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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21967
KEY FLORIDA BANCORP, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0105205
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6016 26TH STREET WEST, SUITE 1, BRADENTON, FL 34207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (941) 751-4460
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
Check whether the issuer has (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES X NO
--- ---
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of issuer'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 issuer's revenues for its most recent fiscal year was $11,546,081
The aggregate market value of the Common Stock held by non-affiliates of
the issuer is $16,536,000, based on the price at which shares of common
stock were sold on January 2, 1997.
As of April 15, 1997, there were issued and outstanding 2,758,129 shares
of the issuer's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the 1996 Annual Report to Shareholders for the year ended
December 31, 1996 are incorporated into Part II, Items 5 through 8 of this
Annual Report on Form 10-KSB.
2. Portions of the Proxy Statement for the Annual Meeting of Shareholders
to be held on May 27, 1997 to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days of the issuer's fiscal
year end are incorporated into Part III, Items 10 through 13 of this Annual
Report on Form 10-KSB.
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TABLE OF CONTENTS
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Part I
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Item 1. Business................................................................................. 1
General................................................................................ 1
Deposits............................................................................... 2
Loan Portfolio......................................................................... 2
Investments............................................................................ 3
Correspondent Banking.................................................................. 4
Data Processing........................................................................ 4
Effect of Governmental Policies........................................................ 4
Interest and Usury..................................................................... 4
Supervision and Regulation............................................................. 5
Industry Restructuring................................................................. 10
Competition............................................................................ 11
Employees.............................................................................. 11
Statistical Profile and Other Financial Data........................................... 11
Item 2. Properties............................................................................... 12
Item 3. Legal Proceedings........................................................................ 12
Item 4. Submission of Matters to a Vote of Security Holders...................................... 12
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.................................................................... 13
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................. 13
Item 7. Financial Statements..................................................................... 13
Item 8. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure..................................... 13
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Part III
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Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act...................................... 15
Item 10. Executive Compensation................................................................... 15
Item 11. Security Ownership of Certain Beneficial Owners and
Management............................................................................. 15
Item 12. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................... 15
Signatures................................................................................................ 18
Exhibit Index............................................................................................. 19
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PART I
ITEM 1. BUSINESS
GENERAL
Key Florida Bancorp, Inc. ("Bancorp") was incorporated under the laws of
the State of Florida on July 26, 1988. Bancorp is a registered bank company and
owns all of the voting shares of Liberty National Bank ("LNB"). Bancorp has no
significant operations other than owning the stock of LNB. LNB, which is a
national banking association, is the only source of revenue for Bancorp.
On July 30, 1996, Bancorp closed the merger of Key Florida Bank, F.S.B.
("KFB"), which was a wholly-owned subsidiary of Bancorp at the time of the
merger, with and into LNB. In the merger, the outstanding shares of LNB common
stock were converted into an aggregate of 2,739,847 shares of Bancorp common
stock, par value $.01 per share ("Bancorp Common Stock").
LNB provides a range of consumer and commercial banking services to
individuals, businesses and industries. The basic services offered by LNB
include: demand interest bearing and noninterest bearing accounts, money market
deposit accounts, NOW accounts, time deposits, safe deposit services, credit
cards, cash management, direct deposits, notary services, money orders, night
depository, travelers' checks, cashier's checks, domestic collections, savings
bonds, bank drafts, automated teller services, drive-in tellers, and banking by
mail. In addition, LNB makes secured and unsecured commercial and real estate
loans and issues stand-by letters of credit. LNB provides automated teller
machine (ATM) cards, as a part of the HONOR ATM network, thereby permitting
customers to utilize the convenience of larger ATM networks. In addition to the
foregoing services, the offices of LNB provide customers with extended banking
hours. LNB does not have trust powers and, accordingly, no trust services are
provided.
The revenues of LNB are primarily derived from interest on, and fees
received in connection with, real estate and other loans, and from interest and
dividends from investment and mortgage-backed securities, and short-term
investments. The principal sources of funds for LNB's lending activities are its
deposits, repayment of loans, the sale and maturity of investment securities,
and borrowings from the Federal Home Loan Bank of Atlanta. The principal
expenses of LNB are the interest paid on deposits, and operating and general
administrative expenses.
As is the case with banking institutions generally, LNB's operations are
materially and significantly influenced by general economic conditions and by
related monetary and fiscal policies of financial institution regulatory
agencies, including the Board of Governors of the Federal Reserve System
("Federal Reserve") and the Office of the Comptroller of the Currency ("OCC").
Deposit flows and costs of funds are influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
affected by the demand for financing of real estate and other types of loans,
which in turn is affected by the interest rates at which such
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financing may be offered and other factors affecting local demand and
availability of funds. LNB faces strong competition in the attraction of
deposits (its primary source of lendable funds) and in the origination of loans.
See "Competition."
DEPOSITS
LNB's deposit services include business and individual checking accounts,
savings accounts, NOW accounts and certificates of deposit. It is LNB's policy
to monitor its competition in order to keep the rates paid on its deposits at a
competitive level. Time deposits of $100,000 and over made up 10.75% of LNB's
total deposits at December 31, 1996 as compared to 12.6% at December 31, 1995.
The majority of the deposits of LNB are generated from Manatee and Sarasota
counties. LNB does not accept brokered deposits. At December 31, 1996, 0.03% of
LNB's total deposits were comprised of public fund deposits. There were no
public fund deposits at December 31, 1995. At December 31, 1996, no single
depositor accounted for more than 0.5% of LNB's total deposits as compared to
1.0% at December 31, 1995. Management does not believe LNB is dependent on a
single deposit customer or group of customers concentrated in a particular
industry, whose loss or insolvency would have a material adverse effect on LNB's
operations.
Time deposits of $100,000 and over, public fund deposits and funds of
single depositors tend to be short-term in nature and more sensitive to changes
in interest rates than other types of deposits and, therefore, may be a less
stable source of funds. In the event that existing short-term deposits are not
renewed, the resulting loss of the deposited funds could adversely affect LNB's
liquidity. In a rising interest rate market, such short-term deposits may prove
to be a costly source of funds because their short-term nature facilitates
renewal at increasingly higher interest rates, which may adversely affect
Bancorp's earnings. However, the converse is true in a falling interest rate
market making such short-term deposits more favorable to Bancorp.
LOAN PORTFOLIO
LNB's loans are concentrated in three major areas: commercial loans, real
estate loans, and installment loans. Approximately 14.55% of LNB's total loan
portfolio at December 31, 1996, consisted of commercial loans as compared to
19.61% at December 31, 1995. The majority of LNB's loans are made on a secured
basis. At December 31, 1996 and 1995, no concentration of loans within any
portfolio category to any group of borrowers engaged in similar activities or in
a similar business exceeded 0.5% of total loans, except that as of such date
loans collateralized with mortgages on real estate represented 78.36% and
72.68%, respectively, of the loan portfolio and were to borrowers in varying
activities and businesses.
LNB's commercial loans include loans to individuals and small-to
medium-sized businesses located primarily in Manatee and Sarasota counties for
working capital, equipment purchases, and various other business purposes. A
majority of LNB's commercial loans are secured by inventory, equipment or
similar assets, but these loans may also be made on an unsecured basis.
Commercial loans may be made at variable- or fixed-interest rates; however, it
is LNB's policy that those loans
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which will have terms or amortization schedules of longer than one year will
normally carry interest rates which vary with the prime interest lending rate
and will become payable in full and are generally refinanced in three to five
years.
LNB's real estate loans are secured by mortgages and consist primarily of
loans to individuals and businesses for various consumer and business purposes
(whether or not related to the real estate securing them). LNB also engages in
lending to builders and individuals for the construction of single-family
residences. These real estate loans may be made at fixed-or variable-interest
rates. LNB generally does not make commercial loans for terms exceeding 20
years, but does make loans repayable in monthly installments (based on up to a
20-year amortization schedule) which become payable in full and are generally
refinanced in three to five years. LNB's residential real estate loans generally
are repayable in monthly installments based on an amortization schedule of up to
20-years with variable-interest rates; however, most loans are established with
a short-term call provision.
LNB's installment loan portfolio consists primarily of loans to
individuals for various consumer purposes, but includes some business purpose
loans which are payable on an installment basis. The majority of these loans are
for terms of less than five years and are secured by liens on various personal
assets of the borrowers, but installment loans may be made on an unsecured
basis. Installment loans are made at fixed-and variable-interest rates, and may
be made based on up to a five-year amortization schedule.
INVESTMENTS
LNB invests a portion of its assets in U.S. Treasury and U.S. Government
agency obligations, certificates of deposit, collateralized mortgage obligations
("CMO's"), overnight investments in the Federal Home Loan Bank, and federal
funds sold. LNB's investments are managed in relation to loan demand and deposit
growth, and are generally used to provide for the investment of excess funds at
minimal risks while providing liquidity to fund increases in loan demand or to
offset fluctuations in deposits.
With respect to LNB's investment portfolio, LNB's total portfolio may be
invested in U.S. Treasury and general obligations of its agencies because such
securities generally represent a minimal investment risk. Occasionally, LNB
purchases certificates of deposits of national and state banks. These
investments may exceed $100,000 in any one institution (the limit of FDIC
insurance for deposit accounts). CMO's are secured with Federal National
Mortgage Association ("FNMA") mortgage-backed securities and generally have a
shorter life than the stated maturity. Federal funds sold is the excess cash LNB
has available over and above daily cash needs. This money is invested on an
overnight basis with approved correspondent banks.
LNB monitors changes in financial markets. In addition to investments for
its portfolio, LNB monitors its daily cash position to ensure that all available
funds earn interest at the earliest possible date. A portion of the investment
account is designated as secondary reserves and invested in liquid securities
that can be readily converted to cash with minimum risk of market
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loss. These investments usually consist of U.S. Treasury obligations, U.S.
government agencies and federal funds. The remainder of the investment account
may be placed in investment securities of different type and longer maturity.
Daily surplus funds are sold in the federal funds market for one business day.
LNB attempts to stagger the maturities of its securities so as to produce a
steady cash-flow in the event LNB needs cash, or economic conditions change to a
more favorable rate environment.
CORRESPONDENT BANKING
Correspondent banking involves one bank providing services to another bank
which cannot provide that service for itself from an economic or practical
standpoint. LNB is required to purchase correspondent services offered by larger
banks, including check collections, purchase of Federal funds, security
safekeeping, investment services, coin and currency supplies, overline and
liquidity loan participations and sales of loans to or participation with
correspondent banks.
LNB sells loan participations to correspondent banks with respect to loans
which exceed LNB's lending limit. Management of LNB has established
correspondent relationships with the NationsBank, SunTrust and Compass Bank. As
compensation for services provided by a correspondent, LNB maintains certain
balances with such correspondent in non-interest bearing accounts. Such
compensating balances are not deemed significant to LNB's operations.
DATA PROCESSING
LNB has a data processing department which provides a full range of data
processing services, including an automated general ledger, deposit accounting,
and commercial, mortgage and installment lending data processing.
EFFECT OF GOVERNMENTAL POLICIES
The earnings and business of Bancorp are and will be affected by the
policies of various regulatory authorities of the United States, especially the
Federal Reserve. The Federal Reserve, among other things, regulates the supply
of credit and deals with general economic conditions within the United States.
The instruments of monetary policy employed by the Federal Reserve for these
purposes influence in various ways the overall level of investments, loans,
other extensions of credit and deposits, and the interest rates paid on
liabilities and received on assets.
INTEREST AND USURY
LNB is subject to numerous state and federal statutes that affect the
interest rates that may be charged on loans. These laws do not, under present
market conditions, deter LNB from continuing the process of originating loans.
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SUPERVISION AND REGULATION
Bank Holding Company Regulation. Bancorp is a one-bank holding company,
registered with the Federal Reserve under the Bank Holding Company Act of 1956
("BHC Act"). As such, Bancorp is subject to the supervision, examination, and
reporting requirements of the BHC Act and the regulations of the Federal
Reserve. Bancorp is required to furnish to the Federal Reserve an annual report
of its operations at the end of each fiscal year, and such additional
information as the Federal Reserve may require pursuant to the BHC Act.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5% of the total voting shares of the bank, (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of the bank, or (iii) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy and consideration of convenience and needs issues includes the parties'
performance under the Community Reinvestment Act of 1977 (the "CRA"), both of
which are discussed below.
The BHC Act generally prohibits Bancorp from engaging in activities other
than banking or managing or controlling banks or other permissible subsidiaries
and from acquiring or retaining direct or indirect control of any company
engaged in any activities other than those activities determined by the Federal
Reserve to be so closely related to banking or managing or controlling banks as
to be a proper incident thereto. In determining whether a particular activity is
permissible, the Federal Reserve must consider whether the performance of such
an activity reasonably can be expected to produce benefits to the public, such
as greater convenience, increased competition, or gains in efficiency, that
outweigh possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interests, or unsound banking
practices. For example, factoring accounts receivable, acquiring or servicing
loans, leasing personal property, conducting discount securities brokerage
activities, performing certain data processing services, acting as agent or
broker in selling credit life insurance and certain other types of insurance in
connection with credit transactions, and performing certain insurance
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underwriting activities all have been determined by the Federal Reserve to be
permissible activities of bank holding companies. Despite prior approval, the
Federal Reserve has the power to order a bank holding company or its
subsidiaries to terminate any activity or to terminate its ownership or control
of any subsidiary when it has reasonable cause to believe that continuation of
such activity or such ownership or control constitutes a serious risk to the
financial safety, soundness, or stability of any bank subsidiary of that bank
holding company.
Banks are subject to the provisions of the CRA. Under the terms of the
CRA, the appropriate federal bank regulatory agency is required, in connection
with its examination of a bank, to assess such bank's record in meeting the
credit needs of the community served by that bank, including low-and
moderate-income neighborhoods. The regulatory agency's assessment of the bank's
record is made available to the public. Further, such assessment is required of
any bank which has applied to (i) charter a national bank, (ii) obtain deposit
insurance coverage for a newly chartered institution, (iii) establish a new
branch office that will accept deposits, (iv) relocate an office, or (v) merge
or consolidate with, or acquire the assets or assume the liabilities of, a
federally regulated financial institution. In the case of a bank holding company
applying for approval to acquire a bank or other bank holding company, the
Federal Reserve will assess the record of each subsidiary bank of the applicant
bank holding company, and such records may be the basis for denying the
application.
Bank Regulation. LNB is chartered under the laws of the United States and
its deposits are insured by the Federal Deposit Insurance Corporation (the
"FDIC") to the extent provided by law. LNB is subject to comprehensive
regulation, examination and supervision by the OCC and to other laws and
regulations applicable to banks. Such regulations include limitations on loans
to a single borrower and to its directors, officers and employees; restrictions
on the opening and closing of branch offices; the maintenance of required
capital and liquidity ratios; the granting of credit under equal and fair
conditions; and the disclosure of the costs and terms of such credit. LNB is
examined periodically by the OCC to whom it submits periodic reports regarding
its financial condition and other matters. The OCC has a broad range of powers
to enforce regulations under its jurisdiction, and to take discretionary actions
determined to be for the protection of the safety and soundness of national
banks, including the institution of cease and desist orders and the removal of
directors and officers. The OCC also has the authority to approve or disapprove
mergers, consolidations, and similar corporate actions.
Under federal law, federally insured banks are subject, with certain
exceptions, to certain restrictions on any extension of credit to their parent
holding companies or other affiliates, on investment in the stock or other
securities of affiliates, and on the taking of such stock or securities as
collateral from any borrower. In addition, such banks are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit or the providing of any property or service.
In 1989, the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA") was enacted. FIRREA contains major regulatory reforms,
stronger capital standards
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for savings and loan associations and stronger civil and criminal enforcement
provisions. FIRREA also provides that a depository institution insured by the
FDIC can be held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC after August 9, 1989 in connection with (i) the default of
a commonly controlled FDIC insured depository institution, or (ii) any
assistance provided by the FDIC to a commonly controlled FDIC insured
institution in danger of default.
In 1991, the FDIC Improvement Act of 1991 ("FDICIA") was enacted. FDICIA
made a number of reforms addressing the safety and soundness of deposit
insurance funds, supervision, accounting, and prompt regulatory action, and also
implements other regulatory improvements. Annual full-scope, on-site
examinations are required of all insured depository institutions. The cost for
conducting an examination of an institution may be assessed to that institution,
with special consideration given to affiliates and any penalties imposed for
failure to provide information requested. Insured state banks also are precluded
from engaging as principal in any type of activity that is impermissible for a
national bank, including activities relating to insurance and equity
investments. FDICIA also recodified current law restricting extensions of credit
to insiders under the Federal Reserve Act.
Dividends. Dividends from LNB constitute the primary source of funds for
dividends to be paid by Bancorp. There are various statutory and contractual
limitations on the ability of LNB to pay dividends, extend credit, or otherwise
supply funds to Bancorp. The Federal Reserve and the OCC also have the general
authority to limit the dividends paid by bank holding companies and national
banks, respectively, if such payment may be deemed to constitute an unsafe and
unsound practice. The declaration and payment of dividends by a national bank
are subject to the national banking laws and the rules and regulations of the
OCC governing the manner and amount of dividends which may be paid to
shareholders and the methods, if any, by which permanent capital reserves may be
retired or reduced. Under the national banking laws, a national bank may not pay
dividends from its capital; all dividends must be paid out of net profits, after
deducting for expenses. A national bank also is precluded from declaring a
dividend until its surplus equals its stated capital, unless there has been
transferred to surplus no less than 1/10th of the bank's net profits for the
preceding two consecutive half-year periods (in the case of an annual dividend).
The approval of the OCC is required if the total of all dividends declared by a
national bank in any calendar year exceeds the total of its net profits for that
year combined with its retained net profits for the preceding two years, plus
any required transfers to surplus. Florida law applicable to companies
(including Bancorp) provides that dividends may be declared and paid only if,
after giving it effect, (i) the company is able to pay its debts as they become
due in the usual course of business, and (ii) the company's total assets would
be greater than the sum of its total liabilities plus the amount that would be
needed if the company were to be dissolved at the time of the dividend to
satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the dividend.
Effect of Governmental Policies. The earnings and business of Bancorp
and LNB are effected by the policies of various regulatory authorities of the
United States, especially the Federal
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Reserve. The Federal Reserve, among other things, regulates the supply of credit
and deals with general economic conditions within the United States. The
instruments of monetary policy employed by the Federal Reserve for those
purposes influence in various ways the overall level of investments, loans,
other extensions of credits, and deposits, and the interest rates paid on
liabilities and received on assets.
Enforcement Powers. Congress has provided the federal bank regulatory
agencies with an array of powers to enforce laws, rules, regulations and orders.
Among other things, the agencies may require that institutions cease and desist
from certain activities, may preclude persons from participating in the affairs
of insured depository institutions, may suspend or remove deposit insurance, and
may impose civil money penalties against institution-affiliated parties for
certain violations.
Maximum Legal Interest Rates. Like the laws of many states, Florida law
contains provisions on interest rates that may be charged by banks and other
lenders on certain types of loans. Numerous exceptions exist to the general
interest limitations imposed by Florida law. The relative importance of these
interest limitation laws to the financial operations of LNB will vary from time
to time, depending on a number of factors, including conditions in the money
markets, the costs and availability of funds, and prevailing interest rates.
Bank Branching. Banks in Florida are permitted to branch state wide. Such
branch banking by national banks, however, is subject to prior approval by the
OCC. Any such approval would take into consideration several factors, including
the bank's level of capital, the prospects and economics of the proposed branch
office, and other conditions deemed relevant by the OCC for purposes of
determining whether approval should be granted to open a branch office.
Change of Control. Federal law restricts the amount of voting stock of a
bank holding company and a bank that a person may acquire without the prior
approval of banking regulators. The overall effect of such laws is to make it
more difficult to acquire a bank holding company and a bank by tender offer or
similar means than it might be to acquire control of another type of
corporation. Consequently, shareholders of Bancorp may be less likely to benefit
from the rapid increases in stock prices that may result from tender offers or
similar efforts to acquire control of other companies. Federal law also imposes
restrictions on acquisitions of stock in a bank holding company and a state
bank. Under the federal Change in Bank Control Act and the regulations
thereunder, a person or group must give advance notice to the Federal Reserve
before acquiring control of any bank holding company and the OCC before
acquiring control of any national bank (such as LNB). Upon receipt of such
notice, the Federal Reserve and the OCC, as the case may be, may approve or
disapprove the acquisition. The Change in Bank Control Act creates a rebuttable
presumption of control if a member or group acquires a certain percentage or
more of a bank holding company's or bank's voting stock, or if one or more other
control factors set forth in the Act are present.
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Insurance of Deposits. LNB's deposit accounts are insured by the FDIC up
to a maximum of $100,000 per insured depositor. The FDIC issues regulations,
conducts periodic examinations, requires the filing of reports and generally
supervises the operations of its insured banks. Any insured bank which is not
operated in accordance with or does not conform to FDIC regulations, policies
and directives may be sanctioned for non-compliance. Proceedings may be
instituted against any insured bank or any director, officer, or employee of
such bank engaging in unsafe and unsound practices, including the violation of
applicable laws and regulations. The FDIC has the authority to terminate
insurance of accounts pursuant to procedures established for that purpose.
Capital Requirements. The federal bank regulatory authorities have
adopted risk-based capital guidelines for banks and bank holding companies that
are designed to make regulatory capital requirements more sensitive to
differences in risk profile among banks and bank holding companies. The
resulting capital ratios represent qualifying capital as a percentage of total
risk-weighted assets and off-balance sheet items. The guidelines are minimums,
and the federal regulators have noted that banks and bank holding companies
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain all ratios well in excess of
the minimums. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital ratio
equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1 capital
includes common stockholders' equity, qualifying perpetual preferred stock, and
minority interests in equity accounts of consolidated subsidiaries, but excludes
goodwill and most other intangibles and excludes the allowance for loan and
lease losses. Tier 2 capital includes the excess of any preferred stock not
included in Tier 1 capital, mandatory convertible securities, hybrid capital
instruments, subordinated debt and intermediate term-preferred stock, and
general reserves for loan and lease losses up to 1.25% of risk-weighted assets.
At December 31, 1996, (i) Bancorp's Tier 1 and total risk-based capital ratios
were 9.04% and 10.05%, respectively, and (ii) LNB's Tier 1 and total risk-based
capital ratios were 8.68% and 9.69%, respectively.
FDICIA contains "prompt corrective action" provisions pursuant to which
banks are to be classified into one of five categories based upon capital
adequacy, ranging from "well capitalized" to "critically undercapitalized" and
which require (subject to certain exceptions) the appropriate federal banking
agency to take prompt corrective action with respect to an institution which
becomes "significantly undercapitalized" or "critically undercapitalized".
The FDIC has issued regulations to implement the "prompt corrective
action" provisions of FDICIA. In general, the regulations define the five
capital categories as follows: (i) an institution is "well capitalized" if it
has a total risk-based capital ratio of 10% or greater, has a Tier 1 risk-based
capital ratio of 6% or greater, has a leverage ratio of 5% or greater and is not
subject to any written capital order or directive to meet and maintain a
specific capital level for any capital measures; (ii) an institution is
"adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, has a Tier 1 risk-based capital ratio of 4% or greater, and has a
leverage ratio of 4% or greater; (iii) an institution is "undercapitalized" if
it has a total risk-based capital ratio of
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less than 8%, has a Tier 1 risk-based capital ratio that is less than 4% or has
a leverage ratio that is less than 4%; (iv) an institution is "significantly
undercapitalized" if it has a total risk-based capital ratio that is less than
6%, a Tier 1 risk-based capital ratio that is less than 3% or a leverage ratio
that is less than 3%; and (v) an institution is "critically undercapitalized" if
its "tangible equity" is equal to or less than 2% of its total assets. The FDIC
also, after an opportunity for a hearing, has authority to downgrade an
institution from "well capitalized" to "adequately capitalized" or to subject an
"adequately capitalized" or "under-capitalized" institution to the supervisory
actions applicable to the next lower category, for supervisory concerns. As of
December 31, 1996, LNB had a total risk-based capital ratio of 9.68%, a Tier 1
risk-based capital ratio of 8.68%, and a leverage ratio of 5.67%.
Additionally, FDICIA requires, among other things, that (i) only a "well
capitalized" depository institution may accept brokered deposits without prior
regulatory approval and (ii) the appropriate federal banking agency annually
examine all insured depository institutions, with some exceptions for small,
"well capitalized" institutions and state-chartered institutions examined by
state regulators. FDICIA also contains a number of consumer banking provisions,
including disclosure requirements and substantive contractual limitations with
respect to deposit accounts.
Interstate Banking. The Reigle-Neal Interstate Banking and Branching
Efficiency Act of 1994 provides for nationwide interstate banking and branching.
Under the law, interstate acquisitions of banks or bank holding companies in any
state by bank holding companies in any other state is permissible subject to
certain limitations. Florida also has a law that allows out-of-state bank
holding companies (located in states that allow Florida bank holding companies
to acquire banks and bank holding companies in that state) to acquire Florida
banks and Florida bank holding companies. The law essentially provides for
out-of-state entry by acquisition only (and not by interstate branching) and
requires the acquired Florida bank to have been in existence for at least three
years. Interstate branching and consolidation of existing bank subsidiaries in
different states will be permissible beginning June 1, 1997. Out-of-state banks
that do not operate a branch in Florida are prohibited from establishing a de
novo branch in Florida. Beginning June 1, 1997, a Florida bank may establish,
maintain, and operate one or more branches in a state other than Florida
pursuant to an interstate merger transaction in which the Florida bank is the
resulting bank. An interstate merger transaction resulting in the acquisition by
an out-of-state bank of a Florida bank is not permitted unless the Florida bank
has been in existence and continuously operating, on the day of the acquisition,
for more than three years.
INDUSTRY RESTRUCTURING
For well over a decade, the banking industry has been undergoing a
restructuring process which is anticipated to continue. The restructuring has
been caused by product and technological innovations in the financial services
industry, deregulation of interest rates, and increased competition from foreign
and nontraditional banking competitors, and has been characterized
10
<PAGE> 14
principally by the gradual erosion of geographic barriers to intrastate and
interstate banking and the gradual expansion of investment and lending
authorities for bank institutions.
Members of Congress and the administration have indicated their intention
to consider additional legislation designed to institute reforms to promote the
viability of the industry. Certain of the proposals would revise the federal
regulatory structure for insured depository institutions; others would affect
the nature of products, services, and activities that bank holding companies and
their subsidiaries may offer or engage in, and the types of entities that may
control depository institutions. There can be no assurance as to whether or in
what form any such proposed legislation might be enacted, or what impact such
legislation might have upon Bancorp.
COMPETITION
Bancorp encounters strong competition both in making loans and in
attracting deposits. The deregulation of the banking industry and the widespread
enactment of state laws which permit multi-bank holding companies as well as an
increasing level of interstate banking have created a highly competitive
environment for commercial banking. In one or more aspects of its business, LNB
competes with other commercial banks, savings and loan associations, credit
unions, finance companies, mutual funds, insurance companies, brokerage and
investment banking companies, and other financial intermediaries. Most of these
competitors, some of which are affiliated with bank holding companies, have
substantially greater resources and lending limits, and may offer certain
services that LNB does not currently provide. In addition, many of LNB's
non-bank competitors are not subject to the same extensive federal regulations
that govern bank holding companies and federally insured banks. Recent federal
and state legislation has heightened the competitive environment in which
financial institutions must conduct their business, and the potential for
competition among financial institutions of all types has increased
significantly.
To compete, LNB relies upon specialized services, responsive handling of
customer needs, and personal contacts by its officers, directors, and staff.
Large multi-branch banking competitors tend to compete primarily by rate and the
number and location of branches while smaller, independent financial
institutions tend to compete primarily by rate and personal service.
EMPLOYEES
As of December 31, 1996, Bancorp had 87 full-time employees and 6 part-time
employees. The employees are not represented by a collective bargaining unit.
Bancorp believes that its employee relations are good.
11
<PAGE> 15
STATISTICAL PROFILE AND OTHER FINANCIAL DATA
Reference is hereby made to the statistical and financial data contained
in the section captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which is included in the Bancorp's 1996
Annual Report to Shareholders and incorporated in this report under Item 7 of
Part II, for statistical and financial data providing a review of Bancorp's
business activities.
ITEM 2. PROPERTIES
The main office of Bancorp is located at 6016 26th Street West, Suite 1,
Bradenton, Florida in a one-story building, in which approximately 1,000 square
feet is leased by Bancorp (under a lease which, with renewal options, expires in
June, 1999). The main office of LNB is located at 6001 26th Street West,
Bradenton, Florida in a two-story building of approximately 9,000 square feet,
which is owned by LNB. LNB also has banking offices located at 3901 Cortez Road
West, Bradenton, Florida, in a one-story building of approximately 4,500 square
feet, which is leased by LNB (under a lease which, with renewal options, expires
in December, 1997); 5390 Gulf of Mexico Drive, Longboat Key, Florida in a
one-story building of approximately 2,310 square feet, which is leased by LNB
(under a lease which, with renewal options, expires in August 2001); 4423
Manatee Avenue West, Bradenton, Florida in a one-story building of approximately
2,400 square feet, which is owned by LNB; 6304 N. Lockwood Ridge Road, Sarasota,
Florida in a one-story building of approximately 4,000 square feet, which is
owned by LNB; 6704 Bee Ridge Road, Sarasota, Florida in a two-story building of
approximately 4,000 square feet, which is leased by LNB (under a lease which,
with renewal options, expires in 2011); 3815 U.S. Highway 301 N., Ellenton,
Florida 34222 in a one-story building of approximately 4,000 square feet, which
is owned by LNB.
ITEM 3. LEGAL PROCEEDINGS
LNB is a party to various legal proceedings in the ordinary course of its
business, including proceedings to collect loans or enforce security interests.
In the opinion of management of Bancorp, none of the legal proceedings currently
pending will, when resolved, have a material adverse effect on the business or
financial condition of Bancorp on a consolidated basis.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Bancorp security holders during the
fourth quarter of the year ended December 31, 1996.
12
<PAGE> 16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information contained under the section captioned "Capital Stock" in
the Annual Report is incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements and the supplementary financial
information included in the 1996 Annual Report to Shareholders are incorporated
herein by reference:
1. The consolidated financial statements, together with the report thereon
of Key Florida Bancorp, Inc. dated March 7, 1997.
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations and related statistical information.
With the exception of the aforementioned information and the information
incorporated in Items 5, 6, 7, and 8, the 1996 Annual Report to Shareholders is
not to be deemed filed as part of this Form 10-KSB Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The consolidated financial statements of Bancorp at September 30, 1995 and
1994 and for the years then ended were audited by Varnadore, Tyler & Hawthorne,
P.A., independent auditors, as stated in their report herein. On January 26,
1995, Bancorp dismissed Coopers & Lybrand, L.L.P. as its accountants and
retained the accounting firm of Varnadore, Tyler & Hawthorne, P.A. The report of
Coopers & Lybrand, L.L.P. on the financial statements for 1994 and 1993 did not
contain an adverse opinion or a disclaimer of opinion nor was such report
qualified or modified as to audit scope or accounting principle, except that the
report on the financial statement for the year ending September 30, 1993
included an explanatory paragraph that, at September 30,
13
<PAGE> 17
1993, KFB "did not have the required minimum regulatory capital which could
result in regulatory authorities limiting an institution's asset growth and
imposing other sanctions and enforcement actions, including regulatory
take-over, that raise substantial doubt about its ability to continue as a going
concern." During Bancorp's two most recent fiscal years and the subsequent
interim period preceding the change in Coopers & Lybrand, L.L.P. as Bancorp's
accountants, there were no disagreements with the former accountant on any
matter of accounting principle or practices, financial statement disclosure, or
auditing scope or procedure, which disagreement or disagreements, if not
resolved to the satisfaction of the former accountant, would have caused it to
make a reference to the subject matter of the disagreement in connection with
its report. The decision to dismiss Coopers & Lybrand, L.L.P. was recommended
and approved by the Board of Directors of Bancorp.
On November 26, 1996, Varnadore, Tyler & Hawthorne, P.A. resigned as
independent auditors of Bancorp. On December 19, 1996, Bancorp engaged Purvis,
Gray and Company, certified public accountants, to act as independent auditors
for Bancorp. The report of Varnadore, Tyler & Hawthorne, P.A. on the financial
statements of Bancorp at December 31, 1995 and 1994 and for the years then ended
did not contain an adverse opinion or disclaimer of opinion nor was such report
qualified as to auditing scope or accounting principle. During Bancorp's two
most recent fiscal years and the subsequent interim period preceding the change
in Varnadore, Tyler & Hawthorne, P.A. as Bancorp's accountants, there were no
disagreements with the former accountant on any matter of accounting principle
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreement or disagreements, if not resolved in the satisfaction of the
former accountant, would have caused it to make a reference to the subject
matter of the disagreement in connection with this report.
14
<PAGE> 18
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The information contained under the sections captioned "Directors" and
"Executive Officers" under "Election of Directors" in the registrant's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
May 27, 1997, to be filed with the SEC pursuant to Regulation 14A within 120
days of the registrant's fiscal year end (the "Proxy Statement"), is
incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information contained in the sections captioned "Information About the
Board of Directors and Its Committees", and "Executive Compensation" and
Benefits and "Information on Benefit Plans and Policies" under "Election of
Directors" in the Proxy Statement, is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained in the sections captioned "Directors" and
"Management Stock Ownership" under "Election of Directors," in the Proxy
Statement, is incorporated herein by reference.
ITEM 12. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants
Consolidated Balance Sheet as of December 31, 1996
Consolidated Statement of Income for Key Florida Bancorp,
Inc. and Subsidiaries for the year ended December 31, 1996,
and Statement of Income for Liberty National Bank for the year
ended December 31, 1995
Consolidated Statement of Stockholders' Equity for Key Florida
Bancorp, Inc. and Subsidiaries for the year ended December 31,
1996, and Statement of Stockholders' Equity for Liberty National
Bank for the year ended December 31, 1995
15
<PAGE> 19
Consolidated Statement of Cash Flows for Key Florida Bancorp, Inc.
and Subsidiaries for the year ended December 31, 1996, and
Statement of Cash Flows for Liberty National Bank for the year
ended December 31, 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
All schedules have been omitted as the required information is
either inapplicable or included in the Notes to Consolidated
Financial Statements.
3. EXHIBITS
<TABLE>
<S> <C>
3.1 Articles of Incorporation of Key Florida Bancorp, Inc.;
Articles of Amendment for Certificate of Designation of
Variable Rate Cumulative Preferred Stock, Series A;
and Amendment to Certificate of Designation of Variable
Rate Cumulative Preferred Stock, Series A (Incorporated by
reference to Exhibit 3.1 to Bancorp's Registration Statement
No. 333-2962 (the "Registration Statement"))
3.2 Bylaws of Key Florida Bancorp, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registration Statement)
4.1 Specimen Stock Certificate of Key Florida Bancorp, Inc.
(Incorporated by reference to Exhibit 4.1 to the
Registration Statement)
10.1 Key Florida Bancorp, Inc. 1987 Stock Option Plan
(Incorporated by reference to Exhibit 10.1 to the
Registration Statement)
10.2 Employment Agreement dated December 1, 1995 between
Key Florida Bancorp, Inc. and Daniel S. Hager
(Incorporated by reference to Exhibit 10.2 to the
Registration Statement) *
10.3 Employment Agreement dated July 30, 1996 between Liberty
National Bank and Stephen R. Jonsson (Incorporated by reference
to Exhibit 10.3, to Bancorp's Registration Statement on Form
10-SB with the Securities and Exchange Commission on January 13,
1997) *
</TABLE>
16
<PAGE> 20
<TABLE>
<S> <C>
10.4 Lease dated July 1, 1991 between The Centre
of LBK, Inc. and Key Florida Bank, F.S.B.
(Incorporated by reference to Exhibit 10.5 to the
Registration Statement)
10.5 Lease dated May 11, 1995 between Wildewood
Plaza and Key Florida Bank, F.S.B. and Addendum
to Lease dated May 11, 1995 (Incorporated by
reference to Exhibit 10.6 to the Registration
Statement)
10.6 Lease between Liberty National Bank and Gingerich
Properties Partnership (and Addenda thereto)
(Incorporated by reference to Exhibit 10.7 to the
Registration Statement)
13.1 Key Florida Bancorp, Inc. 1996 Annual Report
21.1 Subsidiaries of the Registrant
23.1 Consent of Varnadore, Tyler & Hawthorne, P.A.
23.2 Consent of Purvis, Gray and Company
27 Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K
Bancorp filed Form 8-K Reports on November 26, 1996 (announcing the
resignation of Varnadore, Tyler & Hawthorne, P.A., as independent
auditors of Bancorp), December 19, 1996 (announcing the appointment
of Purvis, Gray and Company, as independent auditors of Bancorp) and
December 30, 1996 (filing financial statements of Bancorp as of and
for the period ended June 30, 1996).
- -----------------------
* Represents a management contract or compensatory plan or arrangement
required to be filed as an exhibit.
17
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Bradenton, State of Florida, on the 15th day of April, 1997.
KEY FLORIDA BANCORP, INC.
By: /s/ Stephen R. Jonsson
----------------------------------
Stephen R. Jonsson, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on April 15, 1997.
Signature Title
--------- -----
/s/ Harvey E. Anderson Chairman of the Board
- -------------------------------
Harvey E. Anderson
/s/ Stephen R. Jonsson President and Chief Executive
- ------------------------------- Officer and Director
Stephen R. Jonsson
/s/ Roger P. Conley Director
- -------------------------------
Roger P. Conley
/s/ Daniel S. Hager Director
- -------------------------------
Daniel S. Hager
/s/ Bryant A. Meeks Director
- -------------------------------
Bryant A. Meeks
/s/ Leonard J. Najjar Director
- -------------------------------
Leonard J. Najjar
/s/ James T. Rogers, M.D. Director
- -------------------------------
James T. Rogers, M.D.
/s/ H. R. Williams Director
- -------------------------------
H. R. Williams
/s/ Michael L. Hogan Senior Vice President
- ------------------------------- (Principal financial officer
Michael L. Hogan, CPA and principal
accounting officer)
18
<PAGE> 22
Key Florida Bancorp, Inc.
Form 10-KSB
For Fiscal Year Ending December 31, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
No. Exhibit No.
- -------- ------------------------------------- -----
<S> <C> <C>
13.1 Key Florida Bancorp, Inc. 1996 Annual
Report
21.1 Subsidiaries of the Registrant
23.1 Consent of Varnadore, Tyler & Hawthorne, P.A.
23.2 Consent of Purvis, Gray and Company
27 Financial Data Schedule (for SEC use only)
</TABLE>
19
<PAGE> 1
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
BRADENTON, FLORIDA
DECEMBER 31, 1996
<PAGE> 2
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
BRADENTON, FLORIDA
DECEMBER 31, 1996
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED BALANCE SHEET 2
CONSOLIDATED STATEMENT OF INCOME FOR KEY FLORIDA BANCORP,
INC. AND SUBSIDIARIES FOR THE YEAR ENDED DECEMBER 31, 1996,
AND STATEMENT OF INCOME FOR LIBERTY NATIONAL BANK FOR THE
YEAR ENDED DECEMBER 31, 1995 3
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR KEY
FLORIDA BANCORP, INC. AND SUBSIDIARIES FOR THE YEAR ENDED
DECEMBER 31, 1996, AND STATEMENT OF STOCKHOLDERS' EQUITY
FOR LIBERTY NATIONAL BANK FOR THE YEAR ENDED DECEMBER 31,
1995 4
CONSOLIDATED STATEMENT OF CASH FLOWS FOR KEY FLORIDA
BANCORP, INC. AND SUBSIDIARIES FOR THE YEAR ENDED DECEMBER
31, 1996, AND STATEMENT OF CASH FLOWS FOR LIBERTY NATIONAL
BANK FOR THE YEAR ENDED DECEMBER 31, 1995 5-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7-29
</TABLE>
<PAGE> 3
[PURVIS GRAY & COMPANY LETTERHEAD]
================================================================================
INDEPENDENT AUDITORS' REPORT
Board of Directors
Key Florida Bancorp, Inc. and Subsidiaries
Bradenton, Florida
We have audited the accompanying consolidated balance sheet of Key Florida
Bancorp, Inc. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the year ended December 31, 1996. These consolidated financial
statements are the responsibility of Key Florida Bancorp, Inc.'s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The accompanying statements of income, changes in
stockholders' equity and cash flows of Liberty National Bank for the year ended
December 31, 1995, were audited by other auditors whose report dated February 9,
1996, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Key
Florida Bancorp, Inc. and Subsidiaries at December 31, 1996, and the results of
their operations and cash flows for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Purvis, Gray and Company
March 7, 1997
Gainesville, Florida
1
<PAGE> 4
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
BRADENTON, FLORIDA
ASSETS
<TABLE>
<S> <C>
Cash and Demand Deposits Due From Banks $ 10,542,883
Federal Home Loan Bank Overnight Account 971,647
Investment Securities - Available-For-Sale 27,414,233
Loans Receivable 155,106,748
Less:
Unearned Income (76,914)
Allowance For Loan Losses (1,321,331)
-------------
Loans Receivable, Net 153,708,503
Real Estate Owned 120,000
Premises and Equipment, Net 4,542,646
Accrued Interest Receivable 1,352,943
Other Assets 2,237,292
-------------
TOTAL ASSETS 200,890,147
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-Bearing 17,010,952
Interest-Bearing 170,335,869
-------------
Total Deposits 187,346,821
Accrued Interest Payable 549,342
Other Liabilities 302,816
-------------
TOTAL LIABILITIES 188,198,979
-------------
STOCKHOLDERS' EQUITY
Common Stock - Par Value $.01 Per Share -
Authorized: 4,000,000 Shares; Issued
2,758,129 Shares 27,581
Additional Paid-In Capital 11,400,484
Retained Earnings 1,282,247
Less: Treasury Stock at Cost (143 Shares) (490)
Unrealized (Losses) on Certain Securities (18,654)
-------------
TOTAL STOCKHOLDERS' EQUITY 12,691,168
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 200,890,147
=============
</TABLE>
See accompanying notes.
2
<PAGE> 5
CONSOLIDATED STATEMENT OF INCOME FOR
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
FOR THE YEAR ENDED DECEMBER 31, 1996, AND
STATEMENT OF INCOME FOR LIBERTY NATIONAL BANK
FOR THE YEAR ENDED DECEMBER 31, 1995
BRADENTON, FLORIDA
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
INTEREST INCOME
Loans, Including Fees $ 9,545,406 $ 5,281,899
------------ ------------
Investment Securities:
Taxable 1,373,622 1,416,228
Exempt From Federal Income Taxes 26,353 23,995
------------ ------------
1,399,975 1,440,223
Federal Funds Sold and Overnight Accounts 132,530 134,735
------------ ------------
TOTAL INTEREST INCOME 11,077,911 6,856,857
------------ ------------
INTEREST EXPENSE
Deposits 5,776,277 3,677,228
Other Interest Expense 21,962 5,001
------------ ------------
TOTAL INTEREST EXPENSE 5,798,239 3,682,229
------------ ------------
NET INTEREST INCOME 5,279,672 3,174,628
PROVISION FOR LOAN LOSSES 256,859 362,263
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 5,022,813 2,812,365
------------ ------------
NONINTEREST INCOME
Investment Securities Gains (Losses) (14,080) (6,498)
Service Charges on Deposit Accounts 345,189 314,408
Other Income 137,061 265,107
------------ ------------
TOTAL NONINTEREST INCOME 468,170 573,017
------------ ------------
NONINTEREST EXPENSE
Salaries and Employee Benefits 2,167,487 1,015,158
Occupancy and Equipment 719,189 438,749
Data Processing 202,325 179,467
Federal Insurance Deposit Premium 530,969 112,036
Legal and Professional 162,145 206,831
Amortization of Core Deposit Intangible 134,167 0
Other Expense 854,232 520,138
------------ ------------
TOTAL NONINTEREST EXPENSE 4,770,514 2,472,379
------------ ------------
INCOME BEFORE INCOME TAXES 720,469 913,003
PROVISION FOR INCOME TAXES 283,944 351,435
------------ ------------
NET INCOME $ 436,525 $ 561,568
============ ============
EARNINGS PER SHARE $ .25 $ .64
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 1,714,885 879,087
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 6
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
FOR THE YEAR ENDED DECEMBER 31, 1996, AND
STATEMENT OF STOCKHOLDERS' EQUITY FOR LIBERTY NATIONAL BANK
FOR THE YEAR ENDED DECEMBER 31, 1995
BRADENTON, FLORIDA
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TREASURY STOCK
------------------------- ----------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 829,582 $ 8,296
Stock Options Exercised 10,560 106
Stock Split Partial Shares (81) (1)
Warrants Issued 100,925 1,009
Net Unrealized Gains on
Securities 0 0
Net Income 0 0
--------- --------
BALANCE, DECEMBER 31, 1995 940,986 9,410
Merger of Key Florida Bancorp,
Inc. With Liberty National
Bank 43,025 $ 430,250 1,798,861 17,989 360 $(1,953)
Preferred Dividends Paid 0 0 0 0 0 0
Stock Options Exercised 18,282 182
Treasury Stock Acquired 0 0 0 0 49 (191)
Preferred Stock Retired (43,025) (430,250) 0 0 (266) 1,654
Net Unrealized Gain (Loss)
on Securities 0 0 0 0 0 0
Net Income 0 0 0 0 0 0
------- ----------- --------- -------- ---- -------
BALANCE, DECEMBER 31, 1996 0 $ 0 2,758,129 $ 27,581 143 $ (490)
======= =========== ========= ======== ==== =======
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL GAIN (LOSS)
PAID-IN ON CERTAIN RETAINED
CAPITAL SECURITIES EARNINGS TOTAL
--------- ----------- --------------- --------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 6,453,364 $(478,312) $ 302,847 $ 6,286,195
Stock Options Exercised 87,894 0 0 88,000
Stock Split Partial Shares (1,034) 0 0 (1,035)
Warrants Issued (1,009) 0 0 0
Net Unrealized Gains on
Securities 0 414,074 0 414,074
Net Income 0 0 561,568 561,568
----------- --------- ---------- -----------
BALANCE, DECEMBER 31, 1995 6,539,215 (64,238) 864,415 7,348,802
Merger of Key Florida Bancorp,
Inc. With Liberty National
Bank 4,783,386 0 0 5,229,672
Preferred Dividends Paid 0 0 (18,693) (18,693)
Stock Options Exercised 77,883 0 0 78,065
Treasury Stock Acquired 0 0 0 (191)
Preferred Stock Retired 0 0 0 (428,596)
Net Unrealized Gain (Loss)
on Securities 0 45,584 0 45,584
Net Income 0 0 436,525 436,525
----------- --------- ---------- -----------
BALANCE, DECEMBER 31, 1996 $11,400,484 $ (18,654) $1,282,247 $12,691,168
=========== ========= ========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 7
CONSOLIDATED STATEMENT OF CASH FLOWS FOR
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
FOR THE YEAR ENDED DECEMBER 31, 1996, AND
STATEMENT OF CASH FLOWS FOR LIBERTY NATIONAL BANK
FOR THE YEAR ENDED DECEMBER 31, 1995
BRADENTON, FLORIDA
<TABLE>
<CAPTION>
1996 1995
----------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 436,525 $ 561,568
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Amortization of Core Deposit Intangible 134,167 0
Depreciation 187,418 88,000
(Accretion) of Premium/Discount (67,863) (14,111)
(Gain) on Sale of Property and Equipment (16,752) 0
Loss on Sale of Investment Securities 14,080 6,498
Provision For Loan Losses 256,859 362,263
Deferred Income Taxes (154,059) 18,565
Changes in Assets and Liabilities:
(Increase) in Accrued Interest Receivable (223,977) (115,691)
Decrease (Increase) in Prepaid Expenses and Other Assets 67,246 (16,046)
(Decrease) Increase in Accrued Interest Payable (101,697) 140,387
(Decrease) Increase in Accrued Expenses and Other Liabilities (1,254,292) 318,144
--------------- ---------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (722,345) 1,349,577
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Sales of Premises and Equipment 309,624 0
Purchase of Premises and Equipment (2,015,190) (703,312)
Purchase of Investment Securities (15,637,059) (11,282,648)
Proceeds From Sales of Investment Securities 8,104,699 1,487,310
Proceeds From Maturities and Calls of Investment Securities 11,707,742 10,616,800
Loan Originations, Net (18,583,354) (16,852,026)
Proceeds on Other Real Estate Owned 195,228 31,965
Cash Received Through Merger Acquisition,
Net of Merger Costs Paid 3,684,315 0
--------------- ---------------
NET CASH (USED IN) INVESTING ACTIVITIES (12,233,995) (16,701,911)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Preferred Stock Dividends Paid (18,693) 0
Purchase of Treasury Stock (191) 0
Preferred Stock Retired (428,596) 0
Stock Issued For Stock Options Exercised 78,065 86,965
(Decrease) in Federal Funds Purchased (2,000,000) 0
Net Increase in Noninterest-Bearing Deposits 2,357,810 233,959
Net Increase in Money Market Deposits 1,294,147 561,977
Net Increase in Savings and NOW Deposits 6,428,116 1,247,556
Net Increase in Time Deposits 10,510,633 13,194,276
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,221,291 15,324,733
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,264,951 (27,601)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,249,579 6,277,180
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 11,514,530 $ 6,249,579
=============== ===============
</TABLE>
See accompanying notes.
5
<PAGE> 8
CONSOLIDATED STATEMENT OF CASH FLOWS FOR
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
FOR THE YEAR ENDED DECEMBER 31, 1996, AND
STATEMENT OF CASH FLOWS FOR LIBERTY NATIONAL BANK
FOR THE YEAR ENDED DECEMBER 31, 1995
BRADENTON, FLORIDA
SHOWN IN THE BALANCE SHEET AS
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash and Demand Deposits Due From Banks $ 10,542,883 $ 5,147,435
Federal Home Loan Bank Overnight Account and
Federal Funds Sold 971,647 1,102,144
------------ ------------
TOTAL CASH AND CASH EQUIVALENTS $ 11,514,530 $ 6,249,579
============ ============
SUPPLEMENTAL CASH DISCLOSURES
Interest Paid $ 2,899,936 $ 3,541,842
============ ============
Income Taxes Paid $ 396,374 $ 173,000
============ ============
</TABLE>
SUPPLEMENTAL NONCASH DISCLOSURES
STOCK ISSUED FOR ACQUISITION OF KEY FLORIDA BANK, F.S.B.:
<TABLE>
<S> <C>
ASSETS ACQUIRED
Investment Securities $ 10,232,422
Loans Receivable, Net 69,667,007
Real Estate Owned 150,978
Premises and Equipment, Net 1,252,876
Accrued Interest Receivable 451,302
Other Assets 2,035,008
------------
TOTAL ASSETS ACQUIRED 83,789,593
------------
LIABILITIES ASSUMED
Deposits 78,801,408
Federal Funds Purchased 2,000,000
Accrued Interest Payable 255,619
Other Liabilities 1,187,209
------------
(TOTAL LIABILITIES ASSUMED) (82,244,236)
------------
SUBTOTAL 1,545,357
CASH RECEIVED LESS MERGER COSTS PAID 3,684,315
------------
EQUITY $ 5,229,672
============
</TABLE>
See accompanying notes.
6
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
Key Florida Bancorp, Inc. (the Company) is a commercial bank
holding company, incorporated under the laws of Florida. It is the
parent company of its wholly-owned subsidiary, Liberty National
Bank (the Bank), a national bank. The Bank is engaged in bank and
bank-related activities. The Liberty National Bank conducts a
commercial banking business which consists of attracting deposits
from the general public and applying those funds to the
origination of commercial, consumer and real estate loans
(including commercial loans collateralized by real estate). The
Bank's profitability depends primarily on net interest income,
which is the difference between interest income generated from
interest-earning assets (i.e., loans and investments) less the
interest expense incurred on interest-bearing liabilities (i.e.,
customer deposits and borrowed funds). Net interest income is
affected by the relative amounts of interest-earning assets and
interest-bearing liabilities, and the interest rate earned and
paid on these balances. Net interest income is dependent upon the
Bank's interest rate spread, which is the difference between the
average yield earned on its interest-earning assets and the
average rate paid on its interest-bearing liabilities. When
interest-earning assets approximate or exceed interest-bearing
liabilities, any positive interest rate spread will generate net
interest income. The interest rate spread is impacted by interest
rates, deposit flows, and loan demand.
Additionally, and to a lesser extent, the Bank's profitability is
affected by such factors as the level of noninterest income and
expenses, the provision for credit losses, and the effective tax
rate.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Key
Florida Bancorp, Inc. and its wholly-owned subsidiaries, Liberty
National Bank and Key Florida Financing, Inc. (an inactive
corporation) as described in note 2. All significant intercompany
accounts and transactions have been eliminated. Assets held in an
agency or fiduciary capacity are not assets of the Bank and,
accordingly, are not included in the accompanying consolidated
financial statements.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH EQUIVALENTS
Cash equivalents include cash, demand deposits due from banks,
overnight investment account, and federal funds sold. Generally,
federal funds sold mature within ninety days.
7
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES
Effective January 1, 1994, the Company adopted the investment
categorization and carrying value rules as required by Financial
Accounting Standards Board Statement of Financial Accounting
Standards Statement No. 115 (FASB No. 115), Accounting for Certain
Investments in Debt and Equity Securities. Under FASB No. 115, the
Company is required to classify acquired debt and equity securities
into one of three categories: held-to-maturity, available-for-sale
and trading.
- Investments in debt securities are classified as
held-to-maturity only if the Company has the positive intent
and ability to hold such securities to maturity. These
investments are carried in the balance sheet at amortized
cost, i.e., cost adjusted for amortization of premiums and
accretion of discounts as computed by the interest method.
- All investments not classified as either held-to-maturity
securities or trading securities are classified as
available-for-sale. These securities are carried at market
value as of the date of the balance sheet. The unrealized
gains and losses on these securities are excluded from
earnings for the year. Instead, the net unrealized gains or
losses, net of the applicable deferred income taxes, is shown
as a separate component of stockholders' equity in the balance
sheet.
- Securities that are acquired and held principally for the
purpose of selling them in the near term are classified as
trading securities. Such securities, if any, are carried at
market value and the unrealized gains and losses on such
securities are included in income for the current year.
At December 31, 1996 and 1995, all investment securities are
classified as available-for-sale. The unrealized gain (loss), net of
tax, is included in the separate component of stockholders' equity
as "Unrealized Gains (Losses) on Certain Securities."
Realized gains and losses on the sale of investment securities are
computed on the basis of specific identification of the adjusted
cost of each security.
LOANS RECEIVABLE
The Company adopted Statement of Financial Accounting Standards No.
114, Accounting by Creditors for Impairment of a Loan (FASB No. 114)
on January 1, 1995. FASB No. 114 addresses the accounting by
creditors for impairment of certain loans, uncollateralized as well
as collateralized, except large groups of smaller-balance
homogeneous loans which the Bank considers to be credit card,
consumer installment, residential real estate and home equity loans
that are collectively evaluated for impairment. Also, FASB No. 114
requires that impaired loans be measured either by the present value
of expected future cash flows discounted at the loan's effective
interest rate or at the loan's observable market price or the
8
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS RECEIVABLE (CONCLUDED)
fair value of the collateral if the loan is collateral dependent.
Management considers a loan impaired when it becomes probable that
there will be a loss resulting from the credit after foreclosure
and liquidation of the collateral or as a result of not receiving
payments when contractually agreed upon, which could result in a
loss of principal or interest.
Nonaccrual loans are loans on which the accrual of interest has
been discontinued because either a reasonable doubt exists as to
the full and timely collection of interest or principal, or when a
loan becomes contractually past due ninety days or more with
respect to interest or principal. A nonaccrual loan may not have
an anticipated loss associated with it because of the collateral
supporting the credit and, therefore, not be considered impaired.
An impaired loan is anticipated to have a loss and may or may not
be on nonaccrual. When a loan is placed on nonaccrual status, all
interest previously accrued, but not collected, is reversed
against current period interest income. Interest income on
nonaccrual loans and impaired loans is recognized only to the
extent cash is received and where the future collection of
principal is probable. Interest accruals are resumed on such loans
only when they are brought fully current with respect to interest
and principal and when, in management's judgment, the loans are
estimated to be fully collectible as to both principal and
interest.
Interest income on loans is recognized based upon the principal
amounts outstanding, except that on consumer loans, the sum of the
month's digits method is used.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision
for loan losses charged to expenses. Loans are charged against the
allowance for loan losses when management believes that the
collectibility of the principal is unlikely or, with respect to
consumer installment loans, according to an established
delinquency schedule. The allowance is an amount that management
believes will be adequate to absorb losses inherent in existing
loans and commitments to extend credit, based on evaluations of
the collectibility and prior loss experience of loans and
commitments to extend credit. The evaluations take into
consideration such factors as changes in the nature and volume of
the portfolio, overall portfolio quality, loan concentrations,
specific problem loans, commitments, and current and anticipated
economic conditions that may affect the borrower's ability to pay.
Recoveries of previous charge-offs are added back to the
allowance.
REAL ESTATE OWNED
Real estate acquired by foreclosure or deed in lieu of foreclosure
is carried at the lower of its estimated fair value less estimated
costs to sell or the balance of the related loan at the date the
real estate is acquired. Costs relating to the development and
improvement of the real estate are capitalized, whereas those
costs relating to holding the real estate are charged to expense.
9
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REAL ESTATE OWNED (CONCLUDED)
Sales of real estate owned are recorded under the full accrual
method of accounting. Under this method, a sale is not recognized
until payments received aggregate a specific required percentage
of the contract sales price. Losses are charged to operations as
incurred or when it is determined that the investment in such real
estate is greater than the estimated net realizable value.
PREMISES AND EQUIPMENT
Land is stated at cost. The premises and equipment are stated at
cost less accumulated depreciation. Depreciation is computed on
the straight-line method over the assets' estimated useful lives.
INCOME TAXES
Federal and state income taxes are provided on income reported for
financial statement purposes and include both current and deferred
income tax expense. Current income tax expense is recorded to
reflect income taxes based upon the tax returns filed with the
appropriate taxing agencies. Deferred income taxes are recorded to
reflect the tax consequences on future years of differences
between the tax bases of assets and liabilities and their
financial reporting amounts at year end. The change in deferred
taxes attributable to the carrying value of investments
categorized as "Available-for-Sale" is recognized as a change in
stockholders' equity. The change in deferred income taxes
attributable to all other timing differences is recognized as
deferred income tax expense or benefit. The tax benefit related to
operating loss and tax credit carryforwards, if any, are
recognized if management believes, based on available evidence,
that it is more likely than not that they will be realized.
Investment tax credits, if any, are accounted for under the
flow-through method.
The Company files consolidated federal and state income tax
returns with its subsidiaries. Federal and state income taxes are
allocated between the Company and its subsidiaries in proportion
to the respective contributions to consolidated taxable income.
The Company uses the asset and liability method of accounting for
income taxes as required by FASB No. 109, Accounting for Income
Taxes.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of
shares of common stock outstanding, retroactively adjusted for the
merger and resulting recapitalization discussed in note 2.
LOAN ORIGINATION FEES
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on the
related loan.
10
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
LOAN-SERVICING RIGHTS
The cost of loan-servicing rights acquired is amortized in
proportion to, and over the period of, estimated net servicing
revenues. When loans sold have an average contractual interest
rate, adjusted for normal servicing fees, that differs from the
agreed yield to the purchaser, gains or losses are recognized
equal to the present value of such differential over the estimated
remaining life of such loans. The resulting "excess servicing fees
receivable" is amortized over the estimated life using a method
approximating the level-yield method.
CONCENTRATION OF CREDIT RISK
The Bank grants agribusiness, commercial, residential and consumer
loans primarily to customers in Manatee and Sarasota Counties in
the state of Florida. Although the Bank has a diversified loan
portfolio, a substantial portion of its debtors' ability to honor
their contracts is dependent upon the real estate economic sector
as shown in note 5.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with
current financial reporting to facilitate comparison of the
financial data.
NOTE 2 - BUSINESS COMBINATION AND COMPARABILITY OF FINANCIAL STATEMENTS
MERGER WITH KEY FLORIDA BANK, F.S.B.
On July 30, 1996, effective the close of business, the Company and
the Bank closed the merger of Key Florida Bank, F.S.B. with and
into the Bank. Due to the change in majority ownership interest to
that of the Liberty National Bank shareholders, the merger is
considered to be an acquisition by the Bank of the Company and its
subsidiary, Key Florida Bank, F.S.B. The Key Florida Bank,
F.S.B./Liberty National Bank merger transaction has been accounted
for under the purchase method of accounting. As a result of the
merger, the outstanding shares of the Bank were converted into an
aggregate of 1,798,861 shares of Key Florida Bancorp, Inc. common
stock resulting in 2,739,847 shares of Key Florida Bancorp, Inc.
common stock outstanding after the merger. The cost of assets
minus liabilities recorded as a result of Liberty National Bank's
acquisition was $5,229,672. In connection with the merger, the
Bank recorded intangible assets, including a core deposit
intangible in the amount of $975,000, which is being amortized
over ten years in accordance with guidelines promulgated by the
Office of the Comptroller of the Currency (OCC).
COMPARABILITY OF FINANCIAL STATEMENTS
Due to the aforementioned merger transaction, the resultant change
in control to Liberty National Bank shareholders, the operating
results of Liberty National Bank have been included in the
accompanying financial statements for the year ended December 31,
1996, along with those of the Company and Key Florida Bank, F.S.B.
(the acquired companies) from July 31, 1996 through December 31,
1996. At the time of the merger, each share of Liberty National
Bank common stock was converted into 1.5 shares of the Company's
common stock or a total of 1,798,861 shares (cash was paid
11
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 2 - BUSINESS COMBINATION AND COMPARABILITY OF FINANCIAL STATEMENTS
(CONCLUDED)
COMPARABILITY OF FINANCIAL STATEMENTS (CONCLUDED)
in lieu of fractional shares). The 940,986 shares of the Company's
common stock issued and outstanding at the time of the merger
remained unchanged as shares of Key Florida Bancorp, Inc. common
stock. As previously mentioned, the conversion of Liberty National
Bank's common shares plus the original issued and outstanding
shares of the Company yielded an aggregate number of the Company's
common shares issued of 2,739,847. Due to the number of shares of
the Company's stock issued to Liberty National Bank shareholders
in the merger, a change of control of the Company was deemed to
have occurred. Because control changed to Liberty National Bank
shareholders at merger, the comparative financial statements
presented for the preceding fiscal year ended December 31, 1995,
are those of Liberty National Bank.
RECAPITALIZATION RESULTING FROM MERGER
As a result of the merger transaction, the January 1, 1995,
balance of the Bank's common stock outstanding and the related
balance in par value have been retroactively restated to reflect
the number of shares outstanding of the Company and the Company's
one-cent par value. Additionally, additional paid-in capital at
that date has been restated to reflect the corresponding
adjustment of the balance in par value. These adjustments were
made to give retroactive application to the aforementioned
recapitalization resulting from the merger on July 30, 1996. The
amounts as originally reported and as adjusted at January 1, 1995,
are as follows:
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN
SHARES AMOUNT CAPITAL
------ ------ -------
<S> <C> <C> <C>
As Originally Reported ($5 Par Value) 845,606 $ 4,228,030 $2,233,630
Adjustment For Recapitalization (16,024) (4,219,734) 4,219,734
------- ----------- ----------
As Adjusted (One-Cent Par Value) 829,582 $ 8,296 $6,453,364
======= =========== ==========
</TABLE>
NOTE 3 - SAVINGS ASSOCIATION INSURANCE FUND (SAIF) SPECIAL ASSESSMENT
On September 30, 1996, the President of the United States signed
the omnibus appropriations bill into law. This legislation was
aimed at recapitalizing the SAIF through a one-time special
assessment on the insured deposits of SAIF member institutions.
Though Liberty National Bank is a member of the Federal Deposit
Insurance Corporation (FDIC) Bank Insurance Fund (BIF), it holds
assessable deposits acquired in the merger with Key Florida Bank,
F.S.B. and due to its participation in a Section 5(d)(3) "Oakar"
transaction is subject to the SAIF special assessment. Based upon
the amount of assessable deposits held by the Bank at March 31,
1995, the calculated special assessment payable by the Bank to the
FDIC was $400,150, which the Bank expensed by September 30, 1996,
and was paid on November 27, 1996. The charge to income was not
reported as an extraordinary item.
12
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 4 - SECURITIES
The carrying value of securities, including information regarding
amortized cost, gross unrealized gains, gross unrealized losses
and market value is tabulated below:
<TABLE>
<CAPTION>
CARRYING VALUE SUMMARY
1996 (AVAILABLE-FOR-SALE)
----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 6,443,876 $ 31,741 $ 5,307 $ 6,470,310
U.S. Government Agencies 15,798,228 21,822 97,498 15,722,552
Mortgage-Backed Securities 4,061,703 28,480 15,474 4,074,709
Obligations of State and
Political Subdivisions 426,789 7,973 0 434,762
------------- ------------- ------------- -------------
Total Debt Securities 26,730,596 90,016 118,279 26,702,333
Equity Securities 711,900 0 0 711,900
------------- ------------- ------------- -------------
TOTAL SECURITIES $ 27,442,496 $ 90,016 $ 118,279 $ 27,414,233
============= ============= ============= =============
CARRYING VALUE SUMMARY
1995 (AVAILABLE-FOR-SALE)
----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
U.S. Treasury Securities $ 2,849,720 $ 14,612 $ 7,847 $ 2,856,485
U.S. Government Agencies 15,972,297 71,115 163,005 15,880,407
Mortgage-Backed Securities 1,944,974 3,502 17,215 1,931,261
Obligations of State and
Political Subdivisions 413,461 0 0 413,461
------------- ------------- ------------- -------------
Total Debt Securities 21,180,452 89,229 188,067 21,081,614
Equity Securities 211,900 0 0 211,900
------------- ------------- ------------- -------------
TOTAL SECURITIES $ 21,392,352 $ 89,229 $ 188,067 $ 21,293,514
============= ============= ============= =============
</TABLE>
The amortized cost, carrying (market) value and weighted average
yields of investment securities at December 31, 1996, by
contractual maturity are shown below. The weighted average yield
is determined using the amortized cost of securities. Expected
maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligation with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
CARRYING
AMORTIZED (MARKET) WEIGHTED
COST VALUE AVERAGE YIELD
---- ----- -------------
<S> <C> <C> <C>
Due in One Year or Less $ 2,510,639 $ 2,505,070 5.56%
Due After One Year Through Five Years 19,649,725 19,618,654 6.09%
Due After Five Years Through Ten Years 508,529 503,900 6.55%
Mortgage-Backed Securities 4,061,703 4,074,709 6.42%
Equity Securities 711,900 711,900
--------------- ---------------
TOTAL $ 27,442,496 $ 27,414,233
=============== ===============
</TABLE>
13
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 4 - SECURITIES (CONCLUDED)
Proceeds from sales of investment securities classified as
available-for-sale during 1996 were $8,104,699, with gross gains
of $21,356 and gross losses of $35,436. During 1995, proceeds from
sales of investment securities classified as available-for-sale
were $1,487,310, with gross gains of $4,813 and gross losses of
$11,311. In computing recognized gains and losses, cost is
determined using specific identification of securities.
Equity securities consist of $211,900 of Federal Reserve stock and
$500,000 of Federal Home Loan Bank stock. Both are restricted and
required by regulators to be maintained by the Company.
As of December 31, 1996, investment securities with a carrying
value of $500,000 were pledged as collateral for public funds,
trust deposits and repurchase agreements.
UNREALIZED GAINS ON SECURITIES AVAILABLE-FOR-SALE
As discussed in note 1, the Company adopted the investment
categorization and carrying value rules as required by FASB No.
115, Accounting for Certain Investments in Debt and Equity
Securities. Under this statement, the unrealized gains or losses
on investment securities available-for-sale, net of the applicable
deferred income taxes, is shown as a separate component of
stockholders' equity in the balance sheet.
The following is a summary of the effects on the statement of
stockholders' equity as of December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Gross Unrealized (Losses) Gains on Investment
Securities Available-For-Sale $(28,263) $ (98,838)
Deferred Income Tax Asset (Liability) on
Unrealized Gains 9,609 34,600
-------- ---------
NET (DECREASE) IN STOCKHOLDERS' EQUITY $(18,654) $ (64,238)
======== =========
</TABLE>
The following tabulation presents the net change in unrealized
gains or losses on available-for-sale securities that is shown as
a separate component of stockholders' equity.
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Increase in Unrealized Gains or Losses $ 70,575 $ 636,474
(Increase) in Related Deferred Income Taxes (24,991) (222,400)
--------- ---------
NET INCREASE IN STOCKHOLDERS' EQUITY $ 45,584 $ 414,074
========= =========
</TABLE>
14
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 5 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Major categories of loans included in the loan portfolio are:
<TABLE>
<S> <C>
Commercial, Financial and Agricultural $ 22,592,750
Real Estate 121,533,213
Installment Loans 10,980,785
-----------------
Loans Receivable (Gross) 155,106,748
(Unearned Income) (76,914)
-----------------
LOANS RECEIVABLE (NET OF UNEARNED INCOME) $ 155,029,834
=================
</TABLE>
The maturity ranges of the loan portfolio and the amount of loans
with predetermined interest rates and floating rates in each
maturity range, as of December 31, 1996, are summarized as
follows:
<TABLE>
<CAPTION>
CONTRACTUAL MATURITY DISTRIBUTION
---------------------------------------------------
WITHIN ONE - AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Commercial, Financial and Agricultural $ 10,381,659 $ 9,176,160 $ 3,003,558 $ 22,561,377
Real Estate 25,738,888 18,315,151 77,433,633 121,487,672
Installment Loans 2,809,097 6,559,971 1,611,717 10,980,785
------------- ------------ ------------ --------------
TOTAL LOANS (NET OF UNEARNED INCOME) 38,929,644 34,051,282 82,048,908 155,029,834
============= ============ ============ ==============
Loans With Predetermined Rate 5,801,521 18,761,354 37,667,733 62,230,608
Loans With a Floating Rate 33,128,123 15,289,928 44,381,175 92,799,226
------------- ------------ ------------ --------------
TOTAL LOANS (NET OF UNEARNED INCOME) $ 38,929,644 $ 34,051,282 $ 82,048,908 $ 155,029,834
============= ============ ============ ==============
</TABLE>
The Bank has granted loans to its executive officers, directors
and principal equity holders and their associates. The aggregate
dollar amount of these loans was approximately $2,413,516 and
$1,586,592 at December 31, 1996 and 1995, respectively. During
1996, approximately $757,084 in new loans were made, and $625,499
added at purchase of Key Florida Bank, F.S.B. Repayments
approximated $555,659.
Loans on which the accrual of interest has been discontinued or
reduced at December 31, 1996 and 1995, approximated $1,606,000 and
$696,000, respectively. If interest on these loans had been
accrued, such income would have approximated $122,000 and $33,000
in 1996 and 1995, respectively.
At December 31, 1996, the Bank had loans subject to floors and
caps totalling $92,799,226. The floors and caps on these loans
range from 1% to 18%.
At December 31, 1996, there were no commitments to lend additional
funds to borrowers whose loans are classified as nonaccrual.
Mortgage servicing rights of $181,799 were acquired in the merger
with Key Florida Bank, F.S.B., and are being amortized. Balance at
December 31, 1996, was $141,084.
15
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 5 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONCLUDED)
Changes in the allowance for loan losses for 1996 and 1995 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 704,317 $ 429,060
-------------- --------------
Provisions Charged to Expense 256,859 362,263
-------------- --------------
Purchase of Key Florida Bank, F.S.B. 528,109 0
-------------- --------------
Recoveries of Loans Previously Charged-Off:
Commercial, Financial and Agricultural 6,117 0
Installment Loans 70 5,876
-------------- --------------
Total Recoveries 6,187 5,876
-------------- --------------
Loans Charged-Off:
Commercial, Financial and Agricultural 110,885 13,088
Real Estate 30,000 0
Installment Loans 33,256 79,794
-------------- --------------
Total Loans Charged-Off (174,141) (92,882)
-------------- --------------
BALANCE, END OF YEAR $ 1,321,331 $ 704,317
============== ==============
RATIO OF NET CHARGE-OFFS TO
AVERAGE LOANS OUTSTANDING .16% .15%
RATIO OF ALLOWANCE FOR LOAN LOSSES AS A
PERCENTAGE OF YEAR END LOANS .85% 1.06%
</TABLE>
As of December 31, 1996 and 1995, the allowance for loan losses
was allocated as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------- ------------------------------
PERCENT BY PERCENT BY
AMOUNT CATEGORY AMOUNT CATEGORY
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Commercial $ 595,973 45.1% $ 325,000 46.2%
Real Estate 584,969 44.3% 335,000 47.6%
Installment 140,389 10.6% 44,000 6.2%
------------- ------- ------------- --------
TOTAL ALLOWANCE FOR LOAN LOSSES $ 1,321,331 100.0% $ 704,000 100.0%
============= ======= ============= ========
</TABLE>
At December 31, 1996, the total recorded investment in impaired
loans was $937,406, which had a related allowance for credit
losses of $107,513. None of the recorded investment in impaired
loans were without a related allowance for credit losses. The
average recorded investment in impaired loans at December 31,
1996, was $816,703. The amount of interest income recognized
during the time within the year ended December 31, 1996, that the
loans were impaired was $7,930. The amount of interest income
recognized using a cash basis method of accounting during the time
within the year ended December 31, 1996, that the loans were
impaired was $7,767.
16
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 6 - PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
<TABLE>
<S> <C>
Land and Land Improvements $ 1,246,665
Buildings 1,909,165
Leasehold Improvements 168,128
Furniture, Fixtures and Equipment 2,556,922
------------
5,880,880
(Accumulated Depreciation) (1,338,234)
------------
TOTAL PREMISES AND EQUIPMENT $ 4,542,646
============
</TABLE>
Depreciation expense for 1996 and 1995 was $187,418 and $88,000,
respectively.
NOTE 7 - DEPOSITS
A summary of interest-bearing deposits is as follows:
<TABLE>
<S> <C>
Demand $ 26,111,666
Savings 19,590,395
Time 124,633,808
------------
TOTAL INTEREST-BEARING DEPOSITS $170,335,869
============
</TABLE>
Time deposit maturities for future years are presented in the
following table:
<TABLE>
<CAPTION>
YEAR AMOUNT
--------------- -------------
<S> <C>
1997 $ 90,271,313
1998 16,914,704
1999 5,978,924
2000 8,788,260
2001 2,610,543
Thereafter 70,064
-------------
TOTAL $ 124,633,808
=============
</TABLE>
Included in interest-bearing deposits are certificates of deposit
in amounts of $100,000 or more. These certificates and their
remaining maturities at December 31, 1996, are as follows:
<TABLE>
<S> <C>
Three Months or Less $ 7,321,198
Three Through Six Months 4,829,065
Six Through Twelve Months 3,836,963
Over Twelve Months 4,146,655
-----------
TOTAL $20,133,881
===========
</TABLE>
17
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 7 - DEPOSITS (CONCLUDED)
A summary of interest on deposits is as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Interest-Bearing Demand Deposits $ 571,009 $ 391,865
Savings 393,540 111,541
Time Deposits of $100,000 or More 1,129,581 658,882
Other Time Deposits 3,682,147 2,514,940
---------- ----------
TOTAL $5,776,277 $3,677,228
========== ==========
</TABLE>
NOTE 8 - INCOME TAXES
As discussed in note 1, the Company uses the asset and liability
method of accounting for income taxes as required by FASB No. 109,
Accounting for Income Taxes.
The total provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
CURRENT INCOME TAX EXPENSE
Exclusive of Benefits of Net Operating Loss Carryover:
U.S. Federal $ 219,448 $398,575
State of Florida 25,050 36,175
--------- --------
Subtotal 244,498 434,750
--------- --------
Benefits of Net Operating Loss Carryover:
U.S. Federal (97,862) (54,575)
State of Florida (16,751) (10,175)
--------- --------
Subtotal (114,613) (64,750)
--------- --------
TOTAL CURRENT INCOME TAX EXPENSE 129,885 370,000
--------- --------
DEFERRED INCOME TAX (BENEFIT)
U.S. Federal 141,987 (17,505)
State of Florida 12,072 (1,060)
--------- --------
TOTAL DEFERRED INCOME TAX (BENEFIT) 154,059 (18,565)
--------- --------
TOTAL INCOME TAX EXPENSE $ 283,944 $351,435
========= ========
</TABLE>
18
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 8 - INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
AMOUNT % AMOUNT %
--------- ------ -------- -------
<S> <C> <C> <C> <C>
Computed "Expected" Income Tax
Expense $ 244,960 34.0 $310,421 34.0
Tax-Exempt Income and Nondeductible
Expenses (5,504) (0.8) 14,700 1.6
State Income Taxes, Net of Federal
Income Tax Benefits 24,500 3.4 16,200 1.8
Other 19,988 2.8 10,114 1.1
--------- ------ -------- ------
TOTAL $ 283,944 39.4 $351,435 38.5
========= ====== ======== ======
</TABLE>
Deferred tax liabilities (assets) are comprised of the following
at December 31:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Basis Differences From Business Acquisition:
Loans $ 65,806 $ 0
Bank Premises 112,326 0
Core Deposits 316,405 0
Basis Differences From Accrual to Cash Methods 208,875 92,000
Depreciation 36,966 0
------------- -------------
GROSS DEFERRED TAX LIABILITIES 740,378 92,000
------------- -------------
DEFERRED TAX ASSETS
Net Operating Loss 116,047 0
Allowance For Loan Losses 378,988 152,500
Basis Differences From Business Acquisition:
Loans 2,088 0
Securities 20,584 0
Certificates of Deposit 61,576 0
Basis Differences From Accrual to Cash Methods 134,630 28,000
Basis Difference on Investment Securities Available-For-Sale 9,609 34,600
Other 2,211 0
------------- -------------
GROSS DEFERRED TAX ASSETS (725,733) (215,100)
------------- -------------
VALUATION ALLOWANCE 17,500 17,500
------------- -------------
NET DEFERRED TAX LIABILITIES (ASSETS) $ 32,145 $ (105,600)
============= =============
</TABLE>
19
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 8 - INCOME TAXES (CONCLUDED)
The sources of timing differences and the related income tax
effect of each of the years ended December 31, 1996 and 1995, were
as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Utilization of Net Operating Loss $ 114,613 $ 64,750
Provision For Loan Losses For Income Tax Purposes
(Less) Than For Financial Statement Purposes (73,400) (100,000)
Basis of Securities Sold Greater For Income Tax
Purposes Than For Financial Statement Purposes 81,984 0
Depreciation Deducted For Income Tax Purposes
Greater (Less) Than For Financial Statements
Purposes 36,850 0
Amortization of Asset Bases Greater For Financial
Reporting Purposes Than For Income Tax Purposes (6,012) 0
Adjustment For Accrual Basis to Cash Basis Income
and Expenses (24,748) (856)
Other, Including Revisions of Estimates 24,772 41
------------- -------------
Subtotal Before Change in Valuation Allowance 154,059 (36,065)
Change in Valuation Allowance 0 17,500
------------- -------------
TOTAL $ 154,059 $ (18,565)
============= =============
</TABLE>
As a result from gains and losses on sales of securities, income
tax expense (decreased) by the following amounts: $(5,298) in
1996; $(2,210) in 1995.
NOTE 9 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value:
CASH AND SHORT-TERM INVESTMENTS
For those short-term instruments, the carrying amount is
considered a reasonable estimate of fair value.
INVESTMENT SECURITIES
For marketable equity securities held for investment purposes,
fair values are based on quoted market prices or dealer quotes.
For other securities held as investments, fair value equals quoted
market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for
similar securities.
20
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 9 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LOANS
For variable rate loans, fair values were based on repricing
dates. The fair values of fixed-rate loans were based on
discounted cash flows. Prepayment assumptions for real estate
loans were based on Bloomberg estimates of mortgage pools with
like characteristics. The discount rates used to determine the
present value of these loans were based on interest rates
currently charged by the bank on comparable loans as to credit
risk and term.
DEPOSIT LIABILITIES
The fair value of demand deposits are, as required by FASB No.
107, equal to the carrying value of such deposits. Demand deposits
include noninterest-bearing demand deposits, savings accounts, NOW
accounts, and money market demand accounts. Actual maturities have
been used to value fixed-rate term deposits. The discount rates
were based on interest rates currently being offered by the Bank
on comparable deposits as to amount and term.
These estimated fair values do not include the intangible value of
core deposit relationships which comprise a portion of the Bank's
deposit base. Management believes that the Bank's core deposit
relationships provide a relatively stable, low-cost funding source
which has a substantial intangible value separate from the value
of the deposit balances.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
Substantially all of the Bank's commitments to extend credit and
standby letters of credit are at variable rates and are subjected
to the same credit criteria as for recognized loans receivable.
The variable rates ascribed to these commitments to extend credit
and standby letters of credit approximate market rates for such
instruments. Accordingly, the carrying amount is considered a
reasonable estimate of fair value.
The estimated fair values of the Bank's financial instruments are
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------------------
CARRYING FAIR
AMOUNT VALUE
--------------- ----------------
<S> <C> <C>
FINANCIAL ASSETS
Cash and Short-Term Investments $ 11,515 $ 11,515
Investment Securities 27,414 27,414
Loans Receivable, Net 153,709 153,806
FINANCIAL LIABILITIES
Deposits 187,347 188,178
UNRECOGNIZED FINANCIAL INSTRUMENTS
Commitments to Extend Credit 7,019 7,019
Standby Letters of Credit 546 546
</TABLE>
21
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 9 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONCLUDED)
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
(CONCLUDED) The Bank 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 and to reduce its own exposure to
fluctuations in interest rates. These financial instruments include
commitments to extend credit, standby letters of credit and interest
rate caps and floors written. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the
amount recognized in the statement of financial position. The
contract or notional amounts of those instruments reflect the extent
of involvement the Bank has in particular classes of financial
instruments.
The Bank'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 written is represented
by the contractual notional amount of those instruments. The Bank
uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. For
interest rate caps and floors, the contract or notional amounts do
not represent exposure to credit loss.
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 Bank evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained if deemed
necessary by the Bank upon extension of credit is based on
management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, property,
plant, and equipment, and income-producing commercial properties.
Standby letters of credit and financial guarantees written are
conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and
similar transactions. Most guarantees extend for only one year and
expire in decreasing amounts through 1997. The credit risk involved
in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Bank holds
marketable securities, certificates of deposit, securities sold
under agreements to repurchase and real estate, as collateral
supporting those commitments for which collateral is deemed
necessary.
22
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 10 - COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank has various commitments
and contingent liabilities outstanding, such as commitments to
extend credit and standby letters of credit which are not
reflected in the consolidated financial statements. At December
31, 1996, the Bank had commitments to customers of approximately
$546,000 for standby letters of credit, $2,878,506 for approved
lines of credit and unfunded loan commitments were $4,140,719. No
losses are anticipated as a result of these transactions.
The Bank is involved in legal proceedings primarily concerning the
recovery of loans previously charged-off or adequately provided
for in the allowance for loan losses. Management, after a review
of all litigation with counsel, believes that the resolution of
these matters will not have a material effect on the accompanying
consolidated financial statements.
LEASE COMMITMENTS
At December 31, 1996, the Bank was obligated under three
noncancelable operating lease agreements with renewal options on
properties used principally for branch operations. The Bank
expects to renew such agreements at expiration in the normal
course of business. The leases contain escalation clauses
commencing at various times during the lives of the leases. Such
clauses provide for increases in the annual rental, based on
increases in the consumer price index.
Minimum commitments for rental expenditures under all
noncancellable operating leases are presented for future years in
the following table:
<TABLE>
<CAPTION>
YEAR AMOUNT
---------- ---------
<S> <C>
1997 $ 173,407
1998 120,816
1999 120,816
2000 120,816
2001 68,544
Thereafter 0
---------
TOTAL MINIMUM LEASE PAYMENTS $ 604,399
=========
</TABLE>
Rental expense for all operating leases was $175,894 and $72,000
in 1996 and 1995, respectively.
23
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 11 - STOCKHOLDERS' EQUITY
REGULATORY MATTERS
There are no restrictions on the ability of the Company to pay
dividends from its retained earnings; however, banking regulations
limit the amount of dividends national banks may declare without
receiving prior approval from the Comptroller of the Currency. At
December 31, 1996, approximately $852,452 was available for
payment of dividends by the Bank without such approval.
The Bank is subject to regulatory capital requirements
administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory--and
possibly additional discretionary--actions by regulators that, if
undertaken, could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must
meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measure established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as
defined in the regulations) to risk-weighted assets (as defined),
and of Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1996, that the Bank meets
all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the
Office of the Comptroller of the Currency categorized the Bank as
well capitalized under the regulatory framework for prompt
corrective action. To be categorized as adequately capitalized,
the Bank must maintain minimum total risk-based, Tier I risk-
based, and Tier I leverage ratios as set forth in the table. There
are no conditions or events since that notification that
management believes have changed the Bank's category.
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------------------------------
TO BE WELL
CAPITALIZED UNDER
PROMPT CORRECTIVE
ACTUAL ACTION PROVISIONS
-------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO
---------- ----- ----------- --------
<S> <C> <C> <C> <C><C>
Tier I Capital (To Risk-Weighted Assets) $11,869 9.04% $ 7,875 > 6.0%
-
Tier I Leverage Capital (To Average Assets) $11,869 8.50% $ 6,982 > 5.0%
-
Total Capital (To Risk-Weighted Assets) $13,190 10.05% $13,125 > 10.0%
-
</TABLE>
24
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 11 - STOCKHOLDERS' EQUITY (CONCLUDED)
STOCK OPTION PLAN
During 1991, Liberty National Bank adopted a Nonqualified Employee
Stock Option Plan (the plan). Under the plan, a committee
designated by the Board of Directors is authorized to grant
options to purchase up to 78,125 shares of common stock to
officers and employees of the Bank. The option price per share
with respect to each option shall be determined by the committee.
The committee administers the plan and designates the optionee and
all terms. Prior to the merger, 14,531 shares had been exercised
and 2,187 shares had expired. Upon the merger, the 61,407
outstanding shares were converted on a 1.5 to 1.0 ratio to Key
Florida Bancorp, Inc. options totalling 92,110 shares. Subsequent
to that date, 18,282 options were exercised, leaving 73,828
options outstanding at December 31, 1996. The options granted must
be exercised by March 14, 2000.
STOCK WARRANT PLAN
In 1989, certain shareholders received one warrant to purchase one
share of the Bank's stock for each share purchased by that
shareholder in the initial offering of the Bank's stock. The
exercise price of the warrants was $8 per share, and the warrants
were to expire on January 1, 2000. During the year ended December
31, 1995, the Bank implemented a warrant exchange program, whereby
each warrant holder could exchange the warrants for common stock
at the ratio of .5066 shares of stock for each warrant
surrendered. All of the 253,906 warrants outstanding were
exchanged for 128,638 shares of common stock during 1995.
NOTE 12 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank 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 and to reduce its own
exposure to fluctuations in interest rates. 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 amounts
recognized in the consolidated balance sheets. The contract or
notional amounts of those instruments reflect the extent of
involvement the Bank has in particular classes of financial
instruments.
The Bank'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 written is represented
by the contractual notional amount of those instruments. The Bank
uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet
instruments.
25
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following represents summarized quarterly financial data of
the Company which, in the opinion of management, reflects
adjustments (comprising only normal recurring accruals) necessary
for fair presentation:
<TABLE>
<CAPTION>
THREE MONTHS ENDED (IN THOUSANDS)
------------------------------------------------------------------
1996 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
---------------------------- ------------------ ----------------- -------------- -----------
<S> <C> <C> <C> <C>
Interest Income $ 3,873 $ 3,209 $ 2,110 $ 1,886
Interest Expense 2,120 1,685 1,017 976
Net Interest Income 1,753 1,524 1,093 910
Provision For Losses on Loans 0 62 135 60
Security Gains (Losses) (15) 0 0 1
Net Income 128 (14) 123 199
Earnings Per Share* .05 (.01) .13 .21
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED (IN THOUSANDS)
------------------------------------------------------------------
1995 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
---------------------------- ------------------ ----------------- -------------- -----------
<S> <C> <C> <C> <C>
Interest Income $ 1,891 $ 1,810 $ 1,661 $ 1,495
Interest Expense 992 998 937 755
Net Interest Income 899 812 724 740
Provision For Losses on Loans 78 94 145 45
Security Gains (Losses) (1) 0 0 (6)
Net Income 196 134 113 119
Earnings Per Share .21 .15 .14 .14
</TABLE>
*The sum of the quarters' earnings per share does not equal the
year-to-date earnings per share due to changes in average share
calculations. This is in accordance with prescribed reporting
requirements.
NOTE 14 - EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OPTION PLAN (ESOP)
Prior to the merger, Key Florida Bank had an ESOP. Subsequent to
the merger, unallocated preferred stock held by the ESOP was
retired. Subsequent to year end, the ESOP was terminated and the
allocated shares are to be distributed to the participants. No
expense for the ESOP was incurred during the period covered by
these financial statements and there is no unfunded commitment or
liability remaining with respect to the ESOP.
401(K) RETIREMENT PLAN
Effective March 1, 1997, the Company instituted a 401(k) plan for
substantially all of its employees. The Company has not currently
established a matching percentage.
26
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 15 - OTHER NONINTEREST EXPENSE
Other noninterest expense consists of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Taxes (Other Than Payroll and Income Taxes) $ 80,495 $ 39,887
Loans Expense 125,883 37,518
Postage 86,145 50,726
Advertising and Public Relations 135,340 92,817
Stationery and Supplies 123,875 77,919
Miscellaneous 302,494 221,271
------------ ------------
TOTAL OTHER EXPENSES $ 854,232 $ 520,138
============ ============
</TABLE>
NOTE 16 - PRO FORMA INCOME STATEMENTS
Had the aforementioned business combination occurred at the
beginning of each of the periods presented, the Company's pro
forma unaudited results of operations are presented below:
<TABLE>
<CAPTION>
(UNAUDITED)
--------------------------
FOR THE YEAR
ENDED DECEMBER 31,
(IN THOUSANDS)
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Interest Income $ 14,880 $ 13,927
Interest Expense 8,387 8,318
------------ ------------
Net Interest Income 6,493 5,609
Provision For Loan Losses 253 472
------------ ------------
Net Interest Income After Provision For
Loan Losses 6,240 5,137
Noninterest Income 875 942
Noninterest Expense 6,163 5,152
------------ ------------
Net Income Before Income Taxes 952 927
Income Taxes 349 171
------------ ------------
Net Income $ 603 $ 756
============ ============
</TABLE>
The unaudited pro forma results are not necessarily indicative of
the results that would have been attained had the merger occurred
at the beginning of 1996 or 1995, or of the results which may
occur in the future.
27
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONTINUED)
NOTE 17 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
Following are the condensed financial statements of Key Florida
Bancorp, Inc. (Parent Company Only) for December 31, 1996. The
period of activity in the Parent Company Only financial statements
consists of the activity described in note 2:
CONDENSED BALANCE SHEET
ASSETS
<TABLE>
<S> <C>
Cash $ 6,839
Investment in Wholly-Owned Subsidiaries,
at Equity in Underlying Assets 12,793,549
Premises and Equipment, Net 49,054
Other Assets 116,024
---------------
TOTAL ASSETS 12,965,466
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes Payable 143,053
Other 131,245
--------------
TOTAL LIABILITIES 274,298
--------------
STOCKHOLDERS' EQUITY
Common Stock 27,581
Capital Surplus 11,400,484
Retained Earnings 1,282,247
(Treasury Stock) (490)
Unrealized Gains (Losses) on
Certain Securities (18,654)
---------------
TOTAL STOCKHOLDERS' EQUITY 12,691,168
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,965,466
===============
</TABLE>
28
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
AND LIBERTY NATIONAL BANK
BRADENTON, FLORIDA
(CONCLUDED)
NOTE 17 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONCLUDED)
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
<S> <C>
INCOME
Cash Dividends From Subsidiaries $ 250,000
Interest 3,723
---------------
TOTAL INCOME 253,723
---------------
EXPENSES
Salaries 69,461
Interest 5,717
Other Expense 28,622
---------------
TOTAL EXPENSES 103,800
---------------
INCOME BEFORE INCOME TAX BENEFIT AND EQUITY IN
UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 149,923
INCOME TAX BENEFIT RESULTING FROM FILING
CONSOLIDATED INCOME TAX RETURNS 37,660
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 248,942
---------------
NET INCOME $ 436,525
===============
CONDENSED STATEMENT OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 436,525
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities:
Depreciation 3,122
Income From Subsidiaries (248,942)
Tax Benefit (37,660)
Other (27,093)
---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 125,952
---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Premises and Equipment (52,176)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Notes Payable (10,882)
Proceeds From Options Exercised 78,065
Purchase of Treasury Stock (191)
Preferred Stock Retired (428,596)
Preferred Stock - Dividends Paid (18,693)
---------------
NET CASH (USED IN) FINANCING ACTIVITIES (380,297)
---------------
(DECREASE) IN CASH (306,521)
CASH, BEGINNING OF PERIOD 313,360
---------------
CASH, END OF PERIOD $ 6,839
===============
</TABLE>
29
<PAGE> 32
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
KEY FLORIDA LIBERTY
BANCORP, NATIONAL
INC. BANK
--------------------------
(Dollars in thousands except per share data) 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOR THE YEAR
Net interest income ................................................................. $ 5,280 $ 3,175
Provision for loan losses............................................................ 257 362
Noninterest income:
Investment securities gains (losses)............................................... (14) (7)
Other.............................................................................. 482 579
Noninterest expenses................................................................. 4,771 2,472
Income before income taxes........................................................... 720 913
Income taxes......................................................................... 284 351
Net income........................................................................... 436 562
Core earnings (3).................................................................... 963 1,280
Per share data (1):
Net income......................................................................... $ 0.25 $ 0.64
Cash dividends declared: Common................................................... .00 .00
Book value before adjustment for unrealized gains (losses)
on certain securities............................................................. 4.61 7.88
Adjustment for unrealized gains (losses) on certain securities..................... (.01) (.07)
Book value......................................................................... 4.60 7.81
Dividends to net income.............................................................. .00 .00
AT YEAR END
Assets............................................................................... $ 200,890 $ 96,069
Investment securities................................................................ 27,415 21,293
Net loans............................................................................ 153,709 65,744
Deposits............................................................................. 187,347 87,955
Shareholders' equity before adjustment for unrealized gains
(losses) on certain securities..................................................... 12,710 7,413
Adjustment for unrealized gains (losses) on certain
securities (4)..................................................................... (19) (64)
Shareholders' equity................................................................. 12,691 7,349
Performance Ratios:
Return on average assets........................................................... .31% .63%
Return on average equity........................................................... 4.43% 8.02%
Net interest margin (2).............................................................. 4.03% 3.78%
Average equity to average assets..................................................... 7.05% 7.90%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share data has been restated for stock splits and the
recapitalization of stock due to merger on July 30, 1996.
(2) On a tax equivalent basis.
(3) Income before income taxes excluding the provision for loan losses,
securities gains or losses, expenses associated with acquisition and
disposition of foreclosed properties.
(4) The adjustment for unrealized gains on certain securities results from the
application of FASB No. 115, as described in Notes 1 and 4 to the
consolidated financial statements.
30
<PAGE> 33
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
1996 Management's Discussion and Analysis
The following discussion and analysis is designed to provide a better
understanding of the significant factors related to Key Florida Bancorp, Inc.'s
(Bancorp) results of operations and financial condition. Such discussion and
analysis should be read in conjunction with the Consolidated Financial
Statements of Bancorp and the notes thereto, and the Financial Highlights
provided on page 5 of this report.
MERGER WITH KEY FLORIDA BANK, F.S.B.
As discussed in note 2 of notes to the Bancorp's financial statements, on July
30, 1996, Bancorp and Liberty National Bank (the Bank) completed a merger of Key
Florida Bank, F.S.B. (formerly Bancorp's banking subsidiary) with and into the
Bank. Due to the change in majority ownership interest to that of the Bank's
shareholders, the merger is considered to be an acquisition by the Bank of the
Bancorp and its subsidiary, Key Florida Bank, F.S.B.
Due to the aforementioned merger transaction and the resultant change in control
to the Bank's shareholders, the operating results of the Bank for the entire
1996 calendar year and the operating results of Bancorp and Key Florida Bank,
F.S.B. (the acquired companies) from July 31, 1996 through December 31, 1996 are
combined. This transaction has been accounted for under the purchase method of
accounting. The operating results of the acquired companies from January 1, 1996
through July 30, 1996, have not been included in income for 1996.
Also, because control changed to the Bank's shareholders as a result of the
merger, the comparable financial statements presented for the preceding fiscal
year ended December 31, 1995, are those of the Bank.
Due to the transactions described above, the activity between the current and
prior year is not readily comparable. In the following analysis, discussion of
the effects of the merger are included in certain areas to assist in
understanding the Company's activity.
SUMMARY OF MERGER TRANSACTION
At the time of the merger, each share of the Bank's common stock was converted
into 1.5 shares of Bancorp's common stock, or a total of 1,798,861 shares (cash
was paid in lieu of fractional shares). The 940,986 shares of Bancorp's common
stock issued and outstanding at the time of the merger remained outstanding.
After completion of the merger, a total of 2,739,847 shares of the Company's
$.01 par value common stock was outstanding. As previously mentioned, the
acquisition was accounted for as a purchase by the Bank and acquired by issuance
of common stock. Following is a summary of the cost of assets and liabilities
acquired by the Bank at July 30, 1996:
<TABLE>
<S> <C>
Assets Acquired $87,473,908
Liabilities Assumed $82,244,236
Net Assets Acquired $ 5,229,672
</TABLE>
RECAPITALIZATION RESULTING FROM MERGER
As a result of the merger transaction, the January 1, 1995, balance of the
Bank's common stock outstanding and the related balance in par value have been
retroactively restated to reflect the number of shares outstanding of the
Company and the Company's one-cent par value. Additionally, additional paid-in
capital at that date has been restated to reflect the corresponding adjustment
of the balance in par value. These adjustments were made to give retroactive
application to the aforementioned recapitalization resulting from the merger on
July 30, 1996. The amounts as originally reported and as adjusted at January 1,
1995, are as follows:
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------ PAID-IN
SHARES AMOUNT CAPITAL
------ ------ -------
<S> <C> <C> <C>
As originally reported ($5
par value)................. 845,606 $ 4,228,030 $ 2,233,630
Adjustment for recapital-
ization.................... (16,024) (4,219,734) 4,219,734
---------- ------------ --------------
As Adjusted (one-cent par
value)..................... 829,582 $ 8,296 $ 6,453,364
========== ============ ==============
</TABLE>
OVERVIEW OF OPERATIONS
Net income for 1996 totalled $436,000 or $.25 per share compared with $562,000
or $0.64 per share in 1995. Earnings were reduced by the payment of $400,000 in
the third quarter through the one-time SAIF Special Assessment since the Bank
holds assessable deposits acquired in the merger with Key Florida Bank, F.S.B.
(see "Capital Resources"). Return on average assets was 0.31 percent and return
on average shareholders' equity was 4.43 percent for 1996, compared to the prior
year's results of .63 percent and 8.02 percent, respectively.
Core earnings (income before income taxes, excluding the provision for
loan losses, securities gains and losses, expenses associated with acquisition
and disposition of foreclosed properties) also were reduced by the SAIF Special
Assessment with a return on average assets from core earnings of .66 percent
and a return on average equity from core earnings of 9.78 percent.
- --------------------------------------------------------------------------------
CONDENSED INCOME STATEMENT [TABLE 1]
AS A PERCENT OF AVERAGE ASSETS
(Tax Equivalent Basis)
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Net interest income .......................... 3.78% 3.58%
Provision for loan losses .................... (.18) (.41)
Noninterest income:
Investment securities gains (losses) ........ (.01) .00
Service charges on deposit accounts ......... .25 .35
Other income ................................ .10 .31
Noninterest expenses ......................... (3.43) (2.80)
----- ----
Income before income taxes ................... .51 1.03
Provision for income taxes including
tax equivalent adjustment ................... (.20) (.39)
----- ----
NET INCOME ................................... .31% .64%
===== ====
- ------------------------------------------------------------------------
</TABLE>
<PAGE> 34
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, on a fully tax equivalent basis (TEB), totalled $5,280,000
for 1996, an increase of $2,105,000 or 66.30 percent from Bancorp's year-earlier
performance. The average cost of interest-bearing liabilities decreased from
5.08 percent during 1995 to 4.93 percent during 1996, while the average yield on
earning assets increased from 8.17 percent during 1995 to 8.45 percent during
1996. The decrease in average interest costs and increased yields on earning
assets, coupled with increased noninterest-bearing deposits resulted in an
increase in the net interest income/yield on average earning assets from 3.78
percent in 1995 to 4.02 percent during 1996.
As a percent of average earning assets, net interest margin (TEB) was 3.76
percent in the fourth quarter, compared to 3.97 percent in the third quarter,
4.66 percent in the second quarter and 4.07 percent for the first quarter of
this year and 4.09 percent for the fourth quarter in 1995.
Average earning assets for 1996 increased $47,179,000 or 56.23 percent compared
to prior year as a result of increased loans and investment securities, along
with the increase in deposits during 1996 caused by the merger with Key Florida
Bank, F.S.B. Average loan balances increased $47,542,000 or 83.13 percent from
the prior year to $104,728,000 while average investment securities decreased
$802,000 or 3.28 percent to $23,679,000.
For the year ended December 31, 1996, average loans represented 79.90 percent of
average earning assets compared to 68.16 percent for 1995. Loan yields decreased
13 basis points, and investment security yields increased 3 basis points. Though
the loan yields decreased in 1996, the larger amount of average loans
outstanding during the year resulted in a yield increase of 28 basis points from
8.17 percent in 1995 to 8.45 percent for all earning assets. During 1996, the
Bank changed its prime rate three times beginning and ending at 8.25 percent.
For the years ended December 31, 1996 and 1995, Table 3 discloses the increases
and decreases in net interest income attributable to changes in the volume and
rates of individual earning assets and interest-bearing liabilities. The
balances of nonaccruing loans are included in average loans outstanding.
- --------------------------------------------------------------------------------
CHANGES IN AVERAGE EARNING ASSETS [TABLE 2]
(Dollars in thousands)
<TABLE>
<CAPTION>
Increase/(Decrease) Increase/(Decrease)
-------------------- ------------------------
1996 vs. 1995 1995 vs. 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment and
mortgage-backed
securities ................ $ (802) (3)% $ 3,590 17%
Federal funds sold
and other short-
term investments .......... 439 20% 1,281 135%
Loans, net ................. 47,542 83% 14,327 33%
-------- --------
TOTAL ..................... $ 47,179 56% $ 19,198 30%
======== ========
</TABLE>
- --------------------------------------------------------------------------------
RATE / VOLUME ANALYSIS (ON A TAX EQUIVALENT BASIS) [TABLE 3]
Amount of Increase (Decrease) (Dollars in thousands)
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
---------------------------- ----------------------------
Due to Change in: Due to Change in:
Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Investment and mortgage-backed securities................ $ (35) $ (5) $ (40)$ 216 $ 165 $ 381
Federal funds sold and other short-term investments...... (1) (1) (2) 65 31 96
Loans.................................................... 4,333 (70) 4,263 1,231 396 1,627
-------- -------- --------- --------- -------- --------
TOTAL INTEREST INCOME................................. 4,297 (76) 4,221 1,512 592 2,104
-------- -------- --------- --------- -------- --------
INTEREST EXPENSE
Interest-bearing demand, NOW and money market............ 190 (10) 180 86 92 178
Savings.................................................. 223 58 281 3 20 23
Time deposits............................................ 1,740 (102) 1,638 746 520 1,266
Federal funds purchased and securities sold
under agreement to repurchase........................... 18 (1) 17 2 1 3
-------- --------- --------- ---------- -------- --------
TOTAL INTEREST EXPENSE................................ 2,171 (55) 2,116 837 633 1,470
-------- -------- --------- --------- -------- --------
NET INTEREST INCOME................................... $ 2,126 $ (21) $ 2,105 $ 675 $ (41) $ 634
======== ======== ========= ========= ======== ========
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 35
CHANGES IN AVERAGE [TABLE 4]
INTEREST-BEARING LIABILITIES
(Dollars in thousands)
<TABLE>
<CAPTION>
Increase/(Decrease) Increase/(Decrease)
1996 vs. 1995 1995 vs. 1994
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest-bearing demand,
NOW and money
market................. $ 6,537 51% $ 3,266 34%
Savings.................. 6,118 152% 141 36%
Time deposits............ 32,065 58% 14,324 35%
Federal funds purchased
and other borrowings... 459 588% 28 56%
------- -------
TOTAL.................. $45,179 62% $17,759 32%
======= =======
- ------------------------------------------------------------------
</TABLE>
Unlike earning asset yields, the interest rates paid on interest-bearing
liabilities decreased. The 15 basis point decrease from 5.08 percent one year
ago to 4.93 percent was primarily a result of the increase in lower rate
deposits acquired in the merger with Key Florida Bank, F.S.B. The average
balance for interest-bearing liabilities increased $45,179,000 or 62.36 percent
to $117,626,000 in 1996 compared to 1995. Table 4 shows the components
comprising this increase.
Net interest income (TEB) totalled $5,280,000 for 1996, an increase of
$2,105,000 or 66.30 percent from the prior year. Net interest income (TEB) as a
percent of average earning assets was 4.02 percent compared to 3.78 percent for
1995. The increase in this ratio during 1996 was attributed to the slight
increase in net interest margin.
Yields on earning assets increased in 1995 as a result of a change in the loan
portfolio mix from 1994 to 1995. The portfolio showed a decrease in lower
yielding residential real estate loans and a corresponding increase in higher
yielding commercial real estate loans. The yield on earning assets increased 82
basis points from 7.35 percent to 8.17 percent for the year 1995 compared to
1994. Approximately $19,000,000 of earning assets were acquired primarily with
cash received from increased deposits.
The increase in yields on average earning assets in 1995 was offset by a 104
basis point decrease in interest rates paid on average interest-bearing
liabilities from 4.04 percent in 1994 to 5.08 percent in 1995. Increasing market
interest rates caused bank management to increase the rates offered on demand
accounts, savings, money market accounts, and certificates of deposit. Rates
paid for time deposits increased 109 basis points during 1995. Average time
deposits increased 34.79 percent to $55,493.
<PAGE> 36
- --------------------------------------------------------------------------------
TWO-YEAR SUMMARY [TABLE 5]
AVERAGE BALANCES, INTEREST INCOME AND EXPENSES, YIELDS AND RATES (1)
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
AVERAGE YIELD/ Average Yield/
BALANCE INTEREST RATE Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Investment and mortgage-backed securities........................ $ 23,679 $ 1,400 5.91% $ 24,481 $ 1,440 5.88%
Federal funds sold and other short-term investments.............. 2,672 133 4.98% 2,233 135 6.05%
Loans, net (2)................................................... 104,728 9,545 9.11% 57,186 5,282 9.24%
-------- ------ -------- --------
TOTAL EARNING ASSETS.......................................... 131,079 11,078 8.45% 83,900 6,857 8.17%
------ --------
Allowance for loan losses........................................ (997) (540)
Cash and due from banks.......................................... 4,504 2,653
Bank premises and equipment...................................... 3,194 1,386
Other assets..................................................... 1,861 1,351
-------- --------
TOTAL ASSETS.................................................. $139,641 $ 88,750
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand, NOW and money market.................... $ 19,380 $ 571 2.95% $ 12,843 $ 391 3.04%
Savings.......................................................... 10,151 393 3.87% 4,033 112 2.78%
Time deposits.................................................... 87,558 4,812 5.50% 55,493 3,174 5.72%
Federal funds purchased and other borrowings..................... 537 22 4.09% 78 5 6.41%
-------- ------ -------- --------
TOTAL INTEREST-BEARING LIABILITIES............................ 117,626 5,798 4.93% 72,447 3,682 5.08%
------ --------
Demand deposits:
Noninterest-bearing.............................................. 11,296 8,540
Other liabilities................................................ 871 756
-------- --------
TOTAL LIABILITIES............................................. 129,793 81,743
Shareholders' equity............................................. 9,848 7,007
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................... $139,641 $ 88,750
======== ========
Interest expense as % of earning assets.......................... 4.42% 4.39%
Net interest income/yield on earnings assets..................... $5,280 4.03% $ 3,175 3.78%
====== ========
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 1996 Average balances are calculated using month-end totals, not daily
average balances.
(2) Nonaccrual loans are included in loan balances. Fees on loans have been
included in interest on loans.
<PAGE> 37
PROVISION FOR LOAN LOSSES
Net charge-offs for 1996 increased $81,000 or 93.10 percent to $168,000. The
increase in net charge-offs and delinquencies in 1996 was offset by additions to
the allowance charged to expense. The allowance at December 31, 1996, increased
by $89,000 or 12.64 percent over that at year end 1995, before the addition of
$528,000 resulting from the merger with Key Florida Bank, F.S.B.
Bancorp's internal loan monitoring systems provide monthly analyses of
delinquencies, nonperforming assets, and potential problem loans, which are
reviewed periodically by the Board of Directors.
Management determines the provision for loan losses which is charged to
operations by analyzing and monitoring delinquencies, nonperforming loans and
the level of outstanding balances for each loan category, as well as the amount
of net charge-offs, and by assessing losses inherent in its portfolio. While
Bancorp's policies and procedures used to estimate the monthly provision for
loan losses charged to operations are considered adequate by management and are
reviewed from time to time by the Office of the Comptroller of the Currency
(OCC), there exist factors beyond the control of Bancorp, including general
economic conditions both locally and nationally, which make management's
judgment as to the adequacy of the provision necessarily approximate.
For the year ended December 31, 1996, the provision for loan losses charged to
expense was $257,000, compared to $362,000 for 1995, a 29.01 percent decrease.
For the year ended December 31, 1995, the provision for loan losses was $362,000
compared to $276,000 for 1994. The increase resulted from management's
assessment of the economic environment and the commercial real estate market and
the increase in total volume of loans outstanding.
NONINTEREST INCOME
Table 6 shows Bancorp's noninterest income for the years indicated.
- --------------------------------------------------------------------------------
[TABLE 6]
NONINTEREST INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended % Change
--------------- --------------------
1996 1995 96/95 95/94
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service charges on deposit
accounts ............ $ 345 $ 314 10% 9%
Other income ............ 137 265 (48%) 65%
Investment securities
gain (loss) ......... (14) (7) 133% 400%
----- -----
TOTAL ........ $ 468 $ 572 (18%) 29%
===== =====
</TABLE>
Noninterest income, excluding securities losses, decreased in 1996 as a result
of a recovery of $132,000 from a lawsuit in 1995. Absent the 1995 effect of the
lawsuit, noninterest income, excluding securities losses, increased as a result
of an increase in service charges on deposit accounts and an increase in other
miscellaneous fee income.
Securities transactions resulted in losses of $14,000 for the year ended
December 31, 1996, compared to losses of $7,000 in 1995, or a total change of
$7,000. The losses incurred in 1996 resulted from the Bank selling a majority of
its structured notes and several mortgage-backed securities at a point in the
market where the structured notes and mortgage-backed securities could be
replaced by higher yielding U.S. Treasury and U.S. Government Agency securities.
The change to higher yielding U.S. Treasury and U.S. Government Agency
securities was expected to offset the losses incurred on the sale of the
aforementioned securities within a short period of time.
<PAGE> 38
NONINTEREST EXPENSES
Table 7 shows Bancorp's noninterest expenses for the years indicated.
- --------------------------------------------------------------------------------
[TABLE 7]
NONINTEREST EXPENSES
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended % Change
1996 1995 96/95 95/94
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and benefits....................... $2,167 $ 1,015 113.5% 30.3%
Occupancy and equipment..................... 719 439 63.8% 11.4%
Data processing............................. 202 179 12.8% 40.0%
Federal insurance deposit premium........... 531 112 374.1% (35.3%)
Legal and professional...................... 162 207 (21.7%) 40.0%
Amortization of core deposit
intangible.............................. 134 0 100.0% .0%
Other expense............................... 856 520 64.6% 50.1%
----- -------
TOTAL NONINTEREST EXPENSE............... $4,771 $ 2,472 93.0% (7.2%)
====== ========
</TABLE>
Noninterest expenses increased in 1996 by $2,299,000 or 93.00 percent over 1995.
This increase was primarily the result of the merger with Key Florida Bank,
F.S.B., which effectively doubled the size of the Bank during the third quarter
of 1996.
Included in 1996 is the amortization of the core deposit intangible, which is a
direct result of the purchase of Key Florida Bank, F.S.B. The gross amount
recorded at the purchase was $975,000. During 1996, $134,000 was expensed.
Occupancy and equipment expense increased by $280,000 in 1996 compared to 1995,
or 63.78 percent. This increase was primarily due to the merger with Key Florida
Bank, F.S.B., which added the occupancy costs and equipment (rent, utilities,
depreciation, insurance and property taxes) associated with the Key Florida
Bank, F.S.B. branches in Bradenton (2) and Long Boat Key (1). Also included in
the occupancy and equipment expense are the depreciation and maintenance costs
associated with the acquisition of approximately $300,000 of new computer
equipment for the Bank's new management information system.
In the third quarter of 1996, the omnibus appropriations bill was signed into
law. This legislation was aimed at recapitalizing the Savings Association
Insurance Fund (SAIF) through a one-time special assessment on the insured
deposits of SAIF member institutions. Though Bancorp is a member of the Federal
Deposit Insurance Corporation (FDIC) Bank Insurance Fund (BIF), it holds
assessable deposits acquired in the merger with Key Florida Bank, F.S.B., and
due to its participation in a Section 5(d)(3) "Oakar" transaction, it was
subject to the SAIF special assessment. Based upon the amount of assessable
deposits held by the Bank at March 31, 1995, the special assessment paid by the
Bank was $400,150. This one-time SAIF special assessment caused the federal
deposit insurance premiums to increase 374.10 percent over 1995 amounts. These
premiums increased by $19,000 or 16.96 percent without regard to the one-time
assessment. Future FDIC insurance rates assessed on deposits depend on the
capital adequacy and examination ratings imposed by governing bank regulatory
authorities on individual financial institutions.
The increase in noninterest expenses in 1995 was attributable in part to a 69
percent growth in salaries and employee benefits, general salary increases and
related increases in payroll taxes due to the increase in personnel as a result
of the merger and the increase in the number of employees in the fourth quarter
of 1996 for the staffing of the Bank's Ellenton Branch, which opened the first
week of 1997.
INCOME TAXES
Income taxes for the year 1996 were $284,000 or 19.09 percent below the $351,000
for 1995 which was above the $(51,000) in 1994. The effective rate in 1996 was
39.44 percent and was 38.44 percent in 1995.
FINANCIAL CONDITION
Bancorp increased its assets 109.11 percent between December 31, 1996 and
December 31, 1995, from $96,069,000 to $200,890,000. Included in this increase
was approximately $87,474,000 in assets acquired in the merger with Key Florida
Bank, F.S.B., leaving a net increase in assets of $17,347,000 or 18.06 percent
without regard to the merger.
<PAGE> 39
CAPITAL RESOURCES
Table 8 summarizes Bancorp's capital position and selected ratios.
- -----------------------------------------------------------------
CAPITAL RESOURCES (1) [TABLE 8]
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31 1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
TIER 1 CAPITAL
Common stock........................... $ 28 $ 4,797
Additional paid-in capital............. 11,401 1,752
Retained earnings...................... 1,282 864
Treasury stock......................... (1) 0
Intangible assets...................... (841) 0
--------- ----------
Total Tier 1 capital................. 11,869 7,413
--------- ----------
TIER 2 CAPITAL
Allowance for loan losses, as limited.. 1,321 704
--------- ----------
Total Tier 2 capital................. 1,321 704
--------- ----------
Total risk-based capital................. $ 13,190 $ 8,117
========= ==========
Risk-weighted assets..................... $ 131,245 $ 66,942
========= ==========
Tier 1 risk-based capital ratio.......... 9.04% 11.07%
Total risk-based capital ratio........... 10.05% 12.13%
Shareholders' equity to assets........... 6.32% 7.72%
Average shareholders' equity to average
total assets........................... 7.05% 7.90%
- -----------------------------------------------------------------
</TABLE>
(1) Amounts are exclusive of adjustments made to recognize fair value of
certain securities in accordance with FASB No. 115 (see Notes 1 and 2 to
consolidated financial statements).
Bancorp's capital increased by $5,342,000 at December 31, 1996 compared to year
end 1995. Of this increase, $5,230,000 was attributable to the merger of Key
Florida Bank, F.S.B. with and into Liberty National Bank which was accounted for
under the purchase method of accounting. Additionally, capital decreased
$429,000 for retirement of preferred stock, and increased by shares issued upon
the exercise of employee stock options totalling $78,000 and by net income of
$436,000.
Bancorp's ratio of stockholders' equity to year end assets was 6.32 percent
compared to the year end 1995 ratio of 7.72 percent.
Book value per common share outstanding was $4.60 per share at December 31,
1996, compared to the book value per share at year end 1995 of $7.81.
LOAN PORTFOLIO
Table 9 shows total loans (net of unearned income) by category outstanding at
the indicated dates.
- --------------------------------------------------------------------------
LOANS OUTSTANDING [TABLE 9]
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Real estate ................................... $121,488 $ 48,358
Commercial, financial and agriculture ......... 22,561 13,050
Installment loans ............................. 10,981 5,127
-------- --------
TOTAL .................................... $155,030 $ 66,535
======== ========
- ---------------------------------------------------------------------------
</TABLE>
Bancorp makes substantially all of its loans to customers located within the two
counties of Manatee and Sarasota in Florida. It has no foreign loans or highly
leveraged transaction (HLT) loans.
The increases in Bancorp's loan balances in 1996 were attributed to the merger
with Key Florida Bank, F.S.B. and growth in residential and commercial real
estate loans. During 1996, loans receivable increased by $88,572,000 to
$155,107,000, including $70,195,000 of increased loans acquired in the merger
with Key Florida Bank, F.S.B. The increase of $18,377,000, excluding the loans
acquired in the merger, represent a 27.62 percent growth over year end 1995
balances.
At December 31, 1996, Bancorp's portfolio of mortgage loan balances secured by
residential properties amounted to $95,420,000 or 61.52 percent of total loans.
Loans secured by commercial real estate totalled $23,410,000 or 15.09 percent of
total loans. Most of the commercial real estate loans were made to local
businesses and professionals secured by owner-occupied properties. Loans and
commitments for 1-4 family residential properties and commercial real estate are
generally secured with first mortgages on property, with the loan to fair market
value of the property not exceeding 80.00 percent on the date the loan is made.
Between December 31, 1995 and December 31, 1996, residential real estate
mortgage loans increased $70,788,000 or 287.38 percent and commercial real
estate mortgage loans increased $1,842,000 or 8.54 percent.
Installment loans at December 31, 1996 showed an increase of $6,021,000 from
year end 1995 excluding installment real estate loans.
<PAGE> 40
Bancorp's market is primarily a residential area with relatively little
commercial activity other than professional retail and service businesses
serving local residents. Therefore, real estate mortgage lending (particularly
residential properties) is expected to remain an important segment of Bancorp's
lending activities. Exposure to market interest rate volatility, with respect to
mortgage loans, is managed by attempting to match maturities and repricing
opportunities for assets against liabilities, when possible. At December 31,
1996, approximately $73,000,000 or 60 percent of Bancorp's total real estate
loans were adjustable rate 10- to 30-year residential mortgage loans (ARMs) that
reprice based upon the one-year constant maturity United States Treasury Index
plus a margin. Generally, the ARMs' interest rate adjustments are limited to two
percent per annum and six percent over the life of the loan. Such ARMs may be
originated at rates greater than the index rate, but below the total of the
index rate and the margin for an initial period ending on the first adjustment
date. All such loans are generally made to borrowers upon terms and conditions
that would make such loans eligible for resale, after seasoning, under Federal
National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation
(FHLMC) guidelines. Although the Company is not actively selling residential
real estate loans, approximately $1,199,000 of such loans were sold during 1996.
ARM borrowers are qualified based upon the initial ARM loan interest rate plus
200 basis points and upon various debt service ratios of the borrower, including
a total debt service ratio of not more than 36 percent of total income.
- -------------------------------------------------------------------------------
LOAN MATURITY DISTRIBUTION [TABLE 10]
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Commercial,
Financial & Real
December 31, 1996 Installment Agricultural Estate Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
In one year or less .................. $ 2,809 $ 10,382 $ 25,739 $ 38,930
After one year but
within five years:
Interest rates are
floating or adjust-
able ........................... 1,789 3,128 10,372 15,289
Interest rates are
fixed .......................... 4,771 6,047 7,944 18,762
In five years or more:
Interest rates are
floating or adjustable ......... 352 2,575 41,455 44,382
Interest rates are fixed ........... 1,260 429 35,978 37,667
-------- -------- -------- --------
TOTAL .......................... $ 10,981 $ 22,561 $121,488 $155,030
======== ======== ======== ========
- -------------------------------------------------------------------------------------------
</TABLE>
Commercial lending activities are directed principally towards businesses whose
demand for funds are within Bancorp's lending limits, such as small- to
medium-sized professional firms, retail and wholesale outlets, and light
industrial and manufacturing concerns. Those that exceed Bancorp's lending
limits are participations with other lending institutions. Most of such loans
are secured by real estate used by such businesses, although certain lines are
unsecured. Bancorp makes a variety of consumer loans, including installment
loans, loans for automobiles, boats, home improvements and other personal,
family and household purposes, and indirect loans through dealers to finance
automobiles. Most consumer loans are secured.
Second mortgage loans and home equity lines also are extended by Bancorp. No
negative amortization loans or lines are offered at the present time. Terms of
second mortgage loans include fixed rates for up to 10 years on smaller loans of
$25,000 or less. Such loans are sometimes made for larger amounts, with a fixed
rate, but with a balloon payment upon maturity not to exceed five years. Bancorp
offers variable-rate second mortgage loans with terms of up to 15 years.
Loan-to-value ratios for these loans generally do not exceed 80 percent of
appraised value. Home equity lines are offered on a variable rate basis only and
the maximum loan-to-value ratio for such loans is normally 80 percent of the
appraised value when the loan is extended.
Bancorp has commitments to make loans (excluding unused home equity lines) of
$4,141,000 at December 31, 1996. Bancorp attempts to reduce its exposure to the
risk of the local real estate market by making commercial real estate loans
primarily on owner-occupied properties. Bancorp presently has 15 percent of its
total loans in commercial real estate. The remainder of the real estate loan
portfolio is residential mortgages to individuals, and home equity loans, which
Bancorp generally considers less susceptible to adverse effects from a downturn
in the real estate market, especially given the area's percentage of retired
persons. Bancorp's net charge-off rates for real estate loans were .16 percent
for the year ended December 31, 1996.
ALLOWANCE FOR LOAN LOSSES
Table 11 provides certain information concerning Bancorp's allowances for loan
losses for the years indicated.
The allowance for loan losses was $1,321,000 at December 31, 1996, $617,000
higher than one year earlier. Included in this increase was $528,000 which was
attributable to the merger with Key Florida Bank, F.S.B. The ratio of the
allowance for loan losses to total loans outstanding (net of unearned income)
was .85 percent at December 31, 1996, compared to 1.06 percent at December 31,
1995. The allowance for loan losses as a percent of nonaccrual loans was 82.25
percent at December 31, 1996, compared to 101.19 percent at December 31, 1995.
There were no accruing loans past due 90 days or more at December 31, 1996 or
1995.
During 1996, Bancorp experienced net charge-offs of $168,000, compared to net
charge-offs of $87,000 one year earlier. Net charge-offs as a percent of average
loans outstanding were .16 percent for 1996, as compared to the .15 percent
Bancorp reported for 1995. Net installment loan losses were $33,000 in 1996,
versus $81,000 in 1995. Commercial, financial and agricultural losses were
$105,000 and $6,000, respectively, for the same periods. Real estate loan losses
were $30,000 in 1996. In 1995, there were no charge-offs of real estate loans.
<PAGE> 41
Table 12 summarizes Bancorp's allocation of the allowance for loan losses to
each type of loan and information regarding the composition of the loan
portfolio at the dates indicated.
- -------------------------------------------------------------------------------
SUMMARY OF LOAN LOSS EXPERIENCE [TABLE 11]
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Allowance for loan losses
Beginning balance................................................................................... $ 704 $ 429
-------- --------
Provision for loan loss expense..................................................................... 257 362
-------- --------
Addition from merger................................................................................ 528 0
-------- --------
Gross loan charge-offs:
Commercial, financial and agricultural........................................................... 111 6
Installment...................................................................................... 33 87
Real estate...................................................................................... 30 0
-------- --------
TOTAL CHARGE-OFFS............................................................................. 174 93
-------- --------
Recoveries:
Commercial, financial and agricultural.............................................................. 6 0
Installment......................................................................................... 0 6
Real estate......................................................................................... 0 0
-------- --------
TOTAL RECOVERIES.............................................................................. 6 6
-------- --------
ENDING BALANCE................................................................................ $ 1,321 $ 704
======== ========
Loans outstanding at end of year*..................................................................... $155,030 $ 66,535
Ratio of allowance for loan losses to loans outstanding at
end of year......................................................................................... .85% 1.06%
Average loans outstanding*............................................................................ $104,728 $ 57,186
Ratio of net charge-offs to average loans outstanding................................................. .16% .15%
</TABLE>
* Net of unearned income
- -------------------------------------------------------------------------------
<PAGE> 42
The allowance for loan losses represents management's estimate of an amount
adequate in relation to the risk of future losses inherent in the loan
portfolio. In its continuing evaluation of the allowance and its adequacy,
management considers, among other factors, Bancorp's loan loss experience, the
amount of past due and nonperforming loans, current and anticipated economic
conditions, and the values of certain loan collateral, and other assets. The
size of the allowance also reflects the large amount of permanent residential
loans held by Bancorp whose historical charge-offs and delinquencies have been
lower compared to nonresidential loans. Additionally, due to the merger with Key
Florida Bank, F.S.B., a larger percentage of the Bank's loan portfolio is now
comprised of residential real estate loans which management believes requires a
lower provision for losses. This contributed to the reduction in the allowance
for loan losses as a percentage of loans outstanding at December 31, 1996,
compared to December 31, 1995.
- -----------------------------------------------------------------
ALLOCATION OF THE ALLOWANCE FOR [TABLE 12]
LOAN LOSSES
(Dollars in thousands)
<TABLE>
<CAPTION>
Percent of Loans
in Each Category
Allowance Amount to Total Loans
December 31 1996 1995 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and financial
loans.................. $ 596 $ 325 45.1% 46.2%
Real estate loans........ 585 335 44.3% 47.6%
Installment loans........ 140 44 10.6% 6.2%
-------- ------- ----- -----
TOTAL.................. $ 1,321 $ 704 100.0% 100.0%
======== ======= ===== ======
- -----------------------------------------------------------------
</TABLE>
It is Bancorp's policy to charge off loans in the current period in which a loss
is considered probable. There are always risks of future losses which cannot be
quantified precisely or attributed to particular loans or classes of loans.
Because these risks include the state of economy as well as conditions affecting
individual borrowers, management's judgment of the allowance is necessarily
approximate. It is also subject to regulatory examinations and determinations as
to adequacy, which may take into account such factors as the methodology used to
calculate the allowance for loan losses and the size of the allowance for loan
losses in comparison to peer group companies identified by the regulatory
agencies.
In assessing the adequacy of the allowance, management relies predominantly on
its periodic review of the loan portfolio, which is undertaken both to ascertain
whether there are probable losses which must be charged off and to assess the
risk characteristics of the portfolio in the aggregate. This review considers
the judgments of management, and also those of bank regulatory agencies that
review the loan portfolio as part of their regular examination process.
On December 31, 1995, the allowance for loan losses was $704,000, $275,000
higher than one year earlier. The ratio of the allowance for loan losses to net
loans outstanding was 1.06 percent at December 31, 1995, compared to .86 percent
at December 31, 1994.
For 1995, Bancorp had net charge-offs of $87,000 compared to $215,000 for the
same period in 1994. Total commercial, financial and agricultural loan net
(recoveries) were $0 for 1995 versus ($9,000) for the comparable period in 1994.
Total real estate net charge-offs were $0 in 1995 and $0 in 1994.
<PAGE> 43
NONPERFORMING ASSETS
Table 13 summarizes nonperforming loans and other real estate owned at the dates
indicated.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
NONPERFORMING ASSETS [TABLE 13]
(Dollars in thousands)
December 31 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans (1) ....................................... $ 1,606 $ 696
Renegotiated loans ......................................... 0 0
Other real estate owned and other repossessed assets ....... 500 145
-------- --------
TOTAL NONPERFORMING ASSETS .............................. $ 2,106 $ 841
======== ========
Amount of loans out standing at end of year (2) ............ $155,030 $ 66,535
Ratio of total nonperforming assets to loans
outstanding and other real estate owned at
end of period ............................................ 1.36% 1.26%
Ratio of total nonperforming assets to
total average assets ..................................... 1.51% .95%
Accruing loans past due 90 days or more .................... 0 0
- -----------------------------------------------------------------------------------------
</TABLE>
(1)Interest income that could have been recorded during 1996 related to
nonaccrual loans was $122, none of which was included in interest income or
net income. All nonaccrual loans were secured.
(2)Net of unearned income.
- --------------------------------------------------------------------------------
Nonperforming assets (other real estate owned, other repossessed assets and
nonaccrual loans) at December 31, 1996, were $2,106,000, an increase of
$1,265,000 or 150.42 percent from December 31, 1995. The increase was due to the
merger with Key Florida Bank, F.S.B., which increased the loan portfolio by
$70,195,000 effectively doubling the loans outstanding. Also, excluding the
loans acquired in the merger, loans increased $18,377,000, representing a 27.62
percent growth over year end 1995 balances. At December 31, 1996, Bancorp's
ratio of nonperforming assets to loans outstanding plus other real estate owned
was 1.36 percent, compared to 1.26 percent at December 31, 1995. The increase in
nonperforming assets from December 31, 1995 to December 31, 1996, included
increases in other real estate owned and other repossessed assets of $355,000
and increased nonaccrual loans of $910,000. At December 31, 1996, there were no
accruing loans 90 days or more past due.
At December 31, 1995, Bancorp's ratio of nonperforming assets to loans
outstanding plus other real estate owned was 1.26 percent, compared to 1.76
percent at December 31, 1994. The decrease in nonperforming assets from December
31, 1994 to December 31, 1995 included increases in other real estate owned of
$52,000, increased nonaccrual loans of $423,000 and a decrease in accruing loans
90 days or more past due of $513,000 from that at December 31, 1994.
Nonperforming assets are subject to changes in the economy, both nationally and
locally, changes in monetary and fiscal policies, and changes in conditions
affecting various borrowers from Bancorp's subsidiary bank. No assurance can be
given that nonperforming assets will not increase or otherwise change.
<PAGE> 44
INVESTMENT SECURITIES
YIELD, MATURITY AND MARKET VALUE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------------------------------------------
U.S. Treasury
and U.S. Government Agencies Mortgage-Backed Securities
----------------------------------------------------------------
Market Carrying Weighted Market Carrying Weighted
December 31, 1996 Value Value Yield Value Value Yield
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maturity
Within one year.................................... $ 2,005 $ 2,005 5.43%
One to five years.................................. 19,684 19,684 6.01%
Five to ten years.................................. 504 504 6.55%
Over ten years and equity
securities.......................................
Mortgage-backed securities........................... $ 4,075 4,075 6.42%
---------- --------- ---------- ----------
TOTAL VALUE...................................... $ 22,193 $ 22,193 6.11% $ 4,075 $ 4,075 6.42%
========== ========= ========== ==========
December 31, 1995....................................
TOTAL VALUE...................................... $ 18,737 $ 18,737 5.40% $ 1,931 $ 1,931 5.78%
========== ========= ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On a tax-equivalent basis
<TABLE>
<CAPTION>
Securities Available For Sale
------------------------------------------------
Gross Gross Average
Amortized Unrealized Unrealized Market Years to
December 31, 1996 Cost Gains Losses Value Maturity
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
Agencies................................................................ $22,242 $ 54 $ (103) $ 22,193 2.54
Mortgage-backed securities................................................ 4,062 28 (15) 4,075 16.80
Obligations of state and political
subdivisions............................................................ 427 8 0 435 2.25
Other securities.......................................................... 712 0 0 712 .00
------- --------- -------- --------
TOTAL................................................................. $27,443 $ 90 $ (118) $ 27,415 4.51
======= ========= ======== ========
Securities Available For Sale
------------------------------------------------
Gross Gross Average
Amortized Unrealized Unrealized Market Years to
December 31, 1995 Cost Gains Losses Value Maturity
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
Agencies................................................................ $18,822 $ 86 $ (171) $ 18,737 4.83
Mortgage-backed securities................................................ 1,945 3 (17) 1,931 6.24
Obligations of state and political
subdivisions............................................................ 413 0 0 413 10.36
Other securities.......................................................... 212 0 0 212 3.13
------- --------- -------- --------
TOTAL................................................................. $21,392 $ 89 $ (188) $ 21,293 5.04
======= ========= ======== ========
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT SECURITIES
Information relating to yields, amortized cost, market values, and unrealized
gains (losses) of Bancorp's investment securities is set forth in Table 14. The
yield data is determined using the amortized cost of the securities.
Effective January 1, 1994, Bancorp adopted the investment categorization and
carrying value rules as required by Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 115 (FASB 115), Accounting for
Certain Investments in Debt and Equity Securities. Under FASB 115, Bancorp
classifies its investment securities as either available-for-sale or
held-to-maturity or trading. Held-to-maturity investments are carried at
amortized cost. Securities available-for-sale and trading are carried at market
value.
Bancorp's investment in securities is classified and accounted for as securities
available-for-sale. Securities to be held for indefinite periods of time and not
intended to be held-to-maturity or on a long-term basis are classified as
available-for-sale and carried at fair value. Securities held for indefinite
periods of time include securities that management intends to use as part of its
asset and liability management strategy and that may be sold in response to
changes in interest rates, resultant prepayment risk and other factors related
to interest rate and resultant prepayment risk changes.
Bancorp has no securities classified as trading and currently has no plans to
hold or acquire any securities for trading. Other securities are classified as
held-to-maturity based on an individual analysis. All other securities are
classified as available-for-sale and represent 100 percent of the total carrying
value.
<PAGE> 45
<TABLE>
<CAPTION>
Obligations of States and Political [TABLE 14]
Subdivisions Other Total
- -------------------------------------------------------------------------------------------------------------------
Market Carrying Weighted Market Carrying Weighted Market Carrying Weighted
Value Value Yield (1) Value Value Yield Value Value Yield
- --------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 2,005 $ 2,005 5.43%
$435 $ 435 5.75% 20,119 20,119 6.01%
504 504 6.55%
$ 712 $ 712 712 712
4,075 4,075 6.42%
- ---- ------ ----- ----- -------- -------
$435 $ 435 5.75% $ 712 $ 712 $ 27,415 $27,415 6.04%
==== ====== ===== ===== ======== =======
$413 $ 413 5.75% $ 212 $ 212 $ 21,293 $21,293 5.88%
==== ====== ===== ===== ======== =======
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Average outstanding investment securities during the year decreased by $802,000
to $23,679,000. The investment in securities was done after considering future
projected liquidity needs and then current economic conditions. U.S. Treasury
and Government agency securities with maturities from two to three years were
emphasized with the intent to hold these securities as available-for-sale. Also,
Bancorp continued to reduce its position in mortgage-backed securities due to
market price sensitivity. Bancorp maintained a small position in tax-exempt
securities to maximize long-term tax-equivalent yields. The changes made to the
investment securities portfolio occurred in the fourth quarter of 1996 and
increased the average yield from 5.88 percent to 5.91 percent. This was
primarily due to higher yield reinvestment opportunities.
The above-described transactions changed the composition of the investment
securities portfolio during 1996. At December 31, 1996, 80.95 percent of the
total carrying value of the $27,415,000 of the investment portfolio was
comprised of U.S. Treasury and Government agency securities. This compares to
88.00 percent at December 31, 1995. In addition, 14.86 percent of total
investment securities were represented by mortgage-backed securities compared to
9.07 percent at December 31, 1995.
The mortgage-backed securities consist of pass-through and collateralized
mortgage obligations issued by governmental agencies, primarily the Governmental
National Mortgage Association, and private issuers, primarily Federal National
Mortgage Association, Inc. Approximately seventy-five percent of the
mortgage-backed portfolio consisted of variable rate securities with the balance
invested in fixed rate securities. The primary risk associated with these
securities is an interest rate risk; that is, how a change in interest rates
influences the prepayments of the underlying mortgage obligations thereby
affecting the actual yield to maturity on the mortgage-backed security. A
decreasing trend in interest rates would increase the market value and shorten
the expected maturity of the portfolio due to the anticipated increase in
prepayments of the underlying mortgage obligations. Conversely, an increasing
trend in interest rates would have the opposite tendency to decrease the market
value and lengthen the expected maturity of the portfolio.
The unrealized net depreciation of the portfolio at December 31, 1996, was
$28,000. This represents .10 percent of amortized cost and .10 percent of
carrying value as compared unrealized net depreciation of .46 percent at
December 31, 1995. For investment securities, the largest segment of unrealized
loss at December 31, 1995, is represented by U.S. Treasury and Government agency
securities ($85,000 or .40 percent of the carrying value of the entire
portfolio). The largest segment of unrealized loss at December 31, 1996, is
represented by U.S. Treasury and government agency securities ($49,000 or .18
percent of the carrying value of the entire portfolio).
DEPOSITS
Total deposits increased $99,392,000 or 113.00 percent to $187,347,000 at
December 31, 1996, compared to one year earlier. The merger with Key Florida
Bank, F.S.B. contributed $78,801,000 of this increase, while other increases
totalled $20,591,000 or 23.41 percent increase over the 1995 balance. Although
total deposits increased, the composition of deposit type changed. As interest
rates increased, interest-bearing deposits and savings decreased while time
deposits increased by a greater amount.
<PAGE> 46
- -------------------------------------------------------------------------------
MATURITY OF CERTIFICATES OF DEPOSIT [TABLE 15]
OF $100,000 OR MORE
(Dollars in thousands)
<TABLE>
<CAPTION>
% OF % of
December 31 1996 TOTAL 1995 Total
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity Group:
Under 3 months.......... $ 7,321 36.4% $ 3,021 27.2%
3 to 6 months........... 4,830 24.0% 1,851 16.7%
6 to 12 months.......... 3,837 19.1% 1,851 16.7%
Over 12 months.......... 4,146 20.5% 4,390 39.4%
-------- ------ -------- -----
TOTAL................. $ 20,134 100.0% $ 11,113 100.0%
======== ====== ======== =====
</TABLE>
- -------------------------------------------------------------------------------
Time deposits increased $65,878,000 or 112.12 percent to $124,634,000 at
December 31, 1996. Jumbo CDs increased $9,021,000 or 81.18 percent to
$20,134,000. Total time deposits increased due in part to product repricing and
increased competition for time deposits within Bancorp's market area.
The merger with Key Florida Bank, F.S.B. increased time deposits $55,367,000,
44.42 percent of the year-end balance.
Interest-bearing demand and savings increased $27,892,000, of which the merger
comprised $20,796,000. The $7,096,000 increase (excluding merger) to
$45,702,000 is 39.84 percent higher than 1995. Including the merger, there was
a 156.61 percent increase.
Noninterest-bearing demand accounts increased $5,623,000 or 49.38 percent to
$17,011,000. Excluding the additional $3,265,000 of deposits acquired in the
merger, there was a 20.71 percent decrease.
Total deposits grew $15,238,000 or 21 percent to $87,955,000 at December 31,
1995, compared to one year earlier. Time deposits increased $13,194,000 or 29
percent to $58,756,000 at December 31, 1995. Included in this increase was an
increase in jumbo CDs of $630,000 or 6 percent to $11,113,000.
Savings deposits totalled $4,157,000 at December 31, 1995, $46,000 or 1 percent
less than at December 31, 1994. Noninterest-bearing demand deposits increased
$233,959 or 2 percent to $11,388,000 at December 31, 1995. Interest-bearing
demand and NOW accounts increased $1,856,000 or 14 percent to $13,654,000 at
December 31, 1995.
INTEREST RATE SENSITIVITY
Interest rate movements and deregulation of interest rates have made managing
Bancorp's interest rate sensitivity increasingly important. Bancorp's
Assets/Liability Management Committee is responsible for managing Bancorp's
exposure to changes in market interest rates. This committee attempts to
maintain stable net interest margins by generally matching the volume of assets
and liabilities maturing, or subject to repricing, and by adjusting rates to
market conditions and changing interest rates.
- -------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY ANALYSIS (1) [TABLE 16]
(Dollars in thousands)
<TABLE>
<CAPTION>
0-3 4-12 1-5 Over 5
December 31, 1996 Months Months Years Years Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal funds sold
and other short-
term investments .... $ 972 $ 0 $ 0 0 $ 972
Investment securi-
ties (2) ............ 500 2,011 19,650 5,282 27,443
Loans ................. 54,061 20,669 63,782 16,595 155,107
------ ------ ------ ------ -------
Earning assets ........ 55,533 22,680 83,432 21,877 183,522
------ ------ ------ ------ -------
Savings deposits ...... 45,702 0 0 0 45,702
Certificates of
deposit ............. 39,301 50,970 34,292 71 124,634
Federal funds purchased
and other short-term
borrowings .......... 0 0 0 0 0
-------- -------- -------- -------- --------
Interest-bearing
liabilities ......... $ 85,003 $ 50,970 $ 34,292 $ 71 $170,336
-------- -------- -------- -------- --------
Interest sensitivity
gap ................. $(29,470) $(28,290) $ 49,140 $ 21,806 $ 13,186
======== ======== ======== ======== ========
Cumulative gap ........ $(29,470) $(57,760) $ (8,620) $ 13,186
======== ======== ======== ========
Cumulative gap to
earnings assets (%) . (16%) (31%) (5%) 7%
Earnings assets to
interest-bearing
liabilities ......... 65% 45% 243% 308%
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) The repricing dates may differ from maturity dates for certain assets due
to repayment assumptions.
(2) Investment securities are stated at amortized cost.
Interest rate exposure is managed by monitoring the relationship between earning
assets and interest-bearing liabilities, focusing primarily on those that are
rate-sensitive. Rate-sensitive assets and liabilities are those that reprice at
market interest rates within a relatively short period, defined here as one year
or less. The difference between rate-sensitive assets and rate-sensitive
liabilities represents Bancorp's interest sensitivity gap, which may be either
positive (assets exceed liabilities) or negative (liabilities exceed assets).
On December 31, 1996, Bancorp had a negative gap position based on contractual
maturities and prepayment assumptions for the next twelve months with a negative
interest rate sensitivity gap as a percent of total earning assets of 16
percent. This means that Bancorp's assets reprice more slowly than its deposits.
In a declining interest rate environment, the cost of Bancorp's deposits and
other liabilities may be expected to fall faster than the interest received on
its earnings assets, thus increasing the net interest spread. If interest rates
generally increase, the negative gap means that the interest received on earning
assets may be expected to increase more slowly than the interest paid on
Bancorp's liabilities, therefore decreasing the net interest spread.
<PAGE> 47
Management monitors the gap position on an periodic basis to keep interest rate
risk within levels acceptable to Bancorp.
LIQUIDITY MANAGEMENT
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for business expansion. Liquidity management addresses Bancorp's
ability to meet deposit withdrawals either on demand or at contractual maturity
and to make new loans and investments as opportunities arise.
Contractual maturities for assets and liabilities are reviewed to meet current
and future liquidity requirements. Sources of liquidity, both anticipated and
unanticipated, are maintained through a portfolio of high-quality marketable
assets, such as residential mortgage loans, investment securities, and federal
funds sold. Bancorp has access to federal funds lines of credit and is able to
provide short-term financing of its activities by selling, under agreement to
repurchase, U.S. Treasury and Government agency securities (including certain
mortgage-backed securities) not pledged to secure public deposits or trust
funds. At December 31, 1996, Bancorp had available federal funds lines of credit
of $13,000,000. At December 31, 1996, Bancorp had $500,000 U.S. Treasury and
Government agency securities pledged. At December 31, 1995, the amount of
securities pledged was also $500,000.
Liquidity, as measured in the form of cash and cash equivalents, totalled
$11,515,000 at December 31, 1996. At December 31, 1995, cash and cash
equivalents totalled $6,250,000. Cash and cash equivalents vary with seasonal
deposit movements and are generally higher in the winter than in the summer, and
vary with the level of principal repayments occurring in Bancorp's investment
securities portfolio and loan portfolio.
As is typical of financial institutions, cash flows from investing (primarily in
loans and securities) and from financing (primarily through deposit generation
and short-term borrowings) are greatly in excess of cash flows from operations.
In 1996, the cash flow used in operations of $722,000 was 53.52 percent more
than the $1,350,000 provided by operations during the same period of 1995. Cash
flows from investing and financing activities reflect the increase in
securities, loans and deposit balances experienced in 1996. In 1995, cash flows
from operations of $1,350,000 were 5 percent higher than in 1994.
CONTINGENCIES AND LEGAL MATTERS
Bancorp and Liberty National Bank are periodically parties to or otherwise
involved in legal proceedings arising in the normal course of business, such as
claims to enforce liens, claims involving the making and servicing of real
property loans, and other issues incident to its business. Management does not
believe that there is any pending or threatened proceeding against Bancorp or
Liberty National Bank which, if determined adversely, would have a material
adverse effect on the business, results of operations, or financial position of
Bancorp.
EFFECTS OF INFLATION AND CHANGING INTEREST RATES
The financial statements presented herein were prepared in accordance with
generally accepted accounting principles and do not attempt to consider changes
in the relative value of money due to inflation over a period of time.
Changing property values, in a weak economy could have a negative impact on the
value of real estate owned by Bancorp acquired through foreclosure as well as
real estate securing Bancorp's loans. Accordingly, management conducts a
periodic review of the property owned through foreclosure and the collateral
securing delinquent loans and will write down or reserve for marginal equity
positions as deemed necessary.
Interest rates have a greater impact on a financial institutions performance
than the general levels of inflation and asset/liability analysis will continue
in order to quantify and maintain interest rate risks within levels acceptable
to Bancorp.
FASB 107 DISCLOSURES ABOUT FAIR VALUES OF
FINANCIAL INSTRUMENTS
Bancorp has calculated and reported the fair value of its financial instruments
in accordance with the Statement of Financial Accounting Standards No. 107.
While market value information has been reported for its investment securities
portfolio in prior years based on quoted market prices, this statement also
requires the estimating of fair values for financial instruments with no quoted
market prices. For most instruments with no quoted market values, there are a
variety of judgments which must be applied with a wide variation in reported
results. Management has followed the requirements of the statement and used an
acceptable method to estimate fair value for these instruments. However, various
other values could result if different assumptions were used. Therefore,
management believes it is not relevant and potentially misleading to compare the
amount of appreciation or depreciation of financial instruments with no quoted
values to any other financial institution.
<PAGE> 48
CURRENT DEVELOPMENTS:
BRANCH OPENINGS
In April 1996, Bancorp opened its University Parkway Branch, which is located in
Sarasota County. The addition of this location brought the total number of
branches to six. During the fourth quarter of 1996, Bancorp purchased an
existing structure in Ellenton, Florida (Manatee County), and renovated it for
use as its seventh branch location. The Ellenton Branch opened in early January
1997.
DIVIDENDS
During 1996, Liberty National Bank paid a dividend of $250,000 to its parent,
Key Florida Bancorp. Prior to that dividend, Liberty National Bank had never
paid cash dividends and Bancorp has not paid any cash dividends since February
1991. For the foreseeable future, Bancorp intends to retain earnings to finance
continued growth rather than pay cash dividends on Bancorp common stock. If at
any time the Bancorp Board determines to pay dividends on Bancorp common stock,
the timing and the extent to which dividends are paid by Bancorp will be
determined by such Board in light of then-existing circumstances, including
Bancorp's rate of growth, profitability, financial condition, existing and
anticipated capital requirements, the amount of funds legally available for the
payment of cash dividends, regulatory constraints and such other factors as the
Board determines relevant. The source of funds for payment of dividends by
Bancorp will be Liberty National Bank. Payments made by the Bank to Bancorp are
limited by law and regulations of the bank regulatory authorities. Under the
National Bank Act, a national bank may not pay dividends from its capital. All
dividends must be paid out of net profits then on hand, after deducting losses
and bad debts. Payments of dividends out of net profits is further limited by 12
U.S.C. Section 60(a), which prohibits a bank from declaring a dividend on its
shares of common stock until its surplus equals its stated capital, unless there
has been transferred to surplus not less than 10 percent of the bank's net
profits of the preceding two consecutive half-year periods (in the case of an
annual dividend). Pursuant to 12 U.S.C. Section 60(b), the approval of the OCC
is required if the total of all dividends declared by a bank in any calendar
year exceeds the total of its net profits for that year combined with its
retained net profits for the preceding two years, less any required transfer to
surplus.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, issued by the Financial Accounting Standards Board
(FASB) in March 1995, is effective for the Company for fiscal years beginning on
or after December 15, 1995. SFAS 121 requires that long-lived assets and certain
identifiable intangibles 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 assets 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 that 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. Management has determined that the impact of SFAS 121 on the
Company's financial statements as of December 31, 1996, is not material.
In May 1995, the Financial Accounting Standards Board issued SFAS 122,
Accounting for Mortgage Services Rights, SFAS 122 requires companies that engage
in mortgage banking activities to allocate the total cost of the mortgage loans
it acquires or originates and then sells with servicing rights retained between
the estimated fair value of the loans and the capitalized mortgage servicing
rights, if practical. SFAS 122 also requires that capitalized mortgage servicing
rights be assessed for impairment based on the fair value of those rights. SFAS
applies prospectively to fiscal years beginning after December 15, 1995. The
adoption of the provision of SFAS 122 did not have a material impact on the
financial position of the Company.
In October 1995, the FASB issued SFAS 123, Accounting for Stock-Based
Compensation, effective for fiscal years beginning after December 15, 1995. SFAS
123 requires a fair value-based method of accounting for stock-based
compensation. SFAS 123 did not have a material impact on the financial position
or results of operations of the Company.
The FASB recently issued SFAS 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. This statement provides
consistent standards for distinguished transfers of financial assets that are
sales from transfers that are secured borrowings. The statement breaks new
ground in resolving long-standing questions about whether transactions should be
accounted for as secured borrowings or as sales. The approach that is used
focuses on control. A company is required to recognize the financial and
servicing assets that it controls and the liabilities that has incurred. The
opposite result would occur when control of financial assets has been
surrendered and liabilities extinguished. SFAS 125 applies prospectively to
fiscal years beginning after December 15, 1996. SFAS 127 is an amendment of SFAS
125 to defer the effective date of certain provisions of SFAS 125. No earlier or
retroactive application is allowed. The adoption of the provisions of SFAS 125
is not expected to have material impact of the financial position of the
Company.
<PAGE> 49
SELECTED QUARTERLY INFORMATION
- --------------------------------------------------------------------------------
Consolidated Quarterly Average Balances, Yields and Rate(1)
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 Quarters (4)
- -----------------------------------------------------------------------------------------------------------------------------------
FOURTH (3) Third (3) Second First
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE YIELD/ Average Yield/ Average Yield/ Average Yield/
BALANCE RATE Balance Rate Balance Rate Balance Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earnings assets:
Investment and mortgage-backed
securities.......................... $ 27,432 5.92% $ 27,204 5.83% $ 19,950 5.77% $ 20,468 5.67%
Federal funds sold and other short-
term investments ................ 4,635 5.26% 2,843 5.34% 2,141 8.03% 1,673 5.26%
Loans, net (2)....................... 154,393 8.82% 123,323 9.00% 71,728 9.92% 67,086 9.38%
---------- ---------- ---------- -----------
TOTAL EARNINGS ASSETS............... 186,460 8.30% 153,370 8.37% 93,819 9.00% 89,227 8.45%
Allowance for loan losses.............. (1,319) (1,152) (772) (726)
Cash and due from banks................ 5,500 5,837 3,732 2,702
Bank premises and equipment 4,635 3,729 2,399 1,865
Other assets........................... 1,934 2,567 1,456 2,108
---------- ---------- ---------- -----------
TOTAL ASSETS........................ $ 197,210 $ 164,351 $ 100,634 $ 95,176
========== ========== ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand, NOW and
money market......................... $ 25,853 2.49% $ 23,512 2.44% $ 14,565 2.45% $ 13,910 2.44%
Savings............................... 18,778 3.26% 12,868 2.86% 4,536 3.55% 4,410 3.54%
Time deposits......................... 124,298 5.63% 102,171 5.60% 62,712 5.63% 58,942 5.78%
Federal funds purchased and
sold under agreement to repurchase... 193 6.21% 1,497 4.75% 343 4.66% 215 5.58%
---------- ---------- --------- ----------
TOTAL INTEREST-BEARING LIABILITIES 169,122 4.90% 140,048 4.81% 82,156 4.95% 77,477 5.05%
Demand deposits:
Noninterest-bearing................... 14,345 12,084 10,128 9,177
Other liabilities...................... 587 976 846 1,035
---------- ---------- ---------- -----------
TOTAL LIABILITIES................... 184,054 153,108 93,130 87,689
Shareholders' equity................... 13,156 11,243 7,504 7,487
---------- ---------- ---------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY.............. $ 197,210 $ 164,351 $ 100,634 $ 95,176
========== ========== ========== ===========
Interest expense as % of earning assets 4.54% 4.39% 4.33% 4.38%
Net yield on earning assets............ 3.76% 3.97% 4.66% 4.07%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The tax equivalent adjustment is based on a 34 percent tax rate.
(2) Nonaccrual loans are included in loan balances. Fees on loans have been
included in interest on loans.
(3) Subsequent to merger with Key Florida Bank, F.S.B.
(4) 1996 Average balances are calculated using month-end totals, not daily
average balances.
<PAGE> 50
SELECTED QUARTERLY INFORMATION
- -------------------------------------------------------------------------------
Consolidated Quarterly Average Balances, Yields and Rate(1)
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 Quarters
- ---------------------------------------------------------------------------------------------------------------------------------
FOURTH Third Second First
- ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE YIELD/ Average Yield/ Average Yield/ Average Yield/
BALANCE RATE Balance Rate Balance Rate Balance Rate
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earnings assets:
Investment and mortgage-backed
Securities............................ $ 22,194 6.22% $ 27,051 5.83% $ 26,345 5.88% $ 21,717 5.80%
Federal funds sold and other short-
term investments..................... 1,009 7.14% 1,153 11.80% 2,241 6.85% 2,842 6.05%
Loans, net (2).......................... 64,653 9.45% 59,367 9.31% 55,575 8.90% 50,072 9.08%
---------- ---------- ---------- -----------
TOTAL EARNINGS ASSETS.................. 87,856 8.61% 87,571 8.27% 84,161 7.89% 74,631 8.01%
Allowance for loan losses................. (666) (576) (503) (448)
Cash and due from banks................... 3,866 3,469 3,989 3,438
Bank premises and equipment 1,710 1,518 1,174 1,135
Other assets.............................. 1,571 1,750 1,546 1,795
---------- ---------- ---------- -----------
TOTAL ASSETS.......................... $ 94,337 $ 93,732 $ 90,367 $ 80,551
========== ========== ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand, NOW and
money market.......................... $ 14,213 2.87% $ 13,855 3.06% $ 12,291 3.35% $ 10,856 2.47%
Savings................................. 4,114 2.72% 3,995 2.80% 3,937 3.20% 4,097 4.00%
Time deposits........................... 58,065 5.94% 58,167 5.94% 56,872 5.64% 49,684 5.21%
Federal funds purchased and securities
sold under agreement to...............
repurchase............................ 0 0 0 112 7.14%
---------- ---------- ---------- -----------
TOTAL INTEREST-BEARING LIABILITIES 76,392 5.19% 76,017 5.27% 73,100 5.13% 64,749 4.68%
Demand deposits:
Noninterest-bearing..................... 9,704 8,888 9,597 8,988
Other liabilities......................... 881 1,474 634 396
---------- ---------- ---------- -----------
TOTAL LIABILITIES................... 86,977 86,379 83,331 74,133
Shareholders' equity...................... 7,360 7,353 7,036 6,418
---------- ---------- ---------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY................ $ 94,337 $ 93,732 $ 90,367 $ 80,551
========== ========== ========== ===========
Interest expense as % of earning assets 4.52% 4.56% 4.45% 4.05%
Net yield on earning assets 4.09% 3.71% 3.44% 3.96%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The tax equivalent adjustment is based on a 34 percent tax rate.
(2) Nonaccrual loans are included in loan balances. Fees on loans have been
included in interest on loans.
<PAGE> 51
SELECTED QUARTERLY INFORMATION
- --------------------------------------------------------------------------------
Quarterly Consolidated Income Statement (1)
<TABLE>
<CAPTION>
1996 Quarters 1995 Quarters
------------------------------------- -------------------------------------
(Dollars in thousands except per share data) FOURTH Third Second First Fourth Third Second First
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income:
Interest income....................... $ 3,873 $ 3,209 $ 2,110 $ 1,886 $ 1,891 $ 1,810 $ 1,661 $ 1,495
Interest expense...................... 2,120 1,685 1,017 976 992 998 937 755
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income................... 1,753 1,524 1,093 910 899 812 724 740
-------- -------- -------- -------- -------- -------- -------- --------
Provision for loan losses............... 0 62 135 60 78 94 145 45
-------- -------- -------- -------- -------- -------- -------- --------
Noninterest income...................... 106 118 117 127 129 120 210 113
-------- -------- -------- -------- -------- -------- -------- --------
Noninterest expenses.................... 1,626 1,604 882 659 629 622 605 616
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes.............. 233 (24) 193 318 321 216 184 192
Provision for income taxes.............. (105) 10 (70) (119) 125 82 71 73
-------- ------- -------- -------- -------- -------- -------- --------
Net income ............................. $ 128 $ (14) $ 123 $ 199 $ 196 $ 134 $ 113 $ 119
======== ======== ======== ======== ======== ======== ======== ========
PER SHARE DATA
Net income (3)........................ $ .05 $ (.01) $ .13 $ .21 $ .21 $ .15 $ .14 $ .14
Market price of common stock at
end of period (2).................. $ 8.00 $ 8.00 $ 8.63 $ 7.85 $ 7.85 $ 7.06 $ 7.06 $ 6.87
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The tax equivalent adjustment is based on a 34 percent tax rate.
(2) Market price based on most recent stock sale.
(3) The sum of the quarters' earnings per share does not equal the
year-to-date earnings per share due to changes in average share
calculations. This is in accordance with prescribed reporting
requirements.
<PAGE> 1
EXHIBIT 21.1
Key Florida Bancorp, Inc.
Form 10-KSB
For Fiscal Year Ended December 31, 1996
Subsidiaries of Registrant
Liberty National Bank, organized under the laws
of the United States
<PAGE> 1
EXHIBIT 23.1
VARNADORE, TYLER, HOFFNER, KING, HAWTHORNE, HAMMER & STATHIS, P.A. [LETTERHEAD]
- -------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
CONSENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
March 21, 1997
Key Florida Bancorp, Inc. Liberty National Bank
6016 - 26th Street West, Suite 1 6001 - 26th Street West
Bradenton, Florida 34207 Bradenton, Florida 34207
Gentlemen:
We consent to the incorporation by reference into the Annual Report on Form
10KSB filed by Key Florida Bancorp, Inc., of our report dated February 9, 1996
(except for Notes 1, 3 and 8, which are dated May 9, 1996) with respect to the
financial statements of Liberty National Bank for the years ended December 31,
1995 and 1994.
VARNADORE, TYLER, HOFFNER, KING,
HAWTHORNE, HAMMER & STATHIS, P.A.
/s/ William H. Hawthorne
-----------------------------------
William H. Hawthorne, CPA
Bradenton, Florida
<PAGE> 1
EXHIBIT 23.2
[PURVIS GRAY & COMPANY LETTERHEAD]
CONSENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
April 9, 1997
Key Florida Bancorp, Inc.
6016 - 26th Street West, Suite 1
Bradenton, Florida 34207
Gentlemen:
We consent to the incorporation by reference into the Annual Report on Form
10KSB filed by Key Florida Bancorp, Inc. of our report dated March 7, 1997,
with respect to the financial statements of Key Florida Bancorp, Inc. for the
year ended December 31, 1996.
PURVIS, GRAY AND COMPANY
/s/ Robert O. Dale
----------------------------------
Robert O. Dale, C.P.A
Gainesville, Florida
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
AUDITED FINANCIAL STATEMENTS OF KEY FLORIDA BANCORP FOR THE YEAR ENDED DECEMBER
31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,542,883
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 971,647
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,414,233
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 155,029,834
<ALLOWANCE> 1,321,331
<TOTAL-ASSETS> 200,890,147
<DEPOSITS> 187,346,821
<SHORT-TERM> 0
<LIABILITIES-OTHER> 852,158
<LONG-TERM> 0
0
0
<COMMON> 27,583
<OTHER-SE> 12,663,586
<TOTAL-LIABILITIES-AND-EQUITY> 200,890,147
<INTEREST-LOAN> 9,545,406
<INTEREST-INVEST> 1,399,975
<INTEREST-OTHER> 132,530
<INTEREST-TOTAL> 11,077,911
<INTEREST-DEPOSIT> 5,776,277
<INTEREST-EXPENSE> 5,798,239
<INTEREST-INCOME-NET> 5,279,672
<LOAN-LOSSES> 256,859
<SECURITIES-GAINS> (14,080)
<EXPENSE-OTHER> 854,232
<INCOME-PRETAX> 720,469
<INCOME-PRE-EXTRAORDINARY> 720,469
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 436,525
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.02
<LOANS-NON> 1,606,047
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,785,946
<ALLOWANCE-OPEN> 1,232,426
<CHARGE-OFFS> 174,141
<RECOVERIES> 6,187
<ALLOWANCE-CLOSE> 1,321,331
<ALLOWANCE-DOMESTIC> 1,321,331
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
