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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, 1997
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. [ X ]
The issuer's revenues for its most recent fiscal year was $6,415,238.
The aggregate market value of the Common Stock held by non-affiliates
of the issuer is $10,344,464, based on the price at which shares of common stock
were sold on March 13, 1998.
As of March 13, 1998, there were issued and outstanding 1,210,975
shares of the issuer's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the 1997 Annual Report to Shareholders for the
year ended December 31, 1997 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 28, 1998 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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
Insurance of Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Bank Branching . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Interstate Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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, 1997, 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 $82.9 million,
total deposits of $73.1 million, and shareholders' equity of $7.6 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 8.48% of the Bank's total deposits at December 31, 1997 as compared to 6.86%
at December 31, 1996. The majority of the deposits of the Bank are generated
from Lee County. The Bank does not accept brokered deposits. At December 31,
1997, the Bank had $225,000 of public fund deposits, while as of December 31,
1996, the Bank had no public fund deposits. At December 31, 1997 and 1996, no
single depositor accounted for more than 3% of the Bank's total deposits.
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 18.69% of the Bank's
total loan portfolio at December 31, 1997, consisted of commercial loans as
compared to 18.31% at December 31, 1996. The majority of the Bank's loans are
made on a secured basis. At December 31, 1997 and 1996, 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 65.32% and 66.31%, 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, check filing, statement rendering,
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
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with the Independent Bankers' Bank of Florida, Barnett Bank and Compass Bank.
As 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 outsources its data and item processing through service bureaus
that provide data processing services, including an automated general ledger,
deposit accounting, and commercial, mortgage and installment lending data
processing, as well as item 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.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") contained major regulatory reforms, stronger capital standards for
savings and loan associations and stronger civil and criminal enforcement
provisions. FIRREA also provided 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 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.
The FDIC Improvement Act of 1991 ("FDICIA") made a number of reforms
addressing the safety and soundness of deposit insurance funds, supervision,
accounting, and prompt regulatory action, and also implements other regulatory
improvements. FDICIA also recapitalized the Bank Insurance Fund. Annual
full-scope, on-site examinations are required of all insured depository
institutions. The cost for conducting an examination of an institution may be
assessed to that institution, with special consideration given to affiliates
and any penalties imposed for failure to provide information requested.
Insured state banks also are precluded from engaging as principal in any type
of activity that is impermissible for a national bank, including activities
relating to insurance and equity investments. FDICIA also recodified current
law restricting extensions of credit to insiders under the Federal Reserve Act.
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 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
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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 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
8
<PAGE> 12
ratio (Tier 1 plus Tier 2) of 8%. At December 31, 1997, the Bank's Tier 1 and
total risk-based capital ratios were 14.20% and 15.46%, 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. At December
31, 1997, the Bank had a total risk-based capital ratio of 15.46%, a Tier 1
risk-based capital ratio of 14.20%, and a leverage ratio of 8.55%.
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.
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
9
<PAGE> 13
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 1995 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 became 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, 1997, the Company had 33 full-time employees and three
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 1997 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 was leased by the
Bank until its purchase by the Bank in February, 1998. 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 1999. 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. The Bank has a
branch office located at 15280 McGregor Boulevard, which is leased for a term
expiring in 2002.
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, 1997.
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 1997 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 29,
1998.
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 1997 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 28, 1998,
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, 1997 and 1996
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1997, 1996, and 1995
14
<PAGE> 18
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted as the required information is
either inapplicable or included in the Notes to Consolidated
Financial Statements.
3. EXHIBITS
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, 1996 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, 1996.)*
10.2 Employment Agreement dated July 1, 1996 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, 1996.)*
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, 1995 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, 1995 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, 1995.)
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 August 18, 1997 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) (Incorporated by reference to Exhibit
10.10 to the Holding Corporation's Form 10-KSB for its
year ended December 31, 1996).
10.11 Lease for Branch Bank dated May 14, 1997 by and between
Arthur K. Knudsen, Jr. and Christie K. Knudsen and the
Bank regarding lease of real property at 15280 McGregor
Boulevard, Fort Myers, Florida
13.1 South Florida Bank Holding Corporation 1997 Annual Report
21.1 Subsidiaries of the Registrant.
27.1 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 17th day of March, 1998.
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 17th, 1998.
<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/ Jim Booth Vice President and Controller
- ------------------------------------- (Principal accounting officer)
Jim Booth
</TABLE>
17
<PAGE> 21
South Florida Bank Holding Corporation
Form 10-KSB
For Fiscal Year Ending December 31, 1997
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
No. Exhibit No.
- ------- ----------------------------------------------- ----
<S> <C> <C>
10.8 Letter dated August 18, 1997 relating to
Daniels & Metro Parkway Lease Extension
10.11 Lease for Branch Bank dated May 14, 1997 by
and between Arthur K. Knudsen, Jr. and
Christie K. Knudsen and the Bank regarding
lease of real property at 15280 McGregor Boulevard,
Fort Myers, Florida
13.1 South Florida Bank Holding Corporation 1997
Annual Report
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
18
<PAGE> 1
Exhibit 10.8
[BUNDSCHU KRAFT LETTERHEAD]
August 18, 1997
Mr. William Valenti, President
South Florida Bank
2017 McGregor Blvd.
Fort Myers, FL 33901
Re: Daniels & Metro Parkway Lease Extension
Dear Bill:
As we discussed, your lease for the branch bank located at Daniels and Metro
Parkways in South Lee County expired on June 30, 1997. This letter will serve
as a "Lease Addendum", which must be executed by the Bank and the Landlord to
keep this lease in effect.
Since the bank has decided to consider other properties for its branch, the
partnership asks the bank to pay a fair rental for the existing branch site and
the costs of the improvements the partnership developed specifically for the
bank, which costs exceeded $400,000.00.
This Addendum shall contain the following terms and conditions:
1. LEASE TERM:
The term of the Lease shall be renewed for the period September 1, 1997
through August 31, 1999, however, Lessee or Lessor may, following four
(4) month's advance written notice given by one party to the other
party, terminate this Lease.
2. RENTAL:
The Rental payment for the Leased Premises is Three Thousand Five
Hundred Dollars ($3,500.00) 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
August 18, 1997
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,
BUNDSCHU KRAFT
/s/ Chris Bundschu
Chris Bundschu
As Agent for Daniels & Metro Group, Lessor
Enclosure
ACCEPTANCE
THE ABOVE terms and conditions are agreed upon and accepted this 27 day of
October, 1997.
SOUTH FLORIDA BANK
By: /s/ William Valenti
-------------------------------
William Valenti
Title: President
Date: 10-27-97
<PAGE> 1
Exhibit 10.11
LEASE FOR BRANCH BANK
This Lease Agreement ("Agreement") made and entered into this 14th
day of May, 1997, by and between ARTHUR K. KNUDSEN, JR. and CHRISTIE K.
KNUDSEN, hereinafter referred to as "Landlord", and SOUTH FLORIDA BANK, a state
banking association, hereinafter called "Tenant".
W I T N E S S E T H:
WHEREAS, Landlord and Tenant wish to enter into an agreement wherein
the Landlord leases to the Tenant real property for use as a branch bank
location, ("premises"), and
WHEREAS, Landlord and Tenant desire to set forth in writing the terms
and conditions of their agreement regarding the lease of the Premises.
NOW, THEREFORE, for and in consideration of the above-stated premises
and other valuable considerations, the Landlord and Tenant agree as follows:
1. PREMISES.
The Landlord leases to the Tenant for its exclusive use the tract of
land situate in Lee County, State of Florida having the street address of 15280
McGregor Blvd., Fort Myers, Florida, together with the existing improvements
thereon, said Premises being outlined on the plot plan and legal description
("Exhibit A") attached hereto and by reference made a part hereof. The
Premises include all of the Landlord's easements or other rights to utilize
driveways and streets existing now or in the future, located on Landlord's
adjacent land, reasonably required for driveways and
1
<PAGE> 2
approaches to and from abutting highways and parking lots for the use and
benefit herein of the leased Premises and the improvements thereon.
2. TERM.
The initial term of the Lease shall be for a period of five (5) years,
commencing July 1, 1997 and ending at 11:59 p.m. June 30, 2002.
3. OPTION TO EXTEND.
Landlord grants to Tenant the option, if Tenant is not in default
under the terms of this Agreement, to renew this Agreement for two consecutive
periods of five (5) years each under the same terms and conditions herein
contained. Tenant shall give the Landlord three (3) months advance written
notice of its election to exercise such options prior to the end of the initial
term hereof, or of any extended term.
4. RENT.
During the initial year of the base five (5) year term of this Lease,
the Tenant shall pay to Landlord as rent for the herein leased premises the
following sums:
a. On the first day of July, 1997 and the first day of each
month thereafter up to but not including November 1, 1997, the rental amount of
$1,250.00, plus sales tax, shall be due.
b. Beginning on November 1, 1997 and then on the first day of
each and every month thereafter for the remainder of the first year of this
Lease, a rental in the amount of $2,500.00 per month, plus sales tax, shall be
due.
2
<PAGE> 3
The base rental for the second, third, fourth and fifth years of the
base term of this Lease plus any extension thereof, shall be not less than
$2,500 per month plus sales tax. However, commencing with the second year of
the base term of this Lease, the monthly rental under this Agreement, shall be
annually increased by three percent (3%) per annum during such base term.
5. ESCALATED RENTAL FOR RENEWAL TERMS.
In the event Tenant renews for an additional term or terms, the rent
for the first year of a renewal term shall not increase above the rent for the
immediately preceding year. The rent for subsequent years during a renewal
term shall be annually increased by three percent (3%) per annum.
6. MCGREGOR CONSTRUCTION PERIOD.
The rental for the Premises shall be reduced by 50% during
construction activity on McGregor Boulevard improvements adjacent or near the
Premises or on the new driveway to be constructed by Landlord over the
currently existing grassy area between the paved portion of the leased premises
and Wendy's leased premises lying adjacent on the Westerly side (as is shown
upon the attached Exhibit A). The reduced rental period shall begin when the
construction interferes with access to the Tenant's business, as determined in
the reasonable judgment of Tenant. In no event shall the reduced rental period
exceed 6 months.
3
<PAGE> 4
7. NET LEASE.
This Agreement is a "net lease" and, except as herein provided, Tenant
shall pay Landlord the net annual rent, free of any charges, assessments,
impositions or deductions.
8. USE OF PREMISES.
The Tenant intends to use the Premises for a bank branch facility,
with a drive-thru teller facility ("Intended Use") and such other lawful
purposes as are consistent with the Tenant's corporate charter and the rules
and regulations of the regulatory authorities which have jurisdiction over the
Tenant and the Premises.
9. MAINTENANCE.
Landlord shall be responsible for repair to or replacement of any
basic structural components of the building and the roof. With regard to the
HVAC, plumbing, sprinklers, and electrical systems, Tenant shall pay for any
repairs or replacement expenses up to the sum of $250.00 per a particular
repair or replacement problem, but in no event to exceed a cumulative expense
of $2,000 per calendar year. The Landlord shall pay the amount of any such
particular bill for any particular problem which is in excess of $250.00, or
which exceeds the yearly cumulative limit.
Tenant shall pay for utilities, land maintenance, janitorial service,
trash disposal, regular pest control, and repair and maintenance of the
interior of the building, drive-thru facility, and parking lot (but not for
costs or repairs related to the construction described in 6(a) above) as may be
necessary to
4
<PAGE> 5
maintain said premises in condition similar to its present condition. However,
Landlord shall be obligated to replace any portion of the electric, plumbing,
or air conditions systems which fail so that replacement of all or any portion
is required to restore said systems to normal operation provided that if such
expenses is less than $250.00, such expense shall be paid by Tenant, subject to
its yearly cumulative limit. Landlord shall be responsible for all termite
treatment and eradication.
10. ASSIGNMENT.
With the prior consent of the Landlord, which consent will not be
unreasonably delayed or withheld, the Tenant may assign this Agreement or
sublet the Premises provided the Premises shall be used for purposes similar to
Tenant's Intended Use or other lawful purpose. An assignment or subletting
with the consent of the Landlord shall not release the Tenant from its primary
obligation under this Agreement.
11. TAXES.
During the term of this Agreement, and for such further time as the
Tenant or any person claiming under it shall hold the Premises or any part
thereof, Landlord shall pay and discharge the annual installment of all real
estate taxes charged or imposed upon the Premises, or upon any of the
improvements erected thereon. Tenant shall pay any and all taxes imposed upon
its personal property located in and about the premises and any other taxes
imposed upon it as an entity including sales taxes on the rent and shall pay
all utility charges.
5
<PAGE> 6
12. TITLE STATUS.
The Landlord represents that they own the Premises in fee simple,
subject only to easements and restrictions that will not interfere with the
Tenant's Intended Use of the Premises and that they have the full right, power
and authority to enter into this Agreement for the term granted.
Tenant shall have a priority interest in the Premises described herein
subject only to exceptions or qualifications set forth in and permitted by this
Agreement.
13. EMINENT DOMAIN.
a. In the event all of the Premises, or such a portion
thereof as will make the Premises unsuitable for the Intended Use, is condemned
for any public or quasi-public use or purpose by a legally constituted
authority, then in either of such events, the Tenant may terminate this
Agreement on the date when possession is taken by such public or quasi-public
authority. Upon termination the rent and other Tenant obligations shall be
prorated as of the date when possession is taken.
b. In the event only a portion of the Premises is taken, such
that the remaining portion is still suitable for the purposes set forth herein,
then and in that event, the rent and other charges provided by this Agreement
shall be adjusted to reasonably reflect the decrease, if any, in utilization of
the Premises by the Tenant. If the Landlord and the Tenant cannot agree, with
regard to the decrease in rent and other charges, the issue regarding rental
adjustment shall be decided by arbitration through the
6
<PAGE> 7
utilization of and in accordance with the rules of the American Arbitration
Association. The decision of the arbitrator may include any apportionment of
arbitration proceeding costs, including reasonable attorneys' fees, and shall
be enforceable by courts of appropriate jurisdiction.
c. In the event of a total taking of the demised premises by
either condemnation or the threat thereof, the Landlord shall be entitled to
all of any award for land and/or Landlord's building and improvements taken,
except to the extent that Landlord's award is increased by Tenant's leasehold
improvements. The Tenant shall retain its right to claim against the condemnor
for any actual damages it suffers caused by such taking.
In the event of any partial taking of the demised Premises by either
condemnation or the threat thereof, the Landlord shall be entitled to any award
for land and Landlord's improvements actually taken, except to the extent that
Landlord's award is increased by Tenant's leasehold improvements. Any award
for severance damages to the remainder shall also inure exclusively to the
Landlord; provided, however, that the Landlord shall use all of the portion of
the severance damages award which has been awarded to cover a cost to cure in
order to attempt to remedy the injury caused to the remainder to the fullest
extent possible or to otherwise improve the Premises. The Tenant shall retain
the right to claim against the condemnor any entitlement to business damages
and/or special damages it actually suffers by said partial taking.
7
<PAGE> 8
d. Notwithstanding the above, if an eminent domain
proceeding results in the loss of parking spaces at the Premises, Tenant shall
receive the damages attributable to such loss. Further, Landlord shall not
settle any eminent domain proceeding related to the taking of any portion of
the Premises without obtaining the consent of Tenant.
14. ATTORNMENT AND SUBORDINATION.
Tenant agrees to subordinate this Agreement and its leasehold interest
to the lien of any deeds of trust, mortgages of the lien resulting from any
other method of financing or refinancing placed upon the Premises by the
Landlord with a reputable lending institution authorized to do business in the
State of Florida, to any advances made thereunder and to all other amounts
secured thereby, and all renewals, replacements, modifications, consolidations
and extensions thereof. Provided, however, such subordinations shall only be
effective if the Landlord first obtains an agreement for the benefit of the
Tenant from the proposed mortgagee, beneficiary or secured party to the effect
that upon obtaining title to the Premises through foreclosure, conveyance in
lieu of foreclosure or otherwise, such mortgagee, beneficiary or third party
shall be substituted for the Landlord hereunder, and such mortgagee,
beneficiary or secured party and the Tenant shall be in the relationship of
landlord tenant under the provisions of this Agreement, and this Agreement
shall remain in full force and effect.
8
<PAGE> 9
15. INDEMNIFICATION.
Each party agrees to indemnify and save harmless the other from and
against any and all liability, liens, claims, damages, expenses, fees, fines,
penalties, suits proceedings, actions and causes of action of any kind and
nature arising or growing out of or in any way connected with the party's
ownership, use, occupancy, management or control of the Premises and the
improvements thereon, or which may be the result of any breach, violation or
non-performance of any covenant, condition or agreement contained in the
Agreement. The Tenant will at its expense defend any and all actions, suits or
proceedings which may be brought against the Landlord or in which the Landlord
may be impleaded with others in any such action or proceedings arising out of
the use or occupancy of the Premises and the improvements by the Tenant, and
the Tenant will satisfy, pay and discharge any and all judgments, orders and
decrees that may be entered against the Landlord in such action or proceeding
to which the Landlord may be a party. Provided, however, nothing herein
contained shall be construed or considered to require the Tenant to indemnify
or save the Landlord harmless as the result of any negligence or breach of
duty, either express or implied, or as a matter of contract or by law, by the
Landlord or any agent, employee, licensee or other representative of the
Landlord.
16. CONSTRUCTION LIENS.
Any consents Landlord gives to Tenant to allow Tenant to construct
building improvements on the Premises or to make any
9
<PAGE> 10
alterations or additions thereto shall not be deemed improvements required by
an agreement between Landlord and Tenant, within the meaning of the Florida
Construction Lien Law. All contractors, subcontractors, mechanics, laborers,
materialmen and others who perform any work, labor or services, or furnish any
materials or otherwise participate in any improvements to the Premises, and who
are not acting pursuant to a direct contract with Landlord, are hereby given
notice that Tenant is not authorized to subject Landlord's interest in the
Premises to any claim for construction, mechanics, laborers, materialmen's
liens, or other liens, and all persons dealing directly or indirectly with
Tenant may not look to the Premises as security for payment.
If any construction or other liens shall be filed against the Premises
or any improvements thereon by reason of or arising out of any labor or
material furnished or alleged to have been furnished or to be furnished to or
for the Tenant at the Premises or by reason of any charges, alterations, or
additions or costs or expenses thereof, or any contract relating thereto, the
Tenant shall, within 30 days after written notice from Landlord, either pay or
bond the same or procure the discharge thereof in such manner as may be
provided by law. The Tenant shall also defend on behalf of the Landlord at the
Tenant's sole cost and expense, any action, suit or proceedings which may be
brought thereon or for the enforcement of such lien or liens, and the Tenant
shall pay any damage and discharge any judgment entered thereon and same
harmless the Landlord from any claim or damage resulting therefrom.
10
<PAGE> 11
17. INSURANCE ON BUILDING AND OTHER IMPROVEMENTS AND DAMAGE TO OR
DESTRUCTION OF IMPROVEMENTS.
Landlord shall carry appropriate hazard insurance coverage on the
building including the drive-thru facility. If the building or drive-thru
facility shall be rendered unsuitable for the intended use by fire or other
casualty to the extent that Tenant is not able to reasonably conduct business on
the premises, Landlord shall cause the damage to be repaired as soon as possible
and in any event within a period of 120 days after the damage is incurred. The
rental obligation of the Tenant shall abate during the period of time at takes
to repair the damage.
18. OTHER INSURANCE.
Tenant will, at all times during the term hereof (at its own expense),
purchase, maintain, and keep in force for the mutual benefit of Landlord and
Tenant, general public liability insurance against claims for personal injury,
death or property damage occurring in, on or about the Premises, or sidewalks
adjacent to the Premises, arising from or related to the acts or failures to
act of Tenant's employees, agents, licensees or invitees. The insurance shall
afford protection to a cumulative single limit of the minimum amount of One
Million Dollars ($1,000,000.00) for any one occurrence. The insurance policies
shall provide and require that the insurers give each party at least thirty
(30) days' notice prior to cancellation. The Landlord understands the Tenant
may satisfy its insurance requirements by use of a blanket policy insuring a
number of the Tenant's branch locations. Tenant shall
11
<PAGE> 12
deliver to Landlord Certificates of Insurance for any insurance policies
required by this Lease upon request, as evidence of the compliance with the
terms and provisions herein contained. Each of the insurance policies shall be
issued by a financially responsible (Best Rating of A+XII) company or companies
authorized to do business in the State of Florida.
19. LANDLORD'S COVENANT OF QUIET ENJOYMENT.
Landlord covenant and warrant that so long as Tenant is not in default
under the conditions and during the term of this Agreement and any extension of
said term, Tenant's quiet and peaceable enjoyment of the Premises shall not be
disturbed or interfered with by any one claiming by, through or under Landlord.
20. PERSONAL PROPERTY AND FIXTURES.
Notwithstanding anything to the contrary herein contained, the Tenant
shall, at the termination of the lease term, by the lapse of time or otherwise,
remove its personal property and banking fixtures from the Premises.
During the term, the Tenant shall retain title to all improvements
placed on the Premises by the Tenant. Upon the expiration of the term, the
building improvements (except the modular facility, removable personal property
and banking fixtures), shall remain on and become a part of the Premises, and
shall be owned by the Landlord.
21. NOTICE OF LEASE.
At the option of the Tenant, a short form of lease shall be prepared
in recordable form and recorded in the Public Records of
12
<PAGE> 13
Lee County. The short form lease shall give notice of the Tenant's interest in
the Premises and of its rights under this Agreement, and hereto and made a part
hereof by this reference.
22. SIGNS.
Subject to the reasonable approval of the Landlord, the Tenant shall
have the right to place on, in and about the Premises such signs, logos and
other Tenant identification and direction markers as may be deemed necessary by
the Tenant for the proper identification of the Tenant and the operation of
banking business on the Premises. Landlord agrees not to unreasonably delay or
withhold approval of such signs and further agree the use of the South Florida
Bank logo (or any future substitution thereof) is approved. Tenant shall be
entitled to signage at least equivalent in size and number to that used by
SunTrust during its occupancy of the Premises.
23. ALTERATIONS.
Tenant may, upon consent by Landlord, which consent shall not be
unreasonably withheld, make such alterations, additions or improvements to the
Premises, or any part thereof, as the Tenant deems reasonably necessary for a
full utilization of the Premises for the Intended Use. Provided, however, such
alterations, additions or improvements shall not materially impair or interfere
with the Landlord's ability to utilize the Landlord's remaining contiguous
property, if any. Provided further, Tenant shall not make structural or other
alterations or any alterations affecting
13
<PAGE> 14
the facade of the building improvements without Landlord's consent, which
consent shall not be unreasonably withheld.
24. DEFAULT.
The following events shall be Tenant defaults:
Failure to pay the rent promptly when the same shall become due and
payable.
The Tenant shall materially fail to fully and promptly perform or
comply with any term, provision, covenant or agreement of this Agreement other
than the payment of rent.
The Tenant shall become insolvent or shall make a transfer in fraud of
creditors, or shall make an assignment for the benefit of creditors.
A receiver or trustee or liquidator shall be appointed for all or
substantially all the assets of Tenant.
25. DEFAULT REMEDIES.
In the event of a material default by the Tenant, and upon the failure
of the Tenant to substantially cure any such default within the times permitted,
the Landlord shall have the option of terminating this Agreement by written
notice of the election of such option to the Tenant, such termination to be
effective thirty (30) days after receipt of such written notice by the Tenant.
Upon termination of this Agreement as provided in this paragraph, the Landlord
may thereafter peaceably resume possession of the Premises, or may institute
such legal action as may be appropriate to resume possession of the Premises.
Upon termination of this Agreement, the Landlord may relet the Premises, in
whole or in
14
<PAGE> 15
part, and may apply any rent therefrom first to the payment of any loss,
cost or expense, including reasonable attorneys' fees incurred by the Landlord
by reason of the Tenant's default, and the balance of any such rent shall be
applied to the remaining sums then due from the Tenant to the Landlord. The
Landlord shall have such further rights and remedies as may be available to the
Landlord with respect to the collection of rent or possession of the Premises
as may be provided under the laws of the State of Florida.
26. PERFORMANCE BY NON-DEFAULTING PARTY.
In the event either party fails to perform under the provisions of
this Agreement after notice and reasonable time for performance, the other
party may, at its option, take whatever reasonable action is deemed necessary
to cure the failure to perform, and the defaulting party agrees to pay the
non-defaulting party for all damages, costs, fees, expenses, judgments, charges
and reasonable attorneys' fees incurred by the non-defaulting party in
exercising the option herein granted. In the event the Tenant is the
non-defaulting party and the Tenant exercises its option to perform for and on
behalf of the Landlord, the Tenant may set off against its rental obligations
any amounts, costs, fees, expenses, charges and reasonable attorneys' fees
incurred by the Tenant in connection with the exercise of its option to perform
for and on behalf of the Landlord. Tenant's right of performance for and on
behalf of Landlord includes the right to cure any asserted default or mortgages
encumbering the Premises, and upon such curative acts
15
<PAGE> 16
the Tenant will be subrogated to the mortgagee's rights and remedies.
27. ATTORNEYS' FEES.
The defaulting party agrees to pay to the nondefaulting party any
costs and reasonable attorneys' fees, including any appellate attorneys' fees,
which may be incurred by the nondefaulting party in the enforcement of any of
the terms and conditions of this Agreement.
28. TENANT REVIEW OF LANDLORD IMPROVEMENTS.
Landlord shall not make alterations to the Premises, including the
driveways and parking areas, without first obtaining Tenant's consent, which
consent shall not be unreasonably delayed or withheld.
29. LANDLORD GUARANTEE OF IMPROVEMENTS AND ACCESS.
The new driveway improvements described in Section 6 shall be promptly
constructed by Landlord, at its expense, to coordinate with planned
improvements and changes to McGregor Boulevard. Landlord represents that the
new driveway improvements will be promptly completed. Further, Landlord
represents that the driveway improvements will be located on the Premises, or
if on other property, the Landlord will guarantee necessary rights of ingress
and egress over such property, obtain satisfactory documentation of such rights
of the Tenant, and indemnify Tenant for any loss or expense incurred due to
Landlord's failure to provide such rights to Tenant.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals, the day and year first above written.
Signed, Sealed and Delivered LANDLORD:
In the Presence of:
/s/ Denise Guillemette /s/ Arthur K. Knudsen, Jr.
- -------------------------------- ------------------------------------
1st Witness Arthur K. Knudsen, Jr.
Print Name: Denise Guillemette
---------------------
/s/ Carolyn Fox Lambert /s/ Christie K. Knudsen
- -------------------------------- ------------------------------------
2nd Witness Christie K. Knudsen
Print Name: Carolyn Fox Lambert
---------------------
STATE OF FLORIDA
COUNTY OF LEE
The foregoing instrument was acknowledged before me this 8th day of
May, 1997, by Arthur K. Knudsen, Jr. and Christie K. Knudsen, who are
personally known to me or who have produced _________________________________
as identification.
/s/ Carolyn Fox Lambert
----------------------------------
Notary Public
Print Name: Carolyn Fox Lambert
[SEAL]
TENANT:
Signed, Sealed and Delivered South Florida Bank
In the Presence of:
/s/ Suzanne F. Hughes By: /s/ William Valenti
- -------------------------------- -------------------------------
1st Witness William Valenti, President
Print Name: Suzanne F. Hughes
/s/ Betty G. Kersten
- --------------------------------
2nd Witness
Print Name: Betty G. Kersten
17
<PAGE> 18
STATE OF FLORIDA
COUNTY OF LEE
The foregoing instrument was acknowledged before me this 14th day of
May, 1997, by William Valenti, President of South Florida Bank, a State Banking
Association, on behalf of said bank, who is personally known to me or who has
produced ________________________________________ as identification.
/s/ Suzanne F. Hughes
-----------------------------
Notary Public
Print Name: Suzanne F. Hughes
18
<PAGE> 19
EXHIBIT "A"
The following described real property situate in Lee County, Florida:
Beginning at the Northwest corner of the South half of the Northeast quarter of
Section 31, Township 45 South, Range 24 East then run South along the center
line of said Section 31 a distance of 25 feet to the Southern boundary line of
the Iona Road right of way; then run East along the Southern boundary line of
the Iona Road right of way a distance of 600 feet more or less to the point of
intersection with the Westerly boundary line of the McGregor Boulevard right of
way and the point of beginning of the land herein leased; thence run
Southwesterly along the Westerly boundary line of the McGregor Boulevard right
of way a distance 320 feet; thence run Northwesterly at right angles to the
Westerly boundary line of the McGregor Boulevard road right of way a distance
of 140 feet; thence deflect to the right 20 degrees from the last mentioned
course and run a distance of 100 feet more or less to the Southern boundary
line of the Iona Road right of way; thence East along the Southern boundary
line of the Iona Road right of way a distance of 375 feet more or less to the
point of beginning of the land herein leased, LESS Road Rights-of-Way of Iona
Road and McGregor Boulevard as of the date of this Lease.
[MAP]
<PAGE> 20
[MAP]
<PAGE> 21
This instrument prepared by:
Garey F. Butler, Esq.
HUMPHREY & KNOTT, P.A.
1625 Hendry Street, Suite 301
Fort Myers, FL 33901
(941) 334-2722
MEMORANDUM OF LEASE
LANDLORD: ARTHUR K. KNUDSEN, JR., and CHRISTIE K. KNUDSEN
Post Office Box 1470
Fort Myers, FL 33902
TENANT: SOUTH FLORIDA BANK
2017 McGregor Boulevard
Fort Myers, FL 33901
This memorandum acknowledges and incorporates by reference the terms
of that certain lease ("Lease") dated May 14, 1997, between Landlord and Tenant
in which the real property located at 15280 McGregor Boulevard, Fort Myers, and
more particularly described on attached Exhibit A is leased to Tenant.
The initial term of the Lease begins July 1, 1997, and ends June 30,
2002. Tenant may extend the Lease until June 30, 2012.
WITNESSES: LANDLORD:
/s/ Carolyn Fox Lambert /s/ Arthur K. Knudsen, Jr.
- -------------------------------- ------------------------------------
1st Witness ARTHUR K. KNUDSEN, JR.
Print Name: Carolyn Fox Lambert
---------------------
/s/ Jacqueline K. Marable
- --------------------------------
2nd Witness
Print Name: Jacqueline K. Marable
---------------------
/s/ Carolyn Fox Lambert /s/ Christie K. Knudsen
- -------------------------------- ------------------------------------
1st Witness CHRISTIE K. KNUDSEN
Print Name: Carolyn Fox Lambert
---------------------
/s/ Jacqueline K. Marable
- --------------------------------
2nd Witness
Print Name: Jacqueline K. Marable
---------------------
<PAGE> 22
STATE OF FLORIDA )
)
COUNTY OF LEE )
The foregoing instrument was acknowledged before me this 1st day of
July, 1997, by Arthur K. Knudsen, Jr., who is personally known to me or has
produced ______________________________________ as identification.
/s/ Jacqueline K. Marable
----------------------------
Notary Public
Print Name: Jacqueline K. Marable
[SEAL]
STATE OF FLORIDA )
)
COUNTY OF LEE )
The foregoing instrument was acknowledged before me this 1st day of
July, 1997, by Christie K. Knudsen, who is personally known to me or has
produced _____________________________________________ as identification.
/s/ Jacqueline K. Marable
----------------------------
Notary Public
Print Name: Jacqueline K. Marable
[SEAL]
WITNESSES: TENANT:
/s/ Judith A. Bentley SOUTH FLORIDA BANK
- ------------------------------
1st Witness
Print Name: Judith A. Bentley By: /s/ William Valenti
----------------------------
William Valenti, President
/s/ Sharon M. Landel
- ------------------------------
2nd Witness
Print Name: Sharon M. Landel
STATE OF FLORIDA )
)
COUNTY OF LEE )
The foregoing instrument was acknowledged before me this 14th day of
July, 1997, by William Valenti, President of South Florida Bank. Mr. Valenti
is personally known to me or has produced ___________________________________
as identification.
/s/ Betty G. Kersten
----------------------------
Notary Public
Print Name: Betty G. Kersten
[SEAL]
<PAGE> 23
EXHIBIT "A"
The following described real property situate in Lee County, Florida:
Beginning at the Northwest corner of the South half of the Northeast quarter of
Section 31, Township 45 South, Range 24 East then run South along the center
line of said Section 31 a distance of 25 feet to the Southern boundary line of
the Iona Road right of way; then run East along the Southern boundary line of
the Iona Road right of way a distance of 600 feet more or less to the point of
intersection with the Westerly boundary line of the McGregor Boulevard right of
way and the point of beginning of the land herein leased; thence run
Southwesterly along the Westerly boundary line of the McGregor Boulevard right
of way a distance 320 feet; thence run Northwesterly at right angles to the
Westerly boundary line of the McGregor Boulevard road right of way a distance
of 140 feet; thence deflect to the right 20 degrees from the last mentioned
course and run a distance of 100 feet more or less to the Southern boundary
line of the Iona Road right of way; thence East along the Southern boundary
line of the Iona Road right of way a distance of 375 feet more or less to the
point of beginning of the land herein leased, LESS Road Rights-of-Way of Iona
Road and McGregor Boulevard as of the date of this Lease.
<PAGE> 1
Exhibit 13.1
SOUTH FLORIDA BANK
HOLDING CORPORATION
[PICTURE OF BANK]
ANNUAL REPORT 1997
<PAGE> 2
SOUTH FLORIDA BANK HOLDING CORPORATION
MISSION STATEMENT
South Florida Bank is a locally-owned community commercial bank:
o Serving Lee County businesses and professionals.
o Building long-term customer relationships.
o Providing prompt and informed local banking decisions.
o Maximizing its shareholders' equity.
o Utilizing "extraordinary" products and services to
benefit our customers.
o Employing superior people in a rewarding work environment to
best serve our customers.
INDEX TO 1997 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 ...................................... 19
CAPITAL STOCK ................................................ 19
HOLDING CORPORATION DIRECTORS AND OFFICERS ................... 20
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS ....................................... 21
CONSOLIDATED FINANCIAL STATEMENTS ............................ 22
</TABLE>
<PAGE> 3
[SOUTH FLORIDA BANK HOLDING CORPORATION LETTERHEAD]
March, 1998
Dear Fellow Shareholders:
South Florida Bank Holding Corporation has successfully completed an
exciting and eventful 1997. Among our accomplishments was a 16% growth in
assets, the opening of a new banking office in Iona, a significant upgrade in
our technology, and record earnings. Perhaps the most significant event was
your Board's declaration of an annual dividend of $.20 per share, the first in
our history.
During 1997 your company earned $1.4 million or $1.18 per share
representing a 42% increase over 1996 earnings of $1.0 million or $.83 per
share. This is the third consecutive year of record profits. The 1997 return
on average equity was 21.4% and the return on average assets was 1.8%.
In response to our advertising campaign and other business development
efforts, total assets increased $11.4 million, ending the year at $82.9
million. Our loan portfolio ended the year at $48.8 million, a growth of 13%
over the previous year. In addition, the Bank improved its asset quality,
reducing loans on non-accrual status and other real estate owned to $858,000 or
1% of total assets.
Earnings improved during 1997 from 1996 primarily as a result of the
increase in net interest income, partially offset by the increase in
non-interest expense. Net interest income increased $520,000 in response to
the increased volume of assets. Non-interest expense increased $214,000
primarily as a result of the opening of the new branch in Iona. In addition,
the Company recorded a $261,000 income tax benefit for its net operating loss
carryforward. Most of the tax benefits have been recognized, and during 1998
the Company anticipates that it will begin recording income tax expense.
Please read the following report as it provides an in-depth analysis of
your Company's financial condition. We look forward to meeting with you at the
Annual Meeting to be held on Tuesday, April 28, 1998 at 4:00 p.m. at the Bank's
Colonial Office, 1500 Colonial Boulevard, Fort Myers, Florida.
Very truly yours,
/s/ Robert Ernest Hendry /s/ William P. Valenti
Robert Ernest Hendry William P. Valenti
Chairman of the Board President and Chief
Executive Officer
<PAGE> 4
SOUTH FLORIDA BANK HOLDING CORPORATION
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
- -------------------------
Total interest income .................... $ 5,839,160 $ 4,869,672 $ 4,534,245 $ 3,749,349 $ 4,325,676
Total interest expense ................... 2,406,550 1,956,622 2,009,174 1,402,489 1,744,587
----------- ----------- ----------- ----------- -----------
Net interest income .................. 3,432,610 2,913,050 2,525,071 2,346,860 2,581,089
Provision for loan losses ................ --- --- 28,000 (75,000) 325,000
Non-interest income ...................... 576,078 611,513 547,321 515,196 612,408
Non-interest expense ..................... 2,846,185 2,632,357 2,711,569 2,894,585 3,518,497
----------- ----------- ----------- ----------- -----------
Income (Loss) before income taxes .... 1,162,503 892,206 332,823 42,471 (650,000)
Benefit for income taxes ................. 261,218 108,000 260,000 --- ---
----------- ----------- ----------- ----------- -----------
Net income (loss) .................... $ 1,423,721 $ 1,000,206 $ 592,823 $ 42,471 $ (650,000)
=========== =========== =========== =========== ===========
Net income (loss) per share:
Basic ........................... $ 1.18 $ .83 $ 0.59 $ 0.04 $ (0.71)
=========== =========== =========== =========== ===========
Diluted ......................... $ 1.15 $ .82 $ 0.59 $ 0.04 $ (0.71)
=========== =========== =========== =========== ===========
Return (Loss) on average assets .......... 1.82% 1.57% 1.01% .08% (1.05)%
Return (Loss) on average equity .......... 21.39 18.44 14.89 1.20 (16.99)
Loans charged-off ........................ $ (72,116) $ (98,341) $ (815,193) $ (163,072) $(1,454,117)
Loans recovered .......................... 49,588 150,633 296,700 507,821 487,932
----------- ----------- ----------- ----------- -----------
Net loans (charged-off) recovered .... $ (22,528) $ 52,292 $ (518,493) $ 344,749 $ (966,185)
=========== =========== =========== =========== ===========
STATEMENTS OF FINANCIAL CONDITION:
- ----------------------------------
Total loans .............................. $49,706,387 $44,040,268 $36,545,637 $32,854,507 $35,887,129
Allowance for loan losses ................ 882,034 904,562 852,270 1,342,763 1,073,014
----------- ----------- ----------- ----------- -----------
Loans - net .......................... 48,824,353 43,135,706 35,693,367 31,511,744 34,814,115
Total loan delinquencies
30 days and over ..................... 377,034 390,345 904,198 1,609,520 1,756,673
Other real estate owned .................. 514,211 548,500 582,500 2,361,035 4,107,177
----------- ----------- ----------- ----------- -----------
Total ................................ 891,245 938,845 1,486,698 3,970,555 5,863,850
Investments .............................. 24,551,768 16,639,176 17,867,052 13,461,342 11,559,669
Federal funds sold ....................... 1,998,000 5,179,000 5,337,000 1,428,000 1,785,000
Total assets ............................. 82,859,358 71,529,527 63,590,119 52,751,846 57,476,270
Total deposits ........................... 73,099,288 63,887,775 55,990,836 48,136,291 51,847,669
Total shareholders' equity ............... 7,622,486 6,407,725 5,386,085 3,803,037 3,813,952
Book value per share ..................... 6.29 5.29 4.50 3.79 3.80
Number of branches ....................... 4 3 3 3 3
Average equity to average assets ......... 8.49% 8.52% 6.48% 6.56% 6.17%
Total risk-based capital ratio ........... 15.46 13.70 13.33 11.04 9.84
Tier 1 capital to total asset ratio ...... 8.55 8.82 8.05 6.92 6.25
</TABLE>
2
<PAGE> 5
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 $82.9 million as of December 31,
1997, from $71.5 million as of December 31, 1996, an increase of $11.4 million
or 15.84%. During 1997 the Bank emphasized growth by means of an advertising
campaign, an officer calling program and the opening of a new branch. The
Company's shareholders' equity increased to $7.6 million as of December 31,
1997 from $6.4 million as of December 31, 1996, an increase of $1.2 million or
18.96%. This increase was primarily the result of net income of $1.4 million
and the $33,000 increase resulting from unrealized securities gains, partially
offset with the $242,000 (or $.20 per share) dividend declared as of December
31, 1997. As of December 31, 1997, the Bank's total risk-based capital ratio
was 15.46% and leverage ratio was 8.55%, as compared to 13.70% and 8.82%,
respectively, as of December 31, 1996. See "Capital Resources" for additional
information regarding the Bank's capital ratios.
Net income increased to $1.4 million for the year ended December 31, 1997,
or $1.18 per share, from $1.0 million for the year ended December 31, 1996, or
$.83 per share, and from net income of $593,000 for the year ended December 31,
1995, or $.59 per share. Income before income taxes increased to $1.2 million
for 1997, from $892,000 for 1996 and $333,000 for 1995. The Company's improved
earnings during 1997 as compared to the prior two years resulted partly from
net interest income increasing $520,000 from 1996 to 1997 and $388,000 from
1995 to 1996 as the Bank's total interest-earning assets grew. In addition,
the Bank recorded a benefit for income taxes of $261,000 during 1997, compared
to $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
and the opening of a new branch, resulted in an increase in total assets and
liabilities. The Company's total assets increased to $82.9 million as of
December 31, 1997 from $71.5 million as of December 31, 1996, an increase of
$11.4 million or 15.84%. 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 $75.4 million as of December 31, 1997 from $64.9 million as of
December 31, 1996, an increase of $10.5 million or 16.04%. 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 $7.5 million
as of December 31, 1997 from $6.6 million as of December 31, 1996, an increase
of $910,000 or 13.83%.
Net loans increased to $48.8 million as of December 31, 1997 from $43.1
million as of December 31, 1996, an increase of $5.7 million or 13.19%.
Mortgage loans which increased $3.3 million were the primary components of
outstanding loans. In addition, installment loans increased $1.2 million
(primarily with a mobile home loan product) and commercial loans increased $1.2
million. Management's strategy is to lend to small-to-medium sized businesses.
For a discussion of the increase of loans on non-accrual status to $344,000 as
of December 31, 1997 from $263,000 as of December 31, 1996, and the decrease in
the allowance for loan losses to $882,000 as December 31, 1997 from $905,000 as
of December 31, 1996, see "--Allowance for Loan Losses".
The investment portfolio increased to $26.6 million as of December 31, 1997
from $21.8 million as of December 31, 1996, an increase of $4.8 million or
21.69%. The proceeds from the increase in deposits were primarily used to fund
the increase in loans and investments.
3
<PAGE> 6
Cash and due from banks increased to $5.0 million as of December 31, 1997
from $4.7 million as of December 31, 1996, or an increase of $338,000 or 7.25%.
This increase resulted primarily from the increase in funds on deposit with
other banks.
Premises and equipment increased to $590,000 as of December 31, 1997 from
$408,000 as of December 31, 1996, an increase of $182,000 or 44.43%. This
increase resulted primarily from the excess cost of the new branch and
computers over depreciation expense of $157,000 during 1997. Accrued interest
receivable increased to $601,000 as of December 31, 1997 from $452,000 as of
December 31, 1996, an increase of $149,000 or 32.91%. This increase resulted
primarily from the increase in interest-earning assets.
Other assets increased to $779,000 as of December 31, 1997 from $504,000 as
of December 31, 1996, an increase of $275,000 or 54.76%. This increase
resulted primarily from the $261,000 increase in deferred income tax assets,
net of the valuation allowance, associated with the Company's tax loss
carryforward. Net deferred income tax assets totaled $656,000 as of December
31, 1997. See Note F of the Notes to Consolidated Financial Statements.
Deposits increased to $73.1 million as of December 31, 1997 from $63.9
million as of December 31, 1996, an increase of $9.2 million or 14.42%. Core
deposits increased to $66.9 million as of December 31, 1997 from $59.5 million
as of December 31, 1996, an increase of $7.4 million or 12.42%. This increase
in core deposits primarily reflected deposit accounts opened as a result of the
advertising campaign, officer calling program and the opening of a new branch.
As of December 31, 1997 and 1996, the ratio of net loans to deposits was 66.79%
and 67.52%, respectively.
Securities sold under agreements to repurchase ("Sweep Accounts") increased
to $1.3 million as of December 31, 1997 from $749,000 as of December 31, 1996,
an increase of $577,000 or 77.09%. This increase resulted primarily from the
opening of new sweep accounts.
4
<PAGE> 7
For the years ended December 31, 1997, 1996 and 1995, the Bank's average
statements of financial condition, interest income and expense, and yields
earned and rates paid were as follows:
AVERAGE BALANCES, INTEREST YIELDS AND RATES
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------- ------------------------------- -------------------------------
Average Yield/ Average Yield/ Average Yield/
ASSETS: Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------ ----------- ---------- ------ ---------- ---------- ------ ----------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans:
Commercial .......... $ 8,446,610 $ 871,378 10.32% $ 7,536,483 $ 767,113 10.18% $ 6,292,714 $ 647,245 10.29%
Mortgage (a)......... 31,506,620 2,801,285 8.89 26,930,923 2,434,924 9.04 23,846,224 2,214,187 9.29
Installment ........ 4,059,505 346,559 8.54 2,593,582 224,442 8.65 1,458,742 144,760 9.92
Other ............... 2,915,892 284,059 9.74 2,876,305 289,674 10.07 2,511,312 260,973 10.39
----------- ---------- ----- ----------- ---------- ----- ----------- ---------- -----
Total loans, net
of unearned
income (b) .......... 46,928,627 4,303,281 9.17 39,937,293 3,716,153 9.30 34,108,992 3,267,165 9.58
Investment securities-
all taxable ......... 20,130,432 1,180,155 5.86 16,703,169 981,321 5.88 16,796,439 1,053,831 6.27
Federal funds sold..... 6,542,783 355,724 5.44 3,234,819 172,198 5.32 3,625,897 213,249 5.88
----------- ---------- ----- ----------- ---------- ----- ----------- ---------- -----
Total earning
assets (c)........... 73,601,842 $5,839,160 7.93% 59,875,281 $4,869,672 8.13% 54,531,328 $4,534,245 8.31%
========== ===== ========== ===== ========== =====
Cash and due
from banks........... 3,603,228 2,809,497 2,497,149
Other assets .......... 2,116,596 1,879,234 2,637,183
Allowance for
loan losses ......... (911,423) (927,332) (981,014)
----------- ----------- -----------
Total assets .......... $78,410,243 $63,636,680 $58,684,646
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
- -------------------------------------
Interest-bearing deposits:
NOW accounts .,,,,,. $ 9,894,916 $ 133,934 1.35% $ 7,604,620 $ 123,378 1.62% $ 7,131,146 $ 136,564 1.92%
Money market ....... 9,178,891 244,917 2.67 9,332,707 242,863 2.60 9,274,608 280,082 3.02
Savings ............. 3,238,009 72,016 2.22 2,360,086 52,476 2.22 2,260,354 55,796 2.47
Time deposits:
Under $100,000....... 28,357,929 1,624,930 5.73 23,031,493 1,333,029 5.79 22,445,225 1,335,187 5.95
$100,000 & over...... 5,379,827 302,886 5.63 3,145,980 178,118 5.66 2,822,473 162,786 5.77
----------- ---------- ----- ----------- ---------- ----- ----------- ---------- -----
Total interest-bearing
deposits ............ 56,049,572 2,378,683 4.24 45,474,886 1,929,864 4.24 43,933,806 1,970,415 4.48
Sweep accounts......... 1,282,216 40,841 3.19 1,194,434 38,623 3.23 958,802 39,750 4.15
----------- ---------- ----- ----------- ---------- ----- ----------- ---------- -----
Total interest-bearing
liabilities ......... 57,331,788 $2,419,524 4.22% 46,669,320 $1,968,487 4.22% 44,892,608 $2,010,165 4.48%
========== ===== ========== ===== ========== =====
Demand deposits ....... 13,884,711 11,093,282 9,520,152
Other liabilities...... 538,056 450,556 471,786
Shareholders' equity... 6,655,688 5,423,522 3,800,100
----------- ----------- -----------
Total ................. $78,410,243 $63,636,680 $58,684,646
=========== =========== ===========
SPREAD AND INTEREST DIFFERENTIAL:
- ---------------------------------
Interest rate spread... 3.71% 3.91% 3.83%
===== ===== =====
Excess of total earning
assets over total
interest-bearing
liabilities ......... $16,270,054 $13,205,961 $ 9,638,720
=========== =========== ===========
Net yield on interest-
earnings assets...... $3,419,636 4.65% $2,901,185 4.85% $2,524,080 4.63%
========== ===== ========== ===== ========== =====
</TABLE>
- ------------------------
See footnotes on page 6.
5
<PAGE> 8
Footnotes to pages 5:
(a) Interest income on mortgage loans included loan fees recognized as
income of $14,000, $9,000 and $15,000 during the years ended December
31, 1997, 1996 and 1995, 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.
LOAN PORTFOLIO
The Bank's loan portfolio is primarily concentrated in commercial,
mortgage, and installment loans. As of December 31, 1997, 1996 and 1995, the
composition of the Bank's loan portfolio was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ----------------------- --------------------
% OF % OF % OF
TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
----------- ------- ------------ ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Commercial ......................... $ 9,289,611 18.69% $ 8,062,573 18.31% $ 7,081,642 19.38%
Mortgage: (a)
Construction ................... 961,264 1.93 1,029,003 2.34 1,331,809 3.64
Non-construction ............... 31,508,547 63.39 28,172,195 63.97 23,909,249 65.42
Installment (b) .................... 4,781,456 9.62 3,589,684 8.15 1,490,577 4.08
Other loans (c) .................... 3,165,509 6.37 3,186,813 7.23 2,732,360 7.48
----------- ----- ------------ ----- ----------- -----
Total loans, net of
unearned income ................ 49,706,387 100.00% 44,040,268 100.00% 36,545,637 100.00%
====== ====== ======
Allowance for loan losses .......... (882,034) 1.77% (904,562) 2.05% (852,270) 2.33%
----------- ====== ----------- ====== ----------- ======
Loans, net ......................... $48,824,353 $43,135,706 $35,693,367
=========== =========== ===========
</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 $46.9 million during the
year ended December 31, 1997 as compared to $39.9 million during the year ended
December 31, 1996, representing a $7.0 million (or 17.51%) increase. Total
loans outstanding, net of unearned income, as of December 31, 1997 were $49.7
million as compared to $44.0 million as of December 31, 1996, representing a
$5.7 million (or 12.87%) increase. The increase in loans from 1996 to 1997 was
primarily attributable to loan originations of $15.2 million which exceeded
loan repayments of $9.3 million. During 1996, loan originations were $17.5
million, while loan repayments were $9.9 million. 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.
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, 1997
6
<PAGE> 9
and 1996, 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 65.32% and 66.31%, respectively, of the
loan portfolio and were to borrowers in varying activities and businesses.
As of December 31, 1997, 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 ................................. $5,141,727 $2,750,655 $1,397,229 $ 9,289,611
Real estate-construction ................... 632,827 312,362 16,075 961,264
---------- ---------- ---------- -----------
Total ................................. $5,774,554 $3,063,017 $1,413,304 $10,250,875
========== ========== ========== ===========
Loans due after one year:
Having predetermined interest rates ........ $1,495,407 $ 330,384 $ 1,825,791
Having floating interest rates ............. 1,567,610 1,082,920 2,650,530
---------- ---------- -----------
Total ................................. $3,063,017 $1,413,304 $ 4,476,321
========== ========== ===========
</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 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, 1997 and 1996, impaired loans, all of which were
considered collateral dependent, totaled $687,000 and $1,134,000, respectively,
and the related allowance for loan losses was $128,000 and $170,000,
7
<PAGE> 10
respectively. As of December 31, 1997 and 1996, the net investment in impaired
loans was $559,000 and $964,000, respectively. During the years ended December
31, 1997, 1996 and 1995, impaired loans averaged $1,082,000, $1,214,000 and
$1,977,000, respectively, interest income recognized on impaired loans totaled
$72,000, $113,000 and $131,000, respectively, and interest income received on
impaired loans totaled $39,000, $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, 1997, the allowance for loan losses was $882,000 or
1.77% of total loans, net of unearned income, as compared to $905,000 or 2.05%
of total loans, net of unearned income, as of December 31, 1996. 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>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Average loans outstanding ...................... $46,928,627 $39,937,293 $34,108,992
========== ========== ==========
Net loans at end of period ...................... $48,824,353 $43,135,706 $35,693,367
=========== ========== ==========
Allowance for loan losses at
beginning of period ........................ $ 904,562 $ 852,270 $ 1,342,763
Loans charged-off:
Commercial .................................. 11,386 27,535 268,548
Mortgage .................................... 25,999 17,816 472,586
Installment ................................. 23,613 6,110 7,866
Other loans ................................. 11,118 46,880 66,193
----------- ----------- -----------
Total loans charged-off ......................... 72,116 98,341 815,193
----------- ----------- -----------
Recoveries of loans previously charged-off:
Commercial ................................. 25,877 123,003 161,125
Mortgage .................................... 19,595 21,925 122,564
Installment.................................. 3,074 3,998 8,811
Other loans ................................. 1,042 1,707 4,200
----------- ----------- -----------
Total recoveries ................................ 49,588 150,633 296,700
----------- ----------- -----------
Net loan charged-offs (recoveries) .............. 22,528 (52,292) 518,493
Provision charged to expense .................... --- --- 28,000
----------- ----------- -----------
Allowance for loan losses at end of period ..... $ 882,034 $ 904,562 $ 852,270
=========== =========== ===========
Ratio of net charge-offs during period
to average net loans outstanding ........... .05% (.13)% 1.52%
Allowance for loan losses as a percentage
of loans, net of unearned income
at end of period ............................ 1.77% 2.05% 2.33%
</TABLE>
During 1997, 13 loans were charged-off, none of which exceeded $18,000.
During 1997, there were 21 loans with recoveries, none of which exceeded
$18,000.
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.
8
<PAGE> 11
Non-performing assets increased to $858,000 as of December 31, 1997 as
compared to $811,000 as of December 31, 1996, which had decreased from $1.3
million at December 31, 1995, or a respective increase of $47,000 or 5.77% and
a decrease of $448,000 or 35.56%. The increase during 1997 resulted primarily
from the increase in loans over 90 days delinquent. The decrease during 1996
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 .69%, .60% and 1.85% as of December 31,
1997, 1996 and 1995, respectively. The allowance for loan losses as a
percentage of non-performing loans was 256.59%, 344.34% and 126.01% as of
December 31, 1997, 1996 and 1995, respectively.
As of December 31, 1997, 1996 and 1995, the Bank's non-performing loans and
repossessed assets were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- -------------------- --------------------
% 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 ... $154,278 .31% $117,930 .27% $ 262,855 .72%
90 or more days delinquent . 189,470 .38 144,762 .33 413,477 1.13
-------- --- -------- --- ---------- ----
Total non-accruing loans ...... $343,748 .69% $262,692 .60% $ 676,332 1.85%
======== === ======== === ========== ====
Total real estate owned ........ $514,211 $548,500 $ 582,500
-------- -------- ----------
Total non-performing assets .... $857,959 $811,192 $1,258,832
======== ======== ==========
Loans delinquent and accruing:
30 to 59 days .............. $ 12,648 .03% $ 21,818 .05% $ 145,495 .40%
60 to 89 days .............. 20,638 .04 105,835 .24 82,371 .22
-------- --- -------- --- ---------- ----
Total ................. $ 33,286 .07% $127,653 .29% $ 227,866 .62%
======== === ======== === ========== ====
Total delinquencies
30 days and over ........... $377,034 .76% $390,345 .89% $ 904,198 2.47%
======== === ======== === ========== ====
</TABLE>
As of December 31, 1997, 1996 and 1995, the Bank did not have any troubled
debt restructurings and no loans were over 90 days delinquent and still
accruing interest. Non-accruing loans totaled $344,000 as of December 31, 1997
as compared to $263,000 as of December 31, 1996, an increase of $81,000 or
30.86%. The largest non-accruing loan as of December 31, 1997 was a $112,000
first mortgage loan secured with commercial real estate, to which the Bank took
title in January, 1998, in foreclosure proceedings. The Bank has entered into
a contract to sell the real estate at no loss. The second largest non-accruing
loan as of December 31, 1997 was a $96,000 first mortgage loan secured with
commercial real estate. As of December 31, 1997, 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 1998.
As of December 31, 1997, 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
$475,500 (and a fair value of $540,000), a mobile home with a carrying value of
$28,000 (and a fair value of $35,000) and two single-family residential lots
with a carrying value of $11,000 (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
9
<PAGE> 12
the reserve among general portfolio categories for informational and regulatory
reporting purposes. At December 31, 1997, 1996 and 1995 the allocation of the
allowance for loan losses was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- ---------------------
LOANS LOANS LOANS
TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Commercial loans ............... $157,000 18.69% $177,000 18.31% $118,000 19.38%
Mortgage:
Construction ................ 10,000 1.93 11,000 2.34 13,000 3.64
Non-construction ............ 428,000 63.39 450,000 63.97 504,000 65.42
Installment loans .............. 74,000 9.62 57,000 8.15 27,000 4.08
Other loans .................... 58,000 6.37 57,000 7.23 50,000 7.48
Unallocated reserve ............ 155,034 --- 152,562 --- 140,270 ---
-------- ------ -------- ------ -------- ------
Total allowance for
loan losses ................ $882,034 100.00% $904,562 100.00% $852,270 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
INVESTMENT PORTFOLIO
The carrying value of the Bank's investment portfolio was $26.5 million as
of December 31, 1997 as compared to $21.8 million as of December 31, 1996. The
average book yield on the Bank's investment portfolio was 6.03% and 6.09% as of
December 31, 1997 and 1996, respectively. The average maturity of the Bank's
investment portfolio as of December 31, 1997 and 1996, was 34 and 36 months,
respectively. There was unrealized net market depreciation of approximately
$13,000 as of December 31, 1997.
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.
As of December 31, 1997, 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. Agency obligations ......... $2,496,875 5.44% $14,087,625 6.13% $ --- --- %
========== ==== =========== ==== ========== ======
HELD-TO-MATURITY:
U. S. Agency obligations ......... $1,000,000 4.49% $ 5,125,282 6.24% $ --- --- %
Collateralized mortgage
obligations ................... --- --- --- --- 1,841,986 5.93
---------- ---- ----------- ---- ---------- ------
Total held-to-maturity ........... $1,000,000 4.49% $ 5,125,282 6.24% $1,841,986 5.93%
========== ==== =========== ==== ========== ======
</TABLE>
DEPOSITS
The Bank's average core deposits increased to $64.6 million during the year
ended December 31, 1997 from $53.4 million during the year ended December 31,
1996 and from $50.6 million during the year ended December 31, 1995, or
respective increases of $11.2 million or 20.84% and $2.8 million or 5.51%.
Average total deposits increased to
10
<PAGE> 13
$69.9 million during 1997 from $56.6 million during 1996 and from $53.5 million
during 1995, or respective increases of $13.3 million or 23.63% and $3.1 million
or 5.83%. Average non-interest bearing deposits increased to $13.9 million
during 1997 from $11.1 million during 1996 and from $9.5 million during 1995, or
respective increases of $2.8 million or 25.16% and $1.6 million or 16.52%.
These increases resulted from advertising campaigns coupled with an officer
calling program and the opening of a new branch in 1997. For the years ended
December 31, 1997, 1996 and 1995 the Bank's average deposit balances and the
percent of total average deposits were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- ------------------------ -----------------------
AVERAGE % OF AVERAGE % OF AVERAGE % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Non-interest-bearing.... $13,884,711 19.85% $11,093,282 19.61% $ 9,520,152 17.81%
NOW accounts ........... 9,894,916 14.15 7,604,620 13.44 7,131,146 13.34
Money Market ............... 9,178,891 13.13 9,332,707 16.50 9,274,608 17.35
Savings deposits............ 3,238,009 4.63 2,360,086 4.17 2,260,354 4.23
Time deposits under
$100,000 ............... 28,357,929 40.55 23,031,493 40.72 22,445,225 41.99
----------- ------ ----------- ------ ----------- ------
Total core deposits ........ 64,554,456 92.31 53,422,188 94.44 50,631,485 94.72
Time deposits $100,000
and over ............... 5,379,827 7.69 3,145,980 5.56 2,822,473 5.28
----------- ------ ----------- ------ ----------- ------
Total deposits ............. $69,934,283 100.00% $56,568,168 100.00% $53,453,958 100.00%
=========== ====== =========== ====== =========== ======
</TABLE>
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, 1997, the Bank had $225,000 of public deposits, while as
of December 31, 1996, the Bank had no public fund deposits. As of December 31,
1997 and 1996, no single depositor had deposits totaling in excess of 3% of
total deposits. 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.
As of December 31, 1997, approximately 8.48% 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 77.23% of which will mature within twelve months of December 31,
1997. As of December 31, 1997, 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 .................................... $1,470,380
Over 3 months through 6 months ...................... 989,403
Over 6 months trough 12 months ...................... 2,327,075
Over 12 months ...................................... 1,411,033
-----------
Total time deposits $100,000 and over ............... $6,197,891
==========
</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
11
<PAGE> 14
were collateralized with U. S. Government agency securities totaling $1.4
million as of December 31, 1997; 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, 1997, 1996 and
1995, the Bank's short-term Borrowings were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Year ended December 31:
Average indebtedness outstanding............ $1,282,216 $1,194,434 $ 958,802
Average rate paid .......................... 3.19% 3.23% 4.15%
Maximum indebtedness
at any month-end ...................... $1,793,439 $1,415,369 $1,623,320
As of December 31:
Balance outstanding ........................ $1,326,473 $749,057 $1,623,320
Rate paid .................................. 3.16% 3.15% 3.38%
</TABLE>
CAPITAL RESOURCES
The Holding Corporation's total shareholders' equity was $7.6 million and
$6.4 million as of December 31, 1997 and 1996, respectively. This increase was
the result of 1997's net income of $1.4 million and the $33,000 increase in the
net unrealized securities gains (losses) to December 31, 1997 from December 31,
1996, partially offset with the $242,000 (or $.20 per share) dividend declared
as of December 31, 1997. The Bank's total shareholder's equity was $7.2
million and $6.0 million as of December 31, 1997 and 1996, respectively. The
increase in the Bank's shareholder's equity was the result of the Bank's net
income of $1.4 million and the $33,000 increase in the net unrealized
securities gains (losses) to December 31, 1997 from December 31, 1996,
partially offset with the $247,000 dividend declared payable to the Holding
Company from the Bank.
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 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, 1997, the Bank met the capital ratios of a
"well capitalized" financial institution with a total risk-based capital ratio
of 15.46%, a Tier 1 risk-based capital ratio of 14.20%, and a Tier 1 leverage
ratio of 8.55%. 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>
Well capitalized per FDIC(minimum ratios). 10.00% 6.00% 5.00%
Bank: December 31, 1996 ............... 13.70 12.45 8.82
December 31, 1997 ............... 15.46 14.20 8.55
</TABLE>
ASSET/LIABILITY MANAGEMENT
The principal objectives of asset and liability management are to manage
interest rate risks, ensure adequate liquidity
12
<PAGE> 15
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. Until
the $.20 dividend declared as of December 31, 1997, the Holding Corporation had
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 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, 1997, 1996
and 1995, investing activities provided (used) $(13.9) million, $(6.3) million
and $(6.8) million, respectively, of cash. During the years ended December 31,
1997, 1996 and 1995, financing activities provided $9.8 million, $7.1 million
and $9.9 million, respectively, of cash. These activities primarily resulted
from the Bank focusing its efforts on growth through an advertisement campaign,
as well as an officer calling campaign and the opening of a new branch in 1997.
RESULTS OF OPERATIONS
SUMMARY
The Company's net income was $1.4 million for the year ended December 31,
1997, or $1.18 per share, as compared to $1.0 million for the year ended
December 31, 1996, or $.83 per share, and $593,000 for the year ended December
31, 1995, or $.59 per share. For the years ended December 31, 1997, 1996 and
1995, the Company's performance ratios were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Return on average assets ....................... 1.82% 1.57% 1.01%
Return on average equity ....................... 21.39 18.44 14.89
Average equity to average assets ............... 8.49 8.52 6.48
</TABLE>
13
<PAGE> 16
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.
The Bank's net interest income increased to $3.4 million during the year
ended December 31, 1997 from $2.9 million during the year ended December 31,
1996, an increase of $518,000 or 17.87%. The increase was primarily due to the
increase in average interest-earning assets and average interest-bearing
liabilities. The 17.15% volume increase in 1997 from 1996 in loan interest
income was primarily attributable to the 14.90% increase in average loans and
the 32.72% volume increase in 1997 from 1996 in investment interest income was
primarily attributable to the 25.25% increase in average investments. The
24.91% volume increase in 1997 from 1996 in interest expense was primarily
attributable to the 18.60% increase in average interest-bearing liabilities.
The yield on the loan portfolio decreased 13 basis points, while the yield on
the investment portfolio decreased 3 basis points. The interest rates paid on
interest-bearing liabilities remained the same. The result was a decrease in
the net interest margin to 4.65% during 1997 from 4.85% during 1996.
The increase (decrease) during the year ended December 31, 1997 from the
year ended December 31, 1996 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/
ASSETS: VOLUME RATE RATE TOTAL
- ------- ----------- --------- -------- --------
<S> <C> <C> <C> <C>
Loans:
Commercial ................................ $ 92,639 $ 10,374 $ 1,252 $104,265
Mortgage .................................. 413,706 (40,469) (6,876) 366,361
Installment ............................... 126,857 (3,029) (1,711) 122,117
Other ..................................... 3,987 (9,471) (131) (5,615)
----------- --------- -------- --------
Total loans ......................... 637,189 (42,595) (7,466) 587,128
Investment securities ......................... 201,354 (2,091) (429) 198,834
Federal funds sold ............................ 176,092 3,676 3,758 183,526
----------- --------- -------- --------
Total interest income ......................... 1,014,635 (41,010) (4,137) 969,488
----------- --------- -------- --------
LIABILITIES:
- ------------
Interest-bearing deposits:
NOW accounts .............................. 37,158 (20,445) (6,157) 10,556
Money market accounts ..................... (4,003) 6,158 (101) 2,054
Savings deposits .......................... 19,520 14 6 19,540
Time deposits:
Under $100,000 ....................... 308,286 (13,308) (3,077) 291,901
$100,000 and over ................... 126,475 (998) (709) 124,768
----------- --------- -------- --------
Total interest-bearing deposits ........... 487,436 (28,579) (10,038) 448,819
Securities sold under agreements
to repurchase ............................. 2,839 (578) (43) 2,218
----------- --------- -------- --------
Total interest expense ........................ 490,275 (29,157) (10,081) 451,037
----------- --------- -------- --------
Net interest income ........................... $ 524,360 $ (11,853) $ 5,944 $518,451
=========== ========= ======== ========
</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
14
<PAGE> 17
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.
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/
ASSETS: VOLUME RATE RATE TOTAL
- ------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C>
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>
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.
PROVISION FOR LOAN LOSSES
The Bank made no provision for loan losses during the years ended December
31, 1997 and 1996 as compared to $28,000 during the year ended December 31,
1995. Net loan charge-offs (recoveries) during 1997, 1996 and 1995 were
$23,000, $(52,000) and $518,000, respectively. 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. As of December 31, 1997 and
1996, the allowance for loan losses as a percentage of loans net of unearned
income was 1.77% and 2.05%, respectively, and as a percentage of non-accrual
loans was 256.59% and 344.34%, respectively. See "--Financial
Condition-Allowance for Loan Losses".
NON-INTEREST INCOME
Deposit service charge income increased $34,000 or 7.35% to $489,000 (or
.70% of average deposits) during the year ended December 31, 1997, after
decreasing $18,000 or 3.66% to $455,000 (or .80% of average deposits) during
15
<PAGE> 18
the year ended December 31, 1996 from $473,000 (or .88% of average deposits)
during the year ended December 31, 1995. These increases and decreases
primarily resulted from changes in the 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.
NON-INTEREST EXPENSE
Personnel expenses increased to $1.4 million during the year ended December
31, 1997, from $1.3 million and $1.2 million during the respective years ended
December 31, 1996 and 1995, or respective increases of $114,000 or 8.92% and
$28,000 or 2.26%. The increase to 1997 from 1996 primarily resulted from
salaries paid to the employees at the new branch, as well as compensation
increases for existing employees. The increase to 1996 from 1995 primarily
resulted from compensation increases for existing employees. The monthly
average of full-time equivalent employees during 1997 was 35.8 as compared to
33.2 employees during 1996 and 33.7 employees during 1995. As of December 31,
1997, the Bank employed 33 full-time and three part-time employees.
Occupancy expense increased $20,000 or 3.69% during the year ended December
31, 1997 to $545,000 after decreasing $50,000 or 8.64% to $525,000 during the
year ended December 31, 1996, from $575,000 during the year ended December 31,
1995. The increase in 1997 from 1996 primarily resulted from additional costs
of the new branch and computers. The decrease in 1996 from 1995 primarily
resulted from lower depreciation expense as assets became fully depreciated.
Advertising expense increased to $107,000 during the year ended December
31, 1997 from $74,000 and $57,000 during the years ended December 31, 1996 and
1995, respectively, or respective increases of $33,000 or 44.65% and $17,000 or
30.35%. These increases primarily resulted from the cost of the advertising
campaigns.
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, increased $43,000 or 87.93%
to $93,000 for the year ended December 31, 1997, after decreasing to $50,000
during the year ended December 31, 1996, from $90,000, or a decrease of $40,000
or 44.75%. The 1997 increase resulted from an increase in write-downs of other
real estate owned. The 1996 decrease resulted from a reduction in write-downs
and losses on disposal of other real estate owned.
Supplies expense increased to $78,000 during the year ended December 31,
1997, from $64,000 and $53,000 during the years ended December 31, 1996 and
1995, respectively, or respective increases of $14,000 or 21.61% and $11,000 or
21.97%. These increases resulted from the Bank purchasing more supplies to
meet the needs of increased loans and deposits, including supplies to stock the
new branch.
Legal expenses decreased to $72,000 during the year ended December 31,
1997, from $99,000 and $103,000 during the years ended December 31, 1996 and
1995, respectively, or respective decreases of $27,000 or 27.62% and $4,000 or
3.99%. These decreases reflected the reduction in collection actions handled
by the Bank's attorneys.
Other operating expenses increased to $538,000 during the year ended
December 31, 1997, from $521,000 and $492,000 during the years ended December
31, 1996 and 1995, respectively, or respective increases of $17,000 or 3.28%
and $29,000 or 5.90%. The 1997 increase primarily resulted from the increased
costs associated with the increase in the size of the Bank. The 1996 increase
primarily resulted from increased intangible tax expense.
INCOME TAXES
During the years ended December 31, 1997, 1996 and 1995, the Company had a
benefit for income taxes of $261,000, $108,000 and $260,000 by recording
deferred income tax assets resulting from the corresponding reduction in the
valuation allowance associated with the Company's tax loss carry forward. At
December 31, 1997, the Company had a net operating loss carry forward of $2.9
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
16
<PAGE> 19
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.
YEAR 2000 ISSUES
In the next two years, many companies, including financial institutions
such as the Bank, will face potentially serious issues associated with the
inability of existing data processing hardware and software to appropriately
recognize calendar dates beginning in the year 2000. Many computer programs
that can only distinguish the final two digits of the year entered may read
entries for the year 2000 as the year 1900 and compute payment, interest or
delinquency based on the wrong date, or are expected to be unable to compute
payment, interest or delinquency. In 1997, the Bank began the process of
identifying the many software applications and hardware devices expected to be
impacted by this issue. The Bank outsources its principal data processing
activities to one or more third parties, and purchases most of its software
applications from third party vendors. The Bank believes that its vendors are
actively addressing the problems associated with the "Year 2000" issue.
However, there can be no assurance that the Bank will not be adversely affected
by the failure of such third party vendors to become Year 2000 compliant.
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-
17
<PAGE> 20
sensitive liabilities exceeds that of assets.
At December 31, 1997, $33.6 million or 44.08% of the Company's total
interest-earning assets were subject to rate adjustment during 1998, while a
total of $50.9 million or 84.53% 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 $17.3 million
during the year following December 31, 1997.
At December 31, 1997, an analysis of the interest rate sensitivity of the
Company's assets and liabilities was as follows:
<TABLE>
<CAPTION>
Immediately
Adjustable or
Less Than 31 to 90 91 to 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 .... $ 6,303,383 $ --- $ --- $ --- $ --- $ 6,303,383
Fixed-interest rate ....... 97,580 189,794 379,068 822,433 1,497,353 2,986,228
Mortgage:
Construction:
Variable-interest rate .. 354,333 --- --- --- --- 354,333
Fixed-interest rate ..... --- 49,163 229,331 --- 328,437 606,931
Non-construction:
Variable-interest rate .. 13,813,545 --- --- --- --- 13,813,545
Fixed-interest rate ..... 253,177 437,193 344,245 1,515,289 15,145,098 17,695,002
Installment .................. 142,164 97,727 166,367 370,651 4,004,547 4,781,456
Other ........................ 2,553,376 --- --- --- 612,133 3,165,509
----------- ----------- ----------- ----------- ------------ -----------
Total loans ............... 23,517,558 773,877 1,119,011 2,708,373 21,587,568 49,706,387
Federal funds sold ........... 1,998,000 --- --- --- --- 1,998,000
Investments available-
for sale .................. 1,000,000 --- --- 1,496,875 14,087,625 16,584,500
Investments held-
to-maturity ............... 1,000,000 --- --- --- 6,967,268 7,967,268
----------- ----------- ----------- ----------- ------------ -----------
Total earning assets ...... 27,515,558 773,877 1,119,011 4,205,248 42,642,461 $76,256,155
----------- ----------- ----------- ----------- ------------ ============
DEPOSITS:
- ---------
NOW Accounts ................. 11,125,578 --- --- --- --- $11,125,578
Money Market.................. 8,621,852 --- --- --- --- 8,621,852
Savings deposits ............. 3,635,619 --- --- --- --- 3,635,619
Time deposits:
Under $100,000.............. 3,542,101 3,705,112 5,227,585 8,905,057 7,899,545 29,279,400
$100,000 and over........... 854,935 615,445 989,403 2,327,075 1,411,033 6,197,891
----------- ----------- ----------- ----------- ------------ -----------
Total costing deposits ..... 27,780,085 4,320,557 6,216,988 11,232,132 9,310,578 58,860,340
Sweep accounts ............... 1,326,473 --- --- --- --- 1,326,473
----------- ----------- ----------- ----------- ------------ -----------
Total costing liabilities .. 29,106,558 4,320,557 6,216,988 11,232,132 9,310,578 $60,186,813
----------- ----------- ----------- ----------- ------------ ============
INTEREST RATE
SENSITIVITY GAP:
----------------
Amount ....................... $(1,591,000) $(3,546,680) $(5,097,977) $(7,026,884) $33,331,883
=========== =========== =========== =========== ===========
% of total assets ............ (1.92)% (4.28)% (6.15)% (8.48)% 40.22%
=========== =========== =========== =========== ===========
CUMULATIVE INTEREST
RATE SENSITIVITY GAP:
---------------------
Amount ....................... $(1,591,000) $(5,137,680) $(10,235,657) $(17,262,541) $16,069,342
=========== =========== ============ ============ ===========
% of total assets ............ (1.92)% (6.20)% (12.35)% (20.83)% 19.39%
=========== =========== =========== =========== ===========
</TABLE>
18
<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 four 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 July, 1997, the Bank opened another branch office at the corner of Iona Road
and McGregor Boulevard. 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 1997 and 1996 although the
trading prices of all stock transactions are not known. At December 31, 1997,
there were 1,210,975 shares of Holding Corporation common stock outstanding
held by 686 shareholders of record.
Until the $.20 per share dividend (or a total of $242,000) was declared as
of December 31, 1997, the Holding Corporation had 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, which declared a $247,000 dividend payable as of December 31,
1997 to the Holding Company. 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 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- -------------------------------
HIGH LOW SHARES HIGH LOW SHARES
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter .................... $ 7.25 $6.00 4,800 $5.00 $5.00 600
2nd Quarter .................... 10.00 7.00 3,350 8.00 5.00 1,250
3rd Quarter .................... 10.00 7.25 5,890 5.50 5.50 300
4th Quarter .................... 10.75 8.00 45,900 10.00 6.38 4,050
</TABLE>
ANNUAL MEETING
The Holding Corporation's Annual Meeting will be held on Tuesday, April 28,
1998 at 4:00 p.m. at the Bank's Colonial Office, 1500 Colonial Boulevard, Fort
Myers, Florida 33919.
19
<PAGE> 22
HOLDING CORPORATION 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.
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 since February, 1992. Included in his thirty 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.
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
20
<PAGE> 23
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, 1997 and 1996, 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, 1997.
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, 1997 and 1996, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Brewer, Beemer, Kuehnhackl & Koon, P.A.
BREWER, BEEMER, KUEHNHACKL & KOON, P.A.
Orlando, Florida
January 29, 1998
21
<PAGE> 24
SOUTH FLORIDA BANK HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
ASSETS
- ------
Cash and due from banks ................................. $ 5,001,112 $ 4,663,206
Federal funds sold ...................................... 1,998,000 5,179,000
Investments available-for-sale .......................... 16,584,500 8,476,165
Investments held-to-maturity
(market value of $7,980,325 and $8,139,978) .......... 7,967,268 8,163,011
Loans, net of allowance for loan losses
of $882,034 and $904,562 ............................. 48,824,353 43,135,706
Accrued interest receivable ............................. 600,536 451,821
Premises and equipment, net ............................. 589,881 408,434
Other real estate owned ................................. 514,211 548,500
Other assets ............................................ 779,497 503,684
----------- -----------
Total assets ......................................... $82,859,358 $71,529,527
=========== ===========
LIABILITIES
- -----------
Deposits:
Demand deposits ...................................... $14,238,948 $15,215,611
NOW accounts ......................................... 11,125,578 7,841,350
Money market accounts ................................ 8,621,852 7,749,782
Savings deposits ..................................... 3,635,619 2,725,840
Time deposits under $100,000 ......................... 29,279,400 25,975,567
Time deposits $100,000 and over ...................... 6,197,891 4,379,625
----------- -----------
Total deposits .................................... 73,099,288 63,887,775
Securities sold under agreements to repurchase .......... 1,326,473 749,057
Accrued interest payable ................................ 457,407 443,538
Other liabilities ....................................... 353,704 41,432
----------- -----------
Total liabilities .................................... 75,236,872 65,121,802
----------- -----------
Commitments and contingencies (Notes B, E and I)
SHAREHOLDERS' EQUITY
- --------------------
Common stock, $.01 par value, 10,000,000 shares
authorized, 1,210,975 shares outstanding ............. 12,110 12,110
Additional paid-in capital .............................. 10,366,378 10,366,378
Net unrealized securities gains (losses) ................ 324 (32,911)
Retained deficit ........................................ (2,756,326) (3,937,852)
----------- -----------
Total shareholders' equity ........................... 7,622,486 6,407,725
----------- -----------
Total liabilities and shareholders' equity ........... $82,859,358 $71,529,527
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
22
<PAGE> 25
SOUTH FLORIDA BANK HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST AND FEE INCOME FROM EARNING ASSETS:
Loans ................................................. $4,303,281 $3,716,153 $3,267,165
Federal funds sold .................................... 355,724 172,198 213,249
Investment securities ................................. 1,180,155 981,321 1,053,831
---------- ---------- ----------
Total interest income .............................. 5,839,160 4,869,672 4,534,245
---------- ---------- ----------
INTEREST EXPENSE:
Deposits:
NOW accounts ....................................... 133,934 123,378 136,564
Money market accounts .............................. 231,943 230,998 279,091
Savings deposits ................................... 72,016 52,476 55,796
Time deposits under $100,000 ....................... 1,624,930 1,333,029 1,335,187
Time deposits $100,000 and over .................... 302,886 178,118 162,786
Other ................................................. 40,841 38,623 39,750
---------- ---------- ----------
Total interest expense ............................. 2,406,550 1,956,622 2,009,174
---------- ---------- ----------
NET INTEREST INCOME ................................... 3,432,610 2,913,050 2,525,071
PROVISION FOR LOAN LOSSES ............................. --- --- 28,000
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.... 3,432,610 2,913,050 2,497,071
---------- ---------- ----------
NON-INTEREST INCOME:
Service charge income ................................. 488,711 455,246 472,521
Realized securities gains ............................. --- 3,828 ---
Other ................................................. 87,367 152,439 74,800
---------- ---------- ----------
Total non-interest income .......................... 576,078 611,513 547,321
---------- ---------- ----------
NON-INTEREST EXPENSES:
Personnel expense ..................................... 1,386,331 1,272,815 1,244,680
Occupancy expense ..................................... 544,767 525,366 575,072
Advertising ........................................... 107,161 74,084 56,834
Loan collection expenses .............................. 93,180 49,582 89,742
Supplies .............................................. 77,954 64,103 52,558
Legal expenses ........................................ 71,767 99,147 103,265
FDIC insurance ........................................ 26,587 25,921 97,129
Other ................................................. 538,438 521,339 492,289
---------- ---------- ----------
Total non-interest expenses ........................ 2,846,185 2,632,357 2,711,569
---------- ---------- ----------
INCOME BEFORE INCOME TAXES ............................ 1,162,503 892,206 332,823
BENEFIT FOR INCOME TAXES .............................. 261,218 108,000 260,000
---------- ---------- ----------
NET INCOME ............................................ $1,423,721 $1,000,206 $ 592,823
========== ========== ==========
NET INCOME PER SHARE:
Basic .............................................. $ 1.18 $ .83 $ .59
========== ========== ==========
Diluted ............................................ $ 1.15 $ .82 $ .59
========== ========== ==========
Weighted average number of common shares ............. 1,210,975 1,207,696 1,002,875
========== ========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
23
<PAGE> 26
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, 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
Investment valuation ....... --- --- 33,235 --- 33,235 ---
Dividend declared
at $.20 per share ........ --- --- --- (242,195) (242,195) ---
Net income for 1997......... --- --- --- 1,423,721 1,423,721 ---
------- ---------- -------- ----------- ---------- ----------
Balance,
December 31, 1997 ........ $12,110 $10,366,378 $ 324 $(2,756,326) $7,622,486 1,210,975
======= =========== ======== =========== ========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
24
<PAGE> 27
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,
----------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Interest received ............................................ $5,690,445 $4,914,008 $4,377,971
Non-interest income .......................................... 576,078 611,513 547,321
Interest paid ................................................ (2,392,681) (2,035,555) (1,734,112)
Personnel expenses ........................................... (1,386,331) (1,272,815) (1,244,680)
Other operating expenditures ................................. (1,268,178) (1,235,772) (1,299,258)
---------- ---------- ----------
Net cash provided by operating activities .................... 1,219,333 981,379 647,242
---------- ---------- ----------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Investments available-for-sale:
Purchases ................................................. (10,054,730) (6,546,175) (8,954,298)
Maturities ................................................ 2,000,000 7,006,520 6,453,147
Sales ..................................................... --- 2,454,923 ---
Investments held-to-maturity:
Purchases ................................................. (3,987,621) (6,948,492) (2,053,176)
Maturities ................................................ 4,183,364 5,174,703 231,142
Proceeds from the sales of other real estate owned ........... 83,300 78,377 1,607,813
Increase in loans ............................................ (5,737,658) (7,486,716) (4,038,901)
Increase in premises and equipment ........................... (338,011) (51,586) (47,513)
---------- ---------- ----------
Net cash used in investing activities ........................ (13,851,356) (6,318,446) (6,801,786)
---------- ---------- ----------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Increase (Decrease) in:
Demand deposits ........................................... (976,663) 4,825,558 1,194,045
NOW accounts .............................................. 3,284,228 (626,162) 1,275,112
Money market accounts ..................................... 872,070 (602,799) (1,715,618)
Savings deposits .......................................... 909,779 519,124 (292,167)
Time deposits ............................................. 5,122,099 3,781,218 7,393,173
Securities sold under agreements to repurchase ............... 577,416 (874,263) 1,130,002
Proceeds from issuance of common stock ....................... --- 75,000 920,359
---------- ---------- ----------
Net cash provided by financing activities .................... 9,788,929 7,097,676 9,904,906
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .......................................... (2,843,094) 1,760,609 3,750,362
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............ 9,842,206 8,081,597 4,331,235
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................... $6,999,112 $9,842,206 $8,081,597
========== ========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
25
<PAGE> 28
SOUTH FLORIDA BANK HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Reconciliation of net income to net cash provided by operating activities
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995
------------- ---------- -----------
<S> <C> <C> <C>
Net income ........................................ $1,423,721 $1,000,206 $ 592,823
Adjustments:
Provision for loan losses ..................... --- --- 28,000
Depreciation and amortization ................. 156,564 145,666 210,499
Benefit for income taxes ...................... (261,218) (108,000) (260,000)
Decrease (Increase) in:
Accrued interest receivable .............. (148,715) 44,336 (156,274)
Other assets ............................. (34,965) 4,079 (25,825)
Increase (Decrease) in:
Accrued interest payable ................. 13,869 (78,933) 275,062
Other liabilities ........................ 70,077 (25,975) (17,043)
---------- ---------- ---------
Net cash provided by operating activities ......... $1,219,333 $ 981,379 $ 647,242
========== ========== =========
Supplemental schedule of non-cash activities:
Loans transferred to other real estate owned .. $ 106,586 $ 78,377 $ 69,100
Other real estate owned returned
to loan status............................. --- --- 151,123
Net unrealized securities gains (losses) ...... 33,235 (53,566) 69,866
Dividend declared, not paid .................. 242,195 --- ---
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
26
<PAGE> 29
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.
27
<PAGE> 30
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.
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.
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.
28
<PAGE> 31
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 years ended December 31, 1997 and 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
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("FAS 128") which replaces
the presentation of primary earnings per share with basic earnings per share
and which requires dual presentation of basic and diluted earnings per share on
the Consolidated Statements of Income. FAS 128 requires restatement of all
prior-period earnings per share data presented. Basic net income per share is
computed by dividing net income by the weighted average number of shares of
common stock outstanding during the period, and diluted net income per share
includes 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,
1997, 1996 and 1995, the reconciliation of the denominators of the basic and
diluted per-share computations was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Common shares .................................... 1,210,975 1,207,696 1,002,875
Stock options .................................... 27,351 11,202 ---
--------- --------- ---------
Diluted shares ................................... 1,238,326 1,218,898 1,002,875
========= ========= =========
</TABLE>
Due to the trading prices being less than the exercise price of the stock
options during 1995, the exercise of the stock options was not assumed during
1995 as such exercise would have an antidilutive effect on net income per 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.
29
<PAGE> 32
NOTE B-INVESTMENTS AVAILABLE-FOR-SALE AND INVESTMENTS HELD-TO-MATURITY
At December 31, 1997 and 1996, 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)
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
1997
- ----
U.S. Agency obligations due:
In one year or less ............... $ 2,502,245 $ 70 $ (5,440) $ 2,496,875
After one year through five years.. 14,081,733 15,756 (9,864) 14,087,625
----------- ---------- --------- ------------
Total investments
available-for-sale ........... $16,583,978 $ 15,826 $ (15,304) $ 16,584,500
=========== ========== ========= ============
1996
- ----
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
=========== ========== ========= ============
</TABLE>
<TABLE>
<CAPTION>
CARRYING
VALUE GROSS GROSS ESTIMATED
(AMORTIZED UNREALIZED UNREALIZED MARKET
INVESTMENTS HELD-TO-MATURITY: COST) GAINS LOSSES VALUE
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
1997
- ----
U.S. Agency obligations due:
In one year or less ................ $ 1,000,000 $ --- $ --- $ 1,000,000
After one year through five years .. 5,125,282 12,536 (10) 5,137,808
Collateralized mortgage obligations
due after ten years ................ 1,841,986 4,016 (3,485) 1,842,517
---------- --------- --------- -----------
Total investments held-to-maturity ..... $ 7,967,268 $ 16,552 $ (3,495) $ 7,980,325
=========== ========= ========= ===========
1996
- ----
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
=========== ========== ========= ===========
</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.
As of December 31, 1997, investments available-for-sale and
held-to-maturity with a carrying value of approximately $1.4 million were
pledged to collateralize securities sold under agreements to repurchase,
$700,000 were pledged for public deposits and $300,000 were pledged for
Treasury, Tax and Loan deposits.
NOTE C - LOANS AND ALLOWANCE FOR LOAN LOSSES
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.
30
<PAGE> 33
As of December 31, 1997 and 1996, loans consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Commercial ........................................... $ 9,289,611 $ 8,062,573
Mortgage:
Construction ..................................... 961,264 1,029,003
Non-construction ................................. 31,508,547 28,172,195
Installment .......................................... 4,781,456 3,589,684
Other loans .......................................... 3,165,509 3,186,813
----------- -----------
Total loans, net of unearned income .................. 49,706,387 44,040,268
Less - allowance for loan losses ..................... 882,034 904,562
----------- -----------
Loans, net ....................................... $48,824,353 $43,135,706
=========== ===========
</TABLE>
For the years ended December 31, 1997, 1996, and 1995, an analysis of the
allowance for loan losses was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ----------
<S> <C> <C> <C>
Beginning balance .................................... $904,562 $852,270 $1,342,763
Provision for loan losses ............................ --- --- 28,000
Charge-offs .......................................... (72,116) (98,341) (815,193)
Recoveries ........................................... 49,588 150,633 296,700
-------- -------- ----------
Ending balance ................................... $882,034 $904,562 $ 852,270
======== ======== ==========
</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, 1997 and 1996, the total recorded investment in impaired loans was $687,000
and $1,134,000, respectively, and the Bank recorded an allowance for loan
losses of $128,000 and $170,000, respectively, related to its impaired loans.
As of December 31, 1997 and 1996, the net investment in impaired loans was
$559,000 and $964,000, respectively. During the years ended December 31, 1997,
1996 and 1995, the recorded investment in impaired loans averaged $1,082,000,
$1,214,000 and $1,977,000, respectively, and interest income recognized on
impaired loans totalled $72,000, $113,000 and $131,000, respectively, and
interest income received on impaired loans totaled $39,000, $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, 1997 and 1996, 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
65.32% and 66.31%, respectively, of the loan portfolio and were to borrowers in
varying activities and businesses.
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, 1997 and 1996 premises and equipment were comprised of
the following:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Leasehold improvements .......................... $ 981,177 $ 967,079
Furniture and equipment ......................... 1,091,997 924,662
----------- -----------
Total ....................................... 2,073,174 1,891,741
Less - accumulated depreciation
and amortization ............................ 1,483,293 1,483,307
----------- -----------
Premises and equipment, net ..................... $ 589,881 $ 408,434
=========== ===========
</TABLE>
31
<PAGE> 34
NOTE E - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
As of December 31, 1997, 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 $7,193,000 and $5,972,000 at
December 31, 1997 and 1996, 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 $1,106,000 and $719,000 at December 31, 1997 and 1996,
respectively.
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. During the years ended December 31, 1997,
1996 and 1995, the Company recorded $261,000, $108,000 and $260,000,
respectively, 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, 1997, 1996 and 1995, 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>
1997 1996 1995
---------------------- -------------------- --------------------
AMOUNT % AMOUNT % AMOUNT %
--------- ------ --------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Expected expense using statutory rate ...... $ 441,751 38.00% $ 339,038 38.00% $ 126,473 38.00%
Utilization of net operating
losses carried forward ................... (488,042) (41.98) (356,430) (39.95) --- ---
Decrease in valuation allowance ............ (286,910) (24.68) (94,361) (10.57) (448,333) (134.70)
Other, net ................................. 71,983 6.19 3,753 .42 61,860 18.58
--------- ------ --------- ------ ---------- -------
Total income tax expense ................... $(261,218) (22.47)% $(108,000) (12.10)% $(260,000) (78.12)%
========= ====== ========= ====== ========= =======
</TABLE>
As of December 31, 1997, the Company had net operating loss carryforwards
remaining for federal tax purposes of approximately $2,918,000, which may be
used to offset future taxable income or will expire, if unused, as follows:
$1,874,000 in 2007, $1,026,000 in 2008, and $18,000 in 2009. Should certain
substantial changes (as defined by the
32
<PAGE> 35
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, 1997 and 1996 the Company's deferred
tax assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Gross deferred tax assets:
Net operating loss carryforward ................. $1,106,229 $1,581,066
Fixed assets .................................... 149,569 144,846
Other real estate owned ......................... 46,302 22,971
Other ........................................... 49,296 42,117
Valuation allowance ............................. (655,974) (1,411,000)
---------- ----------
Total ........................................ 695,422 380,000
---------- ----------
Gross deferred tax liabilities:
Allowance for loan losses ....................... 39,449 ---
---------- ----------
Total......................................... 39,449 ---
---------- ----------
Net deferred tax asset ............................. $ 655,973 $ 380,000
========== ==========
</TABLE>
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, 1997, 1996 and 1995, the Company's expense for the
Savings Plan was $29,000, $24,000 and $19,000, 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, 1997, options totaling 50,000 expire on April 27, 2003, and
options totaling 9,000 expire on January 1, 2007. Options granted, exercised
and exercisable were as follows:
<TABLE>
<CAPTION>
PRICE NUMBER EXERCISABLE
----- ------ -----------
<S> <C> <C> <C>
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
Granted ........................................ 5.00 10,000
Canceled ....................................... 5.00 (1,000)
Exercised ..................................... --- ---
------
Balance, December 31, 1997 ......................... 5.00 59,000 52,250
======
</TABLE>
NOTE H - RELATED PARTIES
Deposits of the Company's directors, officers and relatives of directors
totaled approximately $2,755,000, $1,922,000, and $1,921,000 at December 31,
1997, 1996 and 1995, 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
33
<PAGE> 36
December 31, 1997, 1996, and 1995 the activity in loans and lines of credit
from related parties were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- -------------- -------------
<S> <C> <C> <C>
Beginning balance ................................... $1,348,811 $1,274,714 $ 964,371
New loans ........................................... 939,127 584,747 643,410
Other changes ....................................... (492,025) (11,256) ---
Repayments .......................................... (943,667) (499,394) (333,067)
---------- ---------- ----------
Ending Balance .................................. $ 852,246 $1,348,811 $1,274,714
========== ========== ==========
</TABLE>
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, 1997, various directors and affiliates of the directors owned a
minority interest of this partnership. The lease matures on August 31, 1999
and the Bank pays $3,500 per month. Total rent expense under this lease was
$35,000, $28,000 and $27,000 during the years ended December 31, 1997, 1996 and
1995, 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 $1,854 per month. Total rent expense under this
lease was $23,000, $29,000 and $37,000 during the years ended December 31,
1997, 1996 and 1995, 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, 1997, 1996, and 1995 totaled $45,000, $54,000, and $29,000, 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 $233,000, $220,000, and
$221,000 during the years ended December 31, 1997, 1996, and 1995,
respectively. As of December 31, 1997, future minimum lease payments under
leases with initial or remaining noncancellable lease terms in excess of one
year were as follows:
<TABLE>
<S> <C>
1998 .............................................. $254,000
1999 .............................................. 194,000
2000 .............................................. 59,000
2001 .............................................. 33,000
2002 .............................................. 17,000
--------
Future minimum lease payments ...................... $557,000
========
</TABLE>
The Bank entered into an agreement to purchase the main office for $600,000
in cash to be paid in February, 1998. The above table includes lease payments
for the main office lease, which expires in 1999, of $54,000 in 1998 and
$18,000 in 1999.
NOTE J - CAPITAL RATIOS
As of December 31, 1997 and 1996, a comparison of the required minimum
capital ratios to actual capital ratios was as follows:
<TABLE>
<CAPTION>
BANK RATIOS
------------------------- REGULATORY
1997 1996 REQUIREMENTS
-------- -------- ------------
<S> <C> <C> <C>
Total capital to risk weighted assets ................ 15.46% 13.70% 8.00%
Tier 1 capital (common shareholders'
equity) to risk-weighted assets .................. 14.20 12.45 4.00
Tier 1 capital to average total assets -
Leverage ratio ................................... 8.55 8.82 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.
34
<PAGE> 37
NOTE K - CONDENSED HOLDING CORPORATION FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
- ------
Cash and due from banks ....................................... $ 447,393 $ 453,193
Dividend receivable from the Bank ............................. 246,908 ---
Investment in the Bank ........................................ 7,170,380 5,954,532
----------- ---------
Total assets .............................................. $ 7,864,681 $ 6,407,725
=========== ===========
Dividend payable .............................................. $ 242,195 $ ---
----------- ------------
SHAREHOLDERS' EQUITY
- --------------------
Common stock, $.01 par value, 10,000,000 shares
authorized, 1,210,975 shares outstanding .................. 12,110 12,110
Additional paid-in capital .................................... 10,366,378 10,366,378
Net unrealized securities gains (losses) of the Bank .......... 324 (32,911)
Retained deficit .............................................. (2,756,326) (3,937,852)
----------- -----------
Total shareholders' equity ................................ 7,622,486 6,407,725
----------- -----------
Total liabilities and shareholders' equity ................ $ 7,864,681 $ 6,407,725
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
STATEMENTS OF OPERATIONS 1997 1996 1995
- ------------------------ ----------- ----------- ----------
<S> <C> <C> <C>
Equity in the Bank's earnings ................................. $1,429,521 $1,007,316 $624,054
Interest income from the Bank ................................. 12,974 11,865 991
Legal expenses ................................................ 9,512 4,899 5,767
Non-interest expense - other .................................. 9,262 14,076 26,455
---------- ---------- --------
Net income ................................................ $1,423,721 $1,000,206 $592,823
========== ========== ========
STATEMENTS OF CASH FLOWS
- ------------------------
Cash flows used in operating activities:
Other operating expenditures .............................. $ (5,800) $ (7,110) $(27,712)
---------- ---------- --------
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 .......... (5,800) 67,890 192,647
Cash and cash equivalents at beginning of period .............. 453,193 385,303 192,656
---------- ---------- --------
Cash and cash equivalents at end of period .................... $ 447,393 $ 453,193 $385,303
========== ========== ========
Reconciliation of net income to net cash used in operating activities:
Net income .................................................... $1,423,721 $1,000,206 $592,823
Equity in the Bank's earnings ................................. (1,429,521) (1,007,316) (624,054)
Decrease (Increase) in other assets ........................... --- --- 3,519
---------- ---------- --------
Net cash used in operating activities ......................... $ (5,800) $ (7,110) $(27,712)
========== ========== ========
</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
35
<PAGE> 38
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, 1997 and
1996, respectively, on comparable loans as to credit risk and terms.
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, 1997 and 1996, 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, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
FINANCIAL ASSETS: AMOUNT VALUE AMOUNT VALUE
- ----------------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Cash and due from banks ........................ $ 5,001,112 $ 5,001,112 $ 4,663,206 $ 4,663,206
Federal funds sold ............................. 1,998,000 1,998,000 5,179,000 5,179,000
Investments available-for-sale ................. 16,584,500 16,584,500 8,476,165 8,476,165
Investments held-for-maturity ................,. 7,967,268 7,980,325 8,163,011 8,139,978
Loans .......................................... 49,706,387 49,441,000 44,040,268 43,799,000
FINANCIAL LIABILITIES:
- ----------------------
Deposits ....................................... 73,099,288 73,164,000 63,887,775 64,091,000
Securities sold under agreements
to repurchase .............................. 1,326,473 1,326,473 749,057 749,057
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
- ----------------------------------------------------------
Commitments to extend credit ................... --- --- --- ---
Standby letters of credit ...................... --- --- --- ---
</TABLE>
36
<PAGE> 39
NOTE M - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
For the years ended December 31, 1997 and 1996, the Company's condensed
quarterly financial information was as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
1997:
- -----
Interest income ................................. $1,348,823 $1,420,103 $1,533,945 $1,536,289
Interest expense ................................ 540,932 569,416 627,118 669,084
---------- ---------- ---------- ----------
Net interest income ............................. 807,891 850,687 906,827 867,205
Non-interest income ............................. 137,210 147,092 143,171 148,605
Non-interest expense ............................ 667,798 656,988 729,912 791,487
---------- ---------- ---------- ----------
Income before income taxes ...................... 277,303 340,791 320,086 224,323
Benefit for income taxes ........................ 30,000 30,000 30,000 171,218
---------- ---------- ---------- ----------
Net income ...................................... $ 307,303 $ 370,791 $ 350,086 $ 395,541
========== ========== ========== ==========
Net income per share:
Basic ....................................... $ 0.25 $ 0.31 $ 0.29 $ 0.33
====== ====== ====== ======
Diluted ..................................... $ 0.25 $ 0.30 $ 0.29 $ 0.31
====== ====== ====== ======
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:
Basic ....................................... $ 0.18 $ 0.19 $ 0.24 $ 0.22
====== ====== ====== ======
Diluted ..................................... $ 0.18 $ 0.19 $ 0.24 $ 0.21
====== ====== ====== ======
</TABLE>
OFFICERS OF THE BANK
<TABLE>
<S> <C>
William P. Valenti President and Chief Executive Officer
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/Director of Sales and Marketing
Christopher Ferrer Vice President/Branch Manager
George A. Landon Vice President/Loan Officer
Jeffrey J. Ritter Vice President/Loan Officer
Suzanne Hummel Assistant Vice President/Branch Manager
</TABLE>
37
<PAGE> 40
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
IONA OFFICE
15280 MCGREGOR BOULEVARD
(941) 466-6100
MAILING ADDRESS (ALL OFFICES)
P. O. BOX 2529
FORT MYERS, FL 33902-2529
<PAGE> 1
Exhibit 21.1
South Florida Bank Holding Corporation
Form 10-KSB
For Fiscal Year Ended December 31, 1997
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
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,001,112
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,998,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,584,500
<INVESTMENTS-CARRYING> 7,967,268
<INVESTMENTS-MARKET> 7,980,325
<LOANS> 48,824,353
<ALLOWANCE> 882,034
<TOTAL-ASSETS> 82,859,358
<DEPOSITS> 73,099,288
<SHORT-TERM> 1,326,473
<LIABILITIES-OTHER> 811,111
<LONG-TERM> 0
0
0
<COMMON> 10,378,488
<OTHER-SE> 2,756,002
<TOTAL-LIABILITIES-AND-EQUITY> 82,859,358
<INTEREST-LOAN> 4,303,281
<INTEREST-INVEST> 1,180,155
<INTEREST-OTHER> 355,724
<INTEREST-TOTAL> 5,839,160
<INTEREST-DEPOSIT> 2,365,709
<INTEREST-EXPENSE> 2,406,550
<INTEREST-INCOME-NET> 3,432,610
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,846,185
<INCOME-PRETAX> 1,162,503
<INCOME-PRE-EXTRAORDINARY> 1,423,721
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,423,721
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.15
<YIELD-ACTUAL> .079
<LOANS-NON> 343,748
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 904,562
<CHARGE-OFFS> 72,116
<RECOVERIES> 49,588
<ALLOWANCE-CLOSE> 882,034
<ALLOWANCE-DOMESTIC> 882,034
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
