<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended DECEMBER 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1943 (NO FEE REQUIRED)
For the transition period from to
Commission file number 33-25687A
HERITAGE BANCSHARES, INC.
(Name of small business issuer in its charter)
FLORIDA 65-0059575
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12998 S. CLEVELAND AVENUE, FORT MYERS, FLORIDA 33907
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (941) 482-1441
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered under Section 12(g) of the Exchange Act:
NONE
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant 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 there is no 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 registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
The issuer's revenues for the fiscal year ending December 31, 1995, were
$6,952,239.
The aggregate market value of the Common Stock, $1.00 Par Value, of the
registrant held by non-affiliates of the registrant as of February 29, 1996,
based on an assumed market value of $12.00 per share was $2,387,064. As of
such date, no organized trading market existed for the common stock of the
registrant. The aggregate market value was computed by reference to the
average price at which the stock has been sold, where known, during the
preceding 12 months.
The number of shares outstanding of the issuer's Common Stock, $1.00 Par
Value, as of February 29, 1996, was 543,972 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
-------------------------------------
PAGE 1 OF 74 PAGES
EXHIBIT INDEX AT PAGE 70
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
Heritage Bancshares, Inc. ("the Company"), was incorporated as a Florida
business corporation on June 23, 1988, to become a bank holding company by
acquiring all of the common stock of Heritage National Bank (the "Bank") upon
the Bank's formation. On June 16, 1989, the Federal Reserve Bank of Atlanta
(the "Federal Reserve") approved the Company's application to become a bank
holding company within the meaning of the Bank Holding Company Act of 1956, as
amended. As a bank holding company, the Company is a legal entity separate and
distinct from the Bank. The Company's operating revenues and net income are
derived solely from the Bank. The Bank is presently the sole operating
subsidiary of the Company.
The Company was organized to facilitate the Bank's ability to serve its
customers' requirements for financial services. The holding company structure
provides flexibility for expansion of the Company's banking business through
the possible acquisition of other financial institutions and the provision of
additional banking-related services that the traditional commercial bank may
not provide under present laws. For example, banking regulations require that
the Bank maintain a minimum ratio of capital to assets. In the event that the
Bank's growth is such that this minimum ratio is not maintained, the Company
may borrow funds, subject to capital adequacy guidelines of the Federal
Reserve, and contribute them to the capital of the Bank and otherwise raise
capital in a manner that is unavailable to the Bank under existing banking
regulations.
The Company has no present plans to acquire any additional operating
subsidiaries. It is expected, however, that the Company may make additional
acquisitions in the future in the event that the Bank continues to be
profitable and such acquisitions are deemed to be in the best interests of the
Company and its shareholders. Such acquisitions, if any, will be subject to
certain regulatory approvals and requirements.
THE BANK
GENERAL. The Bank's application to the Office of the Comptroller of the
Currency (the "OCC") for authority to organize as a national banking
association and to conduct a commercial banking business from Fort Myers,
Florida, with its deposits insured by the Federal Deposit Insurance
Corporation, was approved on March 1, 1989. By July 17, 1989, the Bank had met
all pre-opening conditions imposed upon it by the OCC and commenced its
business.
The Bank is a full-service commercial bank, without trust powers. The
Bank offers personal and business checking accounts, interest-bearing checking
accounts, savings accounts, and various types of certificates of deposit. The
Bank also offers consumer/installment loans, construction loans, residential
real
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estate loans and commercial loans. In addition, the Bank provides such
services as official bank checks and money orders, MasterCard and Visa credit
cards, safe deposit boxes, travelers' checks, bank by mail, direct deposit of
payroll and Social Security checks, U.S. Savings Bonds, wire transfer of funds,
and a night depository. The Bank also offers Individual Retirement Accounts.
PHILOSOPHY. The philosophy of management of the Bank is to emphasize
prompt and responsive personal service to residents of Lee County, Florida, in
order to attract customers and acquire market share controlled by other
financial institutions in the Bank's market area. In addition, the executive
officers of the Bank have substantial banking experience in Lee County, which
is an asset in providing both products and services designed to meet the needs
of the Bank's customer base. All of the directors of the Bank are active
members of the business communities in Fort Myers and other nearby cities, and
their continued active community involvement provides an opportunity to promote
the Bank and its products and services.
MARKET AREA AND COMPETITION. During 1995, the Bank reevaluated the Bank's
assessment area (formerly called primary service area). Management believes
that they can better serve all households, including low and moderate income
neighborhoods, by expanding the assessment area to include all of Lee County.
In the commercial community, the Bank focuses on small businesses and
businesses ranging up to $5,000,000 which include the professional medical
community. The Bank continues to provide both professional and personalized
services to both its loan and deposit customers. Occasionally, the Bank will
extend credit to borrowers who do not reside in Lee County, but such extensions
of credit are limited to borrowers who exhibit exemplary creditworthiness.
The Bank competes for both deposit and loan customers with many financial
institutions that have far greater resources than are available to either the
Bank or the Company. Competition in the financial services market is keen in
the State of Florida and also in the Bank's assessment area. Barnett Bank of
Lee County, N. A., First Union National Bank of Florida, NationsBank, and Sun
Trust Bank of Lee County, N.A., have a very large presence in Lee County with
additional competition from AmSouth, First America, Northern Trust, SouthTrust
Bank of Southwest Florida and Society First Federal Savings Bank. Along with
several smaller regional institutions, there are six local independent
institutions in the assessment area: Cape Coral National Bank, First
Independence Bank, First National Bank of Florida, First National Bank of
Southwest Florida, South Florida Bank and Tri County Bank. These financial
institutions offer all of the services provided by the Bank.
In evaluating the competition in Lee County, management believes that
there is a great need for a strong, locally owned, independent institution in
Lee County. The Bank has a local Board of Directors with local decision-making
authority and a senior management staff with over 100 years of combined
experience in the Bank's assessment area. With the continued growth in Lee
County, management believes that there will be sufficient growth in banking
3
<PAGE> 4
activities for all of thse institutions to be successful, including the Bank.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY: INTEREST
RATES AND INTEREST DIFFERENTIAL. The following tables show for each category
of interest-earning assets and interest-bearing liabilities, the average amount
outstanding, the interest earned or paid on such amount and the average rate
earned or paid for the years ended December 31, 1995 and 1994. The tables also
indicate the average rate earned on all interest-earning assets, the average
rate paid on all interest-bearing liabilities and the net yield on
interest-earning assets for the same periods.
4
<PAGE> 5
<TABLE>
<CAPTION>
Year Ended December 31, 1995
----------------------------
Interest Average
Average Income/ Rate
Balance(1) Expense Earned/Pd(4)
------- ------- ---------
<S> <C> <C> <C>
Interest earning assets:
Interest earning deposits $ 192,997 $ 10,529 5.46%
Mortgage-backed securities 3,857,060 250,812 6.50%
Investment securities - taxable 9,073,818 525,825 5.79%
Federal funds sold 5,368,986 316,139 5.89%
Net loans(2) 58,296,338 5,318,128(3) 9.12%
----------- ----------
Total interest earning assets/
interest income/average
rate earned 76,789,199 6,421,433 8.36%
----------- ----------
Cash and due from banks 2,576,842
Other assets 3,901,741
-----------
Total non-interest earning assets 6,478,583
-----------
Total average assets $83,267,782
===========
Interest bearing deposits:
Interest bearing demand deposits $19,284,117 $ 438,778 2.28%
Savings deposits 6,300,558 162,392 2.58%
Time deposits 37,536,666 2,108,817 5.62%
----------- ----------
Total interest bearing deposits
Securities sold under 63,121,341 2,709,987 4.29%
agreements to repurchase 2,260,423 123,587 5.47%
Federal funds purchased 159,110 9,757 6.13%
----------- ----------
Total interest bearing liabili-
ties/interest expense/average
rate paid 65,540,874 2,843,331 4.34%
----------- ----------
10,259,769
Non-interest bearing deposits 597,845
Other liabilities -----------
Total non-interest bearing 10,857,614
liabilities -----------
Stockholders' equity 6,869,294
-----------
Total liabilities and
stockholders' equity $83,267,782
===========
Net interest income/net yield
on interest earning assets $3,578,102 4.66%
========== ====
- -------------------
(1) Average balances based on historical costs.
(2) Included in net loans are $454,485 of loans on non-accrual status.
(3) Includes loan fees of $37,480.
(4) Yield calculations based on total interest income divided by average historical cost balances.
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
Year Ended December 31, 1994
----------------------------
Interest Average
Average Income/ Rate
Balance(1) Expense Earned/Pd(4)
------- ------- ---------
<S> <C> <C> <C>
Interest earning assets:
Interest earning deposits $ 59,052 $ 4,572 7.74%
Mortgage-backed securities 4,719,370 282,481 5.99%
Investment securities - taxable 8,351,475 464,928 5.57%
Federal funds sold 4,799,137 192,087 4.00%
Net loans(2) 48,180,164 4,256,114(3) 8.83%
----------- ---------
Total interest earning assets/
interest income/average
rate earned 66,109,198 5,200,182 7.87%
----------- ----------
Cash and due from banks 2,658,944
Other assets 4,322,350
-----------
Total non-interest earning assets 6,981,294
-----------
Total average assets $73,090,492
===========
Interest bearing deposits:
Interest bearing demand deposits $18,199,474 $ 417,034 2.29%
Savings deposits 5,944,054 160,943 2.71%
Time deposits 31,298,507 1,353,957 4.33%
----------- ----------
Total interest bearing deposits
Securities sold under 55,442,035 1,931,934 3.48%
agreements to repurchase 1,649,156 65,823 3.99%
Federal funds purchased 9,589 327 3.41%
----------- ----------
Total interest bearing liabili-
ties/interest expense/average
rate paid 57,100,780 1,998,084 3.50%
----------- ----------
8,939,773
Non-interest bearing deposits 755,669
Other liabilities -----------
Total non-interest bearing 9,695,442
liabilities -----------
Stockholders' equity 6,294,270
-----------
Total liabilities and
stockholders' equity $73,090,492
===========
Net interest income/net yield
on interest earning assets $3,202,098 4.84%
========== ====
- --------------
(1) Average balances based on historical costs.
(2) Included in net loans are $385,000 of loans on non-accrual status.
(3) Includes loan fees of $133,266.
(4) Yield calculations based on total interest income divided by average
historical costs balances.
</TABLE>
6
<PAGE> 7
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME. The effects of interest
income, interest expense and net interest income for the periods indicated, and
of changes in average balances and rates, are shown below. The effects of
changes in average balances have been determined by applying the average rate
in the earlier period to the change in average balance in the later period as
compared with the earlier period. Changes resulting from average balance/rate
variances are indicated as other changes. The balance of the change in
interest income or expense and net interest income has been attributed to a
change in average rate.
<TABLE>
<CAPTION>
1995 Compared to 1994
Increase (Decrease) Due to
-------------------------------------------------------------------
Volume Rate Other Change
<S> <C> <C> <C> <C>
Interest earned on:
Interest earning
deposits $ 10,370 $ (1,350) $ (3,063) $ 5,957
Mortgage-backed
securities - taxable (51,652) 24,069 (4,086) (31,669)
Investment securities -
taxable 40,235 18,373 (2,289) 60,897
Federal funds sold 22,794 90,704 10,554 124,052
Net loans 893,258 139,722 29,034 1,062,014
-------- --------- -------- ----------
Change in interest
income 915,005 271,518 34,728 1,221,251
-------- --------- -------- ----------
Interest paid on:
Interest bearing
Demand Deposits $ 24,838 $ (1,820) $ (1,274) $ 21,744
Savings Deposits 9,661 (7,727) (485) 1,449
Time Deposits 270,112 406,881 79,368 756,361
Federal funds purchased 5,099 261 4,070 9,430
Securities sold under
agreements to repurchase 24,390 24,408 7,465 56,263
-------- --------- -------- ----------
Change in interest
expense 334,100 422,003 89,144 845,247
-------- --------- -------- ---------
Change in net interest $580,905 $(150,485) $(54,416) $ 376,004
income ======== ========== ========= ==========
1994 Compared to 1993
Increase (Decrease) Due to
--------------------------------------------------------------------
Volume Rate Other Change
Interest earned on:
Interest earning
deposits $ (140) $ 1,762 $ (82) $ 1,540
Mortgage-backed
securities - taxable (344,806) 5,290 (2,919) (342,435)
Investment securities -
taxable 131,797 (15,162) (5,646) 110,989
Federal funds sold 103,909 13,335 33,578 150,822
Net loans 425,859 21,665 2,450 449,974
-------- --------- -------- ----------
Change in interest
income 316,619 26,890 27,381 370,890
-------- --------- -------- ----------
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Interest paid on:
Interest bearing Demand Deposits $ 35,268 $ 0 $ 507 $ 35,775
Savings Deposits 24,876 230 42 25,148
Time Deposits 34,025 (38,795) (1,527) (6,297)
Federal funds purchased (4,126) 413 (385) (4,098)
Securities sold under
agreements to
repurchase 24,151 9,485 11,783 45,419
-------- --------- -------- --------
Change in interest
expense 114,194 (28,667) 10,420 95,947
-------- --------- -------- --------
Change in net interest
income $202,425 $ 55,557 $ 16,961 $274,943
======== ========= ======== ========
</TABLE>
DEPOSITS. The Bank offers a wide range of commercial and consumer deposit
accounts, including non-interest bearing checking accounts, money market
checking accounts (consumer and commercial), negotiable order of withdrawal
("NOW") accounts, Individual Retirement Accounts, time certificates of deposit
and regular savings accounts. The sources of deposits typically are residents
and businesses and their employees within the Bank's market area, obtained
through personal solicitation by the Bank's officers and directors, direct mail
solicitation and advertisements published in the local media. The Bank pays
competitive interest rates on time and savings deposits and has implemented a
service charge fee schedule competitive with other financial institutions in
the Bank's market area covering such matters as maintenance fees on checking
accounts, per item processing fees on checking accounts, returned check charges
and the like.
The Bank does not have a concentration of deposits from any one source,
the loss of which would have a material adverse effect on the business of
either the Bank or the Company. Substantially all the Bank's depositors are
located in its assessment area.
The following table indicates amounts outstanding of time deposits of
$100,000 or more and respective maturities as of December 31, 1995:
3 months 3 to 6 6 to 12 Over
or less months months 12 months Total
- ---------- ---------- ---------- ---------- ----------
$2,555,529 $3,947,677 $1,519,842 $1,945,944 $9,968,992
LOAN PORTFOLIO. The Bank engages in a full complement of lending
activities, including real estate loans, commercial loans and consumer loans,
with particular emphasis on short and medium-term commercial and real estate
loans. The Bank's real estate loans are collateralized by mortgages and
consist primarily of loans to individuals and businesses for various consumer
business purposes, whether or not related to the real estate collateralizing
them. The Bank 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.
COMMERCIAL LOANS. Commercial lending is directed principally towards
businesses whose demands for funds fall within the Bank's legal lending limits.
This category of loans includes loans made
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<PAGE> 9
to individuals, partnerships or corporate borrowers, and obtained for a variety
of business purposes. Such purposes could be to finance accounts receivable,
inventory, mortgages or Small Business Administration loans. Also included
within this category are loans which may be called "real estate related" loans.
Such loans, notwithstanding a security interest in real estate in favor of the
Bank, are made primarily in reliance upon the general credit standing of the
borrower, cash flow, guarantees, collateral other than real estate or
additional factors other than security interests in real estate. Such loans
include, but are not limited to, collateralized and uncollateralized lines of
credit to persons or corporations in real estate related businesses, commercial
loans wholly or partially collateralized by real estate and similar credits.
CONSUMER LOANS. The Bank's consumer loans consist primarily of
installment loans to individuals for personal, family and household purposes.
This category of loans also includes loans collateralized by second priority
mortgages on the residences of borrowers for a variety of purposes including
home improvements, education and other personal expenditures.
RESIDENTIAL REAL ESTATE LOANS. The bank originates real estate mortgage
loans with prior commitments to sell on the secondary market. This category of
loans includes loans collateralized by first mortgages on single family
residences, construction and lot loans.
The following table presents various categories of loans contained in the
Company's loan portfolio for the periods indicated and the total amount of all
loans for such periods:
<TABLE>
<CAPTION>
Type of Loan 1995 1994
- ------------ ----------- ------------
<S> <C> <C>
Domestic:
Commercial, financial and
agricultural $14,131,147 $12,588,359
Real estate - construction 7,593,965 9,116,556
Real estate - mortgage 37,761,489 29,537,514
Installment loans to
individuals 3,219,895 2,986,048
----------- -----------
62,706,496 54,228,477
Net deferred loan fees 2,506 (3,075)
Allowance for loan losses (490,373) (427,208)
----------- -----------
$62,218,629 $53,798,194
=========== ===========
</TABLE>
9
<PAGE> 10
The following is a presentation of an analysis of maturities of loans at
December 31, 1995:
<TABLE>
<CAPTION>
Due in 1 Year Due in 1 to 5 Due after 5
Type of Loan or Less Years Years Total
- -------------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Commercial,
financial
and agri-
cultural $ 8,317,093 $ 5,309,053 $ 505,001 $14,131,147
Real estate-
construction 3,193,287 2,877,927 1,522,751 7,593,965
Real estate -
mortgage 2,471,022 16,780,912 18,509,555 37,761,489
Installment
loans to
individuals 1,869,146 1,350,749 0 3,219,895
----------- ----------- ----------- -----------
Total $15,850,548 $26,318,641 $20,537,307 $62,706,496
=========== =========== =========== ===========
</TABLE>
The following is a presentation of an analysis of sensitivities of loans
to changes in interest rates at December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Loans due after 1 year with
predetermined interest rates $22,507,314
Loans due after 1 year with
floating interest rates $24,348,634
</TABLE>
The Bank makes consumer, commercial and real estate loans to customers
located in Southwest Florida. The Bank has no significant concentration of
credit risk with any individual counterparty to originate loans or to any
industry. However, a substantial portion of the Bank's loan portfolio is
collateralized by real estate located in Southwest Florida.
Management classifies a loan as non-accrual when principal or interest is
past due 90 days or more, or when, in the opinion of management, principal or
interest is not likely to be paid in accordance with the terms of the
obligation. The following table sets forth certain information with respect to
the Bank's non-performing assets:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Non-accrual loans $667,000 $385,000
Accruing loans contractually
past due 90 days or more 0 16,000
Troubled debt restructurings 0 0
-------- --------
Total non-performing loans 667,000 401,000
Other real estate owned 104,000 452,000
-------- --------
Total non-performing assets $771,000 $853,000
======== ========
Total non-performing assets
to total assets .9% 1.1%
-------- --------
10
</TABLE>
<PAGE> 11
The amount of interest income on non-accrual loans which would have been
recorded as income under the original terms was $39,000 and $16,000 for the
fiscal years ended December 31, 1995 and 1994.
SUMMARY OF CREDIT LOSS EXPERIENCE. An analysis of the Bank's loss
experience is furnished in the following table for the periods indicated, as
well as a breakdown of the allowance for possible credit losses:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Balance at beginning of period $ 427,208 $474,758
--------- --------
Charge offs:
Commercial (10,430) (38,060)
Installment 0 (2,593)
Real estate mortgage (115,255) (23,268)
--------- --------
(125,685) (63,921)
Recoveries:
Commercial 0 2,649
Installment 0 0
Real estate mortgage 1,850 9,000
--------- --------
1,850 11,649
--------- --------
Net charge offs (123,835) (52,272)
--------- --------
Reclassification of Allowance(1) (20,000)
--------
Provision 187,000 24,722
--------- --------
Balance at end of period $ 490,373 $427,208
========= ========
Ratio of net charge offs during
the period to average loans
outstanding during the period 0.21% 0.11%
========== ========
</TABLE>
(1) Reclassification to Allowance for expenses relating to Other Real Estate
Owned.
The allowance was allocated as follows at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------------------------- ------------------------------
Percentage of loans Percentage of loans
in each in each
category to total category to total
Amount loans Amount loans
-------- -------------------- ------ --------------------
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $108,965 22.6% $200,065 23.2%
Real estate - construction 58,557 12.1% 45,583 16.8%
Real estate - mortgage 298,023 60.2% 150,441 54.5%
Installment loans 24,829 5.1% 14,930 5.5%
Unallocated 0 - 16,189 -
Total - - -
-------- ----- -------- -----
$490,373 100.0% $427,208 100.0%
======== ===== ======== =====
</TABLE>
11
<PAGE> 12
ALLOWANCE FOR CREDIT LOSSES. The Bank's allowance for credit losses is
determined by several factors. All loans are specifically graded for risk
factors. For pool loans, that is, loans assigned a general pass evaluation,
such factors include but are not limited to national and local economic trends,
delinquency and non-accrual trends, volume and terms of loans, experience,
ability and depth of lending staff, concentrations of credit and effects of any
changes in lending policies and practices. For special mentioned and
classified loans, allowance for credit losses are calculated at what the Bank's
anticipated loss might be over the life of the loan.
Management believes that the allowance for credit losses at December 31,
1995, is adequate. The allowance for credit losses represented 0.77% and 0.79%
of outstanding loans at December 31, 1995 and 1994, respectively.
The Company adopted Statement of Financial Accounting Standards No. 114
"Accounting by Creditors for Impairment of a Loan" (SFAS No. 114) and SFAS No.
118 "Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures" (SFAS No. 118) on January 1, 1995. Under SFAS Nos. 114 and 118, a
loan is considered impaired, based on current information and events, if it is
probable that the Company will be unable to collect the scheduled payments of
principal or interest when due acording to the contractual terms of the loan
agreement. The Company evaluates individual loans for impairment from
internally generated watch lists and other sources. Insignificant delays or
shortfalls in the amount of payments is not automatically considered by
management to cause a loan to become impaired. Management considers the
reasons for the delays or shortfalls (e.g., seasonality of the business,
temporary stoppage in operations due to equipment failure or a natural
disaster) when loan evaluations are made. However, all loans 90 days or more
past due are reviewed for impairment. Loans meeting the criteria for
impairment may or may not be placed on non-accrual status based on the loan's
current status and nature of and amount of impairment. The measurement of
impaired loans is generally based on the present value of expected future cash
flows discounted at the historical effective interest rate, except that all
collateral-dependent loans are measured for impairment based on the fair value
of the collateral. The adoption of SFAS No. 114 resulted in no additional
provision for credit losses.
Impaired loans by type of loan as of December 31, 1995, are as follows:
Amount
------
<TABLE>
<CAPTION>
<S> <C>
Commercial, financial and agricultural $ 18,000
Real estate - construction 5,000
Real estate - mortgage 785,000
Installment loans 69,000
--------
$877,000
========
</TABLE>
Impaired loans totaling $807,000 were measured using the fair value of the
loan's collateral and $69,000 were measured using the present value of the
expected cash flows. The Company recognized
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<PAGE> 13
approximately $13,000 of interest on impaired loans (during the portion of the
year that they were impaired) using the cash basis method.
The components of the allowance for credit losses are as follows:
<TABLE>
<CAPTION>
December 31, 1995
-----------------
<S> <C>
Impaired loans $ 93,000
Other 397,373
--------
$490,373
--------
</TABLE>
The information noted above is not presented for December 31, 1994, as
SFAS No. 114 was not adopted until January 1, 1995.
INVESTMENTS. In May, 1993, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 115 "Accounting
for Certain Investments in Debt and Equity Securities" (SFAS No. 115). The
Company adopted the provisions of SFAS No. 115 as of January 1, 1994. SFAS No.
115 requires the reporting of certain securities at fair value except for those
securities which the Company has the positive intent and ability to hold to
maturity. (Prior to the adoption of SFAS No. 115, all investment securities
were carried at amortized cost.) Management determines the appropriate
classification of its investment and mortgage-backed securities at the time of
purchase.
In November, 1995, FASB issued a Special Report entitled "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." This Special Report allowed companies a one time
opportunity to reassess its classification of certain investments. As a result
of this opportunity, the Company has transferred all of its held to maturity
investments to available for sale. The amortized cost of the investments
transferred was $5,879,079 and the unrealized loss was $79,859.
The Company's investment and mortgage-backed securities which are
available for sale are recorded at fair value. Unrealized holding gains and
losses on securities available for sale, net of taxes, are shown as a separate
component of stockholders' equity on the consolidated balance sheet. At
December 31, 1995, an unrealized loss of $22,390, net of taxes of $8,508, was
shown as a decrease of stockholders' equity.
At December 31, 1994, an unrealized loss of $255,242, net of taxes of
$96,992, was shown as a decrease of stockholders equity.
At December 31, 1995, investment securities comprised approximately 10% of
the Bank's assets, with net loans comprising approximately 71% of assets. This
compares to 19% and 70%, respectively, at December 31, 1994. The Bank invests
primarily in obligations of the United States or obligations guaranteed as to
principal and interest by the United States and other taxable securities. The
Bank also engages in Federal funds transactions with its principal
correspondent banks and anticipates that it will
13
<PAGE> 14
primarily act as a net seller of such funds. The sale of Federal funds amounts
to a short-term loan from the Bank to another bank.
The following table sets forth the carrying value of the Company's
investment portfolio as of the dates indicated:
Type of Security 1995 1994
<TABLE>
<CAPTION>
<S> <C> <C>
Investment securities available for sale
U. S. Treasury securities $2,757,268 $3,949,180
U. S. Government agencies 2,823,865 0
Other securities 433,350 433,350
---------- ----------
Total investment securities
available for sale $6,014,483 $4,382,530
========== ==========
Investment securities held to maturity
U. S. Treasury securities 0 2,460,381
U. S. Government agencies 0 3,997,684
---------- ----------
Total investment securities held
to maturity $ 0 $6,458,065
========== ==========
Mortgage-backed securities
available for sale $2,826,014 $3,885,858
========== ==========
</TABLE>
The following table indicates as of December 31, 1995, the amount of
investments due in (i) one year or less, (ii) one to five years, (iii) five to
ten years, and (iv) over ten years.
<TABLE>
<CAPTION>
Weighted
Average
Investment Category - Available for Sale Amount Yield
---------------------------------------- ------ ---------
<S> <C> <C>
Mortgage-backed securities
0 -- 1 year $ 51,211 7.50%
1 -- 5 years 1,053,256 6.80%
5 -- 10 years 202,167 5.92%
Over 10 years 1,481,496 6.86%
---------- ----
Total $2,788,129
----------
Obligations of U.S. Treasury
and Agencies
0 -- 1 years $2,742,801 5.60%
1 -- 5 years 2,898,607 5.18%
----------
Total $5,641,408
----------
Other Securities
Over 10 years 433,350 6.00%
Total $ 433,350
----------
Total mortgage-backed and
investment securities
available for sale $8,862,887
==========
</TABLE>
ASSET/LIABILITY MANAGEMENT. It is the objective of the Bank to manage
assets and liabilities to provide a satisfactory, consistent level of
profitability within the framework of established cash, loan, investment,
borrowing and capital policies. Certain officers of the Bank are charged with
the responsibility for developing and monitoring policies and procedures that
are designed to ensure acceptable composition of the asset/liability mix. It
is the overall philosophy of management to support asset growth primarily
through growth of core deposits which include deposits of all categories made
by individuals, partnerships and corporations.
14
<PAGE> 15
Management of the Bank seeks to invest the largest portion of the Bank's assets
in consumer/installment, commercial, residential real estate mortgage and
construction loans.
The Bank's asset/liability mix is monitored on a daily basis with a report
reflecting the interest-sensitive assets and interest-sensitive liabilities
being prepared and presented to the Bank's Board of Directors on a quarterly
basis. The objective of this policy is to control interest-sensitive assets
and liabilities so as to minimize the impact of substantial movements in
interest rates on the Bank's earnings.
CORRESPONDENT BANKING. Correspondent banking involves the provision of
services by one bank to another bank that cannot provide that service for
itself from an economic or practical standpoint. The Bank purchases
correspondent services offered by larger banks, including data processing
services, check collections, purchases of Federal funds, security safekeeping,
investment services, wire transfer services, coin and currency supplies,
overline and liquidity loan participations and sales of loans to or
participations with correspondent banks.
With respect to loans that exceed the Bank's lending limit, the Bank
customarily sells loan participations to other local banks and, if needed, to
correspondent banks. The Bank has established correspondent relationships with
Compass Bank, SunTrust Bank, N.A., Barnett Bank, N.A., NationsBank of Florida,
N.A., Independent Bankers Bank of Florida and Federal Home Loan Bank of
Atlanta. The Bank has an option to maintain balances with such correspondents
in non-interest bearing accounts in amounts sufficient to cover correspondent
service fees or pay a hard dollar amount each month. All funds left on deposit
at the Federal Home Loan Bank of Atlanta are in an interest bearing account.
EMPLOYEES. As of December 31, 1995, the Bank had 41 full-time employees
and 6 part-time employees. The Company does not have any employees who are not
also employees of the Bank.
SUPERVISION AND REGULATION
BANK REGULATION. As a national banking association, the Bank is
supervised, regulated and regularly examined by the OCC. The Bank also is a
member of the Federal Deposit Insurance Corporation ("FDIC") and, as such,
deposits in the Bank are insured by the FDIC (currently up to $100,000 per
eligible account).
The operation of the Bank is subject to state and federal statutes
applicable to national banks and the regulations of the OCC, the Federal
Reserve and the FDIC. Such statutes and regulations relate to required
reserves, investments, loans, mergers and consolidations, issuances of
securities, payment of dividends, establishment of branches and other aspects
of the Bank's operations. Under the provisions of the Federal Reserve Act, the
Bank is subject to certain restrictions on any extensions of credit to the
Company or, with certain exceptions, other affiliates, on investments in the
stock or other securities of national banks and on the taking of such stock or
securities as
15
<PAGE> 16
collateral on loans to any borrower. In addition, the Bank is prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit or the providing of any property or service.
The Bank, as a national bank, is permitted to branch only to the extent
that banks and other institutions carrying on a banking business in Florida are
permitted to branch.
The payment of dividends by the Bank is subject to the applicable
restrictions contained in the National Bank Act and the OCC's Interpretive
Rulings. The National Bank Act provides that a national bank cannot pay
dividends (a) out of its common stock and surplus accounts, (b) at a time when
it has sustained losses that equal or exceed its undivided profits then on
hand, or (c) at any time in an amount greater than its net profits then on hand
less its losses and bad debts. "Bad debts" means all debts due to the national
bank on which interest is past due and unpaid for a period of six months,
unless such debts are well collateralized and in the process of collection. In
addition, if, in the particular circumstances, the OCC determines that the
payment of dividends would constitute an unsafe or unsound banking practice,
the OCC may, among other things, issue a cease and desist order prohibiting the
payment of dividends.
The approval of the OCC is required for a national bank to pay dividends
in property or additional shares of its stock. The OCC's approval is also
required if the total of all dividends declared by a national bank in any
calendar year will exceed the total of its net profits for that year combined
with its retained net profits for the preceding two years, less any required
transfers to surplus or to a fund for the retirement of any preferred stock.
"Net profits" means the remainder of all earnings from current operations plus
actual recoveries on loans and investments and other assets less all current
operating expenses, actual losses, accrued dividends on preferred stock and all
federal and state taxes.
BANK HOLDING COMPANY REGULATION. The Company is a bank holding company
within the meaning of the Federal Bank Holding Company Act of 1956. As a bank
holding company, the Company is required to register with the Federal Reserve.
It is subject to examination by such agency and is required to file with it
annual reports and other information regarding its business operations and
those of its subsidiaries.
The Company is also required to obtain the approval of the Federal Reserve
before acquiring, directly or indirectly, ownership or control of any voting
shares of a bank if, after such acquisition, it would own or control, directly
or indirectly, more than 5% of the voting stock of such bank. In addition, the
Bank Holding Company Act now allows the Federal reserve to approve an
application by a bank holding company to acquire shares of a bank or bank
holding company located outside the acquiror's principal state of operation.
16
<PAGE> 17
Generally, a bank holding company is, with limited exceptions, prohibited
from acquiring direct or indirect ownership or control of the voting stock of
any company that is not a bank or a bank holding company, and must engage only
in the business of banking or managing or controlling banks or furnishing
services to or performing services for its subsidiary banks. The Federal
Reserve, by order or regulation, may authorize a holding company to engage in
or acquire stock in a company that engages in activities so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Some of the activities that the Federal Reserve has determined by regulation to
be incidental to the business of banking are: making or servicing loans or
certain types of leases; engaging in certain insurance and discount brokerage
activities; performing certain data processing services; acting in certain
circumstances as a fiduciary or investment or financial advisor; and making
investments in certain corporations or projects designed primarily to promote
community welfare. The Company has no present plans to engage in such
activities.
The activities of the Company are also frequently restricted by the
provisions of the Glass-Steagall Act of 1933. This Act prohibits the Company
from owning subsidiaries that are engaged principally in the issue, flotation,
underwriting, public sale, or distribution of securities. The interpretation,
scope and application of the provisions of the Glass-Steagall Act are regularly
reviewed by regulators and legislators and the interpretation and application of
the provisions challenged in the federal courts. The outcome of the current
examination and appraisal of the provisions in the Glass-Steagall Act and the
effect of such outcome on the ability of bank holding companies to engage in
securities-related activities cannot be predicted.
Subject to certain restrictions, the Company is able to borrow money to
make a capital contribution to the Bank and for other proper corporate
purposes, and such loans can be repaid from dividends paid by the Bank to the
Company. There are no plans at the present time for the Company to borrow
money under such circumstances. The Company may also raise capital for the
Bank and otherwise by selling securities.
RECENT LEGISLATION. The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), enacted on August 9, 1989, established the
Bank Insurance Fund (BIF) under the management of the Federal Deposit Insurance
Corporation (the "FDIC") which sets insurance premium rates for all insured
institutions.
The Bank is required to pay semiannual FDIC deposit insurance assessments.
However, the FDIC has recently lowered assessment rates in recognition of the
fact that the BIF has achieved its legally mandated reserve ratio. Under the
new rate structure, the most financially sound banks have had their assessment
lowered from 23 cents per $100 of insured deposits to 4 cents per $100 of
insured deposits. Banks that overpaid assessments during the first half of the
year have received appropriate refunds. Each financial institution is assigned
to one of three capital groups -- well capitalized, adequately capitalized or
undercapitalized -- and
17
<PAGE> 18
further assigned to one of three subgroups with a capital group, on the basis
of supervisory evaluations by the institution's primary federal and, if
applicable, state supervisors and other information relevant to the
institution's financial condition and the risk posed to the applicable FDIC
deposit insurance fund. The actual assessment rate applicable to a particular
institution (and any applicable refund) will, therefore, depend in part upon
the risk assessment classification so assigned to the institution by the FDIC.
The FDIC is authorized by federal law to raise insurance premiums in
certain circumstances. Any increase in premiums would have an adverse effect
on the Bank and the Company's earnings. Under the FDIA, insurance of deposits
may be terminated by the FDIC upon a finding that the institution has engaged
in unsafe and unsound practices, is in an unsafe or unsound condition to
continue operations or has violated any applicable law, regulation, rule, order
or condition imposed by a federal bank regulatory agency. Due to recent
changes in deposit insurance premiums assessed by the FDIC, the Bank's annual
FDIC premiums will be reduced by 85% or approximately $115,000 (based on
current deposit balances) effective in 1996. The Bank received a refund of
approximately $46,000 in September, 1995, as payment of part of the refund due
for the applicable portion of 1995.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Interstate Act"), which was enacted on September 29, 1994, among other things
and subject to certain conditions and exceptions, (i) permits bank holding
company acquisitions, commencing one year after enactment, of banks of a
minimum age of up to five years as established by state law in any state, (ii)
permits mergers of national and state banks after May 31, 1997, across state
lines unless the state has opted out of the interstate bank merger provisions,
(iii) permits branching de novo by national and state banks into other states
if the state has opted-in to this provision of the Interstate Act, and (iv)
permits certain interstate bank agency activities one year after enactment.
Regulations have not yet been issued under the Interstate Act.
Various bills are regularly introduced in the United States Congress which
contain wide-ranging proposals for altering the structure, regulation and
competitive relationships of the nation's financial institutions. Further, the
federal agencies regulating financial institutions have announced their
consideration of regulations and policies that could have an impact on the
activities, operations and profitability of financial institutions. Among such
items are proposals to prohibit or limit the ability of financial institutions
to conduct certain types of activities, to subject financial institutions to
increased disclosure and reporting requirements, to alter the statutory
separation of commercial and investment banking and to expand further the
authority of financial institutions to expand geographically or to offer
additional products or services. It cannot be predicted whether or in what
form any of these proposals will be adopted or the extent to which they may
affect the business of the Bank.
CAPITAL REQUIREMENTS.
18
<PAGE> 19
Bank holding companies and national banks are subject to capital
maintenance requirements imposed by the Federal Reserve and the OCC,
respectively, which include risk-based capital guidelines requiring a level of
equity bearing some relationship to the perceived riskiness of a financial
institution's assets. These guidelines create two categories of capital: Tier
1 (or "core") capital and Tier 2 (or "supplementary") capital. Tier 1 capital
is generally comprised of common stockholders' equity, noncumulative perpetual
preferred stock and related surplus, and minority interests in the equity
accounts of consolidated subsidiaries, less goodwill. Tier 2 capital includes
certain other preferred stock and related surplus, certain hybrid capital and
subordinated debt instruments, and certain loss reserves. Tier 2 capital is
limited to 100% of Tier 1 capital, but certain Tier 2 capital elements are
subject to additional limitations. The guidelines include a minimum leverage
ratio which requires a financial institution to maintain Tier 1 capital of at
least 3% of total assets. Generally, both the Federal Reserve and the OCC
expect subject entities to operate well above the minimum required capital
levels.
Under the current and proposed regulations, both the Federal Reserve and
the OCC may require bank holding companies and banks to maintain more capital
than required if warranted by the particular circumstances or risk profiles of
individual holding companies or banks. In general, institutions with high or
inordinate levels of risk are expected to operate well above minimum capital
standards. Newly-formed banks and other banks experiencing or anticipating
significant growth are also expected to maintain capital well above the minimum
level. See discussion at "CAPITAL RESOURCES," infra.
In addition to the leverage ratio requirements, both the Federal Reserve
and the OCC have issued risk-based capital guidelines which are supplemental to
the leverage ratio measures. Under the risk-based standard, an entity's assets
and off-balance sheet activities are categorized into one of four risk
categories with either a 0%, 20%, 50% or 100% amount of capital to be held
against those assets. Presently, all entities subject to the risk-based
capital guidelines are required to meet or exceed a risk-based capital ratio of
8%, half of which must be in Tier 1 capital.
MONETARY POLICIES. The earnings of the Company and the Bank are
significantly affected by the policies of the Federal Reserve because the
Federal Reserve regulates the money supply in order to mitigate recessionary
and inflationary pressures. Among the techniques used to implement these
objectives are open market operations in United States government securities,
changes in the rates paid by banks on bank borrowings, and changes in reserve
requirements against bank deposits. These techniques are used in varying
combinations to influence overall growth and distribution of bank loans,
investments and deposits. Their use may also affect interest rates charged on
loans or paid for deposits by financial institutions.
ITEM 2. DESCRIPTION OF PROPERTY
19
<PAGE> 20
The Bank commenced business in a building located at 4245 Fowler Street in
Fort Myers. The Bank purchased the land and building in September, 1989, at a
cost of $451,000.
The Bank opened a second office on Summerlin Road in Fort Myers in June,
1990, in a modular office. It is anticipated that a permanent building will be
constructed at the Summerlin Road site in the future. The Bank purchased the
real property for the Summerlin Road office in September, 1989, for a purchase
price of $652,000.
The Bank opened a third office at 12998 South Cleveland Avenue in Fort
Myers in February, 1992. This site consists of approximately 1.4 acres on the
corner of Lake Drive and South Cleveland Avenue and a two-story bank building
with approximately 8,700 square feet of available area. The Bank purchased the
South Cleveland Avenue site in October, 1991, for a purchase price of
$1,030,000.
The Bank opened a fourth office at 7040 Winkler Road in Fort Myers in
June, 1994. The building formerly housed California Federal Savings Bank which
terminated its lease when purchased by NationsBank. A five-year lease was
negotiated at a cost of $4,909 a month. During the same month office space at
800 Laurel Oak Drive, Naples, Florida, was secured for a loan origination
office. The terms were monthly at a cost of $1,007 a month. In May, 1995, the
Naples office was closed due to the low volume of loans originated.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings (other than routine litigation incidental to
the business of the Bank, such as the collection of loans) are pending to which
the Company or the Bank or any of their respective properties is subject, nor,
to the knowledge of the Company or the Bank, are any such proceedings
threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
20
<PAGE> 21
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is not presently an established public trading market for the
Company's common stock, $1.00 par value ("Common Stock"). Management of the
Company is aware of certain transactions in its Common Stock that occurred in
1994 and 1993 as set forth below, although the trading prices of all stock
transactions are not known. Transactions in the Common Stock are infrequent
and are negotiated privately between the persons involved in those
transactions. The following sets forth the high and low trading prices for
certain trades of Common Stock that occurred in transactions known to
management in the respective periods during 1995 and 1994:
<TABLE>
<CAPTION>
High Low Shares
<S> <C> <C> <C> <C>
1995 1st Quarter $12.00 $11.50 14,450(1)
2nd Quarter -- -- --
3rd Quarter 12.00 12.00 600
4th Quarter 12.50 12.50 500
1994 1st Quarter -- -- --
2nd Quarter 12.00 10.50 6,000
3rd Quarter 12.00 11.50 1,500
4th Quarter 11.50 10.00 3,300
</TABLE>
- ---------------------
(1) Includes 12,500 exercised warrants.
As of February 29, 1996, there were approximately 325 holders of record of
common stock.
On January 8, 1996, the Board of Directors of the Company declared a cash
dividend of twenty-five cents ($0.25) per share to be paid on March 1, 1996, to
shareholders of record on February 1, 1996. The Company's future dividend
policy will depend upon the Bank's earnings, capital requirements, financial
condition and other factors considered relevant by the Board of Directors of
the Company. It will continue to be the policy of the Board of Directors of
the Company to reinvest earnings in order to maximize its capital position to
afford the Bank the capability of future expansion.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION
GENERAL
The Company's only significant asset consists of its ownership of all of
the Bank's capital stock. Accordingly, the Company's results of operations are
primarily dependent upon the Bank's net interest income, which is the difference
between interest income on interest-earning assets and interest expense on
interest-bearing liabilities. Net interest income is, in turn, dependent upon
the Bank's interest rate spread, which is the difference between the average
21
<PAGE> 22
yield earned on its loan and investment portfolio and the average rate paid on
its deposits. The interest rate spread is impacted by interest rates, deposit
flows and loan demands. Levels of non-interest income and expenses are also
significant factors in earnings.
The Bank operates a Residential Real Estate Department for the purpose of
originating, selling and servicing residential real estate loans. During 1994
the Bank originated loans totaling $9 million, substantially all of which were
sold service release. During the first quarter of 1995, the Department was
downsized and job functions redefined to utilize the full potential of the
remaining real estate personnel. The wholesale division was closed placing
more emphasis on retail lending and retention of mortgage servicing. For the
year ended December 31, 1995, the Bank funded loans totaling $12 million with
approximately $800,000 held for sale and had a loan servicing portfolio of $3.8
million.
The following analysis of financial results and financial condition for
the years ended December 31, 1995 and 1994, should be read in conjunction with
the financial statements and statistical data presented elsewhere.
ASSET/LIABILITY MANAGEMENT
The Company's only business consists of the banking activities of its
banking subsidiary (the "Bank"). Accordingly, the results of operations of the
Company are dependent on the Bank's ability to effectively manage the interest
rate sensitivity and maturity of its assets and liabilities.
Asset/liability management policies of the Bank are under the purview of
the Board of Directors which has delegated authority for its formulation and
administration to the Asset/Liability Management Committee (the "Committee").
The Committee includes senior management and executive officers, other key
personnel of the Bank and three outside directors. The objective of the Bank's
asset/liability policy is to coordinate the overall management of the assets
and liabilities of the Bank, especially as they relate to interest rate risk.
The Bank's policy is to be consistent in the management of the sources and uses
of funds so that the Bank is able to generate optimum, reliable, consistent
earnings under various economic and competitive conditions. The objective is
achieved by diversifying the sources of funds, identifying alternative sources
of funds and reducing maturity mismatch of assets and liabilities.
Through the commercial and residential real estate division , the Bank
was able to maintain its loan-to-deposit ratio in excess of 80%. During the
last quarter of 1995, in anticipation of declining interest rates, the focus of
the Bank's commercial loan strategy was the origination of fixed rate loans,
thereby reducing prime based loans by 3%. The majority of residential real
estate loans are adjustable rate mortgage ("ARM") loans tied to the 1-year
treasury security. Using an average margin adjustment of 2.875%, ARM loans had
a positive impact on the overall yield of the portfoliio as of December 31,
1995. Management believes even with
22
<PAGE> 23
declining interest rates in 1996 the weighted yield will not be greatly
impacted.
The following table summarizes the rate sensitive assets and liabilities
of the Bank at December 31, 1995, based on the periods during which they mature
or are subject to repricing. For asset/liability management purposes,
management does not consider savings or interest bearing demand deposits as
core deposits:
Maturing and Repricing Analysis
-------------------------------
(in thousands except ratios)
<TABLE>
<CAPTION>
181 Days More
0-30 31-60 61-90 90-180 to than
Days Days Days Days 1 Year 1 Year
---- ---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Interest
Earning
Assets:
Federal
funds
sold $ 5,995 $ -- $ -- $ -- $ -- $ --
Interest
bearing
deposits 1,000 -- -- -- -- --
Loans 3,299 1,827 1,322 5,753 7,602 43,304
Investment
and mort-
gage backed
securities -- -- -- 1,050 2,170 5,620
------- ------ ------ ------- ------ -------
$10,254 $1,827 $1,322 $ 6,803 $9,722 $48,924
======= ====== ====== ======= ====== =======
Interest
Bearing
Liabilities
Fed funds
purchased $ -- $ -- $ -- $ -- $ -- $ --
Securities
sold under
agreement
to repur-
chase 6,281 -- -- -- -- --
Interest
bearing
demand
accounts 27,003 -- -- -- -- --
Time
deposit
accounts 3,335 2,049 1,944 14,136 6,227 8,617
------- ------ ------ ------- ------ -------
$36,619 $2,049 $1,944 $14,136 $6,227 $ 8,617
======= ====== ====== ======= ====== =======
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Gap $(26,365) $ (222) $ (622) $ (7,333) $ 3,545 $40,307
Cumulative Gap $(26,365) $(26,587) $(27,209) $(34,542) $(30,997) $ 9,310
Rate sensitive
assets to
rate sensi-
tive liabili-
ties .28 .89 .68 .48 1.57 5.68%
Cumulative Gap
Ratio 28 .31 .33 .36 .49 1.13%
Cumulative Gap
to total
assets (.30) (.30) (.31) (.39) (.35) 0.11%
</TABLE>
The Bank's asset/liability management policy focuses on time horizons
within one year. At December 31, 1995, the Company's cumulative gap at six
months was .36 and at one year was .49. These ratios indicate that the Company
may be negatively impacted should interest rates increase since its interest
bearing liabilities will reprice more rapidly than its interest earning assets.
However, excluding the interest bearing demand deposits, the cumulative gap at
one year rises to .88 indicating a much closer correlation of repricing time
frames. Management believes the interest bearing demand deposits, whose yields
are, to a certain extent, subject to the discretion of management, may minimize
the potential impact that a rise in interest rates might have on the Company's
net interest income. Further, management believes that customers of the Bank,
as a community bank, are less likely to base their banking decisions solely on
relative yield.
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Net income for the Company for the year ended December 31, 1995, was
$736,978 compared to $630,969 for the year ended December 31, 1994, an increase
of $106,000, or 17%. During 1994 the Bank originated residential real estate
loans totaling $9 million, substantially all of which were sold with servicing
released. During the first quarter of 1995, the Residential Real Estate
Department was downsized and job functions redefined to utilize the full
potential of the remaining real estate peronnel. The wholesale division was
closed placing more emphasis on retail lending and retention of mortgage
servicing. Even with the restructuring of this department, at December 31,
1995, the Bank had funded residential real estate loans totaling $12 million,
an increase of $3 million from December 31, 1994, and had retained a loan
servicing portfolio of $3.8 million. At December 31, 1995, total gross loans
increased approximately $9 million yielding an increase in total net interest
income of approximately $400,000. Management believes that the loan activity
will continue to be strong as interest rates decline in 1996. The Company does
not anticipate any expansion of its operation in 1996 but believes that the
profitability will continue through steady growth of the Company and by
controlling operating expenses.
24
<PAGE> 25
Total assets at December 31, 1995, were $88 million as compared to $76
million at December 31, 1994. The $12 million increase related to an $8
million increase in total gross loans and $6 million increase in federal funds
sold. Total investments declined $6 million from 1994 to 1995. Approximately
$5,000,000 of this decline was attributed to calls, maturities and paydowns of
mortgage-backed securities. During 1995 the Company sold $2 million in
securities and realized gains of $14,000. One million dollars of these funds
was reinvested in short-term government agencies.
As of January 1, 1994, the Company adopted the provision of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS No. 115). SFAS No. 115 requires management to account
for its investment securities in three categories: (1) Held to maturity, (2)
available for sale and (3) trading. Securities that are held to maturity are
securities that management has the intent and the Company has the ability at the
time of purchase to hold to maturity. Securities in this category are generally
carried at amortized cost. Securities that are classified as available for sale
represent securities that management intends to hold for indefinite periods of
time but not necessarily to maturity. These securities are recorded at fair
value with both gains and losses in the value of the securities, net of taxes,
included as a separate component of stockholders' equity. Trading securities
are held principally for the purchase of selling in the near future and are
recorded at fair value. Both unrealized gains and losses are recognized in the
statement of income. In December, 1995, the Company took advantage of the
Financial Accounting Standards Board's one time opportunity to reevaluate its
ability and intent to hold securities to maturity. Management made the decision
to reclassify all securities classified as held to maturity into the available
for sale category. The Company currently has no securities classified as trading
securities.
At December 31, 1995, the Company's investment portfolio had gross
unrealized gains of approximately $53,000 and gross unrealized losses of
approximately $76,000 which related primarily to the investment securities.
Deposits and repurchase agreements increased approximately $6 million and
$4 million, respectively, at December 31, 1995, compared to December 31, 1994,
an overall increase of investable funds of 10.5%. Net interest margin declined
from 4.84% at December 31, 1994, to 4.61% at December 31, 1995. Core deposit
and CD rates continued to rise during the first three quarters of 1995.
Management believes that, as interest rates decline, the repricing of
approximately $6 million of high yielding certificates will have a positive
effect on the net interest margin during the first half of 1996.
The Company continues its history of minimal write-offs of uncollectible
loans which, over the past three years, has been approximately .1% of total
loans. The allowance for credit losses remains at approximately 1% of total
loans for both 1994 and 1995. Management does not anticipate that this trend
will deteriorate
25
<PAGE> 26
during 1996 due to its conservative lending policy and its monthly analysis of
loans.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1994 AND 1993
Net income for the Company for the year ended December 31, 1994, was
$630,969 compared to $695,688 for the year ended December 31, 1993, a reduction
of $64,719, or 9%. During 1994 the Bank opened a new full service branch
facility and a loan origination office. The cost related to the opening of the
new facilities as well as the reduced activity in residential mortgage lending
contributed to this reduction in net income.
Total assets at December 31, 1994, were $76 million as compared to $71
million at December 31, 1993. The $5 million increase related to an increase
in real estate mortgage and construction loans. Total investments remained
constant from 1993 to 1994. However, during 1994 the Company sold $4 million
in mortgage-backed securities and realized gains of $59,000. The sale of these
securities was primarily to offset the anticipated rise in interest rates.
Reinvestment of these funds was in short-term U. S. Treasury securities.
At December 31, 1994, the Company's investments and mortgage-backed
securities available for sale has unrealized losses of approximately $255,000
primarily related to the mortgage-backed securities. These unrealized losses
were caused by rising interest rates which occurred during 1994 when prime rate
of interest rose from 6% to 8.5%. At December 31, 1993, the Company had gross
unrealized gains of approximately $300,000 and gross unrealized losses of
approximately $25,000. The Company's investment securities held to maturity had
approximately $252,000 unrealized losses at December 31, 1994.
Deposits increased approximately $5 million at December 31, 1994, compared
to December 31, 1993, an 8% increase. This increase related primarily in the
non-interest-bearing deposits and NOW accounts. Net interest margin improved
from 4.77% to 4.84% from December 31, 1993, to December 31, 1994. Core deposit
rates were consistent with 1993 rates through the end of 1994 with a slight
increase in CD rates. The Company allowed higher yielding jumbo certificates
to roll out of the bank.
The Company's loan portfolio increased from $47 million at December 31,
1993, to $54 million at December 31, 1994. This increase related almost
entirely to an increase of $4 million in residential real estate loans and
construction loans which increased from $6 million to $9 million.
The allowance for loan losses remained at approximately 1% of total loans
for both 1993 and 1994.
NET INTEREST INCOME
Net interest income, which constitutes the principal source of income for
the Company, represents the difference between interest income on
interest-earning assets and interest expense on interest
26
<PAGE> 27
bearing liabilities. Interest-earning assets primarily consist of loans to
individuals and businesses and investments. The primary source of funds for
investing in interest-earning assets are interest-bearing liabilities which,
for the Company, include NOW, money market, savings and time deposits. Net
interest income is dependent on the volume of interest-earning assets and
interest-bearing liabilities and the rates earned or paid on them.
For the year ended December 31, 1995, the Company's net yield on earning
assets was 4.61% compared to 4.84% for 1994. Net interest margin decreased
from 4.84% to 4.61% from December 31, 1994, to December 31, 1995. This
decrease was attributable to an overall increase in CD rates along with a
special nine- and 15-month CD promotion that yielded over $8 million in
deposits. Approximately $2 million of nine-month certificates rolled over in
November, 1995, to a lower interest rate with an additional $6 million in
15-month certificates renewing in May, 1996, at a rate approximately 2% less
than the original certificates. As rates continue to decline in 1996,
management anticipates the net interest margin will continue to improve during
the second half of 1996.
For the year ended December 31, 1994, the Company's net yield on earning
assets was 4.84% compared to 4.77% for 1993. The increase in net yield was
comparatively low in view of the rising rate environment and the increase in
earning assets. This was attributable to the addition of $4 million in
adjustable rate mortgage loans that yielded 6.9%. These loans will adjust 2%
during 1995, however, overall 1995 net yield is expected to stay consistent with
year end 1994 due to the increase in the cost of funds.
PROVISION FOR CREDIT LOSSES
Management of the Company utilizes an internal loan rating system as the
basis for determining and evaluating the adequacy of the allowance for credit
losses and resulting provisions for credit losses. Under this system all loans
are specifically graded for risk factors which include but are not limited to
(1) national and local economic trends; (2) delinquency and non-accrual trends;
(3) volume and terms of loans; (4) experience, ability and depth of lending
staff; (5) concentration of credit; and (6) effects of changes in lending
policies and practices. Loan ratings assigned are reviewed periodically for
continued applicability. Based on the assigned rating and risk factors
assigned to each rating, on a monthly basis the Company calculates the amount
of allowance for credit losses that should be established.
The Company's provision for credit losses for 1995 was $187,000 compared
to $25,000 for 1994. The increase of the provision reflects the substantial
loan growth in 1995 and provided reserves sufficient to cover charged off loans
and maintenance of specific allocations. The total reserves ratio to total
loans maintained for both 1994 and 1995 was .77%. Non-accrual loans at
December 31, 1995, were $668,000, or approximately 1% of total loans. Other
real estate owned totaled $104,000 at December 31, 1995, compared to $452,000
at December 31, 1994. At December 31,
27
<PAGE> 28
1995, other real estate owned was comprised of three units in one condominium
building. The Bank currently has a contract on one. At this time management
does not anticipate any future write-downs of principal; only expenses
associated with the maintenance and upkeep of the property. Total
non-performing assets were approximately 11% and 13% of average equity for
1995 and 1994, respectively. Net loans charged off during 1995 were $125,000
at December 31, 1995, compared to $52,000 at December 31, 1994. This number
represents 0.2% of total loans and is consistent with the Company's historical
minimal loss experience.
NON-INTEREST INCOME
Non-interest income consists primarily of the gain on sale of mortgage
loans and service charges and fees. The gain on sale of mortgage loans
decreased approximately 34% from 1994 to 1995, or $77,000, which reflects
management's decision to increase the servicing portfolio at the expense of
marketing gains. Service charges and fees increased $62,000, or 26%, from
$236,000 in 1994 to $298,000 in 1995. This increase relates primarily to the
increase in the Company's loan and deposit balances from which the majority of
the Company's service charges and fees originate. The Company also realized
gains on sales of securities of $14,000 in 1995 as compared to $59,000 in 1994,
as well as a gain of $69,000 in the sale of other real estate owned.
Non-interest income decreased approximately $219,000 at December 31, 1994,
compared to December 31, 1993. The majority of the decrease was in the gains
on the sale of mortgage loans. This reflected the slowdown in mortgage
origination and refinancing markets caused by the dramatic increase in interest
rates in 1994.
NON-INTEREST EXPENSES
Non-interest expenses stayed consistent at $2.8 million in 1995. Increase
in salaries and occupancy expense are commensurate to normal operating expenses
related to the growth of the Company.
Non-interest expense as a percentage of net interest income was 78%
compared to 86% in 1994.
Non-interest expenses increased from $2.5 million to $2.8 million in 1994,
an increase of 12%, compared to an increase in total assets of 8%. Salaries
and occupancy expense increased $122,000 due primarily to the opening of a new
full service bank branch and a loan origination office in June, 1994, which
required additional personnel and rental expense. Furniture and equipment
expense increased 16%, or $32,000, relating to equipping the new bank offices.
Other expenses increased $134,000 due to increases in directors' fees, other
real estate owned costs, telephone costs and general increases in other
miscellaneous expenses related to the growth of the Company.
Non-interest expense as a percentage of net interest income was 86%
compared to 85% in 1993. However, this increase was expected due to the
opening of the new office facilities.
28
<PAGE> 29
INCOME TAXES
The Company's provision for income taxes for 1995 and 1994 was $398,000
and $306,000, respectively. The 30% increase in the income tax expense was due
primarily to the increase in income before income taxes and the reduction of
the valuation allowance on the deferred tax asset. The Company's net deferred
tax asset at December 31, 1995, of $107,000 is comprised primarily of temporary
differences relating to the excess of book over tax provision for credit losses
excess of tax over book depreciation and the accrual to cash basis conversion.
RETURN ON EQUITY AND ASSETS
The following table sets forth the Company's performance ratios for the
periods indicated:
<TABLE>
<CAPTION>
At December 31,
1995 1994
----- ----
<S> <C> <C>
Return on average assets .88% .86%
Return on average equity 10.68% 9.93%
Dividend payout ratio 7.35% 8.40%
Average equity to average total assets 8.28% 8.69%
</TABLE>
LIQUIDITY
Liquidity management encompasses the maintenance of cash or liquid assets
sufficient to fund the normal volume of deposit withdrawals and loan
commitments. The maintenance of an appropriate level of liquid resources to
meet not only regulatory requirements but also to provide the funding
necessary to meet the Bank's business activities is integral to the
successful management of the Bank's assets.
The Bank's primary sources of funds are customer deposits, principal and
interest payments on loans and principal paydowns on mortgage-backed
securities, maturities of investment securities and net earnings. Additional
funds may be derived from the proceeds of borrowings. The Bank currently has
available federal funds lines of credit for $8 million and repurchase
agreements in excess of $1 million to meet short term liquidity needs.
During 1995, the Bank experienced an increase in loan demand. At December
31, 1995, the net loan-to-deposit ratio was 85% compared to 79% at December 31,
1994. The increase in loan volume was funded primarily by the increased
dollars in certificates of deposit along with principal paydowns and
non-invested funds from the maturity/calls and sales of mortgage-backed and
investment securities.
29
<PAGE> 30
CAPITAL RESOURCES
During 1995 the Company experienced minor capital expenditures associated
with the addition to the lobby of the main office location to accommodate the
customer's waiting area and the division of one large office to provide space
for an additional lending officer. Management believes that its capital is
sufficient to provide for the level of growth budgeted for 1996.
The OCC has adopted risk-based capital guidelines for banks. The
risk-based capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Under these guidelines, assets and
off-balance sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items. The
guidelines require all bank holding companies to maintain a minimum risk-based
capital ratio of 8.0%, of which 4.0% must be Tier 1 capital. The FDIC has
adopted comparable risk-based capital guidelines. Following is an analysis of
the Bank's compliance with these guidelines at December 31, 1995:
<TABLE>
<CAPTION>
RISK BASED CAPITAL: COMPANY BANK
------------- ------------
<S> <C> <C>
Tier I Capital:
Common stockholders' equity,
less intangible assets $ 7,390,000 $7,283,000
Tier II Capital:
Allowable allowance
for credit loss 490,000 490,000
----------- ----------
Total capital $ 7,880,000 $7,773,000
=========== ==========
Risk-weighted assets $60,923,000 $60,891,000
=========== ===========
RISK-BASED CAPITAL RATIOS:
Tier I Capital 12.13% 11.96%
Total risk-based capital 12.93% 12.77%
Leverage ratio 8.87% 8.75%
</TABLE>
The OCC requires that all national banks maintain "core" or "Tier 1"
capital of at least 3% of total assets. The OCC rules further provide that a
national bank operating at or near the 3% capital level is expected to have
well diversified risks, including no undue interest rate risk exposure;
excellent control systems; good earnings; high asset quality; high liquidity;
and well managed on- and off-balance sheet activities; and, in general, be
considered a strong banking organization with a composite 1 rating under the
CAMEL rating system for banks. For all but the most
30
<PAGE> 31
highly rated banks meeting the above conditions, the minimum leverage
requirement will be increased to up to 5% of total assets.
Management is unaware of any current recommendations or proposed
recommendations by any regulatory authority which, if implemented, would have a
significant effect on the Company's liquidity, capital resources or operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In December, 1991, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures
About Fair Value of Financial Instruments." SFAS No. 107 requires disclosures
about the fair value of financial instruments and the methods and assumptions
used to estimate fair value. Included in the definition of financial
instruments are investment and mortgage-backed securities, loans, deposit
liabilities and unfunded loan commitments. SFAS No. 107 was adopted by the
Company on January 1, 1995.
In May, 1993 and October, 1994, FASB issued Statement of Financial
Accounting Standards Nos. 114, "Accounting by Creditors for Impairment of a
Loan" (SFAS No. 114) and 118, "Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosures" (SFAS No. 118), respectively. SFAS No.
114 requires that impaired loans be measured based on 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 fair value of the collateral if
the loan is collateral dependent. SFAS No. 114 indicates that a creditor
should evaluate the collectibility of both contractual interest and contractual
principal of all receivables when assessing the need for a loss accrual. SFAS
No. 118 amends SFAS No. 114 to allow a creditor to use existing methods for
recognizing interest income on an impaired loan rather than the methods
prescribed in SFAS No. 114. SFAS Nos. 114 and 118 are effective for financial
statements for fiscal years beginning after December 15, 1994. The adoption of
SFAS No. 114 and No. 118 resulted in no change to the allowance for credit
losses at January 1, 1995.
In May, 1995, the FASB issued Statement of Financial Accounting Standards
No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS No. 122"). SFAS No.
122 amends SFAS 65, "Accounting for Certain Mortgage Banking Activities," to
require that a mortgage banking enterprise recognize an asset for rights to
service mortgage loans for others regardless of the manner in which those
servicing rights are acquired. It also requires an enterprise to assess its
capitalized mortgage servicing rights for impairmnt based on the fair value of
those rights. In assessing impairment, mortgage servicing rights that are
capitalized after the adoption of this Statement should be stratified based on
one or more of the predominant risk characteristics of the underlying loans.
Impairment should then be recognized through a valuation allowance for each
impaired stratum. SFAS No. 122 will apply to the Company for its fiscal year
beginning after December 15, 1995. Management believes that the adoption of
the SFAS No. 122 will not have a material impact on the financial position of
the Company.
31
<PAGE> 32
The Company has not retained the servicing for its mortgage loans sold,
therefore, the Company does not anticipate the adoption of the Statement to
have any impact on the Company's financial statements.
In October, 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which is effective for the Company beginning January
1, 1996. SFAS No. 123 provides an alternative method of accounting for
stock-based compensation arrangements based on fair value of the stock-based
compensation determined by an option pricing model utilizing various assumptions
regarding the underlying attributes of the options in the Company's stock rather
than the existing method of accounting for stock-based compensation which is
provided in APB Opinion No. 25, "Accounting for Stock Issued to Employees." The
FASB encourages entities to adopt the fair value based method but does not
require the adoption of this method. For those entities that continue to apply
APB Opinion No. 25, pro forma disclosures of the effects, if adopted, of SFAS
No. 123 on net income and earnings per share would be required in the 1996
financial statements. The Company intends to continue to apply APB No. 25 and,
therefore, there will be no impact on the consolidated financial position or
consolidated results of operations.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are filed with this report:
Report of Independent Accountants
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Operations - Years Ended December 31, 1995 and 1994
Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1995
and 1994
Consolidated Statements of Cash Flows - Years Ended December 31, 1995 and 1994
Notes to Consolidated Financial Statements
32
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Heritage Bancshares, Inc. and Subsidiary
Fort Myers, Florida
We have audited the accompanying consolidated balance sheets of Heritage
Bancshares, Inc. and Subsidiary at December 31, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Heritage
Bancshares, Inc. and Subsidiary at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
As discussed in Note 4 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting
by Creditors for Impairment of Loan," and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures," as of
January 1, 1995.
Fort Myers, Florida
January 19, 1996
33
<PAGE> 34
HERITAGE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
Cash and due from banks $ 6,651,823 $ 3,160,064
Federal funds sold 5,955,000 200,000
Mortgage loans held for sale 887,627 627,328
Investment securities held to maturity 0 6,458,065
Investment securities available for sale 6,014,483 4,382,530
Mortgage-backed securities available for sale 2,826,014 3,885,858
Loans (net of allowances for loan losses and
deferred loan fees of $487,867 in 1995 and
$430,283 in 1994) 62,218,629 53,798,194
Premises and equipment, net 2,750,776 2,721,983
Other assets 866,321 1,170,110
----------- -----------
Total assets $88,170,673 $76,404,132
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $73,896,799 $67,807,938
Securities sold under agreement to
repurchase 6,281,169 1,846,103
Other liabilities 617,098 326,433
----------- -----------
Total liabilities 80,795,066 69,980,474
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock, $1 par value per
share, 10,000,000 shares
authorized, 543,972 and 531,472
shares issued and outstanding 543,972 531,472
Additional paid-in capital 4,851,710 4,739,210
Unrealized holding loss on investment
securities available for sale, net (13,882) (158,250)
Retained earnings 1,993,807 1,311,226
----------- -----------
Total stockholders' equity 7,375,607 6,423,658
=========== ===========
Total liabilities and stockholders'
equity $88,170,673 $76,404,132
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 35
HERITAGE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Interest income
Interest on loans $5,318,128 $4,256,114
Interest on investment
securities, taxable 525,825 469,500
Interest on mortgage-backed
securities, taxable 250,812 282,481
Interest on federal funds sold 316,139 192,087
Other interest income 10,529 0
---------- ----------
Total interest income 6,421,433 5,200,182
---------- ----------
Interest expense
Interest on deposits 2,709,987 1,931,934
Interest on short-term borrowings 133,344 66,150
---------- ----------
Total interest expense 2,843,331 1,998,084
---------- ----------
Net interest income 3,578,102 3,202,098
Provision for credit losses 187,000 24,722
---------- ----------
Net interest income after
provision for loan losses 3,391,102 3,177,376
Other income 530,806 521,386
Other expenses 2,786,930 2,761,793
---------- ----------
Income before income taxes 1,134,978 936,969
Provision for income taxes 398,000 306,000
---------- ----------
Net income $ 736,978 $ 630,969
=========== ==========
Earnings per share $ 1.36 $ 1.19
=========== ==========
Weighted average number of shares
outstanding 542,910 531,472
=========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
35
<PAGE> 36
HERITAGE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
UNREALIZED
HOLDING GAIN
(LOSS) ON
INVESTMENT TOTAL
COMMON STOCK ADDITIONAL SECURITIES STOCK-
PAR PAID-IN AVAILABLE FOR RETAINED HOLDERS'
SHARES VALUE CAPITAL SALE, NET EARNINGS EQUITY
------ ----- --------- -------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1993 531,472 $531,472 $4,739,210 $ 0 $ 733,404 $6,004,086
Cumulative effect
on prior year's
retained earn-
ings for adop-
tion of SFAS
115 0 0 0 103,921 0 103,921
$.10 cash
dividends 0 0 0 0 (53,147) (53,147)
Unrealized
holding loss
securities
available for
sale, net 0 0 0 (262,171) 0 (262,171)
Net income 0 0 0 0 630,969 630,969
------- -------- ---------- -------- ---------- ----------
Balances at
December 31,
1994 531,472 531,472 4,739,210 (158,250) 1,311,226 6,423,658
Common stock
issued 12,500 12,500 112,500 0 0 125,000
$.10 cash
dividends 0 0 0 0 (54,397) (54,397)
Unrealized
holding gain
on securities
available for
sale, net 0 0 0 144,368 0 144,368
Net income 0 0 0 0 736,978 736,978
------- -------- ---------- -------- ---------- ----------
Balances at
December 31,
1995 543,972 $543,972 $4,851,710 $(13,882) $1,993,807 $7,375,607
======= ======== ========== ======== ========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
36
<PAGE> 37
HERITAGE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 6,529,380 $ 5,067,768
Service charges and fees received 298,107 236,335
Cash paid to employees and suppliers (3,169,355) (2,523,510)
Proceeds from mortgage loans sold 8,732,900 11,209,293
Origination of mortgage loans held for sale (8,202,117) (9,341,950)
Interest paid (2,714,761) (1,988,357)
Income taxes paid (403,000) (618,235)
----------- -----------
Net cash provided by operating activities 1,071,154 2,041,344
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities available
for sale 0 (3,240,150)
Purchase of investment securities held
to maturity (993,500) (3,447,188)
Maturities of investment securities
available for sale 3,250,000 500,000
Maturities of investment securities held
to maturity 1,600,000 550,000
Proceeds from the sale of investment
securities available for sale 995,000 0
Proceeds from the sale of mortgage-backed
securities available for sale 831,752 4,268,203
Proceeds from the principal reduction of
mortgage-backed securities available
for sale 474,831 1,019,562
Acquisition of premises and equipment (159,966) (218,016)
Sale of premises and equipment 0 1,324
Net loans to customers (8,834,291) (7,944,614)
Proceeds on sale of other real estate owned 417,249 66,189
----------- -----------
Net cash used in investing activities (2,418,925) (8,444,690)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, NOW, money market and
savings deposits 622,145 4,663,034
Net increase in certificates of deposits 5,466,716 297,947
Net increase in repurchase agreement 4,435,066 659,683
Proceeds from exercise of warrants 125,000 0
Dividends paid to stockholders (54,397) (53,147)
----------- -----------
Net cash provided by financing
activities 10,594,530 5,567,517
----------- -----------
Net increase (decrease) in cash and
cash equivalents 9,246,759 (835,829)
Cash and cash equivalents at beginning of
year 3,360,064 4,195,893
----------- -----------
Cash and cash equivalents at end of year $12,606,823 $ 3,360,064
=========== ===========
</TABLE>
(continued)
The accompanying notes are an integral part of these financial statements.
37
<PAGE> 38
HERITAGE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
years ended December 31, 1995 and 1994
(continued)
<TABLE>
<CAPTION>
1995 1994
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 736,978 $ 630,969
---------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income tax provision (63,000) 26,000
Depreciation 131,173 109,308
Amortization of organization costs 0 21,269
Amortization of premium on mortgage-backed securities 16,959 4,709
Gain on sale of securities (13,964) (58,760)
Gain on sale of other real estate owned (68,999) 0
Accretion of discount on investment securities (42,271) (14,246)
Provision for credit losses 187,000 24,722
Loss on disposal of assets 0 591
Decrease in net deferred loan fees (5,581) (7,028)
Decrease in other assets 250,977 2,181,432
Increase (decrease) in other liabilities 202,181 (250,299)
Increase in loans held for sale (260,299) (627,323)
---------- ---------
Total adjustments 334,176 1,410,375
---------- ---------
Net cash provided by operating activities $1,071,154 $ 2,041,344
========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
During 1995 and 1994, the Company received other real estate owned of
$232,437 and $467,273, respectively, in exchange for loans receivable.
The accompanying notes are an integral part of these financial statements.
38
<PAGE> 39
HERITAGE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Heritage Bancshares, Inc. (Company) was incorporated on June 23, 1988 for
the purpose of forming Heritage National Bank (Bank), a wholly owned
subsidiary, and to conduct business as a bank holding company in Florida.
The Bank received all required regulatory approvals and opened for business
on July 17, 1989. The Bank is chartered as a national banking
institution.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of the Company and the Bank conform
to generally accepted accounting principles and to general practice within
the financial institution industry. Following is a description of the more
significant of those policies:
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary, Heritage
National Bank, collectively referred to herein as the Company. All
significant intercompany accounts and transactions have been eliminated.
INVESTMENT AND MORTGAGE-BACKED SECURITIES: Investment and mortgage-backed
securities are classified in the following categories:
HELD TO MATURITY - Securities that management has the intent and the
Company has the ability at the time of purchase to hold until maturity
are classified as securities held to maturity. Securities in this
category are carried at amortized cost adjusted for accretion of
discounts and amortization of premiums over the estimated life of the
securities. If a security has a decline in fair value below its
amortized cost that is other than temporary, then the security will be
written down to its new cost basis by recording a loss in the
consolidated statement of operations.
AVAILABLE FOR SALE - Securities to be held for indefinite periods of time
and not intended to be held to maturity are classified as available for
sale. Assets included in this category are those assets that management
intends to use as part of its asset/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. Securities available for sale are recorded at
fair value. Both unrealized holding gains and losses on securities
available for sale, net of taxes, are included as a separate component of
stockholders' equity in the consolidated balance sheets until these gains
or losses are realized. The cost of investment securities sold is
determined by the specific identification method. If a security has a
decline in fair value that is other than temporary, then the security
will be written down to its fair value by recording a loss in the
consolidated statement of operations.
39
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INVESTMENT AND MORTGAGE-BACKED SECURITIES, CONTINUED
TRADING SECURITIES - Securities that are held principally for the purpose
of selling in the near future are classified as trading securities.
These securities are recorded at fair value. Both unrealized gains and
losses are included in the consolidated statement of income. The Company
currently has no securities classified as trading securities.
LOANS: Loans are carried at the principal amount outstanding, net of
deferred loan fees and costs. Interest is accrued on a simple-interest
basis. The allowance for credit losses is established through a provision
for credit losses charged to expense. Loans, including impaired loans, are
charged against the allowance for loan losses when management believes that
the collectibility of the principal is unlikely.
ALLOWANCE FOR CREDIT LOSSES: The Company adopted Statement of Financial
Accounting Standards No. 114 "Accounting by Creditors for Impairment of a
Loan," (SFAS No. 114) and Statement of Financial Accounting Standards No.
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures" (SFAS No. 118) on January 1, 1995. Under SFAS Nos. 114
and 118, a loan is considered impaired, based on current information and
events, if it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. The measurement of impaired loans
is generally based on the present value of expected future cash flows
discounted at the historical effective interest rate, except that all
collateral-dependent loans are measured for impairment based on the fair
value of the collateral. The adoption of SFAS No. 114 resulted in no
change to the allowance for credit losses at January 1, 1995.
The allowance is an amount that management believes will be adequate to
absorb possible losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and prior credit loss
experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, concentrations of credit and
current economic conditions that may affect the borrowers' ability to pay.
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts,
that the borrowers' financial condition is such that collection of interest
is doubtful. Classification of a loan as nonaccrual is not necessarily
indicative of a potential loss of principal.
LOAN FEES: Loan origination and commitment fees and certain direct loan
origination costs are deferred. Net deferred loan fees are amortized to
interest income using the interest method over the life of the related
loan.
40
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
MORTGAGE LOAN SALES: The Company sells real estate mortgage loans in the
secondary market as part of normal operations. All loans sold are subject
to a recourse provision that relates to documentation deficiencies only,
which the Company may correct. Such loans are valued at the lower of cost
or market as determined by outstanding commitments from investors or
current investor yield requirements. Gains or losses resulting from sales
are recognized in the period the sale occurs, as the recourse provision is
not considered to significantly affect the earnings process.
PREMISES AND EQUIPMENT: Land is carried at cost. Buildings, building
improvements, furniture and equipment are carried at cost, less accumulated
depreciation. Depreciation is computed using the straight-line method over
the estimated useful lives of the related assets. Major improvements and
betterments of property are capitalized. Maintenance, repairs and minor
improvements are expensed as incurred. Upon retirement or other
disposition of the assets, the cost and the related accumulated
depreciation is removed from the accounts and any gains or losses are
included in income.
OTHER REAL ESTATE OWNED: Other real estate owned includes properties
acquired through foreclosure or acceptance of deeds in lieu of foreclosure.
These properties are recorded on the date acquired at the lower of fair
value less estimated costs to sell or the recorded investment in the
related loan. If the fair value less estimated costs to sell the property
acquired is lower than the recorded investment in the related loan, the
resulting loss is charged to the allowance for loan losses. The resulting
carrying value established at the date of foreclosure becomes the new cost
basis for subsequent accounting. After foreclosure, if the fair value less
estimated costs to sell the property is lower than its cost, the deficiency
is charged to the provision for losses on other real estate owned. Costs
relating to the development and improvement of the property are
capitalized, whereas those relating to holding the property for sale are
charged to expense.
The amount of other real estate owned included in other assets was
approximately $104,000 and $452,000 at December 31, 1995 and 1994,
respectively.
INCOME TAXES: The Company and its banking subsidiary file consolidated
income tax returns. Deferred tax assets or liabilities are computed based
on the difference between the financial statement and income tax bases of
assets and liabilities using the enacted marginal tax rate. Deferred
income tax expenses or credits are based on the changes in the asset or
liability from period to period. The effect on deferred income taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date.
SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE: The Company has entered
into agreements with various customers whereby the Company sells certain
securities in its portfolio to the customer on a daily revolving basis and
agrees to repurchase said securities at carrying value plus interest.
41
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
STATEMENT OF CASH FLOWS: For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks and federal
funds sold. Federal funds are generally acquired and held for one-day
periods.
EARNINGS PER SHARE: Earnings per share have been computed by dividing net
income by the weighted average number of common shares outstanding each
year. Common stock equivalents in the form of outstanding common stock
options and warrants are not included due to the immaterial impact on
dilution of earnings per share.
FUTURE ACCOUNTING REQUIREMENTS: In October 1995, Statement of Financial
Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based
Compensation," was issued and is effective for the Company beginning
January 1, 1996. SFAS No. 123 provides an alternative method of accounting
for stock-based compensation arrangements, based on fair value of the
stock-based compensation determined by an option pricing model utilizing
various assumptions regarding the underlying attributes of the options and
the Company's stock, rather than the existing method of accounting for
stock-based compensation which is provided in Accounting Practices Bulletin
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25).
Entities are encouraged to adopt the fair value based method, but are not
required to do so. For those entities that continue to apply APB 25, pro
forma disclosure of the effects, if adopted, of SFAS No. 123 on net income
and earning per share would be required in the 1996 financial statements.
The Company will continue to apply APB 25 and, therefore, there will be no
impact on the consolidated financial position and consolidated results of
operations.
Statement of Financial Accounting Standards No. 121 (SFAS No. 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 fiscal years beginning January
1, 1996. SFAS No. 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 asset may not be recoverable. In performing the
review for recoverability, the entity should estimate the future cash flows
expected to result from the use of the asset and its eventual disposition.
If the sum of the expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the asset, an
impairment loss is recognized. Measurement of an impairment loss for
long-lived assets and identifiable intangibles that an entity expects to
hold and use should be based on the fair value of the asset. Management
does not anticipate that the adoption of SFAS No. 121 will have a material
impact on the Company.
RECLASSIFICATIONS: Certain amounts in the 1994 financial statements have
been reclassified to conform to the current year presentation. These
reclassifications have no effect on the net income or stockholders' equity
balances previously reported.
42
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. INVESTMENT AND MORTGAGE-BACKED SECURITIES:
The amortized cost and fair value of investment and mortgage-backed
securities at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Held to Maturity:
None $ 0 $ 0 $ 0 $ 0
=========== ========= ========== ============
Available for Sale:
U.S. Treasury securities $ 2,742,801 $ 14,467 $ 0 $ 2,757,268
U.S. Government securities 2,898,607 963 (75,705) 2,823,865
Federal Reserve Bank stock 156,950 0 0 156,950
Federal Home Loan Bank stock 276,400 0 0 276,400
----------- -------- ---------- -----------
Total Investment securities $ 6,074,758 $ 15,430 $ (75,705) $ 6,014,483
=========== ======== ========== ===========
Mortgage-backed securities $ 2,788,129 $ 37,885 $ 0 $ 2,826,014
=========== ======== ========== ===========
December 31, 1994
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Held to Maturity:
U.S. Treasury securities $ 2,460,381 $ 0 $ (41,539) $ 2,418,842
U.S. Government agencies 3,997,684 0 (210,218) 3,787,466
----------- -------- --------- -----------
$ 6,458,065 $ 0 $(251,757) $ 6,206,308
=========== ======== ========= ===========
Available for Sale:
U.S. Treasury securities $ 3,991,072 $ 0 $ (41,892) $ 3,949,180
Federal Reserve Bank stock 156,950 0 0 156,950
Federal Home Loan Bank stock 276,400 0 0 276,400
----------- -------- --------- -----------
Total Investment securities $ 4,424,422 $ 0 $ (41,892) $ 4,382,530
=========== ======== ======== ===========
Mortgage-backed securities $ 4,099,208 $ 0 $(213,350) $ 3,885,858
=========== ======== ======== ===========
</TABLE>
43
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. INVESTMENT AND MORTGAGE-BACKED SECURITIES, CONTINUED
The Company's investment and mortgage-backed securities which are available
for sale are recorded at fair value. Unrealized holding gains and losses
on securities available for sale, net of taxes, are shown as a separate
component of stockholders' equity on the consolidated balance sheet. At
December 31, 1995 and 1994, an unrealized loss of $22,390 and $255,242, net
of a tax effect of $13,882 and $96,992, respectively, was shown as a
decrease of stockholders' equity.
The amortized cost and fair value of investment securities at December 31,
1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Held to Maturity:
None $ 0 $ 0
=========== ===========
Available for Sale:
One year or less $ 2,742,801 $ 2,757,268
One to five years 2,898,607 2,823,865
Five to ten years 0 0
Due after ten years 433,350 433,350
----------- -----------
Total debt
securities 6,074,758 6,014,483
Mortgage-backed
securities 2,788,129 2,826,014
----------- -----------
$ 8,862,887 $ 8,840,497
=========== ===========
</TABLE>
At December 31, 1995, available for sale securities with a carrying value of
$586,309 and a market value of $575,710 were pledged as collateral for the
Company's treasury, tax and loan account, as well as for securities sold under
agreements to repurchase. The current value of the pledged securities is
adequate to meet the pledging requirements.
In November 1995, FASB issued a Special Report entitled "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." This Special Report allowed companies a one time
opportunity to reassess its classification of certain investments. As a result
of this opportunity, the Company has transferred all of its held to maturity
investments to available for sale. The amortized cost of the investments
transferred was $5,879,079 and the unrealized loss was $79,859.
44
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. LOANS AND ALLOWANCE FOR CREDIT LOSSES:
The Company's loan portfolio consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Commercial (including commercial real estate) $14,131,147 $12,588,359
Real estate mortgage 37,761,489 29,537,514
Real estate construction 7,593,965 9,116,556
Installment 3,219,895 2,986,048
----------- -----------
62,706,496 54,228,477
----------- -----------
Less:
Allowance for credit losses (490,373) (427,208)
Net deferred loan fees 2,506 (3,075)
----------- -----------
(487,867) (430,283)
----------- -----------
Loans, net $62,218,629 $53,798,194
=========== ===========
An analysis of the Company's allowance for credit losses is as follows:
Balance at beginning of year $ 427,208 $ 474,758
Provision charged to operations 187,000 24,722
Loans charged off (125,685) (63,921)
Recoveries of loans charged off 1,850 11,649
Reclassification to allowance for expenses
relating to other real estate owned 0 (20,000)
----------- -----------
Balance at end of year $ 490,373 $ 427,208
=========== ===========
</TABLE>
At December 31, 1995 and 1994, the Company had approximately $667,000 and
$385,000 in nonaccrual loans, respectively. For the years ended December 31,
1995 and 1994, the amount of interest income not recorded related to nonaccrual
loans was approximately $39,000 and $16,000, respectively.
At December 31, 1995, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS No. 114 totaled $877,000, with specific
valuation allowances totaling $93,000. For the year ended December 31, 1995,
the average recorded investment in impaired loans was approximately $600,000.
The Company recognized approximately $13,000 of interest on impaired loans
during the portion of the year that they were impaired, using the cash basis
method.
45
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. PREMISES AND EQUIPMENT:
Premises and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Land and land improvements $ 1,406,929 $ 1,390,218
Buildings and building improvements 1,115,717 1,087,141
Furniture, fixtures and equipment 667,617 552,937
----------- -----------
3,190,263 3,030,296
Less accumulated depreciation (439,487) (308,313)
---------- -----------
$ 2,750,776 $ 2,721,983
=========== ===========
6. DEPOSITS:
Deposits consisted of the following at December 31:
1995 1994
Non-interest-bearing demand deposits $10,660,341 $10,464,022
----------- -----------
Interest-bearing deposits:
NOW 11,242,078 10,050,808
Money market 10,038,267 10,177,553
Savings 5,722,562 6,348,721
Certificates of deposit 36,308,293 30,766,834
----------- -----------
Total interest-bearing
deposits 63,311,200 57,343,916
----------- -----------
Total deposits $73,971,541 $67,807,938
=========== ===========
</TABLE>
The aggregate amount of certificates of deposit of $100,000 or more at
December 31, 1995 and 1994 was $9,969,000 and $10,035,000, respectively.
Interest on deposits was as follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <S> <S>
NOW $ 169,377 $ 153,038
Money market 269,401 263,996
Savings 162,392 160,943
Certificates of
deposit 2,108,817 1,353,957
---------- ----------
$2,709,987 $1,931,934
========== ==========
</TABLE>
46
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. OTHER INCOME:
A summary of other income is as follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Service charges and fees $298,107 $236,335
Gain on sale of mortgage loans 149,736 226,291
Gain on sale of securities 13,963 58,760
Gain on sale of OREO 69,000 0
-------- --------
$530,806 $521,386
======== ========
8. OTHER EXPENSES:
A summary of other expenses is as follows for the years ended December 31:
1995 1994
Salaries and employee benefits $1,432,446 $1,383,631
Net occupancy expense of premises 252,390 219,943
Furniture and equipment 240,285 225,351
Insurance and taxes 145,394 216,233
Printing, postage and supplies 123,465 130,369
Professional fees 120,015 101,430
Data processing 104,825 94,150
Advertising and public relations 61,420 68,047
Other 306,690 313,985
---------- ----------
$2,786,930 $2,753,139
========== ==========
9. INCOME TAXES:
The Company's provision for income taxes consisted of the following for the
years ended December 31:
1995 1994
Current
Federal $ 416,000 $ 265,000
State 45,000 15,000
--------- ---------
Total current 461,000 280,000
--------- ---------
Deferred
Federal (54,000) 23,000
State (9,000) 3,000
--------- ---------
Total deferred (63,000) 26,000
--------- ---------
Total $ 398,000 $ 306,000
========= =========
</TABLE>
47
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. INCOME TAXES, CONTINUED
Deferred income taxes consisted of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Provision for credit losses $ (24,000) $ 2,000
Adjustment for conversion from accrual
basis accounting to cash basis accounting (40,000) 24,000
Accrued interest on short-term obligations 0 26,000
Valuation allowance on deferred tax asset (43,000) (47,000)
Depreciation and amortization 10,000 23,000
Other 34,000 (2,000)
--------- ---------
Total deferred income taxes $ (63,000) $ 26,000
========= =========
Company's effective income tax rate varies from the statutory federal
income tax rate for the following reasons:
YEARS ENDED DECEMBER 31
---------------------------
1995 1994
Income tax expense at statutory
federal rate $ 386,000 $ 303,000
State income taxes, net of federal tax
benefit 30,000 11,000
Valuation allowance on deferred tax asset (43,000) 0
Other 25,000 (8,000)
--------- ---------
Income tax expense $ 398,000 $ 306,000
========= =========
Included in other assets at December 31, 1995, is a net deferred tax asset
of $107,000. The tax effects of the temporary differences that comprise
the net deferred tax asset are as follows:
1995 1994
Deferred tax assets:
Provision for credit losses $ 162,000 $ 127,000
Accrued interest on short-term obligations 0 20,000
Unamortized start-up costs 0 5,000
Deferred compensation 20,000 13,000
Other 12,000 8,000
Valuation allowance 0 (43,000)
--------- ---------
194,000 130,000
--------- ---------
Deferred tax liabilities:
Depreciation (49,000) (40,000)
Accrual to cash basis conversion (38,000) (90,000)
--------- ---------
(87,000) (130,000)
--------- ---------
Net deferred tax asset $ 107,000 $ 0
========= =========
</TABLE>
48
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. RELATED PARTY TRANSACTIONS:
Some of the Directors of the Company are also owners or executive officers
in other business organizations. The Company has made loans to these
individuals and related companies, as well as to executive officers of the
Company. Aggregate loans to these related parties, exclusive of loans to
such persons which, in aggregate, do not exceed $60,000 were as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Balance at beginning of year $ 4,103,155 $ 3,250,518
New loans 1,198,367 2,434,843
Repayment of loans (1,203,401) (1,582,206)
----------- -----------
Balance at end of year $ 4,098,121 $ 4,103,155
=========== ===========
</TABLE>
A member of the Company's Board of Directors is a partner in a law firm that
provides legal services to the Company. The Company recorded legal expense for
services provided by this law firm of approximately $44,000 and $17,000 for the
years ended December 31, 1995 and 1994, respectively.
11. EMPLOYEE BENEFIT PLANS:
The Company has a savings plan (Plan) under Section 401(k) of the Internal
Revenue Code for all eligible employees. The Plan allows employees to
defer up to 17% of their income on a pretax basis through contributions to
the Plan. In accordance with the provisions of the Plan, for every dollar
the employee contributes, the Company may elect to match each participant's
contribution in an amount equal to a percentage of the participant's
deferral. The matching percentage will be determined each year by the
Company's Board of Directors. For the years ended December 31, 1995 and
1994, the Company recorded expense for matching contributions of
approximately $24,000 and $23,000, respectively.
During 1990, the Company's Board of Directors adopted an Employee Stock
Option Plan (Option Plan). Under the Option Plan, eligible employees may
be granted options to purchase a total of 26,500 shares of the Company's
common stock. The Option Plan provides that the exercise price shall be
determined by the Board of Directors, but may not be less than the greater
of the par value or fair market value at date of grant. Stock options
granted are not transferable and expire if the employee is terminated for
cause or if the option is not exercised within three months following the
death of an employee. A participating employee has the right to exercise
up to 40% of the total options granted after completion of two years of
employment. For each year thereafter, the participant may exercise 20% of
the options granted. If an employee terminates employment before becoming
fully vested, remaining options are forfeited and will be allocated by the
Board of Directors to future participating employees.
49
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. EMPLOYEE BENEFIT PLANS, CONTINUED
A summary of options granted under the stock option plan is as follows:
<TABLE>
<CAPTION>
OPTIONS
GRANTED
YEAR OPTION AND
GRANTED PRICE OUTSTANDING
- ------- ------ -----------
<S> <C> <C>
1990 $10.00 3,300
1991 $10.00 3,290
1992 $10.00 3,220
1993 $10.00 3,200
1994 $10.00 2,200
------
16,210
======
</TABLE>
All options granted under the stock option plan are exercisable at December
31, 1995. No options have been exercised as of December 31, 1995.
In addition, in May 1995 an officer of the Bank was granted options to
acquire 2,500 shares of the Company's common stock at an exercise price
of $12.00 per share beginning July 1, 1995. No options have been
exercised as of December 31, 1995.
12. COMMITMENTS AND CONTINGENT LIABILITIES:
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with its President and
Executive Vice President extending through December 31, 1998. The
agreements provide for an annual base salary, plus performance bonuses
for each year covered.
Through December 31, 1995, based upon the level of annual performance
targets met, each of the individuals received an option to purchase a
specified number of shares of common stock. Each option granted is
exercisable at December 31, 1995 and expires seven years from the date
of grant. A summary of options granted pursuant to the employment
agreements is as follows:
<TABLE>
<CAPTION>
OPTIONS
YEAR OPTION GRANTED AND
GRANTED PRICE OUTSTANDING
------- ------ -----------
<S> <C> <C>
1991 $10.00 12,000
1992 $10.00 6,000
1993 $10.50 2,000
1994 $10.50 1,639
1995 $12.50 1,689
------
23,328
======
</TABLE>
50
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. COMMITMENTS AND CONTINGENT LIABILITIES, CONTINUED
EMPLOYMENT AGREEMENTS, CONTINUED
No options have been exercised as of December 31, 1995.
In addition, if there is a change in control of the Bank (as defined in
the agreement), each of the individuals shall have the right to purchase
any remaining years' option in addition to receiving a cash payment equal
to 100% of the base salary received by the employee in the one-year
period immediately preceding the change in control.
DEFERRED COMPENSATION AGREEMENTS
The Company has entered into deferred compensation agreements with its
President and Senior Vice President/Cashier. The agreements provide
that the President and Senior Vice President/Cashier may elect to defer
up to $15,000 and $10,000, respectively, of annual compensation or such
greater amounts as approved by the Board of Directors. The amounts of
compensation deferred are deposited in separate accounts maintained by
the Company. All amounts credited to such accounts earn interest at
stated contract rates. The agreements also provide that the individuals
may direct the Company to use the amounts on deposit in their respective
deferred compensation accounts to pay premiums on life insurance policies
which would be owned by and payable to the Company. Upon termination of
employment or death, all amounts credited to the individual's deferred
compensation account, together with the value of any life insurance
policy, would be distributed to the individual or his beneficiary.
Normal retirement benefits are to be paid either in lump-sum or in
substantially equal consecutive monthly installments over a period of not
more than ten years.
Total compensation deferred by the President for the years ended December
31, 1995 and 1994 was approximately $15,000 and $11,000, respectively.
Total compensation deferred by the Senior Vice President/Cashier for the
years ended December 31, 1995 and 1994 was approximately $4,000 and
$4,000, respectively.
LEASES
The Company leases various furniture and equipment under noncancelable
operating leases. The approximate future minimum rental payments
required under leases with remaining terms in excess of one year, by year
and in the aggregate, are as follows at December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 98,000
1997 65,000
1998 56,000
1999 19,000
--------
Total $238,000
========
</TABLE>
Total rent expense for the years ended December 31, 1995 and 1994 was
approximately $84,000 and $96,000, respectively.
51
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. STOCK WARRANTS:
In connection with the Company's stock offering each of the organizers were
granted warrants to purchase one-half of one share of the Company's common
stock at a price of $10 per share for each share of common stock purchased
by them. The warrants are nontransferable and are exercisable in whole or
in part for a period of 10 years commencing July 17, 1989. Warrants not
exercised during this 10 year period become null and void. 12,500 warrants
were exercised during the year ended December 31, 1995.
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. These commitments relate primarily
to unused equity lines of credit with an average life of 5 years and
unfunded construction loans and commercial lines of credit, which normally
expire within one year. The average interest rates were 8-9% for these
commitments. These instruments involve to varying degrees, elements of
credit risk and interest rate risk in excess of the amount recognized in
the consolidated balance sheets.
The Company's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments. The contract amount of financial instruments with off-balance
sheet risk at December 31 is as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Loan commitments $6,969,402 $9,559,678
Standby letters of credit 403,419 280,780
---------- ----------
$7,372,821 $9,840,458
========== ==========
</TABLE>
Since many of the loan commitments may expire without being drawn upon, the
total commitment amount does not necessarily represent future cash
requirements. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral required, if deemed necessary, is based on management's credit
evaluation of the customer. Collateral varies, but may include accounts
receivable, inventory, fixed assets, residential and commercial real estate.
52
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK, CONTINUED
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. When deemed necessary,
the Company holds collateral which may include accounts receivable,
inventory, fixed assets, residential and commercial real estate.
The Company makes consumer, commercial and residential loans to customers
located in Southwest Florida. The Company has no significant concentration
of credit risk with any individual counterparty to originate loans.
However, a substantial portion of the Company's loan portfolio is
collateralized by real estate located in Southwest Florida.
15. FAIR VALUES OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" (SFAS No. 107), requires that the
Company disclose estimated fair values for its financial instruments. Fair
value is defined as the price at which a financial instrument could be
liquidated in an orderly manner over a reasonable time period under present
market conditions. Fair value estimates, methods and assumptions are set
forth below for the Company's financial instruments.
CASH AND DUE FROM BANKS: For cash and due from banks, the carrying amount
is a reasonable estimate of fair value.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES: The fair value of investments
and mortgage-backed securities is estimated based on bid prices published
in financial newspapers or bid quotations received from securities dealers.
LOANS: The estimated fair value of the Company's performing fixed rate
loans was calculated by discounting contractual cash flows adjusted for
current prepayment estimates. The discount rates were based on the
interest rates charged to current customers for comparable loans. The
Company's performing adjustable rate loans reprice frequently at current
market rates. Therefore, the fair value of these loans has been estimated
to be approximately equal to their carrying amount.
The impact of delinquent loans on the estimation of the fair values
described above is not considered to have a material effect and,
accordingly, delinquent loans have been disregarded in the valuation
methodologies used.
DEPOSIT LIABILITIES: The fair value of deposits with no stated maturity,
such as demand, NOW, money market and savings is equal to the amount
payable on demand as of December 31, 1995. The fair value of time deposits
is estimated using the rates currently offered for deposits of similar
remaining maturities.
53
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS: At December 31, 1995, the
Company had approximately $6,300,000 of securities sold under repurchase
agreements. The repurchase agreements outstanding at December 31, 1995
mature within 30 days. The estimated fair value of these agreements
approximates the carrying value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT: The fair value
of commitments to extend credit is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair value also considers
the difference between current levels of interest rates and the committed
rates. The fair value of letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them
or otherwise settle the obligations with the counterparties.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995
CARRYING FAIR
AMOUNT VALUE
--------- -------
<S> <C> <C>
Financial assets:
Cash and due from bank $ 6,652 $ 6,652
Investment securities available for sale $ 8,840 $ 8,840
Loans, net of allowance $ 63,106 $ 62,999
Financial liabilities:
Deposits $ 73,972 $ 74,164
Securities sold not owned $ 6,281 $ 6,281
CONTRACT
VALUE
--------
Unrecognized financial instruments:
Loan commitments $ 6,969 $ 0
Standby letters of credit $ 403 $ 0
</TABLE>
LIMITATIONS: The fair value estimates are made at a discrete point in time
based on relevant market information and information about the financial
instrument. Quoted market prices, when available, are used as the measure of
fair value. Where quoted market prices are not available, fair value estimates
have been based on judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments, and
other factors. These estimates are inherently subjective, involving
uncertainties and matters of significant judgment, and, therefore, may not be
indicative of the value that could be realized in a current market exchange.
Changes in assumptions could significantly affect the estimates.
54
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED
LIMITATIONS, CONTINUED
The fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Other significant assets and
liabilities that are not considered financial assets or liabilities include
deferred tax assets and premises and equipment. In addition, the tax
ramifications related to the realization of the unrealized gains and losses
for investments and mortgage-backed securities can have a significant
effect on fair value estimates and have not been considered in many of the
estimates.
16. DIVIDEND RESTRICTIONS:
The Bank, as a nationally chartered Bank, is limited in the amount of
dividends that may be paid to its parent. The amount of cash dividends
that may be paid is based on the Bank's net profits of the current year
combined with the Bank's retained net profits of the preceding two years,
as defined by national banking regulations. At December 31, 1995 the Bank
had approximately $2,025,000 available for the payment of cash dividends to
its parent as determined by the applicable regulations.
17. RISKS AND UNCERTAINTIES:
The earnings of the Company depend on the earnings of the Bank. The Bank
is dependent primarily upon the level of net interest income, which is the
difference between interest earned on its interest earned assets, such as
loans and investments and the interest paid on its interest-bearing
liabilities, such as deposits and borrowings. Accordingly, the operations
of the Bank are subject to risks and uncertainties surrounding its exposure
to changes in the interest rate environment.
Most of the Bank's lending activity is with customers located in
Southwest Florida. Generally, the loans are collateralized by real estate
consisting of single family residential properties. While this represents
a concentration of credit risk, the credit losses arising from this type of
lending compares favorably with the Bank's credit loss experience on its
portfolio as a whole. The ultimate repayment of these loans is dependent
to a certain degree on the local economy and real estate market.
The financial statements of the Company are prepared in conformity with
generally accepted accounting principles that require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from
these estimates.
55
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
17. RISKS AND UNCERTAINTIES, CONTINUED
Significant estimates are made by management in determining the allowance
for possible credit losses and carrying values of real estate owned.
Consideration is given to a variety of factors in establishing these
estimates including current economic conditions, diversification of the
loan portfolio, delinquency statistics, results of internal loan reviews,
borrowers' perceived financial and managerial strengths, the adequacy of
underlying collateral, if collateral dependent, or present value of future
cash flows and other relevant factors. Since the allowance for possible
credit losses and carrying value of real estate assets is dependent, to a
great extent, on general and other conditions that may be beyond the Bank's
control, it is at least reasonably possible that the estimates of the
allowance for possible credit losses and the carrying values of the real
estate assets could differ materially in the near term.
18. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS:
The financial statements of Heritage Bancshares, Inc., as the parent
organization, are presented as follows:
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31
--------------------------
1995 1994
<S> <C> <C>
Assets
Cash $ 74,741 $ 0
Investment in banking subsidiary 7,268,866 6,391,658
Other 32,000 32,000
---------- ----------
$7,375,607 $6,423,658
========== ==========
Stockholders' equity
Common stock $ 543,972 $ 531,472
Additional paid-in capital 4,851,710 4,739,210
Unrealized holding loss on securities
available for sale, net (13,882) (158,250)
Retained earnings 1,993,807 1,311,226
---------- ----------
$7,375,607 $6,423,658
========== ==========
</TABLE>
56
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
18. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31
-----------------------
1995 1994
<S> <C> <C>
Interest income $ 4,138 $ 0
Cash dividend from banking subsidiary 0 53,147
Amortization and other expenses 0 (6,960)
------- --------
Income (loss) before income taxes
and equity in undistributed
subsidiary income of banking 4,138 46,187
Reduction of consolidated income
taxes resulting from use of
parent company operating losses
(provision for income taxes) 0 (5,000)
-------- --------
Income before equity in undistributed
income from banking subsidiary 4,138 41,187
Equity in undistributed income from
banking subsidiary 732,840 589,782
-------- --------
Net income $736,978 $630,969
======== ========
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
-----------------------
1995 1994
<S> <C> <C>
Cash flows provided by (used in)
operating activities $ 4,138 $ (4,469)
------- --------
Cash flows from investing activities
Dividends received from banking
subsidiary 0 50,000
------- --------
Cash flows from financing activities
Proceeds from exercise of warrants 125,000 0
Dividends paid (54,397) (53,147)
-------- --------
Net cash provided by (used in) financing
activities 70,603 (53,147)
-------- --------
Net increase (decrease) in cash 74,741 (4,469)
Cash at beginning of year 0 4,469
-------- --------
Cash at end of year $ 74,741 $ 0
======== ========
</TABLE>
57
<PAGE> 58
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH 16(A) OF THE EXCHANGE ACT
The names and certain biographical information of the directors and
executive officers of the Company are set forth below. Each of the individuals
named below has served in his respective positions with the Company since its
inception.
DIRECTORS
DAVID C. BROWN, III, M.D. Dr. Brown was born in Miami, Florida, and
attended the University of Florida where he received his Bachelor of Science
degree in Biology and his Doctor of Medicine degree. He completed his medical
education with an internship at Memorial Hospital in Savannah, Georgia, and
residency in Ophthalmology at the University of Florida. Dr. Brown established
his practice in Fort Myers in 1971 for general ophthalmology and ophthalmic
surgery doing business as Eye Centers of Florida. His medical and surgical
excellence has been nationally recognized in the publications "Best Doctors in
America, 1994-95" and "Best Doctors in Southwest Florida, 1996-97." Dr. Brown
is an active supporter of organizations dedicated to the preservation of
wildlife as well as taking an active leadership role in many important
environmental and community issues. He is a past president of the Southwest
Florida Council of the Boy Scouts of America and currently on the Board of
Directors for Visually Impaired Persons and the International Advisory Board
for Uncommon Friends Foundation. Dr. Brown served on the Board of Directors of
First Florida Bank, N. A., from 1986-1988, and the Board of Directors of NCNB
National Bank of Florida from 1984-1986. He is Chairman of this Company's
Board of Directors.
LEO R. DOERR. Mr. Doerr is the Company's President and Chief Executive
Officer. Mr. Doerr was employed by First Florida Bank, N.A., in Fort Myers,
Florida, from 1964 until he resigned in 1988 to promote the organization of the
Bank. As the former Senior Executive Vice President of First Florida Bank, he
was responsible for overseeing the operations of its eight Lee County offices
and helping to set its goals and objectives. He also served on the First
Florida Bank Advisory Board for Lee County. While Mr. Doerr was born in St.
Louis, Missouri, he has lived in Lee County for over 35 years and is very
active in civic and community affairs. He served as Director of the United Way
of Lee County, Inc., from 1988 through 1992. Since 1985 Mr. Doerr has assisted
in the fundraising for capital expenditures and sustaining memberships for the
Southwest Florida Council of the Boy Scouts of America and serves as a
Director. He has also devoted his time as a fundraiser for the National
Multiple Sclerosis Society serving as Director for the South Florida Chapter
from 1980 to 1984. Mr. Doerr has been a
58
<PAGE> 59
member of the Fort Myers Chamber of Commerce since 1984 and served as a
Director. He is currently a member of the Board of Directors of the Florida
Bankers Association. His education includes receiving Certificates of
Completion from the American Bankers Association National Mortgage Lending
School at Ohio State University in Columbus, Ohio, and the American Bankers
Association Commercial Lending School at the University of Oklahoma in Norman,
Oklahoma.
DANIEL E. DOSORETZ, M.D. Dr. Dosoretz was born in Buenos Aires,
Argentina, in 1953 and became a United States Citizen in 1986. In 1975 Dr.
Dosoretz received his Medical Doctorate from the University of Buenos Aires. In
1981 he received a license to practice medicine in the states of Florida,
Massachusetts and New York. He trained at Massachusetts General Hospital and
Harvard Medical School and was appointed to the faculty of the Harvard Medical
School and the University of Miami School of Medicine. Dr. Dosoretz is
presently the Chief Executive Officer for the Regional Radiation Therapy Center
in Lee County, Florida, and for the Charlotte County Regional Radiation Therapy
Center. Dr. Dosoretz is a Board Member of the American Cancer Society and a
member of the Board of Canterbury School. He has served as Chairman of the
Cancer Care Committee for Lee Memorial Hospital since 1986. Dr. Dosoretz is
also Chairman of the Tumor Board for the Southwest Florida Regional Medical
Center.
THOMAS G. DRAKE. As a self-employed businessman, Mr. Drake has been
involved in real estate investments as a builder and developer and as an owner
and operator of retail convenience stores and service stations. Mr. Drake was
born in Birmingham, Alabama, in 1928 and he now resides in Lehigh Acres,
Florida. He served as a director at Sun Bank of Lee County, N.A., for 15 years
prior to 1989. Mr. Drake also serves on the Boards of Directors of the Lee
County Electric Co-op in Fort Myers, Florida, and the Seminole Electric Co-op
in Tampa, Florida.
DAVID M. DUVALL. Mr. DuVall is Executive Vice President and Treasurer
of the Company. Prior to assuming his duties, Mr. DuVall was employed at First
Florida Bank, N.A., from 1970 to 1988. During his tenure, Mr. DuVall
supervised the Installment, Real Estate and Commercial Loan Departments. Mr.
DuVall has served in numerous civic capacities including the Chamber of
Commerce, Sertoma Club, State Commissioner for Junior-Pro Basketball Program
until 1984, City of Fort Myers Zoning Board of Adjustments and charter member
of Southwest Florida Chapter of Robert Morris and Associates.
BRUCE D. GREEN. Mr. Green was born in Memphis, Tennessee, in 1949. He
received a Bachelor of Arts in 1971 at Washington and Lee University in
Lexington, Virginia, and continued his graduate work at Vanderbilt University
in Nashville, Tennessee. Mr. Green then attended Cumberland School of Law in
Birmingham, Alabama, where he received a Juris Doctorate in Law in 1978. In
1979 he also received a LLM in Taxation from the University of Miami School of
Law in Miami, Florida. Mr. Green is now a shareholder of and practicing
attorney with Smoot Adams Edwards & Green, P.A., of Fort Myers, Florida. Mr.
Green is on the Board of Directors of United Way of Lee County, Inc., the
Edison Park School Foundation, and the
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<PAGE> 60
Saint Michael School Foundation. Mr. Green is the Company's Secretary.
PHILIP B. PUGH. Mr. Pugh was born in Philadelphia, Pennsylvania, raised
in Cleveland, Ohio, and has resided in Naples, Florida, for the past 22 years.
Mr. Pugh attended Ohio Northern University in Ada, Ohio, majoring in Mechanical
Engineering. He then attended Kent State University where he received a
Bachelor of Arts degree in Business Management in 1971. Mr. Pugh was Vice
President of PST Corporation, a mechanical contracting firm in Cleveland, Ohio,
before moving to the Fort Myers area. He is the owner and President of Sun
Mechanical Industries, Inc., and is currently developing residential properties
in Naples, Florida, and North Carolina. Mr. Pugh has served as a director and
member of various trade organizations, church activities, community youth and
adult athletic programs.
RICHARD Q. RICHARDS, III. Mr. Richards is a lifelong resident of Fort
Myers. He graduated from the University of Florida in 1963 with a BSBA in
Accounting. Mr. Richards obtained his Certified Public Accountant designation
in 1963 and practiced as a principal in a local firm for ten years. Since
1973, Mr. Richards has continued to maintain an active CPA practice
specializing in investment real estate consulting. In addition, since that
time, he has been active in real estate investment and development. He
currently serves as owner and principal broker of Richards Realty, Inc.,
Investment Real Estate Brokers. Mr. Richards is active in a variety of civic
and professional organizations and has held chairmanship or membership on five
separate task forces appointed by the Lee County Board of Commissioners to
study and recommend changes in local development regulations and employee
compensation. Mr. Richards is active in youth programs and is a registered
wrestling official for the Florida High School Athletic Association.
HOWARD M. SHERIDAN, M.D. Dr. Sheridan was born in Chicago, Illinois, in
1944. He earned a Bachelor of Science in Chemistry at the University of
Florida in Gainesville, Florida, in 1965 and then attended Tulane University
Medical School in New Orleans, Louisiana, until 1969. Dr. Sheridan served his
internship at San Francisco General Hospital in 1969 and completed his
radiology residency at the University of Colorado Medical Center in Denver,
Colorado, in 1975. He is President of Kyle, Sheridan & Thorn, M.D.'s, P.A., in
Fort Myers specializing in diagnostic radiology. Dr. Sheridan also served as
the Major Gifts Chairman of the 1987 United Jewish Appeal. He was President of
the Medical Staff of Southwest Florida Regional Medical Center in 1984 and is
currently Chairman of the Department of Radiology, Southwest Florida Regional
Medical Center. He is also a Youth Soccer Coach for the Fort Myers Soccer
League made up of children under age seven. Dr. Sheridan previously served on
the Advisory Board of Southeast Bank, N.A., in Fort Myers.
THOMAS H. WINFORD. Mr. Winford was born in Collinwood, Tennessee, in 1930
and has made his home in Fort Myers, Florida, for the past 17 years. Prior to
his retirement, he was the principal owner and President and Chief Executive
Officer of Pine
60
<PAGE> 61
Island Lumber Co., Inc., a building and supply company to contractors and home
owners. Mr. Winford attended college at the University of Tennessee in
Knoxville, Tennessee. His past involvement in civic affairs has included
positions such as Master of the Masonic Lodge, Scottish Rite and Shrine, Mayor
of his local hometown, County Chairman for the Blood Donor Program and Scout
Master.
EXECUTIVE OFFICERS
The officers of the Company are Leo R. Doerr, President and Chief
Executive Officer; David M. DuVall, Executive Vice President and Treasurer; and
Bruce D. Green, Secretary.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
As of the date of this Form 10-KSB, the Company's equity securities are
not registered pursuant to Section 12 of the Exchange Act. Accordingly, none
of the holders of any of the Company's equity securities are required to file
any reports with the Commission pursuant to Section 16(a) of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following table shows, as to the President
and Chief Executive Officer of the Company and Bank, information concerning
compensation awarded to, earned by or paid for services to the Bank in all
capacities during the last three fiscal years. No compensation was paid to any
person by the Company during such period. No compensation was paid to any
other person by the Bank whose total amount of salary and bonus exceeded
$100,000, and in accordance with the rules of the Securities and Exchange
Commission such persons have been omitted from this table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other
Name Annual Awards All
and Compen- Securities Other
Principal sa- Underlying Compen-
Position Year Salary($) Bonus($) tion(1) Options sation
- -------------------- ---- ---------- -------- ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Leo R. Doerr 1995 $93,750(2) $37,500 --- 889 shares $757(5)
President and 1994 $85,000(3) $34,000 --- 889 shares $736(5)
Chief Executive 1993 $85,000(4) $38,250 --- 1,000 shares $715(5)
Officer of the
Company and the Bank
</TABLE>
(1) In accordance with the rules of the Securities and Exchange Commission,
amounts totaling less than 10% of annual salary and bonus have been omitted.
(2) Includes $10,000 deferred pursuant to Mr. Doerr's Executive Deferred
Compensation Agreement and $9,240 deferred pursuant to the Bank's Salary Savings
Plan.
61
<PAGE> 62
(3) Includes $5,764 deferred pursuant to Mr. Doerr's Executive Deferred
Compensation Agreement and $9,240 deferred pursuant to the Bank's Salary Savings
Plan.
(4) Includes $6,000 deferred pursuant to Mr. Doerr's Executive Deferred
Compensation Agreement and $8,924 deferred pursuant to the Bank's Salary Savings
Plan.
(5) Reflects amounts paid for life insurance benefits.
STOCK OPTION GRANT. The following table shows, as to the President and
Chief Executive Officer, information concerning stock options granted during
the fiscal year ended December 31, 1995:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% of Total
Number of Options
Securities Granted to
Underlying Employees
Options in Fiscal Exercise Expiration
Name Granted (#) Year Price ($/Sh) Date
- ------------ ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Leo R. Doerr 889(1) 54%(2) $10.50 12/31/2002
</TABLE>
- --------------
(1) Granted pursuant to Mr. Doerr's Employment Agreement, discussed below.
(2) In addition to the options granted to Mr. Doerr, options to purchase 750
shares were issued pursuant to the Bank's Employment Agreement with Geoffrey W.
Roepstorff, Executive Vice President of the Bank, discussed below.
EMPLOYMENT AGREEMENTS. The Company entered into an employment agreement,
dated September 13, 1988, with Mr. Doerr, President and CEO of the Bank. The
employment agreement was amended on September 11, 1995, to extend Mr. Doerr's
term of employment and modify his compensation. The employment agreement, as
amended, extends through December 31, 2000, and provides that, for the calendar
year 1995, Mr. Doerr's base salary was $93,750, and for the calendar years
1996, 1997, 1998, 1999, and 2000, Mr. Doerr will receive a base salary of
$100,000. In addition, if annual profit and performance goals are met, Mr.
Doerr will receive a performance bonus based upon the year's base salary. The
performance bonus is based upon the achievement by the Bank of specified
percentage returns on its assets, according to the following schedule:
<TABLE>
<CAPTION>
1995 Subsequent
Bonus Years' Bonus
Return on Assets % Bonus Amount Amount
---------------- ---------- ------ ------
<S> <C> <C> <C>
Less than 0.25% -0- -0- -0-
0.25% to 0.50% 25% $23,438 $25,000
0.51% to 0.75% 35% $32,813 $35,000
0.76% to 1.00% 40% $37,500 $40,000
Over 1.00% 45% $42,188 $45,000
</TABLE>
Mr. Doerr was awarded a bonus in the amount of $37,500 for 1995.
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<PAGE> 63
The agreement also provides that the Bank will furnish Mr. Doerr with an
automobile and will pay the normal expenses associated with Mr. Doerr's use of
the automobile, and with social memberships in two local clubs as well as
health and disability insurance and a $250,000 term life insurance benefit.
In addition, Mr. Doerr's employment agreement provides that if the
Bank's return on its assets are such that Mr. Doerr is paid a performance
bonus, he will receive a further bonus in the form of an option to purchase
shares of Common Stock in an amount determined by multiplying the percentage
paid of the maximum bonus allowed by 1,000 shares for a maximum of 5,000
shares. In 1995 the Bank's return on average assets was 0.88%, therefore, Mr.
Doerr received options to purchase an additional 889 shares of common stock.
If earned, each option will be exercisable for seven years from the date of the
year to which the grant is attributable, and the exercise price will be $12.50
per share. If there is a change of control of the Bank (as defined in the
agreement), Mr. Doerr will receive an option to purchase the remaining years'
option shares of Common Stock. This option will be exercisable, in whole or in
part, within 30 days following approval of the change in control and the
exercise price will be $12.50 per share. Further, in the event of a change of
control of the Bank, Mr. Doerr may elect to terminate his employment and
receive a severance payment equal to 299% of his Base Salary for the
immediately preceding one-year period.
The Bank entered into a similar agreement with Geoffrey W. Roepstorff,
Executive Vice President of the Bank, dated January 1, 1992. Mr. Roepstorff's
employment agreement was amended on September 11, 1995, to extend his term of
employment and modify his compensation. The employment agreement extends
through December 31, 1998, and provides that, for the calendar year 1995, Mr.
Roepstorff's base salary was $80,833 and for the calendar years 1996, 1997, and
1998, Mr. Roepstorff will receive a base salary of $85,000. In addition, if
annual profit and performance goals are met, Mr. Roepstorff will receive a
performance bonus calculated as a percentage of the year's base salary. The
performance bonus is based upon the achievement by the Bank of specified
percentage returns on its assets, according to the following schedule:
<TABLE>
<CAPTION>
1995 Subsequent
Bonus Years' Bonus
Return on Assets % Bonus Amount Amount
---------------- ------- ------ ------
<S> <C> <C> <C>
Less than 0.25% -0- -0- -0-
0.25% to 0.50% 10% $ 8,083 $ 8,500
0.51% to 0.75% 15% $12,125 $12,750
0.76% to 1.00% 20% $16,167 $17,000
Over 1.00% 25% $20,208 $21,250
</TABLE>
Mr. Roepstorff was awarded a cash bonus for 1995 in the amount of $16,167.
The agreement also provides that the Bank will furnish Mr. Roepstorff with
an automobile and will pay the normal expenses associated with Mr. Roepstorff's
use of the automobile, and with social memberships in two local clubs as well
as health and
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<PAGE> 64
disability insurance and a $100,000 term life insurance benefit. In addition,
Mr. Roepstorff's employment agreement provides that if the Bank's return on its
assets are such that Mr. Roepstorff is paid a performance bonus, he will also
receive a bonus in the form of an option to purchase shares of Common Stock in
an amount determined by multiplying the percentage paid of the maximum bonus
allowed by 1,000 shares for a maximum of 3,000 shares during 1996, 1997, and
1998. In 1995 the Bank's return on average assets was 0.88%, therefore, Mr.
Roepstorff received options to purchase an additional 800 shares of common
stock. If earned, each option will be exercisable for seven years from the date
of the year to which the grant is attributable, and the exercise price will be
$12.50 per share. If there is a change of control of the Bank (as defined in
the agreement), Mr. Roepstorff will receive an option to purchase the remaining
years' option shares of Common Stock. This option will be exercisable, in whole
or in part, within 30 days following approval of the change in control and the
exercise price will be $12.50 per share. Further, in the event of a change of
control of the Bank, Mr. Roepstorff may elect to terminate his employment and
receive a severance payment equal to 100% of his Base Salary for the immediately
preceding one-year period.
EXECUTIVE DEFERRED COMPENSATION AGREEMENT. On July 15, 1991, the Bank
entered into an Executive Deferred Compensation Agreement (the "Deferred
Compensation Agreement") pursuant to which Mr. Doerr may elect to defer annually
the receipt of up to $15,000 of compensation otherwise payable to him or such
greater amount as the Bank and he may agree. The deferred compensation is held
by the Bank in an account maintained in the name of Mr. Doerr shall be credited
with interest at the rate of 7% per year. The Deferred Compensation Agreement
provides for benefits payable to Mr. Doerr or his designated beneficiary in the
event of his death, disability or retirement. The Deferred Compensation
Agreement provides that Mr. Doerr may direct the Bank to use the deferred
compensation account balance to obtain one or more policies of insurance on his
life to fund these benefits. In the case of his death, the Bank will pay to his
designated beneficiaries the deferred compensation account balance plus any life
insurance proceeds received by the Bank on policies acquired pursuant to the
Deferred Compensation Agreement. In the case of his total disability, as
defined in the agreement, the Bank will pay Mr. Doerr the sum of $10,000 per
year for the continuance of such total disability until he attains age 65 or
until his earlier death. In the case of his retirement, the Bank will pay to
Mr. Doerr under the Executive Deferred Compensation Agreement the accumulated
amounts in his deferred compensation account plus either the policies of
insurance on his life or the cash value of those policies, determined in the
Bank's discretion. Mr. Doerr elected to defer $6,000 of his compensation for
the year ended December 31, 1993, $5,764 for the year ended December 31, 1994,
and $10,000 for the year ended December 31, 1995.
SALARY SAVINGS PLAN. On July 11, 1989, the Company and the Bank adopted
the Heritage National Bank Salary Savings Plan (the "Salary Savings Plan") for
eligible employees of the Company and the Bank. The purpose of the Salary
Savings Plan is to promote the best interests of the Company and its
shareholders by enabling the
64
<PAGE> 65
Company and the Bank to attract and retain persons of ability as employees.
The Salary Savings Plan provides, pursuant to Section 401(k) of the
Internal Revenue Code of 1986, that an employee may elect to make salary
deferral contributions by designating that his or her earnings be reduced, with
the amount of such reduction being contributed to the Salary Savings Plan on
behalf of the employee as deferred compensation. Subject to a dollar amount
limitation, which is adjusted annually for inflation ($9,240 in 1995), the
maximum amount of salary deferral contributions generally is 17% of an
employee's earnings. In effect, the amount of an employee's salary deferral
contributions is excluded from the employee's income for federal income tax
purposes until withdrawn. Each year, the Company or the Bank expects to make
contributions to the Salary Savings Plan by matching each participating
employee's pay conversion contributions in an amount equal to a percentage of
the participant's deferral. The matching percentage will be determined each
year by the Board of Directors of the Company and the Bank. Subject to limited
exceptions in the event of financial hardship, funds may be withdrawn from pay
conversion accounts only at age 59-1/2, or upon termination of employment,
disability, death, retirement or certain medical hardships.
Under the terms of the Salary Savings Plan, all employees of the Company
and the Bank on July 31, 1989, were entitled to participate. Thereafter, new
employees were eligible for participation after attainment of age 21 and
completion of one year of service (as defined in the Salary Savings Plan).
The following table shows the amount of matching contributions made by the
Company during 1995, 1994 and 1993 as to each person named in the summary
compensation table above:
<TABLE>
<CAPTION>
Amount of Company
Matching Contributions
- ----------------------------------------------------------------
Name of Individual 1995 1994 1993
- ------------------ ----- ----- -----
<S> <C> <C> <C>
Leo R. Doerr $2370 $2370 $1580
</TABLE>
EMPLOYEES' STOCK OPTION PLAN. On April 9, 1990, the Company adopted an
Employees' Stock Option Plan (the "Stock Option Plan") for eligible employees of
the Company and the Bank. The purpose of the Stock Option Plan is to promote
the best interests of the Company and its shareholders by enabling the Company
and the Bank to attract and retain persons of ability as employees, furnishing
an incentive to employees of the Company and the Bank by providing them with an
equity participation in the Company and rewarding those employees who contribute
to the operating progress and earning power of the Company and the Bank.
Under the Stock Option Plan eligible employees may be granted options to
purchase a total of 26,500 shares of the Company's Common Stock which are
reserved for such purpose by resolution of the Board. The Stock Option Plan
has antidilution provisions by which the number of shares authorized and
issuable upon exercise of the options will be adjusted in certain
circumstances, such as
65
<PAGE> 66
division, combination or reclassification of the Company's Common Stock. The
Stock Option Plan provides that the exercise price shall be determined by the
Board of Directors, but may not be less than the greater of the par value or
the fair market value of the Common Stock on the date of the option grant. The
Board of Directors has determined that the exercise price for the initial grant
of options under the Stock Option Plan is $10 per share.
Every employee of the Company and the Bank is eligible to participate in
the Stock Option Plan; the Board of Directors will designate those eligible
employees who shall participate in the Stock Option Plan from time to time and
the number of shares of Common Stock for which options shall be granted to each
participant. Each eligible employee must, as a condition to participation in
the Stock Option Plan, enter into a written Stock Option Agreement with the
Company, which provides among other things that the option is not transferable
and will expire if the employee is terminated for cause or if the option is not
exercised within three months following the date of the employee's death. A
participating employee has the right to exercise up to 40% of the total options
granted after completion of two years of employment; thereafter, the
participant has the right each year to exercise an additional 20% of the
options granted. Therefore, an employee must have completed five years of
employment to have the right to exercise all of the options granted under the
Stock Option Plan. If the employee terminates employment before becoming fully
vested in his or her options, the remaining options are forfeited and will be
allocated by the Board of Directors to future participating employees.
Upon any merger, consolidation, liquidation, sale or transfer of all or
substantially all of the assets of the Company or acquisition of a majority of
the outstanding shares of stock of the Company, all vested stock options will
become immediately exercisable and if not exercised within the time limits
specified by the Board of Directors, will expire.
Under the Internal Revenue Code of 1986, the grant of stock options under
the Stock Option Plan will not give rise to any taxable income to the recipient
or to an income tax deduction by the Company. Upon exercise of the option, the
participant will realize ordinary compensation income in an amount equal to the
fair market value of the Common Stock at the time of exercise less the purchase
price, and the Company will be entitled to an income tax deduction at that time
in a corresponding amount.
The Stock Option Plan is administered by the Company Board of Directors,
which determines all matters with respect to the implementation, interpretation
and administration of the Stock Option Plan. The Board of Directors may
delegate the Stock Option Plan administration to a committee appointed by the
Board.
The Stock Option Plan may be amended or terminated in whole or in part by
the Board of Directors, but may not adversely affect or alter any right or
obligation with respect to any participating employee.
66
<PAGE> 67
In 1992, the Company granted to ten eligible employees options to acquire
3,300 shares of Common Stock pursuant to the Plan. In 1993, the Company
granted to eight eligible employees options to acquire 3,250 shares of common
stock pursuant to the Plan. In 1994, the Company granted to seven eligible
employees options to acquire 3,200 shares of common stock pursuant to the plan.
The price of all options granted is $10.00 per share. Of these options to
acquire 16,210 shares, options to acquire 340 shares have been forfeited under
the terms of the Plan. As of December 31, 1995, options to acquire 12,800
shares of Common Stock are exercisable by participants in the Plan and options
to acquire 210 shares of Common Stock are exercisable by two retired
participants of the Plan.
In May, 1995, the Board voted to grant to Robbie B. Roepstorff, Senior
Vice President of the Bank, options to acquire 2,500 shares of common stock of
the Company at the exercise price of $12.00 per share beginning July 1, 1995.
Mrs. Roepstorff has the right to exercise these options in whole or in part
until June 30, 2005.
DIRECTORS' FEES. There are no current plans to pay separate
compensation to the officers of the Company in such capacity, and there are no
plans to pay directors' fees to the members of the Board of Directors of the
Company. In 1995, all directors of the Bank received directors' fees of $400
for each regularly-scheduled monthly Bank Board of Directors meeting attended,
and non-employee directors serving on the Board of Directors Loan Committee,
Audit and Compliance Committee and Investment and Asset/Liability Management
Committee received $100 for each regularly-scheduled meeting attended. The
directors' fees for monthly Bank Board of Directors meetings were increased to
$600 for 1996.
DIRECTORS' DEFERRED COMPENSATION PLAN. In 1993, the Board of Directors of
the Bank adopted a Directors' Deferred Compensation Plan, a plan designed to
provide added incentive to the non-employee Directors of the Bank. The plan
provides that each participant may contribute to the plan all or a part of the
fees payable by the Bank. The Bank will maintain the deferred fees in a
separate account and credit the account with interest annually at the rate in
effect each January 1 for the one-year certificates of deposit rate offered by
the Bank. The deferred fees and interest earned thereon will be paid upon such
Director's death or termination of service as a Director.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth for each executive officer, director and 5%
shareholder of the Company (a) the person's name and address as of February 29,
1996; (b) the person's position with the Company; (c) the number of shares of
Common Stock presently held by the person; and (d) the percentage of
outstanding shares such number represents of Common Stock outstanding as of
February 29, 1996.
67
<PAGE> 68
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership Percentage Ownership
Number of
Shares Total % of Total
Available Number of Number of
Number of through Shares % of Shares Shares
Position with Issued Warrants and Beneficially Presently Beneficially
Name and Address Company Shares Options(1) Owned Outstanding(2) Owned(3)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
David C. Brown, III, M.D. Chairman of the 109,750 50,000 159,750 20.2% 22.4%
1195 Caloosa Drive Board
Fort Myers, Florida
Leo R. Doerr Director, 10,500(4)(8) 24,167 34,667 1.9% 4.8%
2205 River Oak Lane President and
Fort Myers, Florida Chief Executive
Officer
Daniel E.Dosoretz, M.D. Director 76,405(4) 20,000 96,405 14.0% 13.5%
13221 Ponderosa Lane
Fort Myers, Florida
Thomas G. Drake Director 51,200 25,000 76,200 9.4% 10.7%
1204 Third Street East
Lehigh Acres, Florida
David M. DuVall Director, 10,000(4)(5) 14,500 24,500 1.8% 3.4%
1436 Brandywine Circle Executive Vice
Fort Myers, Florida President and
Treasurer
Bruce D. Green Director and 11,600(6) 5,000 16,600 2.1% 2.3%
1247 Canterbury Drive Secretary
Fort Myers, Florida
Philip B. Pugh Director 25,900(9) 12,500 38,400 4.8% 5.4%
216 Cocohatchee Boulevard
Naples, Florida
R. Q. Richards, III, C.P.A. Director 4,700(4) 1,500 6,200 0.9% 0.9%
1426 Claret Court
Fort Myers, Florida
Howard M. Sheridan, M.D. Director 32,295 12,500 44,795 5.9% 6.3%
842 Cal Cove Drive
Fort Myers, Florida
Thomas H. Winford Director 12,700(4)(7) 5,000 17,700 2.3% 2.5%
7440 Dana Lin Circle
North Fort Myers, Florida ------- ------- ------- ------ ----
All Executive Officers 345,050 170,167 515,217 63.3%(10) 72.2%(10)
and Directors
</TABLE>
- ---------------------------
(1) Based upon unexercised organizers' warrant rights to acquire 137,389
additional shares and options granted in the employment agreements of Mr.
Doerr and Mr. DuVall to acquire 20,778 and 12,000, respectively, shares of
Common Stock see "Organizers' Stock Warrants" and "Employment Agreements,"
infra.
(2) Based on 543,972 shares of Common Stock outstanding as of February 29,
1996.
(3) Based upon total of 714,139 total shares of Common Stock beneficially
owned: 543,972 shares outstanding and 170,167 shares deemed beneficially
owned through warrants and options.
(4) Includes shares held jointly with spouse.
(5) Includes 964 shares held by spouse.
(6) Includes 550 shares held by spouse as custodian for minor children.
(7) Includes 1,600 shares held by spouse.
(8) Includes 100 shares held as custodian for minor children.
(9) Includes 900 shares held by spouse.
(10) Reflects rounding of percentages.
68
<PAGE> 69
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GENERAL. The Company and the Bank have banking and other business
transactions in the ordinary course of business with directors and officers of
the Company and the Bank and their affiliates, including members of their
families, corporations, partnerships, or other organizations in which such
directors and officers having a controlling interest, on substantially the same
terms (including price, interest rate, and collateral) as those prevailing at
the time for comparable transactions with unrelated parties. In the opinion of
management of the Bank, such banking transactions do not involve more than the
normal risk of collectability nor present other unfavorable features to the
Company and Bank.
One of the Directors of the Company, Bruce D. Green, is a shareholder of
Smoot Adams Edwards & Green, P.A., a law firm located in Fort Myers, Florida.
The Bank incurred approximately $11,000 in legal fees and expenses to the firm
in 1995 and approximately $39,000 in 1994.
ORGANIZERS' STOCK WARRANTS. In recognition of the efforts made and the
financial risks undertaken by the organizers of the Bank, the Company granted
to such organizers warrants to purchase one-half of one share of Common Stock
for each share of Common Stock purchased by them in the Company's initial
public offering. The warrants are exercisable in whole or in part at any time
during the ten-year period following the date on which the Company first issued
its Common Stock on July 17, 1989. The exercise price of each warrant is $10
per share. The Warrants are not transferable (except by will or the laws of
descent and distribution), but shares issued pursuant to the exercise of such
warrants are transferable, subject to compliance with applicable securities
laws.
69
<PAGE> 70
PART IV
ITEM 13. EXHIBITS AND REPORTS
ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No.
- -------
<S> <C>
3.1 Articles of Incorporation. (1)
3.2 Bylaws. (1)
4.1 See Articles of Incorporation at Exhibit 3.1 hereto and Bylaws at Exhibit
3.2 hereto. (1)
4.2 Specimen Common Stock Certificate. (2)
10.1 Employment Agreement, dated September 13, 1988, between Heritage National
Bank and Leo R. Doerr. (1)
10.2 First Amendment to Employment Agreement, dated March 28, 1989, between
Heritage National Bank and Leo R. Doerr. (5)
10.3 Second Amendment to Employment Agreement, dated February 8, 1992, between
Heritage National Bank and Leo R. Doerr. (5)
10.4 Heritage Bancshares, Inc., Employees' Stock Option Plan and Form Stock
Option Agreement. (3)
10.5 Form of Organizer's Stock Warrant Agreement. (1)
10.6 Executive Deferred Compensation Agreement dated July 15, 1991, between
Heritage National Bank and Leo R. Doerr. (4)
10.7 Employment Agreement, dated March 24, 1993, between Heritage National
Bank and Geoffrey W. Roepstorff. (5)
10.8 Third Amendment to Employment Agreement, dated March 13, 1995, between
Heritage National Bank and Leo R. Doerr. (5)
10.9 First Amendment to Employment Agreement, dated March 13, 1995, between
Heritage National Bank and Geoffrey W. Roepstorff. (5)
10.10 Employment Agreement dated September 11, 1995, among Heritage National
Bank; Heritage Bancshares, Inc.; and Leo R. Doerr.
</TABLE>
70
<PAGE> 71
10.11 Employment Agreement dated September 11, 1995, among Heritage
National Bank; Heritage Bancshares, Inc.; and Geoffrey W. Roepstorff.
22.1 Subsidiaries of the Registrant (2)
27.1 Financial Data Schedule
- ----------------------
(1) Incorporated herein by reference to exhibit of same number in the
Company's Registration Statement on Form S-18, Registration No. 33-25687A.
(2) Incorporated herein by reference to exhibit of same number in the
Company's Annual Report for the fiscal year ended December 31, 1989, on
Form 10-K, Commission File Number 33-25687A.
(3) Incorporated herein by reference to exhibit of the same number in the
Company's Annual Report for the fiscal year ended December 31, 1990, on
Form 10-K, Commission File Number 33-25687A.
(4) Incorporated herein by reference to exhibit of the same number in the
Company's Annual Report for the fiscal year ended December 31, 1991, on
Form 10-K, Commission File Number 33-25687A.
(5) Incorporated herein by reference to exhibit of the same number in the
Company's Annual Report for the fiscal year ended December 31, 1992, on
Form 10-KSB, Commission File Number 33-25687A.
(b) Reports on Form 8-K filed in the fourth quarter of 1995- None
71
<PAGE> 72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 27, 1996 HERITAGE BANCSHARES, INC.
----------------------
By: /s/ Leo R. Doerr
------------------------------
Leo R. Doerr
President and Chief
Executive Officer
By: /s/ David M. DuVall
------------------------------
David M. DuVall
Executive Vice President,
Treasurer, and Chief
Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
on the signature page to this Registration Statement constitutes and appoints
Leo R. Doerr and Bruce D. Green, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place, and stead, in any and all
capacities, to sign any and all amendments to this Report, and to file the
same, with all exhibits thereto, and other documents in connection therewith
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
72
<PAGE> 73
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 and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ David C. Brown, III Chairman of March 11, 1996
- ------------------------- the Board ---------------------
David C. Brown, III
/s/ Leo R. Doerr Director and March 11, 1996
- ------------------------- President and ---------------------
Leo R. Doerr Chief Executive
Officer
- ------------------------- Director ---------------------
Daniel E. Dosoretz
/s/ Thomas G. Drake
- ------------------------- Director March 11, 1996
Thomas G. Drake ---------------------
/s/ David M. DuVall Director, March 11, 1996
- ------------------------- Executive Vice ---------------------
David M. DuVall President,
Treasurer and
Chief Financial
Officer
/s/ Bruce D. Green Director and March 11, 1996
- ------------------------- Secretary ---------------------
Bruce D. Green
/s/ Philip B. Pugh Director March 11, 1996
- ------------------------- ---------------------
Philip B. Pugh
/s/ R. Q. Richards, III Director March 11, 1996
- ------------------------- ---------------------
R. Q. Richards, III
/s/ Howard M. Sheridan Director March 11, 1996
- ------------------------- ---------------------
Howard M. Sheridan
/s/ Thomas H. Winford Director March 11, 1996
- ------------------------- ---------------------
Thomas H. Winford
</TABLE>
73
<PAGE> 74
Supplemental Information to be Furnished With Reports Filed
Pursuant to Section 15(d) of the Exchange Act by Non-reporting Issuers.
No annual report to security holders covering the registrant's last fiscal
year, proxy statement, form of proxy or other proxy soliciting material with
respect to any annual or other meeting of security holders has been sent to
security holders at the time of the filing of this annual report on Form
10-KSB; however, when such report and proxy materials are furnished to security
holders subsequent to this filing, the registrant will furnish four (4) copies
of such material to the Commission when it is sent to security holders.
74
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of the 11th day of September 1995, by
and among Heritage National Bank, a national banking association (the "Bank"),
Heritage Bancshares, Inc., a Florida corporation (the "Bank Holding Company")
and Leo R. Doerr (the "Employee").
W I T N E S S E T H:
WHEREAS, the Bank Holding Company owns one hundred percent (100%) of
the outstanding stock of the Bank; and
WHEREAS, the Board of Directors of the Bank (the "Board") and the Bank
Holding Company, recognizing the experience and knowledge of Employee in the
banking industry, desire to retain the valuable services and business counsel
of Employee, it being in the best interest of the Bank to arrange terms of
employment for Employee so as to reasonably induce Employee to remain in his
capacities with the Bank for the term hereof; and
WHEREAS, the Employee is willing to provide services to the Bank and
the Bank Holding Company in accordance with the terms and conditions
hereinafter set forth;
NOW, THEREFORE, for and in consideration of the premises set forth
above and the mutual covenants herein contained, the parties hereto agree as
follows:
1. EMPLOYMENT. The Bank and the Bank Holding Company will employ
the Employee and the Employee accepts employment upon the terms and conditions
set forth in this Agreement.
2. TERM. The term of Employee's employment hereunder shall be the
period commencing September 11, 1995 and ending December 31, 2000, unless
terminated earlier in accordance with Sections 7 or 8 of this Agreement.
3. COMPENSATION. For all services which Employee may render to
the Bank or the Bank Holding Company during the term of this Agreement, the
Bank shall pay Employee according to the schedule set forth below:
(a) Base Salary. Effective June 1, 1995 and during each
year of this Agreement, the Bank shall pay to the Employee an annual salary of
One Hundred Thousand dollars ($100,000.00) payable in equal monthly
installments of Eight Thousand Three Hundred Thirty Three dollars ($8,333.00).
(b) Performance Bonuses. For each annual term of this
Agreement, the Bank shall pay to the Employee a performance bonus no later than
sixty (60) days following the close of the Bank's fiscal year, in accordance
with the following formula:
<PAGE> 2
<TABLE>
<CAPTION>
============================================================
Return on Assets(1)
(ROA) % Bonus(2)
-----------------------------------------------------------
<S> <C>
Less than 0.25% 0%
0.25% to 0.50% 25%
0.51% to 0.75% 35%
0.76% to 1.00% 40%
Over 1.00% 45%
============================================================
</TABLE>
(1) "Return on Assets (ROA)" means the ratio determined by the
Bank's net after-tax income for the year divided by its total
average assets, determined by the Bank's independent
accounting firm in accordance with generally accepted
accounting principles, except that net income shall first be
reduced by the amount of the Employee's Performance Bonus
under this paragraph 2(b); provided, however, that the
Employee may elect to reduce the amount of his Performance
Bonus to the extent necessary to achieve ROA.
(2) "% Bonus" means the Bonus Amount as a percentage of the
Employee's base salary.
(c) Options. The Employee shall have the right and
option to purchase an additional number of shares of common stock of the Bank
Holding Company in an amount determined by multiplying (i) one thousand (1,000)
shares by (ii) a fraction whose numerator is the Bonus Amount for the year and
whose denominator is the maximum Bonus Amount which could have been received by
the Employee for the year, for a maximum of five thousand (5,000) shares over
the term of this Agreement. The option granted to the Employee pursuant to this
paragraph 3(c) may be exercised by the Employee, in whole or in part, at any
time or from time to time during the period this Agreement is in effect
beginning on the first day of the second month following the close of the
Bank's fiscal year to which such grant is attributable. Notwithstanding
anything contained herein to the contrary, if the shareholders of the Bank or
the Bank Holding Company approve of a capital reorganization of the common
stock of the Bank Holding Company or a merger or consolidation of the Bank
Holding Company with or into another corporation, or the sale of all or
substantially all of the assets of the Bank, or the Bank Holding Company, then
Employee shall have the right and option to purchase all stock options that
would have been paid to the Employee for the remaining term of this Agreement
pursuant to the terms of this paragraph 3(c). The purchase price for each
share of common stock of the Bank Holding Company that the Employee purchases
pursuant to the exercise of the options granted herein shall be Twelve Dollars
and Fifty Cents ($12.50) per share and shall be paid in cash upon exercise.
(d) Employee Benefit Plans. Employee shall also be
entitled to participate in or become a participant in any employee benefit plan
maintained by the Bank for which the Employee is eligible. The Bank agrees to
provide: (i) a term life insurance policy, to the extent obtainable, on the
life of Employee, providing for death benefits payable to Employee's designated
beneficiaries in the amount of Two Hundred Fifty Thousand Dollars
($250,000.00); (ii) the use of an automobile acceptable to the parties, plus
reimbursement for normal operating expenses related thereto; (iii) a social
membership in the University Club, the Edison Pageant of Light, Inc., and other
organizations deemed by the Bank's Board to be appropriate and beneficial for
the image and promotion of the Bank; (iv) group health, accident and hospital
insurance covering Employee; and (v) long term disability insurance with
benefits of sixty percent (60%) of Employee's Base Salary, provided that the
Employee qualifies for such insurance.
-2-
<PAGE> 3
(e) Withholding. Salary, bonuses and all other items
deemed to be paid by the Bank and taxable to the Employee shall be subject to
required withholding taxes, social security taxes and other employment taxes.
(f) Cost of Living Adjustment. The Bank will pay
Employee cost of living adjustments as an increase in the Employee's Base
Salary beginning January 1 of each year while this Agreement is in effect.
Such adjustment will be based upon the Consumer Price Index ("CPI") as
determined by the Bureau of Labor Statistics. In no event, however, shall the
annual adjustment pursuant to this paragraph 3(g), be less than five percent
(5%), nor more than ten percent (10%), of the Employee's Base Salary as set
forth in paragraph 3(a).
4. TITLE AND DUTIES. The Bank hereby employs Employee on the
effective date hereof to hold the title of President and Chief Executive
Officer of the Bank and to perform such services and duties as the Board may,
from time to time, designate during the term hereof. Subject to the terms and
conditions hereof, Employee will perform such duties and exercise such
authority as are customarily performed and exercised by persons holding such
office, subject to the direction of the Board. Employee shall also serve on the
Board and as a member of its Executive Committee and such other committees as
the Board designates, subject to the terms hereof.
5. EXTENT OF SERVICES. Employee accepts such employment and
shall devote his full time, attention and best efforts to the diligent
performance of his duties herein specified and as an officer of the Bank and
will not, directly or indirectly, accept employment with any other individual,
corporation, partnership, governmental authority or other entity or engage in
any other venture for profit which the Bank or the Board may consider to be in
conflict with the Bank's best interests or to be in competition with the Bank,
or which may interfere in any way with the Employee's performance of his duties
hereunder, whether as an employee, director, officer, stockholder, owner,
partner or otherwise; provided, however, that the Employee's ownership of less
than five percent (5%) of the issued and outstanding shares of stock of a
corporation or a five percent (5%) interest in any other entity shall not by
itself be deemed to constitute such competition.
6. EXPENSES. The Employee may incur reasonable expenses for
promoting the business of the Bank and its subsidiaries, including expenses for
entertainment, travel, and similar items. The Employee will be reimbursed for
all such expenses upon the Employee's periodic presentation of an itemized
account of such expenditures.
7. CHANGE IN CONTROL OF THE BANK.
(a) In the event of a "change in control" of the Bank, as
defined herein, Employee shall be entitled, for a period of thirty (30) days
from the date of closing of the transaction effecting such change in control
and at his election, to give written notice to the Bank of termination of this
Agreement and to receive a cash payment equal to two hundred ninety-nine
percent (299%) of the Base Salary received by the Employee in the one-year
period immediately preceding the change in control. The severance payment
provided for in this Section 7(a) shall be paid in full not later than ten (10)
days after the date of notice of termination by Employee under this Section 7
or ten (10) days after the date of closing of the transaction effecting the
change in control of the Bank Holding Company, whichever is later.
-3-
<PAGE> 4
(b) The payment provided for by Section 7(a) shall be
payable to the Employee only to the extent that such payments are deductible by
the Bank and are not rendered non-deductible by Section 280G of the Internal
Revenue Code of 1986, as amended.
(c) For purposes of this Section 7, "change in control"
of the Bank Holding Company shall mean:
(i) any transaction, whether by merger,
consolidation, asset sale, tender offer,
reverse stock split or otherwise, which
results in the acquisition or beneficial
ownership (as such term is defined under
rules and regulations promulgated under the
Securities Exchange Act of 1934, as amended)
by any person or entity or any group of
persons or entities acting in concert, of 50%
or more of the outstanding shares of Common
Stock of the Bank Holding Company;
(ii) the sale of all or substantially all of the
assets of the Bank or the Bank Holding
Company; or
(iii) the liquidation of the Bank or the Bank
Holding Company.
8. TERMINATION.
(a) Employee's employment pursuant to this Agreement
shall be terminated by the first to occur of any of the following:
(i) the death of Employee;
(ii) the complete disability of Employee.
"Complete disability" as used herein shall
mean the inability of Employee, due to
illness, accident or any other physical or
mental incapacity, to completely fulfill his
obligations hereunder for an aggregate of one
hundred twenty (120) days within any period
of one hundred eighty (180) consecutive days
during the term hereof;
(iii) the expiration of the term of this Agreement
as set forth in paragraph 2;
(iv) sixty (60) days after the Employee has given
written notice to Bank of his intent to
terminate his employment hereunder.
(b) Employee's employment pursuant to this Agreement may
also be terminated by the Bank's discharge of the Employee for cause. Such
discharge shall be by the Board without notice and without further obligation
than for monies already paid. "Cause" as used herein shall include, without
limitation, the:
-4-
<PAGE> 5
(i) failure of Employee to follow reasonable
written instructions or policies of the
Board. (Employees's termination under this
Section 8(b)(i) must not occur until thirty
(30) days after the Employee has received
written notice by the Board of his alleged
failure to follow reasonable written
instructions of the Board and the Board has
given the Employee opportunity to cure the
failure to the Board's satisfaction);
(ii) receipt by the Bank of written notice from
the Comptroller of the Currency ("OCC") that
the OCC has criticized Employee's performance
or his area of responsibility, and has either
(a) rated the Bank a "4" or a "5" under the
Uniform Financial Institution Rating System
or (b) has determined that the Bank is in a
"troubled condition" as defined under Section
914 of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989;
(iii) gross negligence or willful misconduct of
Employee materially damaging to the business
of the Bank or the Bank Holding Company
during the term of this Agreement, or at any
time while he was employed by the Bank and
the Bank Holding Company prior to the term of
this Agreement, if not disclosed to the Bank
and the Bank Holding Company prior to the
commencement of the term of this Agreement;
or
(iv) conviction of Employee during the term of
this Agreement of a crime involving breach of
trust or moral turpitude.
9. NON-COMPETITION AND NON-SOLICITATION. (a) Employee
acknowledges that he has performed services or will perform services hereunder
which directly affect the Bank's and the Bank Holding Company's business.
Accordingly, the parties deem it necessary to enter into the protective
agreement set forth below, the terms and condition of which have been
negotiated by and between the parties hereto.
(b) During the term of Employee's employment under this
Agreement, and, in the event of termination of employment under this Agreement
by action of Employee prior to the expiration of the term of this Agreement,
except for termination pursuant to Section 7 hereof, for a period of one (1)
year after such termination date, Employee agrees with the Bank and the Bank
Holding Company as follows:
(i) Employee shall not, without the prior written
consent of the Bank and the Bank Holding
Company, within Lee County, Florida, serve as
an executive officer of any bank, bank
holding company or other financial
institution; and
(ii) Employee shall not, without the prior written
consent of the Bank and the Bank Holding
Company (1) furnish anyone with any list or
lists
-5-
<PAGE> 6
of customers of the Bank or the Bank Holding
Company or any banking subsidiary of the Bank
Holding Company or utilize such list or
information himself; (2) furnish, use or
divulge to anyone any trade secrets or
proprietary, confidential information
acquired by him from the Bank Holding Company
or any banking subsidiary of the Bank Holding
Company related to the Bank Holding Company's
or such subsidiary's methods of doing
business; (3) contact directly or indirectly
any customer of the Bank Holding Company or
of any banking subsidiary of the Bank Holding
Company, with whom Employee had contact
during the term of his employment hereunder
in regard to offering or providing banking
services or related services; (4) hire for
any other employer (including himself) any
employee of the Bank Holding Company or any
banking subsidiary of the Bank Holding
Company, with whom Employee had contact
during the term of his employment hereunder
under circumstances where Employee directly
or indirectly causes such employee to leave
the employment of the Bank Holding Company or
such subsidiary; or (5) undertake a business
opportunity that came to the attention of
Employee through his employment hereunder
which Employee had not previously offered in
writing to the Bank Holding Company or the
Bank and which the Bank Holding Company or
the Bank had not rejected in writing.
(c) The covenants of Employee set forth in this Section 9
are separate and independent covenants for which valuable consideration has
been paid, the receipt, adequacy and sufficiency of which are acknowledged by
Employee, and have also been made by Employee to induce the Bank and the Bank
Holding Company to enter into this Agreement. Each of the aforesaid covenants
may be availed of or relied upon by the Bank or Bank Holding Company in any
court of competent jurisdiction, and shall form the basis of injunctive relief
and damages including expenses of litigation (including but not limited to
reasonable attorney's fees) suffered by the Bank arising out of any breach of
the aforesaid covenants by Employee. The covenants of Employee set forth in
this Section 9 are cumulative to each other and to all other covenants of
Employee in favor of the Bank contained in this Agreement and shall survive the
termination of this Agreement for the purposes intended. Should any covenant,
term or condition contained in this Section 9 become or be declared invalid or
unenforceable by a court of competent jurisdiction, then the parties may
request that such court judicially modify such unenforceable provision
consistent with the intent of this Section 9 so that it shall be enforceable as
modified, and in any event the invalidity of any provision of this Section 9
shall not affect the validity of any other provision in this Section 9 or
elsewhere in this Agreement.
10. NOTICES. Any notice required or desired to be given under
this Agreement shall be deemed given if in writing sent by certified mail to
his residence in the case of the Employee, or to its principal office in the
case of the Bank or Bank Holding Company.
11. WAIVER OF BREACH. The waiver by the Bank of a breach of any
provision of this Agreement by the Employee shall not operate or be construed
as a waiver of any subsequent breach
-6-
<PAGE> 7
by the Employee. No waiver shall be valid unless in writing and signed by an
authorized officer of the Bank.
12. ASSIGNMENT. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee may not
assign any of his rights or delegate any of his duties or obligations under
this Agreement. The rights and obligations of the Employee under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Bank.
13. GOVERNING LAW. This Agreement shall be construed under and in
accordance with the laws of the State of Florida, and all actions brought
hereunder, whether at law or in equity, shall be brought in the circuit court
of the State of Florida for the Twentieth (20th) Judicial Circuit. Each party
to this Agreement hereby consents to the exercise by such court of general
personal jurisdiction over such party or his, her or its representative so as
to enable the court to render personal judgments against the party or
representative.
14. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties hereto regarding employment of Employee, and
supersedes and replaces any prior agreement relating thereto. It may not be
changed orally but only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought.
15. COUNTERPARTS AND HEADINGS. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same instrument. The
headings set out herein are for convenience of reference and shall not be
deemed a part of this Agreement.
16. SUCCESSORS. This Agreement shall inure to the benefit of and
be binding upon the Bank, its successors and assigns and upon the Employee, and
his heirs and legal representatives.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"BANK" "EMPLOYEE"
Heritage National Bank
/s/ Leo R. Doerr (Seal)
--------------------------
Leo R. Doerr
By: /s/ David C. Brown
--------------------------------------
Title: Chairman
-----------------------------------
(Seal)
"BANK HOLDING COMPANY"
Heritage Bancshares, Inc.
By: /s/ David C. Brown
--------------------------------------
Title: Chairman
-----------------------------------
(Seal)
-8-
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of the 11 day of September 1995, by
and among Heritage National Bank, a national banking association (the "Bank"),
Heritage Bancshares, Inc., a Florida corporation (the "Bank Holding Company")
and Geoffrey W. Roepstorff (the "Employee").
W I T N E S S E T H:
WHEREAS, the Bank Holding Company owns one hundred percent (100%) of
the outstanding stock of the Bank; and
WHEREAS, the Board of Directors of the Bank (the "Board") and the Bank
Holding Company, recognizing the experience and knowledge of Employee in the
banking industry, desire to retain the valuable services and business counsel
of Employee, it being in the best interest of the Bank to arrange terms of
employment for Employee so as to reasonably induce Employee to remain in his
capacities with the Bank for the term hereof; and
WHEREAS, the Employee is willing to provide services to the Bank and
the Bank Holding Company in accordance with the terms and conditions
hereinafter set forth;
NOW, THEREFORE, for and in consideration of the premises set forth
above and the mutual covenants herein contained, the parties hereto agree as
follows:
1. EMPLOYMENT. The Bank and the Bank Holding Company will employ
the Employee and the Employee accepts employment upon the terms and conditions
set forth in this Agreement.
2. TERM. The term of Employee's employment hereunder shall be
the period commencing September 11 , 1995 and ending December 31, 1998,
unless terminated earlier in accordance with Sections 7 or 8 of this Agreement.
3. COMPENSATION. For all services which Employee may render to
the Bank or the Bank Holding Company during the term of this Agreement, the
Bank shall pay Employee according to the schedule set forth below:
(a) Base Salary. Effective June 1, 1995 and during each
year of this Agreement, the Bank shall pay to the Employee an annual salary of
Eighty-five Thousand dollars ($85,000) payable in equal monthly installments of
Seven Thousand Eighty-three dollars ($7,083).
(b) Performance Bonuses. For each annual term of this
Agreement, the Bank shall pay to the Employee a performance bonus no later than
sixty (60) days following the close of the Bank's fiscal year, in accordance
with the following formula:
<PAGE> 2
<TABLE>
<CAPTION>
==============================================================
Return on Assets(1)
(ROA) % Bonus(2)
--------------------------------------------------------------
<S> <C>
Less than 0.25% 0%
0.25% to 0.50% 10%
0.51% to 0.75% 15%
0.76% to 1.00% 20%
Over 1.00% 25%
==============================================================
</TABLE>
(1) "Return on Assets (ROA)" means the ratio determined by the
Bank's net after-tax income for the year divided by its total
average assets, determined by the Bank's independent
accounting firm in accordance with generally accepted
accounting principles, except that net income shall first be
reduced by the amount of the Employee's Performance Bonus
under this paragraph 2(b); provided, however, that the
Employee may elect to reduce the amount of his Performance
Bonus to the extent necessary to achieve ROA.
(2) "% Bonus" means the Bonus Amount as a percentage of the
Employee's base salary.
(c) Options. The Employee shall have the right and
option to purchase an additional number of shares of common stock of the Bank
Holding Company in an amount determined by multiplying (i) one thousand (1,000)
shares by (ii) a fraction whose numerator is the Bonus Amount for the year and
whose denominator is the maximum Bonus Amount which could have been received by
the Employee for the year, for a maximum of three thousand (3,000) shares over
the term of this Agreement. The option granted to the Employee pursuant to
this paragraph 3(c) may be exercised by the Employee, in whole or in part, at
any time or from time to time during the period this Agreement is in effect,
beginning on the first day of the second month following the close of the
Bank's fiscal year to which such grant is attributable. Notwithstanding
anything contained herein to the contrary, if the shareholders of the Bank or
the Bank Holding Company approve of a capital reorganization of the common
stock of the Bank Holding Company or a merger or consolidation of the Bank
Holding Company with or into another corporation, or the sale of all or
substantially all of the assets of the Bank, or the Bank Holding Company, then
Employee shall have the right and option to purchase all stock options that
would have been paid to the Employee for the remaining term of this Agreement
pursuant to the terms of this paragraph 3(c). The purchase price for each
share of common stock of the Bank Holding Company that the Employee purchases
pursuant to the exercise of the options granted herein shall be Twelve Dollars
and Fifty Cents ($12.50) per share and shall be paid in cash upon exercise.
(d) Employee Benefit Plans. Employee shall also be
entitled to participate in or become a participant in any employee benefit plan
maintained by the Bank for which the Employee is eligible. The Bank agrees to
provide a term life insurance policy, to the extent obtainable, on the life of
Employee, providing for death benefits payable to Employee's designated
beneficiaries in the amount of One Hundred Thousand Dollars ($100,000.00).
Further, the Bank will furnish to Employee the use of an automobile acceptable
to the parties, plus reimbursement for normal operating expenses related
thereto, and will provide Employee with a social membership in the University
Club, the Edison Pageant of Light, Inc., and other organizations deemed by the
Bank's Board to be appropriate and beneficial for the image and promotion of
the Bank.
-2-
<PAGE> 3
(e) Withholding. Salary, bonuses and all other items
deemed to be paid by the Bank and taxable to the Employee shall be subject to
required withholding taxes, social security taxes and other employment taxes.
(f) Cost of Living Adjustment. The Bank will pay
Employee cost of living adjustments, as an increase in the Employee's Base
Salary set forth in paragraph 3(a) beginning January 1 of each year while this
Agreement is in effect. Such adjustment will be based upon the Consumer Price
Index ("CPI") as determined by the Bureau of Labor Statistics. In no event,
however, shall the annual adjustment pursuant to this paragraph 3(f) be less
than five percent (5%) nor more than ten percent (10%) of the Employee's Base
Salary as set forth in paragraph 3(a).
4. TITLE AND DUTIES. The Bank hereby employs Employee on the
effective date hereof to hold the title of Executive Vice President, and to
perform such services and duties as the Board may, from time to time, designate
during the term hereof. Subject to the terms and conditions hereof, Employee
will perform such duties and exercise such authority as are customarily
performed and exercised by persons holding such office, subject to the
direction of the Board.
5. EXTENT OF SERVICES. Employee accepts such employment and
shall devote his full time, attention and best efforts to the diligent
performance of his duties herein specified and as an officer of the Bank and
will not, directly or indirectly, accept employment with any other individual,
corporation, partnership, governmental authority or other entity or engage in
any other venture for profit which the Bank or the Board may consider to be in
conflict with the Bank's best interests or to be in competition with the Bank,
or which may interfere in any way with the Employee's performance of his duties
hereunder, whether as an employee, director, officer, stockholder, owner,
partner or otherwise; provided, however, that the Employee's ownership of less
than five percent (5%) of the issued and outstanding shares of stock of a
corporation or a five percent (5%) interest in any other entity shall not by
itself be deemed to constitute such competition.
6. EXPENSES. The Employee may incur reasonable expenses for
promoting the business of the Bank and its subsidiaries, including expenses for
entertainment, travel, and similar items. The Employee will be reimbursed for
all such expenses upon the Employee's periodic presentation of an itemized
account of such expenditures.
7. CHANGE IN CONTROL OF THE BANK.
(a) In the event of a "change in control" of the Bank, as
defined herein, Employee shall be entitled, for a period of thirty (30) days
from the date of closing of the transaction effecting such change in control
and at his election, to give written notice to the Bank of termination of this
Agreement and to receive a cash payment equal to one hundred percent (100%) of
the Base Salary received by the Employee in the one-year period immediately
preceding the change in control. The severance payment provided for in this
Section 7(a) shall be paid in full not later than ten (10) days after the date
of notice of termination by Employee under this Section 7 or ten (10) days
after the date of closing of the transaction effecting the change in control of
the Bank Holding Company, whichever is later.
-3-
<PAGE> 4
(b) The payment provided for by Section 7(a) shall be
payable to the Employee only to the extent that such payments are deductible by
the Bank and are not rendered non-deductible by Section 280G of the Internal
Revenue Code of 1986, as amended.
(c) For purposes of this Section 7, "change in control"
of the Bank Holding Company shall mean:
(i) any transaction, whether by merger,
consolidation, asset sale, tender offer,
reverse stock split or otherwise, which
results in the acquisition or beneficial
ownership (as such term is defined under
rules and regulations promulgated under the
Securities Exchange Act of 1934, as amended)
by any person or entity or any group of
persons or entities acting in concert, of 50%
or more of the outstanding shares of Common
Stock of the Bank Holding Company;
(ii) the sale of all or substantially all of the
assets of the Bank or the Bank Holding
Company; or
(iii) the liquidation of the Bank or the Bank
Holding Company.
8. TERMINATION.
(a) Employee's employment pursuant to this Agreement
shall be terminated by the first to occur of any of the following:
(i) the death of Employee;
(ii) the complete disability of Employee.
"Complete disability" as used herein shall
mean the inability of Employee, due to
illness, accident or any other physical or
mental incapacity, to completely fulfill his
obligations hereunder for an aggregate of one
hundred twenty (120) days within any period
of one hundred eighty (180) consecutive days
during the term hereof;
(iii) the expiration of the term of this Agreement
as set forth in paragraph 2;
(iv) thirty (30) days after the Employee has given
written notice to Bank of his intent to
terminate his employment hereunder.
(b) Employee's employment pursuant to this Agreement may
also be terminated by the Bank's discharge of the Employee for cause. Such
discharge shall be by the Board without notice and without further obligation
than for monies already paid. "Cause" as used herein shall include, without
limitation, the Bank's determination of the following:
-4-
<PAGE> 5
(i) failure of Employee to follow reasonable
written instructions or policies of the
Board. (Employee's termination under this
Section 8(b)(i) must not occur until thirty
(30) days after the Employee has received
written notice by the Board of his alleged
failure to follow reasonable written
instructions of the Board and the Board has
given the Employee an opportunity to cure the
failure to the Board's satisfaction).
(ii) receipt by the Bank of written notice from
the Comptroller of the Currency ("OCC") that
the OCC has criticized Employee's performance
or his area of responsibility, and has either
(a) rated the Bank a "4" or a "5" under the
Uniform Financial Institution Rating System
or (b) has determined that the Bank is in a
"troubled condition" as defined under Section
914 of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989;
(iii) gross negligence or willful misconduct of
Employee materially damaging to the business
of the Bank or the Bank Holding Company
during the term of this Agreement, or at any
time while he was employed by the Bank and
the Bank Holding Company prior to the term of
this Agreement, if not disclosed to the Bank
and the Bank Holding Company prior to the
commencement of the term of this Agreement;
or
(iv) conviction of Employee during the term of
this Agreement of a crime involving breach of
trust or moral turpitude.
9. NON-COMPETITION AND NON-SOLICITATION. (a) Employee
acknowledges that he has performed services or will perform services hereunder
which directly affect the Bank's and the Bank Holding Company's business.
Accordingly, the parties deem it necessary to enter into the protective
agreement set forth below, the terms and condition of which have been
negotiated by and between the parties hereto.
(b) During the term of Employee's employment under this
Agreement, and, in the event of termination of employment under this Agreement
by action of Employee prior to the expiration of the term of this Agreement,
except for termination pursuant to Section 7 hereof, for a period of one (1)
year after such termination date, Employee agrees with the Bank and the Bank
Holding Company as follows:
(i) Employee shall not, without the prior written
consent of the Bank and the Bank Holding
Company, within Lee County, Florida, serve as
an executive officer of any bank, bank
holding company or other financial
institution; and
(ii) Employee shall not, without the prior written
consent of the Bank and the Bank Holding
Company (1) furnish anyone with any list or
lists
-5-
<PAGE> 6
of customers of the Bank or the Bank Holding
Company or any banking subsidiary of the Bank
Holding Company or utilize such list or
information himself; (2) furnish, use or
divulge to anyone any trade secrets or
proprietary, confidential information
acquired by him from the Bank Holding Company
or any banking subsidiary of the Bank Holding
Company related to the Bank Holding Company's
or such subsidiary's methods of doing
business; (3) contact directly or indirectly
any customer of the Bank Holding Company or
of any banking subsidiary of the Bank Holding
Company, with whom Employee had contact
during the term of his employment hereunder
in regard to offering or providing banking
services or related services; (4) hire for
any other employer (including himself) any
employee of the Bank Holding Company or any
banking subsidiary of the Bank Holding
Company, with whom Employee had contact
during the term of his employment hereunder
under circumstances where Employee directly
or indirectly causes such employee to leave
the employment of the Bank Holding Company or
such subsidiary; or (5) undertake a business
opportunity that came to the attention of
Employee through his employment hereunder
which Employee had not previously offered in
writing to the Bank Holding Company or the
Bank and which the Bank Holding Company or
the Bank had not rejected in writing.
(c) The covenants of Employee set forth in this Section 9
are separate and independent covenants for which valuable consideration has
been paid, the receipt, adequacy and sufficiency of which are acknowledged by
Employee, and have also been made by Employee to induce the Bank and the Bank
Holding Company to enter into this Agreement. Each of the aforesaid covenants
may be availed of or relied upon by the Bank or Bank Holding Company in any
court of competent jurisdiction, and shall form the basis of injunctive relief
and damages including expenses of litigation (including but not limited to
reasonable attorney's fees) suffered by the Bank arising out of any breach of
the aforesaid covenants by Employee. The covenants of Employee set forth in
this Section 9 are cumulative to each other and to all other covenants of
Employee in favor of the Bank contained in this Agreement and shall survive the
termination of this Agreement for the purposes intended. Should any covenant,
term or condition contained in this Section 9 become or be declared invalid or
unenforceable by a court of competent jurisdiction, then the parties may
request that such court judicially modify such unenforceable provision
consistent with the intent of this Section 9 so that it shall be enforceable as
modified, and in any event the invalidity of any provision of this Section 9
shall not affect the validity of any other provision in this Section 9 or
elsewhere in this Agreement.
10. NOTICES. Any notice required or desired to be given under
this Agreement shall be deemed given if in writing sent by certified mail to
his residence in the case of the Employee, or to its principal office in the
case of the Bank or Bank Holding Company.
11. WAIVER OF BREACH. The waiver by the Bank of a breach of any
provision of this Agreement by the Employee shall not operate or be construed
as a waiver of any subsequent breach
-6-
<PAGE> 7
by the Employee. No waiver shall be valid unless in writing and signed by an
authorized officer of the Bank.
12. ASSIGNMENT. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee may not
assign any of his rights or delegate any of his duties or obligations under
this Agreement. The rights and obligations of the Employee under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Bank.
13. GOVERNING LAW. This Agreement shall be construed under and in
accordance with the laws of the State of Florida, and all actions brought
hereunder, whether at law or in equity, shall be brought in the circuit court
of the State of Florida for the Twentieth (20th) Judicial Circuit. Each party
to this Agreement hereby consents to the exercise by such court of general
personal jurisdiction over such party or his, her or its representative so as
to enable the court to render personal judgments against the party or
representative.
14. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties hereto regarding employment of Employee, and
supersedes and replaces any prior agreement relating thereto. It may not be
changed orally but only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought.
15. COUNTERPARTS AND HEADINGS. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same instrument. The
headings set out herein are for convenience of reference and shall not be
deemed a part of this Agreement.
16. SUCCESSORS. This Agreement shall inure to the benefit of and
be binding upon the Bank, its successors and assigns and upon the Employee, and
his heirs and legal representatives.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"BANK" "EMPLOYEE"
Heritage National Bank
/s/ Geoffrey W. Roepstorff (Seal)
-------------------------
Geoffrey W. Roepstorff
By: /s/ David C. Brown
-------------------------------------
Title: Chairman
----------------------------------
(Seal)
-7-
<PAGE> 8
"BANK HOLDING COMPANY"
Heritage Bancshares, Inc.
By: /s/ David C. Brown
-------------------------------------
Title: Chairman
----------------------------------
(Seal)
-8-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HERITAGE NATIONAL BANK FOR THE YEAR ENDED DECEMBER 31,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,651,823
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,955,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,840,497
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 62,706,496
<ALLOWANCE> 490,373
<TOTAL-ASSETS> 88,170,673
<DEPOSITS> 73,896,799
<SHORT-TERM> 6,281,169
<LIABILITIES-OTHER> 617,098
<LONG-TERM> 0
0
0
<COMMON> 543,972
<OTHER-SE> 6,831,635
<TOTAL-LIABILITIES-AND-EQUITY> 88,170,673
<INTEREST-LOAN> 5,318,128
<INTEREST-INVEST> 1,092,776
<INTEREST-OTHER> 10,529
<INTEREST-TOTAL> 6,421,433
<INTEREST-DEPOSIT> 2,709,987
<INTEREST-EXPENSE> 2,843,331
<INTEREST-INCOME-NET> 3,578,102
<LOAN-LOSSES> 187,000
<SECURITIES-GAINS> 13,963
<EXPENSE-OTHER> 2,786,930
<INCOME-PRETAX> 1,134,978
<INCOME-PRE-EXTRAORDINARY> 1,134,978
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 736,978
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.36
<YIELD-ACTUAL> 4.66
<LOANS-NON> 667,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 427,208
<CHARGE-OFFS> 125,685
<RECOVERIES> 1,850
<ALLOWANCE-CLOSE> 490,373
<ALLOWANCE-DOMESTIC> 490,373
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
