 -- -- 933
--------- --------- --------- --------- ---------
Net interest income after provision for loan losses 3,137 1,144 -- 67 4,348
--------- --------- --------- --------- ---------
Noninterest income:
Service changes on deposit accounts 189 70 -- -- 259
Service charges and fees 283 37 -- -- 320
Gain on sale of securities available for sale 9 -- -- -- 9
--------- --------- --------- --------- ---------
Total noninterest income 481 107 -- -- 588
--------- --------- --------- --------- ---------
Noninterest expense:
Salaries and employee benefits 1,411 554 -- -- 1,965
Organizational/preopening expense 542 -- -- -- 542
Occupancy expense 689 191 -- -- 880
Data processing 198 110 -- -- 308
Other expense 762 231 39(8) -- 1,032
--------- --------- --------- --------- ---------
Total noninterest expenses 3,602 1,086 39 -- 4,727
--------- --------- --------- --------- ---------
Earnings before income tax 16 165 39 67 209
Income taxes 6 40 27 -- 73
--------- --------- --------- --------- ---------
Net income $ 10 125 66 67 136
========= ========= ========= ========= =========
Basic and diluted loss per share $ .01 .14 .09
========= ========= =========
Weighted-average shares outstanding (9) 889,975 908,324 1,511,573
========= ========= =========
</TABLE>
56
<PAGE> 62
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31, 1999
----------------------------------------------------------------------------
Proforma
Adjustments
For Acquisition
---------------------------- Proforma
Southern Peninsula Debit Credit Combined
---------- ---------- ---------- ---------- ----------
($ in Thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans receivable $ 2,716 1,153 -- 64(6) 3,933
Securities 398 220 -- -- 618
Other interest-earning assets 285 231 -- -- 516
---------- ---------- ---------- ---------- ----------
Total interest income 3,399 1,604 -- 64 5,067
---------- ---------- ---------- ---------- ----------
Interest expense:
Deposits 1,169 615 -- 25(7) 1,759
Other borrowings 17 28 -- -- 45
---------- ---------- ---------- ---------- ----------
Total interest expense 1,186 643 -- 25 1,804
---------- ---------- ---------- ---------- ----------
Net interest income 2,213 961 -- 89 3,263
Provision for loan losses 609 276 -- -- 885
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 1,604 685 -- 89 2,378
---------- ---------- ---------- ---------- ----------
Noninterest income:
Service fees on deposit accounts 53 61 -- -- 114
Other service charges and fees 63 12 -- -- 75
---------- ---------- ---------- ---------- ----------
Total noninterest income 116 73 -- -- 189
---------- ---------- ---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 1,465 591 -- -- 2,056
Occupancy expense 804 232 -- -- 1,036
Data processing 127 103 -- -- 230
Other expense 820 291 52(8) -- 1,163
---------- ---------- ---------- ---------- ----------
Total noninterest expenses 3,216 1,217 52 -- 4,485
---------- ---------- ---------- ---------- ----------
Loss before income tax benefit (1,496) (459) 52 89 (1,918)
Income tax benefit (554) (92) 36 -- (682)
---------- ---------- ---------- ----------
Net loss $ (942) (367) 88 89 (1,236)
========== ========== ========== ========== ==========
Basic and diluted loss per share $ (1.10) (0.50) (.84)
========== ========== ==========
Weighted-average shares outstanding (9) 855,258 735,859 1,476,856
========== ========== ==========
</TABLE>
57
<PAGE> 63
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET AND STATEMENTS OF OPERATIONS
The Pro Forma condensed Combined Balance Sheet as of September 30, 2000,
assumes the proposed merger of Peninsula with Southern occurred on September 30,
2000. The proposed merger of Peninsula with Southern will be accounted for as a
purchase transaction, and, in accordance with generally accepted accounting
principles, the purchase price will be allocated to the assets and liabilities
of Peninsula based upon their relative fair values, as determined by appraisals
and studies to be undertaken as of the Effective Date. The adjustments will
include, among others, a valuation of loans, a valuation of premises and
equipment and a determination of the value in excess of book value, if any, of
customer checking, savings and other deposit accounts. Any excess of the
purchase price over the fair value of Peninsula's net assets will be allocated
to goodwill.
The Pro Forma Condensed Combined Statements of Operations (i) for the year
ended December 31, 1999, assumes that the proposed acquisition of Peninsula by
Southern occurred on January 1, 1999, and (ii) for the nine-month period ended
September 30, 2000, assumes the proposed acquisition occurred on January 1,
2000.
The Pro Forma financial information included in the Pro Forma Condensed
Combined Balance Sheet and the Pro Forma Condensed Combined Statements of
Operations assumes a purchase price of $10,256,000, represented by 621,598
Southern common shares valued at $16.50 per share, the book value of Southern's
common stock.
The adjustments shown in these pro forma statements reflect approximate
market values as of September 30, 2000, and do not reflect subsequent changes in
interest rates. The actual adjustments as of the effective date of the merger
can not be determined until that time and may have an impact on the pro forma
financial position and results of operations which is different from that
reflected in the accompanying Proforma Condensed Combined Balance Sheet and
Statements of Operations.
(1) Reflects the issuance of 621,598 shares of Southern stock at an assumed
price of $16.50 per share in exchange for 100% of the outstanding
shares of Peninsula's common stock.
(2) Reflects the write-down of Peninsula's loans receivable to estimated
fair value.
(3) Reflects the write-up of Peninsula deposits to estimated fair value.
(4) Reflects the excess of the purchase price over the estimated fair value
of the net assets acquired. Such excess has been allocated to goodwill.
(5) Reflects the elimination of stockholders' equit of Peninsula.
(6) Reflects the amortization or accretion of the premium or discount from
the write-up of the loan portfolio using the level yield method over
the remaining estimated lives of the related loans.
(7) Reflects the amortization of the premium from the write-up of the
deposits using the level-yield method over the remaining estimated life
of the related deposits.
(8) Reflects the amortization of goodwill resulting from the purchase of
Peninsula using the straight- line method over a period of twenty
years.
58
<PAGE> 64
(9) Computed using the weighted average number of shares of Southern at the
dates indicated plus 621,598 shares of Southern issued as a result of
the acquisition.
(10) Costs incurred by Southern to complete this acquisition are not
expected to be material and accordingly have not been considered in
these pro forma statements.
(11) Reflects the tax effect (40% effective tax rate) of the amortization of
the write-down of Peninsula' loans receivable and deposits.
The following table sets forth the pro forma effect on future periods
results of operations, of the accretion and amortization of the valuation
adjustments to be recorded in connection with the proposed merger of Peninsula
with Southern. The actual effect of the accretion and amortization of these
valuation adjustments may vary if the assumptions used are not realized.
<TABLE>
<CAPTION>
Increase (Decrease) in Net Earnings
----------------------------------------------------------------------------
(In Thousands)
Accretion/
(Amortization) Amortization Income Net Effect
For the Year of Premium of Premium Tax On Results
Ending December 31, On Loans On Deposits Goodwill Effect of Operations
------------------- ------------- ------------ -------- ------ -------------
<S> <C> <C> <C> <C> <C>
2000 $ 64 25 52 36 1
2001 64 22 52 35 (1)
2002 64 22 52 35 (1)
2003 4 4 52 3 (47)
2004 3 - 52 1 (50)
2005 3 - 52 1 (50)
2006 3 - 52 1 (50)
2007 3 - 52 1 (50)
2008 3 - 52 1 (50)
2009 3 - 52 1 (50)
2010 - - 52 - (52)
2011 - - 52 - (52)
2012 - - 52 - (52)
2013 - - 52 - (52)
2014 - - 52 - (52)
2015 - - 52 - (52)
2016 - - 52 - (52)
2017 - - 52 - (52)
2018 - - 54 - (54)
2019 - - 55 - (55)
----- ---- ------- ----- ----
Total $ 214 73 (1,045) (115) (873)
===== ==== ====== ==== ====
</TABLE>
59
<PAGE> 65
SUPERVISION AND REGULATION
GENERAL
We are subject to an extensive body of state and federal banking laws
and regulations which impose specific requirements and restrictions on, and
provide for general regulatory oversight with respect to, virtually all aspects
of our operations. We are also affected by government monetary policy and by
regulatory measures affecting the banking industry in general. The actions of
the Federal Reserve System affect the money supply, and in general, the lending
abilities of banks by increasing or decreasing the costs and availability of
funds to the banks. Additionally, the Federal Reserve System regulates the
availability of bank credit in order to combat recession and curb inflationary
pressures in the economy by open market operations in United States government
securities, changes in the discount rate on bank borrowings, and changes in the
reserve requirements against bank deposits.
The following is a brief summary of some of the statutes, rules and
regulations which affect us. 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 our business. Any change in applicable laws or
regulations may have a material adverse effect on the business and prospects of
these entities.
SOUTHERN COMMUNITY BANCORP
Southern Community Bancorp is a bank holding company within the meaning
of the Federal Bank Holding Company Act of 1956 and the Florida Interstate
Banking Act. Southern Community Bancorp is registered as a bank holding company
with the Federal Reserve System and is required to file annual reports and other
information regarding its business operations and those of any subsidiary. It is
also subject to the supervision of, and to periodic inspections by, the Federal
Reserve.
The Bank Holding Company Act requires every bank holding company to
obtain the prior approval of the Federal Reserve before:
o acquiring all or substantially all of the assets of a bank;
o acquiring direct or indirect ownership or control of more than
five percent of the voting shares of any bank; or
o merging or consolidating with another bank holding company.
Except as authorized by the Gramm-Leach-Bliley Act of 1999, a bank
holding company is generally prohibited by the Bank Holding Company Act from
engaging in, or acquiring direct or indirect control of more than five percent
of the voting shares of any company engaged in any business other than the
business of banking or managing and controlling banks. Some of the
activities the Federal Reserve has determined by regulation to be proper
incidents to the business of banking, and thus permissible for bank holding
companies, include:
o making or servicing loans and certain types of leases;
60
<PAGE> 66
o engaging in certain insurance and discount brokerage
activities;
o performing certain data processing services;
o acting in certain circumstances as a fiduciary or investment
or financial advisor;
o owning savings associations; and
o making investments in corporations or projects designed
primarily to promote community welfare.
In determining whether an activity is so closely related to banking as
to be permissible for bank holding companies, the Federal Reserve is required to
consider whether the performance of the particular activities by a bank holding
company or its subsidiaries can reasonably be expected to produce benefits to
the public, such as greater convenience, increased competition and gains in
efficiency that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interests and
unsound banking practices. Generally, bank holding companies are required to
obtain prior approval of the Federal Reserve to engage in any new activity not
previously approved by the Federal Reserve. Despite prior approval, the Federal
Reserve may order a bank holding company or its subsidiaries to terminate any
activity or to terminate its ownership or control of any subsidiary when it has
reasonable cause to believe that the holding company's continued ownership,
activity or control constitutes a serious risk to the financial safety,
soundness or stability of any of its bank subsidiaries.
The Bank Holding Company Act and the Federal Change in Bank Control
Act, together with regulations promulgated by the Federal Reserve, require that,
depending on the particular circumstances, either the Federal Reserve's approval
must be obtained or notice must be furnished to the Federal Reserve and not
disapproved prior to any person or company acquiring control of a bank holding
company, such as Southern Community Bancorp, subject to certain exemptions.
Control is conclusively presumed to exist when an individual or company acquires
25 percent or more of any class of voting securities of the bank holding
company. Control is rebuttably presumed to exist if a person acquires 10 percent
or more, but less than 25 percent, of any class of voting securities and either
the bank holding company has registered securities under Section 12 of the
Securities Exchange Act of 1934 or no other person owns a greater percentage of
that class of voting securities immediately after the transaction. Southern
Community Bancorp is required to register its common stock under Section 12 of
the Securities Exchange Act of 1934 prior to the offering.
The Federal Reserve, pursuant to regulation and published policy
statements, has maintained that a bank holding company must serve as a source of
financial strength to its subsidiary banks. In adhering to the Federal Reserve's
policy, Southern Community Bancorp may be required to provide financial support
to a subsidiary bank at a time when, absent such Federal Reserve policy, it
might not be deemed advisable to provide such assistance. Under the Bank Holding
Company Act, the Federal Reserve may also require a bank holding company to
terminate any activity or relinquish control of a non-bank subsidiary, other
than a non-bank subsidiary of a bank, upon the Federal Reserve's determination
that the activity or control constitutes a serious risk to the financial
soundness or stability of any subsidiary depository institution of the bank
holding company. Further, federal bank regulatory authorities have additional
discretion to require a bank holding company to divest itself of any bank or
non-bank subsidiary if the agency determines that divestiture may aid the
depository institution's financial condition.
61
<PAGE> 67
OUR BANKS
As state banks, Southern Community Bank is, and Southern Community Bank
of Southwest Florida will be, subject to the supervision of the Florida
Department of Banking and Finance and the FDIC. Southern Community Bank's
deposits are insured by the FDIC for a maximum of $100,000 per depositor, and
the deposits of Southern Community Bank of Southwest Florida will be similarly
insured. For this protection, the banks must pay a semi-annual statutory
assessment and comply with the rules and regulations of the FDIC. The Florida
Department of Banking and Finance and the FDIC regulate and monitor all areas of
a bank's operations, including:
o security devices and procedures;
o adequacy of capitalization and loss reserves;
o loans;
o investments;
o borrowings;
o deposits;
o mergers;
o issuances of securities;
o payment of dividends;
o interest rates payable on deposits;
o interest rates or fees chargeable on loans;
o establishment of branches;
o corporate reorganizations;
o maintenance of books and records; and
o adequacy of staff training to carry out safe lending and
deposit gathering practices.
In addition, banks are prohibited from engaging in tie-in arrangements in
connection with any extension of credit, or the offer of any property or
service. The regulatory requirements to which banks are subject also set forth
various conditions regarding the eligibility and qualifications of their
officers and directors.
CAPITAL ADEQUACY REQUIREMENTS
Both Southern Community Bancorp and its banks are subject to regulatory
capital requirements imposed by the Federal Reserve and the FDIC which vary
based on differences in risk
62
<PAGE> 68
profiles. The capital adequacy guidelines issued by the Federal Reserve are
applied to bank holding companies on a consolidated basis with the banks owned
by the holding company. The FDIC's risk-based capital guidelines apply directly
to insured state banks, such as Southern Community Bank and Southern Community
Bank of Southwest Florida, regardless of whether they are subsidiaries of a bank
holding company. Both agencies' requirements, which are substantially similar,
provide that banking organizations must have capital (as defined in the rules)
equivalent to eight percent of risk-weighted assets. The risk weights assigned
to assets are based primarily on credit risks. Depending upon the riskiness of a
particular asset, it is assigned to a risk category. For example, securities
with an unconditional guarantee by the United States government are assigned to
the lowest risk category. The aggregate amount of assets assigned to each risk
category is multiplied by the risk weight assigned to that category to determine
the weighted values, which are added together to determine total risk-weighted
assets.
Both the Federal Reserve and the FDIC have also adopted minimum capital
leverage ratios to be used in tandem with the risk-based guidelines in assessing
the overall capital adequacy of banks and bank holding companies. The guidelines
define a two-tier capital framework. Tier 1 capital consists of common and
qualifying preferred shareholder's equity, less goodwill and other adjustments.
Tier 2 capital consists of mandatory convertible, subordinated, and other
qualifying term debt, preferred stock not qualifying for Tier 1, and a limited
allowance for credit losses up to a designated percentage of risk-weighted
assets. Under these guidelines, institutions must maintain a specified minimum
ratio of "qualifying" capital to risk-weighted assets. At least 50 percent of an
institution's qualifying capital must be "core" or "Tier 1" capital, and the
balance may be "supplementary" or "Tier 2" capital. The guidelines imposed on
the banks include a minimum leverage ratio standard of capital adequacy. The
leverage standard requires top-rated institutions to maintain a minimum Tier 1
capital to assets ratio of three percent, with institutions receiving less than
the highest rating required to maintain a ratio of four percent or greater,
based upon their particular circumstances and risk profiles.
Federal bank regulatory authorities have adopted regulations revising
the risk-based capital guidelines to further ensure that the guidelines take
adequate account of interest rate risk. Interest rate risk is the adverse effect
that changes in market interest rates may have on a bank's financial condition
and is inherent to the business of banking. Under the regulations, when
evaluating a bank's capital adequacy, the revised capital standards now
explicitly include a bank's exposure to declines in the economic value of its
capital due to changes in interest rates. The exposure of a bank's economic
value generally represents the change in the present value of its assets, less
the change in the value of its liabilities, plus the change in the value of its
interest rate off-balance sheet contracts.
The foregoing capital guidelines could affect our banks in several
ways. If the banks grow rapidly, their capital base may become insufficient to
support continued growth, making an additional capital infusion necessary. The
capital guidelines could also impact the banks' ability to pay dividends. It is
expected that the banks' capital levels will initially be more than adequate.
Rapid growth, poor loan portfolio performance or poor earnings performance, or a
combination of these factors, could change our capital position in a relatively
short period of time. Failure to meet these capital requirements would require
the banks to develop and file with the FDIC a plan describing the means and a
schedule for achieving the minimum capital requirements. In addition, we would
not be able to receive regulatory approval of any application that required
consideration of capital adequacy, such as a branch or merger application,
unless we could demonstrate a reasonable plan to meet the capital requirement
within a reasonable period of time.
63
<PAGE> 69
DIVIDENDS
Our ability to pay cash dividends will depend entirely upon the amount
of dividends paid by our bank subsidiaries. Additionally, the Florida Business
Corporation Act provides that we may only pay dividends if the dividend payment
would not render us insolvent or unable to meet our obligations as they come
due.
Our banks will be subject to regulatory restrictions on the payment of
dividends, including a prohibition of payment of dividends from the banks'
capital without the prior approval of the Florida Department of Banking and
Finance and the FDIC. Except with the prior approval of the Florida Department
of Banking and Finance, all dividends of any Florida bank must be paid out of
retained net profits from the current period and the previous two years, after
deducting expenses, including losses and bad debts. In addition, any Florida
bank is required to transfer at least 20 percent of its net income to surplus
until their surplus equals the amount of paid-in capital. Our existing bank is
not currently able to pay dividends because it has incurred a cumulative loss
since its inception.
OTHER LAWS
State usury laws and federal laws concerning interest rates limit the
amount of interest and various other charges collected or contracted by a bank.
Our lending operations will be subject to federal laws applicable to credit
transactions, such as the:
o Federal Truth-In-Lending Act governing disclosures of credit
terms to consumer borrowers;
o Community Reinvestment Act requiring financial institutions to
meet their obligations to provide for the total credit needs
of the communities they serve, including investing their
assets in loans to low and moderate-income borrowers;
o Home Mortgage Disclosure Act requiring financial institutions
to provide information to enable public officials to determine
whether a financial institution is fulfilling its obligations
to meet the housing needs of the community it serves;
o Equal Credit Opportunity Act prohibiting discrimination on the
basis of race, creed or other prohibitive factors in extending
credit;
o Fair Credit Reporting Act governing the manner in which
consumer debts may be collected by collection agencies; and
o the rules and regulations of various federal agencies charged
with the responsibility of implementing such federal laws.
Our deposit operations are also subject to the:
o Right to Financial Privacy Act, which imposes a duty to
maintain confidentiality of consumer financial records and
prescribes procedures for complying with administrative
subpoenas of financial records; and
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o Electronic Funds Transfer Act and Regulation E, issued by the
Federal Reserve to implement that act, which govern automatic
deposits to, and withdrawals from, deposit accounts and
customers' rights and liabilities arising from the use of
automated teller machines and other electronic banking
services.
INTERSTATE BANKING AND BRANCHING
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994, eligible bank holding companies in any state are permitted, with
Federal Reserve approval, to acquire banking organizations in any other state.
As such, all regional compacts and substantially all then-existing regional
limitations on interstate acquisitions of banking organizations have been
eliminated. The Interstate Banking and Branching Efficiency Act also removed
substantially all of the then-existing prohibitions on interstate branching by
banks. The authority of a bank to establish and operate branches within a state
continues to be subject to applicable state branching laws. Subject to these
laws, a bank operating in any state may now establish one or more branches
within any other state without the establishment of a separate banking structure
within the other state through the merger with an existing bank in that state.
Under current Florida law, our banks may open branch offices throughout Florida
with the prior approval of the Florida Department of Banking and Finance and the
FDIC. In addition, with prior regulatory approval, we will be able to acquire
existing banking operations in other states. Although the Interstate Banking and
Branching Efficiency Act has the potential to increase the number of competitors
in the respective market areas of the banks, we cannot predict the actual impact
of such legislation on the competitive position of the banks.
FINANCIAL MODERNIZATION
The recently enacted Gramm-Leach-Bliley Act of 1999 sought to achieve
significant modernization of the federal bank regulatory framework by allowing
the consolidation of banking institutions with other types of financial services
firms, subject to various restrictions and requirements. In general, the
Gramm-Leach-Bliley Act repealed most of the federal statutory barriers which
separated commercial banking firms from insurance and securities firms and
authorized the consolidation of such firms in a "financial services holding
company." Southern Community Bancorp has no immediate plans to utilize the
structural options created by the Gramm- Leach-Bliley Act, but may develop such
plans in the future. In the meantime, we may provide our customers with a
broader range of financial products and services, including various insurance
products and securities brokerage services, through cooperative arrangements
with one or more suitable third-party vendors.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to our
executive officers and directors.
<TABLE>
<CAPTION>
Name Age Position With Southern Community Bancorp
---- --- ----------------------------------------
<S> <C> <C>
Charlie W. Brinkley, Jr. 47 Chairman of the Board and Chief
Executive Officer
John G. Squires 54 President and Chief Operating Officer
Patrick J. Armstrong 53 Director
Richard M. Dunn 51 Director
Jennings L. Hurt, III 48 Director
Eugene M. Pascarella 45 Director
Jon C. Peterson 62 Director
John K. Ritenour 48 Director
Stanley H. Sandefur 47 Director
Stephen R. Jeuck 48 Secretary and Chief Financial Officer
Richard L. Garner 46 Vice-President
Joel E. Whittenhall 40 Vice-President
</TABLE>
CHARLIE W. BRINKLEY, JR. has served as chairman of the board and chief
executive officer of Southern Community Bancorp since its organization in 1999.
Mr. Brinkley was an organizing director of Southern Bank of Central Florida and
served as its only president and chief executive officer from 1988 to 1996 when
it was acquired by Colonial Bank of Montgomery, Alabama. From 1996 until 1998,
Mr. Brinkley continued to serve as president of Colonial Bank, Florida region.
Mr. Brinkley began his banking career in the Orlando area in 1978 at ComBank of
Casselberry, which was acquired by Freedom Savings and Loan Association in 1983.
JOHN G. SQUIRES has served as president and chief operating officer of
Southern Community Bancorp since its organization in 1999. He was an organizing
director of Southern Community Bank in 1998 and has served as its only president
and chief executive officer. Mr. Squires was also an organizing director of
Southern Bank of Central Florida in 1988 and served as its vice-chairman until
its acquisition by Colonial Bank in 1996. From 1996 until 1997, Mr. Squires
continued to serve as an executive vice president and director of Colonial Bank,
Florida region. Mr. Squires began his
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<PAGE> 72
Florida banking career in 1978 as president and director of ComBank of
Casselberry which was acquired by Freedom Savings and Loan Association in 1983.
PATRICK J. ARMSTRONG has served as a director of Southern Community
Bancorp since 1999 and director of Southern Community Bank since 1998. Since
1985, Mr. Armstrong has served as president of Parc Records, Inc.
RICHARD M. DUNN has served as a director of Southern Community Bancorp
since 1999 and director of Southern Community Bank since 1998. Since 1977, Mr.
Dunn has served as president of Richard M. Dunn, D.D.S., P.A.
JENNINGS L. HURT, III has served as a director of Southern Community
Bancorp since 1999 and director of Southern Community Bank since 1998. Since
1988, Mr. Hurt has served as the managing shareholder of the law firm Rissman,
Weisberg, Barrett, Hurt, Donahue & McLain, P.A., located in Orlando, Florida.
EUGENE M. PASCARELLA has served as a director of Southern Community
Bancorp since 1999 and director of Southern Community Bank since 1998. Since
1984, Mr. Pascarella has served as a principal in Foot and Ankle Associates of
Florida.
JON C. PETERSON has served as a director of Southern Community Bancorp
since 1999 and was an organizing director of Southern Community Bank. Since
1984, Mr. Peterson has been the owner and chief executive officer of Peterson
Broadcasting which owns an Albany, Georgia radio station. Since 1994, Mr.
Peterson has been the owner and chief executive of Riskey, Inc., which owns a
motel in Marathon, Florida. Since 1995, Mr. Peterson has been the owner and
chief executive of Kinetic Communications which owns a Fayetteville, North
Carolina radio station.
JOHN K. RITENOUR has served as a director of Southern Community Bancorp
since 1999 and director of Southern Community Bank since 1998. Since 1988, Mr.
Ritenour has served as chief executive officer of the Insurance Office of
America, Inc.
STANLEY H. SANDEFUR has served as a director of Southern Community
Bancorp since 1999 and director of Southern Community Bank since 1998. Since
1978, Mr. Sandefur has served as president and chief executive officer of
Sandefur Holding Co., Inc. From 1985 to 1997, Mr. Sandefur served as a director
of Seminole National Bank.
STEPHEN R. JEUCK has served as secretary and chief financial officer of
Southern Community Bancorp since its organization in 1999. Since 1998, Mr. Jeuck
has served as vice president and chief financial officer of Southern Community
Bank. From 1995 until 1997, Mr. Jeuck served as vice president and controller of
Southern Bank of Central Florida and Colonial Bank, Florida.
RICHARD L. GARNER became a vice president of Southern Community Bancorp
and Southern Community Bank in 2000. He served as president and chief executive
officer of First National Bank of Bonita Springs (subsequently known as First
National Bank of Florida) from 1994 until the acquisition of that bank by The
Colonial BancGroup, Montgomery, Alabama, in 1998. From 1998 until 1999, Mr.
Garner served as regional president and CEO of Colonial Bank, Southwest Florida
region. From 1991 to 1994, Mr. Garner was senior vice president and chief
lending officer of that bank. From 1982 to 1991, Mr. Garner held the positions
of vice president, branch manager and commercial lending officer for American
Bank in Merritt Island. From 1979 until 1982 Mr. Garner
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<PAGE> 73
was a vice president and commercial lending officer for the Bank of Brevard in
Melbourne, Florida.
JOEL E. WHITTENHALL became a vice president of Southern Community
Bancorp and Southern Community Bank in 2000. He served as executive vice
president and senior lending officer of First National Bank of Florida
(subsequently acquired by Colonial Bank) from 1994 to 1999. From 1985 to 1992,
Mr. Whittenhall was employed by SunBank/Naples, N.A., serving initially as
manager of that bank's problem loan portfolio and from 1992, as senior vice
president and lending group manager. From 1981 to 1985, Mr. Whittenhall served
as a commercial lending officer for Southeast Bank, N.A. in Naples, Florida.
PROPOSED NEW DIRECTORS
We expect to add four new directors to our board after the organization
of Southern Community Bank of Southwest Florida. We expect that two of these
additional directors will be Richard Garner, the proposed chairman and chief
executive officer of the new bank, and Joel Whittenhall, the proposed president
and chief lending officer of the new bank. We also plan to name two other
directors of our new bank to serve on the board of the holding company. We have
not identified these other two additional directors.
If we complete our proposed merger with Peninsula Bancorp, Inc., we
expect to add four new directors to our board from the individuals who presently
serve as directors of Peninsula Bank. One of the new directors will be Thomas H.
Dargan, Jr., the president and chief executive officer and a director of
Peninsula Bank. We have not yet identified the other three individuals.
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<PAGE> 74
EXECUTIVE OFFICERS AND DIRECTORS OF OUR EXISTING BANK
The following table sets forth certain information with respect to the
executive officers and directors of Southern Community Bank.
Name Position With Southern Community Bank
---- -------------------------------------
Charlie W. Brinkley, Jr. Chairman of the Board
John G. Squires President, Chief Executive Officer and Director
Patrick J. Armstrong Director
Derek C. Burke Director
Richard M. Dunn Director
Jennings L. Hurt, III Director
Nancy Daniel Outlaw Director
Eugene M. Pascarella Director
John K. Ritenour Director
Stanley H. Sandefur Director
Teague L. Gilliland Executive Vice President and Senior Operations
Officer
Stephen R. Jeuck Vice President and Chief Financial Officer
Richard L. Garner Vice President
Joel E. Whittenhall Vice President
All of the executive officers and directors of Southern Community Bank
also serve as executive officers or directors of Southern Community Bancorp
other than Derek C. Burke, Nancy Daniel Outlaw and Teague L. Gilliland. The
backgrounds of Mr. Burke, Ms. Outlaw and Ms. Gilliland are described below.
DEREK C. BURKE has served as director of Southern Community Bank since
1998. Mr. Burke is the founder of the Orlando-based civil engineering consulting
firm, WBQ Design and Engineering, Inc. and has served as its president since
1994.
NANCY DANIEL OUTLAW has served as director of Southern Community Bank
since 1998. Since 1998, Ms. Outlaw has served as branch manager of Coldwell
Banker Residential Real Estate, Longwood, Florida. From 1996 until 1998, Ms.
Outlaw served as vice-president/manager of Higgins & Heath Realtors. From 1981
until 1996, Ms. Outlaw was a real estate broker and owner of Daniel &
Wohlenwender Realty, Inc.
TEAGUE L. GILLILAND has served as executive vice president and senior
operations officer of Southern Community Bank since 1999. From 1996 to 1999, Ms.
Gilliland served as branch manager of the Lake Mary and Longwood, Florida
offices of Colonial Bank, formerly offices of Southern Bank of Central Florida.
From 1994 to 1996, Ms. Gilliland served as a regional trainer for the
acquisitions team for AmSouth Bancorporation, Birmingham, Alabama. From 1986 to
1994, Ms. Gilliland was a branch administrator and acquisitions coordinator for
Orange Bank, Orlando. From 1970 to 1979, Ms. Gilliland worked in various
positions for SunTrust Bank of Central Florida, N.A., Orlando.
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<PAGE> 75
DEPENDENCE ON MANAGEMENT
Our future success depends, in large part, upon the continuing
contributions of our key management personnel, including the chairmen and the
presidents of our existing bank and our proposed new bank. The loss of services
of one or more key employees could have a material adverse effect on our
operations and financial condition. We can provide no assurance that we will be
able to retain any of our key officers or employees or attract or retain
qualified personnel in the future. None of our key executives has an employment
agreement.
PROPOSED EXECUTIVE OFFICERS AND DIRECTORS OF OUR PROPOSED NEW BANK
The proposed board of directors of Southern Community Bank of Southwest
Florida will consist initially of eight persons from the Bonita Springs and
Naples, Florida communities, in addition to Mr. Brinkley and Mr. Squires. The
executive officers of the new bank will include Richard L. Garner, its chairman
of the board of directors and chief executive officer, and Joel E. Whittenhall,
its president and chief lending officer, who will also serve as a director.
Proposed Position with Southern Community
Name Bank of Southwest Florida
---- -----------------------------------------
Richard L. Garner Chairman of the Board and Chief Executive Officer
Joel E. Whittenhall President, Director and Chief Lending Officer
Charlie W. Brinkley, Jr. Director
John G. Squires Director
Frederick T. Barber III Director
Gerald T. Berry Director
Dennis E. Gilkey Director
Clark D. Jensen Director
Edward J. Oates Director
G. Donald Thomson, Jr. Director
Set forth below is a description of the background of each of the
proposed executive officers and directors of Southern Community Bank of
Southwest Florida, other then Mr. Brinkley, Mr. Squires, Mr. Garner and Mr.
Whittenhall. Their backgrounds are described in the section entitled "Management
- Executive Officers and Directors" above.
FREDERICK T. BARBER, III, is a civil engineer residing in Bonita
Springs. Since 1983, Mr. Barber has been a principal owner and chief executive
of the engineering firm Agnoli, Barber & Brundage, Inc., Naples.
GERALD T. BERRY, is an attorney residing in Naples. Since 1990, Mr.
Berry has been president of the law firm Berry, Day & McFee, Naples.
DENNIS E. GILKEY, is a professional engineer residing in Bonita
Springs. Since 1984, Mr. Gilkey has been employed with the real estate
development firm Bonita Bay Properties, Inc., Bonita Springs, and has served as
its chief executive officer since 1998.
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CLARK D. JENSEN, is a building contractor residing in Naples. Since
1998, Mr. Jensen has been president of Jensen & Bernier, Inc., Naples. From 1994
to 1998 he was vice president of Imperial Homes of Naples, Inc.
EDWARD J. OATES, is a retired banker residing in Naples. From 1995 to
1999, Mr. Oates served as director of First National Bank of Florida, Bonita
Springs. From 1972 to 1988 Mr. Oates was employed with Southeast Bank, N.A.,
Naples, where he served as executive vice president and cashier.
G. DONALD THOMSON, JR., is an attorney residing in Bonita Springs.
Since 1996, Mr. Thomson has been a shareholder i the law firm G. Donald Thomson,
P.A., Bonita Springs. From 1984 to 1996, he was an associate and partner of the
firm Young, Van Assenderp & Varnadoe, P.A., in Naples.
BOARD COMPENSATION
We do not currently provide the directors of our holding company or our
existing bank with cash compensation for their services as directors, although
members are reimbursed for reasonable expenses incurred in attending meetings.
We also do not intend to pay any cash compensation to the directors of our new
bank for their services as directors.
In July 1999, we granted each of our non-executive directors options to
acquire 10,000 shares of common stock at a price of $15.00 per share. See
"Management - Director Stock Option Plan."
We plan to grant options to purchase 5,000 shares to each of the
directors of our new bank upon its opening. These options will have
substantially the same terms as the options granted to our current directors,
except that the exercise price will be $16.50 per share.
DIRECTOR STOCK OPTION PLAN
We adopted a Director Stock Option Plan in 1999. The plan provides for
grants of nonqualified stock options to purchase shares of common stock to our
directors. By encouraging stock ownership, we seek to motivate such individuals
to promote our success. As of the date of this prospectus, we have granted
options to purchase 70,000 shares of common stock under the plan, with an
exercise price of $15.00 per share. These options represent all of the options
available under the plan.
The board of directors administers and interprets the plan. The board
of directors has complete discretion to determine which directors are eligible
to receive option grants, the number of shares subject to each such grant, the
terms of each option, and the fair market value of the shares of common stock
underlying options. The board of directors may suspend or terminate the plan at
any time. The board of directors may amend or modify the plan at any time,
provided that no such amendment or modification may adversely affect the rights
and obligations of the participants with respect to their outstanding options or
vested shares without their consent. In addition, no amendment of the plan may,
without the approval of shareholders:
o modify the class of individuals eligible for participation in
the plan;
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<PAGE> 77
o amend the provisions of the plan relating to the plan's
administration;
o increase the number of shares of common stock available for
issuance under the plan, except in the event of certain
changes to the capital structure of Southern Community
Bancorp; or
o extend the term of options granted under the plan.
The plan will terminate in 2009. However, such termination will not
affect any options granted under the plan or vested shares.
Each option granted under the option plan has a term of 10 years,
subject to earlier termination following the director's termination for
deliberate, willful or gross misconduct. The maximum number of shares for which
options may be granted to any director pursuant to the plan is 10,000 shares. In
no event will an option be granted to a director who, at the time such option is
granted, owns shares possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of Southern Community Bancorp. The
minimum number of shares for which options may be exercised at any one time is
100 shares. The purchase price for shares of common stock is payable in cash
immediately upon the exercise of the option. Each option granted under the plan
is non-transferable by the director and exercisable during the director's
lifetime only by such director. However, in the event that the director dies
prior to exercising an option, such option may be exercised by the personal
representative of the estate of such director for a period of one year after
such representative's appointment. If options granted under the plan expire or
are terminated for any reason without being exercised, the shares of common
stock underlying such grant will again be available for purposes of the plan.
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<PAGE> 78
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
services rendered to us in 1999 by our chief executive officer and president. No
other officer earned $100,000 or more in combined salary and bonus in 1999.
1999 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term Compensation
Awards
--------------------------------
Annual Compensation Restricted Securities
---------------------------- Stock Underlying
Name and Principal Position Salary Bonus Awards Options
--------------------------- -------- ------- --------- ----------
<S> <C> <C> <C> <C>
Charlie W. Brinkley, Jr. $100,000 $10,000 $75,000(1) 35,000
Chief Executive Officer
John G. Squires $100,000 $10,000 -- 17,500
President
</TABLE>
------------
(1) At December 31, 1999, Mr. Brinkley owned 5,000 shares of common stock,
valued at $75,000, based on a price of $15.00 per share, as determined
by the board of directors. The shares vest over a five-year period from
the date of grant with 5% of the total number of shares being vested on
the first anniversary of the date of grant, 10% of such shares being
vested on the second anniversary of the date of grant, 35% of such
shares being vested on the third anniversary of the date of grant, and
25% of such shares being vested on the fourth and fifth anniversaries
of the date of grant. Dividends, if any, will be paid on shares which
have become vested.
The following table sets forth certain information concerning options
granted in 1999 to our chief executive officer and president. We have no
outstanding stock appreciation rights. No options were exercised during 1999.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
Number of Percentage of
Shares Total Options
Underlying Granted to
Options Employees Exercise Price Expiration
Name Granted (#) in 1999 Per Share Date
---- ----------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
Charlie W. Brinkley, Jr.............. 35,000 37.6% $15.00 June 2009
John G. Squires...................... 17,500 18.8% $15.00 June 2009
</TABLE>
The following table sets forth information with respect to our chief
executive officer and president concerning the exercise of options during 1999
and unexercised options held as of the end of 1999.
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AGGREGATED OPTION EXERCISES IN 1999 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Shares 12/31/99 (#) 12/31/99 ($)
Acquired Value --------------------------------------
On Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- ----------- --------- -------------- -------------
<S> <C> <C> <C> <C>
Charlie W. Brinkley, Jr............ -- -- 7,000 / 28,000 -- /--
John G. Squires.................... -- -- 7,000 / 10,500 -- /--
</TABLE>
We have agreed to pay Mr. Brinkley and Mr. Squires annual base salaries
of $150,000 in 2000. We have also agreed to pay Richard Garner, the proposed
Chairman and Chief Executive Officer of our new bank, and Joel E. Whittenhall,
the proposed President of our new bank, annual base salaries of $135,000 upon
the opening of the new bank.
We have entered into salary continuation agreements for Mr. Brinkley
and Mr. Squires. We have also agreed to issue shares to Mr. Brinkley as
compensation for his services as an officer, and to grant stock options to Mr.
Squires for his services as an officer. See "- Salary Continuation Agreements";
"- Stock Restriction Agreement" and "Employee Stock Option Plan."
SALARY CONTINUATION AGREEMENTS
We have entered into salary continuation agreements with Mr. Brinkley
and Mr. Squires pursuant to which they are entitled to receive various benefits
in the event of the termination of their employment as a result of normal
retirement, death, disability, or following a change of control of Southern
Community Bancorp. With the exception of the change of control benefit, the
benefit payments vest over a 10 year period and are payable in monthly
installments for a benefit period of 15 years (in the case of Mr. Squires) or 20
years (in the case of Mr. Brinkley), with annual adjustments for changes in the
consumer price index. No benefits will be payable under either agreement in the
event of termination of the employment for cause. In the event of a change of
control of Southern Community Bancorp, the fully vested normal retirement
benefit would be payable to each of Mr. Brinkley and Mr. Squires for their
respective benefit periods, provided that no benefits are payable that would be
subject to the excise tax applicable to excess parachute payments under the
Internal Revenue Code. In addition to the foregoing, in the event of any
termination of their employment as a result of a change of control of Southern
Community Bancorp, Mr. Brinkley would be entitled to receive a lump sum
severance payment equal to 25% of his base salary and Mr. Squires would be
entitled to receive a lump sum severance payment equal to three times his base
salary if such termination occurs prior to January 1, 2002, or two times his
base salary if such termination occurs thereafter.
We intend to enter into similar agreements with Mr. Garner and Mr.
Whittenhall upon the opening of our new bank.
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<PAGE> 80
RESTRICTED STOCK AGREEMENT WITH MR. BRINKLEY
On January 1, 1999, Mr. Brinkley entered into an agreement with
Southern Community Bancorp providing for the grant of 50,000 unregistered shares
of common stock, which are non- transferable except as described below. The
agreement provides that 5,000 shares will be granted to Mr. Brinkley each year
for a period of 10 years commencing on January 1, 1999 and on each January 1st
thereafter through the year 2008; however, shares granted after year 2003 will
be granted in the sole discretion of the board of directors based on the
performance of Southern Community Bancorp. Shares of stock granted on January 1,
1999 and January 1, 2000 vest over a five year period from the date of grant
with five percent (5%) of the total number of such shares being vested on the
first anniversary of the date of grant, ten percent (10%) of such shares being
vested on the second anniversary of the date of grant, thirty-five percent (35%)
of such shares being vested on the third anniversary of the date of grant, and
twenty-five percent (25%) of such shares being vested on the fourth and fifth
anniversaries of the date of grant. Shares of stock granted after January 1,
2000 shall vest ratably over a three year period from the date of grant, with
thirty-three percent (33%) of such shares being vested on each of the first,
second and third anniversary of the date of grant. In the event that a majority
of the outstanding shares of Southern Community Bancorp are acquired in a merger
or other transaction requiring approval under the Bank Holding Company Act of
1956, as amended, all shares issuable under the plan will immediately be granted
to Mr. Brinkley and become fully vested shares. If Mr. Brinkley is terminated
without cause, all of the shares granted to him under the plan shall be
immediately and fully vested and transferable without restriction. If Mr.
Brinkley is terminated for cause, Mr. Brinkley forfeits all rights to the stock
except stock which has become vested as of the date of such termination.
EMPLOYEE INCENTIVE STOCK OPTION PLAN
We adopted the Employee Incentive Stock Option Plan in 1999. The plan
provides for grants of incentive stock options to purchase shares of common
stock to certain officers and key management employees of Southern Community
Bancorp and its subsidiaries. The purpose of the plan is to attract and retain
qualified capable management personnel, provide additional incentives to such
persons and promote the success of our business. As of the date of this
prospectus, we had granted options to acquire 93,000 options at an exercise
price of $15.00 per share. We have the right to issue options to purchase an
additional 13,000 shares of common stock under the plan. The options previously
granted under the plan include options granted to Messrs. Brinkley and Squires
to purchase 35,000 shares and 17,000 shares, respectively.
Subject to approval by the shareholders of an increase in the number of
shares reserved under our existing stock option plans, the Board of Directors
has approved the grant to Mr. John Squires of options to purchase up to an
additional 67,500 shares of our common stock. Of this total, we will grant an
option to purchase 17,500 shares at an exercise price of $15.00 per share,
subject to vesting on a pro-rata basis over a term of five years commencing as
of January 1, 1998. We will grant an option to purchase the balance of 50,000
shares at a price of $15.00 per share with vesting parallel to the vesting of
the stock granted to Mr. Brinkley pursuant to the above mentioned agreement
after January 1, 2000. We also intend to grant options to each of Mr. Richard
Garner and Mr. Joel Whittenhall to purchase 30,000 shares at $16.50 per share.
The board of directors administers and interprets the plan. The board
of directors has complete discretion to determine which employees are eligible
to receive option grants, the number
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<PAGE> 81
of shares subject to each such grant, the time or times when options will be
granted, the price of the shares subject to each option, the time when each
option may be exercised, any other provisions of the option agreement and all
questions relating to the administration of the plan. Our shareholders may
terminate, modify or amend the plan at any time. In addition, our board of
directors may amend or modify the plan at any time, provided that no such
amendment or modification may adversely affect the rights and obligations of the
participants with respect to their outstanding options or vested shares without
their consent. In addition, no amendment of the plan may, without the approval
of shareholders:
o increase the number of shares for which options may be granted
under the plan;
o increase the purchase price for the shares subject to options;
o alter the periods during which options may be granted or
exercised;
o alter the provisions relating to the determination of
employees to whom options may be granted;
o alter the provisions relating to the annual dollar limitation
upon options granted to any employee;
o alter the provisions relating to the transferability of the
options; or
o alter the provisions relating to the employment status of an
employee to whom an option may be granted.
The plan will terminate in 2009. However, this termination will not affect any
options granted under the plan or vested shares.
Each option granted under the plan has a maximum term of 10 years,
subject to earlier termination following the participant ceasing to be an
employee. The exercise price of an option granted under the plan must be at
least 100% of the fair market value of the stock subject to the option on the
date of grant, or 110% with respect to an option granted to a holder of more
than 10% of the combined voting power of all classes of stock of Southern
Community Bancorp. The minimum number of shares for which options may be
exercised at any one time is 100 shares. In general, options vest ratably over a
five year period commencing one year from the date of grant, except as otherwise
determined by the Board of Directors. The purchase price for shares of common
stock is payable in cash immediately upon the exercise of the option. Each
option granted under the plan is non-transferable and exercisable only during
the holder's lifetime. In the event that the holder dies prior to exercising an
option, such option may be exercised by the personal representative of the
estate of such holder for a period of one year after such representative's
appointment. In the event that the holder is terminated for any reason other
than death, such option may be exercised at any time prior to the expiration
date of the option or within three months after the date of such termination, or
12 months in the case of an employee who is disabled, whichever is earlier, but
only to the extent such holder had the right to exercise such option at the date
of such termination; provided, however, that, if the holder's employment is
terminated as a result of deliberate, willful or gross misconduct, all rights
under the option shall terminate and expire upon such termination. If options
granted under the plan expire or are terminated for any reason without being
exercised, the shares of common stock underlying such grant will again be
available for purposes of the plan.
76
<PAGE> 82
In the event of a reorganization, merger or consolidation in which
Southern Community Bancorp is not the surviving corporation, the sale of
substantially all of the assets of Southern Community Bancorp to another
corporation, or a change in control or threatened change in control of Southern
Community Bancorp, all options granted prior to such event under the plan shall
become immediately exercisable. Unless otherwise determined by the board of
directors, the term "control" shall refer to the acquisition of ten percent
(10%) or more of the voting securities of Southern Community Bancorp by any
person or group acting in concert.
EMPLOYEE STOCK PURCHASE PLAN
We have established an employee stock purchase plan under which a total
of 15,000 shares of our common stock will be made available for sale to our
employees. The board of directors administers the plan. Employees are eligible
to participate in the plan if they are full-time employees for at least 90
consecutive days. The plan permits eligible employees to purchase common stock
through payroll deductions, which, subject to certain limitations, may not
exceed 10% of an employee's compensation. The minimum purchase each month by an
eligible employee is one share of common stock. The purchase price of each share
of common stock under the purchase plan will be equal to the fair market value
per share of common stock on the date of purchase, but will never be less than
$15.00 per share.
Eligible employees have the opportunity to enroll in the purchase plan
beginning on March 1 and ending on March 31 every year. Employees may terminate
their participation in the purchase plan at any time. Participation ends
automatically upon termination of employment. In the event that an employee
participating in the plan ceases to be our employee, we have the right to
repurchase all or any portion of the shares purchased by such employee under the
plan at any time during the following 24 months for a purchase price equal to
the fair market value of the stock at the time of such repurchase. The plan will
terminate upon the earlier of September 16, 2004, or the date all of the shares
reserved for purchase under the purchase plan have been purchased, unless the
board of directors terminates it sooner. The board of directors also has the
right to amend or suspend the plan at any time without prior notice.
77
<PAGE> 83
CERTAIN TRANSACTIONS
From time to time, we make loans to our executive officers and
directors in accordance with our usual loan approval criteria. We made all such
loans on terms, including interest rates and collateral, and are subject to
conditions that are applicable to loans we make to unaffiliated parties. As of
September 30, 2000, the aggregate balance of all such loans was $5,667,000. In
addition, we have approved an unsecured line of credit for each of our
directors, including the directors of our existing bank, in the amount of
$75,000. These lines of credit are subject to renewal on an annual basis. All
extensions of credit to executive officers and directors are subject to approval
by the full board of directors with the interested person abstaining from any
participation in the discussion or decision with respect to his or her own loan.
Our existing bank has entered into a lease agreement with one of our
directors, Patrick Armstrong, pursuant to which the bank leases the site of its
Altamonte Springs branch office. The term of the lease is for a period of 20
years expiring in 2018 which may be extended by the bank for up to 10 additional
years. The rent payments are $10,070 per month through the first five years of
the lease, increasing at the rate of 4% per year thereafter.
Southern Community Insurance Agency, Inc., a wholly owned subsidiary of
our existing bank, has entered into a relationship with Insurance Office of
America, Inc., an insurance agency owned by one of our directors, John Ritenour.
Insurance Office of America, Inc. will pay Southern Community Insurance Agency,
Inc. a percentage of the commissions received from customers referred by
Southern Community Insurance Agency, Inc.
We will utilize a portion of the proceeds of the offering to pay the
organizers of our proposed new bank for the organizational costs which they will
incur in establishing the new bank. The organizers of the new bank are the
persons designated as the proposed directors of the new bank, including Mr.
Brinkley and Mr. Squires. The organizational costs include annual salaries of
$120,000 currently being paid to Mr. Garner and Mr. Whittenhall. See "Management
- Proposed Executive Officers and Directors of Our Proposed New Bank." We
estimate that these costs will be approximately $700,000. If the offering is not
successful, the organizers of the new bank will be required to bear all of these
expenses.
We intend to grant stock options to each of the organizers of our
proposed new bank at the time it is opened, including Messrs. Brinkley and
Squires. These individuals will each receive options for 5,000 shares, with an
exercise price of $16.50 per share. These options will have substantially the
same terms as the stock options previously granted to our non-executive
directors.
78
<PAGE> 84
SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 2000, the number
and percentage of shares of our outstanding common stock which are beneficially
owned, directly or indirectly, by:
o each shareholder who owns more than 5% of the outstanding
shares;
o each of our directors;
o each of our executive officers; and
o all of our directors and executive officers as a group.
We determine beneficial ownership based on the rules of Securities and
Exchange Commission. In general, beneficial ownership includes shares over which
the indicated person has sole or shared voting or investment power and shares
which he or she has the right to acquire within 60 days of September 30, 2000.
Unless otherwise indicated, the persons listed have sole voting and investment
power over the shares beneficially owned.
<TABLE>
<CAPTION>
Position with Shares
Southern Community Beneficially
Name Bancorp Owned Percentage
---- ---------------------- ------------ ----------
<S> <C> <C> <C>
Charlie W. Brinkley, Jr. (1).......... Chairman and CEO 82,436 7.5%
John G. Squires (2)................... President, COO and 73,096 6.7%
Director
Patrick J. Armstrong (3).............. Director 43,333 3.9%
Richard M. Dunn (3)................... Director 58,485 5.3%
Jennings L. Hurt, III (3)............. Director 75,152 6.8%
Eugene M. Pascarella (3).............. Director 43,333 3.9%
Jon C. Peterson (3)................... Director 48,724 4.4%
John K. Ritenour (3).................. Director 50,000 4.5%
Stanley H. Sandefur (3)............... Director 75,151 6.8%
Stephen R. Jeuck (4).................. Secretary and CFO 1,802 0.2%
Richard L. Garner .................... Vice President -- --
Joel E. Whittenhall................... Vice President -- --
All executive officers
and directors as a group
(12 persons) (5) 551,512 46.9%
</TABLE>
79
<PAGE> 85
NOTES TO PRECEDING TABLE
(1) Includes 10,000 shares that are subject to disposition restriction, of
which 9,750 shares that are subject to potential forfeiture, and 7,000
shares issuable upon exercise of outstanding stock options.
(2) Includes 7,000 shares issuable upon exercise of outstanding stock
options.
(3) Includes 10,000 shares issuable upon exercise of outstanding stock
options.
(4) Includes 800 shares issuable upon exercise of outstanding stock
options.
(5) Includes 84,800 shares issuable upon exercise of outstanding stock
options.
BENEFICIAL OWNERSHIP OF MANAGEMENT FOLLOWING OFFERING
Our directors and executive officers have acquired 81,629 shares as
part of our prior sale of 200,000 shares in the offering. The directors and
executive officers currently intend to purchase an additional 80,853 shares in
the offering. If we complete the offering by the sale of a minimum of 620,000
additional shares, and the directors and executive officers acquire the
indicated number of shares, then our directors and executive officers would
beneficially own 632,365 shares, or 35.2% of the total then outstanding. This
percentage would decrease to the extent we sell additional shares in the
offering.
The proposed directors of our proposed new bank, excluding those who
are already directors and executive officers of Southern, have indicated that
they will subscribe to purchase a minimum of 66,425 in the offering. If we
complete the offering by the sale of a minimum of 620,000 additional shares,
then these directors would beneficially own 116,425 shares, or 6.6% of the total
then outstanding. This calculation assumes the issuance of 50,000 stock options
to these directors.
80
<PAGE> 86
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 10,000,000 shares of common
stock, par value $1.00 per share. As of the date of this prospectus, 1,090,408
shares of our common stock were issued and outstanding, including 200,000 shares
which we previously issued as part of the offering.
COMMON STOCK
Holders of our common stock are entitled to receive ratably dividends,
if any, declared by the board of directors out of funds legally available for
dividends. See "Dividend Policy." In the event of the liquidation, dissolution
or winding up of Southern Community Bancorp, holders of our common stock are
entitled to share ratably, based on the number of shares held, in the assets,
remaining after payment of all the debts and liabilities of Southern Community
Bancorp.
Holders of common stock are entitled to one vote per share on all
matters submitted to the holders of common stock for a vote. Because holders of
common stock do not have cumulative voting rights with respect to the election
of directors, the holders of a majority of the shares of common stock
represented at a meeting can elect all of the directors. Holders of common stock
do not have preemptive or other rights to subscribe for or purchase any
additional shares of capital stock which we may issue or to convert their common
stock into any other securities. There are no redemption or sinking fund
provisions applicable to the common stock.
ANTI-TAKEOVER PROVISIONS
GENERAL. The Florida Business Corporation Act contains provisions
designed to enhance the ability of the board of directors to respond to attempts
to acquire control of Southern Community Bancorp. These provisions may
discourage takeover attempts which have not been approved by the board of
directors. This could include takeover attempts that some of our shareholders
deem to be in their best interest. These provisions may adversely affect the
price that a potential purchaser would be willing to pay for our common stock.
These provisions may deprive you of the opportunity to obtain a takeover premium
for your shares. These provisions could make the removal of incumbent management
more difficult. These provisions may enable a minority of our directors and the
holders of a minority of our outstanding voting stock to prevent, discourage or
make more difficult a merger, tender offer or proxy contest, even though the
transaction may be favorable to the interests of shareholders. These provisions
could also potentially adversely affect the market price of the common stock.
The following summarizes the anti-takeover provisions contained in the
Florida Business Corporation Act.
AUTHORIZED BUT UNISSUED STOCK. The authorized but unissued shares of
common stock will be available for future issuance without shareholder approval.
These additional shares may be used for a variety of corporate purposes,
including future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of authorized but
unissued shares of common stock may enable our board of directors to issue
shares of stock to persons friendly to existing management. This may have the
effect of discouraging attempts to obtain control of Southern Community Bancorp.
81
<PAGE> 87
EVALUATION OF ACQUISITION PROPOSALS. The Florida Business Corporation
Act expressly permits the board of directors, when evaluating any proposed
tender or exchange offer, any merger, consolidation or sale of substantially all
of the assets of Southern Community Bancorp, or any similar extraordinary
transaction, to consider all relevant factors including, without limitation, the
social, legal, and economic effects on the employees, customers, suppliers, and
other constituencies of Southern Community Bancorp and its subsidiaries, on the
communities and geographical areas in which they operate. Our board of directors
may also consider the amount of consideration being offered in relation to the
then current market price for outstanding shares of capital stock and our then
current value in a freely negotiated transaction. Our board of directors
believes that these provisions are in the long-term best interests of Southern
Community Bancorp and its shareholders.
CONTROL SHARE ACQUISITIONS. We are subject to the Florida control share
acquisitions statute. This statute is designed to afford shareholders of public
corporations in Florida protection against acquisitions in which a person,
entity or group seeks to gain voting control. With enumerated exceptions, the
statute provides that shares acquired within certain specific ranges will not
possess voting rights in the election of directors unless the voting rights are
approved by a majority vote of the public corporation's disinterested
shareholders. Disinterested shares are shares other than those owned by the
acquiring person or by a member of a group with respect to a control share
acquisition, or by any officer of the corporation or any employee of the
corporation who is also a director. The specific acquisition ranges that trigger
the statute are:
o acquisitions of shares possessing one-fifth or more but less than
one-third of all voting power;
o acquisitions of shares possessing one-third or more but less than a
majority of all voting power;
o or acquisitions of shares possessing a majority of more of all voting
power.
Under certain circumstances, the statute permits the acquiring person
to call a special shareholders meeting for the purpose of considering the grant
of voting rights to the holder of the control shares. The statute also enables a
corporation to provide for the redemption under certain circumstances of control
shares with no voting rights.
TRANSACTIONS WITH INTERESTED SHAREHOLDERS. We are subject to the
Florida affiliated transactions statute which generally requires approval by the
disinterested directors or supermajority approval by shareholders for certain
specified transactions between a corporation and a holder, or its affiliates, of
more than 10% of the outstanding shares of the corporation. These provisions
could prohibit or delay the accomplishment of mergers or other takeover or
change in control attempts. Accordingly, these provisions may discourage
attempts to acquire Southern Community Bancorp.
82
<PAGE> 88
TRANSFER AGENT AND REGISTRAR
We currently act as our own transfer agent and registrar for our common
stock.
LIMITED LIABILITY AND INDEMNIFICATION
Under the Florida Business Corporation Act, a director is not
personally liable for monetary damages to the corporation or any other person
for any statement, vote, decision, or failure to act unless:
o the director breached or failed to perform his duties as a director and
o a director's breach of, or failure to perform, those duties
constitutes:
o a violation of the criminal law, unless the director had
reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful,
o a transaction from which the director derived an improper
personal benefit, either directly or indirectly,
o a circumstance under which an unlawful distribution is made,
o in a proceeding by or in the right of the corporation to
procure a judgment in its favor or by or in the right of a
shareholder, conscious disregard for the best interest of the
corporation or willful misconduct, or
o in a proceeding by or in the right of someone other than the
corporation or a shareholder, recklessness or an act or
omission which was committed in bad faith or with malicious
purpose or in a manner exhibiting wanton and willful disregard
of human rights, safety, or property.
A corporation may purchase and maintain insurance on behalf of any
director or officer against any liability asserted against him and incurred by
him in his capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the Florida Business Corporation Act.
Our articles of incorporation and bylaws provide that we shall, to the
fullest extent permitted by applicable law, as amended from time to time,
indemnify all of our directors, as well as any of our officers or employees to
whom we have agreed to grant indemnification.
83
<PAGE> 89
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have a minimum of 1,710,408
shares and a maximum of 1,940,408 shares of common stock outstanding. Except for
shares held by our affiliates, almost all of our outstanding shares will be
freely tradeable without restriction or registration under the Securities Act of
1933. Our affiliates will need to comply with the resale limitations of Rule 144
under the Securities Act of 1933. Rule 144 defines an "affiliate" as a person
who directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, a company. Affiliates of a
company generally include its directors, officers and principal shareholders and
the directors and executive officers of its principal subsidiaries.
Purchasers of the common stock in the offering, other than affiliates,
may resell their shares immediately. Our affiliates will be subject to the
volume and other limitations of Rule 144. Rule 144 in general permits affiliates
to sell within any three-month period a number of shares that does not exceed
the greater of 1% of the outstanding shares of common stock or the average
weekly trading volume during the four calendar weeks preceding his or her sale.
Sales under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about Southern
Community Bancorp.
84
<PAGE> 90
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon by
Shutts & Bowen LLP, Orlando, Florida.
EXPERTS
The consolidated financial statements of Southern Community Bancorp as
of December 31, 1999 and 1998, included in this prospectus have been audited by
Hacker, Johnson, Cohen & Grieb, P.A., independent certified public accountants,
as stated in their opinion, which has been rendered upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of Peninsula Bancorp, Inc. as of
December 31, 1999 and 1998, included in this prospectus have been audited by
Camputaro & Associates, independent certified public accountants, as stated in
their opinion, which has been rendered upon the authority of such firm as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 with the SEC to
register the common stock we will issue in the offering. As permitted by the
rules and regulations of the SEC, this prospectus does not contain all of the
information that you can find in the registration statement and its exhibits.
You may read and copy our registration statement, and any reports and
other information which we may file with the SEC at the SEC's public reference
rooms in Washington, D.C., New York or Chicago, Illinois. You may call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms.
The SEC also maintains a website that contains reports, proxy and
information statements and other information regarding registrants such as
Southern Community Bancorp that file electronically with the Securities and
Exchange Commission. The address of this website is http://www.sec.gov.
We have filed or will file various applications with the Florida
Department of Banking and Finance, the FDIC and the Federal Reserve. You should
rely only on information in this prospectus and in our related registration
statement in making an investment decision. If other available information is
inconsistent with information in this prospectus, including information in
public files or provided by the bank regulatory agencies, such other information
is superseded by the information in this prospectus. Projections appearing in
the applications to such agencies were based on assumptions that the organizers
believed were reasonable at the time, but which may have changed or may
otherwise be wrong. We specifically disclaim all projections for purposes of
this prospectus and caution prospective investors against placing reliance on
them for purposes of making an investment decision.
85
<PAGE> 91
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report...........................................................................F-3
Consolidated Balance Sheets, December 31, 1999 and 1998................................................F-4
Consolidated Statements of Operations for the Year Ended December 31, 1999 and
for the Period from December 15, 1998
(commencement of banking operations) to December 31, 1998.....................................F-5
Consolidated Statements of Changes in Stockholders' Equity for the Year Ended
December 31, 1999 and for the Period from December 15, 1998
(commencement of banking operations)
to December 31, 1998..........................................................................F-6
Consolidated Statements of Cash Flows for the Year Ended December 31, 1999 and
for the Period from December 15, 1998
(commencement of banking operations) to December 31, 1998.....................................F-7
Notes to Consolidated Financial Statements for the Year Ended December 31,
1999 and for the Period from December 15, 1998
(commencement of banking operations) to December 31, 1998.....................................F-8
Condensed Consolidated Balance Sheets, September 30, 2000 and 1999 (Unaudited)........................F-25
Condensed Consolidated Statement of Operations for the
Nine Months ended September 30, 2000 and 1999 (Unaudited)....................................F-26
Condensed Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 2000 and 1999 (Unaudited)....................................F-27
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the Nine Months ended September 30, 2000 (Unaudited)..............................F-28
Notes to Condensed Consolidated Financial Statements for the
Nine Months ended September 30, 2000 and 1999 (Unaudited)....................................F-29
</TABLE>
All schedules are omitted because of the absence of the conditions
under which they are required or because the required information is included in
the Consolidated Financial Statements and related Notes.
F-1
<PAGE> 92
PENINSULA BANCORP INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report...................................................................................F-32
Consolidated Balance Sheets, December 31, 1999 and 1998........................................................F-33
Consolidated Statements of Operations for the Year Ended December 31, 1999 and
for the Period from August 20, 1998
(date of inception) to December 31, 1998..............................................................F-34
Consolidated Statements of Changes in Stockholders' Equity for the
Year Ended December 31, 1999 and for the Period from
August 20, 1998 (date of inception)
to December 31, 1998..................................................................................F-35
Consolidated Statements of Cash Flows for the Year Ended December 31, 1999 and
for the Period from August 20, 1998
(date of inception) to December 31, 1998..............................................................F-36
Notes to Consolidated Financial Statements for the Year Ended December 31,
1999 and for the Period from August 20, 1998
(date of inception) to December 31, 1998..............................................................F-37
Condensed Consolidated Balance Sheets, September 30, 2000 and 1999 (Unaudited).................................F-46
Condensed Consolidated Statement of Operations for the
Nine Months ended September 30, 2000 and 1999 (Unaudited).............................................F-47
Condensed Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 2000 and 1999 (Unaudited).............................................F-48
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the Nine Months ended September 30, 2000 (Unaudited).......................................F-49
Notes to Condensed Consolidated Financial Statements for the
Nine Months ended September 30, 2000 and 1999 (Unaudited).............................................F-50
</TABLE>
All schedules are omitted because of the absence of the conditions
under which they are required or because the required information is included in
the Consolidated Financial Statements and related Notes.
F-2
<PAGE> 93
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Southern Community Bancorp
Orlando, Florida:
We have audited the accompanying consolidated balance sheets of
Southern Community Bancorp and its wholly-owned subsidiary, Southern Community
Bank (together, the "Company") at December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year ended December 31, 1999 and for the period from December 15,
1998 (commencement of banking operations) to December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 1999 and 1998, and the results of its operations and its cash
flows for the year ended December 31, 1999 and for the period from December 15,
1998 (commencement of banking operations) to December 31, 1998, in conformity
with generally accepted accounting principles.
HACKER, JOHNSON, COHEN & GRIEB PA
Orlando, Florida
January 26, 2000
F-3
<PAGE> 94
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,519,649 133,920
Federal funds sold -- 13,124,000
------------ ------------
Cash and cash equivalents 4,519,649 13,257,920
Securities available for sale 11,997,900 --
Loans receivable, net of allowance for loan losses of
$621,000 in 1999 and $12,000 in 1998 61,362,573 1,202,605
Accrued interest receivable 554,036 31,061
Federal Home Loan Bank stock, at cost 212,400 --
Premises and equipment, net 4,317,768 1,850,072
Deferred income tax asset 811,146 148,031
Other assets 88,696 116,748
------------ ------------
Total assets $ 83,864,168 16,606,437
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits 10,768,768 57,740
Money-market deposits 14,051,702 3,152,763
Savings and NOW deposits 5,757,244 35,371
Time deposits 34,485,277 27,730
------------ ------------
Total deposits 65,062,991 3,273,604
Federal funds purchased 6,000,000 --
Official checks 662,237 1,035,385
Accrued interest payable and other liabilities 300,453 64,749
------------ ------------
Total liabilities 72,025,681 4,373,738
------------ ------------
Commitments and contingencies (Notes 4, 6, 7 and 16)
Stockholders' equity:
Common stock, $1 par value, 10,000,000 shares authorized,
884,425 and 834,425 shares issued and outstanding 884,425 834,425
Additional paid-in capital 12,381,950 11,681,950
Accumulated deficit (1,225,661) (283,676)
Accumulated other comprehensive income (loss) (202,227) --
------------ ------------
Total stockholders' equity 11,838,487 12,232,699
------------ ------------
Total liabilities and stockholders' equity $ 83,864,168 16,606,437
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 95
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 15, 1998
(COMMENCEMENT
OF BANKING
YEAR ENDED OPERATIONS) TO
DECEMBER 31, DECEMBER 31,
------------ -----------------
1999 1998
----------- -----------
<S> <C> <C>
Interest income:
Loans receivable $ 2,715,861 3,908
Securities available for sale 398,178 --
Other interest-earning assets 285,012 28,311
----------- -----------
Total interest income 3,399,051 32,219
----------- -----------
Interest expense:
Deposits 1,168,568 6,641
Other borrowings 17,171 --
----------- -----------
Total interest expense 1,185,739 6,641
----------- -----------
Net interest income 2,213,312 25,578
Provision for loan losses 609,000 12,000
----------- -----------
Net interest income after provision for loan losses 1,604,312 13,578
----------- -----------
Noninterest income:
Service charges on deposit accounts 53,036 --
Other service charges and fees 62,858 --
----------- -----------
Total noninterest income 115,894 --
----------- -----------
Noninterest expense:
Salaries and employee benefits 1,464,520 46,659
Occupancy expense 804,439 15,593
Data processing 127,413 10,092
Printing and office supplies 148,313 5,356
Marketing and advertising 173,586 1,521
Professional fees 135,682 1,000
Telephone 71,354 490
Travel and entertainment 54,562 1,301
Other 236,545 1,871
----------- -----------
Total noninterest expense 3,216,414 83,883
----------- -----------
Loss before income tax benefit (1,496,208) (70,305)
Income tax benefit (554,223) (26,282)
----------- -----------
Net loss $ (941,985) (44,023)
=========== ===========
Basic and diluted loss per share $ (1.10) (.05)
=========== ===========
Weighted-average number of common shares outstanding 855,258 834,425
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 96
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPRE-
ADDITIONAL HENSIVE TOTAL
COMMON PAID-IN ACCUMULATED INCOME STOCKHOLDERS'
STOCK CAPITAL DEFICIT (LOSS) EQUITY
----------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 15, 1998
(Commencement of
banking operations) $ 834,425 11,681,950 (239,653) -- 12,276,722
Comprehensive income (loss) -
Net loss for the period -- -- (44,023) -- (44,023)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 834,425 11,681,950 (283,676) -- 12,232,699
-----------
Comprehensive income (loss):
Net loss for the year -- -- (941,985) -- (941,985)
Net change in unrealized loss on
securities available for sale,
net of tax -- -- -- (202,227) (202,227)
-----------
Comprehensive income (loss) (1,144,212)
Sale of common stock (50,000
shares) 50,000 700,000 -- -- 750,000
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 $ 884,425 12,381,950 (1,225,661) (202,227) 11,838,487
=========== =========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 97
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 15, 1998
(COMMENCEMENT
OF BANKING
YEAR ENDED OPERATIONS) TO
DECEMBER 31, DECEMBER 31,
------------ ----------------
1999 1998
------------ ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (941,985) (44,023)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Provision for loan losses 609,000 12,000
Depreciation and amortization 184,180 6,144
Credit for deferred income taxes (554,223) (26,282)
Accretion of discounts on securities (11,552) --
Increase in accrued interest receivable (522,975) (31,061)
Decrease (increase) in other assets 28,052 (116,748)
(Decrease) increase in official checks (373,148) 1,035,385
Increase in accrued interest payable and other liabilities 235,704 42,845
------------ ------------
Net cash (used in) provided by operating
activities (1,346,947) 878,260
------------ ------------
Cash flows from investing activities:
Repayments of securities available for sale 18,005 --
Purchases of securities available for sale (12,315,472) --
Net increase in loans (60,768,968) (1,214,605)
Purchases of premises and equipment (2,651,876) (1,856,216)
Purchases of Federal Home Loan Bank stock (212,400) --
------------ ------------
Net cash used in investing activities (75,930,711) (3,070,821)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 61,789,387 3,273,604
Net increase in Federal funds purchased 6,000,000 --
Proceeds from issuance of common stock 750,000 --
------------ ------------
Net cash provided by financing activities 68,539,387 3,273,604
------------ ------------
Net (decrease) increase in cash and cash equivalents (8,738,271) 1,081,043
Cash and cash equivalents at beginning of period 13,257,920 12,176,877
------------ ------------
Cash and cash equivalents at end of period $ 4,519,649 13,257,920
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,070,498 3,448
============ ============
Income taxes $ -- --
============ ============
Noncash investing activities-
Accumulated other comprehensive income, unrealized
loss on securities available for sale, net of tax $ (202,227) --
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-7
<PAGE> 98
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE
PERIOD FROM DECEMBER 15, 1998 (COMMENCEMENT OF
BANKING OPERATIONS) TO DECEMBER 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. Southern Community Bancorp (the "Holding Company") owns
100% of the outstanding common stock of Southern Community Bank (the
"Bank") (collectively the "Company"). On April 15, 1999, the Bank's
shareholders approved a plan of corporate reorganization under which the
Bank became a wholly owned subsidiary of the Holding Company. The
Holding Company was formed on July 30, 1999. The Bank's stockholders
exchanged their common shares for shares of the Holding Company. As a
result, all of the previously issued $7.50 par value common shares of
the Bank were exchanged for 834,425 shares of the $1.00 par value common
shares of the Holding Company. The Holding Company's acquisition of the
Bank has been accounted for similar to a pooling of interests and,
accordingly, the financial data for periods presented include the
results of the Bank.
The Holding Company's only business activity is the operation of the
Bank. The Bank is a state (Florida) chartered commercial bank. The Bank
began its organizational phase in March of 1998. These financial
statements do not include the organizational phase of the Bank. The
consolidated 1998 financial statements include the operations of the
Bank from December 15, 1998 (the date of the commencement of banking
operations) to December 31, 1998. The Bank offers a variety of financial
services to individual and corporate customers through its four banking
offices located in Orange and Seminole Counties, Florida. The deposits
of the Bank are insured by the Federal Deposit Insurance Corporation
("FDIC") through the Bank Insurance Fund ("BIF").
BASIS OF PRESENTATION. The accompanying consolidated financial
statements include the accounts of the Holding Company and the Bank. All
significant intercompany accounts and transactions have been eliminated
in consolidation. The accounting and reporting practices of the Company
conform to generally accepted accounting principles and to general
practices within the banking industry. The following summarizes the more
significant of these policies and practices:
USE OF ESTIMATES. In preparing consolidated financial statements in
conformity with generally accepted accounting principles, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the balance sheet
and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant change in the
near term relate to the determination of the allowance for loan losses
and deferred tax assets.
CASH AND CASH EQUIVALENTS. For purposes of the consolidated statements
of cash flows, cash and cash equivalents include cash and balances due
from banks and federal funds sold.
F-8
<PAGE> 99
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
SECURITIES. The Company may classify its securities as either trading,
held to maturity or available for sale. Trading securities are held
principally for resale and recorded at their fair values. Unrealized
gains and losses on trading securities are included immediately in
earnings. Held- to-maturity securities are those which the Company has
the positive intent and ability to hold to maturity and are reported at
amortized cost. Available-for-sale securities consist of securities not
classified as trading securities nor as held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are excluded from earnings and reported in other
comprehensive income. Gains and losses on the sale of available-for-sale
securities are recorded on the trade date and are determined using the
specific-identification method. Premiums and discounts on securities are
recognized in interest income using the interest method over the period
to maturity.
LOANS RECEIVABLE. Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off
are reported at their outstanding principal adjusted for any
charge-offs, the allowance for loan losses, and any deferred fees or
costs on originated loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related
loan.
The accrual of interest on loans is discontinued at the time the loan is
90 days delinquent unless the credit is well-secured and in process of
collection. In all cases, loans are placed on nonaccrual or charged-off
at an earlier date if collection of principal or interest is considered
doubtful.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged-off is reversed against interest income. The
interest on these loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably
assured.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
as losses are estimated to have occurred through a provision for loan
losses charged to earnings. Loan losses are charged against the
allowance when management believes the uncollectibility of a loan
balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance.
The allowance for loan losses is evaluated on a regular basis by
management and is based upon management's periodic review of the
collectibility of the loans in light of historical experience, the
nature and volume of the loan portfolio, adverse situations that may
affect the borrower's ability to repay, estimated value of any
underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes
available.
(continued)
F-9
<PAGE> 100
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
ALLOWANCE FOR LOAN LOSSES, CONTINUED. A loan is considered impaired when,
based on current information and events, it is probable that the Company
will be unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan agreement.
Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not
classified as impaired. Management determines the significance of payment
delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the
borrower, including the length of the delay, the reasons for the delay,
the borrower's prior payment record, and the amount of the shortfall in
relation to the principal and interest owed. Impairment is measured on a
loan by loan basis for commercial loans by either the present value of
expected future cash flows discounted at the loan's effective interest
rate, the loan's obtainable market price, or the fair value of the
collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment. Accordingly, the Company does not separately
identify individual consumer and residential loans for impairment
disclosures.
PREMISES AND EQUIPMENT. Land is carried at cost. Premises, furniture and
equipment, and leasehold improvements are carried at cost, less
accumulated depreciation and amortization computed principally using the
straight-line method. The Company amortizes leasehold improvements over
the lease term, which could include lease renewal periods, if it is the
intent of management to exercise the renewal option on the lease.
TRANSFER OF FINANCIAL ASSETS. Transfers of financial assets are accounted
for as sales, when control over the assets has been surrendered. Control
over transferred assets is deemed to be surrendered when (1) the assets
have been isolated from the Company, (2) the transferee obtains the right
(free of conditions that constrain it from taking advantage of that
right) to pledge or exchange the transferred assets, and (3) the Company
does not maintain effective control over the transferred assets through
an agreement to repurchase them before their maturity.
INCOME TAXES. Deferred tax assets and liabilities are determined using
the liability (or balance sheet) method. Under this method, the net
deferred tax asset or liability is determined based on the tax effects of
the temporary differences between the book and tax bases of the various
balance sheet assets and liabilities and gives current recognition to
changes in tax rates and laws.
ORGANIZATIONAL COSTS. Preopening and organizational expenses totaled
$239,653 (net of tax effect of $121,749) and were charged to expense as
incurred during the organizational phase.
(continued)
F-10
<PAGE> 101
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
STOCK COMPENSATION PLANS. Statement of Financial Accounting Standards
(SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, encourages all
entities to adopt a fair value based method of accounting for employee
stock compensation plans, whereby compensation cost is measured at the
grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. However, it also
allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES, whereby compensation cost is the excess, if any, of the
quoted market price of the stock at the grant date (or other measurement
date) over the amount an employee must pay to acquire the stock. Stock
options issued under the Company's stock option plan have no intrinsic
value at the grant date, and under Opinion No. 25 no compensation cost
is recognized for them. The Company has elected to continue with the
accounting methodology in Opinion No. 25 and, as a result, has provided
proforma disclosures of net loss and other disclosures, as if the fair
value based method of accounting had been applied. (See Note 11).
OFF-BALANCE SHEET INSTRUMENTS. In the ordinary course of business, the
Company has entered into off-balance-sheet instruments consisting of
commitments to extend credit, standby letters of credit, undisbursed
loans in process and unused lines of credit. Such financial instruments
are recorded in the financial statements when they are funded.
FAIR VALUES OF FINANCIAL INSTRUMENTS. The fair value of a financial
instrument is the current amount that would be exchanged between willing
parties, other than in a forced liquidation. Fair value is best
determined based upon quoted market prices. However, in many instances,
there are no quoted market prices for the Company's various financial
instruments. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future
cash flows. Accordingly, the fair value estimates may not be realized in
an immediate settlement of the instrument. SFAS 107 excludes certain
financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented may not necessarily represent the underlying fair value of the
Company. The following methods and assumptions were used by the Company
in estimating fair values of financial instruments:
CASH AND CASH EQUIVALENTS. The carrying amounts of cash and cash
equivalents approximate their fair value.
SECURITIES. Fair values for securities available for sale are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments. The carrying amount of Federal Home Loan Bank stock
approximates fair value.
(continued)
F-11
<PAGE> 102
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED.
LOANS. For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. Fair values for fixed-rate mortgage (e.g. one-to-four family
residential), commercial real estate and commercial loans are estimated
using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar
credit quality. Fair values for nonperforming loans are estimated using
discounted cash flow analysis or underlying collateral values, where
applicable.
ACCRUED INTEREST RECEIVABLE. Book value approximates fair value.
DEPOSIT LIABILITIES. The fair values disclosed for demand, NOW,
money-market and savings deposits are, by definition, equal to the
amount payable on demand at the reporting date (that is, their carrying
amounts). Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities of time deposits.
FEDERAL FUNDS PURCHASED. The carrying amount of federal funds purchased
approximates fair value.
OFF-BALANCE-SHEET INSTRUMENTS. Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
LOSS PER SHARE. Basic and diluted loss per share is calculated by
dividing net loss by the weighted average number of shares of common
stock outstanding during the period. Outstanding stock options are not
dilutive due to the net losses incurred by the Company.
ADVERTISING. The Company expenses all media advertising as incurred.
FUTURE ACCOUNTING REQUIREMENTS. Financial Accounting Standards No. 133
- ACCOUNTING FOR DERIVATIVE INVESTMENTS AND HEDGING ACTIVITIES requires
companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for
depending on the use of the derivatives and whether they qualify for
hedge accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving offsetting
changes in fair value or cash flows. The Company will be required to
adopt this Statement effective January 1, 2001. Management does not
anticipate that this Statement will have a material impact on the
Company.
(continued)
F-12
<PAGE> 103
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) SECURITIES AVAILABLE FOR SALE
Securities have been classified according to management's intent. The
carrying amount of securities and their approximate fair value at
December 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. governments agency securities $10,336,148 19,760 (297,714) 10,058,194
Mortgage-backed security 1,972,871 -- (33,165) 1,939,706
----------- ----------- ----------- -----------
$12,309,019 19,760 (330,879) 11,997,900
=========== =========== =========== ===========
</TABLE>
There was no sales of securities in 1999 or 1998.
At December 31, 1999, the Company has pledged securities with a
carrying value of approximately $2.4 million for public deposits.
The scheduled maturities at December 31, 1999 are as follows:
AMORTIZED FAIR
COST VALUE
---------- -----------
Due from one to five years $ 2,686,610 2,565,313
Due from five to ten years 7,649,538 7,492,881
Mortgage-backed security 1,972,871 1,939,706
----------- -----------
$ 12,309,019 11,997,900
============ ===========
(3) LOANS
The components of loans were as follows:
AT DECEMBER 31,
-----------------------------
1999 1998
------------ ------------
Commercial $ 19,122,523 1,092,911
Commercial real estate 26,450,845 --
Residential real estate 12,915,102 50,308
Consumer and other 3,535,775 71,386
------------ ------------
Total loans 62,024,245 1,214,605
Less:
Allowance for loan losses (621,000) (12,000)
Net deferred loan fees (40,672) --
------------ ------------
Loans receivable, net $ 61,362,573 1,202,605
============ ============
(continued)
F-13
<PAGE> 104
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) LOANS, CONTINUED
The following is a summary of the activity in the allowance for loan
losses:
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
----------- -----------
1999 1998
----------- -----------
Allowance, at beginning of period $ 12,000 --
Provision for loan losses 609,000 12,000
----------- -----------
Allowance, at end of period $ 621,000 12,000
=========== ===========
There were no impaired loans recognized under SFAS 114 and 118 during
1999 or 1998
(4) PREMISES AND EQUIPMENT
Premises and equipment were as follows:
AT DECEMBER 31,
--------------------------
1999 1998
----------- -----------
Cost:
Land $ 450,000 450,000
Building 839,514 672,166
Leasehold improvements 2,110,188 428,816
Furniture and equipment 1,108,390 305,234
----------- -----------
Total cost 4,508,092 1,856,216
Less accumulated depreciation (190,324) (6,144)
----------- -----------
Net book value $ 4,317,768 1,850,072
=========== ===========
The Company leases three of its office facilities under operating leases
The leases contain escalation clauses and have renewal options from 5 to
15 years. Rent expense under operating leases for the year ended December
31, 1999 and for the period from December 15, 1998 (commencement of
banking operations) to December 31, 1998 was approximately $327,000 and
$6,500, respectively. Future minimum rental commitments under
noncancelable leases are as follows:
YEAR ENDING DECEMBER 31: AMOUNT
------------------------ -----------
2000 $ 376,914
2001 411,599
2002 430,338
2003 433,135
2004 364,300
2005 and thereafter 1,436,401
-----------
$ 3,452,687
===========
In January 2000, the Company purchased land in Bonita Springs, Florida
for approximately $725,000 for a future branch site. The Company will
purchase a temporary building unit for approximately $100,000 until
construction of the new branch is completed (see Note 17).
(continued)
F-14
<PAGE> 105
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) DEPOSITS
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000, were approximately $19.3 million at December
31, 1999.
At December 31, 1999, the scheduled maturities of certificates of
deposit were as follows:
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ------------
2000 $ 27,890,399
2001 6,309,342
2002 259,645
2004 25,891
------------
$ 34,485,277
============
(6) BENEFIT AGREEMENTS
The Company has entered into Salary Continuation Agreements (the
"Agreements") with the Chairman of the Board of Directors ("Chairman")
and the President/Chief Executive Officer ("CEO") which requires the
Company to provide salary continuation benefits to them upon
retirement. The Agreements require the Company to pay annual benefits
for up to twenty years following their normal retirement ages. The
Agreements also provide for salary continuation in the event of a
change in control of the Company, for early voluntary termination by
the officers, based on a ten-year vesting schedule, and for disability
benefits. The Company is accruing the present value of the future
benefits to be paid over the terms of the Agreements using a discount
rate of 7.5%, assuming the officers will retire at their normal
retirement age. Expense relating to these Agreements was $38,817 and
$16,211 for the year ended December 31, 1999 and for the period from
December 15, 1998 (commencement of banking operations) to December 31,
1998, respectively. As of December 31, 1999, the Company has accrued
$55,028 related to these Agreements.
(continued)
F-15
<PAGE> 106
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments are commitments to extend credit,
standby letters of credit, undisbursed loans in process and unused lines
of credit and may involve, to varying degrees, elements of credit and
interest-rate risk in excess of the amount recognized in the balance
sheet. The contract amounts of these instruments reflect the extent of
involvement the Company has in these financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit is represented by the contractual amount of those instruments. The
Company uses the same credit policies in making commitments as it does
for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained if deemed necessary by the
Company upon extension of credit is based on management's credit
evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The
credit risk involved is essentially the same as that involved in
extending loans to customers.
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
AT DECEMBER 31,
------------------------------------
1999 1998
----------------- ----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- ------
Financial assets:
Cash and cash equivalents $ 4,520 4,520 13,258 13,258
Securities available for sale 11,998 11,998 -- --
Loans receivable, net 61,363 61,316 1,203 1,203
Accrued interest receivable 554 554 31 31
Federal Home Loan Bank stock 212 212 -- --
Financial liabilities:
Deposit liabilities 65,063 64,598 3,274 3,274
Federal funds purchased 6,000 6,000 -- --
(continued)
F-16
<PAGE> 107
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) FINANCIAL INSTRUMENTS, CONTINUED
A summary of the notional amounts of the Company's financial
instruments which approximates fair value, with off-balance-sheet risk
at December 31, 1999, follows:
Commitments to extend credit $ 24,642,000
============
Standby letters of credit $ 1,043,000
============
Undisbursed loans in process $ 8,925,839
============
Unused lines of credit $ 4,718,187
============
(8) CREDIT RISK
The Company grants real estate, commercial and consumer loans to
customers primarily in the State of Florida with the majority of such
loans in the Orange and Seminole Counties area. Therefore, the
Company's exposure to credit risk is significantly affected by changes
in the economy of the Orange and Seminole Counties area.
(9) INCOME TAXES
The income tax benefit consisted of the following:
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
1999 1998
--------- ---------
Deferred:
Federal $(473,218) (22,441)
State (81,005) (3,841)
--------- ---------
Total deferred $(554,223) (26,282)
========= =========
The reasons for the differences between the statutory Federal income
tax rate and the effective tax rate are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------- -----------------
AMOUNT % AMOUNT %
--------- ----- -------- -----
<S> <C> <C> <C> <C>
Income tax benefit at statutory rate $(508,711) (34.0)% $(23,904) (34.0)%
(Increase) decrease resulting from:
State income taxes, net of Federal tax benefit (53,463) (3.6) (2,535) (3.6)
Other 7,951 .5 157 .2
--------- ----- -------- -----
Income tax benefit $(554,223) (37.1)% $(26,282) (37.4)%
========= ===== ======== =====
</TABLE>
(continued)
F-17
<PAGE> 108
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) INCOME TAXES, CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
AT DECEMBER 31,
----------------------
1999 1998
--------- ---------
Deferred tax assets:
Net operating loss carryforwards $ 572,844 36,034
Allowance for loan losses 164,044 --
Unrealized loss on securities available for sale 108,892 --
Start up and organization costs 108,370 136,039
Deferred compensation 20,707 --
Depreciation -- 1,190
Other 13,510 --
--------- ---------
Gross deferred tax assets 988,367 173,263
--------- ---------
Deferred tax liabilities:
Accrual to cash conversion (174,106) (2,485)
Depreciation (3,115) --
Allowance for loan losses -- (22,747)
--------- ---------
Gross deferred tax liabilities 177,221 (25,232)
--------- ---------
Net deferred tax asset $ 811,146 148,031
========= =========
Realization of the deferred tax asset is dependent on generating
sufficient taxable income prior to the expiration of any net operating
loss carryforwards. Although realization is not assured, based on
future projections management believes it is more likely than not that
the recorded deferred tax asset will be realized and as such no
valuation allowance was established.
At December 31, 1999, the Company has the following net operating loss
carryforwards available to offset future Federal and state taxable
income:
EXPIRATION AMOUNT
---------- -----------
2018 $ 94,515
2019 1,427,791
-----------
$ 1,522,306
===========
(continued)
F-18
<PAGE> 109
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has made loans, at terms
and rates prevailing at the time, to Company officers, directors and
their affiliates. The aggregate dollar amount of these loans totaled $4.5
million and $.9 million at December 31, 1999 and 1998, respectively.
During the year ended December 31, 1999, total principal additions were
$4.0 million and total principal repayments were $.4 million. As of the
same dates, these individuals and entities had approximately $12.6
million and $3.2 million, respectively, of funds on deposit with the
Company.
In addition, in 1999 the Company began leasing one of its branch
facilities from a director of the Company. Total lease payments made to
this director totaled $115,724 for the year ended December 31, 1999.
During 1999, the Company also entered into agreements for various
insurance coverages which have resulted in normal commissions being paid
to a company affiliated with a director. The total insurance premiums
paid for these policies was approximately $202,800 for the year ended
December 31, 1999.
(11) STOCK OPTION PLANS
In 1999, the Company adopted an employee incentive stock option plan.
Under this plan, the total number of shares which may be issued is
106,000. The option price shall not be less than the greater of the par
value of the common stock or the fair market value at the date of grant
and the options vest ratably over a five year period. Options granted
during 1999 were effective the date employees were hired by the Company.
During 1999, 93,000 options were granted under this plan.
Also in 1999, the Company adopted a directors' nonstatutory stock option
plan. Under this plan, the total number of shares which may be issued is
70,000. The option price shall not be less than the greater of the par
value of the common stock or the fair market value at the date of grant
and all options are immediately excisable when granted. During 1999,
70,000 options were granted under this plan.
A summary of stock option transactions follows:
<TABLE>
<CAPTION>
RANGE
OF PER WEIGHTED-
SHARE AVERAGE AGGREGATE
NUMBER OF OPTION PER SHARE OPTION
SHARES PRICE PRICE PRICE
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Options granted and outstanding at
December 31, 1999 163,000 $ 15.00 15.00 2,244,000
======= ======= ===== ==========
</TABLE>
All options granted under both plans have ten year lives. The
weighted-average remaining contractual life of options outstanding at
December 31, 1999 was 9.1 years.
(continued)
F-19
<PAGE> 110
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) STOCK OPTION PLANS, CONTINUED
The options are exercisable as follows:
NUMBER OF WEIGHTED-AVERAGE
YEAR ENDING DECEMBER 31, SHARES EXERCISE PRICE
------------------------ ------ --------------
Currently exercisable 75,600 $ 15.00
2000 18,600 15.00
2001 18,600 15.00
2002 18,600 15.00
2003 18,600 15.00
2004 13,000 15.00
-------
163,000 $ 15.00
======= =======
In order to calculate the fair value of the options, it was assumed
that the risk-free interest rate was 6.0%, there would be no dividends
paid by the Company over the exercise period, the expected life of the
options would be the entire exercise period and stock volatility would
be zero due to the lack of an active market for the stock. For purposes
of pro forma disclosures, the estimated fair value is included in
expense during the vesting period. The following information summarizes
the options granted under both plans (in thousands):
Weighted-average grant-date fair value of options
issued during the year $ 1,057
========
Proforma net loss $ (1,671)
========
Proforma net loss per share - basic and diluted $ (1.95)
========
(12) PROFIT SHARING PLAN
During 1999, the Company adopted a 401(k) profit sharing plan (the
"Plan"). The Plan is available to all employees electing to participate
after meeting certain length-of-service requirements. The Company's
contributions to the Plan are discretionary and are determined
annually. The Company did not make any contributions to the Plan during
the year ended December 31, 1999. One of the investment choices
available under the Plan, allows for participants to purchase the
Company's common stock. 25,000 shares of the Company's common stock has
been allocated to the Plan. In 1999, $69,550 had been contributed to
the Plan by participants to purchase 4,637 shares of the Company's
common stock. These shares will be issued during the first quarter of
2000.
(continued)
F-20
<PAGE> 111
(13) EMPLOYEE STOCK PURCHASE PLAN
During 1999, the Company adopted an Employee Stock Purchase Plan (the
"Plan"). Under this Plan employees can elect to make payroll deductions
to purchase the Company's common stock. The total number of shares
which has been allocated under the Plan is 15,000 shares. During the
year ended December 31, 1999, employees had withheld $14,957, of which
$14,970 will be used to purchase 986 shares of the Company's common
stock. These shares will be issued during the first quarter of 2000.
(continued)
F-21
<PAGE> 112
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) REGULATORY MATTERS
Banking regulations place certain restrictions on dividends and loans
or advances made by the Bank to the Holding Company.
The Bank is subject to various regulatory capital requirements
administered by the regulatory banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of their
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgements by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and percentages
(set forth in the following table) of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets (as defined) and of
Tier 1 capital (as defined) to average assets (as defined). Management
believes, as of December 31, 1999 and 1998, the Bank met all capital
adequacy requirements to which they are subject.
As of December 31, 1999, the most recent notification from the
regulatory authorities categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be
categorized as well capitalized, an institution must maintain minimum
total risk-based, Tier I risk- based, and Tier I leverage percentages
as set forth in the following tables. There are no conditions or events
since that notification that management believes have changed the
Bank's category. The Bank's actual capital amounts and percentages as
of December 31, 1999 and 1998 are also presented in the table (dollars
in thousands).
<TABLE>
<CAPTION>
MINIMUM
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES: ACTION PROVISIONS:
-------------------- -------------------- -----------------------
AMOUNT % AMOUNT % AMOUNT %
------ ----- ------ ---- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Total capital to Risk-
Weighted assets........... $12,172 17.5% $ 5,551 8.0% $ 6,939 10.0%
Tier I Capital to Risk-
Weighted Assets........... 11,551 16.6 2,776 4.0 4,163 6.0
Tier I Capital
to Total Assets........... 11,551 15.5 2,972 4.0 3,715 5.0
AS OF DECEMBER 31, 1998:
Total capital to Risk-
Weighted assets........... 12,097 207.3 467 8.0 584 10.0
Tier I Capital to Risk-
Weighted Assets........... 12,085 207.1 233 4.0 350 6.0
Tier I Capital
to Total Assets........... 12,085 94.2 513 4.0 641 5.0
</TABLE>
(continued)
F-22
<PAGE> 113
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) HOLDING COMPANY FINANCIAL INFORMATION
As discussed in Note 1 to the Consolidated Financial Statements, the
Holding Company was organized during 1999. The Holding Company's
financial information as of December 31, 1999 and for the year then
ended follows:
CONDENSED BALANCE SHEET
AT DECEMBER 31,
1999
------------
ASSETS
Investment in subsidiary $ 11,838,487
------------
Total assets $ 11,838,487
============
STOCKHOLDERS' EQUITY
Stockholders' equity 11,838,487
Total stockholders' equity $ 11,838,487
============
CONDENSED STATEMENT OF OPERATIONS
FOR THE
YEAR ENDED
DECEMBER 31,
1999
------------
Loss of subsidiary $(941,985)
----------
Net loss $(941,985)
==========
(continued)
F-23
<PAGE> 114
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) HOLDING COMPANY FINANCIAL INFORMATION, CONTINUED
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31,
1999
---------
<S> <C>
Cash flows from operating activities:
Net loss $(941,985)
Adjustments to reconcile net loss to net cash used in
operating activities -
Equity in undistributed loss of subsidiary (941,985)
---------
Net cash used in operating activities --
---------
Net increase in cash and cash equivalents --
Cash and cash equivalents at beginning of the year --
---------
Cash and cash equivalents at end of year $ --
=========
Noncash transactions:
Change in investment in subsidiary due to change in accumulated
other comprehensive income, unrealized loss on securities
available for sale, net of income tax $(202,227)
=========
</TABLE>
(16) YEAR 2000 ISSUES
The Company's operating and financial systems have been found to be
compliant; the "Y2K Problem" has not adversely affected the Company's
operations nor does management expect that it will. However, the
Company has not determined what effect it has had on its customers and
vendors. Any adverse effect it might have on the Company because of
vendors and customers noncompliance has not been determined.
(17) NEW BANK CHARTER
In September, 1999 the Company's Board of Directors approved the
formation of a new bank in Southwest, Florida. The new bank is subject
to regulatory approval.
F-24
<PAGE> 115
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
At September 30,
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,746,307 2,785,082
Federal funds sold 10,679,000 9,912,000
------------- -------------
Cash and cash equivalents 16,425,307 12,697,082
Securities available for sale 17,894,625 10,351,356
Loans receivable, net of allowance for loan losses of
$1,460,983 in 2000 and $380,000 in 1999 128,707,874 42,398,493
Accrued interest receivable 953,549 306,961
Federal Home Loan Bank stock, at cost 212,400 --
Premises and equipment, net 7,886,816 4,334,181
Deferred income tax asset 729,096 564,975
Other assets 2,776,976 144,440
------------- -------------
Total assets $ 175,586,643 70,797,488
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits $ 19,478,754 7,354,344
Money-market deposits 19,401,005 17,072,578
Savings and NOW deposits 29,866,616 5,423,918
Time deposits 88,688,636 27,626,535
------------- -------------
Total deposits 157,435,011 57,477,375
Official checks 1,385,520 766,741
Accrued interest payable and other liabilities 1,533,606 283,613
------------- -------------
Total liabilities 160,354,137 58,527,729
------------- -------------
Stockholders' equity:
Common stock, $1 par value, 10,000,000 shares
authorized, 1,090,408 and 884,425 shares
issued and outstanding in 2000 and 1999 1,090,408 884,425
Additional paid-in capital 15,465,712 12,381,950
Accumulated deficit (1,215,875) (1,010,662)
Accumulated other comprehensive income (loss) (107,739) 14,046
------------- -------------
Total stockholders' equity 15,232,506 12,269,759
------------- -------------
Total liabilities and stockholders' equity $ 175,586,643 70,797,488
============= =============
</TABLE>
F-25
<PAGE> 116
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
Interest income:
Loans receivable $ 3,027,855 768,704
Securities available for sale 320,750 125,291
Other interest-earning assets 50,682 70,519
----------- -----------
Total interest income 3,399,287 964,514
----------- -----------
Interest expense:
Deposits 1,714,407 363,962
Other borrowings 9,177 --
----------- -----------
Total interest expense 1,723,584 363,962
----------- -----------
Net interest income 1,675,703 600,552
Provision for loan losses 418,983 185,000
----------- -----------
Net interest income after provision for loan losses 1,256,720 415,552
----------- -----------
Noninterest income:
Service charges on deposit accounts 76,606 16,404
Other service charges and fees 180,059 29,980
Gain on sale of securities available for sale 9,477 --
----------- -----------
Total noninterest income 266,142 46,384
----------- -----------
Noninterest expense:
Salaries and employee benefits 505,348 355,641
Organizational/preopening expense 541,976 --
Occupancy and equipment expense 244,708 215,714
Data processing 79,486 40,438
Printing and office supplies 55,430 29,543
Marketing and advertising 60,616 59,593
Professional fees 61,426 30,909
Telephone 24,509 23,711
Travel and entertainment 32,064 11,471
Other 70,212 94,762
----------- -----------
Total noninterest expense 1,675,775 861,782
----------- -----------
Loss before income tax benefit (152,913) (399,846)
Income tax benefit (46,377) (147,151)
----------- -----------
Net loss $ (106,536) (252,695)
=========== ===========
Basic and diluted loss per share $ (.12) (.29)
=========== ===========
Weighted-average number of common shares outstanding 890,308 860,613
=========== ===========
</TABLE>
F-26
<PAGE> 117
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Nine Months Ended
September 30,
-----------------------
2000 1999
---------- ----------
Interest income:
Loans receivable $6,929,085 1,510,329
Securities available for sale 826,898 199,629
Other interest-earning assets 319,174 245,575
---------- ----------
Total interest income 8,075,157 1,955,533
---------- ----------
Interest expense:
Deposits 4,046,229 567,915
Other borrowings 52,036 --
---------- ----------
Total interest expense 4,098,265 567,915
---------- ----------
Net interest income 3,976,892 1,387,618
Provision for loan losses 839,983 368,000
---------- ----------
Net interest income after provision for loan losses 3,136,909 1,019,618
---------- ----------
Noninterest income:
Service charges on deposit accounts 188,653 22,525
Other service charges and fees 283,300 40,859
Gain on sale of securities available for sale 9,477 --
---------- ----------
Total noninterest income 481,430 63,384
---------- ----------
Noninterest expense:
Salaries and employee benefits 1,411,040 1,080,059
Organizational/preopening expense 541,976 --
Occupancy and equipment expense 689,176 484,737
Data processing 198,347 74,770
Printing and office supplies 121,725 122,345
Marketing and advertising 150,260 121,389
Professional fees 110,180 90,805
Telephone 64,881 51,368
Travel and entertainment 70,330 31,978
Other 244,766 185,844
---------- ----------
Total noninterest expense 3,602,681 2,243,295
---------- ----------
Earnings (loss) before income tax provision (benefit) 15,658 (1,160,293)
Income tax provision (benefit) 5,872 (433,307)
---------- ----------
Net earnings (loss) $ 9,786 (726,986)
========== ==========
Basic and diluted earnings (loss) per share $ .01 (.85)
========== ==========
Weighted-average number of common shares outstanding 889,975 859,800
========== ==========
F-27
<PAGE> 118
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 9,786 (726,986)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Provision for loan losses 839,983 368,000
Depreciation and amortization 142,061 108,237
Gain on sale of securities available for sale (9,477) --
Deferred income taxes 5,872 (433,307)
Accretion of discounts on securities (6,242) (4,866)
Common stock issued as compensation 3,750 --
Increase in accrued interest receivable (399,513) (275,900)
Increase in other assets (2,688,280) (27,699)
Increase (decrease) in official checks 723,283 (268,644)
Increase in accrued interest payable and other liabilities 1,233,153 218,871
------------ ------------
Net cash used in operating activities (145,624) (1,042,294)
------------ ------------
Cash flows from investing activities:
Repayments of securities available for sale 143,692 153,000
Purchases of securities available for sale (8,308,616) (10,469,080)
Sale of securities available for sale 2,454,585 --
Net increase in loans (68,185,284) (41,563,888)
Purchases of premises and equipment (3,711,110) (2,592,346)
------------ ------------
Net cash used in investing activities (77,607,733) (54,472,314)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 92,372,020 54,203,770
Net decrease in Federal funds purchased (6,000,000) --
Proceeds from issuance of common stock 3,385,995 750,000
Common stock offering costs (100,000) --
------------ ------------
Net cash provided by financing activities 89,658,015 54,953,770
------------ ------------
Net increase (decrease) in cash and cash equivalents 11,905,658 (560,838)
Cash and cash equivalents at beginning of period 4,519,649 13,257,920
------------ ------------
Cash and cash equivalents at end of period $ 16,425,307 12,697,082
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,914,500 482,389
============ ============
Income taxes $ -- --
============ ============
Noncash investing activities -
Change in accumulated other comprehensive income (loss),
unrealized loss on securities available for sale, net of tax $ 94,488 14,046
============ ============
</TABLE>
F-28
<PAGE> 119
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPRE-
ADDITIONAL HENSIVE TOTAL
COMMON PAID-IN ACCUMULATED INCOME STOCKHOLDERS'
STOCK CAPITAL DEFICIT (LOSS) EQUITY
---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 884,425 12,381,950 (1,225,661) (202,227) 11,838,487
----------
Comprehensive income (loss):
Net earnings for the period
(unaudited) -- -- 9,786 -- 9,786
Net change in unrealized loss on
securities available for sale, net
of tax (unaudited) -- -- -- 94,488 94,488
----------
Comprehensive income (loss)
(unaudited) 104,274
Stock issued to officer as compensation
(250 shares) (unaudited) 250 3,500 -- -- 3,750
Sale of common stock in connection
with 401(k) Profit Sharing Plan
(4,747 shares) (unaudited) 4,747 66,458 -- -- 71,205
Sale of common stock in connection
with Employee Stock Purchase
Plan (986 shares) (unaudited) 986 13,804 -- -- 14,790
Proceeds from common stock offering
(200,000 shares), net of offering
costs (unaudited) 200,000 3,000,000 -- -- 3,200,000
---------- ---------- ---------- ---------- ----------
Balance at September 30, 2000 $1,090,408 15,465,712 (1,215,875) (107,739) 15,232,506
========== ========== ========== ========== ==========
</TABLE>
F-29
<PAGE> 120
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL. In the opinion of the management of Southern Community Bancorp, the
accompanying condensed consolidated financial statements contain all adjustments
(consisting principally of normal recurring accruals) necessary to present
fairly the financial position at September 30, 2000 and 1999, the results of
operations for the three-month and nine-month periods then ended and statement
of cash flows for the nine-month period then ended. The results of operations
and other data for the nine months ended September 30, 2000 are not necessarily
indicative of the results to be expected for the year ending December 31, 2000.
Southern Community Bancorp (the "Holding Company") owns 100% of the outstanding
common stock of Southern Community Bank (the "Bank"), the Bank owns 100% of the
outstanding common stock of Southern Community Insurance Agency, Inc. (the
"Insurance Agency") (collectively the "Company"). The Holding Company operates
as a one-bank holding company. On April 15, 1999, the Bank's stockholders
approved a plan of corporate reorganization under which the Bank would become a
wholly-owned subsidiary of the Holding Company. The Holding Company was formed
on July 30, 1999. The Bank's stockholders exchanged their common shares for
shares of the Holding Company. As a result, all of the previously issued $7.50
par value common shares of the Bank were exchanged for 834,425 shares of the
$1.00 par value common shares of the Holding Company. The Holding Company's
acquisition of the Bank was accounted for similar to a pooling of interests.
The Holding Company's only business activity is the operation of the Bank. The
Bank is a state (Florida) chartered commercial bank. The Bank offers a variety
of financial services to individual and corporate customers through its four
banking offices located in Orange and Seminole Counties, Florida. The deposits
of the Bank are insured by the Federal Deposit Insurance Corporation ("FDIC")
through the Bank Insurance Fund ("BIF"). The Insurance Agency was formed in 2000
as a wholly-owned subsidiary of the Bank. The Insurance Agency refers customers
of the Bank to certain insurance agencies for the purchase of insurance
products.
2. LOAN IMPAIRMENT AND LOSSES. The average net investment in collateral
dependent impaired loans and interest income recognized and received on these
loans is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
2000 1999
---- ----
<S> <C> <C>
Gross loans with no related allowance, at end of
period $146,000 --
======== ======
Average net investment in impaired loans $ 49,000 --
======== ======
Interest income recognized on impaired loans $ 8,000 --
======== ======
Interest income received on impaired loans $ 8,000 --
======== ======
</TABLE>
An analysis of the change in the allowance for loan losses was as follows:
Nine Months Ended
September 30,
------------------------
2000 1999
---------- ----------
Balance at beginning of period $ 621,000 12,000
Provision charged to earnings 839,983 368,000
---------- ----------
Balance at end of period $1,460,983 380,000
========== ==========
F-30
<PAGE> 121
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
3. EARNINGS (LOSS) PER SHARE . Earnings (loss) per share of common stock has
been computed on the basis of the weighted-average number of shares of common
stock outstanding. For the three and nine months ended September 30, 2000 and
1999 outstanding stock options are not considered dilutive securities for
purposes of calculating diluted earnings (loss) per share.
4. REGULATORY CAPITAL. The Bank is required to maintain certain minimum
regulatory capital requirements. The following is a summary at September 30,
2000 of the regulatory capital requirements and the Bank's actual capital on a
percentage basis:
REGULATORY
ACTUAL REQUIREMENT
------ -----------
Total capital to risk-weighted assets 10.79% 8.00%
Tier I capital to risk-weighted assets 9.88% 4.00%
Tier I capital to total assets - leverage ratio 10.36% 4.00%
5. OTHER EVENTS. The Company purchased two parcels of land for future branch
sites in the Bonita Springs, Florida area for approximately $1.9 million during
the nine months ended September 30, 2000.
In September 2000, the Company entered into a contract for the purchase of a
branch location located in Southwest Florida for a purchase price of $1,550,000.
The transaction is expected to close in November 2000.
On September 22, 2000, the Holding Company entered into a letter of intent with
Peninsula Bancorp, Inc., ("Peninsula") with respect to the possible merger of
the Holding Company and Peninsula. Peninsula is the parent company of Peninsula
Bank of Central Florida, a state bank with two offices in Volusia County,
Florida. The letter of intent provides that the Holding Company will issue
shares of its common stock to the shareholders of Peninsula upon the
consummation of the merger. On the effective date of the merger, each share of
Peninsula common stock will be converted into .625 shares of the common stock of
the Holding Company. This transaction is subject to the negotiation and
execution of a definitive merger agreement, due diligence by each party,
regulatory approvals and the approval by the shareholders of Peninsula. The
Holding Company intends to account for this transaction using the purchase
method of accounting.
6. ORGANIZATIONAL EXPENSE. In connection with the organization of Southern
Community Bank of Southwest Florida, the Company agreed to reimburse the
organizers for all costs incurred prior to the commencement of banking
operations. Such amounts total $541,976 as of September 30, 2000 and the Company
intends to treat the amount, net of income taxes, as a capital contribution to
Southern Community Bank of Southwest Florida when banking operations commence.
Total organizational expenses are not expected to exceed $700,000.
F-31
<PAGE> 122
To the Stockholders and
Board of Directors
Peninsula Bancorp, Inc.
Daytona Beach, Florida
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Peninsula
Bancorp, Inc. and Subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the year ended December 31, 1999, and for the period from August 20,
1998 (Date of Inception) to December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Peninsula Bancorp, Inc. and
Subsidiary as of December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for the periods then ended in conformity
with generally accepted accounting principles.
Camputaro & Associates
January 21, 2000
(except for Note 13, as to which the date is October 18, 2000)
F-32
<PAGE> 123
PENINSULA BANCORP, INC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,473,490 $ 1,459,657
Federal funds sold 4,875,000 3,886,000
------------ ------------
Total cash and cash equivalents 6,348,490 5,345,657
Investment Securities - Available for sale 4,438,063 2,488,125
Loans, less allowance for loan losses of $305,000
and $29,000, respectively 24,046,694 4,070,004
Property and equipment, net 927,808 763,118
Accrued interest receivable 148,755 31,513
Other assets 281,811 100,760
------------ ------------
$ 36,191,621 $ 12,799,177
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 3,850,838 $ 1,383,148
Interest bearing 25,195,112 4,223,711
------------ ------------
29,045,950 5,606,859
Customer repurchase agreements 393,874 0
Accrued interest payable 54,177 6,634
Other liabilities 55,321 57,380
------------ ------------
Total liabilities 29,549,322 5,670,873
------------ ------------
Stockholders' equity
Common stock, $1 par value,10,000,000 shares
authorized, 735,859 shares issued and
outstanding 735,859 735,859
Capital surplus 6,622,731 6,622,731
Accumulated Deficit (587,550) (220,845)
Accumulated other comprehensive loss (128,741) (9,441)
------------ ------------
Total stockholders' equity 6,642,299 7,128,304
------------ ------------
$ 36,191,621 $ 12,799,177
============ ============
</TABLE>
The accompanying Auditors' Report and notes should be read with the
financial statements.
F-33
<PAGE> 124
PENINSULA BANCORP, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 20,
1998 (DATE OF
YEAR ENDED INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Interest Income
Interest and fees on loans $ 1,153,172 $ 28,246
Interest on investment securities 219,912 15,714
Interest on federal funds sold 231,439 65,523
Interest on money market investments 0 62,608
----------- -----------
1,604,523 172,091
----------- -----------
Interest expense
Interest on deposits 643,244 29,576
----------- -----------
Net interest income 961,279 142,515
Provision for loan losses 276,000 29,000
----------- -----------
Net interest income after provision for loan losses 685,279 113,515
----------- -----------
Non-interest income
Service fees 60,906 11,754
Other 12,155 2,071
----------- -----------
73,061 13,825
----------- -----------
Non-interest expense
Salaries and employee benefits 591,090 217,808
Occupancy and equipment 232,240 58,155
Other operating expense 394,120 128,743
----------- -----------
1,217,450 404,706
----------- -----------
Loss before income tax benefit (459,110) (277,366)
Income tax benefit 92,405 56,521
----------- -----------
Net loss $ (366,705) $ (220,845)
=========== ===========
Net loss per share of common stock $ (0.50) $ (0.30)
=========== ===========
Average shares outstanding 735,859 735,859
=========== ===========
</TABLE>
The accompanying Auditors' Report and notes should be read with the
financial statements.
F-34
<PAGE> 125
PENINSULA BANCORP, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
------------------------- OTHER TOTAL
PAR CAPITAL ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
SHARES VALUE SURPLUS DEFICIT INCOME EQUITY
----------- ----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, August 20, 1998
(Date of Inception) 735,859 $ 735,859 $ 6,622,731 $ -- $ -- $ 7,358,590
COMPREHENSIVE LOSS
Net Loss -- -- -- (220,845) -- (220,845)
Other comprehensive loss
net of tax:
Change in unrealized gain (loss)
on securities, net of deferred
income tax benefit of $2,434 -- -- -- -- (9,441) (9,441)
-----------
TOTAL COMPREHENSIVE
LOSS -- -- -- -- -- (230,286)
----------- ----------- ----------- ----------- ----------- -----------
Balances, December 31, 1998 735,859 735,859 6,622,731 (220,845) $ (9,441) $ 7,128,304
COMPREHENSIVE LOSS
Net Loss -- -- -- (366,705) -- (366,705)
Other comprehensive loss
net of tax:
Change in unrealized gain (loss)
on securities, net of deferred
income tax benefit of $33,197 -- -- -- -- (119,300) (119,300)
-----------
TOTAL COMPREHENSIVE
LOSS -- -- -- -- -- (486,005)
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, DECEMBER 31, 1999 735,859 $ 735,859 $ 6,622,731 $ 587,550 $ (128,741) $ 6,642,299
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying Auditors' Report and notes should be read with the
financial statements.
F-35
<PAGE> 126
PENINSULA BANCORP, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 20,
1998 (DATE OF
YEAR ENDED INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1999 1998
------------ --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (366,705) $ (220,845)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Provision for loan losses 276,000 29,000
Depreciation 85,004 13,338
Deferred income taxes (92,405) (56,521)
Net change in:
Accrued interest receivable (117,242) (31,513)
Accrued interest payable 47,543 6,634
Other assets (57,883) (41,806)
Other liabilities (2,059) 57,380
------------ ------------
Net cash used in operating activities (227,747) (244,333)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale (2,100,000) (2,500,000)
Net increase in loans (20,252,690) (4,099,004)
Purchases of property and equipment (249,695) (776,455)
------------ ------------
Net cash used in investing activities (22,602,385) (7,375,459)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 23,439,091 5,606,859
Proceeds from initial sale of stock -- 7,358,590
Increase in customer repurchase agreements 393,874 --
------------ ------------
Net cash provided by financing activities 23,832,965 12,965,449
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,002,833 5,345,657
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,345,657 --
------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 6,348,490 $ 5,345,657
============ ============
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $ 595,701 $ 22,942
============ ============
</TABLE>
The accompanying Auditors' Report and notes should be read with the
financial statements.
F-36
<PAGE> 127
PENINSULA BANCORP, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION - On April 26, 1999, a majority of the stockholders approved
an "Agreement and Plan of Share Exchange". Pursuant to this plan, a new
Florida corporation known as Peninsula Bancorp, Inc. (The Holding Company)
became effective and on January 3, 2000 the Articles of Share Exchange
were filed with the State of Florida completing the reorganization of the
Bank with the Holding Company. Under the terms of the reorganization, the
Bank's stockholders exchanged one share of common stock for one share of
common stock of the Holding Company, which operates as a one-bank holding
company. The Holding Company's acquisition of the Bank has been accounted
for similar to a pooling of interests, and accordingly, the financial data
for periods presented include results of the Bank.
NATURE OF OPERATIONS - The Holding Company's only business activity is the
operation of the Bank. The Bank generates commercial, mortgage and
consumer loans and receives deposits from customers primarily in the
Volusia county area of Florida. The Bank operates under a state bank
charter and provides full banking services. As a state bank, the Bank is
subject to regulation by the Florida State Banking Department and the
Federal Deposit Insurance Corporation.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks, and federal
funds sold.
INVESTMENT SECURITIES - Investment securities are comprised of debt
securities classified as available for sale. Securities available for sale
are carried at fair value with unrealized gains and losses reported in
other comprehensive income. Realized gains (losses) on securities
available for sale are included in other income (expense) and when
applicable, are reported as a reclassification adjustment, net of tax, in
other comprehensive income. Gains and losses on sales of securities are
determined on the specific identification method.
LOANS AND ALLOWANCE FOR LOAN LOSSES - Loans are stated at the amount of
unpaid principal, reduced by allowance for loan losses. Interest on loans
is calculated by using the simple interest method on the principal amounts
outstanding. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely.
The allowance is an amount that management believes will be adequate to
absorb possible losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of
F-37
<PAGE> 128
PENINSULA BANCORP, INC AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
loans and prior loan loss experience. The evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans,
and current economic conditions that may affect the borrowers' ability to
pay. Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions and
collection efforts, that the borrowers' financial condition is such that
collection of interest is doubtful. Fees and related costs on loans are
amortized over the term of the loan as required by generally accepted
accounting principles.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less
accumulated depreciation computed principally on the straight-line method
over the estimated useful lives of the assets, which are 40 years for
building, 3 to 12 years for furniture and equipment.
INCOME TAXES - Income taxes are provided for the tax effects of the
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences between
the basis of the allowance for loan losses, accumulated depreciation,
amortization of organizational costs, and operating loss carryforwards.
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Deferred tax assets and liabilities are reflected at income tax rates
applicable to the period in which the deferred tax assets or liabilities
are expected to be realized or settled. As changes in tax laws or rates
are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
EARNINGS PER SHARE - Earnings per share is calculated on the basis of the
weighted average number of shares outstanding during the year.
(2) INVESTMENT SECURITIES:
The amortized cost of securities and their approximate fair values as of
December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR
AMOUNT GAINS LOSSES VALUE
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
-----------------
Available for Sale:
Federal Agencies $4,600,000 $ -- $ (161,937) $4,438,063
========== =========== ========== ==========
DECEMBER 31, 1998
-----------------
Available for Sale:
Federal Agencies $2,500,000 $ -- $ (11,875) $2,488,125
========== =========== ========== ==========
</TABLE>
F-38
<PAGE> 129
PENINSULA BANCORP, INC AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
There were no sales of securities in 1999 or 1998.
The amortized cost and approximate fair values of investment securities at
December 31, 1999, by expected maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
Amortized Fair
Cost Value
---------- ----------
Amounts maturing in:
One year or less $ -- $ --
After one year through five years 4,350,000 4,201,288
After five years through ten years 250,000 236,775
After ten years -- --
---------- ----------
$4,600,000 $4,438,063
========== ==========
Securities carried at approximately $1,920,000 were pledged to secure
deposits for customer repurchase agreements at December 31, 1999. None
were pledged at December 31, 1998.
(3) LOANS AND ALLOWANCE FOR LOAN LOSSES:
Loans at December 31, 1999 and 1998 are summarized as follows:
1999 1998
------------ ------------
Commercial loans $ 17,540,300 $ 2,325,809
Residential real estate loans 3,900,151 814,491
Consumer loans 2,957,295 958,704
------------ ------------
24,397,746 4,099,004
Unamortized loan fees (46,052) --
------------ ------------
24,351,694 4,099,004
Allowance for loan losses (305,000) (29,000)
------------ ------------
$ 24,046,694 $ 4,070,004
============ ============
Allowance for loan losses:
Balance, beginning of year $ 29,000 $ --
Provision for losses 276,000 29,000
Recoveries on loans -- --
Loan charged off -- --
------------ ------------
Balance, end of year $ 305,000 $ 29,000
============ ============
There were no impaired loans recognized under SFAS 114 and 118 during 1999
or 1998.
F-39
<PAGE> 130
PENINSULA BANCORP, INC AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(4) PROPERTY AND EQUIPMENT:
A summary of property and equipment at December 31, 1999 and 1998 follows:
Land $ 253,398 $ 253,398
Vehicles 13,800 --
Buildings and improvements 285,245 258,642
Furniture and equipment 473,707 264,416
----------- -----------
1,026,150 776,456
Accumulated depreciation (98,342) (13,338)
----------- -----------
$ 927,808 $ 763,118
=========== ===========
Total depreciation expense for December 31, 1999 and 1998 was $85,004 and
$13,338, respectively.
(5) DEPOSITS:
Deposit account balances at December 31, 1999 and 1998 are summarized as
follows:
1999 1998
----------- -----------
Non-interest bearing $ 3,850,838 $ 1,383,148
Interest bearing demand 7,046,308 1,577,865
Savings deposits 578,212 7,784
Certificates of deposit, $100,000 and over 6,908,262 1,359,255
Certificates of deposit, other 10,662,330 1,278,807
----------- -----------
$29,045,950 $ 5,606,859
=========== ===========
Certificates maturing in year ending December 31, as of December 31, 1999:
2000 $16,696,433
2001 772,731
2002 70,000
2003 31,428
2004 and thereafter --
-----------
$17,570,592
===========
F-40
<PAGE> 131
PENINSULA BANCORP, INC AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(6) INCOME TAXES:
The components of income tax benefit as of December 31, 1999 and 1998 are
as follows:
1999 1998
-------- --------
Currently payable:
Federal $ -- $ --
State -- --
-------- --------
-- --
-------- --------
Deferred:
Federal (67,613) (41,357)
State (24,792) (15,164)
-------- --------
(92,405) (56,521)
-------- --------
$(92,405) $(56,521)
======== ========
As of December 31, 1999, the Bank has net operating losses of
approximately $391,685 for tax purposes, which will begin to expire in the
year 2018.
Deferred tax asset included in other assets at December 31, 1999 and 1998
consists of the following:
1999 1998
-------- --------
Deferred tax assets:
Net operating loss carryover $ 80,793 $ 29,717
Market valuation reserve 33,197 2,434
Allowance for loan losses 62,525 5,945
Organization costs 17,770 22,617
-------- --------
194,285 60,713
-------- --------
Deferred tax liabilities:
Fixed assets 12,162 1,758
-------- --------
$182,123 $ 58,955
======== ========
F-41
<PAGE> 132
PENINSULA BANCORP, INC AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(7) LEASES:
The Bank leases office space under an operating lease expiring in 2008
with an option to renew for two additional terms of five years. Rent
expense for the periods ending December 31, 1999 and 1998, amounted to
$100,944 and $38,874, respectively, including taxes and other building
operating costs.
At December 31, 1999, future minimum lease payments approximated the
following:
Year ending December 31:
2000 $ 67,828
2001 67,828
2002 67,828
2003 67,828
2004 67,828
2005 and thereafter 271,312
-----------
$ 610,452
===========
(8) FINANCIAL INSTRUMENTS, COMMITMENTS AND CONTINGENCIES:
In the normal course of business, the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to
extend credit, commercial letters of credit and standby letters of credit.
Such financial instruments are recorded in the financial statements when
they are funded or related fees are incurred or received. At December 31,
1999 and 1998, unfunded commitments aggregated $11,600,566 and $1,974,155,
respectively. The bank does not anticipate any material losses as a result
of these commitments.
The Bank is not a defendant in legal actions arising from normal business
activities.
(9) RELATED PARTY TRANSACTIONS:
Certain officers, directors, principal shareholders and companies which
have 10 percent or more beneficial ownership, were indebted to the bank at
December 31, 1999 and 1998, in the aggregate amount of $3,082,754 and
$451,460, respectively.
(10) RESTRICTION ON DIVIDENDS:
The Bank is subject to certain restrictions on the amount of dividends
that it may declare without prior regulatory approval. At December 31,
1999, no retained earnings were available for dividend declaration without
prior regulatory approval.
F-42
<PAGE> 133
PENINSULA BANCORP, INC AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(11) STOCK OPTION PLANS:
On April 26, 1999, a majority of the stockholders approved the "Key
Employee Stock Option Plan" ("Employee Plan") and the "Directors Stock
Option Plan" ("Directors Plan"). Under both of these plans, stock options
may be granted to certain key employees or members of the Company's board
of directors for the right to purchase shares of the Company's common
stock up to an aggregate limit of 10% of the number of shares outstanding
at an exercise price equal to the fair market value of a share of common
stock as of the date of grant.
Options granted under the Employee Plan are vested at 20% per year for
five years and are not exercisable for the first six months after the date
of grant.
Options granted under the Directors Plan are vested immediately and are
not exercisable for a period of one year after the date of grant.
<TABLE>
<CAPTION>
DIRECTORS EMPLOYEE
PLAN PLAN
--------- -----------
<S> <C> <C>
Number of options outstanding on January 1, 1999 -- --
Number of options granted in 1999 27,000 17,800
-------- -----------
Number of options outstanding on December 31, 1999 27,000 17,800
======== ===========
Number of options exercisable at December 31, 1999 -- 3,560
======== ===========
Weighted average exercise price per share outstanding
and per share exercisable $ 10.00 $ 10.00
======== ===========
Total compensation cost recognized in 1999 for stock
based compensation awards $ 0.00 $ 0.00
======== ===========
Grant date fair value of options granted in 1999 $121,500 $ 121,500
======== ===========
Weighted average grant date fair value of options
granted in 1999 $ 4.50 $ 4.50
======== ===========
Weighted average remaining contractual life of
options outstanding and exercisable 10 years 10 years
</TABLE>
No options were exercised, were forfeited or expired in 1999.
F-43
<PAGE> 134
PENINSULA BANCORP, INC AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
The Bank has accounted for the stock options under APB Opinion 25, an
accounting standard under which no related compensation expense was
recognized in 1999, the year of the grant. Under an alternative accounting
standard, FAS 123, compensation expense of $16,020 would have been
recognized related to the grant, resulting in net loss of $382,725.
(12) 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 possible
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 (as defined), and of Tier I capital (as defined)
to average assets (as defined). Management believes, as of December 31,
1999, that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1999, the most recent notification from the FDIC,
categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the
Bank must maintain minimum total risked-based, Tier I risk-based, and Tier
I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
The Bank's actual and required capital amounts and ratios are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
---------------- -------------------------------------------
AMOUNT RATIO AMOUNT RATIO
-------- ----- ------ -----
<S> <C> <C> <C> <C>
As of December 31, 1999:
Total Risk-Based Capital
(To Risk-Weighted Assets) $ 6,894 26.00% (greater than $ 2,121 (greater than 8.0%
or equal to) or equal to)
Tier 1 Capital
(To Risk-Weighted Assets) $ 6,589 24.85% (greater than $ 1,061 (greater than 4.0%
or equal to) or equal to)
Tier 1 Capital
(To Adjusted Total Assets) $ 6,589 20.36% (greater than $ 1,295 (greater than 4.0%
or equal to) or equal to)
</TABLE>
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
----------------------------------------------------
AMOUNT RATIO
---------------------- ---------------------------
<S> <C> <C>
As of December 31, 1999:
Total Risk-Based Capital
(To Risk-Weighted Assets) (greater than $ 2,652 (greater than 10.0%
or equal to) or equal to)
Tier 1 Capital
(To Risk-Weighted Assets) (greater than $ 1,591 (greater than 6.0%
or equal to) or equal to)
Tier 1 Capital
(To Adjusted Total Assets) (greater than $ 1,618 (greater than 5.0%
or equal to) or equal to)
</TABLE>
F-44
<PAGE> 135
PENINSULA BANCORP, INC AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
--------------------- -------------------------------------------
AMOUNT RATIO AMOUNT RATIO
--------- ------- -------------------- --------------------
<S> <C> <C> <C> <C>
As of December 31, 1998:
Total Risk-Based Capital
(To Risk-Weighted Assets) $ 7,104 110.28% (greater than $ 515 (greater than 8.0%
or equal to) or equal to)
Tier 1 Capital
(To Risk-Weighted Assets) $ 7,075 109.83% (greater than $ 258 (greater than 4.0%
or equal to) or equal to)
Tier 1 Capital
(To Adjusted Total Assets) $ 7,075 68.02% (greater than $ 416 (greater than 4.0%
or equal to) or equal to)
</TABLE>
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
---------------------------------------------------
AMOUNT RATIO
---------------------- --------------------
<S> <C> <C>
As of December 31, 1998:
Total Risk-Based Capital
(To Risk-Weighted Assets) (greater than $ 644 (greater than 10.0%
or equal to) or equal to)
Tier 1 Capital
(To Risk-Weighted Assets) (greater than $ 387 (greater than 6.0%
or equal to) or equal to)
Tier 1 Capital
(To Adjusted Total Assets) (greater than $ 520 (greater than 5.0%
or equal to) or equal to)
</TABLE>
(13) HOLDING COMPANY MERGER:
During 2000, Peninsula Bancorp, Inc. (the Holding Company) and Peninsula
Bank of Central Florida (the Bank) were merged in a pooling of
interests. We previously audited and reported on the financial
statements for the Bank for the periods ended December 31, 1999 and
1998, prior to its restatement for the 2000 pooling of interests. We
have subsequently audited the combination of the financial statements of
the Bank and the Holding Company for the periods ended December 31, 1999
and 1998, after restatement for the 2000 pooling of interests.
(14) SUBSEQUENT EVENTS:
On March 3, 2000, the Company offered for sale an additional 400,000
shares of its common stock at a price of $10.00 per share. This offering
raised $2,586,970 resulting in additional 258,697 shares of common stock
issued and outstanding.
(15) PENDING MERGER:
Peninsula Bancorp Inc. and Southern Community Bancorp entered into an
agreement to merge the two companies. The agreement provides that, upon
consummation of the merger, each .625 outstanding share of Peninsula
Bancorp, Inc. common stock shall be converted and exchanged for the
right to receive one share of Southern Community Bancorp common stock.
The merger will be accounted for as a purchase. The merger is subject to
regulatory and shareholder approval and is anticipated to be consummated
in February, 2001.
F-45
<PAGE> 136
PENINSULA BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
At September 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,456,203 $ 2,284,477
Federal funds sold 7,250,000 3,406,000
------------ ------------
Cash and cash equivalents 8,706,203 5,690,477
Securities available for sale 5,258,112 4,480,875
Loans receivable, net of allowance for loan losses of
$398,000 in 2000 and $200,000 in 1999 30,728,688 18,349,936
Accrued interest receivable 269,207 184,491
Premises and equipment, net 1,180,705 963,196
Deferred income tax asset 135,123 127,420
Other assets 422,434 63,014
------------ ------------
Total assets $ 46,700,472 $ 29,859,409
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits $ 4,649,038 $ 3,581,222
Money-market deposits 3,432,046 5,701,825
Savings and NOW deposits 3,710,889 863,891
Time deposits 23,221,178 11,497,647
------------ ------------
Total deposits 35,013,151 21,644,585
Official checks 372,717 308,188
Other borrowed funds 1,782,850 1,043,532
Accrued interest payable and other liabilities 148,048 87,360
------------ ------------
Total liabilities 37,316,766 23,083,665
------------ ------------
Stockholders' equity:
Common stock, $1 par value, 10,000,000 shares
authorized, 994,556 and 735,859 shares issued
and outstanding in 2000 and 1999 994,556 735,859
Additional paid-in capital 8,951,004 6,622,731
Accumulated deficit (462,595) (502,620)
Accumulated other comprehensive (loss) (99,259) (80,226)
------------ ------------
Total stockholders' equity 9,383,706 6,775,744
------------ ------------
Total liabilities and stockholders' equity $ 46,700,472 $ 29,859,409
============ ============
</TABLE>
F-46
<PAGE> 137
PENINSULA BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Interest income:
Loans receivable $ 1,851,510 $ 684,054
Securities available for sale 228,885 153,106
Other interest-earning assets 292,185 180,185
----------- -----------
Total interest income 2,372,580 1,017,345
----------- -----------
Interest expense:
Deposits 1,087,199 363,628
Other borrowings 48,709 21,323
----------- -----------
Total interest expense 1,135,908 384,951
----------- -----------
Net interest income 1,236,672 632,394
Provision for loan losses 93,000 171,000
----------- -----------
Net interest income after provision for loan losses 1,143,672 461,394
Noninterest income:
Service charges on deposit accounts 70,599 16,272
Other service charges and fees 36,982 35,188
----------- -----------
Total noninterest income 107,581 51,460
----------- -----------
Noninterest expense:
Salaries and employee benefits 554,444 433,713
Occupancy and equipment expense 191,743 155,619
Data processing 109,585 66,465
Printing and office supplies 28,707 26,163
Marketing and advertising 37,010 26,001
Professional fees 22,955 27,158
Telephone 16,930 13,803
Travel and entertainment 17,360 9,321
Other 107,534 105,860
----------- -----------
Total noninterest expense 1,086,268 864,103
----------- -----------
Earnings (loss) before income tax provision (benefit) 164,985 (351,249)
----------- -----------
Income tax provision (benefit) 40,030 (70,000)
----------- -----------
Net earnings (loss) $ 124,955 $ (281,249)
=========== ===========
Basic and diluted earnings (loss) per share $ 0.14 $ (0.38)
=========== ===========
Weighted-average number of common shares outstanding 908,324 735,859
=========== ===========
</TABLE>
F-47
<PAGE> 138
PENINSULA BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) 124,955 (281,249)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Provision for loan losses 93,000 171,000
Depreciation and amortization 72,542 55,403
Deferred income taxes 40,030 (70,000)
Increase in accrued interest receivable (120,452) (152,978)
Increase in other assets (275,746) (14,674)
Increase (decrease) in official checks 96,726 (4,118)
Increase (decrease) in accrued interest payable and other
liabilities 38,550 (82,600)
----------- -----------
Net cash provided by operating activities 1,458,581 663,836
----------- -----------
Cash flows from investing activities:
Repayments of securities available for sale 250,000 0
Purchases of securities available for sale (1,025,380) (2,100,000)
Net increase in loans (6,681,994) (14,309,932)
Purchases of premises and equipment (325,439) (255,998)
----------- -----------
Net cash used in investing activities (7,782,813) (16,664,930)
----------- -----------
Cash flows from financing activities:
Net increase in deposits 6,094,975 16,345,914
Net increase in customer repurchase agreements 1,388,976 1,043,052
Proceeds from issuance of common stock 2,586,970 0
----------- -----------
Net cash provided by financing activities 8,681,945 16,345,914
Net increase in cash and cash equivalents 2,357,713 344,820
Cash and cash equivalents at beginning of period 6,348,490 5,345,657
----------- -----------
Cash and cash equivalents at end of period $ 8,706,203 5,690,477
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,065,424 353,585
=========== ===========
Income taxes $ 0 0
=========== ===========
Noncash investing activities:
Change in accumulated other comprehensive
income (loss), unrealized loss on securities available
for sale, net of tax 29,481 (70,785)
=========== ===========
</TABLE>
F-48
<PAGE> 139
PENINSULA BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPRE-
ADDITIONAL HENSIVE TOTAL
COMMON PAID-IN ACCUMULATED INCOME STOCKHOLDERS'
STOCK CAPITAL DEFICIT (LOSS) EQUITY
---------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 735,859 $6,622,731 $ (587,550) $ (128,741) $6,642,299
----------
Comprehensive income (loss):
Net earnings for the period
(unaudited) -- -- 124,955 -- 124,955
Net change in unrealized loss on
securities available for sale, net
of tax (unaudited) -- -- -- 29,482 29,482
Comprehensive income (loss)
(unaudited) -- -- -- -- 154,437
Proceeds from common stock offering
(258,697 shares), net of offering
costs (unaudited) 258,697 2,328,273 -- -- 2,586,970
---------- ---------- ---------- ---------- ----------
Balance at September 30, 2000 $ 994,556 $8,951,004 $ (462,595) $ (99,259) $9,383,706
(unaudited) ======== ========== ========== ========= ==========
</TABLE>
F-49
<PAGE> 140
PENINSULA BANCORP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL. In the opinion of the management of Peninsula Bancorp, Inc., the
accompanying condensed consolidated financial statements contain all adjustments
(consisting principally of normal recurring accruals) necessary to present
fairly the financial position at September 30, 2000, and 1999, the results of
operations for the nine-month periods then ended and statement of cash flows for
the nine-month periods then ended. The results of operations and other data for
the nine months ended September 30, 2000 are not necessarily indicative of the
results to be expected for the year ending December 31, 2000.
Peninsula Bancorp, Inc. (the "Holding Company") owns 100% of the outstanding
common stock of Peninsula Bank (the "Bank") (collectively the "Company"). The
Holding Company operates as a one-bank holding company. On April 26, 1999, the
Bank's stockholders approved a plan of corporate reorganization under which the
Bank would become a wholly-owned subsidiary of the Holding Company. The Holding
Company was formed on January 3, 2000. The Bank's stockholders exchanged their
common shares for shares of the Holding Company. As a result, all of the
previously issued $5.00 par value common shares of the Bank were exchanged for
735,859 shares of the $1.00 par value common shares of the Holding Company. The
Holding Company's acquisition of the Bank was accounted for similar to a pooling
of interests.
The Holding Company's only business activity is the operation of the Bank. The
Bank is a state (Florida) chartered commercial bank. The Bank offers a variety
of financial services to individual and corporate customers through its four
banking offices located in Valusia County, Florida. The deposits of the Bank are
insured by the Federal Deposit Insurance Corporation ("FDIC") through the Bank
Insurance Fund ("BIF").
2. LOAN IMPAIRMENT AND LOSSES. There were no impaired loans recognized under
SFAS 114 and 118 during the nine month periods ended September 30, 2000 or 1999.
The activity in the allowance for loan losses was as follows:
Nine Months Ended
September 30,
-------------------
2000 1999
-------- --------
Balance at beginning of period $305,000 $ 29,000
Provision charged to earnings 93,000 171,000
-------- --------
Balance at end of period $398,000 $200,000
======== ========
F-50
<PAGE> 141
PENINSULA BANCORP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
3. EARNINGS (LOSS) PER SHARE . Earnings (loss) per share of common stock has
been computed on the basis of the weighted-average number of shares of common
stock outstanding. For the nine months ended September 30, 2000 and 1999
outstanding stock options are not considered dilutive securities for purposes of
calculating diluted earnings (loss) per share.
4. REGULATORY CAPITAL. The Bank is required to maintain certain minimum
regulatory capital requirements. The following is a summary at September 30,
2000 of the regulatory capital requirements and the Bank's actual capital on a
percentage basis:
REGULATORY
ACTUAL REQUIREMENT
------ -----------
Total capital to risk-weighted assets 28.99% 8.00%
Tier I capital to risk-weighted assets 27.82% 4.00%
Tier I capital to total assets - leverage ratio 20.33% 4.00%
5. OTHER EVENTS.
On September 22, 2000, the Holding Company entered into a letter of intent with
Southern Community Bancorp, Inc., ("Southern") with respect to the possible
merger of the Holding Company and Southern. Southern is the parent company of
Southern Community Bank, a state bank with four offices in Central Florida and
one in Southwest Florida. The letter of intent provides that Southern will issue
shares of its common stock to the shareholders of the Holding Company upon the
consummation of the merger. On the effective date of the merger, each share of
Holding Company common stock will be converted into .625 shares of the common
stock of the Southern. This transaction is subject to the negotiation and
execution of a definitive merger agreement, due diligence by each party,
regulatory approvals and the approval by the shareholders of the Holding
Company. Southern intends to account for this transaction using the purchase
method of accounting.
F-51
<PAGE> 142
Exhibit A
AMENDED AND RESTATED
ESCROW AGREEMENT
This AMENDED AND RESTATED ESCROW AGREEMENT effective as of the ____day of
October, 2000, by and among:
SOUTHERN COMMUNITY BANCORP, a Florida corporation, the
principal place of business of which is located at 250 North
Orange Avenue, Orlando, Florida 32801 (hereinafter referred to
as the "Company")
and
SUNTRUST BANK, located at 225 East Robinson Street, Suite 250,
Orlando, Florida 32801 (hereinafter referred to as the "Escrow
Agent")
WITNESSETH:
WHEREAS, the Company and the Escrow Agent have previously entered into
an Escrow Agreement dated as of July 11, 2000 (the "Original Agreement"), in
connection with the Company's offering of up to 1,050,000 shares of the
Company's common stock, par value $1.00 per share (the "Common Stock"), at a
subscription price of $16.50 per share (the "Offering"); and
WHEREAS, the Escrow Agent has established two escrow accounts pursuant
to the terms of the Original Agreement;
WHEREAS, the Original Agreement provided that amounts deposited in the
first escrow (the "First Escrow") would be utilized to capitalize the Company's
proposed new bank subsidiary, Southern Community Bank of Southwest Florida (the
"New Bank"), and that amounts deposited into the second escrow account (the
"Second Escrow") would be primarily utilized for providing additional working
capital to the Company's existing bank subsidiary, Southern Community Bank (the
"Existing Bank"); and
WHEREAS, the terms of the Offering required subscribers in the Offering
(the "Subscribers") to designate how much of their proceeds would be deposited
in the First Escrow or the Second Escrow; and
WHEREAS, on August 2, 2000, the conditions of the Second Escrow were
satisfied and, at the Company's request, the Escrow Agent released $3,300,000
from the Second Escrow to the Company, as permitted by the terms of the Original
Agreement; and
WHEREAS, on October 5, 2000, at the request of the Company, the Escrow
Agent transferred all of the remaining amounts in the Second Escrow to the First
Escrow, as permitted by the Original Agreement; and
WHEREAS, a total of $7,825,851 in subscription funds has been deposited
in the First Escrow Account, including the amount transferred from the Second
Escrow Account; and
-1-
<PAGE> 143
WHEREAS, the Company has elected to amend the terms of the Offering,
and in connection with such amendment, to offer to refund all subscription
proceeds to the existing subscribers unless such subscribers reconfirm their
subscriptions and consent to the amendment of the terms of the Offering; and
WHEREAS, the Company has requested the Escrow Agent to amend the terms
of the Original Agreement to reflect the amendment to the terms of the Offering,
and the Escrow Agent is willing to agree to such amendments, subject to the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual premises herein
contained, the Company and the Escrow Agent agree to amend and restate the
Original Agreement in its entirety as follows:
1. APPOINTMENT OF ESCROW AGENT. The Escrow Agent has agreed to act as
the escrow agent for the Offering, pursuant to the terms and conditions of this
Agreement.
2. DEPOSIT AND DELIVERY OF PROCEEDS. For purposes of this Agreement,
the term "Proceeds" shall mean all subscription proceeds which may be delivered
to the Escrow Agent, whether in the form of checks, cashier checks and/or money
orders. The Company shall promptly deliver to the Escrow Agent all Proceeds
received by the Company from Subscribers. The Escrow Agent shall deposit the
Proceeds in the First Escrow. The Escrow Agent shall have no responsibility
whatsoever for Proceeds not delivered to the Escrow Agent or for funds that have
not yet cleared and become good funds. The parties acknowledge that Subscribers
have been instructed to make all checks for the Common Stock payable to the
Escrow Agent. In the event that a Subscriber makes a check payable to the
Company, the Company shall endorse such checks to the order to the Escrow Agent.
Simultaneously with the delivery of the Proceeds received from each Subscriber,
the Company shall deliver to the Escrow Agent a copy of the Subscription
Agreement executed by each Subscriber and the Company's written acceptance of
the subscription offer contained in the Subscription Agreement.
3. PARTIAL REJECTION OF SUBSCRIPTIONS. If the Company elects to accept
a subscription offer for less than the number of shares requested by a
Subscriber in his Subscription Agreement, then the Company shall notify the
Escrow Agent in writing of the number of shares which the Company has elected to
accept. Promptly after the receipt of such notice, the Escrow Agent shall
deposit the accepted portion of the Subscriber's Proceeds in the First Escrow
and remit to the Subscriber that portion of his Proceeds which were not
accepted, without interest or deduction.
4. RETURN OF PREVIOUS SUBSCRIPTIONS.
(a) The Escrow Agent will return the previous subscription of
each previous Subscriber, without interest or deduction, on the Return Date (as
defined below), unless, prior to the Return Date, the previous Subscriber
executes and delivers to the Company the reconfirmation letter in the form of
Exhibit A to this Agreement.
(b) For purposes of this Agreement, the Return Date shall be
the date that is the earlier of December 31, 2000 or three weeks from the
effective date of the Company's Post Effective Amendment to its Registration
Statement on Form SB-2.
5. TERMS OF FIRST ESCROW. The Escrow Agent shall hold and disburse all
Proceeds deposited in the First Escrow on the following terms and conditions:
(a) Unless the Escrow Agent has previously disbursed the
Proceeds under Section 4(b), the Escrow Agent will promptly return all Proceeds
deposited in the First Escrow to Subscribers to the First Escrow, without
interest or deduction, upon the first to occur of the following:
-2-
<PAGE> 144
(i) Upon written notice from the Company that the
Offering has been terminated; or
(ii) Upon the Expiration Date (as defined below) of the
Offering.
(b) The Escrow Agent will promptly deliver the Proceeds
deposited in the First Escrow to the Company upon the Company's written request,
provided that both of the following conditions have been fulfilled:
(i) The Escrow Agent has received written notice from
the Company that the Company has received all
required regulatory approvals to open the New
Bank; and
(ii) The Escrow Agent has received Proceeds of at least
$10,230,000 designated for deposit to the First
Escrow (including, any amounts transferred from
the Second Escrow to the First Escrow).
(c) The parties acknowledge that the Company may continue to
deposit additional Proceeds in the First Escrow even after the disbursement of
Proceeds pursuant to Section 4(b). The Escrow Agent will promptly deliver such
Proceeds to the Company, provided that the Escrow Agent shall not accept any
Proceeds after the Expiration Date.
6. RETURN OF PROCEEDS TO SUBSCRIBERS. In the event that the Escrow
Agent is obligated to return Proceeds to any Subscriber pursuant to the terms of
this Agreement, the Escrow Agent shall return such Proceeds to the Subscriber in
the form of a check, mailed by regular mail, to the address the Subscriber set
forth in such Subscription Agreement.
7. INVESTMENT OF PROCEEDS BY ESCROW AGENT. The Escrow Agent shall
invest the Proceeds deposited in each escrow account in the STI Classic
Institutional U.S. Treasury Securities Money Market Fund (a AAA rated mutual
fund comprised solely of investments in United States government, United States
government backed securities and repurchase agreements collateralized by United
States government backed securities). All income from the Fund shall accrue to
the benefit of the Company. Upon the consummation, termination or expiration of
the Offering, the Escrow Agent will deliver all income and other amounts earned
on the investment of the Proceeds to the Company. The Escrow Agent shall furnish
to the Company periodic and final reports regarding the investments of the
Proceeds. The Escrow Agent shall have no liability or obligation whatsoever for
the status of the investments or the failure of said investments, and shall have
no responsibility for tax reporting in connection with earnings or gains/losses
on the investments.
8. DUTIES OF ESCROW AGENT. The Escrow Agent undertakes to perform only
such duties as are expressly set forth in this Agreement and no implied duties
or obligations shall be read into this Agreement against the Escrow Agent.
9. RELIANCE OF ESCROW AGENT ON DOCUMENTS. The Escrow Agent may act in
reliance upon any writing or instrument or signature which the Escrow Agent, in
good faith, believes to be genuine, may assume the validity and accuracy of any
statement or assertion contained in such a writing or instrument, and may assume
that any person purporting to give any writing, notice, advice or instructions
in connection with the provisions hereof has been duly authorized to do so.
10. INDEMNIFICATION OF ESCROW AGENT. Unless the Escrow Agent discharges
any of its duties hereunder in a manner constituting gross negligence or willful
misconduct, the Company hereby agrees to indemnify the Escrow Agent and hold it
harmless from any and all claims, liabilities, losses, actions, suits or
proceedings at law or in equity, or any other expenses, fees or charges of any
character or nature which it may incur or with which it may be threatened by
reason of its acting as escrow agent under this Agreement; and in connection
therewith, to indemnify the
-3-
<PAGE> 145
Escrow Agent against any and all expenses, including reasonable attorneys' fees
and the cost of defending any action, suit or proceeding or resisting any claim.
11. DISCRETION OF ESCROW AGENT TO FILE AN INTERPLEADER ACTION IN THE
EVENT OF DISPUTE. If the parties shall be in disagreement about the
interpretation of this Agreement, or about the rights and obligations, or the
propriety of any action contemplated by the Escrow Agent hereunder, the Escrow
Agent may, but shall not be required to, file an action of interpleader to
resolve the disagreement and may hold all Proceeds until directed by a court of
competent jurisdiction as to the manner or distribution or until all parties in
dispute mutually agree to the distribution. The Escrow Agent shall be
indemnified as set forth in Section 11 for all costs, including reasonable
attorneys' fees incurred by it, in connection with the aforesaid interpleader
action, and shall be fully protected in suspending all or part of its activities
under this Agreement until a final judgment or other appropriate order in the
interpleader action is entered.
12. CONSULTATION WITH COUNSEL. The Escrow Agent may consult with
independent counsel of its own choice and shall not be liable for any actions
which it takes in reliance upon the advise of such counsel.
13. LIMITATION OF LIABILITY. The Escrow Agent shall not be liable for
any mistakes of fact or errors of judgment, or for any acts or omissions of any
kind unless they constitute gross negligence or willful misconduct on the part
of the Escrow Agent.
14. RESIGNATION OF ESCROW AGENT. The Escrow Agent may resign upon
thirty (30) days written notice to the Company. If a successor escrow agent is
not appointed by the Company within this thirty (30) day period, the Escrow
Agent may petition a court of competent jurisdiction to name a successor or, at
its option, the Escrow Agent may do nothing until such time as the Company has
furnished the name of a successor escrow agent.
15. COMPENSATION AND EXPENSES. The Escrow Agent shall be entitled to
compensation from the Company for its services hereunder in an amount of
$1,500.00. In the event Escrow Agent must return the Proceeds to a Subscriber,
the Company will pay the Escrow Agent an additional $15.00 for each refund. The
parties acknowledge that the Escrow Agent will earn a management fee on the
investment of the Proceeds pursuant to Section 8 of this Agreement.
16. NOTICES. All notices permitted or required to be given to any party
under this Agreement shall be in writing and shall be deemed to have been given
upon receipt by the party being notified. In the case of the Company, such
notices shall be sent to: Mr. Charlie W. Brinkley, Jr., Chairman and CEO,
Southern Community Bancorp, 250 North Orange Avenue, Orlando, Florida 32801.
Either party may change the address to which said notice is to be given by
giving notice of such to all other parties to this Agreement in the manner set
forth herein.
17. SUCCESSORS AND ASSIGNS. The rights created by the Agreement shall
inure to the benefit of, and the obligations created hereby shall be binding
upon, the successors and assigns of the Escrow Agent and the Company, as the
case may be.
18. GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed by the laws of, the State of Florida.
19. TERMINATION. This Escrow Agreement shall terminate and the Escrow
Agent shall be discharged of all responsibility hereunder at such time as the
Escrow Agent shall have disbursed all of the Proceeds in accordance with the
terms of this Agreement.
20. COMPLETE AGREEMENT. This Agreement constitutes the complete
agreement between the parties hereto and incorporates all prior discussions,
agreements and representations made in regard to the matters set forth herein.
This Agreement may not be amended, modified or changed except by a writing
signed by the party to be charged by said amendment, change or modification.
-4-
<PAGE> 146
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SOUTHERN COMMUNITY BANCORP
By:
-------------------------------------
Charlie W. Brinkley, Jr.
Chairman and CEO
SUNTRUST BANK
By:
-------------------------------------
First Vice President
-5-
<PAGE> 147
Exhibit B
SUBSCRIPTION AGREEMENT
Southern Community Bancorp
250 North Orange Avenue
Orlando, Florida 32801
Attn: Mr. Charlie W. Brinkley, Jr.
Mr. John G. Squires
Gentlemen:
1. SUBSCRIPTION. Subject to the terms and conditions set forth below,
the undersigned hereby subscribes to purchase shares (the "Shares") of the
common stock, par value $1.00 per share (the "Common Stock") of Southern
Community Bancorp, a corporation organized under the laws of Florida (the
"Company"). The undersigned hereby acknowledges receipt of a copy of the
Company's Prospectus, dated as of October , 2000 (the "Prospectus"), with
respect to the offering of the Common Stock.
2. PURCHASE OF SHARES. The undersigned hereby subscribes for the number
of Shares specified below:
Number of Shares to be ____________ Shares
purchased:
(minimum of 1,000 Shares)
Price per Share: x $16.50
Total purchase price: $__________________
Amount of enclosed check:
($16.50 per Share times
number of Shares purchased) $__________________
3. PAYMENT OF PURCHASE PRICE. The undersigned has enclosed with this
Agreement the undersigned's personal check (or a certified check, bank check or
money order) payable to "SunTrust Bank -- Escrow Agent for Southern Community
Bancorp" in payment for the number of Shares listed in Section 2.
4. TITLE TO SHARES. The undersigned hereby requests that the Shares be
issued as follows:
TITLE TO BE TAKEN - (check one)
-----------------------------
-----------------------------
( ) Individual ownership (Name as it should appear on
Company's stock register -
two names for joint owners -
please print or type)
( ) Joint tenants with right
of survivorship
( ) Other-specify:
------------------ -----------------------------
-----------------------------
(Residence Address)
Social Security No. or -----------------------------
Taxpayer Identification No: (Home Phone)
--------------------------------- -----------------------------
(Business Phone)
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<PAGE> 148
5. ESCROW AGREEMENT. The undersigned acknowledges and agrees that the
undersigned's funds will be held in escrow in accordance with the terms of the
Amended and Restated Escrow Agreement dated ____, 2000 by and between the
Company and SunTrust Bank, as escrow agent.
6. CERTAIN ACKNOWLEDGMENTS. The undersigned is fully aware that:
(a) The subscription offer set forth in this Agreement may be
accepted or rejected in whole or in part by the Company in its sole and absolute
discretion.
(b) The subscription offer set forth in this Agreement is and shall
be irrevocable, except as set forth in the Prospectus, PROVIDED that the
undersigned shall have no obligations under this Agreement in the event that the
subscription offer set forth in this Agreement is rejected or the offering
described in the Prospectus is canceled or withdrawn.
(c) No federal or state agency has made any finding or determination
as to the fairness of the offering for public investment, and no such agency has
made any recommendation or endorsement of the Shares.
(d) There is no public market for the Shares.
(e) THE SHARES ARE NOT DEPOSITS AND ARE NOT INSURED BY THE FDIC OR
ANY OTHER AGENCY.
7. MISCELLANEOUS
(a) MODIFICATION. Neither this Agreement nor any provisions of this
Agreement shall be modified, discharged or terminated except by an instrument in
writing signed by the party against whom any waiver, change, discharge or
termination is sought.
(b) BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the parties and their heirs, executors, administrators,
successors, legal representatives and permitted assigns. If the undersigned is
more than one person, the obligation of the undersigned shall be joint and
several and the agreements, representations, warranties and acknowledgments
herein contained shall be deemed to be made by and be binding upon each such
person and his heirs, executors, administrators and successors.
(c) ASSIGNABILITY. This Agreement is not transferable or assignable
by the undersigned. Any purported transfer or assignment by the undersigned
shall be null and void.
(d) APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of Florida.
-2-
<PAGE> 149
IN WITNESS WHEREOF, the undersigned has executed this
Subscription Agreement on this ____ day of ___________________, 2000.
----------------------------------------------
Signature
----------------------------------------------
Signature (Second signature required for joint
ownership)
ACCEPTANCE OF SUBSCRIPTION:
Southern Community Bancorp hereby accepts the subscription offer set
forth in this Agreement for ________ Shares, with $________ of proceeds to be
deposited in the first escrow account.
SOUTHERN COMMUNITY BANCORP
By:
----------------------------------------------
Its:
----------------------------------------------
-3-
<PAGE> 150
Exhibit C
RECONFIRMATION LETTER
Southern Community Bancorp
250 North Orange Avenue
Orlando, Florida 32801
Attention: Mr. Charlie W. Brinkley, Jr.
Mr. John G. Squires
Gentlemen:
The purpose of this letter is to set forth the agreement of the
undersigned (the "Subscriber") to reconfirm the purchaser's subscription to
purchase shares of the common stock of Southern Community Bancorp (the
"Company"). In particular, the purchaser hereby acknowledges and agrees as
follows:
1. The purchaser has previously submitted a subscription agreement
under which the purchaser agreed to purchase _____ shares of the common stock of
the Company for a price of $16.50 per share. As part of this subscription, the
purchaser paid to the Company the amount of $_____.
2. The purchaser acknowledges that the purchaser has received a copy of
the Company's prospectus, dated as of October __, 2000, with respect to the
offering of the Company's common stock (the "Amended Prospectus").
3. The purchaser is aware that the Amended Prospectus contains certain
amendments to the Company's original prospectus dated July 17, 2000, including a
discussion of the proposed merger of the Company and Peninsula Bancorp, Inc. and
changes to the terms of the offering.
4. The purchaser hereby acknowledges that he will receive a refund of
his entire subscription unless he elects in his sole discretion to enter into
this reconfirmation letter.
5. The purchaser hereby reconfirms his agreement to purchase the shares
of the Company at a price of $16.50 per share.
6. The purchaser acknowledges that the purchaser's reconfirmed
subscription shall be on the terms and conditions set forth in the Amended
Prospectus.
7. The purchaser hereby acknowledges and agrees that the purchaser's
subscription will be held in escrow in accordance with terms of the amended and
restated escrow agreement dated as of ________, 2000, by and between the Company
and SunTrust Bank, as escrow agent.
8. The purchaser further acknowledges that a copy of the amended and
restated escrow agreement is attached as Exhibit A to the amended prospectus.
9. The purchaser acknowledges that the Company and SunTrust Bank, as
escrow agent, will rely upon this confirmation letter in connection with the
completion of the offering.
-1-
<PAGE> 151
In Witness Whereof, the purchaser has executed this reconfirmation
letter on this _____ day of ___________, 2000.
-----------------------------------------------
-----------------------------------------------
(Second Signature Required for Joint Ownership)
-2-
<PAGE> 152
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Bylaws limit, to the maximum extent permitted by
Florida law, the personal liability of directors and officers for monetary
damages for breach of their fiduciary duties as directors or officers. The
Bylaws provide further that the Registrant shall indemnify to the fullest extent
permitted by Florida law any person made a party to an action or proceeding by
reason of the fact that such person was director, officer, employee or agent of
the Registrant. The Bylaws also provide that directors and officers who are
entitled to indemnification shall be paid their expenses incurred in connection
with any action, suit, or proceeding in which such director or officer is made a
party by virtue of his or her being an officer or director of the Registrant to
the maximum extent permitted by Florida law.
Reference is made to the following documents filed as Exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
DOCUMENT EXHIBIT NUMBER
Registrant's Articles of Incorporation........................... 3.1
Registrant's Bylaws.............................................. 3.2
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable in
connection with the sale of the common stock being registered hereby. All
amounts are estimates, except the registration fee.
ITEM AMOUNT
---- ---------
SEC Registration Fee ............ $ 4,573
Blue sky fees and expenses ...... $ 5,000
Printing and engraving expenses . $ 20,000
Legal fees and expenses ......... $100,000
Auditors' fees and expenses ..... $ 30,000
Transfer agent and registrar fees $ 0
miscellaneous expenses .......... $ 0
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following is a summary of the transactions by Registrant since the
Registrant's incorporation on March 24, 1999, involving sales of Registrant's
securities that were not registered under the Securities Act of 1933, as amended
(the "Securities Act").
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<PAGE> 153
On July 30, 1999, the Registrant issued 884,425 shares of common stock
in exchange for all of the outstanding capital stock of Southern Community Bank.
This transaction was exempt from Section 5 of the Securities Act pursuant to the
provisions of Section 3(a)(12).
The Registrant has entered into a Restricted Stock Agreement with
Charlie W. Brinkley, Jr., its Chairman, under which the Registrant has agreed to
issue up to 50,000 shares of its common stock to Mr. Brinkley as compensation
for services. Under the terms of this agreement, the Registrant issued 250
shares effective as of January 1, 2000. This transaction was exempt from Section
5 of the Securities Act of 1933 pursuant to Section 4(2).
On January 1, 2000, the Registrant issued 986 shares of its common
stock to certain employees pursuant to the Registrant's Employee Stock Purchase
Program. These shares were issued at a price of $15.00 per share. These
transactions were exempt from Section 5 of the Securities Act of 1933 pursuant
to Section 4(2).
On January 1, 2000, the Registrant sold 4,637 shares of its common
stock to certain employees at a price of $15.00 per share. These transactions
were exempt from Section 5 of the Securities Act of 1933 pursuant to Section
4(2).
On September 30, 2000, the Registrant sold 110 shares of its common
stock to certain employees at a price of $15.00 per share. These transactions
were exempt from Section 5 of the Securities Act of 1933 pursuant to Section
4(2).
ITEM 27. EXHIBITS.
(a) Exhibits
EXHIBIT
NUMBER EXHIBIT
------ -------
3.1 Articles of Incorporation, as amended, of Registrant (a)
3.2 Bylaws of Registrant (a)
4.1 Specimen Common Stock Certificate of Registrant (a)
5.1 Opinion of Shutts & Bowen LLP (a)
10.1 Employees' Incentive Stock Option Plan of Registrant (a)
10.2 Directors' Statutory Stock Option Plan of Registrant (a)
10.3 Amended and Restated Employee Stock Purchase Plan of
Registrant (a)
10.4 Salary Continuation Agreement between the Registrant and
Charlie W. Brinkley, Jr. dated February 23, 1999 (a)
10.5 Salary Continuation Agreement between the Registrant and John
G. Squires dated February 23, 1999 (a)
10.6 Lease Agreement dated April 22, 1998 between Marx Realty and
Improvement Co., Inc. and Registrant (a)
10.7 Lease Agreement dated November 30, 1998 between Patrick J.
Armstrong and Registrant (a)
10.8 Electronic Data Processing Agreement dated August 12, 1998
between the Registrant and First Commerce Technologies,
Inc.(a)
10.9 Restricted Stock Agreement made effective as of January 1,
1999 between the Registrant and Charlie W. Brinkley, Jr. (a)
10.10 Escrow Agreement between the Registrant and SunTrust Bank (a)
10.11 Purchase and Sale Agreement dated September 25, 2000
between Bank of America, N.A. and Southern Community Bank (b)
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<PAGE> 154
10.12 Letter of Intent dated September 21, 2000 by and between
Southern Community Bancorp and Peninsula Bancorp, Inc. (c)
21.1 List of Subsidiaries of Registrant (a)
23.1 Consent of Hacker, Johnson, Cohen & Grieb PA
23.2 Consent of Shutts & Bowen LLP (included in Exhibit 5.1) (a)
23.3 Consent of Camputaro & Associates
24.1 Powers of Attorney (a)
27.1 Financial Data Schedule of Registrant for the nine months
ended September 30, 2000 (b)
99.1 Consent of Richard Garner, Proposed Director (a)
99.2 Consent of Joel Whittenhall, Proposed Director (a)
-------------
(a) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form SB-2 (File No. 333-35548).
(b) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended September 30, 2000 (filed with the Commission
on October 20, 2000).
(c) Previously filed as an Exhibit to the Registrant's Current Report on Form
8-K (filed with the Commission on October 2, 2000).
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) To include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect
in the prospectus any facts or events which, individually or together, represent
a fundamental change in the registration statement; (iii) To include any
additional or changed material information on the plan of distribution.
(2) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of this
offering.
(4) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officer or controlling persons of the
registrant, pursuant to the foregoing provisions, 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 Securities
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 hereunder, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
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<PAGE> 155
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Orlando,
State of Florida on October 26, 2000.
SOUTHERN COMMUNITY BANCORP
By: /s/ Charlie W. Brinkley, Jr.
-------------------------------------------------
Charlie W. Brinkley, Jr.
Chairman of the Board and Chief Executive Officer
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>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Charlie W. Brinkley, Jr. Chairman of the Board and Chief October 26, 2000
------------------------------ Executive Officer (Principal
Charlie W. Brinkley, Jr. Executive Officer)
/s/ John G. Squires* President and Director October 26, 2000
------------------------------
John G. Squires
/s/ Patrick J. Armstrong* Director October 26, 2000
------------------------------
Patrick J. Armstrong
/s/ Richard M. Dunn* Director October 26, 2000
------------------------------
Richard M. Dunn
/s/ Jennings L. Hurt, III* Director October 26, 2000
------------------------------
Jennings L. Hurt, III
/s/ Eugene M. Pascarella* Director October 26, 2000
------------------------------
Eugene M. Pascarella
------------------------------ Director
Jon C. Peterson
/s/ Stanley H. Sandefur* Director October 26, 2000
------------------------------
Stanley H. Sandefur
/s/ Stephen R. Jeuck Chief Financial Officer and October 26, 2000
------------------------------ Secretary (Principal Financial and
Stephen R. Jeuck Principal Accounting Officer)
</TABLE>
-----------------
* Executed pursuant to power of attorney dated as of April 20, 2000.
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<PAGE> 156
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT
------ -------
23.1 Consent of Hacker, Johnson, Cohen & Grieb, P.A.
23.3 Consent of Camputaro & Associates
