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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-19040
SOUTH FLORIDA BANK HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 65-0221393
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2017 MCGREGOR BOULEVARD, FORT MYERS, FLORIDA 33901
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (941) 334-2020
Securities registered pursuant to Section 12(b) of the Act:
NONE Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
CHECK WHETHER THE ISSUER HAS (1) FILED ALL REPORTS REQUIRED TO BE FILED
BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PAST 12
MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE ISSUER WAS REQUIRED TO FILE SUCH
REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90
DAYS. YES X NO
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CHECK IF DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM 405 OF
REGULATION S-B IS NOT CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE
CONTAINED, TO THE BEST OF ISSUER'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB OR ANY
AMENDMENT TO THIS FORM 10-KSB. [ ]
THE ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR WAS $5,481,185.
THE AGGREGATE MARKET VALUE OF THE COMMON STOCK HELD BY NON-AFFILIATES
OF THE ISSUER IS $7,006,741, BASED ON THE PRICE AT WHICH SHARES OF COMMON STOCK
WERE SOLD ON MARCH 12, 1997.
AS OF MARCH 14, 1997, THERE WERE ISSUED AND OUTSTANDING 1,210,975
SHARES OF THE ISSUER'S COMMON STOCK.
DOCUMENTS INCORPORATED BY REFERENCE
1. PORTIONS OF THE 1996 ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR
ENDED DECEMBER 31, 1996 ARE INCORPORATED INTO PART II, ITEMS 5 THROUGH 8 OF THIS
ANNUAL REPORT ON FORM 10-KSB.
2. PORTIONS OF THE PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON APRIL 22, 1997 TO BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO REGULATION 14A WITHIN 120 DAYS OF THE ISSUER'S
FISCAL YEAR END ARE INCORPORATED INTO PART III, ITEMS 10 THROUGH 13 OF THIS
ANNUAL REPORT ON FORM 10-KSB.
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TABLE OF CONTENTS
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Part I
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Item 1. Business................................................................................. 1
General................................................................................ 1
Deposits............................................................................... 1
Loan Portfolio......................................................................... 2
Investments............................................................................ 3
Correspondent Banking.................................................................. 3
Data Processing........................................................................ 4
Effect of Governmental Policies........................................................ 4
Interest and Usury..................................................................... 4
Supervision and Regulation............................................................. 4
Industry Restructuring................................................................. 11
Competition............................................................................ 11
Employees.............................................................................. 12
Statistical Profile and Other Financial Data........................................... 12
Item 2. Properties............................................................................... 12
Item 3. Legal Proceedings........................................................................ 12
Item 4. Submission of Matters to a Vote of Security Holders...................................... 12
Part II
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Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.................................................................... 13
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................. 13
Item 7. Financial Statements..................................................................... 13
Item 8. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure..................................... 13
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Part III
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Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act...................................... 14
Item 10. Executive Compensation................................................................... 14
Item 11. Security Ownership of Certain Beneficial Owners and
Management............................................................................. 14
Item 12. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................... 14
Signatures................................................................................................ 17
Exhibit Index............................................................................................. 18
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PART I
ITEM 1. BUSINESS
GENERAL
South Florida Bank Holding Corporation ("Holding Corporation") is a
one-bank holding company registered under the Bank Holding Company Act of 1956,
as amended ("BHC Act"). The Holding Corporation was incorporated under the laws
of the State of Florida on September 14, 1990. On January 30, 1991, the Holding
Corporation acquired all of the outstanding shares of common stock of South
Florida Bank ("Bank"), following Bank shareholder approval at a special meeting
held on December 19, 1990. As a bank holding company, the Holding Corporation is
a legal entity separate and distinct from the Bank. At December 31, 1996, the
Holding Corporation, its subsidiary Bank, and the Bank's two wholly-owned
subsidiaries, New Town Properties, Inc. and Valu Prop, Inc. (collectively, the
"Company") had consolidated total assets of $71.5 million, total deposits of
$63.9 million, and shareholders' equity of $6.4 million. The Holding Company's
operating revenue and net income are derived solely from the Bank through
dividends and management fees.
The Bank was organized in 1988 to serve the banking needs of the residents
of the City of Fort Myers and the other surrounding communities. It began
operations on May 23, 1988. The Bank is a Florida state-chartered bank and its
deposits are insured through the Bank Insurance Fund of the Federal Deposit
Insurance Corporation ("FDIC"). The Bank primarily engages in the business of
attracting deposits from the general public and investing those funds in real
estate, commercial and consumer loans. The Bank provides a full range of deposit
accounts and credit services, as well as most other traditional commercial and
consumer banking services, including safe deposit services and automated teller
cards, which allow access to regional ATM networks and permit the Bank's
depositors to access their funds on a 24-hour basis in areas outside the Bank's
geographic market through the Honor System.
DEPOSITS
The Bank's deposit services include business and individual checking
accounts, savings accounts, NOW accounts and certificates of deposit. It is the
Bank's policy to monitor its competition in order to keep the rates paid on its
deposits at a competitive level. Time deposits of $100,000 and over made up
6.90% of the Bank's total deposits at December 31, 1996 as compared to 5.60% at
December 31, 1995. The majority of the deposits of the Bank are generated from
Lee County. The Bank does not accept brokered deposits. At December 31, 1996 and
1995, none of the Bank's total deposits were comprised of public fund deposits.
At December 31, 1996, no single depositor accounted for more than 1.83% of the
Bank's total deposits as compared to 3.25% at December 31, 1995. Management does
not believe the Bank is dependent on a single deposit customer or group of
customers concentrated in a particular industry, whose loss or insolvency would
have a material adverse effect on the Bank's operations.
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Time deposits of $100,000 and over, public fund deposits and funds of
single depositors tend to be short-term in nature and more sensitive to changes
in interest rates than other types of deposits and, therefore, may be a less
stable source of funds. In the event that existing short-term deposits are not
renewed, the resulting loss of the deposited funds could adversely affect the
Bank's liquidity. In a rising interest rate market, such short-term deposits may
prove to be a costly source of funds because their short-term nature facilitates
renewal at increasingly higher interest rates, which may adversely affect the
Company's earnings. However, the converse is true in a falling interest rate
market making such short-term deposits more favorable to the Company.
LOAN PORTFOLIO
The Bank's loans are concentrated in three major areas: commercial loans,
real estate loans, and installment loans. Approximately 18.31% of the Bank's
total loan portfolio at December 31, 1996, consisted of commercial loans as
compared to 19.38% at December 31, 1995. The majority of the Bank's loans are
made on a secured basis. At December 31, 1996 and 1995, no concentration of
loans within any portfolio category to any group of borrowers engaged in similar
activities or in a similar business exceeded 10% of total loans, except that as
of such date loans collateralized with mortgages on real estate represented
66.31% and 69.06%, respectively, of the loan portfolio and were to borrowers in
varying activities and businesses.
The Bank's commercial loans include loans to individuals and small- to
medium-sized businesses located primarily in Lee County for working capital,
equipment purchases, and various other business purposes. A majority of the
Bank's commercial loans are secured by inventory, equipment or similar assets,
but these loans may also be made on an unsecured basis. Commercial loans may be
made at variable- or fixed-interest rates; however, it is the Bank's policy that
those loans which will have terms or amortization schedules of longer than one
year will normally carry interest rates which vary with the prime interest
lending rate and will become payable in full and are generally refinanced in
three to five years.
The Bank's real estate loans are secured by mortgages and consist
primarily of loans to individuals and businesses for various consumer and
business purposes (whether or not related to the real estate securing them). 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. The Bank generally does not make commercial loans for
terms exceeding 20 years, but does make loans repayable in monthly installments
(based on up to a 20-year amortization schedule) which become payable in full
and are generally refinanced in three to five years. The Bank's residential real
estate loans generally are repayable in monthly installments based on an
amortization schedule of up to 20-years with variable-interest rates; however,
most loans are established with a short-term call provision.
The Bank's installment loan portfolio consists primarily of loans to
individuals for various consumer purposes, but includes some business purpose
loans which are payable on an installment basis. The majority of these loans are
for terms of less than five years and are secured by liens
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on various personal assets of the borrowers, but installment loans may be made
on an unsecured basis. Installment loans are made at fixed- and
variable-interest rates, and may be made based on up to a five-year amortization
schedule.
INVESTMENTS
The Bank invests a portion of its assets in U.S. Treasury and U.S.
Government agency obligations, certificates of deposit, collateralized mortgage
obligations ("CMO's"), and federal funds sold. The Bank's investments are
managed in relation to loan demand and deposit growth, and are generally used to
provide for the investment of excess funds at minimal risks while providing
liquidity to fund increases in loan demand or to offset fluctuations in
deposits.
With respect to the Bank's investment portfolio, the Bank's total
portfolio may be invested in U.S. Treasury and general obligations of its
agencies because such securities generally represent a minimal investment risk.
Occasionally, the Bank purchases certificates of deposits of national and state
banks. These investments may exceed $100,000 in any one institution (the limit
of FDIC insurance for deposit accounts). CMO's are secured with Federal National
Mortgage Association ("FNMA") mortgage-backed securities and generally have a
shorter life than the stated maturity. Federal funds sold is the excess cash the
Bank has available over and above daily cash needs. This money is invested on an
overnight basis with approved correspondent banks.
The Bank monitors changes in financial markets. In addition to investments
for its portfolio, the Bank monitors its daily cash position to ensure that all
available funds earn interest at the earliest possible date. A portion of the
investment account is designated as secondary reserves and invested in liquid
securities that can be readily converted to cash with minimum risk of market
loss. These investments usually consist of U.S. Treasury obligations, U.S.
government agencies and federal funds. The remainder of the investment account
may be placed in investment securities of different type and longer maturity.
Daily surplus funds are sold in the federal funds market for one business day.
The Bank attempts to stagger the maturities of its securities so as to produce a
steady cash-flow in the event the Bank needs cash, or economic conditions change
to a more favorable rate environment.
CORRESPONDENT BANKING
Correspondent banking involves one bank providing services to another bank
which cannot provide that service for itself from an economic or practical
standpoint. The Bank is required to purchase correspondent services offered by
larger banks, including check collections, purchase of Federal funds, security
safekeeping, investment services, coin and currency supplies, overline and
liquidity loan participations and sales of loans to or participation with
correspondent banks.
The Bank sells loan participations to correspondent banks with respect to
loans which exceed the Bank's lending limit. Management of the Bank has
established correspondent relationships with the Independent Bankers' Bank of
Florida, Barnett Bank and Compass Bank. As
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compensation for services provided by a correspondent, the Bank maintains
certain balances with such correspondent in non-interest bearing accounts. Such
compensating balances are not deemed significant to the Bank's operations.
DATA PROCESSING
The Bank has a data processing department which provides a full range of
data processing services, including an automated general ledger, deposit
accounting, and commercial, mortgage and installment lending data processing.
EFFECT OF GOVERNMENTAL POLICIES
The earnings and business of the Company are and will be affected by the
policies of various regulatory authorities of the United States, especially the
Board of Governors of the Federal Reserve System ("Federal Reserve Board"). The
Federal Reserve Board, among other things, regulates the supply of credit and
deals with general economic conditions within the United States. The instruments
of monetary policy employed by the Federal Reserve Board for these purposes
influence in various ways the overall level of investments, loans, other
extensions of credit and deposits, and the interest rates paid on liabilities
and received on assets.
INTEREST AND USURY
The Bank is subject to numerous state and federal statutes that affect the
interest rates that may be charged on loans. These laws do not, under present
market conditions, deter the Bank from continuing the process of originating
loans.
SUPERVISION AND REGULATION
Bank Holding Company Regulation. The Holding Corporation is a one-bank
holding company, registered with the Federal Reserve Board under the BHC Act. As
such, the Holding Corporation and the Bank are subject to the supervision,
examination, and reporting requirements of the BHC Act and the regulations of
the Federal Reserve Board. The Holding Corporation is required to furnish to the
Federal Reserve an annual report of its operations at the end of each fiscal
year, and such additional information as the Federal Reserve Board may require
pursuant to the BHC Act.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve Board before (i) it may acquire direct or
indirect ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5% of the total voting shares of the bank, (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of the bank, or (iii) it may merge or consolidate with any other bank
holding company.
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The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy and consideration of convenience and needs issues includes the parties'
performance under the Community Reinvestment Act of 1977 (the "CRA"), both of
which are discussed below.
Banks are subject to the provisions of the CRA. Under the terms of the
CRA, the appropriate federal bank regulatory agency is required, in connection
with its examination of a bank, to assess such bank's record in meeting the
credit needs of the community served by that bank, including low- and
moderate-income neighborhoods. The regulatory agency's assessment of the bank's
record is made available to the public. Further, such assessment is required of
any bank which has applied to (i) charter a national bank, (ii) obtain deposit
insurance coverage for a newly chartered institution, (iii) establish a new
branch office that will accept deposits, (iv) relocate an office, or (v) merge
or consolidate with, or acquire the assets or assume the liabilities of, a
federally regulated financial institution. In the case of a bank holding company
applying for approval to acquire a bank or other bank holding company, the
Federal Reserve will assess the record of each subsidiary bank of the applicant
bank holding company, and such records may be the basis for denying the
application.
The BHC Act generally prohibits the Holding Corporation from engaging in
activities other than banking or managing or controlling banks or other
permissible subsidiaries and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those activities
determined by the Federal Reserve Board to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. In determining
whether a particular activity is permissible, the Federal Reserve Board must
consider whether the performance of such an activity reasonably can be expected
to produce benefits to the public, such as greater convenience, increased
competition, or gains in efficiency, that outweigh possible adverse effects,
such as undue concentration of resources, decreased or unfair competition,
conflicts of interests, or unsound banking practices. For example, factoring
accounts receivable, acquiring or servicing loans, leasing personal property,
conducting discount securities brokerage activities, performing certain data
processing services, acting as agent or broker in selling credit life insurance
and certain other types of insurance in connection with credit transactions, and
performing certain insurance underwriting activities all have been determined by
the Federal Reserve Board to be permissible activities of bank holding
companies. Despite prior approval, the Federal Reserve Board has the power to
order a bank holding company or its subsidiaries to terminate any activity or to
terminate its ownership or control of any subsidiary when it has
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reasonable cause to believe that continuation of such activity or such ownership
or control constitutes a serious risk to the financial safety, soundness, or
stability of any bank subsidiary of that bank holding company.
Bank Regulation. The Bank is chartered under the laws of the State of
Florida and its deposits are insured by the FDIC to the extent provided by law.
The Bank is subject to comprehensive regulation, examination and supervision by
the Florida Department of Banking and Finance (the "Florida Department") and the
FDIC and to other laws and regulations applicable to banks. Such regulations
include limitations on loans to a single borrower and to its directors, officers
and employees; restrictions on the opening and closing of branch offices; the
maintenance of required capital and liquidity ratios; the granting of credit
under equal and fair conditions; and the disclosure of the costs and terms of
such credit. The Bank is examined periodically by both the Florida Department
and the FDIC, to each of whom it submits periodic reports regarding its
financial condition and other matters. Both the Florida Department and the FDIC
have a broad range of powers to enforce regulations under their respective
jurisdiction, and to take discretionary actions determined to be for the
protection of the safety and soundness of the Bank, including the institution of
cease and desist orders and the removal of directors and officers. These
regulatory agencies also have the authority to approve or disapprove mergers,
consolidations, and similar corporate actions.
There are various statutory and contractual limitations on the ability of
the Bank to pay dividends, extend credit, or otherwise supply funds to the
Holding Corporation. The FDIC and the Florida Department also have the general
authority to limit the dividends paid by insured banks and bank holding
companies if such payment may be deemed to constitute an unsafe and unsound
practice. Dividends and management fees from the Bank constitute the sole source
of funds for dividends to be paid by the Holding Corporation. Under Florida law
applicable to banks and subject to certain limitations, after charging off bad
debts, depreciation and other worthless assets, if any, and making provisions
for reasonably anticipated future losses on loans and other assets, the board of
directors of a bank may declare a dividend of so much of the bank's aggregate
net profits for the current year combined with its retained earnings (if any)
for the preceding two years as the board shall deem to be appropriate and, with
the approval of the Florida Department, may declare a dividend from retained
earnings for prior years. Before declaring a dividend, a bank must carry 20% of
its net profits for any preceding period as is covered by the dividend to its
surplus fund, until the surplus fund is at least equal to the amount of its
common stock then issued and outstanding. No dividends may be paid at any time
when a bank's net income from the preceding two years is a loss or which would
cause the capital accounts of the bank to fall below the minimum amount required
by law, regulation, order or any written agreement with the Florida Department
or a federal regulatory agency. Florida law applicable to companies (including
the Holding Corporation) provides that dividends may be declared and paid only
if, after giving it effect, (i) the company is able to pay its debts as they
become due in the usual course of business, and (ii) the company's total assets
would be greater than the sum of its total liabilities plus the amount that
would be needed if the company were to be dissolved at the time of the dividend
to
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satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the dividend.
Under federal law, federally insured banks are subject, with certain
exceptions, to certain restrictions on any extension of credit to their parent
holding companies or other affiliates, on investment in the stock or other
securities of affiliates, and on the taking of such stock or securities as
collateral from any borrower. In addition, such banks are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit or the providing of any property or service.
In 1989, the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA") was enacted. FIRREA contains major regulatory reforms,
stronger capital standards for savings and loan associations and stronger civil
and criminal enforcement provisions. FIRREA also provides that a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989 in
connection with (i) the default of a commonly controlled FDIC insured depository
institution, or (ii) any assistance provided by the FDIC to a commonly
controlled FDIC insured institution in danger of default.
In 1991, the FDIC Improvement Act of 1991 ("FDICIA") was enacted. The Act
makes a number of reforms addressing the safety and soundness of deposit
insurance funds, supervision, accounting, and prompt regulatory action, and also
implements other regulatory improvements. FDICIA also recapitalized the Bank
Insurance Fund, based on an assessment rate schedule that may extend to 15
years. Annual full-scope, on-site examinations are required of all insured
depository institutions. The cost for conducting an examination of an
institution may be assessed to that institution, with special consideration
given to affiliates and any penalties imposed for failure to provide information
requested. Insured state banks also are precluded from engaging as principal in
any type of activity that is impermissible for a national bank, including
activities relating to insurance and equity investments. FDICIA also recodifies
current law restricting extensions of credit to insiders under the Federal
Reserve Act.
Also important in terms of its effect on banks has been the deregulation
of interest rates paid by banks on deposits and the types of deposit accounts
that may be offered by banks. Most regulatory limits on permissible deposit
interest rates and minimum deposit amounts expired several years ago. The effect
of the deregulation of deposit interest rates generally has been to increase the
costs of funds to banks and to make their costs of funds more sensitive to
fluctuations in money market rates. A result of the pressure on banks' interest
margins due to deregulation has been a trend toward expansion of services
offered by banks and an increase in the emphasis placed on fee or non-interest
income.
The Bank is directly affected by government monetary and fiscal policy and
by regulatory measures affecting the banking industry and the economy in
general. The actions of the Board of Governors of the Federal Reserve as the
nation's central bank can directly affect the money supply
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and, in general, affect the lending activities of banks by increasing or
decreasing their cost and availability of funds. An important function of the
Federal Reserve Board is to regulate the national supply of bank credit. Among
the instruments of monetary policy used by the Federal Reserve Board to
implement this objective are open market operations in United States government
securities, changes in the discount rate on member bank borrowings and changes
in reserve requirements against bank deposits. These means are used in varying
combinations to influence overall growth of bank loans, investments and
deposits, and interest rates charged on loans or paid on deposits. The monetary
policies of the Federal Reserve Board have had a significant effect on the
operating results of commercial banks in the past and are expected to continue
to do so in the future.
Congress has provided the federal bank regulatory agencies with an array
of powers to enforce laws, rules, regulations and orders. Among other things,
the agencies may require that institutions cease and desist from certain
activities, may preclude persons from participating in the affairs of insured
depository institutions, may suspend or remove deposit insurance, and may impose
civil money penalties against institution-affiliated parties for certain
violations.
The foregoing is a brief summary of certain statutes, rules, and
regulations affecting the Company and the Bank. Numerous other statutes and
regulations have an impact on the operations of the Company and the Bank.
Supervision, regulation, and examination of banks by the bank regulatory
agencies are intended primarily for the protection of depositors, not
shareholders.
Insurance of Deposits. The Bank's deposit accounts are insured by the FDIC
up to a maximum of $100,000 per insured depositor. The FDIC issues regulations,
conducts periodic examinations, requires the filing of reports and generally
supervises the operations of its insured banks. Any insured bank which is not
operated in accordance with or does not conform to FDIC regulations, policies
and directives may be sanctioned for non-compliance. Proceedings may be
instituted against any insured bank or any director, officer, or employee of
such bank engaging in unsafe and unsound practices, including the violation of
applicable laws and regulations. The FDIC has the authority to terminate
insurance of accounts pursuant to procedures established for that purpose.
Bank Branching. Florida banks are permitted by statute to branch
statewide. Such branch banking, however, is subject to prior approval by the
Florida Department and the FDIC. Any approval by the Florida Department and the
FDIC would take into consideration several factors, including the Bank's level
of capital, the prospects and economics of the proposed branch office, and other
considerations deemed relevant by the Florida Department and the FDIC for
purposes of determining whether approval should be granted to open a branch
office.
Capital Requirements. Regulatory agencies have approved guidelines to
implement a risk- based capital framework that makes capital requirements more
sensitive to the risk profiles of individual banking companies. These guidelines
define capital as either core (Tier 1) capital or supplementary (Tier 2)
capital. Tier 1 capital consists primarily of shareholders' equity, while
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Tier 2 capital is comprised of certain debt instruments and a portion of the
allowance for loan losses. The Bank is required to have a Tier 1 capital ratio
of 4% and a total risk-based capital ratio (Tier 1 plus Tier 2) of 8%. At
December 31, 1996, the Bank's Tier 1 and total risk-based capital ratios were
12.45% and 13.70%, respectively.
FDICIA contains "prompt corrective action" provisions pursuant to which
banks are to be classified into one of five categories based upon capital
adequacy, ranging from "well capitalized" to "critically undercapitalized" and
which require (subject to certain exceptions) the appropriate federal banking
agency to take prompt corrective action with respect to an institution which
becomes "significantly undercapitalized" or "critically undercapitalized".
The FDIC has issued regulations to implement the "prompt corrective
action" provisions of FDICIA. In general, the regulations define the five
capital categories as follows: (i) an institution is "well capitalized" if it
has a total risk-based capital ratio of 10% or greater, has a Tier 1 risk-based
capital ratio of 6% or greater, has a leverage ratio of 5% or greater and is not
subject to any written capital order or directive to meet and maintain a
specific capital level for any capital measures; (ii) an institution is
"adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, has a Tier 1 risk-based capital ratio of 4% or greater, and has a
leverage ratio of 4% or greater; (iii) an institution is "undercapitalized" if
it has a total risk-based capital ratio of less than 8%, has a Tier 1 risk-based
capital ratio that is less than 4% or has a leverage ratio that is less than 4%;
(iv) an institution is "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio
that is less than 3% or a leverage ratio that is less than 3%; and (v) an
institution is "critically undercapitalized" if its "tangible equity" is equal
to or less than 2% of its total assets. The FDIC also, after an opportunity for
a hearing, has authority to downgrade an institution from "well capitalized" to
"adequately capitalized" or to subject an "adequately capitalized" or
"under-capitalized" institution to the supervisory actions applicable to the
next lower category, for supervisory concerns. As of December 31, 1996, the Bank
had a total risk-based capital ratio of 13.70%, a Tier 1 risk-based capital
ratio of 12.45%, and a leverage ratio of 8.82%.
Generally, FDICIA requires that an "undercapitalized" institution must
submit an acceptable capital restoration plan to the appropriate federal banking
agency within 45 days after the institution becomes "undercapitalized" and the
agency must take action on the plan within 60 days. The appropriate federal
banking agency may not accept a capital restoration plan unless, among other
requirements, each company having control of the institution has guaranteed that
the institution will comply with the plan until the institution has been
adequately capitalized on average during each of the four consecutive calendar
quarters and has provided adequate assurances of performance. The aggregate
liability under this provision of all companies having control of an institution
is limited to the lesser of (i) 5% of the institution's total assets at the time
the institution becomes "undercapitalized" or (ii) the amount which is
necessary, or would have been necessary, to bring the institution into
compliance with all capital standards applicable to the institution as of the
time the institution fails to comply with the plan filed pursuant to FDICIA.
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<PAGE> 13
An "undercapitalized" institution may not acquire an interest in any
company or any other insured depository institution, establish or acquire
additional branch offices or engage in any new business unless the appropriate
federal banking agency has accepted its capital restoration plan, the
institution is implementing the plan, and the agency determines that the
proposed action is consistent with and will further the achievement of the plan,
or the FDIC determines the proposed action will further the purpose of the
"prompt corrective action" sections of FDICIA.
If an institution is "critically undercapitalized," it must comply with
the restrictions described above. In addition, the FDIC is authorized to
restrict the activities of any "critically undercapitalized" institution and to
prohibit such an institution, without the FDIC's prior written approval, from:
(i) entering into any material transaction other than in the usual course of
business; (ii) engaging in any covered transaction with affiliates (as defined
in Section 23A(b) of the Federal Reserve Act); (iii) paying excessive
compensation or bonuses; and (iv) paying interest on new or renewed liabilities
at a rate that would increase the institution's weighted average costs of funds
to a level significantly exceeding the prevailing rates of interest on insured
deposits in the institution's normal market areas.
The "prompt corrective action" provisions of FDICIA also provide that in
general no institution may make a capital distribution if it would cause the
institution to become "under-capitalized". Capital distributions include cash
(but not stock) dividends, stock purchases, redemptions, and other distributions
of capital to the owners of an institution.
Additionally, FDICIA requires, among other things, that (i) only a "well
capitalized" depository institution may accept brokered deposits without prior
regulatory approval and (ii) the appropriate federal banking agency annually
examine all insured depository institutions, with some exceptions for small,
"well capitalized" institutions and state-chartered institutions examined by
state regulators. FDICIA also contains a number of consumer banking provisions,
including disclosure requirements and substantiative contractual limitations
with respect to deposit accounts.
Interstate Banking. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 provides for nationwide interstate banking and branching.
Under the law, interstate acquisitions of banks or bank holding companies in any
state by bank holding companies in any other state will be permissible one year
after enactment. Interstate branching and consolidation of existing bank
subsidiaries in different states will be permissible beginning June 1, 1997. The
Florida legislature also has enacted a law that allows out-of-state bank holding
companies (located in states that allow Florida bank holding companies to
acquire banks and bank holding companies in that state) to acquire Florida banks
and Florida bank holding companies. The law essentially provides for
out-of-state entry by acquisition only (and not by interstate branching) and
requires the acquired Florida bank to have been in existence for at least two
years.
10
<PAGE> 14
INDUSTRY RESTRUCTURING
For well over a decade, the banking industry has been undergoing a
restructuring process which is anticipated to accelerate during the next decade.
The restructuring has been caused by the dramatic product and technological
innovations in the financial services industry, deregulation of interest rates,
and increased competition from foreign and nontraditional banking competitors,
and has been characterized principally by the gradual erosion of geographic
barriers to intrastate and interstate banking, the gradual expansion of
investment and lending authorities for bank institutions, and the failure of a
growing number of financial institutions.
Members of Congress and the administration have indicated their intention
to consider additional legislation designed to institute reforms to promote the
viability of the industry. Certain of the proposals would revise the federal
regulatory structure for insured depository institutions; others would affect
the nature of products, services, and activities that bank holding companies and
their subsidiaries may offer or engage in, and the types of entities that may
control depository institutions. There can be no assurance as to whether or in
what form any such proposed legislation might be enacted, or what impact such
legislation might have upon the Company.
COMPETITION
The Company encounters strong competition both in making loans and
attracting deposits. The deregulation of the banking industry and the widespread
enactment of state laws which permit multi-bank holding companies as well as an
increasing level of interstate banking have created a highly competitive
environment for commercial banking in Lee County. In one or more aspects of its
business, the Bank competes with other commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies, brokerage and investment banking companies, and other financial
intermediaries operating in Lee County and elsewhere. Most of these competitors,
some of which are affiliated with bank holding companies, have substantially
greater resources and lending limits, and may offer certain services that the
Bank does not currently provide. In addition, many of the Bank's non-bank
competitors are not subject to the same extensive federal regulations that
govern bank holding companies and federally insured banks. Recent federal and
state legislation has heightened the competitive environment in which financial
institutions must conduct their business, and the potential for competition
among financial institutions of all types has increased significantly.
To compete, the Bank relies upon specialized services, responsive handling
of customer needs, and personal contacts by its officers, directors, and staff.
The large multi-branch banks compete primarily by rate and location of branches
and smaller independent financial institutions tend to compete primarily by
rate.
11
<PAGE> 15
EMPLOYEES
As of December 31, 1996, the Company had 33 full-time employees and six
part-time employees. The employees are not represented by a collective
bargaining unit. The Company believes that its employee relations are excellent.
STATISTICAL PROFILE AND OTHER FINANCIAL DATA
Reference is hereby made to the statistical and financial data contained
in the section captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which is included in the Holding
Corporation's 1996 Annual Report to Shareholders and incorporated in this report
under Item 7 of Part II, for statistical and financial data providing a review
of the Company's business activities.
ITEM 2. PROPERTIES
The Bank's main office is located at 2017 McGregor Boulevard, in the
downtown area of the City of Fort Myers, Florida. The property is an older
two-story building of approximately 6,500 square feet, which is leased by the
Bank. The term of the lease expires in 1999. The lease provides the Bank an
option to purchase the property at the price and in accordance with the terms
set forth in the lease agreement. The Bank also leases space adjacent to the
main office until 1999.
The Bank has a branch office located at 1500 Colonial Boulevard. The Bank
leases space in a two-story building for a term expiring in 2000, with three
renewal options for additional five-year periods each. The Bank also has a
branch office located at the intersection of Daniels Road and Metro Parkway and
operating out of a modular building. The Bank leases ground space for the office
pursuant to an one-year lease expiring in 1997. The land is being leased from a
general partnership in which certain of the directors of the Holding Corporation
and the Bank serve as general partners.
ITEM 3. LEGAL PROCEEDINGS
The Bank is a party to various legal proceedings in the ordinary course of
its business, including proceedings to collect loans or enforce security
interests. In the opinion of management of the Company, none of the legal
proceedings currently pending will, when resolved, have a material adverse
effect on the business or financial condition of the Company on a consolidated
basis.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Holding Corporation security
holders during the fourth quarter of the year ended December 31, 1996.
12
<PAGE> 16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information contained under the section captioned "Capital Stock" in
the Annual Report is incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements and the supplementary financial
information included in the 1996 Annual Report to Shareholders are incorporated
herein by reference:
1. The consolidated financial statements, together with the report
thereon of Brewer, Beemer, Kuehnhackl & Koon, P.A. dated January 30, 1997.
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations and related statistical information.
With the exception of the aforementioned information and the information
incorporated in Items 5, 6, 7, and 8, the 1996 Annual Report to Shareholders is
not to be deemed filed as part of this Form 10-K Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
13
<PAGE> 17
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information contained under the sections captioned "Directors" and
"Executive Officers" under "Election of Directors" and under the section
"Section 16(a) Reporting Requirements" in the registrant's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on April 22, 1997,
to be filed with the SEC pursuant to Regulation 14A within 120 days of the
registrant's fiscal year end (the "Proxy Statement"), is incorporated herein by
reference.
ITEM 10. EXECUTIVE COMPENSATION
The information contained in the sections captioned "Information About the
Board of Directors and Its Committees", "Executive Compensation and Benefits"
and "Information on Benefit Plans and Policies" under "Election of Directors" in
the Proxy Statement, is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained in the sections captioned "Directors" and
"Management Stock Ownership" under "Election of Directors," in the Proxy
Statement, is incorporated herein by reference.
ITEM 12. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants
Consolidated Statements of Financial Condition as of December
31, 1996 and 1995
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1996, 1995, and 1994
14
<PAGE> 18
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted as the required information is
either inapplicable or included in the Notes to Consolidated
Financial Statements.
3. EXHIBITS
3.1 Articles of Incorporation of South Florida Bank Holding
Corporation (Incorporated by reference to Exhibit 3.1 to
the Holding Corporation's Registration Statement No.
33-37385 (the "Registration Statement")).
3.2 Articles of Amendment to Articles of Incorporation of
South Florida Bank Holding Corporation (Incorporated by
reference to Exhibit 3.2 to the Holding Corporation's
Form 10-K for its year ending December 31, 1993).
3.3 Amended and Restated Bylaws of the Holding Corporation
(Incorporated by reference to Exhibit 3.2 to the Holding
Corporation's Form 10-K for its year ended December 31,
1990).
10.1 Employment Agreement dated July 1, 1995 between South
Florida Bank Holding Corporation and William P. Valenti
(Incorporated by reference to Exhibit 10.1 to the
Holding Corporation's Form 10-Q for the quarterly period
ended June 30, 1995.)*
10.2 Employment Agreement dated July 1, 1995 between South
Florida Bank Holding Corporation and Harold S. Taylor,
Jr. (Incorporated by reference to Exhibit 10.3 for the
Holding Corporation's Form 10-Q for the quarterly period
ended June 30, 1995.)*
10.3 South Florida Bank Holding Corporation Officers' and
Employees' Stock Option Plan (Incorporated by reference
to Exhibit 10.4 to the Holding Corporation's Form 10-K
for its year ended December 31, 1993).*
10.4 South Florida Bank Holding Corporation Incentive Stock
Option Agreement dated April 27, 1993 with William P.
Valenti (Incorporated by reference to Exhibit 10.5 to
the Holding Corporation's Form 10-K for its year ended
December 31, 1993).*
15
<PAGE> 19
10.5 South Florida Bank Holding Corporation Incentive Stock
Option Agreement dated February 15, 1994 with Harold S.
Taylor, Jr. (Incorporated by reference to Exhibit 10.7
to the Holding Corporation's Form 10-K for its year
ended December 31, 1993).*
10.6 Lease Agreement dated May 1, 1994 between Leo W.
Englehardt and South Florida Bank, regarding lease of
main Bank office at 2017 McGregor Boulevard, Fort Myers,
Florida. (Incorporated by reference to Exhibit 10.8 to
the Holding Corporation's Form 10-K for its year ended
December 31, 1994.)
10.7 Lease Agreement dated December 8, 1989 between Apex
Properties and South Florida Bank regarding lease of
branch banking office at 1500 Colonial Boulevard, Fort
Myers, Florida (Incorporated by reference to Exhibit
10.7 to the Registration Statement).
10.8 Letter dated June 17, 1996 relating to Daniels & Metro
Parkway Lease Extension.
10.9 Lease Agreement dated July 31, 1992 between The Daniels
& Metro Group and South Florida Bank regarding lease of
branch banking office at the northeast corner of Metro
Parkway, Lee County, Florida (Incorporated by reference
to listing of Exhibits to the Holding Corporation's Form
10-K for its year ended December 31, 1992).
10.10 Lease Agreement dated April 25, 1990 by and between Mann
Enterprises and the Bank (and amendment thereto dated
June 27, 1996).
13.1 South Florida Bank Holding Corporation 1996 Annual
Report.
21.1 Subsidiaries of the Registrant.
27 Financial Data Schedule (for SEC use only).
(b) REPORTS ON FORM 8-K
No Current Reports on Form 8-K were filed by the Holding Corporation
during the last fiscal quarter covered by this report.
- -----------------------
* Represents a management contract or compensatory plan or arrangement
required to be filed as an exhibit.
16
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Fort
Myers, State of Florida, on the 27th day of March, 1997.
SOUTH FLORIDA BANK HOLDING CORPORATION
By: /s/ William P. Valenti
-----------------------------------
William P. Valenti, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 27th, 1997.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Robert Ernest Hendry Chairman of the Board
- ----------------------------
Robert Ernest Hendry
/s/ William P. Valenti President and Chief Executive Officer and Director
- ---------------------------- (Principal financial officer)
William P. Valenti
/s/ Robert C. Adkins Director
- ----------------------------
Robert C. Adkins
/s/ Ronald D. Focht Director
- ----------------------------
Ronald D.Focht
/s/ Carole A. Green Director
- ----------------------------
Carole A. Green
/s/ James T. Humphrey, Jr. Director
- ----------------------------
James T. Humphrey, Jr.
/s/ George T. Mann, Jr. Director
- ----------------------------
George T. Mann, Jr.
/s/ Wallace M. Tinsley Director
- ----------------------------
Wallace M. Tinsley
/s/ Sharon Landel Controller
- ---------------------------- (Principal accounting officer)
Sharon Landel
</TABLE>
17
<PAGE> 21
South Florida Bank Holding Corporation
Form 10-KSB
For Fiscal Year Ending December 31, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
No. Exhibit No.
<S> <C> <C>
10.8 Letter dated June 16, 1996 relating to Daniels &
Metro Parkway Lease Extension.
10.10 Lease Agreement dated April 25, 1990 by and
between Mann Enterprises and the Bank (and
amendment thereto dated June 27, 1996).
13.1 South Florida Bank Holding Corporation 1996
Annual Report
21.1 Subsidiaries of the Registrant
27 Financial Data Schedule (for SEC use only)
</TABLE>
18
<PAGE> 1
Exhibit 10.8
June 17, 1996
Mr. William Valenti, President
South Florida Bank
2017 McGregor Blvd.
Fort Myers, FL 33901
Re: Daniels & Metro Parkway Lease Extension
Dear Bill:
According to our records, your lease for the branch bank located at Daniels and
Metro Parkways in South Lee County will expire on June 30, 1996. This letter
will serve as a "Lease Addendum", which must be executed by the Bank and the
Landlord to keep this lease in effect. This Addendum shall contain the following
terms and conditions:
1. LEASE TERM:
The term of the Lease shall be renewed for the period from July 1, 1996 through
June 30, 1997; however, Lessee or Lessor may, following six month's advance
written notice given by one party to the other party, terminate this Lease and,
in either event, Lessee shall pay rent only the calendar month in which Lessee
vacates the Premises or through the calendar month in which the Tenant
Improvements last occupy the lease site, whichever is later.
2. RENTAL:
The Rental payment for the Leased Premises is $2,400.00 per month, plus
applicable Florida State rental taxes, payable as provided in the existing
Lease.
3. OTHER TERMS:
Except as hereinabove expressly amended, revised or modified, all other terms,
covenants and conditions of the existing lease, dated July 31, 1992, and
subsequent Addendums and/or Extensions shall remain in full force and effect.
<PAGE> 2
Mr. William Valenti
June 17, 1996
Page 2.
If these terms and conditions are satisfactory, please signify your acceptance
of same by signing and dating both counterpart originals of this letter where
indicated below and then returning one executed original of this letter to me.
Upon your acceptance, this executed letter will become an Addendum to the
subject lease.
Should you have any questions, please do not hesitate to contact me.
Sincerely,
/s/ Chris Bundschu
Chris Bundschu
As Agent for Daniels & Metro Group, Lessor
Enclosure
\DMG/Lse6712.Doc
ACCEPTANCE
THE ABOVE terms and conditions are agreed upon and accepted this 20th day of
June, 1996.
SOUTH FLORIDA BANK
By: /s/ Harold S. Taylor, Jr.
----------------------------
Harold S. Taylor, Jr.
Title: Executive Vice President
Date: June 20, 1996
<PAGE> 1
Exhibit 10.10
OFFICE BUILDING
LEASE AGREEMENT
THIS LEASE, made as of the 25th day of April, 1990, by and between MANN
ENTERPRISES, hereinafter referred to as "LESSOR," and SOUTH FLORIDA BANK, INC.,
hereinafter referred to as "LESSEE";
WITNESSETH:
For and in consideration of the rents, covenants, agreements and
conditions hereinafter reserved, made and entered into on the part of the Lessee
to be paid, performed, and observed, it is hereby stipulated, covenanted and
agreed by and between the Lessor and the Lessee as follows:
1. That Lessor does hereby let, demise and lease to the Lessee, and the
Lessee does hereby hire and take from the Lessor that certain office space
hereinafter identified as:
2029-2031 McGregor Boulevard, Fort Myers, Florida, 33901, hereinafter
sometimes referred to as the "Building," and said space being further
described and identified as: approximately 4,495 square feet; one story
with adjacent parking;
and being hereinafter sometimes referred to as the "premises," said lease to
be for the term of:
72 months, commencing on the 1st day of May, 1990,
Yielding and paying therefore, during the term aforesaid, the minimum monthly
rental according to the following schedule:
from May 1, 1990 through September 30, 1990, $7.50 per square foot
annually for 1,570 square feet or NINE HUNDRED EIGHTY ONE AND 25/100
DOLLARS, (981.25) per month
thereafter from October 1, 1990 through April 30, 1991, $7.50 per
square foot annually for 4,495 square feet or TWO THOUSAND EIGHT
HUNDRED NINE AND 37/100 DOLLARS, ($2,809.37) per month
thereafter from May 1, 1991 through April 30, 1992 $8.02 per square
foot annually for 4,495 square feet or THREE THOUSAND FOUR AND 16/100
DOLLARS, ($3,004.16) per month
thereafter from May 1, 1992 through April 20, 1993 $8.58 per square
foot annually for 4,495 square feet or THREE THOUSAND TWO HUNDRED
THIRTEEN AND 92/100 DOLLARS, (3,213.92) per month
thereafter for the remaining thirty six (36) months, on the annual
anniversary date of May 1 each year, beginning May 1, 1993 the rent
amount shall be adjusted according to the United States Federal
Government's Consumer Price Index for the last full calendar year,
applied to the immediately preceding year's cost per foot rate,
each, on the first day of every month of said term in advance, without demand,
and without regard to any right of setoff, counterclaim or deduction, plus
<PAGE> 2
applicable Florida State Taxes, at the office of and made payable to:
MANN ENTERPRISES
2940 HANSON STREET
FORT MYERS, FL 33901
(334-3742)
2. No structural changes, alterations, improvements, or additions to
the demised premises shall be made to or upon said premises or any part thereof
without the written consent of the Lessor being first had and obtained. All
structural changes, alterations, additions and improvements made or placed in or
upon the demised premises by the Lessor or the Lessee, and which by operation of
law would become a part of the real estate, shall immediately upon being made or
placed thereon become the property of the Lessor and shall remain upon and be
surrendered with the demised premises as a part thereof, at the termination, by
lapse of time or otherwise, of the term herein granted.
3. The Lessor agrees to furnish in connection with the demised
premises, at its own cost and expense the following: external maintenance to the
yard and/or Building, including the roof.
4. Lessee shall be responsible for other services, i.e. electricity,
water, janitorial services, replacement of light bulbs, fluorescent tubes,
ballasts, motors, plumbing, or other items considered normal maintenance. Lessor
shall reimburse Lessee for one half (1/2) the cost of any air conditioning
compressor should total replacement thereof be required during the term of this
lease.
5. The Lessee agrees that all personal property in the premises demised
hereunder shall be at the risk of the Lessee only, and the Lessor shall not be
liable for any damage to any personal property in or upon said premises or the
building of which said premises are a part.
6. The Lessee shall not assign, mortgage, hypothecate or otherwise
encumber this Lease or the leasehold interest granted hereby, or any interest
therein, or permit the use of the premises or any part thereof by any person or
persons other than the Lessee, or sublet the premises, or any part thereof,
without the written consent of the Lessor, and such consent would not be
unreasonably withheld.
7. The Lessee shall take good care of the premises hereby demised and
shall, at the Lessee's own cost and expenses, make all routine repairs to the
same which are occasioned by the Lessee's use and occupancy thereof, and at the
end or other expiration of the term of this Lease, Lessee shall deliver up the
demised premises in the same condition as received, ordinary wear and tear by
normal use thereof excepted, and excepting also any building modification agreed
to under Section 2 above.
8. The Lessee agrees that the Lessor, or its officers, agents,
servants, and employees, may enter said premises at any hour in an emergency to
protect the same against elements or accidents and other times as reasonable
need for inspection occurs, said other times being with reasonable notice to the
Lessee and pursuant any State or Federal requirements.
9. In the event of any increase after the commencement of the Lease of
real estate taxes, due to millage or assessment increases, payable by Lessor in
respect to the land or improvements of which premises are a part, over the
amount of 1989 taxes, such increase in taxes shall be paid by the Lessee
proportionately as the square footage occupied bears to the total rentable
<PAGE> 3
square footage of the Building of which the premises forms a part. Lessor shall
notify Lessee of any such increase in taxes, and shall indicate in such notice
the amount of Lessee's pro rata share of same. Any such annual increase shall be
payable divided in equal amounts over the next twelve (12) months after Lessee's
receipt of the notice. For the purposes of computation under this paragraph the
total rentable building square footage if 7,455 square feet.
10. If Lessee becomes insolvent, voluntarily or involuntarily bankrupt,
or if a receiver, assignee or other liquidating officer is appointed for the
business of Lessee, then Lessor may terminate this Lease at the option of
Lessor. Notwithstanding any other provisions contained in the lease, in the
event the Lessee is closed or taken over by the banking authority of the State
of Florida, or other bank supervisory authority, the Lessor may terminate the
lease only with the concurrence of such banking authority or other bank
supervisory authority, and any such authority shall in any event have the
election either to continue or to terminate the lease. Provided, that in the
event this lease is terminated, the maximum claim of Lessor for damages or
indemnity for injury resulting from the rejection or abandonment of the
unexpired term of the lease shall in no event be in an amount exceeding the rent
reserved by the lease, without acceleration, for the year next succeeding the
date of the surrender of the premises to the Lessor, or the date of re-entry of
the Lessor, whichever first occurs, whether before or after the closing of the
bank, plus an amount equal to the unpaid rent accrued, without acceleration up
to such date.
11. Permission is hereby granted for Lessee to remove and renovate at
their expense, the rear of the southernmost portion of the building but not more
than 1,450 square feet. Lessee hereby agrees to reconstruct or relocate any
bathroom facilities lost in said partial building removal in a nearby section of
the remaining building, or expand remaining bathrooms to provide for those lost,
in accordance with the reasonable design requirements of Lessor.
12. Option to renew this lease for four (4) additional years is hereby
granted. Rent charged for the first additional annual period shall be adjusted
for that year, and again each following year, based upon an increase in the
preceding year's rent of 7% or the Federal Consumer Price Index, as previously
applied in this lease, whichever is greater.
IN WITNESS WHEREOF, Lessor and Lessee have executed this lease as of
the day and year first above written.
WITNESS:
/s/ Barbara A. Persons /s/ Franklin B. Mann
- ----------------------- -----------------------
As to Lessor Franklin B. Mann
Managing Partner
Mann Enterprises
SOUTH FLORIDA BANK, INC.
/s/ Barbara A. Persons /s/ Jerry Hussey
- ----------------------- -----------------------
As of Lessee BY: Jerry Hussey
Chief Executive Officer
<PAGE> 4
Exhibit 10.10 (cont'd)
AMENDMENT TO OFFICE BUILDING LEASE AGREEMENT
THIS AMENDMENT dated the 27th day of June, 1996, amends that certain
Office Building Lease Agreement dated April 25, 1990, ("LEASE") by and between
MANN ENTERPRISES ("LESSOR") and SOUTH FLORIDA BANK, INC., ("LESSEE").
RECITALS:
NOW THEREFORE, in exchange for good and valuable consideration hereby
acknowledged as received, LESSOR and LESSEE agree as follows:
1. LESSEE has paid LESSOR all rents due under the LEASE, including
sales tax and CPI rental increases, through June, 1996.
2. The square footage described in line 6 of paragraph 1 of the LEASE
is modified from 4,495 square feet to 4,095 square feet.
3. Term. The term of the LEASE is extended and the new term is for
three years beginning May 1, 1996, and extending through April 30, 1999. The
rental amounts, including an annual rental increase of three percent (3%), are
as follows:
May 1, 1996 - $1,800.00 per month
April 30, 1997 ($21,600.00 per year),
plus sales tax
May 1, 1997 - $1,854.00 per month
April 30, 1998 ($22,248.00 per year),
plus sales tax
May 1, 1998 - $1,909.62 per month
April 30, 1999 ($22,915.44 per year),
plus sales tax
4. Renewal. LESSEE may renew for up to two additional terms of three
years, by giving written notice to LESSOR of its intent to renew prior to the
completion of the initial term, or first renewal term, as the case may be.
During the renewal term or terms, the rental amount shall be negotiated between
LESSOR and LESSEE prior to execution of the renewal. In any event, LESSEE shall
retain the right of first refusal regarding the additional terms stated herein.
5. Paragraph 2 of the LEASE is amended to include the sentence: "Such
consent will not be unreasonably withheld." following the first sentence that
ends on line 3.
<PAGE> 5
6. Paragraph 12 of the LEASE is deleted.
7. All provision of the LEASE, except as modified by this Amendment,
remain in full force and effect.
IN WITNESS WHEREOF, LESSOR and LESSEE have executed this Amendment to
LEASE as of the day and year first above written.
Witnesses:
/s/ Deborah Morphy LESSOR:
- ---------------------------
1st Witness
Print Name: Deborah Morphy MANN ENTERPRISES
/s/ Venita Prescott By: /s/ Franklin B. Mann
- --------------------------- ----------------------
2nd Witness Franklin B. Mann
Print Name: Venita Prescott Manager Partner
/s/ Judith A. Bentley LESSEE:
- ---------------------------
1st Witness
Print Name: Judith A. Bentley SOUTH FLORIDA BANK, INC.
/s/ Suzanne F. Hughes By: /s/ Harold S. Taylor, Jr.
- --------------------------- ----------------------
2nd Witness Harold S. Taylor, Jr.
Print Name: Suzanne F. Hughes Executive Vice President
<PAGE> 1
EXHIBIT 13.1
March, 1997
Dear Fellow Shareholders:
Your Company continues to build value for our community and our
shareholders. South Florida Bank is one of the few remaining independent
community banks in Lee County, and enjoyed a record year of growth and
profitability. The Directors and management are pleased to report the following
accomplishments.
The Company earned $1,000,206, or $.82 per share, during 1996, representing
a 69% improvement from 1995 earnings of $593,000, or $.59 per share. This is the
second consecutive year of record profits. The 1996 return on average equity was
18.44% and return on average assets was 1.57%, as compared to a 1995 return on
average equity of 14.89% and return on average assets of 1.01%. In addition,
quarterly profits continue to improve with 1996 fourth quarter pre-tax earnings
of $204,000 exceeding 1995 fourth quarter pre-tax earnings of $146,000. This is
an increase of 40%.
Total assets increased $7.9 million, or 12%, to $71.5 million as of
December 31, 1996. Loans grew 21% to $43.1 million as the Bank funded $17.5
million of new loans during 1996 as compared to $13.0 million during 1995. The
Bank's advertising campaign highlighting our personal approach to banking
resulted in a 14% increase in deposits. In addition, the Bank improved its asset
quality, reducing loans on non-accrual status and other real estate owned to
$811,000, or 1.13% of total assets.
Earnings improved during 1996 from 1995 primarily as a result of the
increase in net interest income and the decrease in non-interest expenses. An
increase in total assets coupled with an improvement in the net interest margin
to 4.85% from 4.63% resulted in an increase of $388,000 in net interest income.
Non-interest expenses decreased for the fourth consecutive year. Non-interest
expenses totaled $2.6 million in 1996, or a reduction of $79,000 from 1995.
Your Bank's capital remains strong with average equity totaling 8.52% of
average assets, and exceeds the FDIC's guidelines for a well-capitalized bank.
Our capital base enables us to continue to grow and meet the needs of an ever
expanding community.
We are pleased that George T. (Pat) Mann, Jr., President of George T. Mann
General Contractor, Inc., and Carole A. Green, a Director of the Hospital Board
of Lee County d/b/a Lee Memorial Health Systems have joined our Board of
Directors in October, 1996. They have already made valuable contributions.
Please read the following report as it provides an in-depth analysis of
your Company's financial information. We look forward to meeting with you at the
Annual Meeting to be held on Tuesday, April 22, 1997 at 4:00 p.m. at the Bank's
Colonial Office, 1500 Colonial Boulevard, Fort Myers, Florida.
Very truly yours,
Robert Ernest Hendry William P. Valenti
Chairman of the Board President and Chief
Executive Officer
<PAGE> 2
SOUTH FLORIDA BANK HOLDING CORPORATION
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Statements of Operations:
- ------------------------
Total interest income .................. $ 4,869,672 $ 4,534,245 $ 3,749,349 $ 4,325,676 $ 6,138,754
Total interest expense ................. 1,956,622 2,009,174 1,402,489 1,744,587 2,794,607
------------ ------------ ------------ ------------ ------------
Net interest income ............... 2,913,050 2,525,071 2,346,860 2,581,089 3,344,147
Provision for loan losses .............. -- 28,000 (75,000) 325,000 2,540,000
Non-interest income .................... 611,513 547,321 515,196 612,408 626,210
Non-interest expense ................... 2,632,357 2,711,569 2,894,585 3,518,497 3,931,547
------------ ------------ ------------ ------------ ------------
Income (Loss) before
income taxes .................. 892,206 332,823 42,471 (650,000) (2,501,190)
Benefit for income taxes ............... 108,000 260,000 -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) ................. $ 1,000,206 $ 592,823 $ 42,471 $ (650,000) $ (2,501,190)
============ ============ ============ ============ ============
Net income (loss) per share ....... $ .82 $ 0.59 $ 0.04 $ (0.71) $ (3.15)
============ ============ ============ ============ ============
Return (Loss) on average assets ........ 1.57% 1.01% .08% (1.05)% (3.25)%
Return (Loss) on average equity ........ 18.44 14.89 1.20 (16.99) (46.67)
Loans charged-off ...................... $ (98,341) $ (815,193) $ (163,072) $ (1,454,117) $ (4,018,232)
Loans recovered ........................ 150,633 296,700 507,821 487,932 104,618
------------ ------------ ------------ ------------ ------------
Net loans (charged-off)
recovered ..................... $ 52,292 $ (518,493) $ 344,749 $ (966,185) $ (3,913,614)
============ ============ ============ ============ ============
Statements of Financial Condition:
- ---------------------------------
Total loans ............................ $ 44,040,268 $ 36,545,637 $ 32,854,507 $ 35,887,129 $ 40,382,123
Allowance for loan losses .............. 904,562 852,270 1,342,763 1,073,014 1,714,199
------------ ------------ ------------ ------------ ------------
Loans - net ....................... 43,135,706 35,693,367 31,511,744 34,814,115 38,667,924
Total loan delinquencies 30
days and over ..................... 390,345 904,198 1,609,520 1,756,673 2,979,472
Other real estate owned ................ 548,500 582,500 2,361,035 4,107,177 5,081,110
------------ ------------ ------------ ------------ ------------
Total ............................. 938,845 1,486,698 3,970,555 5,863,850 8,060,582
Investments ............................ 16,639,176 17,867,052 13,461,342 11,559,669 13,877,939
Federal funds sold ..................... 5,179,000 5,337,000 1,428,000 1,785,000 5,336,000
Total assets ........................... 71,529,527 63,590,119 52,751,846 57,476,270 69,574,730
Total deposits ......................... 63,887,775 55,990,836 48,136,291 51,847,669 63,247,150
Total shareholders' equity ............. 6,407,725 5,386,085 3,803,037 3,813,952 3,459,696
Book value per share ................... 5.29 4.50 3.79 3.80 4.35
Number of branches ..................... 3 3 3 3 3
Average equity to average assets ....... 8.52% 6.48% 6.56% 6.17% 6.96%
Total risk-based capital ratio ......... 13.70 13.33 11.04 9.84 8.57
Tier 1 capital to total asset ratio .... 8.82 8.05 6.92 6.25 5.09
</TABLE>
2
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Consolidated total assets of South Florida Bank Holding Corporation (the
"Holding Corporation"), its subsidiary South Florida Bank (the "Bank"), and the
Bank's wholly-owned subsidiaries, New Town Properties, Inc. and Valu Prop, Inc.
(collectively, the "Company") increased to $71.5 million as of December 31,
1996, from $63.6 million as of December 31, 1995, an increase of $7.9 million or
12.49%. During 1996 the Bank emphasized growth by means of an advertising
campaign and an officer calling program. The Company's shareholders' equity
increased to $6.4 million as of December 31, 1996 from $5.4 million as of
December 31, 1995, an increase of $1.0 million or 18.97%. This increase was
primarily the result of net income of $1.0 million, the exercise of 15,000 stock
options for $75,000, partially offset with the $54,000 decrease resulting from
unrealized securities losses. As of December 31, 1996, the Bank's total
risk-based capital ratio was 13.70% and leverage ratio was 8.82%, as compared to
13.33% and 8.05%, respectively, as of December 31, 1995. See "Capital Resources"
for additional information regarding the Bank's capital ratios.
Net income increased to $1.0 million for the year ended December 31, 1996,
or $.82 per share, from $593,000 for the year ended December 31, 1995, or $.59
per share, and from net income of $42,000 for the year ended December 31, 1994,
or $.04 per share. Income before income taxes increased to $892,000 for 1996,
from $333,000 for 1995 and $42,000 for 1994. The Company's improved earnings
during 1996 as compared to the prior two years resulted partly from net interest
income increasing $388,000 from 1995 to 1996 and $178,000 from 1994 to 1995 as
the Bank's total interest-earning assets grew. In addition, the total of legal
and collection expenses decreased to $149,000 during 1996 from $193,000 and
$334,000 during 1995 and 1994, respectively, and the Bank recorded a benefit for
income taxes of $108,000 during 1996 and $260,000 during 1995.
The following discussion provides a more in-depth analysis of the Company's
financial condition and results of operations. The financial statements and
accompanying notes included in this report are an integral part of this
discussion and should be read in conjunction with it.
FINANCIAL CONDITION
The Bank's advertising campaign, coupled with an officer calling program,
resulted in an increase in total assets and liabilities. The Company's total
assets increased to $71.5 million as of December 31, 1996 from $63.6 million as
of December 31, 1995, an increase of $7.9 million or 12.49%. Earning assets,
comprised of loans and the investment portfolio (which in turn is comprised of
investments held-to-maturity, investments available-for-sale, and federal funds
sold) increased, as discussed below, to $64.9 million as of December 31, 1996
from $58.9 million as of December 31, 1995, an increase of $6.0 million or
10.28%. Non-earning assets, comprised of cash and due from banks, premises and
equipment, accrued interest receivable, other real estate owned and other
assets, increased to $6.6 million as of December 31, 1996 from $4.7 million as
of December 31, 1995, an increase of $1.9 million (primarily due to a $1.9
million increase in cash and due from banks) or 40.12%.
Net loans increased to $43.1 million as of December 31, 1996 from $35.7
million as of December 31, 1995, an increase of $7.4 million or 20.85%. Mortgage
loans which increased $4.0 million were the primary components of outstanding
loans. In addition, installment loans increased $2.1 million (with the
introduction during late 1995 of a mobile home loan product) and commercial
loans increased $981,000. Management's strategy is to lend to small-to-medium
sized businesses. For a discussion of the decrease of loans on non-accrual
status to $263,000 as of December 31, 1996 from $676,000 as of December 31,
1995, and the increase in the allowance for loan losses to $905,000 as December
31, 1996 from $852,000 as of December 31, 1995, see "--Allowance for Loan
Losses".
The investment portfolio decreased to $21.8 million as of December 31, 1996
from $23.2 million as of December 31, 1995, a decrease of $1.4 million or 5.97%.
The proceeds from the decrease in the investment portfolio were primarily used
to fund the increase in loans.
3
<PAGE> 4
Cash and due from banks increased to $4.7 million as of December 31, 1996
from $2.8 million as of December 31, 1995, or an increase of $1.9 million or
69.90%. This increase resulted primarily from the increase in funds due from
banks. These funds were primarily the proceeds of a portion of the increase in
demand deposit accounts which increased $4.8 million from December 31, 1995 to
December 31, 1996.
Premises and equipment decreased to $408,000 as of December 31, 1996 from
$503,000 as of December 31, 1995, a decrease of $95,000 or 18.72%. This decrease
resulted primarily from the excess of 1996 depreciation expense of $146,000 over
the cost of furniture and fixed asset acquisitions. Accrued interest receivable
decreased to $452,000 as of December 31, 1996 from $496,000 as of December 31,
1995, a decrease of $44,000 or 8.94%. This decrease resulted primarily from the
$63,000 decrease in accrued interest receivable on investment securities
partially offset with the increase in accrued interest receivable on loans
receivable which increased with the increase in total loans.
Other real estate owned decreased to $549,000 as of December 31, 1996 from
$583,000 as of December 31, 1995, a decrease of $34,000 or 5.84%. This decrease
resulted primarily from a partial write-down in the carrying value of a certain
piece of other real estate owned. See "-- Allowance for Loan Losses" for a
discussion of the four remaining assets reported as other real estate owned.
Other assets increased to $504,000 as of December 31, 1996 from $367,000 as of
December 31, 1995, an increase of $137,000 or 37.27%. This increase resulted
primarily from the $108,000 increase in deferred income tax assets, net of the
valuation allowance associated with the Company's tax loss carryforward.
Deposits increased to $63.9 million as of December 31, 1996 from $56.0
million as of December 31, 1995, an increase of $7.9 million or 14.10%. Core
deposits increased to $59.5 million as of December 31, 1996 from $52.9 million
as of December 31, 1995, an increase of $6.6 million or 12.58%. This increase in
core deposits primarily reflected deposit accounts opened (including the new
15-month certificate of deposit) as a result of the advertising campaign and
officer calling program. As of December 31, 1996 and 1995, the ratio of net
loans to deposits was 67.52% and 63.75%, respectively.
Securities sold under agreements to repurchase ("Sweep Accounts") decreased
to $749,000 as of December 31, 1996 from $1.6 million as of December 31, 1995, a
decrease of $874,000 or 53.86%. This decrease resulted from Sweep Accounts
closing as originally contracted with the customers.
4
<PAGE> 5
For the years ended December 31, 1996, 1995 and 1994, the Bank's average
statements of financial condition, interest income and expense, and yields
earned and rates paid were as follows:
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST YIELDS AND RATES
1996 1995
-------------------------------------- ---------------------------------------
Average Yield/ Average Yield/
ASSETS: Balance Interest Rate Balance Interest Rate
------------ ---------- ----- ------------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commercial ....................... $ 7,536,483 $ 767,113 10.18% $ 6,292,714 $ 647,245 10.29%
Mortgage (a) ..................... 26,930,923 2,434,924 9.04 23,846,224 2,214,187 9.29
Installment ...................... 2,593,582 224,442 8.65 1,458,742 144,760 9.92
Other ............................ 2,876,305 289,674 10.07 2,511,312 260,973 10.39
------------ ---------- ----- ------------ ---------- -----
Total loans, net
of unearned
income (b) ....................... 39,937,293 3,716,153 9.30 34,108,992 3,267,165 9.58
Investment securities-
all taxable ...................... 16,703,169 981,321 5.88 16,796,439 1,053,831 6.27
Federal funds sold .................. 3,234,819 172,198 5.32 3,625,897 213,249 5.88
------------ ---------- ----- ------------ ---------- -----
Total earning
assets (c) ....................... 59,875,281 $4,869,672 8.13% 54,531,328 $4,534,245 8.31%
========== ===== ========== =====
Cash and due
from banks ....................... 2,809,497 2,497,149
Other assets ........................ 1,879,234 2,637,183
Allowance for
loan losses ...................... (927,332) (981,014)
------------ ------------
Total assets ........................ $ 63,636,680 $ 58,684,646
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing deposits:
NOW accounts ..................... $ 7,604,620 $ 123,378 1.62% $ 7,131,146 $ 136,564 1.92%
Money market ..................... 9,332,707 242,863 2.60 9,274,608 280,082 3.02
Savings .......................... 2,360,086 52,476 2.22 2,260,354 55,796 2.47
Time deposits:
Under $100,000 ................... 23,031,493 1,333,029 5.79 22,445,225 1,335,187 5.95
$100,000 & over .................. 3,145,980 178,118 5.66 2,822,473 162,786 5.77
------------ ---------- ----- ------------ ---------- -----
Total interest-bearing
deposits ......................... 45,474,886 1,929,864 4.24 43,933,806 1,970,415 4.48
Sweep accounts ...................... 1,194,434 38,623 3.23 958,802 39,750 4.15
------------ ---------- ----- ------------ ---------- -----
Total interest-bearing
liabilities ...................... 46,669,320 $1,968,487 4.22% 44,892,608 $2,010,165 4.48%
========== ===== ========== =====
Demand deposits ..................... 11,093,282 9,520,152
Other liabilities ................... 450,556 471,786
Shareholders' equity ................ 5,423,522 3,800,100
------------ ------------
Total ............................... $ 63,636,680 $ 58,684,646
============ ============
SPREAD AND INTEREST DIFFERENTIAL:
Interest rate spread ................ 3.91% 3.83%
===== =====
Excess of total earning assets
over total interest-bearing
liabilities ...................... $ 13,205,961 $ 9,638,720
============ ============
Net yield on interest-
earnings assets .................. $2,901,185 4.85% $2,524,080 4.63%
========== ===== ========== =====
</TABLE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST YIELDS AND RATES
1994
--------------------------------------
Average Yield/
ASSETS: Balance Interest Rate
- ------ ------------ ---------- -----
<S> <C> <C> <C>
Loans:
Commercial ....................... $ 7,857,366 $ 701,554 8.93%
Mortgage (a) ..................... 23,108,759 2,063,031 8.93
Installment ...................... 1,652,266 162,293 9.82
Other ............................ 1,917,674 195,176 10.18
------------ ---------- -----
Total loans, net
of unearned
income (b) ....................... 34,536,065 3,122,054 9.04
Investment securities-
all taxable ...................... 12,203,210 563,621 4.62
Federal funds sold .................. 1,504,963 63,674 4.23
------------ ---------- -----
Total earning
assets (c) ....................... 48,244,238 $3,749,349 7.77%
========== =====
Cash and due
from banks ....................... 2,331,964
Other assets ........................ 4,654,216
Allowance for
loan losses ...................... (1,273,098)
------------
Total assets ........................ $ 53,957,320
============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing deposits:
NOW accounts ..................... $ 6,973,190 $ 127,934 1.83%
Money market ..................... 9,748,941 264,586 2.71
Savings .......................... 2,509,565 60,313 2.40
Time deposits:
Under $100,000 ................... 17,366,561 794,850 4.58
$100,000 & over .................. 2,538,346 123,030 4.85
------------ ---------- -----
Total interest-bearing
deposits ......................... 39,136,603 1,370,713 3.50
Sweep accounts ...................... 900,153 31,776 3.53
------------ ---------- -----
Total interest-bearing
liabilities ...................... 40,036,756 $1,402,489 3.50%
========== =====
Demand deposits ..................... 9,874,901
Other liabilities ................... 508,465
Shareholders' equity ................ 3,537,198
------------
Total ............................... $ 53,957,320
============
SPREAD AND INTEREST DIFFERENTIAL:
Interest rate spread ................ 4.27%
=====
Excess of total earning assets
over total interest-bearing
liabilities ...................... $ 8,207,482
============
Net yield on interest-
earnings assets .................. $2,346,860 4.86%
========== =====
</TABLE>
(a) Interest income on mortgage loans included loan fees recognized as
income of $9,000, $15,000 and $42,000 during the years ended December
31, 1996, 1995 and 1994, respectively.
(b) Non-accrual loans were included in loans, net of unearned income.
(c) The Company has made no loans or investments that qualify for
tax-exempt treatment and, accordingly, has no tax-exempt income.
5
<PAGE> 6
Loan Portfolio
The Bank's loan portfolio is primarily concentrated in commercial,
mortgage, and installment loans. As of December 31, 1996, 1995 and 1994, the
composition of the Bank's loan portfolio was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ------------------------ ------------------------
% of % of % of
Total Total Total
Amount Loans Amount Loans Amount Loans
------------ ----- ------------ ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Commercial ........................ $ 8,062,573 18.31% $ 7,081,642 19.38% $ 6,738,904 20.51%
Mortgage: (a)
Construction ................. 1,029,003 2.34 1,331,809 3.64 1,163,988 3.54
Non-construction ............. 28,172,195 63.97 23,909,249 65.42 21,204,042 64.54
Installment (b) ................... 3,589,684 8.15 1,490,577 4.08 1,587,462 4.83
Other loans (c) ................... 3,186,813 7.23 2,732,360 7.48 2,160,111 6.58
------------ ----- ------------ ----- ------------ ------
Total loans, net of
unearned income .............. 44,040,268 100.00% 36,545,637 100.00% 32,854,507 100.00%
====== ====== ======
Allowance for loan losses ......... (904,562) 2.05% (852,270) 2.33% (1,342,763) 4.09%
------------ ====== ------------ ====== ------------ ======
Loans, net ........................ $ 43,135,706 $ 35,693,367 $ 31,511,744
============ ============ ============
</TABLE>
(a) In addition to loans for the purchase, construction, improvement of or
investment in real estate, the Bank's real estate loans include all
loans for various other consumer or business purposes which are secured
by real estate mortgages.
(b) Installment loans generally include loans secured with mobile homes,
automobiles, trucks, boats, and equipment.
(c) Other loans generally include credit card loans, equity lines to
individuals, deposit overdraft protection and deposit overdrafts.
Average total loans, net of unearned income, were $39.9 million during the
year ended December 31, 1996 as compared to $34.1 million during the year ended
December 31, 1995, representing a $5.8 million (or 17.09%) increase. Total loans
outstanding, net of unearned income, as of December 31, 1996 were $44.0 million
as compared to $36.5 million as of December 31, 1995, representing a $7.5
million (or 20.51%) increase. The increase in loans from 1995 to 1996 was
primarily attributable to loan originations of $17.5 million which exceeded loan
repayments of $9.9 million. During 1995, loan originations were $13.0 million,
while loan repayments were $8.4 million. During 1995, loan originations were
greater during the last half of the year than the first half because of the
implementation of an officer program of calling on prospective customers and the
hiring of two new loan officers. The Bank's loan portfolio is its largest
category of earning assets. The Bank is a locally owned and operated commercial
bank, serving consumers, professionals, and small-to-medium sized businesses
located in the Lee County area. The majority of the Bank's loans currently are
to customers located within this area.
6
<PAGE> 7
New loans and loan renewals are reviewed by management and the Directors,
including the potential created for possible credit concentrations. Management
reviews the loan portfolio on a quarterly basis for potential credit
concentrations. Loan concentrations are defined as amounts loaned to a number of
borrowers engaged in similar activities, which would cause them to be similarly
impacted by economic or other conditions. As of December 31, 1996 and 1995, no
concentration of loans within any portfolio category to any group of borrowers
engaged in similar activities or in a similar business, exceeded 10% of total
loans, except that as of such date loans collateralized with mortgages on real
estate represented 66.31% and 69.06%, respectively, of the loan portfolio and
were to borrowers in varying activities and businesses.
As of December 31, 1996, the maturities and interest rate sensitivity of
certain categories of loans based on remaining scheduled principal repayments
were as follows:
<TABLE>
<CAPTION>
After One Over
One Year Year Thru Five
or Less Five Years Years Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Selected loan categories:
Commercial .................................. $3,143,988 $3,610,248 $1,308,337 $8,062,573
Real estate-construction .................... 148,687 880,316 -- 1,029,003
---------- ---------- ---------- ----------
Total ................................... $3,292,675 $4,490,564 $1,308,337 $9,091,576
========== ========== ========== ==========
Loans due after one year:
Having predetermined interest rates ......... $2,149,435 $ 331,427 $2,480,862
Having floating interest rates .............. 2,341,129 976,910 3,318,039
---------- ---------- ----------
Total ................................... $4,490,564 $1,308,337 $5,798,901
========== ========== ==========
</TABLE>
The Bank recognizes interest income from loans on the accrual basis. If a
loan is placed on non-accrual status, then accrual of interest income is
suspended and any interest earned, but unpaid, is charged against current
earnings as a reduction in current period interest income. A loan is placed on
non-accrual status when principal or interest is past due 90 days or more
unless, in the determination of management, the principal and interest on the
loan are well secured and in the process of collection. In addition, a loan is
placed on non-accrual status before 90 days delinquency occurs if management
believes that after giving consideration to economic and business conditions and
collection efforts, the collection of interest or principal is doubtful.
Allowance for Loan Losses
As matter of policy, the Bank maintains an allowance for loan losses. The
amount provided for loan losses during any period is based on an evaluation by
management of the amount needed to maintain the allowance at a level sufficient
to cover anticipated losses and the inherent risk of losses in the loan
portfolio. In determining the amount of the allowance, management considers the
dollar amount of loans outstanding, its assessment of known or potential problem
loans, current economic conditions, the risk characteristics of the various
classifications of loans, credit record of its borrowers, the fair market value
of underlying collateral and other factors. Although management believes that it
uses the best information available to make determinations with respect to loan
loss reserves, subsequent adjustments to reserves may be necessary if future
economic conditions differ from the assumptions used in making the initial
determinations or if regulatory policies change.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
("FAS 114") and Statement of Financial Accounting Standards No. 118, "Accounting
by Creditors for Impairment of a Loan, Income Recognition and Disclosure" ("FAS
118"). FAS 114 and 118 address the accounting by creditors for impairment of
certain loans and generally require the Company to identify loans, for which the
Company probably will not receive full repayment of principal and interest, as
impaired
7
<PAGE> 8
loans. These Statements require that impaired loans be valued at the present
value of expected future cash flows, discounted at the loan's effective interest
rate, or at the observable market price of the loan, or the fair value of the
underlying collateral if the loan is collateral dependent. The Company has
implemented these Statements by modifying its quarterly review of the adequacy
of the allowance for loan losses to also identify and value impaired loans in
accordance with guidance in these Statements. Adoption of FAS 114 and 118 did
not have a material impact on the Company's financial position or results of
operations.
As of December 31, 1996 and 1995, impaired loans, all of which were
considered collateral dependent, totaled $1,134,000 and $1,324,000,
respectively, and the related allowance for loan losses was $170,000 and
$262,000, respectively. As of December 31, 1996 and 1995, the net investment in
impaired loans was $964,000 and $1,062,000, respectively. During the years ended
December 31, 1996 and 1995, impaired loans averaged $1,214,000 and $1,977,000,
respectively, interest income recognized on impaired loans totaled $113,000 and
$131,000, respectively, and interest income received on impaired loans totaled
$91,000 and $86,000, respectively.
The Bank's loan accounting and collection policies specify that a notice
will be sent to a customer after a loan becomes ten days past due. If a payment
has not been made in this time, a personal follow-up might occur or letter
issued. If no progress has been made to bring the loan current within 90 days,
the loan is generally placed on non-accrual status and steps are taken to refer
the loan to legal counsel for foreclosure on any collateral and/or collection
from the borrower. Management may also place loans on non-accrual status earlier
when, in its judgment, the collectibility of such loans or interest thereon
appears to be in doubt.
As of December 31, 1996, the allowance for loan losses was $905,000 or
2.05% of total loans, net of unearned income as compared to $852,000 or 2.33% of
total loans, net of unearned income, as of December 31, 1995. For the years
ended December 31, 1996, 1995 and 1994, the Bank's loan loss experience and its
provision for loan losses were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Average loans outstanding ............................. $ 39,937,293 $34,108,992 $ 34,536,065
============ =========== ============
Net loans at end of period ............................ $ 43,135,706 $35,693,367 $ 31,511,744
============ =========== ============
Allowance for loan losses at
beginning of period .............................. $ 852,270 $ 1,342,763 $ 1,073,014
Loans charged-off:
Commercial ....................................... 27,535 268,548 127,903
Mortgage ......................................... 17,816 472,586 22,793
Installment ...................................... 6,110 7,866 6,391
Other loans ...................................... 46,880 66,193 5,985
------------ ----------- ------------
Total loans charged-off ............................... 98,341 815,193 163,072
------------ ----------- ------------
Recoveries of loans previously charged-off:
Commercial ....................................... 123,003 161,125 238,416
Mortgage ......................................... 21,925 122,564 245,365
Installment ...................................... 3,998 8,811 14,383
Other loans ...................................... 1,707 4,200 9,657
------------ ----------- ------------
Total recoveries ...................................... 150,633 296,700 507,821
------------ ----------- ------------
Net loan charged-offs (recoveries) .................... (52,292) 518,493 (344,749)
Provision charged to expense .......................... -- 28,000 (75,000)
------------ ----------- ------------
Allowance for loan losses at end of period ............ $ 904,562 $ 852,270 $ 1,342,763
============ =========== ============
Ratio of net charge-offs during period
to average net loans outstanding ................. (.13)% 1.52% (1.00)%
Allowance for loan losses as a percentage
of loans, net of unearned income
at end of period ................................. 2.05 % 2.33% 4.09 %
</TABLE>
8
<PAGE> 9
During 1996, 30 loans were charged-off, none of which exceeded $18,000.
During 1996, the two largest loan recoveries were $48,000 and $31,000, or 52.06%
of total recoveries. The remaining recoveries which totaled $73,000 encompassed
29 loans, none of which exceeded $16,000.
Senior management of the Bank and the loan staff meet weekly or more often
as needed to review all past due and non-performing loans and to discuss
collection actions. The Bank's Board of Directors performs a similar review on
at least a monthly basis. Loans are charged-off when and to the extent they are
deemed by management to be a loss to the Bank.
Non-performing assets decreased to $811,000 as of December 31, 1996 as
compared to $1.3 million as of December 31, 1995 and $3.8 million at December
31, 1994, respective decreases of $448,000 or 35.56% and $2.5 million or 67.28%.
These decreases occurred primarily due to the Bank collecting or charging-off
non-accruing loans, removing loans from non-accrual status after the loans have
performed for six months in accordance with the respective note and selling
certain other real estate owned. The ratio of non-performing loans as a percent
of total loans, net of unearned income, was .60%, 1.85% and 4.52% as of December
31, 1996, 1995 and 1994, respectively. The allowance for loan losses as a
percentage of non-performing loans was 344.34%, 126.01% and 90.35% as of
December 31, 1996, 1995 and 1994, respectively.
As of December 31, 1996, 1995 and 1994, the Bank's non-performing loans and
repossessed assets were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- ---------------------- ----------------------
% of % of % of
Total Total Total
Amount Loans Amount Loans Amount Loans
-------- --- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Non-accruing loans:
Under 90 days delinquent ............... $117,930 .27% $ 262,855 .72% $ 690,596 2.10%
90 or more days delinquent ............. 144,762 .33 413,477 1.13 795,601 2.42
-------- --- ---------- ---- ---------- ----
Total non-accruing loans .................... $262,692 .60% $ 676,332 1.85% $1,486,197 4.52%
======== === ========== ==== ========== ====
Total real estate owned ..................... $548,500 $ 582,500 $2,361,035
-------- ---------- ----------
Total non-performing assets ................. $811,192 $1,258,832 $3,847,232
======== ========== ==========
Loans delinquent and accruing:
30 to 59 days .......................... $ 21,818 .05% $ 145,495 .40% $ 110,927 $ .34%
60 to 89 days .......................... 105,835 .24 82,371 .22 12,396 .04
-------- --- ---------- ---- ---------- ----
Total .............................. $127,653 .29% $ 227,866 .62% $ 123,323 .38%
======== === ========== ==== ========== ====
Total delinquencies
30 days and over ....................... $390,345 .89% $ 904,198 2.47% $1,609,520 4.90%
======== === ========== ==== ========== ====
</TABLE>
As of December 31, 1996, 1995 and 1994, the Bank did not have any troubled
debt restructurings and no loans were over 90 days delinquent and still accruing
interest.
9
<PAGE> 10
Non-accruing loans totaled $263,000 as of December 31, 1996 as compared to
$676,000 as of December 31, 1995, a decrease of $413,000 or 61.16%. The largest
non-accruing loan as of December 31, 1996 was a $118,000 first mortgage loan
secured with commercial real estate. As of December 31, 1996, this loan was
current.
Management continues to manage its non-performing assets to restore them to
performing status when possible, or otherwise liquidate such assets in an
orderly fashion to maximize the value of such assets to the Company. Although
the Company is endeavoring to actively manage the risks in its loan portfolio,
there is no assurance that the level of non-accrual loans and other real estate
owned will not increase during 1997.
As of December 31, 1996, other real estate owned, all of which is located
in Lee County, Florida and which was recorded at the lower of fair value or the
loan balance, comprised of two parcels of raw land with a carrying value of
$535,500 (and a fair value of $572,000) and two single-family residential lots
with a carrying value of $13,000 (and a fair value of $14,000).
Allocation of Allowance for Loan Losses
Although the total allowance for loan losses was available to absorb losses
from all loans, management allocated the reserve among general portfolio
categories for informational and regulatory reporting purposes. At December 31,
1996, 1995 and 1994, the allocation of the allowance for loan losses was as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------ --------------------
Loans Loans Loans
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
-------- ------ -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Commercial loans ........................ $177,000 18.31% $118,000 19.38% $ 219,000 20.51%
Mortgage:
Construction ....................... 11,000 2.34 13,000 3.64 12,000 3.54
Non-construction ................... 450,000 63.97 504,000 65.42 700,000 64.54
Installment loans ....................... 57,000 8.15 27,000 4.08 39,000 4.83
Other loans ............................. 57,000 7.23 50,000 7.48 35,000 6.58
Unallocated reserve ..................... 152,562 -- 140,270 -- 337,763 --
-------- ------ -------- ------ ---------- ------
Total allowance for loan losses ......... $904,562 100.00% $852,270 100.00% $1,342,763 100.00%
======== ====== ======== ====== ========== ======
</TABLE>
Investment Portfolio
The carrying value of the Bank's investment portfolio was $21.8 million as
of December 31, 1996 as compared to $23.2 million as of December 31, 1995 and
$14.9 million as of December 31, 1994. The average book yield on the Bank's
investment portfolio was 6.09%, 5.97% and 5.45% as of December 31, 1996, 1995
and 1994, respectively. The average maturity of the Bank's investment portfolio
as of December 31, 1996, 1995 and 1994, was 36, 15 and 20 months, respectively.
There was unrealized net market depreciation of approximately $23,000 as of
December 31, 1996.
The Bank classifies as available-for-sale those investment securities which
may be sold prior to maturity in connection with changes in market interest
rates, liquidity needs or other reasons. The available-for-sale portfolio has
been reflected at its aggregate fair value in the accompanying consolidated
statements of financial condition. The net unrealized securities holding gains
(losses), net of anticipated income tax effect, have been reflected as a
separate component of shareholders' equity. Those investment securities which
the Bank has the positive intent and ability to hold until their maturity have
been classified as investments held-to-maturity. These securities are carried on
an amortized cost basis.
10
<PAGE> 11
At December 31, 1996, the carrying values, the maturities and the average
yields of the Bank's investment securities, all of which were taxable, were as
follows:
<TABLE>
<CAPTION>
After One Year
Within One Year Through 5 Years After Ten Years
------------------- -------------------- --------------------
Amount Yield Amount Yield Amount Yield
---------- ---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Available-for-sale:
U.S Treasury obligations .............. $1,002,500 5.47% $ -- -- % $ --- --- %
U.S Agency obligations ................ 997,500 6.03 6,476,165 5.59 --- ---
---------- ---- ---------- ---- ---------- ----
Total available-for-sale ............... $2,000,000 5.75% $6,476,165 5.59% $ --- --- %
========== ==== ========== ==== ========== ====
Held-to-maturity:
U.S Agency obligations ................ -- --- % $5,626,637 6.09% $ --- --- %
Collateralized mortgage
obligations ....................... -- -- -------- --- 2,536,374 5.99
---------- ---- ---------- ---- ---------- ----
Total held-to-maturity ................. $ -- --- % $5,626,637 6.09% $2,536,374 5.99%
========== ==== ========== ==== ========== ====
</TABLE>
Deposits
The Bank's average core deposits increased to $53.4 million during the year
ended December 31, 1996 from $50.6 million during the year ended December 31,
1995 and from $46.5 million during the year ended December 31, 1994, or
respective increases of $2.8 million or 5.51% and $4.1 million or 8.95%. Average
total deposits increased to $56.6 million during 1996 from $53.5 million during
1995 and from $49.0 million during 1994, or respective increases of $3.1 million
or 5.83% and $4.5 million or 9.06%. These increases resulted from advertising
campaigns coupled with an officer calling program. Average non-interest bearing
deposits increased to $11.1 million during 1996 from $9.5 million during 1995
after decreasing from $9.9 million during 1994, or a 1996 increase of $1.6
million or 16.52% and a 1995 decrease of $355,000 or 3.59%. The 1996 increase
resulted from an advertising campaign and the officer calling program, while the
1995 decrease resulted from lower average balances being maintained in business
accounts.
For the years ended December 31, 1996, 1995 and 1994 the Bank's average
deposit balances and the percent of total average deposits were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- ---------------------
Average % of Average % of Average % of
Amount Total Amount Total Amount Total
----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Non-interest-bearing ......... $11,093,282 19.61% $ 9,520,152 17.81% $ 9,874,901 20.15%
NOW accounts ................. 7,604,620 13.44 7,131,146 13.34 6,973,190 14.23
Money Market ...................... 9,332,707 16.50 9,274,608 17.35 9,748,941 19.89
Savings deposits .................. 2,360,086 4.17 2,260,354 4.23 2,509,565 5.12
Time deposits
under $100,000 ............... 23,031,493 40.72 22,445,225 41.99 17,366,561 35.43
----------- ------ ----------- ------ ----------- ------
Total core deposits ............... 53,422,188 94.44 50,631,485 94.72 46,473,158 94.82
Time deposits $100,000
and over ..................... 3,145,980 5.56 2,822,473 5.28 2,538,346 5.18
----------- ------ ----------- ------ ----------- ------
Total deposits .................... $56,568,168 100.00% $53,453,958 100.00% $49,011,504 100.00%
=========== ====== =========== ====== =========== ======
</TABLE>
As of December 31, 1996 and 1995, the Bank had no public fund deposits. As
of December 31, 1996 and 1995, the largest single depositor had deposits
totaling $1.2 million and $1.8 million, or 1.83% and 3.25% of total deposits,
respectively. The Bank has not accepted any brokered certificates of deposit.
Management does not believe the Bank is dependent on a single deposit customer,
or a group of customers concentrated in a particular industry, whose loss or
insolvency would have a material adverse effect on the Bank's operations.
11
<PAGE> 12
Time deposits of $100,000 and over, public fund deposits and other large
deposit accounts tend to be short-term in nature and more sensitive to changes
in interest rates than other types of deposits and, therefore, may be a less
stable source of funds. In the event that existing short-term deposits are not
renewed, the resulting loss of the deposited funds could adversely affect the
Bank's liquidity. In a rising interest rate market, such short-term deposits may
prove to be a costly source of funds because their short-term nature facilitates
renewal at increasingly higher interest rates, which may adversely affect the
Company's earnings. However, the converse is true in a falling interest-rate
market where such short-term deposits are more favorable to the Company.
As of December 31, 1996, approximately 6.86% of the Bank's deposits
consisted of certificates of deposit in amounts of $100,000 or more, the
majority of which were held by residents of the Bank's market area and
approximately 78.59% of which will mature within twelve months of December 31,
1996. As of December 31, 1996, the maturity distribution of the Bank's time
deposits of $100,000 or more was as follows:
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
3 months or less ............................ $1,300,480
Over 3 months through 6 months .............. 960,007
Over 6 months trough 12 months .............. 1,181,546
Over 12 months .............................. 937,592
----------
Total time deposits $100,000 and over ....... $4,379,625
==========
</TABLE>
Short-Term Borrowings
The Bank has entered into short-term borrowing arrangements with certain of
its customers. These arrangements, entitled "Sweep Accounts", call for the Bank
to automatically transfer customer funds in excess of certain pre-defined
amounts from the customer's insured deposit account to the Sweep Account. The
Sweep Accounts mature weekly and were collateralized with U. S. Government
agency securities totaling $787,000 as of December 31, 1996; accordingly, they
were classified on the Company's consolidated statements of financial condition
as securities sold under agreements to repurchase. For the years ended December
31, 1996, 1995 and 1994, the Bank's short-term Borrowings were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Year ended December 31:
Average indebtedness outstanding ....... $1,194,434 $ 958,802 $ 900,153
Average rate paid ...................... 3.23% 4.15% 3.53%
Maximum indebtedness
at any month-end ................... $1,415,369 $1,623,320 $1,036,830
As of December 31:
Balance outstanding .................... $ 749,057 $1,623,320 $ 493,318
Rate paid .............................. 3.15% 3.38% 4.33%
</TABLE>
CAPITAL RESOURCES
The Holding Corporation's total shareholders' equity was $6.4 million and
$5.4 million as of December 31, 1996 and 1995, respectively. This increase was
the result of 1996's net income of $1.0 million and the $75,000 proceeds from
the exercise of stock options partially offset with the $54,000 decrease in the
net unrealized securities losses to December 31, 1996 from December 31, 1995.
The Bank's total shareholder's equity was $6.0 million and $5.0 million as of
December 31, 1996 and 1995, respectively. The increase in the Bank's
shareholder's equity was the result of the Bank's net income of $1.0 million
partially offset with the $54,000 decrease in the net unrealized securities
losses to December 31, 1996 from December 31, 1995.
Banking laws and regulations limit the amount of dividends that may be paid
by financial institutions, including the Company. In addition, banking
regulations impose certain minimum capital ratios on financial institutions,
including the Company, which also restrict the Company's right to pay dividends.
The federal banking regulatory authorities have adopted certain "prompt
corrective action" rules with respect to depository institutions. The rules
12
<PAGE> 13
establish five capital tiers: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." The various federal banking regulatory agencies have adopted
regulations to implement the capital rules by, among other things, defining the
relevant capital measures for the five capital categories. An institution is
deemed to be "well capitalized" if it has a total risk-based capital ratio of
10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a Tier 1
leverage ratio of 5% or greater and is not subject to a regulatory order,
agreement, or directive to meet and maintain a specific capital level. As of
December 31, 1996, the Bank met the capital ratios of a "well capitalized"
financial institution with a total risk-based capital ratio of 13.70%, a Tier 1
risk-based capital ratio of 12.45%, and a Tier 1 leverage ratio of 8.82%.
Depository institutions which fall below the "adequately capitalized" category
generally are prohibited from making any capital distribution, are subject to
growth limitations, and are required to submit a capital restoration plan. There
are a number of requirements and restrictions that may be imposed on
institutions treated as "significantly undercapitalized" and, if the institution
is "critically undercapitalized," the banking regulatory agencies have the right
to appoint a receiver or conservator.
The Bank's total risk-based capital (total capital to risk-weighted
assets), Tier 1 risk-based capital (Tier 1 capital to risk-weighted assets) and
leverage (Tier 1 capital to total average assets during the three months ended
December 31) ratios as compared to the ratios mandated by the FDIC were as
follows:
<TABLE>
<CAPTION>
Total Tier 1
risk-based risk-based Leverage
capital ratio capital ratio ratio
----- --------- -------
<S> <C> <C> <C> <C>
Well capitalized per FDIC(minimum ratios) 10.00% 6.00% 5.00%
Bank: December 31, 1995 .......................... 13.33 12.07 8.05
December 31, 1996 .......................... 13.70 12.45 8.82
</TABLE>
ASSET/LIABILITY MANAGEMENT
The principal objectives of asset and liability management are to manage
interest rate risks, ensure adequate liquidity and coordinate sources and uses
of funds. The Bank engages in a process of asset and liability management
through its Asset and Liability Management Committee. In the analysis of
interest rate risks, the objective is to manage, within acceptable limits, the
impact on the income statement caused by fluctuating interest rates and changing
rate relationships. In this process, interest sensitivity is analyzed employing
the traditional gap analysis.
While generally the policy is to maintain a relatively neutral interest
sensitivity position, the Bank may initiate gap exposures within prescribed
limits. The Bank can then manage interest rate risk, while responding to change
within the balance sheet and financial markets as it strives to enhance net
interest income.
Bank management also meets periodically to review the Bank's asset and
liability position. Among other things, cash needs are reviewed, along with
local and national market conditions and economic trends. As necessary, the
Bank's rates are periodically adjusted. Generally, the Bank does not engage in
short-term borrowing as a substantial portion of its business market. The Bank
does not participate in the securities brokers market for deposit funds, or
actively seek jumbo certificates of deposit ($100,000 and over) through any
brokers or media advertising.
LIQUIDITY
Holding Corporation. The Holding Corporation's operating revenue and net
income are derived solely from the Bank through interest income on its deposit
accounts, dividends and management fees. There are various statutory and
contractual limitations on the ability of the Bank to pay dividends, extend
credit, or otherwise supply funds to the Holding Corporation. The FDIC and the
Florida Department of Banking and Finance also have the general authority to
limit the dividends paid by insured banks and bank holding companies. The
Holding Corporation has not paid any cash dividends and, prior to its
acquisition by the Holding Corporation on January 30, 1991, the Bank had not
paid any cash dividends to its shareholders.
The Holding Corporation commenced an offering of its common stock at a
price of $5.00 per share in 1995 and closed it on December 31, 1995. The purpose
of the offering was to infuse additional capital into the Bank to increase
13
<PAGE> 14
its capital position. Of the $920,000 of net proceeds from the offering received
by the Holding Corporation, $700,000 of capital was contributed to the Bank and
the remaining $220,000 was placed into an interest bearing-deposit in the name
of the Holding Corporation with the Bank.
Bank. Liquidity management involves the ability to meet the cash flow
requirements of customers who may be either depositors wanting to withdraw their
funds or borrowers needing assurance that sufficient funds will be available to
meet their credit needs. In the ordinary course of business, the Bank's cash
flows are generated from interest and fee income, as well as from loan
repayments and the maturity or sale of other earning assets. In addition to cash
and due from banks, the Bank considers all securities available-for-sale and all
federal funds sold as primary sources of asset liquidity. Many factors affect
the ability to accomplish these liquidity objectives successfully, including the
economic environment, and the asset/liability mix within the balance sheet, as
well as the Bank's overall reputation in the community.
During the years ended December 31, 1996, 1995 and 1994, investing
activities provided (used) $(6.3) million, $(6.8) million and $3.1 million,
respectively, of cash. During the years ended December 31, 1996, 1995 and 1994,
financing activities provided (used) $7.1 million, $9.9 million and $(4.4)
million, respectively, of cash. In consideration of general economic conditions,
including those in Lee County, the Bank's objective was not to pursue growth in
its assets and liabilities during the four years ended December 31, 1994,
rather, the Company endeavored to reduce its assets (primarily loans) in an
effort to maximize the Bank's capital ratios. However, during 1996 and 1995 the
Company again began focusing on growth. See "--Capital Resources."
RESULTS OF OPERATIONS
Summary
The Company's net income was $1.0 million for the year ended December 31,
1996, or $.82 per share, as compared to $593,000 for the year ended December 31,
1995, or $.59 per share, and $42,000 for the year ended December 31, 1994, or
$.04 per share. For the years ended December 31, 1996, 1995 and 1994, the
Company's performance ratios were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- ----
<S> <C> <C> <C>
Return on average assets ............... 1.57% 1.01% .08%
Return on average equity ............... 18.44 14.89 1.20
Average equity to average assets ....... 8.52 6.48 6.56
</TABLE>
Net Interest Income
The Bank's earnings are dependent primarily on its net interest income
which is the excess of interest income earned on earning assets (primarily loans
and the investment portfolio - all of which are taxable) over interest expense
paid on deposits and short-term borrowings. Changes in net interest income are
caused by changes in the interest rates earned or paid and by volume changes in
loans, the investment portfolio, deposits and short-term borrowings.
14
<PAGE> 15
The increase (decrease) during the year ended December 31, 1996 from the
year ended December 31, 1995 in the Bank's interest income earned and interest
expense paid resulting from changes in volumes of, rates earned or paid on, and
the combined effect of changes in both volume and rate on, various categories of
interest-earning assets and interest-bearing liabilities were as follows:
<TABLE>
<CAPTION>
Volume/
Volume Rate Rate Total
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Loans:
Commercial ............................. $ 127,929 $ (6,731) $ (1,330) $ 119,868
Mortgage ............................... 286,423 (58,162) (7,524) 220,737
Installment ............................ 112,617 (18,524) (14,411) 79,682
Other .................................. 37,930 (8,058) (1,171) 28,701
--------- --------- -------- ---------
Total loans ........................ 564,899 (91,475) (24,436) 448,988
Investment securities ....................... (5,852) (67,030) 372 (72,510)
Federal funds sold .......................... (23,000) (20,233) 2,182 (41,051)
--------- --------- -------- ---------
Total interest income ....................... 536,047 (178,738) (21,882) 335,427
--------- --------- -------- ---------
LIABILITIES:
Interest-bearing deposits:
NOW accounts ........................... 9,067 (20,868) (1,385) (13,186)
Money market accounts .................. 1,755 (38,731) (243) (37,219)
Savings deposits ....................... 2,462 (5,538) (244) (3,320)
Time deposits:
Under $100,000 ..................... 34,875 (36,090) (943) (2,158)
$100,000 and over .................. 18,658 (2,984) (342) 15,332
--------- --------- -------- ---------
Total interest-bearing deposits ........ 66,817 (104,211) (3,157) (40,551)
Securities sold under agreements
to repurchase .......................... 9,769 (8,746) (2,150) (1,127)
--------- --------- -------- ---------
Total interest expense ...................... 76,586 (112,957) (5,307) (41,678)
--------- --------- -------- ---------
Net interest income ......................... $ 459,461 $ (65,781) $(16,575) $ 377,105
========= ========= ======== =========
</TABLE>
The Bank's net interest income increased to $2.9 million during the year
ended December 31, 1996 from $2.5 million during the year ended December 31,
1995, an increase of $377,000 or 14.94%. The increase was primarily due to the
increase in average interest-earning assets and average interest-bearing
liabilities. The 17.29% volume increase in 1996 from 1995 in loan interest
income was primarily attributable to the 14.59% increase in average loans and
the 2.28% volume decrease in 1996 from 1995 in investment interest income was
primarily attributable to the 2.43% decrease in average investments. The 3.81%
volume increase in 1996 from 1995 in interest expense was primarily attributable
to the 3.81% increase in average interest-bearing liabilities. The interest rate
variance for loans primarily resulted from the decrease in interest rates in
1996 from 1995, including a 56 basis point decrease in average prime interest
rate. The yield on the investment portfolio decreased 18 basis points reflecting
the reinvestment of the proceeds from investment securities maturing subsequent
to 1995 at lower interest rates. The interest rates paid on interest-bearing
liabilities decreased 26 basis points as the Bank paid lower rates on new
deposit accounts than those maturing subsequent to 1995. The result was a
increase in the net interest margin to 4.85% during 1996 from 4.63% during 1995.
15
<PAGE> 16
The increase (decrease) during the year ended December 31, 1995 from the
year ended December 31, 1994 in the Bank's interest income earned and interest
expense paid resulting from changes in volumes of, rates earned or paid on, and
the combined effect of changes in both volume and rate on, various categories of
interest-earning assets and interest-bearing liabilities were as follows:
<TABLE>
<CAPTION>
Volume/
Volume Rate Rate Total
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Loans:
Commercial ............................. $(139,702) $ 106,625 $(21,232) $ (54,309)
Mortgage ............................... 65,837 82,680 2,639 151,156
Installment ............................ (19,009) 1,672 (196) (17,533)
Other .................................. 60,419 4,107 1,271 65,797
--------- --------- -------- ---------
Total loans ........................ (32,455) 195,084 (17,518) 145,111
Investment securities ....................... 212,144 202,025 76,041 490,210
Federal funds sold .......................... 89,735 24,837 35,003 149,575
--------- --------- -------- ---------
Total interest income ....................... 269,424 421,946 93,526 784,896
--------- --------- -------- ---------
LIABILITIES:
Interest-bearing deposits:
NOW accounts ........................... 2,898 5,605 127 8,630
Money market accounts .................. (12,873) 29,820 (1,451) 15,496
Savings deposits ....................... (5,989) 1,635 (163) (4,517)
Time deposits:
Under $100,000 ..................... 232,445 238,225 69,667 540,337
$100,000 and over .................. 13,771 23,369 2,616 39,756
--------- --------- -------- ---------
Total interest-bearing deposits ........ 230,252 298,654 70,796 599,702
Securities sold under agreements
to repurchase .......................... 2,070 5,543 361 7,974
--------- --------- -------- ---------
Total interest expense ...................... 232,322 304,197 71,157 607,676
--------- --------- -------- ---------
Net interest income ......................... $ 37,102 $ 117,749 $ 22,369 $ 177,220
========= ========= ======== =========
</TABLE>
The Bank's net interest income increased to $2.5 million during the year
ended December 31, 1995 from $2.3 million during the year ended December 31,
1994, an increase of $177,000 or 7.55%. The increase was primarily due to the
increase in rates. The 1.04% volume decrease in 1995 from 1994 in loan interest
income was primarily attributable to the 1.24% decrease in average loans and the
48.12% volume increase in 1995 from 1994 in investment interest income was
primarily attributable to the 48.98% increase in average investments. The 16.56%
volume increase in 1995 from 1994 in interest expense was primarily attributable
to the 12.13% increase in average interest-bearing liabilities. The interest
rate variance for loans primarily resulted from the increase in interest rates
in 1995 over 1994, including a 169 basis point increase in average prime
interest rate. The yield on the investment portfolio increased 163 basis points
reflecting the reinvestment of the proceeds from investment securities maturing
subsequent to 1994 at higher interest rates. The interest rates paid on
interest-bearing liabilities increased 97 basis points as the Bank paid higher
rates on new deposit accounts than those maturing subsequent to 1994. The result
was a decrease in the net interest margin to 4.63% during 1995 from 4.86% during
1994.
As interest rates continue to change, the Bank's net interest margin may be
squeezed by the repricing of the interest-earning assets at different times than
the repricing of interest-costing liabilities.
16
<PAGE> 17
Provision for Loan Losses
The Bank made no provision (benefit) for loan losses during the year ended
December 31, 1996 as compared to $28,000 during the year ended December 31, 1995
and $(75,000) during the year ended December 31, 1994. Net loan charge-offs
(recoveries) during 1996 were $(52,000) as compared to $518,000 and $(345,000)
during 1995 and 1994. Two loans totaling $591,000 to one borrower were
charged-off during 1995. These two loans were fully reserved as of December 31,
1994. Prior to these two loans being charged-off, net loan charge-offs
(recoveries) during 1995 was $(73,000). The amount provided for loan losses was
based on an evaluation by management of the amount needed to maintain the
allowance at a level sufficient to cover anticipated losses and the inherent
risk of losses in the loan portfolio. In consideration of the assessment of the
loan portfolio during 1994, the $345,000 of net loan recoveries, and the
decrease in loans receivable, the Bank made the credit provision for loan
losses.
As of December 31, 1996 and 1995, the allowance for loan losses as a
percentage of loans net of unearned income was 2.05% and 2.33%, respectively,
and as a percentage of non-accrual loans was 344.34% and 126.01%, respectively.
See "--Financial Condition-Allowance for Loan Losses".
Non-Interest Income
Deposit service charge income decreased $18,000 or 3.66% to $455,000 (or
.80% of average deposits) during the year ended December 31, 1996 from $473,000
(or .88% of average deposits) during the year ended December 31, 1995, after
increasing $30,000 or 6.64% from $443,000 (or .90% of average deposits) during
the year ended December 31, 1994. The decrease during 1996 from 1995 primarily
resulted from a decreased volume of overdraft charges. The increase during 1995
from 1994 primarily resulted from an increased volume of overdraft charges.
During 1996, the Bank sold $2.5 million of investments available-for-sale
recognizing a $4,000 gain. Also during 1996, the Bank received a $70,000
settlement with Lee County for business damages resulting from the Mid-Point
bridge construction in front of the Colonial branch.
17
<PAGE> 18
Non-Interest Expense
Personnel expenses increased $28,000 or 2.26% to $1.27 million during the
year ended December 31, 1996, from $1.24 million during the year ended December
31, 1995 after decreasing $20,000 or 1.59% from $1.26 million during the year
ended December 31, 1994. The increase to 1996 from 1995 primarily resulted from
compensation increases for existing employees. The decrease to 1995 from 1994
primarily resulted from a decrease in the number of employees. The monthly
average of full-time equivalent employees during 1996 was 33.23 as compared to
33.73 employees during 1995 and 38.96 employees during 1994. As of December 31,
1996, the Bank employed 33 full-time and six part-time employees.
Occupancy expense decreased to $525,000 during the year ended December 31,
1996, from $575,000 and $642,000 during the respective years ended December 31,
1995 and 1994, or respective decreases of $50,000 or 8.64% and $67,000 or
10.47%. These decreases primarily resulted from lower depreciation expense as
assets became fully depreciated.
Legal expenses decreased to $99,000 during the year ended December 31,
1996, from $103,000 and $146,000 during the years ended December 31, 1995 and
1994, respectively, or respective decreases of $4,000 or 3.99% and $43,000 or
29.44%. These decreases reflected the reduction in collection actions handled by
the Bank's attorneys.
Advertising expense increased to $74,000 during the year ended December 31,
1996 from $57,000 during the year ended December 31, 1995, or an increase of
$17,000 or 30.35%, after decreasing from $64,000 during the year ended December
31, 1994, or a decrease of $7,000 or 11.00%. The 1996 increase primarily
resulted from the cost of the advertising campaign conducted during 1996. The
1995 decrease reflected the reduction in the amount of advertising purchased.
Supplies expense increased to $64,000 during the year ended December 31,
1996, from $53,000 and $52,000 during the years ended December 31, 1995 and
1994, respectively, or respective increases of $11,000 or 21.97% and $1,000 or
.84%. The 1996 increase resulted from the Bank purchasing more supplies to meet
the needs of increased loans and deposits. The 1995 increase reflected the
increased cost of paper.
Loan collection expenses, excluding legal expenses but including real
estate taxes, insurance, gain (loss) on the sale of other real estate owned, and
appraisal costs on real estate in foreclosure, decreased to $50,000 during the
year ended December 31, 1996, from $90,000 and $188,000 during the years ended
December 31, 1995 and 1994, respectively, or respective decreases of $40,000 or
44.75% and $98,000 or 52.22%. The 1996 decrease resulted from a reduction in
write-downs and losses on disposal of other real estate owned. The 1995 decrease
resulted from rental income on other real estate owned covering the operating
costs of other real estate owned plus a reduction in write-downs and losses on
disposal of other real estate owned during 1995 as compared to 1994.
FDIC insurance expense decreased to $26,000 during the year ended December
31, 1996, from $97,000 and $160,000 during the years ended December 31, 1995 and
1994, respectively, or respective decreases of $71,000 or 73.31% and $63,000 or
39.26%. These decreases were primarily due to a decrease in FDIC insurance
rates.
Other operating expenses increased to $521,000 during the year ended
December 31, 1996, from $492,000 and $377,000 during the years ended December
31, 1995 and 1994, respectively, or respective increases of $29,000 or 5.90% and
$115,000 or 30.45%. The 1996 increase primarily resulted from increased
intangible tax expense. The 1995 increase primarily resulted from Director fees
being reinstated beginning January 1, 1995 and from increased other expenses
including ATM charges, check printing charges and accounting costs.
Income Taxes
During the years ended December 31, 1996 and 1995, the Company had a
benefit for income taxes of $108,000 and $260,000 by recording deferred income
tax assets resulting from the corresponding reduction in the valuation
18
<PAGE> 19
allowance associated with the Company's tax loss carry forward. During the
year ended December 31, 1994, the Company recorded no net income tax expense or
benefit as the Company was in a net operating loss carry forward position. At
December 31, 1996, the Company had a net operating loss carry forward of $4.2
million for Federal income tax reporting purposes. The Internal Revenue Service
examined without change the Bank's Federal income tax return for the year ended
December 31, 1988.
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when considered necessary to reduce deferred tax assets to the
estimated amount expected to be realized. Income tax expense is the tax payable
or refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities. One of the principal differences from the
deferred method is that changes in tax rates and laws will be reflected in
income from continuing operations in the period such changes are enacted. Under
the deferred method such changes are reflected over time, if at all.
INFLATION
The financial statements and related data presented in this report have
been prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The principal element of the Company's
earnings was interest income which may be significantly affected by the level of
inflation and by government monetary and fiscal policies adopted in response to
inflationary or deflationary pressures.
Inflation affects the reported financial condition and results of
operations of all companies. However, the majority of assets and liabilities of
financial institutions are monetary in nature and therefore differ greatly from
most commercial and industrial companies that have significant investments in
fixed assets or inventories. Inflation does have an important impact on the
growth of total assets and the resulting need to increase equity capital at
higher than normal rates in order to maintain an appropriate equity to assets
ratio. Inflation also is a factor which may influence interest rates, yet the
frequency and magnitude of interest rate fluctuations do not necessarily
coincide with changes in the general inflation rate. In an effort to cope with
the effects of inflation, the Company attempts to monitor its interest rate
sensitivity gap position, as discussed above. In addition, the periodic reviews
of banking services and products are conducted to adjust pricing in view of
current costs.
INTEREST RATE SENSITIVITY
Management meets periodically to review general economic conditions,
interest rate trends, and the interest rate sensitivity of the Bank's various
portfolios. The Company's objective in managing interest rate sensitivity is to
protect the Company's interest rate margins from the negative effects of upward
or downward changes in interest rates. Legislative changes, monetary control
efforts and the effects of industry deregulation have been significant factors
affecting the task of managing interest sensitivity positions.
The Company's rate-sensitive assets are those maturing within one year or
less. Rate-sensitive liabilities include interest-bearing demand deposits
(insured money market account and NOW accounts), savings accounts and time
deposits which mature or are subject to rate changes in one year or less;
however, industry experience indicates that many interest-bearing demand
deposits and regular savings deposits are not as interest-sensitive as other
types of interest-bearing deposits.
The profitability of the Company is influenced significantly by
management's ability to control the relationship between interest rate-sensitive
assets and liabilities, especially during periods of frequent changes in
interest rates. As set forth in the table below, the difference between the
amounts of interest-earning assets and interest-bearing liabilities subject to
rate changes is known as the "interest-sensitivity gap", and is referred to as a
"positive gap" when the amount of interest-sensitive assets exceeds that of
liabilities, and as a "negative gap" when the amount of interest-sensitive
liabilities exceeds that of assets.
At December 31, 1996, $32.8 million or 49.85% of the Company's total
interest-earning assets were subject to rate adjustment during 1997, while a
total of $37.0 million or 74.85% of the Company's total interest-bearing
liabilities were subject to adjustment during that same period. As reflected by
the table, the Company had a cumulative "negative" gap of $4.2 million during
the year following December 31, 1996.
19
<PAGE> 20
At December 31, 1996, an analysis of the interest rate sensitivity of the
Company's assets and liabilities was as follows:
<TABLE>
<CAPTION>
Immediately
Adjustable or
Less Than 31to 90 91to 180 181 to 365 Over 365
30 Days Days Days Days Days Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commercial:
Variable-interest rate ....... $ 5,463,448 $ -- $ -- $ -- $ -- $ 5,463,448
Fixed-interest rate .......... 99,448 109,230 143,996 329,097 1,917,354 2,599,125
Mortgage:
Construction:
Variable-interest rate ..... 372,348 -- -- -- -- 372,348
Fixed-interest rate ........ -- 49,687 -- -- 606,968 656,655
Non-construction:
Variable-interest rate ..... 12,922,614 -- -- -- -- 12,922,614
Fixed-interest rate ........ 31,309 9,197 249,874 1,086,886 13,872,315 15,249,581
Installment ..................... 129,707 23,087 17,879 29,178 3,389,833 3,589,684
Other ........................... 2,583,792 -- -- -- 603,021 3,186,813
----------- ----------- ----------- ----------- ----------- -----------
Total loans .................. 21,602,666 191,201 411,749 1,445,161 20,389,491 44,040,268
Federal funds sold .............. 5,179,000 -- -- -- -- 5,179,000
Investments available-
for sale ..................... 997,500 -- 1,002,500 997,500 5,478,665 8,476,165
Investments held-
to-maturity .................. 1,000,000 -- -- -- 7,163,011 8,163,011
----------- ----------- ----------- ----------- ----------- -----------
Total earning assets ......... 28,779,166 191,201 1,414,249 2,442,661 33,031,167 $65,858,444
----------- ----------- ----------- ----------- ----------- -----------
DEPOSITS:
NOW Accounts .................... 7,841,350 -- -- -- -- 7,841,350
Money Market .................... 7,749,782 -- -- -- -- 7,749,782
Savings deposits ................ 2,725,840 -- -- -- -- 2,725,840
Time deposits:
Under $100,000 ............... 1,408,842 2,237,565 4,401,920 6,433,649 11,493,591 25,975,567
$100,000 and over ............ 795,820 504,660 960,007 1,181,546 937,592 4,379,625
----------- ----------- ----------- ----------- ----------- -----------
Total costing deposits ....... 20,521,634 2,742,225 5,361,927 7,615,195 12,431,183 48,672,164
Sweep accounts .................. 749,057 -- -- -- -- 749,057
----------- ----------- ----------- ----------- ----------- -----------
Total costing liabilities .... 21,270,691 2,742,225 5,361,927 7,615,195 12,431,183 $49,421,221
----------- ----------- ----------- ----------- ----------- -----------
INTEREST RATE
SENSITIVITY GAP:
Amount .......................... $ 7,508,475 $(2,551,024) $(3,947,678) $(5,172,534) $20,599,984
=========== =========== =========== =========== ===========
% of total assets ............... 10.50% (3.57)% (5.52)% (7.23)% 28.80%
=========== =========== =========== =========== ===========
CUMULATIVE INTEREST
RATE SENSITIVITY GAP:
Amount .......................... $ 7,508,475 $ 4,957,451 $ 1,009,773 $(4,162,761) $16,437,223
=========== =========== =========== =========== ===========
% of total assets ............... 10.50% 6.93% 1.41% (5.82)% 22.98%
=========== =========== =========== =========== ===========
</TABLE>
20
<PAGE> 21
BUSINESS OF THE COMPANY
The Holding Corporation was organized in 1990 for the purpose of serving as
a one-bank holding company for the Bank. On January 30, 1991, the Holding
Corporation, following approval by Bank shareholders at a special meeting,
acquired all of the outstanding shares of Bank common stock.
The Bank commenced business on May 23, 1988 for purposes of serving the
needs of the residents of Fort Myers and other surrounding communities. The
Bank's broad shareholder base is composed primarily of Lee County residents, and
the composition of the Bank's Board of Directors reflects the Bank's philosophy
of serving the banking needs of local residents. The Bank intends to be and
remain a progressive financial institution offering as many financial services
as its size and capital base will allow on a prudent and conservative level. The
deposits of the Bank are insured by the Federal Deposit Insurance Corporation to
the extent provided by law.
The Bank conducts a general banking business from three locations. The
Bank's main office is located within the city limits of Fort Myers, Florida, at
2017 McGregor Boulevard. In May, 1989, the Bank opened a branch office at 1500
Colonial Boulevard in Fort Myers. In September, 1990, the Bank opened another
branch office at the corner of Daniels Road and Metro Parkway in Lee County. In
accordance with the Community Reinvestment Act of 1977, the Bank has designated
the local community to be served by the Bank as Fort Myers (Lee County) Florida.
The Bank has the responsibility to help meet the credit needs of the entire
local community, including low and moderate income neighborhoods.
CAPITAL STOCK
There is no established public trading market for the Holding Corporation's
common stock. Management of the Holding Corporation is aware of certain
transactions in its common stock that occurred in 1996 and 1995 although the
trading prices of all stock transactions are not known. In December 1995, the
Holding Corporation completed a private placement of 193,100 shares of common
stock at $5.00 per share. The proceeds of the private placement prior to
issuance costs of $45,141 were $965,500. At December 31, 1996, there were
1,210,975 shares of Holding Corporation common stock outstanding held by 712
shareholders of record.
The Holding Corporation has not paid any dividends since it was organized
in January, 1991 and, prior thereto, the Bank did not pay any dividends to its
shareholders since its organization in May, 1988. The ability of the Holding
Corporation to pay dividends is subject to statutory restrictions on cash
dividends applicable to Florida corporations. Further, the Holding Corporation's
primary source of income is the dividends it receives from the Bank. The Florida
Banking Code imposes certain restrictions on the right of Florida state banking
corporations, such as the Bank, from paying dividends.
Transactions in Company 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 Holding Corporation
common stock that occurred in transactions known to management in the respective
periods during 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------------------------------- --------------------------------
High Low Shares High Low Shares
---- --- ------ ---- --- ------
<C> <C> <C> <C> <C> <C> <C>
1st Quarter.................... $5.00 $5.00 600 $4.50 $4.10 13,210
2nd Quarter.................... 8.00 5.00 1,250 5.00 4.30 10,132
3rd Quarter..................... 5.50 5.50 300 5.00 4.95 2,000
4th Quarter..................... 10.00 6.38 4,050 5.25 5.00 3,942
</TABLE>
21
<PAGE> 22
COMPANY DIRECTORS AND OFFICERS
DIRECTORS
The following are the Directors of both the Holding Corporation and the
Bank:
ROBERT C. ADKINS has been President and General Manager of Dixie Buick,
Inc. located in Fort Myers, for many years. From 1983 to 1986, he was on the
board of directors of Security National Bank in Fort Myers.
CHARLES C. ("CHRIS") BUNDSCHU, III is a Fort Myers real estate developer
and is President and Chief Executive Officer of Bundschu Kraft, Inc. He is a
Florida professional civil engineer, Class A general contractor and real estate
broker.
RONALD D. FOCHT is President and owner of United Welding and Machine
Company since 1976. Subsequently, he purchased Frank's Supply Company and Woods
Metal Works, both of Fort Myers.
CAROLE A. GREEN is a Director of the Hospital Board of Lee County d/b/a Lee
Memorial Health Systems since 1995. She also serves on The Children's Hospital
of Southwest Florida Development Board and the Health Education Center of
Southwest Florida.
ROBERT ERNEST HENDRY, a dentist, is a Fort Myers native. He served on the
board of directors of Exchange National Bank in Fort Myers from 1980 to 1983,
and was a founding director of Security National Bank from 1983 until 1988. He
serves as Chairman of the Holding Corporation's Board.
JAMES T. HUMPHREY, JR., is senior member of the law firm of Humphrey &
Knott, P.A. located in Fort Myers. He served as city judge from 1972 to 1973,
and as county attorney from 1973 to 1977. His law firm is the Company's general
legal counsel.
GEORGE T. (PAT) MANN, JR. is President of George T. Mann General
Contractor, Inc. since 1985. He served on the board of directors of First
Federal Savings and Loan Association of Fort Myers, and subsequently,
Society/First Federal from 1980 to 1996. He also currently serves as a
Commissioner of the Lee County Mosquito Control District, where he was first
elected in 1992.
WALLACE M. TINSLEY was President of an auto parts business until he sold
most of the stores to employees in 1984, and the balance of the business in
1989. He is retired.
WILLIAM P. VALENTI serves as the Company's President and Chief Executive
Officer. Prior to joining the Company, he was a Managing Agent with the FDIC.
Included in his twenty-five years of banking experience, is service as Group
President of SunBank, N.A. and as President and Chief Executive Officer of
Flagship First National Bank of Titusville, Florida.
EXECUTIVE OFFICERS OF THE HOLDING CORPORATION
In addition to William P. Valenti (Chief Executive Officer), Harold S.
Taylor, Jr. also serves as an executive officer of the Holding Corporation. Mr.
Taylor joined the Holding Corporation as Executive Vice President, Secretary and
Treasurer in February, 1996. He also serves as Executive Vice President of South
Florida Bank.
22
<PAGE> 23
OFFICERS OF THE BANK
In addition to William P. Valenti (Chief Executive Officer), the following are
the Bank's officers:
Harold S. Taylor, Jr. Executive Vice President/Senior Loan Officer
Kathleen Taylor Senior Vice President/Loan Officer
Deborah J. Boros Vice President/Operations
Cynthia L. Doragh Vice President/Branch Manager
Christopher Ferrer Vice President/Branch Manager
George A. Landon Vice President/Loan Officer
William J. Evans Assistant Vice President/Operations
Andrew Jackson Assistant Vice President/Loan Officer
Sharon Landel Controller
MAIN OFFICE OF THE COMPANY: LEGAL COUNSEL:
2017 McGregor Boulevard Humphrey & Knott, P. A.
Fort Myers, Florida 33901 1625 Hendry Street
Phone: (941) 334-2020 Fort Myers, Florida 33901
Fax: (941) 334-6203 Phone: (941) 334-2722
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS:
Brewer, Beemer, Kuehnhackl & Koon, P.A.
250 North Orange Avenue, Suite 1500
Orlando, Florida 32801
Phone: (407) 649-7923
ANNUAL MEETING
The Holding Corporation's Annual Meeting will be held on Tuesday, April 22,
1997 at 4:00 p.m. at the Bank's Colonial Office, 1500 Colonial Boulevard, Fort
Myers, Florida 33919.
23
<PAGE> 24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of South Florida Bank Holding Corporation
We have audited the consolidated statements of financial condition of South
Florida Bank Holding Corporation as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
South Florida Bank Holding Corporation as of December 31, 1996 and 1995, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
BREWER, BEEMER, KUEHNHACKL & KOON, P.A.
Orlando, Florida
January 30, 1997
24
<PAGE> 25
SOUTH FLORIDA BANK HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks ..................................... $ 4,663,206 $ 2,744,597
Federal funds sold .......................................... 5,179,000 5,337,000
Investments available-for-sale .............................. 8,476,165 11,477,830
Investments held-to-maturity (market value of
$8,140,000 and $6,358,000) ............................. 8,163,011 6,389,222
Loans, net of allowance for loan losses of
$904,562 and $852,270 .................................. 43,135,706 35,693,367
Premises and equipment, net ................................. 408,434 502,514
Accrued interest receivable ................................. 451,821 496,157
Other real estate owned ..................................... 548,500 582,500
Other assets ................................................ 503,684 366,932
----------- -----------
Total assets ........................................... $71,529,527 $63,590,119
=========== ===========
LIABILITIES
Deposits:
Demand deposits ........................................ $15,215,611 $10,390,053
NOW accounts ........................................... 7,841,350 8,467,512
Money market accounts .................................. 7,749,782 8,352,581
Savings deposits ....................................... 2,725,840 2,206,716
Time deposits under $100,000 ........................... 25,975,567 23,440,999
Time deposits $100,000 and over ........................ 4,379,625 3,132,975
----------- -----------
Total deposits ..................................... 63,887,775 55,990,836
Securities sold under agreements to repurchase .............. 749,057 1,623,320
Accrued interest payable .................................... 443,538 522,471
Other liabilities ........................................... 41,432 67,407
----------- -----------
Total liabilities ...................................... 65,121,802 58,204,034
----------- -----------
Commitments and contingencies (Notes B, E and I)
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 10,000,000
shares authorized, 1,210,975 and
1,195,975 shares outstanding ........................... 12,110 11,960
Additional paid-in capital .................................. 10,366,378 10,291,528
Net unrealized securities gains (losses) .................... (32,911) 20,655
Retained deficit ............................................ (3,937,852) (4,938,058)
----------- -----------
Total shareholders' equity ............................. 6,407,725 5,386,085
----------- -----------
Total liabilities and shareholders' equity ............. $71,529,527 $63,590,119
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
25
<PAGE> 26
SOUTH FLORIDA BANK HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
INTEREST AND FEE INCOME FROM EARNING ASSETS:
Loans ...................................................... $3,716,153 $3,267,165 $ 3,122,054
Federal funds sold ......................................... 172,198 213,249 63,674
Investment securities ...................................... 981,321 1,053,831 563,621
---------- ---------- -----------
Total interest income ................................. 4,869,672 4,534,245 3,749,349
---------- ---------- -----------
INTEREST EXPENSE:
Deposits:
NOW accounts .......................................... 123,378 136,564 127,934
Money market accounts ................................. 230,998 279,091 264,586
Savings deposits ...................................... 52,476 55,796 60,313
Time deposits under $100,000 .......................... 1,333,029 1,335,187 794,850
Time deposits $100,000 and over ....................... 178,118 162,786 123,030
Other ...................................................... 38,623 39,750 31,776
---------- ---------- -----------
Total interest expense ................................ 1,956,622 2,009,174 1,402,489
---------- ---------- -----------
NET INTEREST INCOME ........................................ 2,913,050 2,525,071 2,346,860
PROVISION (BENEFIT) FOR LOAN LOSSES ........................ -- 28,000 (75,000)
---------- ---------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ........ 2,913,050 2,497,071 2,421,860
NON-INTEREST INCOME:
Service charge income ...................................... 455,246 472,521 443,100
Realized securities gains .................................. 3,828 -- --
Other ...................................................... 152,439 74,800 72,096
---------- ---------- -----------
Total non-interest income ............................. 611,513 547,321 515,196
---------- ---------- -----------
NON-INTEREST EXPENSES:
Personnel expense .......................................... 1,272,815 1,244,680 1,264,775
Occupancy expense .......................................... 525,366 575,072 642,339
Legal expenses ............................................. 99,147 103,265 146,356
Advertising ................................................ 74,084 56,834 63,862
Supplies ................................................... 64,103 52,558 52,122
Loan collection expenses ................................... 49,582 89,742 187,829
FDIC insurance ............................................. 25,921 97,129 159,917
Other ...................................................... 521,339 492,289 377,385
---------- ---------- -----------
Total non-interest expenses ........................... 2,632,357 2,711,569 2,894,585
---------- ---------- -----------
INCOME BEFORE INCOME TAXES ................................. 892,206 332,823 42,471
BENEFIT FOR INCOME TAXES ................................... 108,000 260,000 --
---------- ---------- -----------
NET INCOME ................................................. $1,000,206 $ 592,823 $ 42,471
========== ========== ===========
NET INCOME PER SHARE ....................................... $ .82 $ .59 $ .04
========== ========== ===========
Weighted average number of common shares and
common share equivalents outstanding .................. 1,218,898 1,002,875 1,002,875
========== ========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of these
financial statements.
26
<PAGE> 27
SOUTH FLORIDA BANK HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized Total
Additional Securities Share- Number
Common Paid-in Gains Retained holders' of
Stock Capital (Losses) Deficit Equity Shares
------- ----------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1993 .............. $10,029 $ 9,373,100 $ 4,175 $(5,573,352) $ 3,813,952 1,002,875
Investment valuation .............. -- -- (53,386) -- (53,386) --
Net income for 1994 ............... -- -- -- 42,471 42,471 --
------- ----------- -------- ----------- ----------- ---------
Balance,
December 31, 1994 .............. 10,029 9,373,100 (49,211) (5,530,881) 3,803,037 1,002,875
Proceeds from issuance of
193,100 shares of common
stock, net of $45,141 of
issuance costs ................. 1,931 918,428 -- -- 920,359 193,100
Investment valuation .............. -- -- 69,866 -- 69,866 --
Net income for 1995 ............... -- -- -- 592,823 592,823 --
------- ----------- -------- ----------- ----------- ---------
Balance,
December 31, 1995 .............. 11,960 10,291,528 20,655 (4,938,058) 5,386,085 1,195,975
Proceeds from exercise of
15,000 stock options .......... 150 74,850 -- -- 75,000 15,000
Investment valuation .............. -- -- (53,566) -- (53,566) --
Net income for 1996 ............... -- -- -- 1,000,206 1,000,206 --
------- ----------- -------- ----------- ----------- ---------
Balance,
December 31, 1996 .............. $12,110 $10,366,378 $(32,911) $(3,937,852) $ 6,407,725 1,210,975
======= =========== ======== =========== =========== =========
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of these
financial statements.
27
<PAGE> 28
SOUTH FLORIDA BANK HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Interest received ......................................................... $ 4,914,008 $ 4,377,971 $ 3,749,817
Non-interest income ....................................................... 611,513 547,321 515,196
Interest paid ............................................................. (2,035,555) (1,734,112) (1,584,052)
Personnel expenses ........................................................ (1,272,815) (1,244,680) (1,264,775)
Other operating expenditures .............................................. (1,235,772) (1,299,258) (1,486,195)
----------- ----------- -----------
Net cash provided by (used in) operating activities ....................... 981,379 647,242 (70,009)
----------- ----------- -----------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: INVESTMENTS
AVAILABLE-FOR-SALE:
Purchases ............................................................ (6,546,175) (8,954,298) (5,922,672)
Maturities ........................................................... 7,006,520 6,453,147 4,715,033
Sales ................................................................ 2,454,923 -- --
Investments held-to-maturity:
Purchases ............................................................ (6,948,492) (2,053,176) (991,094)
Maturities ........................................................... 5,174,703 231,142 243,674
Proceeds from the sales of other real estate owned ........................ 78,377 1,607,813 1,808,604
Decrease (Increase) in loans .............................................. (7,486,716) (4,038,901) 3,314,909
Increase in premises and equipment ........................................ (51,586) (47,513) (60,219)
----------- ----------- -----------
Net cash provided by (used in) investing activities ....................... (6,318,446) (6,801,786) 3,108,235
----------- ----------- -----------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Increase (Decrease) in:
Demand deposits ...................................................... 4,825,558 1,194,045 (1,181,732)
NOW accounts ......................................................... (626,162) 1,275,112 (758,667)
Money market accounts ................................................ (602,799) (1,715,618) 21,955
Savings deposits ..................................................... 519,124 (292,167) 36,598
Time deposits ........................................................ 3,781,218 7,393,173 (1,829,532)
Securities sold under agreements to repurchase ............................ (874,263) 1,130,002 (677,675)
Proceeds from issuance of common stock .................................... 75,000 920,359 --
----------- ----------- -----------
Net cash provided by (used in) financing activities ....................... 7,097,676 9,904,906 (4,389,053)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ..................................................... 1,760,609 3,750,362 (1,350,827)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......................... 8,081,597 4,331,235 5,682,062
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................ $ 9,842,206 $ 8,081,597 $ 4,331,235
=========== =========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of these
financial statements.
28
<PAGE> 29
SOUTH FLORIDA BANK HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Reconciliation of net income to net cash
provided by (used in) operating activities
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Net income ................................................... $ 1,000,206 $ 592,823 $ 42,471
Adjustments:
Provision (Benefit) for loan losses ..................... -- 28,000 (75,000)
Depreciation and amortization ........................... 145,666 210,499 258,638
Benefit for income taxes ................................ (108,000) (260,000) --
Decrease (Increase) in:
Accrued interest receivable ......................... 44,336 (156,274) 468
Other assets ........................................ 4,079 (25,825) 27,870
Increase (Decrease) in:
Accrued interest payable ............................ (78,933) 275,062 (181,563)
Other liabilities ................................... (25,975) (17,043) (142,893)
----------- --------- ---------
Net cash provided by (used in) operating activities .......... $ 981,379 $ 647,242 $ (70,009)
=========== ========= =========
Supplemental schedule of non-cash activities:
Loans transferred to other real estate owned ............ $ 78,377 $ 69,100 $ 94,086
Other real estate owned returned to loan status ......... -- 151,123 27,000
Net unrealized securities gains (losses) ................ (53,566) 69,866 (53,386)
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of these
financial statements.
29
<PAGE> 30
SOUTH FLORIDA BANK HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
South Florida Bank (the "Bank") is a state-chartered bank incorporated on
March 15, 1988 under the laws of the state of Florida. The Bank commenced
operations on May 23, 1988. South Florida Bank Holding Corporation (the "Holding
Corporation") is a one-bank holding company incorporated under the laws of the
state of Florida on September 14, 1990 to reorganize the Bank into a one-bank
holding company structure. On December 19, 1990, the Bank's shareholders
approved a plan of corporate reorganization, which was consummated on January
30, 1991, under which the Bank became a wholly-owned subsidiary of the Holding
Corporation (the "Corporate Reorganization"). On July 22, 1992 and May 14, 1993,
the Bank formed two wholly-owned subsidiaries, New Town Properties, Inc. ("New
Town") and Valu Prop, Inc. ("Valu Prop"), respectively, for the purpose of
acquiring title to certain properties in foreclosure. The consolidated financial
statements include the accounts of the Holding Corporation, the Bank, New Town,
and Valu Prop (collectively, the "Company") after elimination of all material
intercompany balances and transactions.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Securities
The Bank classifies as available-for-sale those investment securities which
may be sold prior to maturity in connection with changes in market interest
rates, liquidity needs or other reasons. The available-for-sale portfolio has
been reflected at its aggregate fair value in the accompanying consolidated
statements of financial condition. The net unrealized securities gains (losses),
net of anticipated income tax effect, have been reflected as a separate
component of shareholders' equity. Those investment securities which the Bank
has the positive intent and ability to hold until their maturity have been
classified as investments held-to-maturity. These securities are carried on an
amortized cost basis.
Amortization of premiums and accretion of discounts are recognized in
interest income as yield adjustments, in a manner which approximates the
interest method. Realized gains and losses on disposition are recorded in
non-interest income on the trade date, based on the net proceeds from, and
adjusted cost of the security sold, using the specific identification method.
Allowance for Loan Losses
The financial statements include an allowance for estimated losses on loans
based on management's evaluation of potential losses in the loan portfolio. The
allowance for loan losses is established by a provision charged to operations
based upon a continuing review of past loan loss experience, current economic
conditions that may affect the borrower's ability to pay and the underlying
collateral value of the loans. Loans that are considered to be uncollectible are
charged-off and deducted from the allowance and subsequent recoveries, if any,
are credited to this allowance.
Uncollected Interest
The Bank's policy is to discontinue accruing interest on a loan after it
has become 90 days delinquent as to payment of principal or interest unless, in
the determination of management, the principal and interest on the loan are well
secured and in the process of collection. In addition, a loan is placed on
non-accrual status before 90 days delinquency occurs if management believes that
the borrower's financial condition, after giving consideration to economic and
business conditions and collection efforts, is such that collection of interest
or principal is doubtful.
30
<PAGE> 31
Loan Impairment and Losses
Effective January 1, 1995, the Bank adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
("FAS 114") and Statement of Financial Accounting Standards No. 118, "Accounting
by Creditors for Impairment of a Loan, Income Recognition and Disclosure" ("FAS
118"). These statements address the accounting by creditors for impairment of
certain loans. The Statements generally require the Bank to identify loans for
which the Bank probably will not receive full repayment of principal and
interest, as impaired loans. The Statements require that impaired loans be
valued at either (i) the present value of expected future cash flows, discounted
at the loan's effective interest rate, or (ii) at the observable market price of
the loan, or (iii) the fair value of the underlying collateral if the loan is
collateral dependent. The Bank has implemented the Statements by modifying its
quarterly review of the adequacy of the allowance for credit losses to also
identify and value impaired loans in accordance with guidance in these
Statements. The adoption of these Statements did not have a material effect on
the results of operations for the years ended December 31, 1996 and 1995.
Management considers a variety of factors in determining whether a loan is
impaired, including (i) any notice from the borrower that the borrower will be
unable to repay all principal and interest amounts contractually due under the
loan agreement, (ii) any delinquency in the principal and interest payments
(other than minimum delays or shortfalls in payments), and (iii) other
information known by management which would indicate that full repayment of the
principal and interest is not probable. In evaluating loans for impairment,
management generally considers delinquencies of 89 days or less to be minimum
delays, and accordingly does not consider such delinquent loans to be impaired
in the absence of other indications of impairment.
Management evaluates smaller balance, homogeneous loans for impairment and
adequacy of allowance for loan losses collectively, and evaluates other loans
for impairment individually, on a loan-by-loan basis. For this purpose, the Bank
considers its portfolios of commercial, mortgage and construction loans with
outstanding balances less than $500,000 and its installment and other loan
portfolios to be smaller balance, homogeneous loans. The Bank evaluates each of
these loan portfolios for impairment on an aggregate basis, and utilizes its own
recent historical charge-off experience, as well as the charge-off experience of
its peer group and industry statistics to evaluate the adequacy of the allowance
for loan losses. For all other loans, the Bank evaluates loans for impairment on
a loan-by-loan basis.
The Bank evaluates all non-accrual loans as well as any accruing loans
exhibiting collateral or other credit deficiencies for impairment. With respect
to impaired, collateral-dependent loans, any portion of the recorded investment
in the loan that exceeds the fair value of the collateral is charged-off.
For impairment recognized in accordance with FAS 114 and FAS 118, the
entire change in the present value of expected cash flows, or the entire change
in estimated fair value of collateral for collateral dependent loans is reported
as a provision for loan losses in the same manner in which impairment initially
was recognized or as a reduction in the amount of the provision that otherwise
would be reported.
Other Real Estate Owned
Other real estate owned, consists of real estate acquired through
foreclosure, is held for sale and is carried at the lower of the property's fair
value or the recorded investment in the related loan. Fair value is net of
estimated selling costs. The excess, if any, of the loan balance over the fair
value of the property at the date of acquisition is charged to the allowance for
loan losses. Subsequent downward adjustments to carrying value, if any, are
recognized by a charge to non-interest expense. Costs relating to the
development and improvement of the property are capitalized whereas those
relating to holding property are charged to expense.
Legal expenses associated with foreclosure actions are included in the
accompanying consolidated statements of operations in legal expense. Real estate
property taxes, appraisal costs and other expenses associated with holding other
real estate, as well as gains and losses arising from disposition are included
in the accompanying consolidated statements of operations as loan collection
expenses.
31
<PAGE> 32
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Leasehold improvements are amortized on the straight-line method over the
shorter of their estimated useful lives or the lease terms which range from
seven to 15 years. Depreciation expense is computed on the straight-line basis
over the estimated useful life of furniture and equipment which range from three
to seven years. Additions to premises and equipment and major improvements are
capitalized. Maintenance and repairs are expensed as incurred.
Income Recognition
Interest income on loans is accrued based upon the principal amount
outstanding. Non-refundable fees and costs associated with the origination of
loans are deferred and recognized over the life of the loan using a method that
approximates the interest method.
Stock-Based Compensation
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("FAS
123") which requires certain disclosures about stock-based employee compensation
arrangements, regardless of the method used to account for them, and defines a
fair value based method of accounting for an employee stock option or similar
equity instrument and encourages all entities to adopt that method of accounting
for all of their employee stock compensation plans. However, FAS 123 also allows
an entity to continue to measure compensation cost for stock-based compensation
plans using the intrinsic value method of accounting prescribed by APB Opinion
No. 25, "Accounting for Stock Issued to Employees." Entities electing to
continue using the accounting method in APB Opinion No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value method of
accounting had been adopted. Under the fair value method, compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. Under the
intrinsic value based method, compensation cost is the excess, if any, of the
quoted market price of the stock at grant date or other measurement date over
the amount an employee must pay to acquire the stock. The Company elected to
continue using the accounting method in APB Opinion No. 25. The effect of using
the fair value method of accounting on net income for the year ended December
31, 1996 would not have been material.
Income Taxes
Income tax expense or benefit consists of Federal and state income taxes
currently payable or refundable, and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities, net of related valuation allowance. Temporary differences which
give rise to significant deferred tax assets and liabilities primarily relate to
the use of the cash basis for tax purposes, organizational expenditures, the
allowance for loan losses, fixed assets and operating loss carry forwards.
Net Income Per Share
Net income per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period,
including the effect of unexercised stock options using the treasury stock
method. The treasury stock method assumes that common stock was purchased at the
average market price during the period.
For the years ended December 31, 1996, 1995 and 1994, the computation of
weighted average number of common shares and common share equivalents
outstanding was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Common shares ......................................... 1,207,696 1,002,875 1,002,875
Stock options ......................................... 11,202 -- --
--------- --------- ---------
Total ............................................ 1,218,898 1,002,875 1,002,875
========= ========= =========
</TABLE>
32
<PAGE> 33
Due to the trading prices being less than the exercise price of the stock
options during 1995 and 1994, the exercise of the stock options was not assumed
during 1995 and 1994 as such exercise would have an antidilutive effect on net
income per common and common equivalent share.
Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and federal funds sold, which are invested
overnight.
NOTE B-INVESTMENTS AVAILABLE-FOR-SALE AND INVESTMENTS HELD-TO-MATURITY
At December 31, 1996 and 1995, the carrying value, gross unrealized gains
and losses, and estimated market value of investments available-for-sale and
investments held-to-maturity were as follows:
<TABLE>
<CAPTION>
GROSS GROSS CARRYING
AMORTIZED UNREALIZED UNREALIZED VALUE
INVESTMENTS AVAILABLE-FOR-SALE: COST GAINS LOSSES (FAIR VALUE)
1996 ----------- ------- -------- -----------
- ----
<S> <C> <C> <C> <C>
U.S Treasury obligations due
in one year or less .................... $ 1,002,670 $ -- $ (170) $ 1,002,500
U.S Agency obligations due:
In one year or less .................... 1,000,000 -- (2,500) 997,500
After one year through five years ...... 6,526,578 -- (50,413) 6,476,165
----------- ------- -------- -----------
Total investments
available-for-sale ................. $ 8,529,248 $ -- $(53,083) $ 8,476,165
=========== ======= ======== ===========
1995
- ----
U.S Agency obligations due:
In one year or less .................... $ 5,992,046 $32,466 $ (1,232) $ 6,023,280
After one year through five years ...... 5,452,470 6,020 (3,940) 5,454,550
----------- ------- -------- -----------
Total investments
available-for-sale ................. $11,444,516 $38,486 $ (5,172) $11,477,830
=========== ======= ======== ===========
</TABLE>
<TABLE>
<CAPTION>
CARRYING
VALUE GROSS GROSS ESTIMATED
(AMORTIZED UNREALIZED UNREALIZED MARKET
INVESTMENTS HELD-TO-MATURITY: COST) GAINS LOSSES VALUE
1996 ----------- ------- -------- -----------
- ----
<S> <C> <C> <C> <C>
U.S Agency obligations due
after one year through five years ...... $ 5,626,637 $10,082 $(22,500) $ 5,614,219
Collateralized mortgage obligations
due after ten years .................... 2,536,374 126 (10,741) 2,525,759
----------- ------- -------- -----------
Total investments held-to-maturity .......... $ 8,163,011 $10,208 $(33,241) $ 8,139,978
=========== ======= ======== ===========
1995
- ----
U.S Agency obligations due:
In one year or less .................... $ 995,380 $17,120 $ -- $ 1,012,500
After one year through five years ...... 3,050,945 2,175 (42,500) 3,010,620
Collateralized mortgage obligations
due after ten years .................... 2,342,897 1,426 (9,497) 2,334,826
----------- ------- -------- -----------
Total investments held-to-maturity .......... $ 6,389,222 $20,721 $(51,997) $ 6,357,946
=========== ======= ======== ===========
</TABLE>
Expected maturities for the collateralized mortgage obligations will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
33
<PAGE> 34
As of December 31, 1996, investments available-for-sale and
held-to-maturity with a carrying value of approximately $787,000 were pledged to
collateralize securities sold under agreements to repurchase and $134,000 were
pledged for Treasury, Tax and Loan deposits.
NOTE C - LOANS AND ALLOWANCE FOR LOAN LOSSES
As of December 31, 1996 and 1995, loans consisted of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Commercial .................................. $ 8,062,573 $ 7,081,642
Mortgage:
Construction ........................... 1,029,003 1,331,809
Non-construction ....................... 28,172,195 23,909,249
Installment ................................. 3,589,684 1,490,577
Other loans ................................. 3,186,813 2,732,360
----------- -----------
Total loans, net of unearned income ......... 44,040,268 36,545,637
Less - allowance for loan losses ............ 904,562 852,270
----------- -----------
Loans, net ............................. $43,135,706 $35,693,367
=========== ===========
</TABLE>
Commercial loans included loans to businesses and individuals payable on
demand or within a specified period of time. Mortgage construction loans
included loans to finance the construction of property and become payable upon
completion of construction. Mortgage non-construction loans included primarily
intermediate-term loans collateralized by real estate and payable in periodic
installments. Installment loans were made to both businesses and individuals for
the purpose of purchasing consumer goods. These goods were generally
automobiles, mobile homes, equipment and other consumer products which generally
collateralize the loans. Other loans included credit card loans, deposit
overdrafts and lines of credit to individuals.
For the years ended December 31, 1996, 1995, and 1994, an analysis of the
allowance for loan losses was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
Beginning balance ..................................... $ 852,270 $ 1,342,763 $ 1,073,014
Provision for loan losses ............................. -- 28,000 (75,000)
Charge-offs ........................................... (98,341) (815,193) (163,072)
Recoveries ............................................ 150,633 296,700 507,821
------------ ----------- ------------
Ending balance ................................... $ 904,562 $ 852,270 $ 1,342,763
============ =========== ============
</TABLE>
As discussed in Note A, the Company adopted the provisions of FAS 114 and
FAS 118 related to impaired loans, effective January 1, 1995. As of December 31,
1996 and 1995, the total recorded investment in impaired loans was $1,134,000
and $1,324,000, respectively, and the Bank recorded an allowance for loan losses
of $170,000 and $262,000, respectively, related to its impaired loans. As of
December 31, 1996 and 1995, the net investment in impaired loans was $964,000
and $1,062,000, respectively. During the years ended December 31, 1996 and 1995,
the recorded investment in impaired loans averaged $1,214,000 and $1,977,000,
respectively, and interest income recognized on impaired loans totalled $113,000
and $131,000, respectively, and interest income received on impaired loans
totaled $91,000 and $86,000, respectively.
A credit risk concentration results when the Company has a significant
credit exposure to an individual or a group engaged in similar activities or
having similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic or other
conditions. As of December 31, 1996 and 1995, no concentration of loans within
any portfolio category to any group of borrowers engaged in similar activities
or in a similar business, exceeded 10% of total loans, except that as of such
date loans collateralized with mortgages on real estate represented 66.31% and
69.06%, respectively, of the loan portfolio and were to borrowers in varying
activities and businesses.
34
<PAGE> 35
Most of the Company's business activity is with customers located within
the Lee County, Florida area. The loan portfolio is diversified among
individuals and types of industries. Loans are expected to be repaid from cash
flow or proceeds from the sale of selected assets of the borrowers. The amount
of collateral obtained upon extension of credit is based on the Company's credit
evaluation of the customer. Collateral primarily included income producing
commercial properties, residential homes and unimproved real estate, in addition
to accounts receivable, inventory, property and equipment.
NOTE D - PREMISES AND EQUIPMENT
As of December 31, 1996 and 1995, premises and equipment were comprised of
the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Leasehold improvements ...................... $ 967,079 $ 959,217
Furniture and equipment ..................... 924,662 900,905
----------- -----------
Total .................................. 1,891,741 1,860,122
Less - accumulated depreciation
and amortization ....................... 1,483,307 1,357,608
----------- -----------
Premises and equipment, net ................. $ 408,434 $ 502,514
=========== ===========
</TABLE>
NOTE E - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
As of December 31, 1996, the Company was party to financial instruments
with off-balance sheet risk in the normal course of business to meet the
financing needs of its customers. These instruments were comprised of
commitments to extend credit and standby letters of credit and involved, to
varying degrees, elements of credit and interest rate risk in excess of the
amounts recognized in the financial statements. The contract amounts of those
instruments reflected the involvement the Bank had in particular classes of
financial commitments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit was represented by the contractual amount of those
instruments. The Company used the same credit policies in making commitments and
conditional obligations as it did for balance sheet instruments.
Commitments are agreements to lend to a customer as long as there are no
violations of any conditions established in the contract. Commitments generally
have fixed-expiration dates or other termination clauses and may require a fee.
Since many commitments expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Company
evaluates each customer's creditworthiness on a case-by-case basis.
Fixed-interest rate commitments to extend credit are subject to market risk
should interest rates rise above contracted rates during the commitment period.
The amount of collateral obtained, if deemed necessary, is based on management's
credit evaluation of the borrower. Collateral held varies but has included
accounts receivable, inventory, property, plant and equipment, and residential
and income producing commercial properties. Total unfunded commitments for loans
and lines of credit were $5,972,000 and $4,700,000 at December 31, 1996 and
1995, respectively.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support construction borrowing arrangements. The Bank's
guarantees are primarily short term, expiring within one year. The credit risk
involved in issuing letters of credit is essentially the same as extending loan
facilities to customers. The Bank held cash as collateral supporting those
commitments for which collateral is deemed necessary. Outstanding letters of
credit were $719,000 and $339,000 at December 31, 1996 and 1995, respectively.
35
<PAGE> 36
NOTE F - INCOME TAXES
As discussed in Note A, the Company adopted, effective January 1, 1993, the
provisions of FAS 109 for calculating income tax expense or benefit and related
deferred tax assets and liabilities.
As a result of the net operating losses carried forward from prior years,
no net income tax expense or benefit was recorded for the year ended December
31, 1994. During the years ended December 31, 1996 and 1995, the Company
recorded $108,000 and $260,000 of income tax benefits resulting from the
corresponding reduction in the valuation allowance associated with the Company's
tax loss carryforwards.
For the years ended December 31, 1996, 1995 and 1994, a reconciliation of
expected federal tax expense or benefit (calculated by applying appropriate
statutory federal income tax rates) to the net income tax expense or benefit
included in the accompanying consolidated statements of operations is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- -------------------
Amount % Amount % Amount %
--------- ----- --------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Expected expense using statutory rate ....... $ 339,038 38.00% $ 126,473 38.00% $ 6,370 15.00%
Utilization of net operating
losses carried forward ................... (356,430) (39.95) -- -- (5,566) (13.11)
Decrease in valuation allowance ............. (94,361) (10.57) (448,333) (134.70) -- --
Other, net .................................. 3,753 .42 61,860 18.58 (804) (1.89)
--------- ----- --------- ----- ------- -----
Total income tax expense .................... $(108,000) (12.10)% $(260,000) (78.12)% $ -- --%
========= ===== ========= ===== ======= =====
</TABLE>
As of December 31, 1996, the Company had net operating loss carryforwards
remaining for federal tax purposes of approximately $4,176,000, which may be
used to offset future taxable income or will expire, if unused, as follows:
$3,118,000 in 2007, $1,026,000 in 2008, and $32,000 in 2009. Should certain
substantial changes (as defined by the federal income tax code), occur in the
Company's ownership, an annual limitation would be imposed on the amount of loss
which could be utilized in any one year. Because realization of the Company's
net operating losses carried forward is uncertain, a valuation allowance has
been established against the related deferred tax assets. The valuation
allowance is used to reduce deferred tax assets to the estimated amount that
management believes is more likely than not to be realized. In determining the
amount of any necessary valuation allowance, management takes into consideration
all available evidence and information, both positive and negative, that a
valuation allowance is needed. Such evidence includes the Company's current and
historical financial condition, results of operations and cumulative losses, as
well as current and enacted future tax laws. Management also takes into
consideration the length of its loss carryforwards, its estimate of the
likelihood and amount of earnings during the carryforward period and the
reduction in the benefit those carryforwards would provide should substantial
changes occur in the Company's ownership during the carryforward period. As of
December 31, 1996 and 1995, the Company's deferred tax assets and liabilities
consisted of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Gross deferred tax assets:
Net operating loss carryforward ........ $ 1,581,066 $ 1,937,496
Fixed assets ........................... 144,846 --
Other real estate owned ................ 22,971 --
Minimum tax ............................ 17,385 --
Allowance for loan losses .............. 16,521 --
Interest on non-accruing loans ......... 8,087 --
Other .................................. 124 458
Valuation allowance .................... (1,411,000) (1,505,361)
----------- -----------
Total .............................. 380,000 432,593
----------- -----------
Gross deferred tax liabilities:
Fixed assets ........................... -- 46,689
Allowance for loan losses .............. -- 125,904
----------- -----------
Total .............................. -- 172,593
----------- -----------
Net deferred tax asset ...................... $ 380,000 $ 260,000
=========== ===========
</TABLE>
36
<PAGE> 37
NOTE G - STOCK OPTIONS
During 1994, the Company implemented a 401(k) defined contribution plan
entitled "South Florida Bank Savings Plan" (the "Savings Plan"). The Savings
Plan is contributory and covers all of the Company's officers and employees. The
Company's contributions are determined by the Board of Directors. During the
years ended December 31, 1996, 1995 and 1994, the Company's expense for the
Savings Plan was $24,000, $19,000 and $18,000, respectively.
The Company maintains a stock option plan for the Company's officers and
employees that provides a maximum grant of 100,000 shares of common stock. As of
December 31, 1996, options totaling 50,000 expire on April 27, 2003. Options
granted, exercised and exercisable were as follows:
<TABLE>
<CAPTION>
Price Number Exercisable
----- ------ -----------
<S> <C> <C> <C>
Balance, December 31, 1993 ............................ $ 5.00 50,000 23,750
Granted .......................................... 5.00 20,000
Exercised ........................................ -- --
------
Balance, December 31, 1994 ............................ 5.00 70,000 42,500
Granted .......................................... -- --
Exercised ........................................ -- --
------
Balance, December 31, 1995 ............................ 5.00 70,000 56,250
Granted .......................................... -- --
Canceled ......................................... 5.00 (5,000)
Exercised ........................................ 5.00 (15,000)
-------- ------
Balance, December 31, 1996 ............................ 5.00 50,000 50,000
======
</TABLE>
NOTE H - RELATED PARTIES
Deposits of the Company's directors, officers and relatives of directors
totaled approximately $1,922,000, $1,921,000, and $1,701,000 at December 31,
1996, 1995 and 1994, respectively. Several of the Company's directors, officers,
and relatives and affiliated entities of directors obtained loans and lines of
credit from the Bank. These loans and lines of credit were granted in accordance
with the normal lending policies of the Bank. For the years ended December 31,
1996, 1995, and 1994, the activity in loans and lines of credit from related
parties were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
Beginning balance ..................................... $ 1,274,714 $ 964,371 $ 1,213,907
New loans ............................................. 584,747 643,410 324,583
Other changes ......................................... (11,256) -- --
Repayments ............................................ (499,394) (333,067) (574,119)
------------ ----------- ------------
Ending Balance ................................... $ 1,348,811 $ 1,274,714 $ 964,371
============ =========== ============
</TABLE>
As of December 31, 1996, other real estate owned included a parcel of real
estate with a carrying value of $238,000. This real estate parcel was acquired
by foreclosure from the father of one of the Company's directors. The Bank is
actively marketing it for sale.
37
<PAGE> 38
During 1990, the Bank entered into a ground lease with a Florida general
partnership for the property on which the Metro branch office is located. As of
December 31, 1996, various directors and affiliates of the directors owned a
minority interest of this partnership. The lease matures on June 30, 1997 and
the Bank pays $2,400 per month. Total rent expense under this lease was $28,000,
$27,000 and $26,000 during the years ended December 31, 1996, 1995 and 1994,
respectively. During 1990, the Bank entered into a lease of office space owned
by one of the Company's Directors. The lease matures on April 30, 1999 and the
Bank currently pays $1,800 per month. Total rent expense under this lease was
$29,000, $37,000 and $36,000 during the years ended December 31, 1996, 1995 and
1994, respectively.
The law firm in which one of the Company's directors is a shareholder
represents the Company as its legal counsel. Professional fees incurred for
these services during the years ended December 31, 1996, 1995, and 1994 totaled
$54,000, $29,000, and $84,000, respectively.
NOTE I - COMMITMENTS AND CONTINGENCIES
The Company leases building facilities under noncancellable operating
leases which expire at various dates through 2000. These leases generally
provide for fixed rental payments and include renewal and purchase options at
amounts which are generally based on fair market value at expiration of the
lease. Rent expense under operating leases totaled $220,000, $221,000, and
$216,000 during the years ended December 31, 1996, 1995, and 1994, respectively.
As of December 31, 1996, future minimum lease payments under leases with initial
or remaining noncancellable lease terms in excess of one year were as follows:
<TABLE>
<S> <C>
1997.............................................. $203,000
1998.............................................. 192,000
1999.............................................. 143,000
2000.............................................. 30,000
--------
Future minimum lease payments..................... $568,000
========
</TABLE>
NOTE J - CAPITAL RATIOS
As of December 31, 1996 and 1995, a comparison of the required minimum
capital ratios to actual capital ratios was as follows:
<TABLE>
<CAPTION>
Bank Ratios
----------- Regulatory
1996 1995 Requirements
---- ---- ------------
<S> <C> <C> <C>
Total capital to risk weighted assets ................. 13.70% 13.33% 8.00%
Tier 1 capital (common shareholders'
equity) to risk-weighted assets .................. 12.45 12.07 4.00
Tier 1 capital to average total assets -
Leverage ratio ................................... 8.82 8.05 4.00
</TABLE>
Banking laws and regulations limit the amount of dividends that may be paid
by financial institutions, including the Company. In addition, banking
regulations impose certain minimum capital ratios on financial institutions,
including the Company, which also restrict the Company's right to pay dividends.
As a result of the Bank's improved financial condition, the Federal Deposit
Insurance Corporation ("FDIC") terminated in December 1995 the written agreement
which had governed certain aspects of the Bank's operations including dividend
restrictions.
38
<PAGE> 39
NOTE K - CONDENSED HOLDING CORPORATION FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
STATEMENTS OF FINANCIAL CONDITION DECEMBER 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks ..................... $ 453,193 $ 385,303
Investment in the Bank ...................... 5,954,532 5,000,782
----------- -----------
Total assets ........................... $ 6,407,725 $ 5,386,085
=========== ===========
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 10,000,000
shares authorized, 1,210,975 and
1,195,975 shares outstanding ........... $ 12,110 $ 11,960
Additional paid-in capital .................. 10,366,378 10,291,528
Net unrealized securities gains
(losses) of the Bank ................... (32,911) 20,655
Retained deficit ............................ (3,937,852) (4,938,058)
----------- -----------
Total shareholders' equity ............. $ 6,407,725 $ 5,386,085
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------
STATEMENTS OF OPERATIONS 1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
Equity in the Bank's earnings .................................................. $ 1,007,316 $ 624,054 $ 42,471
Interest income from the Bank .................................................. 11,865 991 --
Legal expenses ................................................................. 4,899 5,767 --
Non-interest expense - other ................................................... 14,076 26,455 --
------------ ----------- ------------
Net income ................................................................ $ 1,000,206 $ 592,823 $ 42,471
============ =========== ============
STATEMENTS OF CASH FLOWS
Cash flows used in operating activities:
Other operating expenditures .............................................. $ (7,110) $ (27,712) $ (3,519)
------------ ----------- ------------
Cash flows used in investing activities:
Contribution to the Bank .................................................. -- (700,000) --
------------ ----------- ------------
Cash flows provided by financing activities:
Proceeds from issuance of common stock .................................... 75,000 920,359 --
------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents ........................... 67,890 192,647 (3,519)
Cash and cash equivalents at beginning of period ............................... 385,303 192,656 196,175
------------ ----------- ------------
Cash and cash equivalents at end of period ..................................... $ 453,193 $ 385,303 $ 192,656
============ =========== ============
Reconciliation of net income to net cash used in operating activities:
Net income ..................................................................... $ 1,000,206 $ 592,823 $ 42,471
Equity in the Bank's earnings .................................................. (1,007,316) (624,054) (42,471)
Decrease (Increase) in other assets ............................................ -- 3,519 (3,519)
------------ ----------- ------------
Net cash used in operating activities .......................................... $ (7,110) $ (27,712) $ (3,519)
============ =========== ============
</TABLE>
NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("FAS 107"), requires that the Company
disclose estimated fair values of financial instruments for which it is
practicable to estimate that value. Fair value estimates, methods and
assumptions are set forth as follows for the Company's financial instruments.
Cash and Due From Banks and Federal Funds Sold For these short-term
investments, the carrying amount was a reasonable estimate of fair value,
primarily due to their relatively short period to maturity.
Investments Available-for-Sale and Held-to-Maturity For investments
available-for-sale and held-to-maturity, fair values were based on quoted market
prices, if available. If a quoted market price was not available, fair value was
estimated using quoted market prices for similar securities.
Loans Fair values were estimated for groups of similar loans based upon
type of loan, credit quality and maturity. For variable-interest rate loans, the
carrying amount was considered to approximate fair value. The fair value of
fixed-interest rate mortgage loans was based on quoted market prices of similar
loans sold in conjunction with securitization transactions, adjusted for any
differences in loan characteristics, with servicing retained. The carrying
amount of loans on non-accrual status was used as their fair value. The fair
value of all other loans was estimated by discounting estimated cash flows using
interest rates being charged by the Bank on December 31, 1996 and 1995,
respectively, on comparable loans as to credit risk and terms.
39
<PAGE> 40
Deposits The fair values of demand deposits, NOW, money market and savings
accounts were the carrying amounts payable on demand. The fair value of
certificates of deposit was estimated by discounting the future cash flows using
interest rates offered on December 31, 1996 and 1995, respectively, for deposits
of similar remaining maturities.
Securities Sold Under Agreements to Repurchase The fair value of securities
sold under agreements to repurchase was the carrying amount payable on demand.
Commitments to Extend Credit and Standby Letters of Credit Commitments to
extend credit and standby letters of credit are generally at variable-interest
rates or at interest rates at time of funding. The fair value of commitments to
extend credit was estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the present credit worthiness of the counterparties. The fair value of
financial guarantees written and letters of credit was based on fees currently
charged for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties.
Limitations The fair value estimates were made at a discrete point in time
based on relevant market information and information about the financial
instruments. Because no market exits for a significant portion of the Company's
financial instruments, fair value estimates were based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates were subjective in nature and involved uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
In addition, the fair value estimates were 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 were
not considered financial instruments. Other significant assets and liabilities
that were not considered financial assets or liabilities included core deposit
intangibles, deferred tax assets, property, plant and equipment, and goodwill.
In addition, the tax ramifications related to the realization of the unrealized
gains and losses on investment securities can have a significant effect on fair
value estimates and were not considered in the estimates.
The carrying amount and estimated fair value of the Company's financial
instruments as of December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks ......................................... $ 4,663,206 $ 4,663,206 $ 2,744,597 $ 2,744,597
Federal funds sold .............................................. 5,179,000 5,179,000 5,337,000 5,337,000
Investments available-for-sale .................................. 8,476,165 8,476,165 11,477,830 11,477,830
Investments held-for-maturity ................................... 8,163,011 8,139,978 6,389,222 6,357,946
Loans ........................................................... 44,040,268 43,799,000 36,545,637 36,901,000
FINANCIAL LIABLILITES:
Deposits ........................................................ 63,887,775 64,091,000 55,990,836 56,493,000
Securities sold under agreements
to repurchase .............................................. 749,057 749,057 1,623,320 1,623,320
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
Commitments to extend credit .................................... -- -- -- --
Standby letters of credit ....................................... -- -- -- --
</TABLE>
40
<PAGE> 41
NOTE M - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
For the years ended December 31, 1996 and 1995, the Company's condensed
quarterly financial information was as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996:
Interest income .................................. $1,242,332 $1,168,560 $1,189,975 $1,268,805
Interest expense ................................. 492,003 463,196 469,323 532,100
---------- ---------- ---------- ----------
Net interest income .............................. 750,329 705,364 720,652 736,705
Non-interest income .............................. 131,899 142,264 191,868 145,482
Non-interest expense ............................. 686,007 634,443 634,099 677,808
---------- ---------- ---------- ----------
Income before income taxes ....................... 196,221 213,185 278,421 204,379
Benefit for income taxes ......................... 15,000 15,000 15,000 63,000
---------- ---------- ---------- ----------
Net income ....................................... $ 211,221 $ 228,185 $ 293,421 $ 267,379
========== ========== ========== ==========
Net income per share ............................. $ 0.18 $ 0.19 $ 0.24 $ 0.22
========== ========== ========== ==========
1995:
Interest income .................................. $ 996,643 $1,136,513 $1,191,585 $1,209,504
Interest expense ................................. 406,823 517,886 548,661 535,804
---------- ---------- ---------- ----------
Net interest income .............................. 589,820 618,627 642,924 673,700
Provision for loan losses ........................ 16,000 6,000 6,000 ---
Non-interest income .............................. 141,572 143,724 131,177 130,848
Non-interest expense ............................. 676,397 732,276 644,437 658,459
---------- ---------- ---------- ----------
Income before income taxes ....................... 38,995 24,075 123,664 146,089
Benefit for income taxes ......................... --- --- --- 260,000
---------- ---------- ---------- ----------
Net income ....................................... $ 38,995 $ 24,075 $ 123,664 $ 406,089
========== ========== ========== ==========
Net income per share ............................. $ 0.04 $ 0.02 $ 0.13 $ 0.40
========== ========== ========== ==========
</TABLE>
41
<PAGE> 42
South Florida Bank Holding Corporation
Mission Statement
South Florida Bank is a locally-owned community commercial bank:
- Serving Lee County businesses and professionals.
- Building long-term customer relationships.
- Providing prompt and informed local banking decisions.
- Maximizing its shareholders' equity.
- Utilizing "extraordinary" products and services to benefit our
customers.
- Employing superior people in a rewarding work environment to best
serve our customers.
42
<PAGE> 43
Index to 1996 Annual Report
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LETTER TO SHAREHOLDERS ............................................................................. 1
SELECTED FINANCIAL DATA ............................................................................ 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ........................................................... 3
BUSINESS OF THE COMPANY ............................................................................ 20
CAPITAL STOCK ...................................................................................... 20
COMPANY DIRECTORS AND OFFICERS ..................................................................... 21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ................................................. 23
CONSOLIDATED FINANCIAL STATEMENTS .................................................................. 24
</TABLE>
43
<PAGE> 44
SOUTH FLORIDA BANK
Lee County's Banking Advantage
Member FDIC
BRANCH LOCATIONS
MAIN OFFICE
2017 McGregor Boulevard
(941) 334-2020 o Fax (941) 334-6203
24 Hour Advantage Banking (941) 334-7589
COLONIAL OFFICE
1500 Colonial Boulevard
(941) 278-0220 o Fax (941) 278-0387
METRO-DANIELS OFFICE
13391 Metro Parkway
(941) 768-5300 o Fax (941) 768-3877
MAILING ADDRESS (ALL OFFICES)
P. O. Box 2529
Fort Myers, FL 33902-2529
44
<PAGE> 1
Exhibit 21.1
South Florida Bank Holding Corporation
Form 10-KSB
For Fiscal Year Ended December 31, 1996
Subsidiaries of Registrant
South Florida Bank, incorporated under the laws
of the State of Florida
New Town Properties, Inc., incorporated
Under the laws of the State of Florida and a
wholly-owned subsidiary of South Florida
bank.
Valu Prop, Inc., incorporated under the laws
of the State of Florida and a wholly-owned
subsidiary of South Florida Bank.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOUTH FLORIDA BANK HOLDING COMPANY FOR THE YEAR ENDED
DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 4,663,206
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,179,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,476,165
<INVESTMENTS-CARRYING> 8,163,011
<INVESTMENTS-MARKET> 8,140,000
<LOANS> 43,135,706
<ALLOWANCE> 904,562
<TOTAL-ASSETS> 71,529,527
<DEPOSITS> 63,887,775
<SHORT-TERM> 749,057
<LIABILITIES-OTHER> 489,970
<LONG-TERM> 0
0
0
<COMMON> 12,110
<OTHER-SE> 6,395,615
<TOTAL-LIABILITIES-AND-EQUITY> 71,529,527
<INTEREST-LOAN> 3,716,153
<INTEREST-INVEST> 981,321
<INTEREST-OTHER> 172,198
<INTEREST-TOTAL> 4,869,672
<INTEREST-DEPOSIT> 1,917,999
<INTEREST-EXPENSE> 1,956,622
<INTEREST-INCOME-NET> 2,913,050
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 3,828
<EXPENSE-OTHER> 2,632,357
<INCOME-PRETAX> 892,206
<INCOME-PRE-EXTRAORDINARY> 1,000,206
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,000,206
<EPS-PRIMARY> .82
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.13
<LOANS-NON> 262,692
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 852,270
<CHARGE-OFFS> 98,341
<RECOVERIES> 150,633
<ALLOWANCE-CLOSE> 904,562
<ALLOWANCE-DOMESTIC> 904,562
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
