<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED COMMISSION FILE
DECEMBER 31, 1995 No. 33-22691-A
PORT ST. LUCIE NATIONAL BANK HOLDING CORP.
A FLORIDA CORPORATION - I.R.S. NO. 65-0051022
1100 S.W. St. Lucie West Boulevard
Port St. Lucie, Florida 34986
Registrant's Telephone Number:
(407) 340-2800
Securities Registered Pursuant to Section 12(b) of the Act:
None
----
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
--------------------------------------
Check whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to the filing requirements for the past
90 days.
Yes X No
----------- ------------
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ]
The annual revenues of the registrant for the year ended December 31, 1995 were:
$9,280,000
- ----------
There is no established trading market for the Common Stock of the registrant.
The aggregate market value (based on the last sale of which the registrant has
knowledge) of the voting stock held by non-affiliates of the registrant as of
March 1, 1996:
Common Stock, $.01 par value -- $10,955,020
--------------------------------------------
The number of shares outstanding of each of the registrant's classes of common
stock as of March 1, 1996:
Common Stock, $.01 par value -- 739,496 shares
-----------------------------------------------
Documents incorporated by reference:
1. Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1995 are incorporated into Parts I and II.
2. Portions of the Registrant's definitive Proxy Statement, dated March 21,
1996, are incorporated into Part III.
Transitional Small Business Disclosure Format Yes No X
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Number of Pages Index to
in this report: 61 Exhibits on Page: 56
------- ------
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
- -------
Port St. Lucie National Bank Holding Corp. (the "Company") is a one bank
holding company. The Company was organized in 1988 under the laws of the State
of Florida for the purpose of organizing and acquiring Port St. Lucie National
Bank (the "Bank"). The Bank was organized under the laws of the United States
and was chartered on April 3, 1989.
The Bank offers a wide range of commercial and consumer services from its
three offices in Port St. Lucie, Florida. These services include interest and
noninterest bearing deposit accounts, personal, business and real estate loans
and membership in a shared automatic teller system which has numerous locations
throughout Florida.
In February 1995, the Company received approval and organized under the
laws of the State of Florida, a wholly owned mortgage subsidiary, Spirit
Mortgage Corp. ("SMC"). SMC originates residential mortgage loans for sale in
the secondary market. The activities of SMC will be primarily outside of St.
Lucie County and will not compete with the Bank. These activities are
anticipated to provide additional fee income to the Company through increased
utilization of the Company's real estate lending expertise. SMC commenced
operation in late February 1995.
The Company's executive offices are located at 1100 S.W. St. Lucie West
Boulevard, Port St. Lucie, FL 34986.
This Annual Report on Form 10-KSB contains forward-looking statements that
involve risks and uncertainties, and there are certain important factors that
could cause actual results to differ materially from those anticipated. These
important factors include, but are not limited to, economic conditions (both
generally and more specifically in the markets in which the Company and the Bank
operate), competition for the Company's and the Bank's customers from other
providers of financial services, government legislation and regulation (which
changes from time to time and over which the Company and the Bank have no
control), changes in interest rates, the impact of the Company's rapid growth,
and other risks detailed in the Company's other filings with the Securities and
Exchange Commission, all of which are difficult to predict and many of which are
beyond the control of the Company.
PRINCIPAL MARKET AREA AND MARKETING
- -----------------------------------
Wholly contained in St. Lucie County, the Bank's primary service area
("PSA") is part of Florida's four-county Treasure Coast region. The Treasure
Coast region, which contains the counties of Palm Beach, Martin, St. Lucie, and
Indian River, has enjoyed tremendous residential and commercial growth over the
last decade.
Within the Treasure Coast, the Port St. Lucie/Ft. Pierce metropolitan
statistical area ("MSA") was the third fastest growing MSA nationwide from 1980
through 1990. During this period, the MSA population increased to 251,071
residents from 151,196 residents or 66.1% according to figures released by the
United States Census Bureau.
More recently, the U.S. Census Bureau revealed that St. Lucie County
increased to 172,483 residents, or 13.1% from 1990 to 1995. The Port St. Lucie
market accounted for almost all of this growth, increasing total residents to
approximately 74,000. Port St. Lucie is now the second largest city on the
four-county Treasure Coast,
<PAGE>
surpassing Boca Raton and on a pace to surpass West Palm Beach. This growth
has made Port St. Lucie the fastest growing midsize city in Florida in the
1990's.
The majority of the new residents of the 1990's have located in the western
part of the PSA, west of the St. Lucie River. To serve this growing segment of
the PSA, the Bank has opened both its branch offices in this area. The
Boulevard Center was opened in December of 1991 and is strategically located
near City Hall on Port St. Lucie Boulevard, west of the St. Lucie River. More
recently, the Bank opened its third office in March of 1995 in the rapidly
growing St. Lucie West community, again west of the St. Lucie River.
The Bank has targeted small to medium size businesses with gross revenues
up to $15 million and households earning $30 thousand or more per year as the
segments within the PSA having the most growth and profit potential. It is the
belief of the Bank's management that using these segments as the foundation of
the Bank's customer base may increase opportunities to establish profitable
banking operations in the PSA.
The Bank promotes new business through the personal efforts of the Bank's
directors and officers and through the personal efforts of the Company's local
shareholders. Advertising is directed at targeted segments of the PSA with
emphasis on service, loans, timely local decisions and accessibility, which are
all attributes of local ownership and management. The Bank is also well
represented in meaningful local activities through the active involvement of the
Bank's directors and officers, which also promotes its local independent image,
which management believes is an important factor to its targeted customer base.
In the South Florida economy, business activity can be expected to peak in
the winter months. This seasonal cycle is primarily the result of tourism and
agriculture. The effect of a seasonal cycle on the Bank has been minimal to
date. There has been some seasonal lending and an increase in deposit related
transactions during the winter months; however, the Bank's strong overall growth
throughout the year diminishes the impact of seasonality on the Bank.
Environmental laws primarily affect the Bank through real estate lending.
Real estate lending policy includes guidelines and restrictions to protect the
borrower and the Bank from title and liability problems arising from
environmental related issues. The cost of environmental studies on real estate
are typically paid by the borrower; however, the Bank could be impacted by
administrative and insurance costs relating to environmental law.
COMPETITION
- -----------
The banking industry in Florida, in St. Lucie County, and in the Bank's PSA
in particular is highly competitive. The Bank competes for loans and deposits
with other financial institutions which are much larger than the Bank. Larger
commercial banks and banks associated with regional multi-bank holding companies
have higher lending limits and greater resources than the Bank. The Bank, along
with other commercial banks, also competes with savings banks, savings and loan
associations, insurance companies, regulated small loan companies, credit
unions, and issuers of commercial paper and other securities, such as shares in
money market funds.
Among the advantages such institutions have over the Bank are their ability
to conduct wide ranging advertising campaigns and to allocate their investment
assets to regions of highest yield and demand. Many institutions offer certain
services, such as trust services and international banking, which are not
offered by the Bank and, by virtue of their greater total capital, such
institutions have substantially higher lending limits than the Bank.
The Bank's PSA is currently served by six commercial banks with eighteen
offices, and three savings associations with eight offices. As of June 30,
1995, the total reported deposits in the PSA were $844,198,000. The
<PAGE>
Bank's $104,305,000 in deposits as of June 30, 1995 represented a 12.4% market
share of deposits in the PSA. The dominant bank with which the Bank competes
in the PSA is Barnett Bank/Treasure Coast, N.A. which had deposits representing
a market share of approximately 23.8%. The dominant savings and loan
association in the PSA is Harbor Federal Savings Bank with a market share of
approximately 15.6%. The principal methods of competition among financial
institutions in the PSA are convenience and quality of service, two factors
that management of the Bank continues to emphasize.
In addition to competing with banks and savings institutions, commercial
banks compete with non-banking financial institutions for funds. Money market
funds continue to provide substantial competition through typically higher
yields for deposits as well as corporate and government debt securities the
yields of which also affect the ability of commercial banks to attract and hold
deposits.
EMPLOYEES
- ---------
All employees of the Company are also employees of the Bank and SMC As of
December 31, 1995, the Bank had 55 full-time and 21 part-time and commissioned
employees. SMC had 2 full-time and 1 part-time employee. Management believes
that its employee relations have been and continue to be satisfactory.
SUPERVISION AND REGULATION
- --------------------------
Numerous federal and state laws and regulations govern the organization and
operations of bank holding companies and their subsidiaries. The Company, as a
one bank holding company, is subject to regulation, supervision and examination
by the Board of Governors of the Federal Reserve System (the "Federal Reserve")
under the Bank Holding Company Act of 1956, as amended (the "BHC Act").
Under the BHC Act, the activities of bank holding companies are limited to
business so closely related to banking, managing or controlling banks as to be
properly incident thereto. The BHC Act generally prohibits a bank holding
company from merging or consolidating with, or acquiring more than a specified
percentage of the voting shares or assets of, another bank holding company or
bank without the prior approval of the Federal Reserve. Similar prior approval
requirements exist for certain changes in the ownership of the voting securities
of a bank holding company.
The BHC Act was amended in September 1994 by the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Interstate Banking Act").
The Interstate Banking Act provides that, effective September 29, 1995,
adequately capitalized and managed bank holding companies are permitted to
acquire banks in any state. State laws prohibiting interstate banking or
discriminating against out-of-state banks will be preempted as of the effective
date. States cannot enact laws opting out of this provision; however, states
may adopt a minimum age restriction requiring that target banks located within
the state be in existence for a period of years, up to a maximum of five years,
before such bank may be subject to the Interstate Banking Act.
In addition, the Interstate Banking Act provides that as of June 1, 1997,
adequately capitalized and managed banks will be able to engage in interstate
branching by merging with banks in different states. States may enact
legislation authorizing interstate mergers earlier than June 1, 1997, or,
unlike the interstate banking provision discussed above,
states may opt out of the application of the interstate merger provision by
enacting specific legislation before June 1, 1997.
<PAGE>
The Interstate Banking Act also expands current exemptions from the
requirement that banks be examined on a 12-month cycle. Exempted banks will be
examined every 18 months. Other provisions of the Interstate Banking Act
address paper work reduction and regulatory improvements, small business and
commercial real estate loan securitization, truth-in-lending amendments on high
cost mortgages, strengthening of the independence of certain financial
regulatory agencies, money laundering, flood insurance reform and extension of
certain statutes of limitation.
Prior to the enactment of the Interstate Banking Act, Florida enacted the
Florida Reciprocal Banking Act (the "Florida Act") which took effect on May 1,
1995. Under the Florida Act, only banks that have been in existence for two
years or more may be acquired by out-of-state bank holding companies pursuant to
the Interstate Banking Act. The Florida Act also expressly prohibits interstate
branching. The Interstate Banking Act, however, will negate Florida's
prohibition on interstate branching unless Florida expressly opts out of the
Interstate Banking Act's branching provisions.
The effect on the Company of the Interstate Banking Act and the Florida
Act, which will expand the number of out-of-state bank holding companies
permitted to acquire Florida banks, cannot be predicted at this time. It is
anticipated that these acts may facilitate further consolidation in the banking
industry and, by permitting out-of-state banks nationwide to acquire Florida
banks, may increase competition in the Company's market.
The Federal Reserve Act imposes various limitations on the extent to which
the Company's subsidiary bank can finance or otherwise supply funds to the
Company, or its subsidiaries. In general, these restrictions require that any
such extensions of credit must be on terms and conditions consistent with safe
and sound banking practices, and be secured by designated amounts of specified
collateral. The lending bank may loan up to 10% of its capital stock and
surplus to any one affiliate, but may not lend, in the aggregate, more than 20%
of its capital stock and surplus to all such affiliates. Additionally, approval
of the appropriate regulatory authority is required if the total dividends
declared by a national or state bank exceed certain legal limits. See Note 9 in
the Notes to Financial Statements (Item 7) for further information.
In addition to the Federal Reserve, the Company's subsidiary, the Bank, is
subject to regulation, supervision and examination by the Office of the
Comptroller of the Currency ("OCC") and the Federal Deposit Insurance
Corporation ("FDIC").
In January 1989, the Federal banking regulatory authorities issued
guidelines for implementing risk-based capital requirements which became
effective on March 5, 1989. The risk-based capital standards are designed to
make regulatory capital requirements more sensitive to differences in risk
profiles among banks and bank holding companies, to account for off-balance
sheet exposure and to minimize disincentives for holding liquid assets. Assets
and off-balance sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items. See the
discussion below on the Federal Deposit Insurance Corporation Improvement Act of
1991 for further information on risk-based capital requirements.
In August 1989, the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA") was enacted. FIRREA contains major regulatory reforms,
stronger capital standards for savings and loans and stronger civil and criminal
enforcement provisions applicable to all financial institutions. FIRREA allows
the acquisition of healthy and failed savings and loans by bank holding
companies, and imposes no interstate barriers on such bank holding company
acquisitions. With certain qualifications, FIRREA also allows bank holding
companies to merge
<PAGE>
acquired savings and loans into their existing commercial bank subsidiaries.
Federal Reserve policy has required a bank holding company to act as a
source of financial strength and to take measures to preserve and protect bank
subsidiaries in situations where additional investments in a troubled bank may
not otherwise by warranted. As a result, a bank holding company may be required
to loan money to its subsidiaries in the form of capital notes or other
instruments which qualify as capital under regulatory rules. Any loans from the
holding company to a subsidiary bank would likely be unsecured and subordinated
to such bank's depositors, and perhaps to other creditors of the bank.
The Federal Reserve, the OCC and the FDIC collectively have extensive
enforcement authority over depository institutions and their holding companies,
and this authority has been enhanced substantially by FIRREA. This enforcement
authority includes, among other things, the ability to assess civil money
penalties, to issue cease and desist or removal orders, to initiate injunctive
actions, and, in extreme cases, to terminate deposit insurance. In general,
these enforcement actions may be initiated for violations of laws and
regulations and unsafe or unsound practices. Other actions or inactions may
provide the basis for enforcement action, including misleading or untimely
reports filed with the federal banking agencies. FIRREA significantly increased
the amount of and grounds for civil money penalties and generally requires
public disclosure of final enforcement actions.
In 1991, the Federal Deposit Insurance Corporation Improvement Act (the
"FDICIA") was enacted. Some of the more significant provisions of the FDICIA
are outlined below:
(1) BIF Recapitalization - The deposits of the Company's subsidiary bank
are insured by the FDIC through the Bank Insurance Fund. The FDIC is
authorized to charge assessments for deposit insurance, and, as
mandated by FDICIA, the FDIC adopted regulations effective January 1,
1993 for the transition from a flat-rate insurance assessment system
to a risk-based system effective January 1, 1994. The risk assessment
approach bases a banking institution's insurance assessment on three
factors: the probability that the applicable insurance fund will
incur a loss from the institution; the likely amount of the loss; and
the revenue needs of the insurance fund. To arrive at a risk
assessment for an institution, the FDIC will place it in one of nine
risk categories using a two-step process based first on capital ratios
and then on other relevant information. The FDIC will then assign an
institution to one of three capital groups - "well-capitalized",
"adequately capitalized" or "undercapitalized". The institution is
then placed into one of three risk subgroups, based on reviews by the
institution's primary Federal or state regulatory agency, statistical
analyses of financial statements and other relevant information.
Under federal law, BIF is statutorily required to be recapitalized to
a 1.25% of insured reserve deposits ratio. In view of the BIF's
achieving the 1.25% ratio during 1995, the FDIC reduced the
assessments for most banks by adopting a new assessment rate schedule
of 4 to 31 basis points for BIF deposits. This schedule applied to
the second half of 1995. Under the schedule, approximately 91% of BIF
members paid the lowest assessment rate of 4 basis points. Most
recently, the FDIC has voted to further reduce the BIF assessment
schedule by an additional four basis points for the first half of
calendar year 1996 so that most BIF members will pay the statutory
minimum semiannual assessment of $1,000. Based on notices from the
regulators in late
<PAGE>
1995, in the first half of 1996 the Bank will pay an assessment
of $1,000, the lowest amount payable by an insured depository
institution.
(2) Supervisory Reforms - FDICIA requires the federal banking agencies and
the FDIC, as insurer, to take prompt action to resolve problems within
unhealthy banking institutions. All depository institutions are
classified into one of five categories ranging from well-capitalized
to critically undercapitalized. As an institution's capital level
declines, it becomes subject to increasing regulatory scrutiny and
tighter restrictions on operations, management and capital
distributions. Based on the current regulatory capital position of
the Bank, the Company does not anticipate any adverse consequences
from these provisions. See Note 14 in the Notes to the Financial
Statements (page 35 & 36) in the Company's 1995 Annual Report for
further discussion.
FDICIA further requires an increase in the frequency of "full-scope,
on-site" examinations and expands the current audit requirements. In
addition, federal banking agencies are mandated to review and
prescribe uniform accounting standards that are at least as stringent
as generally accepted accounting principles.
(3) Deposit Institution Conversions - FDICIA permits the merger or
acquisition of any depository institution with any other, provided
that the transaction is approved by the resulting entity's appropriate
Federal banking agency. This would permit, for the first time, direct
mergers between bank and thrift institutions.
(4) Operational Standards - The federal bank regulatory agencies
prescribed minimum standards with respect to various areas of
operations, including internal controls, loan documentation, credit
underwriting, asset quality, earnings, compensation arrangements and,
to the extent feasible, minimum ratios of market to book value for
shares of publicly traded companies. Institutions failing to meet the
operational standards are required to submit corrective plans and will
be subject to sanctions for failure to submit or comply with a plan.
Another regulation to which the Company and the Bank are subject is
the Community Reinvestment Act of 1977 ("CRA"). This requires each federal
banking agency, including the OCC, to use its authority when examining financial
institutions to encourage institutions to meet the credit needs of their local
communities, consistent with safe and sound operations. As part of the
examination of a national bank, the OCC assesses the Bank's performance under
the CRA and assigns one of four ratings to the Bank, reflecting the Bank's
record of meeting community credit needs. A financial institution's CRA rating
is taken into account by the appropriate agency in evaluating certain
applications by the institution, including applications to merge with or acquire
another institution and applications to establish branch offices. In addition,
members of the general public may oppose a transaction requiring regulatory
approval on the ground that the applicant has an inadequate record of meeting
community credit needs.
In a more indirect manner than the regulations previously discussed,
the monetary and fiscal policies of
<PAGE>
regulatory authorities, including the Federal Reserve, also affect the banking
industry. Through changes in the reserve requirements against bank deposits,
open market operations in U.S. Government securities and changes in the discount
rate on bank borrowings, the Federal Reserve influences the Bank's cost and
availability of funds obtained for lending and investing.
Because of concerns relating to the competitiveness and the safety and
soundness of the industry, Congress is considering, even after the enactment of
FIRREA and FDICIA, a number of wide-ranging proposals for altering the
structure, regulation and competitive relationships of the nation's financial
institutions. Among such bills are proposals to prohibit banks and bank holding
companies from conducting certain types of activities, to subject banks to
increased disclosure and reporting requirements, to merge BIF and Savings
Association Insurance Funds, to require savings associations to become banks, to
alter the statutory separation of commercial and investment banking and to
further expand the powers of banks, bank holding companies and competitors of
banks. It cannot be predicted whether or in what form any of these proposals
will be adopted or the extent to which the business of the Company may be
affected thereby.
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" ("Statement 114") which prescribes the recognition
criterion for loan impairment and the measurement methods for certain impaired
loans and loans whose terms are modified in troubled debt restructuring (a
"restructured loan"). Statement 114, as amended by Statement 118, is effective
for financial statements issued for fiscal years beginning after December 15,
1994 (as of January 1, 1995 for the Company). The adoption of Statement 114 has
had no material impact on the financial condition or results of operations of
the Company.
FINANCIAL INFORMATION
- ---------------------
PORT ST. LUCIE NATIONAL BANK
HOLDING CORP.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Shareholders
Port St. Lucie National Bank Holding Corp.:
We have audited the accompanying consolidated balance sheets of Port St. Lucie
National Bank Holding Corp. and subsidiaries as of December 31, 1995 and 1994
and the related consolidated statements of earnings, shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Port St. Lucie
National Bank Holding Corp. and subsidiaries as of December 31, 1995 and 1994
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
October 1, 1995, the Company changed its method of accounting for mortgage
servicing rights to conform with Statement of Financial Accounting Standards No.
122.
/s/ KPMG Peat Marwick LLP
February 16, 1996
West Palm Beach, Florida
<PAGE>
PORT ST. LUCIE NATIONAL BANK HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994
--------- --------
Assets
<S> <C> <C>
Cash and due from banks (note 2) $ 4,051 2,742
Federal funds sold 4,200 ---
Investment securities available for sale (note 4) 17,260 17,344
Loans held for sale, net of deferred loan
origination fees (estimated market values of
$5,919 in 1995 and $722 in 1994) 5,835 712
Investment securities held to maturity (estimated
market values of $3,947 in 1995 and $10,176
in 1994) (note 3) 3,897 10,659
Loans (note 5) 77,498 62,714
Less: Allowance for loan losses (827) (699)
Net deferred loan origination fees and costs (76) (187)
--------- ---------
Net loans 76,595 61,828
Other real estate owned (note 7) --- 217
Premises and equipment, net (note 8) 1,181 965
Other assets 1,514 1,836
--------- ---------
Total assets $ 114,533 96,303
========= =========
Liabilities and Shareholders' Equity
- ------------------------------------
Liabilities:
Deposits:
Noninterest bearing demand $ 20,011 16,215
Interest bearing:
Demand 7,996 10,636
Money market 5,680 7,196
Savings 21,117 6,427
Time (note 9) 49,429 46,209
--------- ---------
Total deposits 104,233 86,683
Federal funds purchased --- 900
Other liabilities 1,345 1,329
--------- ---------
Total liabilities 105,578 88,912
--------- ---------
Commitments and contingencies (notes 8, 13 and 14)
Shareholders' equity (notes 10 and 11):
Common stock, $.01 par value, authorized
10,000,000 shares; issued and outstanding
672,352 shares in 1995 and 610,379 shares
in 1994 7 6
Additional paid-in capital 7,027 6,165
Retained earnings 2,084 1,992
Unrealized gains (losses) on investment
securities available for sale (net
of applicable income taxes) (163) (772)
--------- ---------
Total shareholders' equity 8,955 7,391
--------- ---------
Total liabilities and shareholders'
equiy $ 114,533 96,303
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
PORT ST. LUCIE NATIONAL BANK HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 1995, 1994 and 1993
(Amounts in Thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Loans, including fees:
Taxable loans $ 5,939 3,611 2,482
Tax-exempt loans 37 41 11
Loans held for sale 212 216 123
Investment securities (notes 3):
Taxable investment securities 402 335 1,344
Tax-exempt investment securities 162 149 75
Investment securities available for sale 1,188 1,331 237
Federal funds sold 169 37 60
--------- --------- ----------
Total interest income 8,109 5,720 4,332
Interest expense:
Deposits (note 9) 4,114 2,049 1,608
Other 50 113 4
--------- --------- ----------
Total interest expense 4,164 2,162 1,612
--------- --------- ----------
Net interest income 3,945 3,558 2,720
Provision for loan losses (note 5) 206 163 167
--------- --------- ----------
Net interest income after provision
for loan losses 3,739 3,395 2,553
--------- --------- ----------
Noninterest income:
Service charge on deposit accounts 578 421 339
Gain on sale of loans held for sale 323 49 341
(Loss) gain on sale of investment securities
available for sale (59) 12 28
(Loss) gain on sale of real estate owned (13) 6 ---
Other fees for customer services 342 268 176
--------- --------- ----------
Total noninterest income 1,171 756 884
--------- --------- ----------
Noninterest expense:
Compensation and employee benefits 1,690 1,194 1,022
Occupancy 304 211 194
Furniture and equipment 214 117 91
Other (note 12) 1,312 1,157 973
--------- --------- ----------
Total noninterest expense 3,520 2,679 2,280
--------- --------- ----------
Income before income taxes 1,390 1,472 1,157
Income tax expense (note 11) 443 471 409
--------- --------- ----------
Net income $ 947 1,001 748
========= ========= ==========
Net income per common and common equivalent
share:
Primary $ 1.28 1.40 1.06
Fully diluted 1.27 1.39 1.06
Average common and equivalent shares
outstanding:
Primary 740 716 712
Fully diluted 747 720 712
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
Port St. Lucie National Bank Holding Corp. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1995, 1994 and 1993
(Amounts in Thousands)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
on Investment
Common Stock Additional Securities Total
------------ Paid-in Retained Available Shareholders'
Shares Amount Capital Earnings for Sale Equity
------ ------ ---------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 607 $ 6 6,125 488 --- 6,619
Dividends paid --- --- --- (61) --- (61)
Net income --- --- --- 748 --- 748
Unrealized gains on investment
securities available for sale,
net of tax --- --- --- --- 110 110
------ ------- ------- ------- -------- --------
Balance at December 31, 1993 607 6 6,125 1,175 110 7,416
Exercised Options 3 --- 40 --- --- 40
Dividends paid --- --- --- (184) --- (184)
Net income --- --- --- 1,001 --- 1,001
Unrealized losses on investment
securities available for sale,
net of tax --- --- --- --- (882) (882)
------ ------- ------- ------- -------- --------
Balance at December 31, 1994 610 6 6,165 1,992 (772) 7,391
Exercised Options and warrants 1 --- 8 --- --- 8
10% Common Stock dividend 61 1 854 (855) --- ---
Net income --- --- --- 947 --- 947
Unrealized gains on investment
securities available for sale,
net of tax --- --- --- --- 609 609
------ ------- ------- ------- -------- --------
Balance at December 31, 1995 672 $ 7 7,027 2,084 (163) 8,955
====== ======= ======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Port St. Lucie National Bank Holding Corp. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 947 1,001 748
Adjustments to reconcile net income to net cash provided (used) from
operating activities:
Provision for loan losses 206 163 167
Depreciation 198 131 117
Amortization of organization costs --- 6 25
Loss (gain) on sale of investment securities available for sale 59 (12) 28
Deferred loan origination fees and costs, net of amortization (111) 142 107
Purchase of loans held for sale (39,065) (53,152) (40,836)
Origination of loans held for sale (16,716) (2,053) (15,556)
Proceeds from the sale of loans held for sale 50,658 60,289 51,807
Deferred income taxes (62) 90 (18)
Increase in other assets (181) (288) (146)
Increase (decrease) in other liabilities (176) 38 191
Increase (decrease) in taxes payable 254 (195) 91
-------- ------- -------
Net cash (used) provided from operating activities (3,989) 6,160 (3,275)
-------- ------- -------
Cash flow from investing activities:
Proceeds from maturities of investment securities held to maturity 1,039 --- 3,731
Purchase of investment securities held to maturity (86) (4,762) (8,012)
Proceeds from sale of investment securities held to maturity --- --- 13
Purchase of investment securities available for sale (5,934) (4,521) (11,084)
Proceeds from maturities of investment securities available for sale 3,490 4,069 5,189
Proceeds from sale of investment securities available for sale 9,253 7,077 3,000
Loans originated, net of repayments (25,255) (23,887) (10,423)
Loans purchased --- --- (174)
Proceeds from the sale of loans 10,659 --- ---
Purchase of premises and equipment (414) (195) (75)
Proceeds from sale of other real estate owned 88 8 67
-------- ------- -------
Net cash used by investing activities (7,160) (22,211) (17,768)
-------- ------- -------
Cash flow from financing activities:
Net increase in deposit accounts 17,550 14,911 20,385
Increase (decrease) in federal funds purchased (900) 900 ---
Issuance of common stock 8 40 ---
Dividends paid --- (184) (61)
-------- ------- -------
Net cash provided by financing activities 16,658 15,667 20,324
-------- ------- -------
Net increase (decrease) in cash and cash equivalents 5,509 (384) (719)
Cash and cash equivalents at beginning of period 2,742 3,126 3,845
-------- ------- -------
Cash and cash equivalents at end o$ $ 8,251 2,742 3,126
======== ======= =======
Supplemental disclosures:
Cash paid during the period for:
Income taxes $ 236 576 241
Interest 4,193 2,139 1,451
Noncash investment and financing activities:
Reclassification of loans to other real estate owned --- 90 6
Assumption of liabilities in connection with acquisiton of other
real estate owned --- 102 ---
Loans to facilitate the sale of other real estate owned 123 57 303
Unrealized gain (loss) on investments available for sale, net of tax effect 609 (882) 110
Reclassification of investments held to maturity to investments
available for sale 5,809 --- ---
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
PORT ST. LUCIE NATIONAL BANK HOLDING CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(Dollars in Thousands)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
GENERAL
Port St. Lucie National Bank Holding Corp. (the Company) is a one bank holding
company whose subsidiaries consist of Port St. Lucie National Bank (the Bank)
and Spirit Mortgage Corp. (Spirit Mortgage).
The Bank provides a wide range of banking services to individual and corporate
customers primarily in St. Lucie County, Florida. The Bank is subject to
competition from other financial institutions. Spirit Mortgage primarily
provides mortgage banking services outside of the market in which the Bank
operates. Spirit Mortgage began operations in February, 1995, reflecting 11
months of operations in the statement of earnings. The Company and the Bank are
subject to regulations of certain federal agencies and undergo periodic
examinations by these regulatory authorities.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. Intercompany transactions and balances have been
eliminated in consolidation.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accounting and reporting policies of the Company conform with generally
accepted accounting principles and with reporting guidelines as prescribed by
banking regulatory authorities. In preparing the consolidated financial
statements, 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 revenues and expenses for the period. Actual results could differ
significantly 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
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance
for loan losses and real estate owned, management obtains independent appraisals
for significant properties.
Substantially all of the Company's real estate loans and real estate owned are
secured by real estate in St. Lucie and Martin Counties, Florida. Accordingly,
the ultimate collectibility of the carrying amount of real estate loans and real
estate owned is susceptible to changes in market conditions in St. Lucie and
Martin Counties, Florida.
Management believes the allowance for losses on loans and real estate owned are
adequate. While management uses available information to recognize losses on
loans and real estate owned, future additions to the allowances may be necessary
based on changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Company's allowances for losses on loans and real estate owned. Such
agencies may require the Company to recognize additions to the allowances based
on their judgements about information available to them at the time of their
examination.
CASH AND CASH EQUIVALENTS
The Company defines cash and cash equivalents as: cash on hand, amounts due from
banks and Federal Reserve, and highly liquid investments purchased with a
remaining maturity of three months or less at time of purchase, including
federal funds sold.
LOANS
Loans receivable are stated at unpaid principal balance, less the allowance for
loan losses and net deferred loan origination fees and costs.
Interest is accrued only if deemed collectible. Generally, the Company's policy
is to discontinue the accrual of interest on loans delinquent over ninety days
unless fully secured and in the process of collection. The accrued and unpaid
interest is reversed from
<PAGE>
income, and thereafter, interest is recognized only to the extent payments are
received. A nonaccrual loan may be restored to accrual basis when interest
and principal payments are current and prospects for future recovery are no
longer in doubt.
The allowance for loan losses represents the cumulative total of monthly
provisions for loan losses, less net charge-offs (charge-offs minus recoveries).
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged-off against the allowance when management
believes the collectibility of principal is unlikely.
Recoveries of amounts previously charged-off are credited to the allowance. The
allowance for loan losses is based on management's judgement after considering
all known and inherent risks in the portfolio diversification and size within
the loan portfolio, status and level of non-performing assets, past and expected
loss experience, adverse situations that may affect the borrower's ability to
repay, assumed values of the underlying collateral securing the loans, current
and prospective financial condition of the borrower, and the prevailing and
anticipated economic condition of the market.
The Bank adopted the provisions of Statement of Financial Accounting Standard
No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by
Statement of Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure," ("SFAS No. 114")
on January 1, 1995. The provision of SFAS No. 114 did not have a significant
impact on financial condition or results of operations upon adoption.
Management, considering current information and events regarding the borrowers'
ability to repay their obligations, considers a loan to be impaired when it is
probable that the Bank will be unable to collect all amounts due according to
the contractual terms of the loan agreement. When a loan is considered to be
impaired, the amount of the impairment is measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or
at the fair value of collateral. Impairment losses and changes in estimates to
the impairment losses are included in the allowance for loans losses through a
provision or credit for loan losses. The Bank recognized interest income on
impaired loans on a cash basis.
LOAN ORIGINATION AND COMMITMENT FEES
Loan origination and commitment fees and certain direct loan origination costs
are deferred and recognized over the term of the related loans as a yield
adjustment using the level-yield method (loan-by-loan basis). Amortization of
deferred fees and costs is discontinued when collectability of the related loan
is deemed uncertain. Fees and direct loan origination costs for unexercised
commitments are recognized in income upon expiration of the commitment.
MORTGAGE SERVICING RIGHTS, NET
During May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights an amendment of SFAS No. 65," ("SFAS No. 122").
Effective October 1, 1995, the Company elected to adopt early SFAS 122 which
requires the recognition, as a separate asset, of the right to service mortgage
loans for others. The Company acquires mortgage servicing rights through the
origination of mortgage loans, and the Company sells or securitizes those loans
with servicing rights retained. Under SFAS 122, the Company allocates the total
cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair value.
Under SFAS 122, the Company assesses its capitalized mortgage servicing rights
for impairment based on the fair value of those rights as of the year ended
December 31. The portfolio is stratified by two predominant risk
characteristics: loan type and fixed versus variable interest rate. Impairment,
if any, is recognized through a valuation allowance for each impaired stratum.
Mortgage servicing rights are amortized in proportion to, and over the period
of, the estimated net future servicing income.
Prior to October 1, 1995, the Company had not purchased the rights to service
loans and consequently, had not recognized mortgage servicing rights as an
asset.
LOANS HELD FOR SALE
Loans held for sale in the secondary market are carried at the lower of cost or
estimated aggregate market value.
INVESTMENT SECURITIES
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115), has been implemented by
the Bank effective December 31, 1993. SFAS 115 requires classification of
securities into three
<PAGE>
categories. Debt securities that the Bank has the positive intent and ability
to hold to maturity are reported at amortized cost. Debt and equity securities
that are bought and held principally for the purpose of selling them in the
near term are reported at fair value, with unrealized gains and losses included
in earnings. All other debt and equity securities are considered available
for sale and reported at fair value, with unrealized gains and losses excluded
from earnings and reported as a separate component of stockholders' equity
(net of tax effects).
Prior to December 31, 1993, the Bank designated certain investment securities as
held for sale and accounted for such loans at the lower of cost or estimated
market value. Gains and losses from the sale of securities available for sale
are computed under the specific identification method.
On November 15, 1995, the Financial Accounting Standards Board (FASB) issued
Special Report No. 155-B, "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities" (the Special
Report). Pursuant to the Special Report, the Bank was permitted to conduct a
one-time reassessment of the classifications of all securities held at that
time. Any reclassifications from the held to maturity category made in
conjunction with that reassessment would not call into question an enterprise's
intent to hold other debt securities to maturity in the future.
The Bank undertook such a reassessment and, effective December 1, 1995, certain
securities then classified as held to maturity were reclassified as available
for sale. On the effective date of the reclassification, the securities
transferred had a carrying value of $5,809 and a estimated fair value of
$5,821, resulting in a net increase to stockholders' equity for the unrealized
gains of $8, after deducting applicable income taxes of $4.
OTHER REAL ESTATE OWNED
Real estate acquired through foreclosure, insubstance foreclosure and deed in
lieu of foreclosure is recorded at the lower of cost or fair value minus
estimated costs to sell. Sales are recorded at closing and profit recognized
when down payment and other profit recognition criteria are met in accordance
with SFAS No. 66, "Accounting for Sales of Real Estate".
Valuations of real estate owned are periodically performed by management through
current appraisals and if the carrying value of a property exceeds fair value
minus estimated costs to sell, an allowance is established by a charge to
operations. The amounts the Bank could ultimately recover from loans foreclosed
could differ materially from amounts used in arriving at the net carrying value
of the asset because of market factors beyond the Company's control or changes
in the Company's strategy for recovering its investments.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation is provided on the straight-line method over the
estimated useful lives of the related assets. Estimated lives are three to ten
years for furniture and equipment and three to twenty years for land
improvements and buildings. Leasehold improvements are amortized on the
straight-line method over the shorter of the anticipated lease term or estimated
useful lives. Gains and losses on dispositions are reflected in current
operations. Maintenance and repairs are charged to expense as incurred.
Improvements and betterments that prolong the useful life of assets are
capitalized.
In 1995, the FASB issued Statement of Financial Accounting Standard SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." ("FAS 121"). FAS 121 requires that long-lived assets
and certain identifiable intangible to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review
for recoverability, the entity should estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of
the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment loss for long-lived assets and identifiable
intangibles that an entity expects to hold and use should be based on the fair
value of the asset. FAS 121 is effective for financial statements for fiscal
years beginning after December 15, 1995. Earlier application is encouraged.
Management is of the opinion that adoption of FAS 121 will not have a material
effect on Consolidated Balance Sheet or Consolidated Statement of Earnings upon
adoption on January 1, 1996.
INCOME TAXES
The Company files a consolidated Federal income tax return.
The Company follows the asset and liability method of accounting for income
taxes. Under this method, deferred income taxes are
<PAGE>
recognized for the future tax consequences attributable to differences between
the financial statement carrying amount of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
by using enacted statutory rates expected to apply to taxable income. The
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.
EARNINGS PER SHARE
Primary earnings per common share and common equivalent amounts are based on the
average number of common shares outstanding assuming exercise of all stock
options and warrants using the treasury stock method. On a fully diluted basis,
the market price at the end of the period reported has been used to determine
the number of shares which would be assumed to be repurchased under the treasury
stock method.
In February 1995, a 10% stock dividend was declared. All references to the
number of shares of common stock and per share data in the financial statement
have been adjusted to reflect the stock dividend on a retroactive basis, except
shares authorized and outstanding on the consolidated balance sheets and
statements of shareholders' equity.
On October 23, 1995, the FASB issued Statement No. 123, "Accounting for Stock-
Based Compensation" ("FAS 123"). This Statement applies to all transactions in
which an entity acquires goods or services by issuing equity instruments or by
incurring liabilities where the payment amounts are based on the entity's common
stock price. The Statement covers transactions with employees and non-employees
and is applicable to both public and non-public entities. Entities are allowed
(1) to continue to use the Accounting Principles Board Opinion No. 25 method
("APB 25"), or (2) to adopt the FAS 123 fair value based method. Once the
method is adopted, an entity cannot change and the method selected applies to
all of an entity's compensation plans and transactions. For entities not
adopting the FAS 123 fair value based method, FAS 123 requires pro forma net
income and earnings per share information as if the fair value based method has
been adopted. For entities not adopting the fair value based method, the
disclosure requirements of FAS 123, including the pro forma information, are
effective for financial statements for fiscal years beginning after December 15,
1995 (calendar year 1996). The pro forma disclosures are to include all awards
granted in fiscal years that begin after December 15, 1994 (calendar year 1995).
Management intends to continue to use APB 25 and disclose the pro forma net
income and earnings per share information in the December 31, 1996 and
subsequent consolidated financial statements.
RECLASSIFICATION
Certain amounts in 1994 and 1993 consolidated financial statements have been
reclassified to conform with the 1995 presentation.
(2) CASH AND DUE FROM BANKS
-----------------------
The Bank is required to maintain certain daily reserve balances in accordance
with Federal Reserve Board guidelines. Cash on hand and a due from balance with
the Federal Reserve fulfill this requirement. The Bank has maintained
sufficient cash balances with the Federal Reserve Bank to fulfill the reserve
requirement.
(3) INVESTMENT SECURITIES HELD TO MATURITY
--------------------------------------
The amortized cost and estimated fair value of investment securities held to
maturity are as follows:
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Municipal securities $3,348 57 7 3,398
------ ---- ---- -----
Total debt securities 3,348 57 7 3,398
Federal Home Loan Bank stock 399 -- -- 399
Federal Reserve stock 150 -- -- 150
------ ---- ---- -----
Total securities $3,897 57 7 3,947
====== ==== ==== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1994
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 3,834 -- 217 3,617
Securities of other U.S.
Government agencies 3,000 -- 95 2,905
Municipal securities 3,362 -- 171 3,191
------- ---------- ----- ------
Total debt securities 10,196 -- 483 9,713
Federal Home Loan Bank stock 313 -- -- 313
Federal Reserve stock 150 -- -- 150
------- ---------- ----- ------
Total securities $10,659 -- 483 10,176
======= ========== ===== ======
</TABLE>
The amortized cost and estimated fair value of debt securities at December 31,
1995 by contractual 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.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- -----
<S> <C> <C>
Due within one year $ 372 368
Due after one year
through five years 1,593 1,627
Due after five years
through ten years 1,144 1,153
Due after ten years 239 250
------- -----
$ 3,348 3,398
======= =====
</TABLE>
The interest and dividends on investment securities held to maturity for 1995,
1994 and 1993 are shown below:
1995 1994 1993
----- ---- -----
U.S. Treasury securities $ 192 204 486
Securities of other U.S.
Government agencies 172 103 438
FNMA/FHLMC mortgage
backed securities -- -- 405
Municipal securities 162 149 75
Federal Reserve & Federal
Home Loan Bank Stock 38 28 15
----- ---- -----
$ 564 484 1,419
===== ==== =====
There were no sale of investment securities held to maturity in 1995, 1994 or
1993. However, as noted in Note 1, the Bank transferred certain securities held
to maturity to securities available for sale on December 1, 1995 (see note 4).
At December 31, 1995 and 1994, investment securities held to maturity with an
amortized cost of $2,480 and $3,957, respectively, and a market value of $2,523
and $3,721, respectively, were pledged as collateral for municipal deposits.
The Company became a member of the Federal Home Loan Bank of Atlanta (FHLB) in
June 1993. As a requirement of membership, Federal Home Loan Bank stock of $399
has been purchased. As a result of membership in the FHLB, the Company was
approved for $19,000 in aggregate borrowings collateralized by a blanket lien on
the residential mortgage loan portfolio.
(4) INVESTMENT SECURITIES AVAILABLE FOR SALE
----------------------------------------
The amortized cost and estimated fair value of the investment securities
available for sale at December 31, 1995 and 1994, are as follows:
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 3,807 16 8 3,815
Securities of other U.S.
Government agencies 3,059 12 17 3,054
FHLMC/FNMA mortgage
backed securities 10,655 27 291 10,391
------- -- ----- ------
Total securities $17,521 55 316 17,260
======= == ===== ======
December 31, 1994
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ---------
Securities of other U.S.
Government agencies $ 8,178 2 518 7,662
FHLMC/FNMA mortgage
backed securities 10,403 - 721 9,682
------- ---- ----- ------
Total securities $18,581 2 1,239 17,344
======= ==== ===== ======
</TABLE>
The amortized cost and estimated fair value of debt securities available for
sale at December 31, 1995 by contractual 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.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- ------
<S> <C> <C>
Due after one year
through five years $ 6,866 6,869
------- ------
Mortgage backed securities 10,655 10,391
------- ------
$17,521 17,260
======= ======
</TABLE>
The interest and dividends on investment securities available for sale for 1995,
1994 and 1993 are shown on the following page:
<TABLE>
<CAPTION>
1995 1994 1993
------- ----- ----
<S> <C> <C> <C>
U.S. Treasury securities $ 18 150 --
Securities of other U.S.
Government agencies 432 536 53
FNMA/FHLMC mortgage
backed securities 738 645 184
------ ----- ----
$1,188 1,331 237
====== ===== ====
</TABLE>
Proceeds from sales of investment securities available for sale were $9,253,
$7,077 and $3,028 in 1995, 1994 and 1993, respectively. During 1995, $59 in
losses were realized from the sale of investment securities available for sale.
During 1994, $12 in gains were realized from the sale of investment securities
available for sale. In 1993, net realized gains totaled $28.
At December 31, 1995 and 1994, investment securities available for sale with an
amortized cost of $4,399 and $4,494, respectively, and a fair value of $4,388
and $4,216, respectively, were pledged as collateral for municipal deposits.
At December 31, 1995,1994 and 1993, in accordance with the provisions of FAS
115, the Company adjusted, through stockholders' equity, the carrying value of
investment securities available for sale to estimated fair value. Such
adjustments amounted to $609, $(882) and $110, which represent the gross
unrealized gains (losses) of $1,076, ($1,237) and $176, respectively, net of
applicable income taxes.
<PAGE>
(5) LOANS
-----
An analysis of loans follows:
<TABLE>
<CAPTION>
December 31,
----------------
1995 1994
------- -------
<S> <C> <C>
Real Estate:
Construction $ 4,952 4,771
Loans on primary residences 38,015 33,645
Other 12,665 9,730
Commercial 10,075 6,634
Loans to individuals:
Installment 11,120 6,424
Other personal and business 671 710
Tax exempt loans -- 800
------- ------
$77,498 62,714
======= ======
</TABLE>
At December 31, 1995 and 1994, real estate-construction loans were comprised of
$3,686 and $3,580, respectively, in single family residential loans and $1,266
and $1,191, respectively, in commercial real estate loans.
An analysis of the allowance for loan losses follow:
<TABLE>
<CAPTION>
1995 1994 1993
------ ----- -----
<S> <C> <C> <C>
Balance at beginning of year $ 699 618 480
Provision charged to expense 206 163 167
Allowance applicable to
loans purchased -- -- 9
Loans charged-off (85) (86) (51)
Recoveries 7 4 13
----- ---- ----
Balance at end of year $ 827 699 618
===== ==== ====
</TABLE>
At December 31, 1995, there were 13 impaired loans with a balance of $405 on
nonaccrual. No specific allowances have been provided for these loans. The
average net recorded investment in impaired loans for the year ended December
31, 1995 was $371. Interest income of $13 for the year ended December 31, 1995
was recognized on impaired loans during the period of impairment. Loans on
nonaccrual status at December 31, 1995 had interest due but not recognized of
approximately $31. At December 31, 1994, there were four loans with a balance
of $76 on nonaccrual, one loan totaling $170 over 90 days past due on accrual.
There were no restructured loans at December 31, 1995 and 1994.
Interest income on tax exempt loans aggregated approximately $37 in 1995 and $41
in 1994.
At December 31, 1995 and 1994, the Company was servicing a residential mortgage
loan portfolio for the Federal National Mortgage Association (FNMA) totaling
$38,124 and $27,288, respectively.
(6) MORTGAGE SERVICING RIGHTS, NET
------------------------------
The following is an analysis of the mortgage servicing rights, net:
<TABLE>
<CAPTION>
1995 1994
------- ----
<S> <C> <C>
Balance at beginning of year $ -- --
Origination of mortgage
servicing rights 105 --
Amortization (3) --
----- ----
$ 102 --
===== =====
</TABLE>
The fair value of capitalized mortgage servicing rights was estimated using a
discounted cash flow model in 1995. Prepayment speed projections and market
assumptions regarding discount rate, servicing cost, escrow earnings credits,
payment float and advance cost interest rates were determined from guidelines
provided by a third-party mortgage servicing rights broker.
<PAGE>
<TABLE>
<CAPTION>
December 31,
--------------
1995 1994
-------- ----
<S> <C> <C>
Mortgage servicing rights $ 102 --
======= ====
Unpaid principal balance of
serviced loans for which
mortgage servicing rights are
capitalized $11,570 --
======= ====
Unpaid principal balance of
serviced loans for which there
are no servicing rights
capitalized $60,326 --
======= ====
</TABLE>
(7) OTHER REAL ESTATE OWNED
-----------------------
Other real estate owned at December 31, 1995 and 1994 follows:
1995 1994
-------- ------
Residential home $ -- 192
Undeveloped residential lot -- 25
-------- ------
$ -- 217
======== ======
(8) PREMISES AND EQUIPMENT
----------------------
Premises and equipment are summarized as follows:
December 31
----------------------
1995 1994
------ -----
Land $ 398 398
Land improvements 93 93
Building 128 128
Leasehold improvements 276 129
Equipment and furniture 1,024 755
------ -----
1,919 1,503
Less accumulated depreciation
and amortization 738 538
------ -----
$1,181 965
====== =====
The Company, as of December 31, 1995, was obligated under various lease
agreements with terms of five, seven and ten years for a portion of its
operating facilities. The Company renewed the five year lease for the main
office facility in 1994, which will now expire in 1999, upon the same terms and
conditions with the exception of a rental increase. The Bank also entered into
a lease agreement in December, 1992 for additional space within the same
building being currently occupied. This lease agreement began January 1, 1993
and corresponds with the expiration of the renewal lease for the main office
facility. The Bank entered into two new lease agreements for a branch office
facility and additional space for administrative offices in March of 1995. The
lease terms are for five and ten years, respectively.
Minimum rental commitments under the lease agreements as of December 31, 1995
were as follows:
<TABLE>
<CAPTION>
Year ending December 31 Amount
- -------------------------- ------
<S> <C>
1996 $149
1997 149
1998 149
1999 85
2000 49
2001 and thereafter 186
----
$767
====
</TABLE>
<PAGE>
Rental expense under the lease agreements was $177, $105 and $95 for years 1995,
1994 and 1993, respectively.
(9) DEPOSITS
--------
Time deposits of $100 or more as of December 31, 1995 and 1994 aggregated $9,555
and $10,975, respectively. Interest expense on time deposits of $100 or more
for 1995, 1994 and 1993 aggregated $699, $299 and $197, respectively.
(10) SHAREHOLDERS' EQUITY
--------------------
(Share and per share data not in thousands)
The Company has an employee incentive stock option plan which provides for the
issuance of up to 58,300 shares of common stock. Options granted under the plan
will have an exercise price of not less than fair market value at the date
options first become exercisable and will be exercisable during a fixed term,
not to exceed ten years after the grant date. In the event options under the
plan are granted to an individual owning more than 10 percent of the Company's
common stock, the option price will be 110 percent of fair market value at the
date of grant and must be exercised within five years. The exercise of options
is dependent upon certain annual limitations. In the event of employment
termination, other than death, options expire after three months of termination.
Options to purchase 57,167 shares of common stock have been awarded under the
plan to key employees of the Company of which 50,490 are outstanding at December
31, 1995 and 6,677 have been issued. The options to purchase shares are
exercisable as follows:
<TABLE>
<CAPTION>
Exercise Price Per
Shares Option
-------- ---------
<S> <C> <C>
Prior to 1990 7,150 $ 9.09
1990 7,150 9.55
1991 7,590 9.55
1992 7,150 9.77
1993 7,150 10.00
1994 4,125 11.91
1995 5,775 16.13
1996 3,575 *
1997 825 *
------
50,490
======
</TABLE>
* Option prices per share are determined by the greater of fair market value of
the common stock when the options first become exercisable or for $9.09 per
share.
The stock options expire over various periods as follows: 2,640 shares in 1996
and 47,850 in 1999. As of December 31, 1995, 1,133 options were available for
grant under the plan.
The ability of the Company to pay dividends to shareholders depends on the
Company's profitability and other factors and is restricted by Federal banking
regulations. As of December 31, 1995, the Company could distribute as dividends
to shareholders as much as its retained earnings less dividends paid without
prior approval from the Federal Reserve Bank. Within Federal banking
regulations, the Company paid a cash dividend of 10.0 cents per share in March
1993, and 30.0 cents per share in March 1994. In February of 1995, the Company
issued a stock dividend in the amount of 10.0 percent.
In connection with the initial common stock offering, organizers were granted
warrants expiring in April 1999 to purchase 137,500 shares of common stock at
$9.09 per share. The warrants are exercisable through April 1999. As of
December 31, 1995, 275 warrants have been exercised.
(11) INCOME TAXES
------------
Income tax expense (benefit) consists of:
<PAGE>
<TABLE>
<CAPTION>
Current Deferred Total
------- --------- -----
<S> <C> <C> <C>
1995:
Federal $448 (53) 395
State 57 (9) 48
---- --- ---
$505 (62) 443
==== === ===
1994:
Federal 325 76 401
State 56 14 70
---- --- ---
$381 90 471
==== === ===
1993:
Federal 368 (6) 362
State 59 (12) 47
---- --- ---
$427 (18) 409
==== === ===
</TABLE>
Total income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 34% for 1995, 1994 and 1993 to pre-tax income as
shown on the table on the following page.
<TABLE>
<CAPTION>
1995 1994 1993
------ ----- -----
<S> <C> <C> <C>
Computed "expected" tax
expense $ 473 500 393
Reduction in income
taxes resulting from:
Change in the beginning-
of-the-year balance of the
valuation allowance for
deferred tax assets allocated
to income tax expense -- -- (12)
Tax-exempt interest
income, net (51) (65) (29)
State income taxes, net of
federal income tax benefit 32 46 42
Other, net (11) (10) 15
----- ---- ----
$ 443 471 409
===== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1995 and
1994 are presented below.
<TABLE>
<CAPTION>
1995 1994
----- ----
<S> <C> <C>
Deferred tax assets:
Loans receivable, principally due to
difference in allowance for loan loss $ 269 192
Accrued interest payable, principally
due to difference in recognizing
expense -- 230
Unrealized loss on securities available
for sale 98 465
Other 57 41
----- ----
Total gross deferred tax assets 424 928
Less valuation allowance -- --
----- ----
Net deferred tax assets 424 928
----- ----
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Deferred tax liabilities:
Premises and equipment, principally
<S> <C> <C>
due to differences in depreciation 29 28
Receivables, principally due to
differences in recognizing
income 184 305
Other 12 91
---- ---
Total gross deferred tax liabilities 225 424
---- ---
Net deferred tax assets $199 504
==== ===
</TABLE>
(12) NONINTEREST EXPENSE
-------------------
Other expenses for 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ----- ----
<S> <C> <C> <C>
Advertising and public
relations $ 188 133 90
Data Processing 184 150 130
Professional fees 165 151 113
Stationary, supplies
and printing 119 80 92
FDIC insurance 95 161 123
Postage and freight 81 57 48
Travel and entertainment 66 50 48
Other real estate owned 12 7 16
Miscellaneous expense 402 368 313
------ ----- ----
$1,312 1,157 973
====== ===== ====
</TABLE>
(13) RELATED PARTY TRANSACTIONS
--------------------------
Certain directors and executive officers of the Company and certain corporations
and individuals related to such persons incurred indebtedness, in the form of
loans, as customers. These loans were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other customers and did not involve more than the
normal risk of collectibility.
Following is a summary of activity during 1995 and 1994 for such loans:
<TABLE>
<CAPTION>
1995 1994
-------- ------
<S> <C> <C>
Outstanding loans at the
beginning of the year $1,164 927
Loan origination 727 683
Repayments (468) (446)
------ -----
Outstanding loans at the
end of the year $1,423 1,164
====== =====
</TABLE>
Unused portions of lines of credit to directors, officers, or principal
shareholders as of December 31, 1995 aggregated $820
During 1995 and 1994, the Company incurred $16 and $9, respectively, in expense
to a law firm in which a director is of counsel to the firm. In addition, the
law firm represents the Bank at certain mortgage loan closings with the firm's
fees being paid by the borrower.
The Company leases its main office facility from a corporation controlled by a
director (see note 7).
In 1991, the Company adopted a non-qualified deferred compensation plan which
provides both death and retirement benefits to certain directors. The plan is
unfunded but partially insured. The Company purchases and pays premiums for
life insurance policies on the lives of the participants, with the Company as
beneficiary. These premiums are paid from compensation deferred by the
participants. Expense recognized under the plan was $25 for 1995, $22 for 1994
and $14 for 1993.
<PAGE>
(14) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
-------------------------------------------------
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 include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit, and interest rate risk in excess of the amount recognized in the balance
sheet. The contract or notional amounts of those instruments reflect the extent
of involvement the company has in particular classes of financial instruments.
The following summarizes these instruments at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------- ------
<S> <C> <C>
Financial instruments whose
credit risk is represented
by contract amount:
Commitments to extend credit $13,041 10,424
Standby letters of credit 297 302
------- ------
$13,338 10,726
======= ======
</TABLE>
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 and
standby letters of credit is represented by the contractual notional amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations 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 many 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
creditworthiness 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. Collateral held varies but
may include accounts receivable, inventory, property, plant, and equipment, and
income-producing commercial properties.
Standby letters of credit are written conditional commitments issued by the
Company to guarantee the performance of a customer to a third party and are
normally issued in support of private borrowing. Most standby letters of credit
expire in 1996. The credit risk involved in issuing letters of credit is
essentially the same as the credit risk involved in extending loan facilities to
customers. Unless the standby letters of credit are unsecured, the Company
requires 100% of the standby letters of credit to be collateralized.
(15) FEDERAL DEPOSIT INSURANCE CORPORATION
IMPROVEMENT ACT OF 1991 (FDICIA)
-------------------------------------
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act
of 1991 (FDICIA) became law. While the FDICIA primarily addresses additional
sources of funding for the SAIF and BIF, it also imposes a number of new,
mandatory and discretionary supervisory measures on financial institutions.
The FDICIA requires financial institutions to take certain actions relating to
their internal operations and also imposes certain operational and managerial
standards on financial institutions relating to internal controls, loan
documentation, credit underwriting, interest rate exposure, asset growth and
compensation, fees and benefits.
Furthermore, the FDICIA establishes five capital categories and specifies
supervisory actions in regard to undercapitalized institutions. The regulation,
which became effective December 19, 1992, ties the capital categories to three
capital measures: total risk-based, Tier 1 risk-based and leverage capital.
The definitions of Tier 1 and total capital under the FDICIA are similar to the
definitions under the previously existing capital guidelines, except for the
ratio of tangible equity to total assets used to define critically
undercapitalized.
<PAGE>
The ratios for each category are as follows:
<TABLE>
<CAPTION>
Total Tier 1
risk-based risk-based Leverage
Capital Category ratio ratio ratio
- -------------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
Well capitalized > 10.00% > 6.00% > 5.00%
- - -
Adequately capitalized 8.00-9.99 4.00-5.99 4.00-4.99
Undercapitalized 6.00-7.99 3.00-3.99 3.00-3.99
Significantly undercapitalized 6.00 3.00 2.01-2.99
Critically undercapitalized -- -- 2.00
</TABLE>
At December 31, 1995, the Bank's total risk-based ratio was 12.95%, Tier 1 risk-
based ratio was 11.80% and leverage ratio was 7.46%, based on Tier 1 capital of
$8,508 and leverage capital of $8,508 as defined.
Any adjustments made to shareholders' equity in regard to unrealized gains for
available for sale investment securities, are not included in capital for
regulatory purposes. At this time, it is uncertain as to the impact of these
adjustments to future regulatory capital computations.
The prompt corrective action framework created by the FDICIA establishes a
series of increasingly severe mandatory and discretionary supervisory actions
that would be applied to institutions classified as undercapitalized,
significantly undercapitalized, or critically undercapitalized. Generally, the
FDICIA requires the banking regulator to appoint a receiver or conservator for
an institution that is critically undercapitalized within 90 days (with
extensions up to one year) and appoint a receiver within one year of becoming
critically undercapitalized (with a very narrow exception).
(16) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
---------------------------------------------
The information set forth below provides disclosure of the estimated fair value
of the Company's financial instruments presented in accordance with the
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" ("SFAS 107") issued by
the FASB.
Management has made estimates of fair value discount rates that it believes to
be reasonable. However, because there is no market for many of these financial
instruments, management has no basis to determine whether the fair value
presented would be indicative of the value negotiated in an actual sale. The
Company's fair value estimates do not consider the tax effect that would be
associated with the disposition of the assets or liabilities at their fair value
estimates.
Fair value is estimated for loan portfolios with similar financial
characteristics. Loans are segregated by category such as commercial,
commercial real estate, residential mortgage, and other installment. Each loan
category is further segmented into fixed and adjustable rate interest terms.
The fair value of loans is calculated by discounting scheduled cash flows
through the estimated maturity using estimated market discount rates that
reflect the credit and interest rate risk inherent in the loan. The estimate
of average maturity is based on the Bank's historical experience with
prepayments for each loan classification, modified, as required, by an estimate
of the effect of current economic and lending conditions.
For adjustable rate loans, the fair value is estimated at book value after
adjusting for credit risk inherent in the loan. The Company's interest rate
risk is considered insignificant since the majority of the Company's adjustable
rate loans are based on prime rates or one year Constant Maturity Treasuries
("CMT") rates and adjust monthly or generally not greater than one year
Under SFAS 107, the fair value of deposits with no stated maturity, such as
Noninterest bearing demand deposits, savings and NOW accounts, and money market
and checking accounts, is equal to the amount payable on demand at December 31,
1995. The fair value of certificates of deposits is based on the discounted
value of contractual cash flows.
The discount rate is estimated using alternative borrowing rates adjusted for
maintenance and insurance costs.
<PAGE>
The following table presents information for the Company's financial instruments
at December 31, 1995:
<TABLE>
<CAPTION>
December 31, 1995
-----------------
Carrying Fair
Amount Value
-------- -------
<S> <C> <C>
Financial assets:
Cash and due from banks $ 4,051 4,051
Federal funds sold 4,200 4,200
Debt instruments secur-
ities available for sale 17,260 17,260
Investment securities
held to maturity 3,897 3,947
Loans receivable 76,595 75,857
Financial liabilities:
Deposits 104,233 103,593
</TABLE>
The contracts amount and related fees of the Company commitments to extend
credit, standby letters of credit, and financial guarantees approximates fair
value (see Note 14 for the contractual amounts of the Company's financial
instrument commitments).
(17) PORT ST. LUCIE NATIONAL BANK HOLDING CORP.
-----------------------------------------
(Parent Company only)
CONDENSED BALANCE SHEETS:
December 31,
------------------
1995 1994
------- ------
Assets:
Cash $ 3 --
Cash in subsidiary bank 166 89
Investment in subsidiary bank 8,345 6,723
Investment in subsidiary mortgage company 54 --
Premises and equipment, net 461 466
Other assets 10 148
------- ------
$ 9,039 7,426
======= ======
Liabilities:
Other liabilities 84 35
Shareholders' equity 8,955 7,391
------- ------
$ 9,039 7,426
======= ======
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF INCOME:
For years ended
---------------------------
1995 1994 1993
------- ------ ----
<S> <C> <C> <C>
Income:
Interest on deposits in subsidiary bank $ 5 9 10
Other 30 30 30
------- ------ ----
35 39 40
------- ------ ----
Expenses:
Other 146 127 134
------- ------ ----
146 127 134
------- ------ ----
Loss before income taxes and equity in income
of subsidiaries (111) (88) (94)
Income tax benefit 42 33 35
------- ------ ----
Loss before equity in income of
subsidiaries (69) (55) (59)
Equity in income of subsidiary mortgage company 4 -- --
Equity in income of subsidiary bank 1,012 1,056 807
------- ------ ----
Net income $ 947 1,001 748
======= ====== ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS:
For years ended
--------------------------
1995 1994 1993
------- ------ ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 947 1,001 748
Adjustments to reconcile net income to net cash used
by operating activities:
Equity in income of subsidiary (1,012) (1,056) (807)
Equity in income of mortgage company (4) -- --
Other, net 135 (231) 114
------- ------ ----
Net cash provided (used by) operating activities: 66 (286) 55
------- ------ ----
Cash flows from investing activities:
(Increase) decrease in deposits in subsidiary bank (77) 165 30
------- ------ ----
Net cash (used in) provided by investing activities (77) 165 30
------- ------ ----
Cash flows from financing activities:
Proceeds of stock issuance 8 40 --
Dividends received -- 200 --
Dividends paid -- (184) (61)
------- ------ ----
Net cash provided by (used by) financing activities 8 56 (61)
------- ------ ----
Net increase (decrease) in cash 3 (65) 24
Cash at beginning of year --- 65 41
------- ------ ----
Cash at end of year $ 3 -- 65
======= ====== ====
Supplemental information:
Cash paid during the period for:
Income taxes $ 236 574 197
</TABLE>
The Company has a land lease agreement with the Bank for the property on which
the Bank's branch office was constructed. The term of the lease is five years,
terminating in December 1996, with rental fees totaling $30 in each of 1995,
1994 and 1993.
ITEM 2. PROPERTIES
The Bank's main offices are located at 10570 South U.S. Highway #1, Port
St. Lucie, Florida, in a three-story building called the Port St. Lucie National
Bank building, where the Bank leases approximately 6,000 square feet. The term
of the original lease for 3,000 square feet expires in April 1999. The lease of
an additional 1,800 square feet in the same building expires in September 1998.
In December 1992, an agreement was reached to lease an additional 1,200 square
feet in the same building, which expires in 1999. This facility has and
continues to be satisfactory for the Company's use.
In December 1989, the Company acquired approximately 1.6 acres of
unimproved property on Port St. Lucie Boulevard, west of the St. Lucie River and
east of the Florida Turnpike. The Bank was approved for a branch office on this
site in April 1991. The branch office opened in December 1991 in a 1,440 square
foot modular building with two drive-in lanes. This structure will be replaced
by a larger permanent structure when sufficient growth is obtained using the
modular facility and if the local market can support additional commercial
office space.
The Company entered into two new lease agreements for a branch office
facility and for administrative offices in the same building in St. Lucie West,
effective in March of 1995. These facilities also serve as corporate
headquarters for the Company. The branch facility lease is for 4,320 square
feet and has a 10 year term with a five year renewal option with a rental
increase. The lease for the administrative offices is for 1,200 square feet and
has a five year term.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no pending or anticipated legal proceedings against the Company
or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Market
- ------
There is currently no established public trading market for the Company's
Common Stock. For information as to the Company's Warrants, see Item 12,
"Certain Relationships and Related Transactions."
Management of the Company believes that the following table sets forth the
high and low prices paid for the Company's Common Stock in actual purchase/sale
transactions (as opposed to original issuances by the Company) as reflected in
the records of the Company (which acts as its own transfer agent) for the last
two years:
<TABLE>
<CAPTION>
Quarter Ended High Price Low Price
------------- ---------- ---------
<S> <C> <C>
Fiscal Year 1994:
March 31, 1994 $12.00 $12.00
June 30, 1994 $12.50 $12.50
September 30, 1994 $13.25 $12.50
December 31, 1994 $14.00 $13.25
Fiscal Year 1995:
March 31, 1995 $14.00 $14.00
June 30, 1995 $15.00 $14.25
September 30, 1995 $16.00 $16.00
December 31, 1995 $17.00 $16.00
</TABLE>
The approximate number of holders of the Company's Common Stock as of March
1, 1996, based upon the number of record holders, is 806.
As of March 1, 1996, the aggregate amount of shares of Common Stock subject
to outstanding Options and outstanding Warrants was 50,490 and 150,947.5,
respectively. For information as to the Options, see Item 10, "Executive
Compensation."
DIVIDENDS
- ---------
The Board of Directors of the Company considers earnings, capital
requirements, regulatory dividend limitations, the financial condition of the
Company, and other relevant factors in determining the payment of dividends to
shareholders. Cash dividends paid in 1994, 1993, and 1992 were 30.0 cents, 10.0
cents and 7.5 cents per share, respectively. In 1995, a cash dividend was not
declared. As a result of past and planned growth, the Board of Directors
declared a stock dividend of 10% to shareholders of record on February 16, 1995
and again on February 15, 1996.
The ability of the Company to pay dividends to its shareholders depends
almost entirely on the earnings of the Bank and the Bank's ability to pay
dividends to the Company. The Company is entitled to receive dividends as and
when declared by the Board of Directors of the Bank out of funds legally
available therefor, subject to the restrictions set forth in the National Bank
Act. Section 56 of the National Bank Act states that no dividends will be paid
in an amount greater than the Bank's undivided profits (as each term is defined
under the National Bank Act).
Section 60 of the National Bank Act provides that no dividends may be
declared until the Bank's surplus fund is equal to its common capital; provided,
however, that quarterly or semi-annual dividends may be paid if at least ten
percent of the Bank's net income from the preceding six-month period have been
carried to the surplus fund, and annual dividends may be paid if at least ten
percent of the Bank's net income from the preceding two consecutive six-month
periods have been carried to the surplus fund. Additionally, cash dividends
must receive the prior approval of the OCC if the total of all cash dividends
declared by the Bank in
<PAGE>
any calendar year, including the proposed cash dividend, exceeds the total of
the Bank's net income for that year plus its retained net income from the
preceding two years less any required transfers to surplus or a fund for the
retirement of preferred stock.
The payment of all stock dividends by the Bank must receive the prior
written approval of the OCC. The OCC also has the authority under the National
Bank Act to prohibit the payment of cash dividends by a national bank when it
determines such payment to be an unsafe and unsound banking practice.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
INTRODUCTION
- ------------
Port St. Lucie National Bank Holding Corp. (the "Company") went from a
development stage entity to a one bank holding company on April 3, 1989, with
Port St. Lucie National Bank (the "Bank") being chartered and opened for
business on that date. During 1988 and 1989, the Company raised $6,104 net of
offering and issuance costs, from the public sale of common stock to
approximately 900 local investors, and invested $5,000 in the Bank to acquire
100% of its outstanding common stock.
This section of the annual report provides a narrative discussion and analysis
of the Company's financial condition for the last two years ended December 31,
1995 and 1994 and results of operations for the last three years ended December
31, 1995, 1994 and 1993. All tables, financial statements and notes to the
statements should be considered an integral part of this analysis.
OVERVIEW
- --------
In 1995, the Company made significant investments in future growth and earnings.
The Bank opened its third office in the rapidly developing St. Lucie West
community. The St. Lucie West leased facility represents a 70% increase in
total facilities square footage. This new office will not only serve the St.
Lucie West community, but it will also provide a corporate base, and capacity to
support future growth and expansion.
In addition, the Company obtained regulatory approval to create and operate a de
novo mortgage banking company in January of 1995. Spirit Mortgage Corp. is a
wholly owned subsidiary of the Company and began operations late in the first
quarter. Spirit Mortgage Corp. operates primarily outside of the market area in
which the Bank operates. By year end, Spirit Mortgage Corporation had
established several business sources and recouped the capital the Company
originally invested. This positions Spirit Mortgage Corp. to play a greater
role in the Company's earnings in 1996.
The Company also invested in personnel in 1995. Key personnel were hired after
lengthy searches to lead the St. Lucie West office, Spirit Mortgage Corp. and to
provide company-wide operational support and capacity for future growth.
All of the above described investments contributed to the Company's 19.1% growth
rate in 1995, which is approximately three times that of the Company's market.
These investments did have a cost in 1995 as operating expenses increased in
comparison to 1994. While net interest income and noninterest income were both
greater in 1995 than in 1994, the increases were not enough to keep net income
from slipping to $947 as compared to $1,001 in 1994.
Net interest income growth was slowed in 1995 due to a reduced net interest
margin. Interest rate increases of 300 basis points during 1994 and early 1995
coupled with rapid time deposit growth in the fourth quarter of 1994 and first
quarter of 1995, pushed the cost of funds up significantly in 1995. While
interest rates were declining in the last three quarters of 1995, the Company
diversified loan growth into higher yielding products. High cost deposits were
allowed to runoff without replacement due to the sale of lower yielding
adjustable rate real estate loans. These actions were largely responsible for
an improvement in the net interest margin the last half of 1995. Recent
interest rate cuts of 25 basis points each in December of 1995 and January of
1996 will slow the improvement in the net interest margin however, the Company
believes that the improved balance sheet positioning will allow for an
improvement in the net interest margin in 1996.
On February 1, 1996, BFP (Banking Financial Partners, a division of Legg Mason)
began providing nondeposit investment alternatives in the Bank's facilities to
better service the Bank's customers and market. BFP rents space from the Bank
to provide these brokerage services. This new contracted service is the
culmination of more than a year's effort to find the means to provide the best
quality nondeposit investment services within strict regulatory compliance. The
Company expects the relationship with BFP to reinforce existing relationships
with the Bank, attract new customers and increase fee income.
<PAGE>
PORT ST. LUCIE NATIONAL BANK HOLDING CORP. AND SUBSIDIARIES
Consolidated Average Balance Sheet and Summary of Net Interest Income
Years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
------------------------- ------------------------- -------------------------
Average Average Average
Balance Interest Yield Balance Interest Yield Balance Interest Yield
------- -------- ----- ------- -------- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans (net of unearned income)(1)(3) $ 70,919 5,939 8.37 % $ 46,747 3,611 7.72 % $ 31,853 2,482 7.79%
Non-taxable loans (2) 610 44 7.21 781 62 7.95 236 16 6.78
Loans held for sale 2,709 212 7.83 2,591 216 8.34 1,628 123 7.56
Taxable investment securities 6,534 402 6.15 5,354 335 6.26 22,270 1,344 6.04
Non-taxable investment securities (2) 3,355 233 6.94 3,130 226 7.21 1,592 114 7.16
Investment securities available for sale 19,173 1,188 6.20 22,933 1,331 5.80 5,090 237 4.66
Federal funds sold 2,911 169 5.81 959 37 3.86 2,048 60 2.93
--------- ------- ------- -------- ------- ------ -------- ------ -----
Total earning assets 106,211 8,187 7.71 82,495 5,818 7.05 64,717 4,376 6.76
Noninterest earning assets:
Cash and due from banks 2,880 2,351 1,997
Premises and equipment (net) 1,156 889 924
Other assets 1,734 1,371 1,172
Allowance for loan losses (774) (653) (553)
--------- -------- --------
Total noninterest earning assets 4,996 3,958 3,540
--------- -------- --------
Total assets $ 111,207 $ 86,453 $ 68,257
========= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits $ 13,260 446 3.36 % $ 13,036 218 1.67 % $ 11,292 206 1.82 %
Money market deposits 6,440 185 2.87 8,328 193 2.31 8,424 202 2.40
Savings deposits 12,332 449 3.64 6,093 121 1.98 5,213 103 1.98
Time deposits 53,231 3,034 5.70 34,561 1,517 4.39 24,985 1,097 4.39
Other borrowings 835 50 5.99 2,298 113 4.94 108 4 3.70
--------- ------- ------- -------- ------- ------ -------- ------ -----
Total interest bearing liabilities 86,098 4,164 4.84 64,316 2,162 3.36 50,022 1,612 3.22
Noninterest bearing liabilities:
Demand deposits 14,972 13,169 10,171
Other liabilities 1,988 1,596 1,150
--------- -------- --------
Total noninterest bearing liabilities 16,960 14,765 11,321
--------- -------- --------
Total liabilities 103,058 79,081 61,343
Shareholders' equity 8,149 7,372 6,914
--------- -------- --------
Total liabilities and shareholders' $ 111,207 $ 86,453 $ 68,257
equity ========= ======== ========
Net interest spread/rate $ 4,023 2.87 $ 3,656 3.69 $ 2,764 3.54
======= ---- ======= ----- ======= ----
Impact of noninterest bearing liabilities 0.92 0.74 0.73
Net interest margin 3.79 % 4.43 % 4.27 %
===== ==== =====
</TABLE>
(1) Net loans fees recognized are included in calculation of average loan
yields.
(2) Taxable equivalent basis, net of interest disallowance using a 34% tax rate.
(3) Nonaccruing loans are included in the average amount of loans outstanding as
well as in the calculation of average yields.
<PAGE>
FINANCIAL PERFORMANCE SUMMARY
- -----------------------------
During 1995, the Company continued its trend of growth well in excess of market
growth. This growth was bolstered by the opening of a new office, a new
mortgage banking subsidiary and operational expansion. With the increased
overhead of new operations and a reduced net interest margin, earnings in 1995
was slightly down. Primary earnings per share for 1995 was $1.28 as compared to
$1.40 and $1.06 in 1994 and 1993, respectively. Net income was $947 in 1995 as
compared to $1,001 in 1994 and $748 in 1993.
In 1995, interest income and noninterest income increased more than 40% and 50%,
respectively, over 1994. However, these large increases were not enough to
offset interest expense and noninterest expense increases of more than 90% and
30%, respectively, over 1994. Growth in time deposits in late 1994 and early
1995 pushed up interest expense in 1995. Rate changes in these time deposits
lagged rate sensitive assets as interest rates declined slightly in 1995. The
opening of a new office in March, the origination of a new mortgage banking
company in January and operational growth all contributed to the increase in
noninterest expense in 1995. Overall in 1995, the Company grew in asset size by
19.1% while earnings decreased slightly by 5.4%.
In 1994, increased net interest income was the most significant contribution to
the Company's improved financial performance. Several factors influenced the
improved net interest margin. Rising interest rates coupled with a slightly
asset sensitive interest rate positioning helped improve net interest income in
1994. A higher loan to deposit ratio and asset quality that maintained the
provision expensed for loan losses in 1994 at about the same level as 1993 also
contributed to the improvement in income. Modest increases in noninterest
expenses and a decline in gains on sale of loans held for sale were more than
offset by the increase in net interest income. Overall in 1994, the Company
increased earnings by 33.8% and grew in asset size by 19.5%.
In 1993, the Company's improved financial performance was due to increases in
net interest income and from increases in noninterest income which were in
excess of increases in noninterest expenses. Loan growth in all categories was
the most significant factor in net interest income and in noninterest income
increases. Noninterest expenses were not impacted by new office expenses as in
1992 and increased primarily due to personnel expenses associated with growth in
assets. Overall in 1993, the Company grew in asset size by 36.8% and earnings
increased by 78.9%.
EARNINGS ANALYSIS
- -----------------
NET INTEREST INCOME
Net interest income is the difference between revenue generated from earning
assets and the interest cost of funding those assets. Net interest income for
1995 was $3,945, an increase of $387 or 10.9% over 1994. This improvement is
primarily due to loan growth. Although net interest income is greater than
1994, the percentage improvement did not keep pace with asset growth as in
previous years.
Net interest margin in 1995 was 3.79%, a decrease of 64 basis points or 14.4%
from 1994. The yield on interest earning assets increased from 7.05% in 1994 to
7.71 in 1995. This 66 basis point or 9.4% increase was primarily the result of
loan growth in 1995. The yield on interest bearing liabilities increased from
3.36% in 1994 to 4.84% in 1995. This 148 basis point or 44.0% increase was
primarily due to growth in time deposits balances during the fourth quarter of
1994 and first quarter of 1995, however, lagging repricing in a declining
interest rate environment and higher rates on other interest bearing liability
products accounted for over 40% of the increase. In summary, reliance on higher
cost interest earning liabilities early in the year negatively impacted the net
interest margin by 64 basis points in 1995.
Although the Company's net interest margin declined in 1995, several steps were
taken during 1995 that began increasing the net interest margin in late 1995 and
provides a base for continued improvement in 1996. Diversification of loan
growth into higher yielding consumer and commercial loans began slowly in 1995
and increased during the year in concert with loan demand. Time deposit growth
was slowed with rate reductions beginning in the second quarter of 1995, with
volume being replaced by premium priced but lower cost savings deposits. Loan
growth was partially funded by the maturity or sale of lower yielding investment
securities available for sale. In addition, a package of lower yielding
adjustable rate residential mortgage loans in the amount of $10,600 was sold
early in the fourth quarter of 1995. The resulting liquidity was used to allow
higher cost time deposits to mature without replacement and allow the runoff of
volatile high cost interest bearing demand deposit accounts. These factors
combined to improve the net interest margin in the fourth quarter as compared to
the net interest margin for the year. It should be noted that while an improved
net interest margin is anticipated in 1996, recent reductions by the Federal
Reserve Board (FED) in the discount rate of 25 basis points in December 1995 and
again in January of 1996, will slow the improvement. Further interest rate cuts
could negate recent improvements due to the Company's balanced interest rate
position and the economic slow down that would foreshadow any further interest
rate cuts.
<PAGE>
_______________________________________________________________________________
ANALYSIS OF INTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>
1995 versus 1994 1994 versus 1993
Increase (Decrease) due to change in Increase (Decrease) due to change in
Volume Rate Net Volume Rate Net
--------------- ---------- ---------- --------- ------------------ --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans $2,024 304 2,328 $ 1,151 (22) 1,129
Nontaxable loans (10) 6 (4) 28 2 30
Loans held for sale 9 (13) (4) 80 13 93
Taxable investment securities 73 (6) 67 (1,058) 49 (1,009)
Nontaxable investment securities 11 2 13 73 1 74
Investment securities available
for sale (234) 91 (143) 1,035 59 1,094
Federal funds sold 113 19 132 (42) 18 (23)
------ ---- ----- ------- --- ------
Total interest income 1,986 403 2,389 1,267 120 1,388
------ ---- ----- ------- --- ------
INTEREST EXPENSE:
Interest bearing demand deposits 8 220 228 29 (17) 12
Money market deposits (54) 46 (8) (2) (7) (9)
Other savings deposits 227 101 328 18 -- 18
Time deposits 1,064 453 1,517 420 -- 420
Federal funds purchased (87) 24 (63) 108 1 109
------ ---- ----- ------- --- ------
Total interest expense 1,158 844 2,002 573 (23) 550
------ ---- ----- ------- --- ------
NET INTEREST INCOME $ 828 (441) 387 $ 694 143 838
====== ==== ===== ======= === ======
</TABLE>
________________________________________________________________________________
Net interest margin in 1994 was 4.43%, an increase of 16 basis points or 3.7%
from 1993. The yield on interest earning assets was 7.05%, an increase of 29
basis points or 4.3% from 1993. The increase can be primarily attributed to
higher yielding loan growth which accounted for almost 84% of total average
interest earning asset growth. The yield on interest bearing liabilities
increased 14 basis points or 4.3% from1993. The increase in yield on interest
bearing liabilities was due to the increase in other borrowing in 1994. In
summary, loan growth and interest earning assets, which were more interest rate
sensitive than interest bearing liabilities, resulted in the 16 basis point
increase in net interest margin in 1994.
The analysis of interest income and interest expense table demonstrates the
impact on net interest income of changes in the volume and changes in rates of
earning assets and interest bearing liabilities. The changes for each category
from income and expense are divided between the portion of change attributable
to the variances in average levels and rates for that category with the amount
of change attributable to rate volume allocated to the volume variance.
The above table indicates that the $387 increase in net interest income in 1995
was the combined effect of a favorable volume variance of $828 and a unfavorable
rate variance of $441. The unfavorable rate variance was the result of
increases in cost of funds exceeding the increases in interest earning assets.
The overall net interest income increase continues the previous years trends.
NONINTEREST INCOME
Noninterest income is derived primarily from fees on customer services and from
the gains on sale of loans held for sale. Noninterest income continues to be an
important contributor to the net income of the Company. In 1995, noninterest
income was $1,171, an increase of $415 or 54.9% from 1994. The primary
components of noninterest income are service charges on deposit accounts which
totaled $578 and gain on sale of loans held for sale which totaled $323 in 1995.
Service charges on deposit accounts income increased $157 or 37.3% in 1995.
Average noninterest bearing demand deposit account growth in 1995 of 13.7% and
increases in selected service charges which became effective August 1, 1995 were
primary contributors to the increased service charge income in 1995.
Gains on sale of loans held for sale increased significantly in 1995. Net
interest income from gain on sale of loans was $323 as compared to $49 in 1994.
A rally in long term bond prices in 1995, lowered the fixed rates on mortgage
loans. These lower rates improved demand for traditional 15 and 30 year fixed
rate residential mortgages in the second half of 1995. In some cases, improved
pricing through Spirit Mortgage Corp. increased sales and gains on sales. In
the fourth quarter, $10,600 in adjustable rate residential real estate loans
were sold.
<PAGE>
________________________________________________________________________________
ANALYSIS OF NONINTEREST INCOME
<TABLE>
<CAPTION>
1995/1994 Change 1994/1993 Change
------------------ ------------------
1995 1994 1993 Amount Percent Amount Percent
-------- ---- ----- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 578 421 339 $157 37.3% $ 82 24.2%
Mortgage servicing fees 73 71 54 2 2.5% 17 32.2%
Gain on sale of loans held for sale 323 49 341 274 559.2% (292) -85.6%
Gain on sale of investment
securities available for sale (59) 12 28 (71) -591.7% (16) -57.1%
Gain on sale of real estate owned (13) 6 0* (19) -316.7% 6 --
Other fees for customer services 269 197 122 72 36.7% 75 61.1%
------ ---- ---- ---- -----
$1,171 756 884 $415 54.9% $(128) -14.5%
====== ==== ==== ==== =====
* Rounds to zero.
</TABLE>
________________________________________________________________________________
In addition to the above sale increases, the Company adopted Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights," an amendment of SFAS No. 65 (SFAS
No. 122), in the fourth quarter of 1995. The recognition of gains associated
with mortgage servicing rights on the loans sold inthe fourth quarter amounted
to $105 or 32.5% of the total gains on sale of loans held for sale in 1995. The
volume of loans held for sale in 1996 will depend on the demand for residential
real estate loans, which will be governed by the economy and the interest rate
levels. The gain realized on loans held for sale that are sold servicing
retained will be increased as a result of recognizing mortgage servicing rights
on the sale as prescribed by SFAS No. 122.
Noninterest income from mortgage servicing fees increased slightly from $71 in
1994 to $73 in 1995. The increased sales level in the fourth quarter of loans
held for sale provided additional net volume increase. In 1996, mortgage
servicing fees can be expected to increase more slowly in comparison to the
volume of new loans serviced than in the past. With the adoption of SFAS No.
122 and the recognition of mortgage servicing rights upon sale of the loan, the
resulting asset must be amortized over the expected life of the servicing, which
consequently reduces the monthly servicing fee recognized. This accounting
treatment only applies to those loans sold servicing retained since the adoption
of SFAS No. 122 at the beginning of the fourth quarter of 1995.
NONINTEREST EXPENSE
Total noninterest expense in 1995 was $3,520, an increase of $841 or 31.4% over
1994. This increase is the result of banking operations growth and overhead
related to the opening of a new office in March of 1995 and the formation of
Spirit Mortgage Corp. in January of 1995.
Compensation and employee benefit expense in 1995 was $1,690, an increase of
$496 or 41.5% over 1994. The increase is primarily due to the staffing of the
new office and Spirit Mortgage Corp., and to support increased volume in
operations. Budgeted merit and promotional increases also contributed to the
increase. In 1996, the only increases in compensation and employee benefits
anticipated are for operational support and annual merit and promotional
increases.
Occupancy and furniture and equipment expenses were $304 and $214, respectively.
This represented increases of $93 or 44.1% and $97 or 82.9%, respectively. The
increases again reflected the addition of a new office and Spirit Mortgage Corp.
Occupancy and furniture expenses should see little increase in 1996, however
several budgeted technological improvements will increase equipment expense
again in 1996. The significance of the increase will depend on the timing of
implementation during the year.
Advertising and public relations expense increased $55 or 41.4% in 1995. The
increase is directly related to the promotional activities used to market the
opening of the new office in March of 1995. Advertising and public relations is
anticipated to increase only in proportion to the growth of the Company in 1996.
Data processing expense was $184 in 1995, an increase of $34 or 22.7%. The
increase reflects the growth of the Company's operations during the year. A
contract extension for data processing was negotiated in 1995 which will extend
the Company's current contact from September 1996 through August 1999. An
increase in expense can be expected in 1996 as a result of increased volume and
the budgeted addition of new data processing features and services.
<PAGE>
________________________________________________________
ANALYSIS OF NONINTEREST EXPENSE
<TABLE>
<CAPTION>
1995 1994 1993
------- ----- -----
<S> <C> <C> <C>
Compensation and
employee benefits $1,690 1,194 1,022
Occupancy 304 211 194
Furniture and equipment 214 117 91
Advertising and public
relations 188 133 90
Data Processing 184 150 130
Professional fees 165 151 113
Stationary, supplies
and printing 119 80 92
FDIC insurance 95 161 123
Travel and entertainment 66 50 48
Other real estate owned 12 7 16
Miscellaneous expenses 483 425 361
------ ----- -----
$3,520 2,679 2,280
====== ===== =====
- -------------------------------------------------
</TABLE>
FDIC insurance premium expense was $95 in 1995, a decrease of $66 or 41.0%.
This decrease in 1995 was due to the Bank Insurance Fund (BIF) reaching its
targeted funding level in May of 1995. Beginning in January 1996 and until
further notice, well capitalized banks will only be charged the minimum premium
of $1 semi annually. The Bank currently meets the well capitalized criteria and
expects to remain in the well capitalized category for the foreseeable future.
The remaining noninterest expense categories increased collectively 18.5% in
1995. This increase is consistent with the Company's overall growth rate in
1995 of 19.1%.
In 1994, noninterest expense totaled $2,679, an increase of $399 or 17.5% over
1993. The largest dollar increase in individual categories were compensation
and employee benefits and FDIC insurance with increases of $172 or 16.8% and
$38 or 30.9% over 1993, respectively. Compensation and employee benefits
expense reflected growth in staff to support operations and budgeted merit and
promotional increases. The FDIC insurance premium expense reflected growth in
deposits as the rate remained constant at 23 basis points between 1993 and 1994.
All other noninterest expense categories collectively increased $66 or 19.8% in
1994 as compared to 1993. This increase is consistent with the Company's
overall growth rate of 19.5% in 1994.
INCOME TAXES
Income tax expense was $443 in 1995, a decrease of $28 or 5.9% over 1994. The
decreased tax expense reflects a decrease in income before taxes of $82 or 5.6%
over 1994. Income tax expense was $471 in 1994, an increase of $62 or 15.2%
over 1993. The increased tax expense reflects an increase in net income before
income taxes of $315 or 27.2%, which was mitigated by increased average balances
of tax exempt municipal securities and municipal loans.
LIQUIDITY AND INTEREST RATE SENSITIVITY
- ---------------------------------------
Liquidity and the sensitivity of future earnings to interest rate changes are
carefully monitored by Company management. Liquidity is the capacity to raise
cash quickly when funds are needed. The Company's goal is to maintain adequate
liquidity to meet potential funding needs of loan and deposit customers by
maintaining a stable base of core deposits and other interest bearing funds,
accessibility to regional funding sources and readily marketable assets.
Adequate earnings and capital are also important in maintaining acceptable
liquidity levels.
Long term liquidity needs are provided by a large core deposit base and a strong
capital position. The most stable source of bank liquidity comes from core
deposits which represent long term relationships with deposit customers. Core
deposits as a percentage of total assets has been improving over the past
several years.
Actions taken by the Company in 1995 to improve the net interest margin also
served to increase this core deposit percentage by allowing volatile funds to
mature or runoff by selling lower yielding investment securities and loans. At
year end 1995, core deposits were at 82.7% of total assets as compared to 78.6%
and 68.4% of total assets in 1994 and 1993, respectively.
<PAGE>
Those deposits not considered by management to be core deposits consist of time
deposits of $100 or greater and volatile municipal deposits. Time deposits of
$100 or greater decreased to 8.4% of total assets as compared to 11.4% in 1994.
There were no municipal deposits considered to be volatile at year end 1995 as
compared to 2.1% of total assets at year end 1994.
Short term needs for funds are created by withdrawal of deposits, draw downs of
commitments and requests for new loans. These needs for funds are being met by
core deposit growth, investment security maturities, principal repayments and
sale of investment securities designated as available for sale. These sources
have usually been adequate to meet funding needs. Timing differences of a few
days between funds availability and funding needs have been met utilizing
unsecured federal funds purchase lines established at correspondent banks. At
December 31, 1995, there were no borrowings from this source.
To meet more significant funding needs or funding needs of a longer duration,
the Company joined the Federal Home Loan Bank (FHLB) in 1993. The Company's
residential real estate portfolio and capital position currently supports
$19,000 in potential borrowing from the FHLB. There was no borrowing from the
FHLB at December 31, 1995.
An adequate capital level contributes to long term liquidity by reducing the
need to continually access funding sources. The Company's Tier 1 leverage
capital ratio remained more than adequate at 7.95% at year end 1995. Tier 1
ratios at year end 1994 and 1993 were 8.5% and 9.1%, respectively. The Company
projects that the Tier 1 ratio will continue to decline, however more slowly, in
1996, assuming growth and earnings goals are reached, and will continue to
remain at a more than adequate level.
Other sources of liquidity are investment securities available for sale and
loans held for sale and can include federal funds sold. At December 31, 1995,
the balance in investment securities available for sale was $17,260, down only
$84 from December 31, 1994. Liquidity improved during the year as rates fell
and market values on these securities improved. Loans held for sale increased
to $5,835 at year end from $712 at year end 1994. These loans are held on
average less than a month before they are funded by the buyer. By controlling
the volume, liquidity can be readily available from this source.
INTEREST RATE SENSITIVITY
Unlike commercial companies, a substantial portion of the Company's assets are
monetary in nature. Accordingly, the effects of changes in interest rates are
more relevant than changes in the general level of consumer prices, which may
not move in the same direction or magnitude as interest rates. Interest
sensitivity management is concerned with optimizing the effects of interest rate
changes on net interest income. Interest sensitivity is measured by gaps,
defined as the difference between interest sensitive assets and interest
sensitive liabilities within any specific time frame.
The Interest Rate Sensitivity table illustrates the Company's gap position at
December 31, 1995. The table should not be viewed as the only factor in
determining the impact of interest rate changes on net interest income. Certain
assumptions have been made in the construction of the table. For example, loans
and investments have been assigned rate sensitivity categories according to
their maturities, call schedules, or scheduled rate adjustments without regard
to payment schedules or to the liquidity of those interest sensitive assets.
<PAGE>
_______________________________________________________________________________
INTEREST RATE SENSITIVITY ANALYSIS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Immediately
adjustable 2 days 90 days 6 month
or 1 day through through through Over Noninterest
maturity 90 days 6 months 12 months 12 months sensitive Total
----------- ------- --------- ---------- --------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans (net of unearned income) $20,625 4,479 6,375 11,744 33,372 ---- 76,595
Federal funds sold 4,200 ---- ---- ---- ---- ---- 4,200
Non-taxable investment securities ---- ---- ---- 372 3,525 ---- 3,897
Investments available for sale ---- 9.885 1,011 ---- 6,364 ---- 17,260
Loans held for sale ---- 5,835 ---- ---- ---- ---- 5,835
Noninterest earning assets ---- ---- ---- ---- ---- 6,746 6,746
------- ------ ------- ------ ------ ------- -------
Total assets $24,825 20,199 7,386 12,116 43,261 6,746 114,533
======= ====== ======= ====== ====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing demand deposits 7,996 ---- ---- ---- ---- ---- 7,996
Money market deposit accounts 5,680 ---- ---- ---- ---- ---- 5,680
Savings deposits 4,035 ---- 17,082 ---- ---- ---- 21,117
Time deposits ---- 13,337 8,655 17,379 10,058 ---- 49,429
Noninterest bearing demand
deposits ---- ---- ---- ---- ---- 20,011 20,011
Other liabilities ---- ---- ---- ---- ---- 1,345 1,345
Shareholders' equity ---- ---- ---- ---- ---- 8,955 8,955
------- ------ ------- ------ ------ ------- -------
Total liabilities and share-
holders' equity 17,711 13,337 25,737 17,379 10,058 30,311 114,533
------- ------ ------- ------ ------ ------- -------
Interest rate sensitivity gap $ 7,114 6,862 (18,351) (5,263) 33,203 (23,565) 0
======= ====== ======= ====== ====== ======= =======
Cumulative interest rate
sensitivity gap $ 7,114 13,976 (4,375) (9,638) 23,565 0 0
======= ====== ======= ====== ====== ======= =======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Gap analysis, when evaluated with other factors, such as changes in
balance sheet mix and interest rate spread relationships, can provide
the basis for projecting future net interest income. The Company uses a
simulation model that incorporates gap position, balance sheet mix and interest
rate spread relationships to provide a forecast of net interest income over the
next twelve months under different interest rate trend scenarios. The model
consistently indicated in 1995 that the Company was in a balanced interest rate
risk position with no more than 3% change in net interest income as a result of
either falling or rising interest rates over the next twelve months. The Company
will actively continue to subject earnings projections to a variety of interest
rate scenarios, as well as pricing, maturity, growth and mix strategies in order
to make informed decisions that will increase income and limit interest rate
risk.
EARNING ASSETS AND FUNDING SOURCES
- ----------------------------------
Earning assets averaged $106,211 in 1995, an increase of $23,716 or 28.7% over
1994. In 1994, average earning assets totaled $82,495, an increase of $17,778
or 27.5% over 1993.For the years ended 1995, 1994 and 1993, average earning
assets as a percentage of average total assets was 95.5%, 95.4% and 94.8%,
respectively. This indicator of efficient use of productive assets remained
steady even after the addition in 1995 of Spirit Mortgage Corp. and the opening
of the St. Lucie West Office. With no significant capital expenditures planned
for 1996, the Company expects to continue its high ratio of average earning
assets to average total assets.
At December 31, 1995, the Company's total earning assets reached $108,690. The
components of earning assets at year end were loans totaling $77,498 or 71.3%,
investment securities available for sale totaling $17,260 or 15.9%, loans held
for sale totaling $5,835 or 5.4%, federal funds sold of $4,200 or 3.8% and
investment securities held to maturity totaling $3,897 or 3.6%. Deposits, the
primary source of funds, totaled $104,233 at December 31, 1995. Of total
deposits, $84,222 or 80.8% were in interest bearing deposits and $20,011 or
19.2% were in noninterest bearing deposits.
<PAGE>
Loans
Total loans at December 31, 1995 were $77,498, an increase of $14,784 or 23.6%
over 1994. It has been the practice of the Company to sell fixed rate
residential loans to FNMA and retain adjustable rate residential loans in the
portfolio. While this is still the intention of the Company, a package of
$10,600 in adjustable rate residential loans were sold to FNMA, in addition to
normal fixed rate residential loans, in the fourth quarter of 1995 to maintain
asset and liability management goals. If these loans had not been sold, loan
growth shown in 1995 would have been significantly greater. The largest
category of loans in 1995 continued to be real estate loans. Included in the
real estate category are loans on primary residences, construction, and other
types of real estate loans which aggregated $55,632 or 71.8% of the total loan
portfolio at December 31, 1995. At year end 1994, the real estate category
aggregated $48,146 or 76.8% of total loans in 1994. Commercial loans accounted
for $10,075 or 13.0% of the loan portfolio in 1995 and $6,634 or 10.6% in 1994.
Loans to individuals totaled $11,791 or 15.2% of the loan portfolio at December
31, 1995 as compared to $7,134 or 11.4% in 1994. The tax exempt loan category
was $800 in 1994. There were no tax exempt loans in 1995.
In 1995, the Company sought and achieved more loan diversification in the
portfolio by placing emphasis on high quality consumer and commercial loans.
Prime rate decreased 50 basis points during the year, which made consumer and
commercial loans more attractive. In addition, fixed rate residential loan
rates fell approximately 200 basis points. This decline reduced adjustable rate
residential loan demand and improved fixed rate residential loan demand. This
shift from 1994 and the previously mentioned sale of adjustable rate residential
loans all contributed to improved diversification. The Company believes that
this trend will continue in 1996.
_______________________________________________________________________________
LOANS BY TYPE AND MATURITY
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
Maturities December 31,
--------------------- ----------------
One year
One year through Over five
or less five years Years 1995 1994
-------- ---------- --------- -------- ------
<S> <C> <C> <C> <C> <C>
Commercial loans $4,977 4,280 818 $10,075 6,634
Real estate - construction 1,220 517 3,215 4,952 4,771
Real estate - other:
Loans on primary residences 38,015 33,645
Other 12,665 9,730
Loans to individuals:
Installment 11,120 6,424
Other personal and business loans 671 710
Tax exempt loans --- 800
-------- ------
Total $77,498 62,714
======== ======
Commercial and real estate- construction
loans due after one year:
Having predetermined interest rates 4,073
Having floating interest rates 4,757
--------
Total $ 8,830
========
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF INVESTMENT SECURITIES AVAILABLE
FOR SALE PORTFOLIO
December 31, 1995 1994
-------------------- -------
Book Average Book
Value Yield(2) Value
--------- --------- -------
<S> <C> <C> <C>
Maturity
U.S. Treasury securities
One to five years $ 3,815 5.49% $ ----
------- -------
Securities of other U.S.
Government agencies
One to five years 3,054 5.51% 6,746
Five to ten years ---- ---- 916
------- -------
Total 3,054 5.51% 7,662
------- -------
Mortgage backed securities (1)
One to five years ---- ---- 1,684
Five to ten years 936 5.58% 2,584
Over ten years 9,455 5.72% 5,414
------- -------
Total 10,391 5.71% 9,682
------- -------
Total investment $17,260 5.62% $17,344
======= =======
(1) Indicates contractual maturities, actual maturities are dependent upon
underlying prepayment rates.
(2) Federal tax equivalent yield
</TABLE>
_________________________________________________
INVESTMENT SECURITIES
At December 31, 1995, investment securities available for sale totaled $17,260,
a decrease of $85 from year end 1994. The slight decline in 1995 was the result
of maturities, calls and sales. This activity was largely mitigated by the
reduction ofunrealized losses by $976 ($609 net of tax effects) and the transfer
of $3,807 in U.S. Treasury securities and $2,000 in U.S. Government Agencies
from the held to maturity portfolio to available for sale. This one time
reclassification was allowed through the "Special Report" issued by the
Financial Accounting Standards Board concerning statement No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" (SFAS 115). The
average yield on the available for sale portfolio decreased from 5.80% in 1994
to 5.62% in 1995. This decline is primarily attributable to the impact of
falling rates in 1995 on the adjustable rate securities.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
ANALYSIS OF INVESTMENT SECURITIES HELD
TO MATURITY PORTFOLIO
December 31, 1995 1994
------------------ -------
Book Average Book
Value Yield(2) Value
- -------------------------- -------- ------- -------
<S> <C> <C> <C>
Maturity
U.S. Treasury securities
One to five years $ ---- ---- $ 3,834
------ -------
Securities of other U.S.
Government agencies
Five to ten years ---- ---- 3,000
------ -------
Municipal securities (2)
Less than one year 110 6.44% ----
One to five years 1,323 7.48% 1,360
Five to ten years 1,414 6.52% 1,760
Over ten years 501 6.68% 242
------ -------
Total 3,348 6.92% 3,362
------ -------
Other securities
Over ten years (1) 549 6.91% 463
------ -------
Total investment $3,897 6.92% $10,659
====== =======
</TABLE>
(1) Federal Reserve Stock and Federal Home Loan Bank Stock
(2) Federal tax equivalent yield
_________________________________________________
<PAGE>
At December 1995, investment securities held to maturity totaled $3,897, a
decrease of $6,762 from year end 1994. The decline was the result of a called
security and the reclassification as discussed in the preceding paragraph. The
investment securities held to maturity portfolio had gross unrealized gains of
$57 in 1995. There were no gross unrealized gains in 1994. Gross unrealized
losses were $7 and $483 at December 31, 1995 and 1994, respectively. The
average yield on the held to maturity portfolio was 6.42%, down from the 6.61%
of year end 1994. This decline in yields is the result of the higher yielding
securities being called throughout the year. Since the current portfolio is
comprised of fixed rate municipal bonds, future gains or losses and yields will
depend on interest rate levels and the Company's effective tax rate on income.
FUNDING SOURCES
The primary funding source of the Company continues to be deposits. During
1995, the Company placed increased
emphasis on core deposits. Volatile funds were reduced from previous years
levels and liquidation of investment securities and loans were used to fund some
of the new loan growth rather than higher cost volatile funds. This more active
asset and liability management will continue into 1996 with the Company seeking
to primarily fund growth with more stable and lower cost core deposits.
At December 31, 1995, deposits totaled $104,233, an increase of $17,550 or 20.2%
over 1994. The components of this increase were a $14,690 or 228.6% increase in
savings deposits, a $3,796 or 23.4% increase in noninterest bearing demand
deposits, a $3,221 or 7.0% increase in time deposits, a $2,640 or 24.8% decrease
in interest bearing demand deposits and a $1,516 or 21.1% decrease in money
market deposits.
<TABLE>
<CAPTION>
Amount
-------
Maturity
<S> <C>
Three months or less $2,735
Over three through six months 1,518
Over six through twelve months 2,991
Over twelve months 2,311
------
Total time deposits of $100 or
more at December 31, 1994 $9,555
======
</TABLE>
The growth in savings deposits and to a large extent the slower growth in time
deposits and the decline in money market deposits were due to a higher interest
rate savings product (Grand Savings Account) the Company introduced in April of
1995. Its success made the Company less dependent on time deposits for growth
during 1995. The Grand Savings Account is priced at less than 6 month or longer
duration time deposits and has had the result of decreasing the Company's cost
of funds during the second half of 1995.
Noninterest bearing demand deposit accounts are always a priority for the
Company. Among the banks in the market place, Port St. Lucie National Bank is
third in deposit share but is second in noninterest demand deposit share. The
over 23% growth at year end was facilitated by the new office and by increased
real estate lending activity in the community. The Bank's deposit relationships
with Spirit Mortgage Corp. and local business, which perform services or
otherwise benefit from real estate activity, reflected this activity with
increased balances at year end.
The decline in interest bearing demand deposits is primarily attributable to the
reduction in volatile municipal deposits. The sale of targeted investment
securities and loans provided the funds to allow these accounts to runoff.
In 1996, the Company anticipates core deposit growth to keep pace with loan
growth. Should loan growth exceed core deposit growth, the Company will be
prepared to fund this growth with the sale of lower yielding investment
securities and loans or to borrow from approved credit lines established with
correspondent banks. The decision on sales or borrowing will be made with
interest rate risk stability and profitability as the primary determining
factors. The Company has short term unsecured lines of credit established to
meet temporary funding needs and $19,000 in credit availability approved through
the FHLB to meet longer term needs.
ASSET QUALITY
- -------------
Asset quality continues to be of primary importance to the Company. When
deposit growth has exceeded loan demand, excess funds have been invested in the
investment securities portfolio, which is high quality with minimal credit
risk. The Company structured its lending policy to avoid higher risk loans, to
diversify risk by making smaller loans and to provide proper monitoring of
existing
<PAGE>
loans to ensure continuing credit quality.
In addition to reviews by regulatory agencies, the services of outside lending
professionals have been engaged to assist in the evaluation of credit quality
and loan administration. These professionals compliment the system implemented
by the Company to evaluate the lending portfolio, which categorizes the credits
as to risk and puts a reporting process in place to monitor the progress of the
credits.
Although the Bank's legal lending limit is in excess of $1,300, the Bank has
adopted a policy to further restrict aggregate borrowing to any one borrower to
no more than $1,000. This emphasis on smaller loans diversifies and
consequently reduces risk. As of December 31, 1995, the Company had only eleven
borrowers with aggregate borrowing in excess of $500 which loans totaled $8,189
or 10.6% of the total loan portfolio at December 31, 1995.
The Company's local market has traditionally emphasized real estate lending due
to its reputation for affordable housing. In 1995, real estate loans continued
to be the dominant lending category accounting for more than 71% of the loan
portfolio. In keeping with its asset quality priority, the Company has
concentrated its real estate lending efforts on owner occupied properties with
established debt service abilities. The construction loans made are primarily
single family residences with commitments for permanent financing. The Company
is not currently and does not plan to become a speculative real estate lender.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents the cumulative total of monthly
provisions for loan losses, less net charge-offs (charge-offs minus recoveries).
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged-off against the allowance when management
believes the collectibility of principal is unlikely. Recoveries of amounts
previously charged off are credited to the allowance. The provision for loan
losses is based on management's judgment after considering known and inherent
risks in the portfolio, past loss experience of the Company, adverse situations
that may affect the borrower's ability to repay, assumed values of the
underlying collateral securing the loans, the current and prospective financial
condition of the borrower, and the prevailing and anticipated economic condition
of the market.
The allowance for loan losses at December 31, 1995 was $827 or 1.07% of loans
outstanding at year end. The allowance for loan losses at December 31, 1994 was
$699 or 1.11% of loans outstanding at year end. This decline in the overall
allowance for loans losses in 1995 as a percentage of the overall portfolio was
the result of reduced charge-offs and improved credit quality.
The Company maintains the allowance for loan losses at a level sufficient to
absorb all estimated losses inherent in the loan portfolio. The allowance for
loan losses is made up of two primary components: amounts allocated to loans
based on collateral type, loan grade, delinquency status and impairment and a
general unallocated portion designed to supplement the amounts allocated. For
purposes of complying with certain disclosure requirements, the table presents
an allocation of the entire allowance for loan losses among various loan
classifications and sets forth the percentage of loans in each category to
total loans. The allocation of the allowance shown in the table should not be
interpreted as an indication that charge-offs in future periods will occur in
these amounts or proportions or that the allocation indicates future charge-off
trends.
In comparing 1995 and 1994, the allowance for loan losses increased $128 or
18.3%, which was less than the 23.6% increase in the loan portfolio in 1995.
Credit quality and charge-offs allowed the lower allowance level when compared
to the total loan portfolio. The table reflects a decrease in the aggregate
amounts specifically allocated from $445 to $369. Correspondingly, the
component of the allowance described as unallocated increased from $254 to $458.
The reevaluation of charge-off history by each loan category at December 31,
1995 called for a reduction in the percentage allocated to each category. These
percentage allocation reductions and the maintenance of credit quality during
1995 reduced the aggregate amounts allocated and increased the unallocated
amount as shown by the table.
The provision for loan losses charged to expense in 1995 was $206, an increase
of $43 or 26.6% over 1994. This increase in provision is largely due to the
timing of a $10,600 loan sale in the fourth quarter of 1995 which resulted in
additional provision when compared to net loan growth.
Net charge-offs for the year ended December 31, 1995 were $78, a decrease of $4
from the net charge-offs of $82 in 1994. The Company takes a very aggressive
position on delinquent loans and moves quickly to liquidate collateral and
record losses if payment is in doubt. The Company also aggressively pursues
collection activities on any loans charged-off.
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for
<PAGE>
Impairment of a Loan" (Statement 114), as amended by Statement 118, which
prescribes the recognition criteria for loan impairment and the measurement
methods for certain impaired loans and loans whose terms are modified in
troubled debt restructuring (a "restructured loan"). Statement 114 adoption
did not have a material impact on the financial condition or results of
operations of the Company in 1995.
NONPERFORMING LOANS
Loans are placed on a nonaccrual status when they become 90 days past due unless
determined to be both adequately collateralized and actively in the process of
collection. When full collection of principal becomes doubtful, the
uncollectible portion of the loan is charged-off.
_______________________________________________________________________________
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1995 1994
------------ --------------
Percent of Percent of
loans in each loans in each
category to category to
Amount total loans Amount total loans
------ ------------ ------ --------------
<S> <C> <C> <C> <C>
Commercial $116 13.0% $172 10.6%
Real estate:
Construction 20 6.4% 20 7.6%
Loans on primary residence 97 49.1% 157 53.7%
Other 36 16.3% 26 15.5%
Loans to individuals:
Installment 64 14.3% 44 10.2%
Other personal and business loans 36 0.9% 24 1.1%
Tax exempt loans --- --- 2 1.3%
Unallocated 458 0.0% 254 0.0%
---- ----- ---- -----
$827 100.0% $699 100.0%
==== ===== ==== =====
- -----------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, there were 13 loans with an aggregate balance of $405
listed as nonaccrual, four loans with an aggregate balance of $5 over 90 days
past due on accrual status and no restructured loans. At December 31, 1994,
there were four loans with an aggregate balance of $76 listed as nonaccrual, one
loan with a balance of $170 over 90 days past due on accrual status and no
restructured loans.
OTHER POTENTIAL PROBLEM LOANS
Other potential problem loans exclude nonperforming loans and represent those
loans where information about possible credit problems of borrowers has caused
management to have serious doubts about the borrowers' ability to comply with
present repayment terms. The Company follows a loan review program to evaluate
the credit risk in its loan portfolio.
Through the loan review process, the Company maintains a classified account list
which, along with the delinquency list of loans, helps management assess the
overall quality of the loan portfolio and the adequacy of the allowance for
loan losses. Loans classified as "substandard" are those loans with clear and
defined weaknesses, such as highly leveraged positions, unfavorable financial
ratios, uncertain repayment sources or poor financial condition, that may
jeopardize recoverability of the debt. Loans classified as "doubtful" are
those loans which have characteristics similar to substandard accounts but
with an increased risk that a loss may occur, or at least a portion of the
loan may require a charge-off if liquidated at present.
At December 31, 1995, potential problem loans classified as substandard were
$894 compared to $1,121 at year end 1994. Those loans classified as doubtful at
December 31, 1995 were $40 as compared to $37 at year end 1994. Although the
loan portfolio grew
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------
ANALYSIS OF LOAN LOSS DATA
<S> <C> <C>
AS OF DECEMBER 31, 1995
Year Ended
December 31,
-------------
1995 1994
----- ----
Allowance for loan losses
Balance, beginning of year $ 699 618
Provision charged to expense 206 163
Loans charged off:
Commercial 27 29
Real estate:
Loans on primary residence --- 35
Installment 40 19
Other personal and business 18 3
----- ----
85 86
----- ----
Recoveries:
Commercial --- 1
Installment 5 2
Other personal and business 2 1
----- ----
7 4
----- ----
Net charge-offs 78 82
----- ----
Balance, end of year $ 827 699
===== ====
Ratios:
Allowance for loan losses as a
percent of year end loans 1.07% 1.11
===== ====
Net charge-offs to average loans 0.11% 0.18
===== ====
- --------------------------------------------------
</TABLE>
by 23% in 1995, the decrease in classified loans is primarily due to an expanded
loan administration area with stringent loan review guidelines on the financial
strength of these borrowers. No specific trends or deterioration in the
overall portfolio quality has been identified.
Management is unaware of any loans which are classified for regulatory purposes
that represent or result from trends or uncertainties that will materially
impact future operating results, liquidity, or capital resources.
OTHER REAL ESTATE OWNED
Other real estate owned represents property acquired through foreclosure,
including insubstance foreclosures or deeded to the Bank in lieu of foreclosure
on real estate mortgage loans on which the borrowers have defaulted as to
payment of principal and interest. Other real estate owned is valued at the
lower of cost or fair value less costs to sell.
In 1995, the two properties held as other real estate owned at year end 1994
were both sold. The two sales resulted in an aggregate loss of $13 due to the
carrying value exceeding the sales price less selling expenses. At December 31,
1994, other real estate owned consisted of a residential lot carried at $25 and
a single family residence carried at $192.
CHANGES IN OTHER REAL ESTATE OWNED
<TABLE>
<CAPTION>
Year ended
December 31,
--------------
<S> <C> <C>
1995 1994
----- ----
Beginning balance $ 217 90
Sales (217) (65)
Insubstance foreclosures --- 192
----- ----
Ending balance $ --- 217
===== ====
<PAGE>
DISTRIBUTION OF OTHER REAL ESTATE OWNED
Year ended
December 31,
-------------
1995 1994
----- ----
Undeveloped residential
lots $ --- 25
Residential home --- 192
----- ----
$ --- 217
===== ====
</TABLE>
CAPITAL RESOURCES
- -----------------
(Share data not in thousands)
A strong capital base that can sustain asset growth over time and absorb losses,
should the need arise, is a primary goal of the Company. At December 31, 1995,
the Company had total shareholders' equity of $8,955, an increase of $1,564 over
1994. The increase is primarily from the addition of $947 in after tax income
for the year ended December 31, 1995. The reduction of unrealized losses in
investment securities available for sale from $772 to $163 in accordance with
FAS No. 115 and the issuance of 600 shares of common stock as the result of the
exercise of options and warrants during 1995 accounted for increases to capital
of $609 and $8, respectively.
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act
of 1991 (FDICIA) became law. While the FDICIA primarily addresses additional
sources of funding for the SAIF and BIF, it also imposes a number of mandatory
and discretionary supervisory measures on financial institutions.
The FDICIA requires financial institutions to take certain actions relating to
their internal operations and also imposes certain operational and managerial
standards on financial institutions relating to internal controls, loan
documentation, credit underwriting, interest rate exposure, asset growth and
compensation, fees and benefits.
Furthermore, the FDICIA establishes five capital categories and specifies
supervisory actions in regard to undercapitalized institutions. The regulation,
which became effective December 19, 1992, ties the capital categories to three
capital measures: total risk-based, Tier 1 risk-based and leverage capital.
The definitions of Tier 1 and total capital under the FDICIA are similar to the
definitions under the previously existing capital guidelines, except for the
ratio of tangible equity to total assets used to define critically
undercapitalized.
The ratios for each category are as follows:
<TABLE>
<CAPTION>
Total Tier 1
risk-based risk-based Leverage
ratio ratio ratio
------------- ----------- ----------
<S> <C> <C> <C>
Well capitalized > 10.00% > 6.00% > 5.00%
- - -
Adequately capitalized 8.00-9.99 4.00-5.99 4.00-4.99
Undercapitalized 6.00-7.99 3.00-3.99 3.00-3.99
Significantly undercapitalized 6.00 3.00 2.01-2.99
Critically undercapitalized ---- ---- 2.00
The following table discloses the regulatory capital for the Bank as of December 31, 1995
and December 31, 1994:
December 31, December 31,
1995 1994
---------- ---------
CAPITAL:
Tier 1 capital $ 8,508 $ 7,495
Tier 2 capital 827 671
---------- ----------
Total capital $ 9,335 8,166
========== ==========
Total adjusted assets $ 114,059 95,836
========== ==========
Risk-weighted assets $ 72,071 53,681
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
RATIOS:
Leverage ratio 7.46% 7.82%
========== ==========
Tier 1 capital to risk-
weighted assets 11.80% 13.96%
Tier 2 capital to risk-
weighted assets 1.15% 1.25%
---------- ----------
Total capital to risk-
weighted assets 12.95% 15.21%
========== ==========
</TABLE>
The Bank does not anticipate any difficulty in meeting these requirements in the
foreseeable future. Based on these regulations, management believes the Bank is
classified as "well capitalized".
OTHER INFORMATION
- -----------------
(not in thousands)
DIVIDENDS
The ability of the Company to pay dividends to its shareholders depends almost
entirely on the earnings of the Bank and the Bank's ability to pay dividends to
the Company. The Company is entitled to receive dividends as and when declared
by the Board of Directors of the Bank out of funds legally available therefor,
subject to the restrictions set forth in the National Bank Act. Section 56 of
the National Bank Act states that no dividends will be paid in an amount greater
than the Bank's undivided profits (as each term is defined under the National
Bank Act).
Section 60 of the National Bank Act provides that no dividends may be declared
until the Bank's surplus fund is equal to its common capital: provided, however,
that quarterly or semi-annual dividends may be paid if at least ten percent of
the Bank's net income from the preceding six-month period have been carried to
the surplus fund, and annual dividends may be paid if at least ten percent of
the Bank's net income from the preceding two consecutive six-month periods have
been carried to the surplus fund. Additionally, cash dividends must receive the
prior approval of the OCC if the total of all cash dividends declared by the
Bank in any calendar year, including the proposed cash dividend, exceeds the
total of the Bank's net income for that year plus its retained net income from
the preceding two years less any required transfers to surplus or a fund for the
retirement of preferred stock.
The payment of all stock dividends by the Bank must receive the prior written
approval of the OCC. The OCC also has the authority under the National Bank Act
to prohibit the payment of cash dividends by a national bank when it determines
such payment to be an unsafe and unsound banking practice.
The Board of Directors of the Company considers earnings, capital requirements,
regulatory dividend limitations, financial condition of the Company, and other
relevant factors in determining the payment of dividends to shareholders. Cash
dividends paid in 1994 and 1993 were 30.0 cents and 10.0 cents per share. In
1995, a cash dividend was not declared, however a 10% stock dividend was
declared and distributed. As a result of past and planned growth, the Board of
Directors also declared a stock dividend of 10% to shareholders of record on
February 15, 1996.
MARKETABILITY OF COMPANY STOCK
There is currently no established trading market for the Company's common
stock. As of December 31, 1995, approximately 800 recordholders held
common stock of the Company. The following table sets forth on a quarterly
basis the high and low prices paid for the Company's common stock. These prices
are actual purchase/sale transactions as reflected in the records of the Company
(which acts as its own transfer agent) for the years 1995 and 1994 for those
transactions for which the Company is aware of the terms.
- ---------------------------------------
PRICE RANGE PER SHARE
1995 High Low
- ----------------------- ------ ------
Fourth quarter $17.00 $16.00
Third quarter 16.00 16.00
Second quarter 15.00 14.25
First quarter 14.00 14.00
<PAGE>
1994
- -----------------------
Fourth quarter $14.00 $13.25
Third quarter 13.25 12.50
Second quarter 12.50 12.50
First quarter 12.00 12.00
- ---------------------------------------
FORWARD LOOKING STATEMENTS
- --------------------------
This Annual Report contains forward looking statements that involve risks and
uncertainties, and there are certain important factors that could cause actual
results to differ materially from those anticipated. These important factors
include, but are not limited to, economic conditions (both generally and more
specifically in the markets in which the Company and the Bank operate),
competition for the Company's and the Bank's customers from other providers of
financial services, government legislation and regulation (which changes from
time to time and over which the Company and the Bank have no control), changes
in interest rates, the impact of the Company's rapid growth, and other risks
detailed in the Annual Report on Form 10-KSB and in the Company's other filings
which the Securities and Exchange Commission, all of which are difficult to
predict and many of which are beyond the control of the Company.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of the Company are contained on pages
8 through 28 of this document.
The report of the independent certified public accountants as of December
31, 1995 and 1994 and for each of the years ended in the three year period ended
December 31, 1995 contained in the Company's 1995 Annual Report to Shareholders
is on page 9 of this document.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE, OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
ELECTION OF DIRECTORS
Three directors will be elected at the Annual Meeting to serve for a term
of three years and until their successors shall have been elected and shall
qualify. It is intended that the persons named in the enclosed form of proxy
will vote for the election of the persons named below (herein called "nominees")
who have been nominated by the Board of Directors.
Each nominee has consented to be named in the Proxy Statement and to serve
as a director if elected. The Board of Directors has no reason to believe that
any of the nominees listed will not be available to serve, but if any nominee
should be or become unable or unwilling to serve, the shares represented by the
proxies received by the Company will be voted for the election of such other
person as director instead of such nominee, as the Board of Directors
recommends.
The nominees, Christopher E. Fogal and Ellen J. Guterl have been directors
of the Company since its formation in 1988. Joe Marinaro has been a director of
the Company since 1990. They were nominated and elected to their current three
year term in 1993. The following tables set forth certain information, as of
March 1, 1996, regarding these nominees as well as those directors whose terms
of office continue after the Annual Meeting, and the executive officers of the
Company.
<TABLE>
<CAPTION>
Nominees for Terms Expiring in 1999
Name, Age, and Business Experience Shares Percentage of Outstanding
During Past Five Years Director Since Beneficially Owned/1/ Shares/2/
- ---------------------------------- -------------- --------------------- -------------------------
<S> <C> <C> <C>
Christopher E. Fogal /3/ 1988 24,200 3.2%
Mr. Fogal, age 44, is a certified
public accountant who is the
managing partner of Fogal, Lynch,
Johnson, Long & Co., a St. Lucie
County accounting firm formed in
1990.
Ellen J. Guterl /4/ 1988 24,200 3.2%
Mrs. Guterl, age 55, Vice
Chairperson of the Board of
Directors of the Company and of
Port St. Lucie National Bank (the
"Bank"), has been employed since
1979 as an officer for several
privately owned real estate
companies, including Tropical
Homes Construction, Inc., which
she is President.
/1/ Includes the number of shares that could be purchased by exercise of
Warrants or Options presently exercisable or exercisable within 60 days from
March 1, 1996. The shares that could be purchased by exercise of Warrants or
Options reflect the stock dividend declared February 15, 1996 in accordance with
the Form of Warrant and the Stock Option Plan. As a result, all shares
beneficially owned reflect the 10% stock dividend declared February 15, 1996.
/2/ As required by SEC rules, any shares not outstanding which are subject to
Warrants or Options are deemed to be outstanding to the extent exercisable
within 60 days, for the purpose of computing the percentage of outstanding
shares owned by a person, but are not deemed to be outstanding for the purpose
of computing the percentage of outstanding shares owned by any other person.
/3/ Includes 121 shares held directly, 11,979 shares held jointly with his
wife, and 12,100 Warrants.
/4/ Includes 12,100 shares held directly and 12,100 Warrants.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Joe Marinaro /5/ 1990 17,883 2.4%
Mr. Marinaro, age 65, has been
President and sole owner of
Atlantic Fruit Company since 1985.
Atlantic Fruit Company is a
wholesale broker for fruit and
vegetables.
DIRECTORS CONTINUING IN OFFICE WHOSE TERMS EXPIRE IN 1998
Jeffrey S. Furst /6/ 1988 50,275 6.6%
Mr. Furst, age 51, is Chairman of
the Board of Directors of the
Company and the Bank, and a real
estate broker and part owner of
Century 21 The Real Estate Center
since 1987.
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS CONTINUING IN OFFICE WHOSE TERMS EXPIRE IN 1998
Name, Age, and Business Experience Shares Percentage of Outstanding
During Past Five Years Director Since Beneficially Owned/1/ Shares/2/
- ---------------------------------- -------------- --------------------- -------------------------
<S> <C> <C> <C>
Harold H. Goldman /7/ 1988 38,446 5.1%
Mr. Goldman, age 64, a retired
attorney and was formerly the
senior partner in the law firm of
Goldman, Bruning & Mildner, P.A.
in Port St. Lucie since 1975. Mr.
Goldman serves as Bank Secretary.
J. Hal Roberts, Jr. /8/ 1988 56,517 7.3%
Mr. Roberts, age 47, has served as
President and Chief Executive
Officer of the Company since April
1988 and of the Bank since its
inception.
DIRECTORS CONTINUING IN OFFICE WHOSE TERMS EXPIRE IN 1997
Howard L. Bickford /9/ 1988 22,627 3.0%
Mr. Bickford, age 72, has been a
part-time real estate broker since
1989.
/5/ Includes 121 shares directly, 12,100 shares held jointly with his wife,
2,226 shares held in his individual retirement account, and 3,436 shares held
by his wife's individual retirement account, beneficial ownership of which is
disclaimed by Mr. Marinaro.
/6/ Includes 121 shares held directly, 6,050 shares held in his individual
retirement account, 15,004 shares held jointly with his wife and 21,175
Warrants. Also includes 3,327 shares and 4,598 Warrants held by his wife,
beneficial ownership of which is disclaimed by Mr. Furst.
/7/ Includes 4,790 shares held directly, 15,104 shares held by his IRA and
18,553.15 Warrants.
/8/ Includes 1,509 shares held directly, 13,857 held jointly with his wife,
4,821 held in his individual retirement account, and 635 shares held in his
wife's individual retirement account, beneficial ownership of which is
disclaimed by Mr. Roberts. Also includes 11,495 Warrants and 24,200 vested
Options.
/9/ Included 121 shares held directly, 11,979 shares held by a trust of which
Mr. Bickford and his wife are the sole trustees for the benefit of Mr.
Bickford's wife, and 10,527 Warrants.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Charles E. Bigge /10/ 1988 30,429 4.0%
Mr. Bigge, age 65, has been the
owner and Chairman of the Board of
Custom Air Systems, Inc., an air
conditioning contractor in Port
St. Lucie since 1974.
Raymond L. Isenburg /11/ 1988 21,498 2.9%
Mr. Isenburg, age 52, has been the
Vice President of Applied Science
and Technology at Indian River
Community College since 1991.
From 1986 to 1991, he was Dean of
Vocational Education.
George V. Weston /12/ 1991 43,014 5.8%
Mr. Weston, age 64, has been
President and sole owner of
Marathon Abrasive Company, Inc.
since 1970. Marathon Abrasive
Company manufactures grinding
wheels for use in the steel
industry.
</TABLE>
<TABLE>
<CAPTION>
OTHER EXECUTIVE OFFICERS
Name, Age, and Business Experience Shares Percentage of Outstanding
During Past Five Years Director Since Beneficially Owned/1/ Shares/2/
- ---------------------------------- -------------- --------------------- -------------------------
<S> <C> <C> <C>
Randall A. Ezell /13/ 1988 19,871 2.6%
Mr. Ezell, age 45, has been the
Senior Vice President and the Chief
Financial Officer of the Company
since October 1988, and the Chief
Financial Officer and Cashier of
the Bank since April 3, 1989 and
Executive Vice President of the
Bank since April 1, 1995.
All Directors and Executive Officers as 348,960 39.1%
a group (11 persons)3-13
/10/ Includes 121 shares held directly, 1,415 shares held in his individual
retirement account, 6,231 shares held by a trust of which Mr. Bigge is the
sole trustee for the benefit of Mr. Bigge, and 605 shares held by a trust of
which Mr. Bigge is the sole trustee for the benefit of the Customer Air Systems
Inc. Profit Sharing Plan; Mr. Bigge disclaims beneficial ownership of 605 of
these shares. Also includes 6,231 shares held by a trust of which Mr. Bigge's
wife is the sole trustee for the benefit of Mr. Bigge's wife, 1,125 shares held
in his wife's individual retirement account and 14,701.5 Warrants.
/11/ Included 121 shares held directly, 12,577 shares held jointly with his
wife, and 8,800 Warrants.
/12/ Includes 121 shares held directly, 36,632 shares held jointly with his
wife and 6,261.75 Warrants.
/13/ Includes 1,237 shares held jointly by Mr. Ezell and his wife, 5,929
shares held by his individual retirement account, 605 Warrants and
12,100 vested Options.
</TABLE>
EXECUTIVE OFFICERS
The Executive Officers of the Company are elected annually by the Board of
Directors following the Annual Meeting of Shareholders to serve at the pleasure
of the Board of Directors and until their successors are elected and qualified.
The following table sets forth the name and age of each executive Officer and
all positions and offices he holds with the Company. All of these officers
have served as Executive Officers of the Company since 1988.
<TABLE>
<CAPTION>
Name Age Offices Held
- --------------------- --- -------------------------------------------------
<S> <C> <C>
J. Hal Roberts, Jr. 47 President and Chief Executive Officer
Randall A. Ezell 45 Senior Vice President and Chief Financial Officer
</TABLE>
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth a summary for the last three fiscal years of
the cash and noncash compensation awarded to, earned by, or paid to, the Chief
Executive Officer of the Company. No other executive officer exceeded the
individual remuneration level of $100,000 to be included in this table as a
highly compensated officer.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation
----------------------------------------------------------------------------------
Name and Principal Position Fiscal Year Salary Bonus/1/ Other Annual Compensation/2/
- --------------------------- ----------- -------- -------- -------------------------
<S> <C> <C> <C> <C>
J. Hall Roberts, Jr. 1995 $124,500 $ 3,088 $7,961
President and Chief 1994 $118,125 $ 6,793 $7,591
Executive Officer 1993 $109,375 $20,800 $5,659
</TABLE>
All of the Company Directors are also Directors of the Bank. There were no
fees paid for the Company Board meetings in 1995. The fees for the Bank Board
meetings were $450 per meeting with the Chairman of the Board receiving a fee of
$675 per meeting. All members were compensated for committee meetings at $100
per meeting. These fees aggregated $65,850 in 1995 and were recognized as an
expense to the Bank.
Board members who are also members of management receive no fee for
attendance at committee meetings but are compensated for attendance at Board of
Directors meetings. Mr. Roberts is currently the only member of management to
serve on the Board.
Effective December 1991, the Company adopted a nonqualified deferred
compensation plan in which Board members and key employees may voluntarily
participate. Participants can contribute by deferring director's fees or a
portion of their salary. The contributions are used to purchase and carry a
life insurance policy with the Bank as owner but with the proceeds to be paid to
the Company, with the Company distributing to the participants' beneficiaries.
There is no administrative cost arising out of this plan to the Bank or to the
Company. To date, there are four participants in the plan.
- ----------------------
/1/ Under Mr. Roberts' employment contracts, he was entitled to receive 1,000
shares of Common Stock upon the completion of each year as Chief Executive
Officer, through March 31, 1993. The stock award was discontinued effective
April 1, 1994. In addition, Mr. Roberts received a sstock bonus December
17, 1993 of 400 shares of Common Stock. In 1993, the stock issued to Mr.
Roberts was purchased in the open market at prevailing rates. The value
of the Common Stock on the award date and the cash portion of the bonus
are reflected below.
Date Stock Value Cash Annual Total
---- ----------- ---- ------------
1995 -0- $3,088 $ 3,088
1994 -0- $6,793 $ 6,793
1993 $15,800 $5,000 $20,800
/2/ The amounts shown above as other annual compensation include directors
fees earned by Mr. Roberts and expensed by the Company in the year shown
as well as other items shown below. Mr Roberts elected to defer the Bank
related directors fees pursuant to the nonqualified deferred compensation
plan discussed below.
<TABLE>
<CAPTION>
Life
Insurance
Bank Company Benefits in
Director's Director's Excess of 401K
Date Fees Fees $50,000 Matching Total
---- ---------- --------- --------- -------- -----
<S> <C> <C> <C> <C> <C>
1995 $5,400 -0- $693 $ 1,868 $7,961
1994 $4,800 $ 375 $644 $ 1,772 $7,591
1993 $3,250 $ 250 $518 $ 1,641 $5,659
</TABLE>
<PAGE>
On March 15, 1990, the Company, the Bank and Mr. Roberts entered into a
three-year employment agreement, which commenced on April 1, 1990 with an annual
salary of $80,000 for the first year and annual salaries of $90,000 and $100,000
for the second and third years, respectively. In addition, Mr. Roberts was
entitled to receive an additional 1,000 shares of Common Stock at the end of
each year of the employment agreement. The Company also granted Options to Mr.
Roberts which entitle him to purchase 20,000 shares of Common Stock under the
Company's Stock Option Plan. The Options vested over a period of five years at
the rate of 4,000 shares per year, commencing on April 3, 1989, and they expire
on April 3, 1999. The exercise price for the Options is equal to the greater of
(a) the fair market value of the Common Stock on the date of vesting, or (b)
$10.00 per share. The terms of the stock option plan discussed are prior to the
stock dividends. The plan allows both the number of options and the exercise
price to be adjusted to reflect any stock dividends. See further discussion of
the Company Stock Option plan below.
On April 1, 1995, Mr. Roberts received a one year extension at a salary of
$126,000 on his three year employment agreement which originated April 1, 1993.
A one year extension of the contract will continue to be added at each
anniversary upon satisfactory performance as determined by the Board of
Directors. Mr. Roberts will be entitled to salary for the remaining terms of
his contract at the then current level unless he voluntarily resigns or his
termination is caused by death, a demand by a regulatory agency or his
conviction of a crime relating to moral turpitude. Effective April 1, 1996, Mr.
Roberts will receive a renegotiated salary of $132,300 and a one year extension
of his employment agreement.
The Company Stock Option Plan is authorized to grant options to such full-
time employees of the Company (i.e. directors who are not employees are not
eligible) who are deemed to have contributed in the past or who may be expected
to contribute materially in the future to the successful performance of the
Company based on such factors as the Board or Compensation Committee may, in its
discretion, deem appropriate. The Stock Option Plan permits the Board of
Directors to issue options to purchase up to an aggregate of 64,130 shares of
Common Stock. The minimum price at which any option may be exercised will be
the fair market value of the Common Stock on the date of grant; except that the
exercise price for any option granted to a person owning more that 10% of the
Company's outstanding Common Stock must be at least 110% of the fair market
value of the Common Stock on the date of grant. All Options granted under the
Plan must be exercised within 10 years of the date of grant, except that Options
granted to a person owning more than 10% of the Common Stock must be exercised
within five years. To date, Options to purchase 62,883 shares of Common Stock
have been awarded under the plan to key employees of the Company of which 55,539
Options were outstanding at March 1, 1996, and 7,344 of which have been
exercised. The Options and shares reflect the 10% stock dividend declared
February 15, 1996. The Options to purchase shares are first exercisable as
follows:
<TABLE>
<CAPTION>
Exercise Price
Shares Per Option
------ --------------
<S> <C> <C>
Prior to 1990 7,865 8.26
1990 7,865 8.68
1991 8,349 8.68
1992 7,865 8.88
1993 7,865 9.09
1994 4,537 10.83
1995 6,353 13.44
1996 3,932 *
1997 908 *
------
55,539
</TABLE>
*Option price per share is determined by the greater of the fair market value of
the Common Stock when the Options first become exercisable or $8.26 per share.
The following table indicates the number of exercisable and unexercisable
options held by the only executive officer meeting disclosure requirements at
December 31, 1995. No options to purchase Common Stock by the executive officer
were exercised in 1995. The Options shown reflect the 10% stock dividend
declared February 15, 1996.
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year-End Option Values
-----------------------------
Number of Securities Underlying Unexcercised Value of Unexercised In-the-Money Options at
Options at Fiscal Year-End Fiscal Year-End Exercisable/Unexercisable
Name Exercisable/Unexercisable
- --------------------------- --------------------------------------------- --------------------------------------------
<S> <C> <C>
J. Hal Roberts, Jr. 24,200/-0- $141,000/ -0-
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN OWNERS
On March 1, 1996, the following persons owned, of record, or were known by
the Company to own beneficially more than five percent of the Common Stock of
the Company.
<TABLE>
<CAPTION>
Shares Owned Percentage of
Directly Shares Acquirable Outstanding
Name and Address of Beneficial Owner or Indirectly* Within 60 Days* Shares*
- ------------------------------------ --------------- ----------------- -------------
<S> <C> <C> <C>
Jeffrey S. Furst /6/ 24,502 25,773 6.6%
1161 SW Mirror Lake Cove, Port St.
Lucie, Florida
Harold H. Goldman /7/ 19,894 18,552 5.1%
1881 S. Irwin Road, Port St. Lucie,
Florida
J. Hal Roberts, Jr. /8/ 20,822 35,695 7.3%
2401 Dade Road, Fort Pierce, Florida
George V. Weston /12/ 36,753 6,261 5.8%
104 Toteka Circle, Jupiter, Florida
</TABLE>
Please refer to pages 37 through 39, Item 9 for "Election of Directors"
information.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's directors, executive officers, nominees for directors and
their immediate family and affiliates, including corporations and firms of which
they are officers or in which they or their families have an ownership interest,
are customers of the Company's principal subsidiary, the Bank. These persons,
corporations and firms have had transactions in the ordinary course of business
with the Bank, including borrowings of material amounts, all of which, in the
opinion of the management, were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated persons and did not involve more than the normal
risk of collectability or present other unfavorable features. The Company
expects the Bank to have such transactions on similar terms with its directors,
executive officers and their affiliates in the future. The approximate total
amount of such indebtedness at December 31, 1995 was $1,423,000. The largest
aggregate amount of indebtedness outstanding to such persons, corporations, and
firms as a group during 1995 was $1,625,000.
The Bank's main office is located in premises leased from a corporation
controlled by Harold H. Goldman, a director, at a current annual rental of
$43,500. The Company has obtained a market study from an independent real
estate appraiser which concludes that the rent paid under the lease is
comparable to the prevailing rental rates in the Port St. Lucie area. The lease
was for an initial term of five years which expired in 1994 and has been renewed
for another five years with a rental increase. In the opinion of the management
of the Company, the terms of the lease are comparable to those that could have
been obtained had the property been leased from an unaffiliated person.
In February 1992, the Bank entered into an agreement to lease additional
space in the same building as the main office. The lease has a term of seven
years and calls for an annual rental of $23,000 for the first two years, $25,000
for the third and fourth years
<PAGE>
and $27,000 for the years thereafter. The Company performed an additional
market study that indicates that the lease from the corporation Mr. Goldman
controls was comparable to prevailing rental rates in the Port St. Lucie area.
In the opinion of management of the Company, the terms of this lease are
comparable to those that could have been obtained had the property been leased
from an unaffiliated person.
In January 1993, the Bank again expanded main office operations and entered
into an agreement to lease additional space. The lease has a term of six years
and an annual rental of $15,000 for the first two years, $16,200 the third and
fourth years, and $16,800 thereafter. A market study of rental rates in the
Port St. Lucie area was performed by management which indicated the cost of the
additional rental space from the corporation controlled by Mr. Goldman was
comparable to the prevailing rental costs of similar space in the Port St. Lucie
area. In the opinion of management of the Company, the terms of this lease are
comparable to those that could have been obtained had the property been leased
from an unaffiliated person.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are either filed as part of this report
--------
or are incorporated herein by reference to documents previously filed by the
Company with the Security and Exchange Commission:
Exhibit
Number Description
- --------- -----------
3.1 Articles of Incorporation and By-Laws of Port St. Lucie National
Bank Holding Corp/2/
3.2 Articles of Association and By-Laws of Port St. Lucie
National Bank/1/
4 Form of Warrant/1/
10.1 Law and Finance Building Lease, dated April 11, 1988, between Law and
Finance Building, Inc. and Port St. Lucie National Bank/1/
10.2 Letter of Understanding, dated February 11, 1988, between J. Hal
Roberts, Jr. and the Organizers/1/
10.3 Option Agreement, dated May 23, 1988, between the Company and J.
Hal Roberts, Jr./1/
10.4 Employee Stock Option Plan/1/
10.5 Law and Finance Building Lease, dated January 23, 1990, between Law
and Finance Building, Inc. and Port St. Lucie National Bank/3/
10.6 Employment Agreement, dated September 19, 1988, between
Randall A. Ezell and Port St. Lucie National Bank/2/
10.7 Incentive Stock Option Agreement, dated September 22, 1988,
between the Company and Randall A. Ezell/2/
10.8 Contract for Sale and Purchase, dated December 8, 1989,
between the Company and Hanover Properties, Inc./2/
10.9 Letter Agreement, dated March 15, 1990, among J. Hal Roberts, Jr.,
Port St. Lucie National Bank Holding Corp. and Port St. Lucie
National Bank/2/
10.10 Law and Finance Building Lease, dated May 1, 1991, between Law and
Finance Building, Inc, and Port St. Lucie National Bank/4/
10.11 Law and Finance Building Lease, dated December 17, 1992, between Law
and Finance Building, Inc. and Port St. Lucie National Bank/5/
/1/ Incorporated by reference to the exhibits filed with the Registration
Statement on Form S-18, File. No. 33- 22692-A.
/2/ Incorporated by reference to the exhibits filed with the Form 10-K
for the fiscal year ended December 31, 1989.
/3/ Incorporated by reference to the exhibits filed with the Form 10-K
for the fiscal year ended December 31, 1991.
<PAGE>
10.12 Employment Agreement, dated February 18, 1993, between J.
Hal Roberts, Jr. and Port St. Lucie National Bank/4/
10.13 Port St. Lucie National Bank Deferred Compensation Plan/4/
10.14 Employment Agreement, dated February 4, 1994, between J. Hal
Roberts, Jr. and Port St. Lucie National Bank/6/
10.15 Port St. Lucie National Bank Deferred Compensation Plan as
amended June 17, 1993/5/
10.16 Renar Centre building lease, dated June 10, 1994, between Renar
Development Company and Port St. Lucie National Bank/7/
10.17 Renar Centre building lease, dated November 1, 1994, between Renar
Development Company and Port St. Lucie National Bank/6/
10.18 Employment Agreement, dated February 16, 1995, between J.
Hal Roberts, Jr. and Port St. Lucie National Bank/6/
10.19 Employment Agreement, dated January 18, 1996, between J. Hal
Roberts, Jr. and Port St. Lucie National Bank:
January 18, 1996
Mr. J. Hal Roberts, Jr.
President and Chief Executive Officer
Port St. Lucie National Bank
1100 S.W. St. Lucie West Boulevard
Port St. Lucie, Florida 34986
Dear Hal:
This letter is to reflect our agreement which supersedes the prior
Employment Agreement dated February 16, 1995, with respect to your
continued employment with Port St. Lucie National Bank (the "Bank")
and its Holding Company, Port St. Lucie National Bank Holding Corp.
(the "Company"), subject to and in accordance with the following terms
and conditions:
1. EMPLOYMENT:
----------
The Bank agrees to employ you as the President and Chief
Executive Officer ("CEO") of the Bank and the Company, and you
agree to accept such employment in these
/4/ Incorporated by reference to the exhibits filed with the Form 10-KSB for
the fiscal year ended December 31, 1992.
/5/ Incorporated by reference to the exhibits filed with the Form 10-KSB for
the fiscal year ended December 31, 1993.
/6/ Incorporated by reference to the exhibits filed with the Form 10-KSB for
the fiscal year ended December 31, 1994.
<PAGE>
positions upon the terms and conditions hereinafter set forth.
2. TERM:
----
The term of your employment shall be for a period of three (3)
years commencing on April 1, 1996. Unless this agreement is
sooner terminated pursuant to the next sentence, such initial
term of employment may be extended annually within the aforesaid
three (3) year period of time and the termination date shall be
extended correspondingly to such extensions. Notwithstanding
the foregoing, this agreement will terminate upon the following:
(a) Your death,
(b) the demand by any State or Federal Regulatory Agency
that you resign,
(c) conviction of a crime relating to moral turpitude,
(d) ninety (90) days written notice of termination
delivered by you or by the Bank or Company to the other
party.
3. COMPENSATION:
------------
In consideration of the services herein provided by you, the
Bank shall pay to you during the first year of employment
hereunder a salary at the rate of $132,300 and thereafter an
amount as mutually agreed upon between the Bank and you.
In the event of the failure of such agreement, the salary last
paid shall continue for the next succeeding year. This salary
shall be payable bi-monthly in accordance with the normal
payroll policies of the Bank as in effect from time to time. In
the event that your employment hereunder is terminated for any
reason other than your voluntary resignation, your death,
conviction of a crime as herein stated, or a demand for your
resignation by a State or Federal Regulatory Agency, the Bank
shall continue to pay to you any unpaid portion of your salary
for the remainder of the three (3) year term, payable bi-monthly
on the Bank's normal payroll payment dates. In the event that
your employment is terminated by reason of your voluntary
resignation, your death, conviction or crime as herein stated,
or a demand for your resignation by a State or Federal
Regulatory Agency, neither the Bank nor the Company shall be
obligated to make any further payments of salary after the
effective date of termination or issue any further reason for
such termination.
4. BUSINESS EXPENSES, REIMBURSEMENTS AND HEALTH BENEFITS:
-----------------------------------------------------
In addition to the compensation mentioned above, the Bank will
pay to you an automobile allowance of three hundred fifty
dollars ($350.00) per month and shall reimburse to you all
customary business expenses incurred by you. The Bank will
provide to you standard health and accident insurance coverage,
including major medical, hospitalization, life and disability
insurance, as ordinarily provided to all other Senior Officers
of the Bank.
5. DUTIES:
------
During the term of your employment with the Bank, you agree to
devote your entire
<PAGE>
time, energy and skill to the service of the Bank and
the Company and the promotion of the Bank's and the
Company's interest as President and C.E.O. of the Bank and the
Company, and you shall use your best efforts in the performance
of your services hereunder. You agree to abide by all rules and
regulations established from time to time by the Board of
Directors of the Bank or Company.
6. MISCELLANEOUS:
-------------
All notices and other communications required or permitted under
this letter shall be in writing (including telex and telegraphic
communication) and shall be (as elected by the person giving
such notice) hand delivered by messenger or courier service or
mailed by registered or certified mail (postage prepaid), return
receipt requested, addressed to the addresses set forth above,
with the Bank's address also being the Company's address, or to
such other address as any party may designate by notice
complying with the terms of this Section. Each such notice
shall be deemed delivered (a) on the date delivered if by
personal delivery or (b) on the date of delivery or (b) on the
date upon which the return receipt is signed or delivery is
refused or the notice is designated by the postal authorities as
not deliverable, as the case may be, if mailed.
If you are in agreement with the foregoing, please sign in the space
provided below. The Bank and Company look forward to your continued
service to it on the basis outlined in this letter.
In all other respects, the aforesaid Agreement dated January 18, 1996,
is hereby ratified and re-affirmed as if each and every word were
repeated herein and shall endure for the entire term of the within
contract.
Very truly yours,
PORT ST. LUCIE NATIONAL BANK
By: /s/ Jeffrey S. Furst
--------------------------------------------------------
Jeffrey S. Furst, Chairman of the Board of Directors of
Port St. Lucie National Bank
AND
PORT ST. LUCIE NATIONAL BANK HOLDING CORP.
By: /s/ Jeffrey S. Furst
--------------------------------------------------------
Jeffrey S. Furst, Chairman of the Board of Directors of
Port St. Lucie National Bank Holding Corp.
AGREED AND ACCEPTED as of this 18th day of January, 1996.
/s/ J. Hal Roberts, Jr.
--------------------------------------------------------
J. Hal Roberts, Jr.
<PAGE>
21 Subsidiaries of the registrant
1. Port St Lucie National Bank, a national banking association
organized under the laws of the United States.
2. Spirit Morgage Corp., incorporated under the laws of the State of
Florida.
(b) Reports on Form 8-K. No reports on Form 8-K in fourth quarter 1995.
--------------------
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
PORT ST. LUCIE NATIONAL BANK HOLDING CORP.
By: /s/ J. Hal Roberts, Jr.
------------------------------------------
J. Hal Roberts, Jr.
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ J. Hal Roberts, Jr. President, Chief Executive Officer, and March 21, 1996
- -------------------------- Director (Principal Executive Officer)
J. Hal Roberts, Jr.
/s/ Randall A. Ezell Sr. Vice President and Chief Financial March 21, 1996
- -------------------------- Officer (Principal Accounting and Financial
Randall A. Ezell Officer)
/s/ Howard L. Bickford Director March 21, 1996
- --------------------------
Howard L. Bickford
/s/ Charles E. Bigge Director March 21, 1996
- --------------------------
Charles E. Bigge
/s/ Christopher E. Fogal Director March 21, 1996
- --------------------------
Christopher E. Fogal
/s/ Jeffrey Furst Director March 21, 1996
- --------------------------
Jeffrey Furst
/s/ Harold Goldman Director March 21, 1996
- --------------------------
Harold Goldman
/s/ Ellen Guterl Director March 21, 1996
- --------------------------
Ellen Guterl
/s/ Raymond Isenburg Director March 21, 1996
- --------------------------
Raymond Isenburg
/s/ Joe Marinaro Director March 21, 1996
- --------------------------
Joe Marinaro
/s/ George V. Weston Director March 21, 1996
- --------------------------
George V. Weston
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,051
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,260
<INVESTMENTS-CARRYING> 3,897
<INVESTMENTS-MARKET> 3,947
<LOANS> 77,498
<ALLOWANCE> 827
<TOTAL-ASSETS> 114,533
<DEPOSITS> 104,233
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,345
<LONG-TERM> 0
0
0
<COMMON> 7
<OTHER-SE> 8,948
<TOTAL-LIABILITIES-AND-EQUITY> 114,533
<INTEREST-LOAN> 6,188
<INTEREST-INVEST> 1,921
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8,109
<INTEREST-DEPOSIT> 4,114
<INTEREST-EXPENSE> 4,164
<INTEREST-INCOME-NET> 3,945
<LOAN-LOSSES> 206
<SECURITIES-GAINS> (59)
<EXPENSE-OTHER> 1,230
<INCOME-PRETAX> 1,390
<INCOME-PRE-EXTRAORDINARY> 1,390
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 947
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.27
<YIELD-ACTUAL> 3.79
<LOANS-NON> 405
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 894
<ALLOWANCE-OPEN> 699
<CHARGE-OFFS> 85
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 827
<ALLOWANCE-DOMESTIC> 827
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
