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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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
----- -----
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 $7,224,031
The aggregate market value of the Common Stock held by non-affiliates
of the issuer is $11,287,101, based on the price at which shares of common stock
were sold on August 21, 1998.
As of March 12, 1999, there were issued and outstanding 1,265,350
shares of the issuer's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the 1998 Annual Report to Shareholders for the
year ended December 31, 1998 are incorporated into Part II, Items 5 through 8 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
Fifth Third Affiliation Agreement................................1
Deposits.........................................................2
Loan Portfolio...................................................2
Investments......................................................3
Correspondent Banking............................................4
Data Processing..................................................4
Effect of Governmental Policies..................................4
Interest and Usury...............................................4
Supervision and Regulation.......................................5
Industry Restructuring..........................................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 ....................................................................14
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters............................14
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................14
Item 7. Financial Statements............................................14
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................14
PART III ....................................................................15
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Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act..................................15
Directors......................................................15
Executive Officers.............................................17
Section 16(a) Reporting Requirements.........................................18
Item 10. Executive Compensation.........................................18
Information About the Board of Directors and Its Committees....18
Executive Compensation and Benefits............................19
Information on Benefit Plans and Policies......................19
Item 11. Security Ownership of Certain Beneficial Owners and
Management...........................................22
Item 12. Certain Relationships and Related Transactions.................23
Item 13. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.............................................23
SIGNATURES...................................................................26
EXHIBIT INDEX................................................................28
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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, 1998, 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 $90.2 million, total deposits of
$77.0 million, and shareholders' equity of $9.3 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.
FIFTH THIRD AFFILIATION AGREEMENT
The Holding Corporation entered into an Affiliation Agreement with
Fifth Third Bancorp ("Fifth Third") on October 22, 1998 which provides for the
merger of the Holding Corporation into Fifth Third and the merger of the Bank
into Fifth Third Bank, Florida (the "Merger"). If the Merger is closed, holders
of Holding Corporation Common Stock will be entitled to receive .34800 of a
share of Fifth Third common stock for each share of Holding Corporation Common
Stock presently owned, except to the extent that a shareholder exercises
dissenters' rights. Fifth Third will not issue any fractional shares in the
Merger. Rather, holders of Holding Corporation Common Stock will receive cash
for any fractional share of Fifth Third common stock based on the last trading
price of Fifth Third common stock on the date on which the Merger closes.
Consummation of the Merger is subject to a number of conditions, including the
receipt of prior approval from the bank regulatory agencies and approval of the
Merger by the holders of Holding Corporation Common Stock.
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DEPOSITS
The Bank's deposit services include business and individual checking
accounts, savings accounts, NOW accounts and certificates of deposit. It is the
Bank's policy to monitor its competition in order to keep the rates paid on its
deposits at a competitive level. Time deposits of $100,000 and over made up
6.72% of the Bank's total deposits at December 31, 1998 as compared to 8.48% at
December 31, 1997. The majority of the deposits of the Bank are generated from
Lee County. The Bank does not accept brokered deposits. At December 31, 1998,
the Bank had $116,000 of public fund deposits, while as of December 31, 1997,
the Bank had 225,000 of public fund deposits. At December 31, 1998 and 1997, 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.
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 15.21% of the
Bank's total loan portfolio at December 31, 1998, consisted of commercial loans
as compared to 18.69% at December 31, 1997. The majority of the Bank's loans are
made on a secured basis. At December 31, 1998 and 1997, 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
67.60% and 65.32%, 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.
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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 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
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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 with the Independent Bankers' Bank of
Florida, NationsBank, Fifth Third 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. For information regarding the
Bank's Year 2000 compliance, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which is included in the Holding
Corporation's 1998 Annual Report to Shareholders and incorporated into this
Report under Item 7 of Part II.
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.
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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.
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.
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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 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
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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 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.
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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 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.
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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 ratio (Tier 1 plus Tier 2) of 8%. At December 31, 1998,
the Bank's Tier 1 and total risk-based capital ratios were 16.19% and 17.45%,
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, 1998, the Bank
had a total risk-based capital ratio of 17.45%, a Tier 1 risk-based capital
ratio of 16.19%, and a leverage ratio of 10.00%.
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
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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 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
10
<PAGE> 14
bank subsidiaries in different states also is permissible. 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.
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.
11
<PAGE> 15
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.
EMPLOYEES
As of December 31, 1998, the Company had 37 full-time employees and
four 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 1998 Annual Report to Shareholders and incorporated in this report
under Item 7 of Part II, for statistical and financial data providing a review
of the Company's business activities.
ITEM 2. PROPERTIES
The Bank's main office is located at 2017 McGregor Boulevard, in the
downtown area of the City of Fort Myers, Florida. The property is an older
two-story building of approximately 6,500 square feet, which is owned by the
Bank. 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.
12
<PAGE> 16
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, 1998.
13
<PAGE> 17
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 1998 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,
1999.
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 1998 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
14
<PAGE> 18
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS
The following table sets forth the name of each director of the Holding
Corporation; a description of his or her position and offices with the Holding
Corporation other than as a director, if any; a brief description of his or her
principal occupation and business experience during at least the last five
years; and certain other information including the director's age and the number
of shares of Holding Corporation Common Stock beneficially owned by the director
on March 12, 1999. Each of the following individuals is also serving as a
director of the Bank (collectively, the "Company").
<TABLE>
<CAPTION>
AMOUNT, PERCENTAGE
AND NATURE OF
BENEFICIAL OWNERSHIP
DIRECTOR AND YEAR INFORMATION ABOUT OF HOLDING CORPORATION
FIRST ELECTED DIRECTOR COMMON STOCK (1)
- ------------------- --------------------- -----------------------
<S> <C> <C>
CLASS III
TERM EXPIRES ANNUAL MEETING 1999
James T. Humphrey, Jr. Mr. Humphrey has been a partner 31,500 (2)
1990 in the law firm of Humphrey & Knott, (2.5%)
P.A. in Fort Myers since 1982. Mr.
Humphrey is 58.
George T. Mann, Jr. Mr. Mann is President of George T. Mann 4,750 (3)
1996 General Contractor, Inc. since 1985. He (.38%)
served on the Board of Directors of First
Federal Savings & Loan Association of
Fort Myers and, subsequently, Society/First
Federal from 1980 through 1996. Mr.
Mann is 59.
Wallace M. Tinsley Mr. Tinsley is presently retired. 39,166 (4)
1990 From 1984 to 1988, he served as (3.1%)
President of Fort Myers Auto Parts.
Mr. Tinsley is 68.
</TABLE>
15
<PAGE> 19
CLASS I
TERM EXPIRES ANNUAL MEETING 2000
<TABLE>
<S> <C> <C>
Ronald D. Focht Mr. Focht is President and owner of 51,192 (5)
1993 United Welding and Machine Company (4.0%)
since 1976. Mr. Focht is 53.
Robert Ernest Hendry Dr. Hendry has been engaged 45,420 (6)
1990 in private practice as a dentist (3.6%)
in Fort Myers since 1962. Dr.
Hendry has served as Chairman
of the Board of the Holding
Corporation since February
1991. Dr. Hendry is 63.
</TABLE>
CLASS II
TERM EXPIRES ANNUAL MEETING 2001
<TABLE>
<S> <C> <C>
Robert C. Adkins Mr. Adkins has served as President 46,350 (7)
1990 and General Manager of Dixie Buick, Inc. (3.7%)
in Fort Myers since 1961.
Mr. Adkins is 65.
Carole A. Green Ms. Green is a Florida State Legislator 1,610
1996 for District 75. She served on the Board (.13%)
of Lee Memorial Health System from 1995
through 1998. She also serves on The
Children's Hospital Development Board
and the Lee Memorial Foundation. Ms. Green
is 47.
William P. Valenti Mr. Valenti has over 30 years of banking 41,250 (8)
1992 experience, including serving as President (3.3%)
and Chief Executive Officer of the Holding
Corporation and the Bank since February 1992.
Mr. Valenti is 54.
</TABLE>
--------------------
(1) Information relating to beneficial ownership of Holding Corporation
Common Stock by directors is based upon information furnished by each
person using "beneficial ownership" concepts set forth in rules of the
Securities and Exchange Commission under the Securities
16
<PAGE> 20
Exchange Act of 1934, as amended. Under such rules, a person is deemed
to be a "beneficial owner" of a security if that person has or shares
"voting power," which includes the power to vote or direct the voting
of such security, or "investment power," which includes the power to
dispose of or to direct the disposition of such security. A person is
also deemed to be a beneficial owner of any security of which that
person has a right to acquire beneficial ownership within 60 days.
Under such rules, more than one person may be deemed to be a beneficial
owner of the same securities, and a person may be deemed to be a
beneficial owner of securities as to which he or she may disclaim any
beneficial interest. Accordingly, nominees and directors continuing in
office are named as beneficial owners of shares as to which they may
disclaim any beneficial interest. Except as otherwise indicated in the
notes to this table, directors possessed sole voting and investment
power as to all shares of Holding Corporation Common Stock set forth
opposite their names.
(2) Includes 17,500 shares (as to which he shares voting power) owned by
his law firm's profit sharing plan, 11,500 shares held jointly with his
spouse, and 2,500 shares owned by his IRA.
(3) Consists of shares held by him as trustee.
(4) Includes 24,258 shares owned individually by Mr. Tinsley, 14,508 shares
owned by his spouse and 400 shares owned by his spouse's IRA.
(5) Shares held jointly with spouse.
(6) Represents 33,400 shares held in Dr. Hendry's retirement trust and
12,020 shares owned individually by Dr. Hendry.
(7) Includes 25,550 shares owned individually by Mr. Adkins, 14,000 shares
owned by his spouse, 5,000 shares owned by Dixie Buick, Inc., a
corporation controlled by Mr. Adkins, and 1,800 shares held by his
spouse in trust for minor children.
(8) Includes 3,250 shares which Mr. Valenti has the right to acquire
pursuant to presently exercisable stock options, 33,850 shares held
jointly with his spouse, 100 shares held jointly with his parent, 50
shares owned by his spouse, and 4,000 shares owned by his IRA.
EXECUTIVE OFFICERS
The following lists the executive officers of the Holding Corporation,
all positions held by them in the Holding Corporation, including the period each
such position has been held, a brief account of their business experience during
the past five years and certain other information including their ages.
Executive officers are appointed annually at the organizational meeting of the
Board of Directors, which follows the Holding Corporation annual meeting of
shareholders, to serve until a successor has been duly elected and qualified or
until his death, resignation, or removal from
17
<PAGE> 21
office. Information concerning directorships, committee assignments, minor
positions and peripheral business interests has not been included.
SECTION 16(A) REPORTING REQUIREMENTS
Under Section 16(a) of the Securities Exchange Act of 1934, directors
and executive officers of the Holding Corporation, and persons who beneficially
own more than 10% of Holding Corporation Stock, are required to make certain
filings on a timely basis with the Securities and Exchange Commission. Reporting
persons are required by SEC regulations to furnish the Holding Corporation with
copies of all Section 16(a) forms filed by them. Based on its review of the
copies of Section 16(a) forms received by it, and on written representations
from reporting persons concerning the necessity of filing a Form 5 - Annual
Statement of Changes in Beneficial Ownership, the Company believes that, during
1998, all filing requirements applicable to reporting persons were met.
ITEM 10. EXECUTIVE COMPENSATION
INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors of the Holding Corporation held 15 meetings
during the year ended December 31, 1998. All of the directors attended at least
75% of the aggregate total number of meetings of the Board of Directors and
meetings of the committees of the Board on which they serve. The Holding
Corporation's Board of Directors presently has three committees. Certain
information regarding the function of these standing committees, their
membership, and the number of meetings held during 1998 follows:
The entire Board of Directors serves as the Nominating Committee for
the purpose of nominating persons to serve on the Board of Directors. While the
committee will consider nominees recommended by shareholders, it has not
actively solicited recommendations nor established any procedures for this
purpose. The Board held one meeting in its capacity as the Nominating Committee
during 1998.
The Audit Committee reviews the annual audit, reports to the Board
concerning the audit and makes recommendations for improvements, internal
controls, or other items covered by the audit report. The Audit Committee also
directs the activities of the internal audit function. Ms. Green and Messrs.
Mann and Tinsley are the members of this committee. The committee held two
meetings during 1998.
The Compensation Committee reviews the Holding Corporation's total
compensation and benefits program. It also makes recommendations to the Board
concerning compensation and other arrangements for executive officers of the
Holding Corporation as well as annual increases in
18
<PAGE> 22
compensation for all employees. The members of this committee are Messrs. Adkins
and Focht and Dr. Hendry. The committee held two meetings during 1998.
The Bank pays each outside director $700 per month ($900 per month to
Dr. Hendry as Chairman).
EXECUTIVE COMPENSATION AND BENEFITS
The following table sets forth all cash compensation for the Holding
Corporation's Chief Executive Officer for services to the Company in 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
- --------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
- --------------------------------------------------------------------------------------------------------------------
Name
and Other Restricted
Principal Annual Stock Options/ LTIP All Other
Position Year Salary Bonus Award(s) SARs Payouts Compensation
Compensation (2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William P. 1998 $ 132,000 $ 32,650 $5,650 (1) -0- -0- -0- $ 3,775
Valenti, President 1997 $ 119,664 $ 20,000 $5,400 (1) -0- -0- -0- $ 4,187
and Chief Executive 1996 $ 110,800 $ 15,000 $5,400 (1) -0- -0- -0- $ 3,645
Officer of the Bank
</TABLE>
- -----------------
(1) Represents automobile allowance.
(2) Represents amounts contributed by the Bank to Mr. Valenti's account in
the Section 401(k) Plan.
INFORMATION ON BENEFIT PLANS AND POLICIES
Stock Option Plan. The Holding Corporation has an Officers' and
Employees' Stock Option Plan for its officers and employees (the "Plan"). The
purpose of the Plan is to advance the interests of the Company by affording to
the Company's officers an opportunity to increase their proprietary interest in
the continued growth and financial success of the Company. The Plan also
reenforces the Company's efforts to retain and attract highly competent
individuals upon whose judgment, initiative, leadership, and continued efforts,
the future viability and success of the Company in large measure depends.
Under the Plan, 100,000 shares of Holding Corporation Common Stock are
reserved for issuance, subject to antidilution adjustments. Of this amount, as
of March 12, 1999, options for 3,250 and 1,500 shares were issued to William P.
Valenti and Harold S. Taylor, Jr., respectively, with the exercise price for
3,500 shares at $5.00 per share and with an exercise price of $10.50 for the
remaining 1,250 shares. The balance of the shares are reserved for issuance to
Company officers and employees as the Board of Directors in its discretion shall
determine. The Plan provides that
19
<PAGE> 23
the option price must be paid in cash and in an amount equal to the greater of
$5.00 or the fair market value of the stock on the date of grant.
Under the Plan, the Board of Directors may elect to make awards of both
incentive stock options intended to meet the requirements of certain sections of
the Internal Revenue Code of 1986, as amended, from time to time, and
nonqualified stock options which do not meet such requirements.
During each of the first four years following the grant of an option
under the Plan, 25% of the option granted may be exercised. If an option is not
exercised in any one year, it may be exercised in a later year. Of the 3,250
options granted to Mr. Valenti, 1,500 are not subject to the foregoing
limitations but are immediately exercisable, and the remaining options for 1,750
shares are subject to such limitations. Any options not exercised within 10
years from the date of grant shall expire. If a participant ceases to be
employed by the Company because of disability or death, the participant (or his
estate as the case may be) may exercise options which were exercisable upon such
termination of employment for three months (in the case of disability or
retirement) and six months (in the case of death) after such termination. If a
participant ceases to be employed by the Company for any reason except death,
disability or retirement, any option or options granted him under the Plan which
have not been exercised shall be deemed cancelled. Upon any merger, combination,
sale of substantially all of the assets of the Company, or a change of control
of the Company (as defined in the Plan), all outstanding stock options become
immediately exercisable, regardless of how many years have passed since the date
of grant. No stock option may be transferred by an optionee otherwise then by
will or the laws of descent and distribution, and such stock option is
exercisable during the lifetime of the optionee, only by the optionee or a legal
guardian or personal representative.
The Plan is administered by a committee consisting of all members of
the Board of Directors of the Holding Corporation who (at the time they
exercised discretion in making decisions under the Plan) are not, and have not
at any time for one year prior thereto been, eligible to receive an option under
the Plan. The administrative committee determines, subject to the provisions of
the Plan, which employees will receive options, the numbers of shares to be
optioned to any employee, the date of grant of each option, and all other terms
and conditions governing each option.
The Board of Directors may at any time amend or terminate the Plan;
however, without the approval of the shareholders of the Holding Corporation,
the Board may not amend the Plan to increase the aggregate number of shares for
which options may be granted (except as may be necessary to adjust for certain
antidilution events) or alter the class of persons eligible to receive options
under the Plan. No amendment or termination of the Plan may, without the consent
of the optionee, adversely effect the rights of any options with respect to an
option or the unexercised portion thereof.
The following sets forth certain information regarding options
outstanding to Mr. Valenti as of December 31, 1998:
20
<PAGE> 24
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/SARS OPTIONS/SARS
ON VALUE AT FY-END (#) AT FY-END($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William P. Valenti 32,750 211,503 1,500/1,750 $8,375/$8,625
- --------------------------------------------------------------------------------
</TABLE>
Employment Agreement. The Holding Corporation has entered into an
Employment Agreement with William P. Valenti (President and Chief Executive
Officer of the Holding Corporation and the Bank). During 1998, a base annual
salary of $132,000 was paid to Mr. Valenti. The agreement also includes
provisions for an automobile allowance, a term life insurance policy in the
amount of $500,000, and individual bonuses.
The agreement terminates on June 30, 2001 and automatically renews for
successive one-year terms thereafter, unless either the Board of Directors or
the executive provides written notice to the other at least 30 days prior to the
end of the existing term. The agreement is terminable by the Bank for "cause",
as defined in the agreement at any time upon written notice to the executive.
Generally, the agreement also provides that (i) upon disability, the executive
is entitled to receive 66 2/3% of salary (during the initial exclusion period
for coverage under disability insurance policies for which the Company has paid
the premium); (ii) upon termination of the agreement for "cause", the executive
is entitled to salary and accrued and unpaid bonus amounts up to the date of
such termination; (iii) upon termination of the agreement without "cause", the
executive is entitled to salary plus medical and life insurance benefits for a
period of the greater of two years thereafter or until termination of the
employment agreement; and (iv) upon the death of the executive, the executive's
estate will be entitled to receive any accrued and unpaid salary at the date of
death, any bonuses payable to the executive, and accrued but unused vacation
time. The executive also will have been deemed to have been terminated without
cause if there is a change in control (as defined in the agreement) and,
following such change in control, there is a significant reduction in the
authority of the executive, his title, or his compensation, or a termination of
his employment (except for death, resignation, or disability). The employment
agreement also provides for the issuance to the executive of the stock options
discussed above under "Stock Option Plan."
The employment agreement also contains a two-year non-competition
clause which applies following termination of the executive's service because of
resignation, retirement or termination of employment for "cause." The
non-competition prohibition applies to Lee County, Florida. The employment
agreement also contains provisions providing for non-solicitation of Bank
employees
21
<PAGE> 25
for two years subsequent to the termination of the executive's service because
of resignation, retirement or termination of employment for "cause", and also
contains confidentiality provisions.
Profit Sharing Plan. The Bank has adopted a 401(k) Profit Sharing Plan.
Employees are eligible to participate after meeting certain length of service
requirements. Each year, participants may elect to defer up to 15% of
compensation instead of receiving that amount in cash. The Bank may contribute a
matching amount up to the 15% of compensation amount. Amounts deferred by
participants are fully vested. Contributions by the Bank vest based on
percentage amounts of 25% to 100% over two to five years of service.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 12, 1999, based on available information, all directors and
officers of the Holding Corporation as a group (nine persons) beneficially owned
283,863 shares of Holding Corporation Common Stock which constituted 22.4% of
the number of shares outstanding at that date. For additional information
regarding the ownership of Holding Corporation Common Stock by Directors, see
Part III, Item 9 above.
As of March 12, 1999, the only shareholders known to the Holding
Corporation to be beneficial owners, as defined by rules of the Securities and
Exchange Commission, of 5% or more of the outstanding shares of the Holding
Corporation Common Stock were Mr. Andrew J. Nychyk and Ewing/Florida Bank Stock
Fund, Limited Partnership. Beneficial ownership information with respect to
those two shareholders has been set forth in the following table.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ---------------- -------------------- --------
<S> <C> <C>
Andrew J. Nychyk 92,441 (1) 7.3%
2606 Cortez Boulevard
Fort Myers, FL 33901
Ewing/Florida Bank Stock Fund, 75,000 5.9%
Limited Partnership
Post Office Box 568589
Orlando, Florida 32856-8589
</TABLE>
(1) Includes 20,500 shares owned by his spouse, as to which shares he
disclaims beneficial ownership.
22
<PAGE> 26
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank has entered into a ground lease with The Daniels & Metro
Group, a Florida general partnership, for the property on which its Metro branch
office is located. Messrs. Humphrey and Tinsley (directors of the Holding
Corporation), along with their affiliates, owned or controlled as of March 12,
1999, an aggregate of approximately 14.27% of The Daniels & Metro Group. The
property is being leased until August 31, 1999 at a monthly rental of $3,500,
and may be terminated by either party upon four months' prior written notice to
the other. The Bank believes that, based on an independent appraisal of the fair
rental value of the property, the transaction is on terms no less favorable than
which could have been obtained by the Bank from parties not affiliated with the
Bank.
The Bank has entered into a lease of office space owned by Mann
Enterprises, of which George T. Mann, Jr. is a partner. The property is
currently being leased for $1,909.62 per month. The lease, which expires April
30, 1999, has two renewal options for three years each. Mr. Mann is a director
of both the Holding Corporation and the Bank.
The law firm of Humphrey & Knott, P.A. serves as legal counsel for the
Bank and received $28,960.00 of fees for legal services rendered during 1998.
Mr. Humphrey, a senior member of the firm, is a director of both the Holding
Corporation and the Bank.
The Bank has outstanding loans to certain of its directors, executive
officers, their associates and members of the immediate families of such
directors and executive officers. These loans were made in the ordinary course
of business, were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
persons not affiliated with the Bank and did not involve more than the normal
risk of collectibility or present other unfavorable features.
ITEM 13. 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, 1998 and 1997
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997, and 1996
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1998, 1997, and 1996
23
<PAGE> 27
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996
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 June 9, 1998 between South
Florida Bank Holding Corporation and William P.
Valenti. *
10.2 Employment Agreement dated July 1, 1998 between South
Florida Bank Holding Corporation and Harold S.
Taylor, Jr. *
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).*
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).*
24
<PAGE> 28
10.6 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)
10.7 Letter dated August 18, 1997 relating to Daniels &
Metro Parkway Lease Extension (Incorporated by
reference to Exhibit 10.8 to the Holding
Corporation's Form 10-K for its year ended December
31, 1997).
10.8 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).
10.9 Lease Agreement dated April 25, 1990 by and between
Mann Enterprises and the Bank (and amendment thereto
dated June 27, 1997) (Incorporated by reference to
Exhibit 10.10 to the Holding Corporation's Form
10-KSB for its year ended December 31, 1996).
10.10 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
(Incorporated by reference to Exhibit 10.11 to the
Holding Corporation's Form 10-K for its year ended
December 31, 1997).
13.1 South Florida Bank Holding Corporation 1998 Annual
Report
21.1 Subsidiaries of the Registrant.
27 Financial Data Schedule (for SEC use only)
(b) REPORTS ON FORM 8-K
No Current Reports on Form 8-K were filed by the Holding Corporation
during the last fiscal quarter covered by this report.
- -----------------------
* Represents a management contract or compensatory plan or arrangement
required to be filed as an exhibit.
25
<PAGE> 29
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, 1999.
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, 1999.
<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>
26
<PAGE> 30
South Florida Bank Holding Corporation
Form 10-KSB
For Fiscal Year Ending December 31, 1998
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
No. Exhibit No.
- ------- ------------------------------------------- ----
<S> <C> <C>
10.1 Employment Agreement dated June 9, 1998
between South Florida Bank Holding
Corporation and William P. Valenti.
10.2 Employment Agreement dated July 1, 1998
between South Florida Bank Holding
Corporation and Harold S. Taylor, Jr.
13.1 South Florida Bank Holding Corporation 1998
Annual Report
21.1 Subsidiaries of the Registrant
27 Financial Data Schedule (for SEC use only)
</TABLE>
27
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of this 9th day
of June, 1998, by and between South Florida Bank Holding Corporation and South
Florida Bank, both of whose addresses are at 2017 McGregor Boulevard, Fort
Myers, Florida 33901 (collectively, the "Employer"), and William P. Valenti,
whose address is set forth below his signature to this Agreement (the
"Executive").
WITNESSETH:
WHEREAS, the Employer desires to retain the services of and employ the
Executive pursuant to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the promises and of the covenants
and agreements herein contained, the Employer and Executive covenant and agree
as follows:
1. Employment. Pursuant to the terms and conditions of this
Agreement, the Employer agrees to employ the Executive and the Executive agrees
to render services to the Employer as set forth herein.
2. Position and Duties. During the term of this Agreement, the
Executive shall:
(a) Serve as President and Chief Executive Officer of
South Florida Bank Holding Corporation (the "Holding Corporation") and
its subsidiary, South Florida Bank (the "Bank"); and
(b) Serve as a member of the Board of Directors of the
Holding Corporation and the Bank; and
(c) Undertake such duties as may be assigned to him from
time to time by the Board of Directors of the Holding Corporation (the
"Board") and also the Board of Directors of the Bank, and
(d) Devote his full business time, energy, skill and best
efforts to promote the Holding Corporation's and the Bank's business
and affairs.
3. Term. The term of this Agreement shall be for a period of
three years, commencing on July 1, 1998 and expiring (unless sooner terminated
as otherwise provided in this Agreement or unless otherwise renewed as set forth
herein) on June 30, 2001 (which date, including any earlier date of termination
or any extended expiration date, shall be referred to as the "Expiration Date").
After the expiration of the initial term (and any renewal term as set forth
herein), if not previously
<PAGE> 2
cancelled as set forth herein, this Agreement and the then existing term of
employment shall be extended on a yearly basis from year to year thereafter
unless either party gives the other written notice, at least thirty (30) days
prior to the end of the then existing term. After termination of the employment
of Executive, the Executive shall continue to be subject to the provisions of
Paragraphs 11, 12, 13, 14, and 15 of this Agreement; provided, however, that the
Executive shall not be subject to the provisions of such sections where (i) the
employment of the Executive is terminated by the Executive or the Employer
following a Change in Control, (ii) the term of employment is not renewed
pursuant to this Paragraph 3, or (iii) the employment of the Executive is
terminated without cause.
4. Compensation. During the term of this Agreement, the Employer
shall pay or provide to the Executive as compensation for the services of the
Executive set forth in paragraph 2 hereof:
(a) A base annual salary of $132,000, payable in such
periodic installments consistent with other employees of the Employer
(such base salary to be reviewed by the Board on an annual basis for
possible adjustment upwards);
(b) Such individual bonuses to the Executive as may be
authorized by the Board from time to time; provided, however, that the
Employer shall pay to the Executive a bonus of $20,000 if the Bank
obtains a CAMEL rating of 1, during the term of this Agreement.
(c) The use of a automobile cellular telephone;
(d) A term life insurance policy in the face amount of
$500,000; and
(e) An automobile allowance of no less than $500.00 each
month.
5. Stock Options. The Executive previously has received options
to purchase shares of Holding Corporation common stock in accordance with
agreements between the Executive and the Holding Corporation, which agreement
shall continue in accordance with their terms.
6. Vacation. The Executive shall take vacation time in such
amounts and at such period or periods during each year as shall be designated by
the Board. The Executive shall be entitled to a minimum vacation period of four
weeks per year; with no continuous vacation period exceeding two weeks, except
with the Board's approval. The Executive shall be entitled to full compensation
during his vacation period.
7. Reimbursement of Expenses. Upon submission of proper
documentation, the Employer shall reimburse the Executive for his reasonable
expenses incurred in connection with his employment hereunder. The Executive
shall also be entitled to reimbursement for expenses customarily paid by the
Employer as the Board may from time to time approve in writing as a policy of
the Employer, and the Executive agrees to comply with said policy or policies.
The Executive
2
<PAGE> 3
shall not receive reimbursement of expenses unless the same are specifically
approved by the Employer or set forth as the policy of the Employer as provided
above.
8. Disability. If the Executive is determined to be "disabled"
pursuant to the terms of the long-term disability insurance program maintained
by the Employer for the benefit of its employees, then the Executive shall be
entitled to receive the long-term disability payments provided by such insurance
program, and if there is an initial exclusion period, then the Employer shall
pay to the Executive during such exclusion period after the Executive utilizes
all accrued and unused sick and vacation pay an amount equal to 66 2/3% of the
Executive's base annual salary (less any payments received by the Executive
under any short-term disability insurance programs maintained by the Employer
for the benefit of its employees and any payments received by the Executive
under any other disability insurance program paid for by the Employer for the
benefit of the Executive).
9. Termination. The Employer, by action taken by its Board, may
terminate the employment of the Executive as follows:
(a) At any time and immediately upon written notice to
the Executive if said discharge is for cause. In the notice of
termination furnished to the Executive under this subparagraph (a), the
reason or reasons for said termination shall be given and if no reason
or reasons are given for said termination, said termination shall be
deemed to be without cause and not permitted under this subparagraph
(a). By way of illustration and not limitation, any one or more of the
following conditions shall be deemed to be grounds for termination of
the employment of the Executive for cause under this subparagraph (a):
(i) In the event the Executive shall expressly
fail or refuse to comply with the policies, standards and
regulations of the Employer or the Bank applicable to all
employees from time to time established or conducts himself in
an unprofessional manner; provided, however, that for the
first two such failures or refusals, the Executive shall be
given written warnings, and the third failure or refusal shall
be grounds for termination for cause.
(ii) In the event that the Board finds that the
Executive has been involved in any fraudulent conduct or an
activity involving theft or that the Executive's conduct
discredits the Employer or the Bank or is detrimental to the
reputation, character and standing of the Employer or the Bank
or that the Executive's conduct involves a breach of fiduciary
duty relating to personal profit or an intentional failure to
perform the stated duties described above; provided, however,
the Executive shall be given written warnings, and the third
occurrence shall be grounds for termination for cause (except
that in the case of theft or fraudulent conduct no such
written warning need be given and the employment may be
terminated on the first such occurrence).
3
<PAGE> 4
In the event the Holding Corporation or the Bank
receives written notification from its chartering authority or
authorities that (a) there is a mismanagement of the Holding
Corporation or the Bank by the Executive, or that (b) as a
result of conditions or circumstances arising from the
Executive's actions after February 3, 1992, the Holding
Corporation or the Bank's operations, conditions or soundness
are marginal, significantly below average or unsatisfactory,
or are not in compliance with any federal or state law, or any
rule or regulation issued thereunder under the control of the
Executive.
In the event of termination for cause, the Employer
shall pay the Executive only the salary, vacation time accrued
but unused, and bonus amounts accrued and unpaid as of the
date of termination, and all outstanding and unexercised
options shall immediately terminate.
(b) In the event the Executive's employment is terminated
without cause, the Employer shall, for a period of the greater of two
years after said termination or until the expiration of this Agreement,
(i) continue to pay to the Executive the base wage or salary in effect
under paragraph 4(a) on the date of said termination, (ii) continue to
provide for the benefit of Executive the life insurance benefits set
forth in paragraphs 4(d) of this Agreement, and (iii) reimbursement to
the Executive for continued coverage under the Consolidated Omnibus
Budget Reconciliation Act ("COBRA") by the Employer's current medical
insurance plan. Any stock options shall remain subject to the stock
option plan. The Executive also shall be entitled to receive vacation
time accrued but unused as of the date of the termination of
employment. The foregoing shall be exclusive of fringes and other
benefits, except as required by law. The Executive shall be deemed to
have been terminated without cause if (i) there is a significant
reduction in the authority of the Executive as set forth in paragraph
2(a) or a reduction of the Executive's title, in each case without
cause as defined in paragraph 9, (ii) the Executive's office is
relocated outside of Lee County, Florida, or (iii) the Employer
terminates the employment of the Executive and no reason or reasons are
given to the Executive for said termination as contemplated by
paragraph 9. The Executive also shall be deemed to have been terminated
without cause if there is a Change in Control and, following such
Change in Control, there is a significant reduction in the authority of
the Executive as set forth under paragraph 2(a), a reduction of the
Executive's title, a reduction of the Executive's compensation as set
forth under paragraph 4, or a termination of the Executive's employment
(except for death, resignation, or disability).
(i) Change in Control. For purposes of
this Agreement, a "Change in Control" shall be deemed
to have taken place if (i) a person, including a
"group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934 (the 1934 Act"),
becomes the beneficial owner (as defined in Rule
13d-3 promulgated pursuant to the 1934 Act) of shares
of the Company having 45% or more of the total number
of votes that may be cast for the election of
directors of the Employer; (ii) at any time those
persons who were
4
<PAGE> 5
directors of the Employer as of the date of this
Agreement shall cease to constitute a majority of the
Board or any successor to the Employer; or (iii) any
spin-off, split-off, split-up or similar corporate
division occurs that results in the distribution to
stockholders of the Employer of a business or
businesses whose assets represent 20% or more of the
fair market value of the total assets of the Employer
immediately before the division.
(c) In the event the Executive's employment is terminated
because of the Executive's resignation, the Employer shall be obligated
to pay to the Executive any salary which is accrued and unpaid at the
date of said resignation pursuant to paragraph 4(a) and also any
bonuses payable to Executive solely pursuant and subject to paragraph
4(b) . The Executive also shall be entitled to receive vacation time
accrued but unused as of the date of the termination of employment. Any
stock options shall remain subject to the stock option plan.
(d) If the Executive's employment is terminated by the
death of the Executive, this Agreement shall automatically terminate,
and the Employer shall be obligated to pay to the Executive any salary
which is accrued and unpaid at the date of death pursuant to paragraph
4(a) and also any bonuses payable to Executive solely pursuant and
subject to paragraph 4(b). The Executive also shall be entitled to
receive vacation time accrued but unused as of the date of death. Any
stock options shall remain subject to the stock option plan.
10. Notice. All notices permitted or required to be given to
either party under this Agreement shall be in writing and shall be deemed to
have been given (a) in the case of delivery, when addressed to the other party
as set forth in the preamble to this Agreement and delivered to said address,
(b) in the case of mailing, three days after the same has been mailed by
certified mail, return receipt requested, and deposited postage prepaid in the
U.S. Mails, addressed to the other party at the address as set forth in the
preamble to this Agreement, and (c) in any other case, when actually received by
the other party. Either party may change the address at which said notice is to
be given by giving notice of such to all other parties to this Agreement in the
manner set forth herein.
11. Confidential Matters. The Executive agrees that during his
employment by the Employer and thereafter subsequent to the termination of his
employment by the Employer for any reason whatsoever and with or without cause,
the Executive will not release or divulge any confidential information
whatsoever relating to the Employer to any other person or persons whomsoever
without the prior express written consent of the Employer. The Executive is
aware and acknowledges that the Executive shall have access to confidential
information by virtue of his employment and the Executive agrees to keep such
information confidential at all times. The type of confidential information
covered by this paragraph shall include, but is not limited to, lists of the
customers and deposits of the Employer, financial information, marketing and
other information relating to the operations of the Employer.
5
<PAGE> 6
12. Injunction Without Bond. In the event there is a breach or
threatened breach by the Executive of the provisions of paragraph 11, the
Employer shall be entitled to an injunction without bond to restrain the
Executive from disclosing in whole or in part any confidential matters or from
rendering a service to any person, firm, corporation, association or other
entity, in the course of which service such information has been disclosed or is
threatened to be disclosed, and the Employer will be entitled to reimbursement
for all costs and expenses, including reasonable attorneys' fees in connection
therewith. Nothing herein shall be construed as prohibiting the Employer from
pursuing such other remedies available to it for such breach or threatened
breach including recovery of damages from the Executive.
13. Noncompetition. The Executive agrees that during the period of
time the Executive is retained by the Employer to provide services to the
Employer, and for a period of two years thereafter (except where (i) the
employment of the Executive is terminated by the Executive or the Employer
following a Change in Control, (ii) the term of employment is not renewed
pursuant to Paragraph 3, or (iii) the employment of the Executive is terminated
without cause), Executive will not enter the employ of, or have any interest in,
directly or indirectly (either as executive, partner, director, officer,
consultant, principal, agent or employee), any other firm, corporation or other
entity (including a bank, a state or federal savings and loan association or
credit union), whether presently existing or subsequently established, which is
engaged as of the date of this Agreement, or becomes engaged during the period
of the noncompetition set forth in this paragraph, in the business of providing
any service similar or equivalent to that provided by the Holding Corporation or
the Bank at any time. The covenant of the Executive set forth in this paragraph
shall be limited to Lee County, Florida.
14. Nonsolicitation; Noninterference. The Executive agrees that
during the period of time the Executive is retained by the Employer to provide
services to the Employer, and for a period of two years thereafter (except where
(i) the employment of the Executive is terminated by the Executive or the
Employer following a Change in Control, (ii) the term of employment is not
renewed pursuant to Paragraph 3, or (iii) the employment of the Executive is
terminated without cause), the Executive will not (a) solicit for employment by
Executive, or anyone else, or employ any employee of the Holding Corporation or
the Bank or any person who was an employee of the Holding Corporation or the
Bank within twelve months prior to such solicitation of employment; (b) induce,
or attempt to induce, any employee of the Holding Corporation or the Bank to
terminate such employee's employment; (c) induce, or attempt to induce, anyone
having a business relationship with the Holding Corporation or the Bank to
terminate or curtail such relationship or, on behalf of himself or anyone else,
compete with the Holding Corporation or the Bank; (d) to make any untrue
statement concerning the Holding Corporation or the Bank to anyone; or (e)
permit anyone controlled by the Executive, or any person acting on behalf of the
Executive or anyone controlled by an employee of the Executive to do any of the
foregoing. This covenant shall be limited to the Executive being employed by a
business providing any service similar or equivalent to that provided by the
Holding Corporation or the Bank.
6
<PAGE> 7
15. Remedies. The Executive agrees that the restrictions set forth
in this Agreement are fair and reasonable. The covenants set forth in this
Agreement are not dependent covenants and any claim against the Holding
Corporation or the Bank, whether arising out of this Agreement or any other
agreement or contract between Employer and/or the Bank, and Executive shall not
be a defense to a claim against Executive for a breach or alleged breach of any
of the covenants of Executive contained in this Agreement. Executive
acknowledges that a breach by Executive of any of the covenants contained in
this Agreement may result in irreparable and continuing damage to the Holding
Corporation and the Bank and their successors and assigns and agrees that, in
the event of any actual or threatened breach of any of the covenants of
Executive contained in this Agreement, the Employer and its respective
successors and assigns shall be entitled to injunctive relief without bond or
such other relief as may be proper or provided for in this Agreement. It is
expressly understood by and between the parties hereto that the covenants
contained in this Agreement shall be deemed to be a series of separate
covenants. The Executive understands and agrees that if any of the separate
covenants are judicially held invalid or unenforceable, such holding shall not
release him from his obligations under the remaining covenants of this
Agreement. If in any judicial proceedings, a court shall refuse to enforce any
or all of the separate covenants because taken together they are more extensive
(whether as to geographic area, duration, scope of business or otherwise) than
necessary to protect the business and goodwill of the Holding Corporation and
the Bank, it is expressly understood and agreed between the parties hereto that
those separate covenants which, if eliminated or restricted, would permit the
remaining separate covenants or the restricted separate covenant to be enforced
in such proceeding shall, for the purposes of such proceeding, be eliminated
from the provisions of this Agreement or restriction, as the case may be.
16. Invalid Provision. In the event any provision should be or
become invalid or unenforceable, such facts shall not affect the validity and
enforceability of any other provision of this Agreement. Similarly, if the scope
of any restriction or covenant contained herein should be or become too broad or
extensive to permit enforcement thereof to its full extent, then any such
restriction or covenant shall be enforced to the maximum extent permitted by
law, and Executive hereby consents and agrees that the scope of any such
restriction or covenant may be modified accordingly in any judicial proceeding
brought to enforce such restriction or covenant.
17. Governing Law. This Agreement shall be construed in accordance
with and shall be governed by the laws of the State of Florida.
18. Attorneys' Fees and Costs. In the event a dispute arises
between the parties under this Agreement and suit is instituted, the prevailing
party shall be entitled to recover his costs and attorneys' fees from the
non-prevailing party. As used herein, costs and attorneys' fees include any
costs and attorneys' fees in any appellate proceeding.
19. No Third Party Beneficiary. This Agreement is solely between
the parties hereto and the Employer, and no person not a party to this Agreement
(other than the Bank) shall have any rights hereunder, either as a third party
beneficiary or otherwise. The rights and obligations of the
7
<PAGE> 8
parties under this Agreement shall inure to the benefit of and shall be binding
upon their successors and legal representatives.
20. Miscellaneous. The rights and duties of the parties hereunder
are personal and may not be assigned or delegated without the express written
consent of all other parties to this Agreement. The captions used herein are
solely for the convenience of the parties and are not used in construing this
Agreement. Time is of the essence of this Agreement and the performance by each
party of its or his duties and obligations hereunder.
21. Complete Agreement. This Agreement constitutes the complete
agreement between the parties hereto and incorporates all prior discussions,
agreements and representations made in regard to the matters set forth herein.
This Agreement may not be amended, modified or changed except by a writing
signed by the party to be charged by said amendment, change or modification.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"EMPLOYER"
SOUTH FLORIDA BANK HOLDING CORPORATION
By: /s/ Robert Ernest Hendry
----------------------------------------
Robert Ernest Hendry
Its: Chairman of the Board
SOUTH FLORIDA BANK
By: /s/ Robert Ernest Hendry
----------------------------------------
Robert Ernest Hendry
Its: Director
"EXECUTIVE"
/s/ William P. Valenti
---------------------------------------------
William P. Valenti, Individually
Address: 6542 Kestrel Circle
Fort Myers, Florida 33912
8
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of this 1st day
of July, 1998, by and between South Florida Bank Holding Corporation (the
"Holding Corporation") and South Florida Bank, both of whose addresses are at
2017 McGregor Boulevard, Fort Myers, Florida 33901 (collectively, the
"Employer"), and Harold S. Taylor, Jr., whose address is set forth below his
signature to this Agreement (the "Executive").
WITNESSETH:
WHEREAS, the Employer desires to retain the services of and employ the
Executive pursuant to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the promises and of the covenants
and agreements herein contained, the Employer and Executive covenant and agree
as follows:
1. Employment. Pursuant to the terms and conditions of this
Agreement, the Employer agrees to employ the Executive and the Executive agrees
to render services to the Employer as set forth herein.
2. Position and Duties. During the term of this Agreement, the
Executive shall:
(a) Serve as Executive Vice President and Senior Loan
Officer of South Florida Bank (the "Bank"); and
(b) Undertake such duties as may be assigned to him from
time to time by the the Employer's President and Chief Executive
Officer; and
(c) Devote his full business time, energy, skill and best
efforts to promote the Holding Corporation's and the Bank's business
and affairs.
3. Term. The term of this Agreement shall be for a period of
eighteen months, commencing on July 1, 1998 and expiring (unless sooner
terminated as otherwise provided in this Agreement or unless otherwise renewed
as set forth herein) on December 31, 1999 (which date, including any earlier
date of termination or any extended expiration date, shall be referred to as the
"Expiration Date"). After the expiration of the initial term (and any renewal
term as set forth herein), if not previously cancelled as set forth herein, this
Agreement and the then existing term of employment shall be extended on a yearly
basis from year to year thereafter unless either party gives the other written
notice, at least thirty (30) days prior to the end of the then existing term.
After termination of the employment of Executive, the Executive shall continue
to be subject to the provisions of Paragraphs 11 through 21 inclusive, of this
Agreement; provided, however, that the
<PAGE> 2
Executive shall not be subject to the provisions of such sections where (i) the
employment of the Executive is terminated by the Executive or the Employer
following a Change in Control, (ii) the term of employment is not renewed
pursuant to this Paragraph 3, or (iii) the employment of the Executive is
terminated without cause.
4. Compensation. During the term of this Agreement, the Employer
shall pay or provide to the Executive as compensation for the services of the
Executive set forth in paragraph 2 hereof:
(a) A base annual salary of $85,000, payable in such
periodic installments consistent with other employees of the Employer
(such base salary to be reviewed by the President and Chief Executive
Officer of the Employer on an annual basis for possible adjustment
upwards);
(b) Such individual bonuses to the Executive as may be
authorized by the Boards of Directors of the Employer (the "Board")
from time to time taking into account the Bank's CAMEL rating and
earnings, and other factors; and
(c) A term life insurance policy in the face amount of
$250,000.
5. Stock Options. The Executive previously has received options
to purchase shares of Holding Corporation common stock in accordance with a
Stock Option Agreement between the Executive and the Holding Corporation, which
agreement shall continue in accordance with its terms.
6. Vacation. The Executive shall take vacation time in such
amounts and at such period or periods during each year as shall be designated by
the Employer's President and Chief Executive Officer. The Executive shall be
entitled to a minimum vacation period of four weeks per year; with no continuous
vacation period exceeding two weeks, except with the Employer's President and
Chief Executive Officer's approval. The Executive shall be entitled to full
compensation during his vacation period.
7. Reimbursement of Expenses. Upon submission of proper
documentation, the Employer shall reimburse the Executive for his reasonable
expenses incurred in connection with his employment hereunder. The Executive
shall also be entitled to reimbursement for expenses customarily paid by the
Employer as the Board may from time to time approve in writing as a policy of
the Employer, and the Executive agrees to comply with said policy or policies.
The Executive shall not receive reimbursement of expenses unless the same are
specifically approved by the Employer or set forth as the policy of the Employer
as provided above.
8. Disability. If the Executive is determined to be "disabled"
pursuant to the terms of the long-term disability insurance program maintained
by the Employer for the benefit of its employees, then the Executive shall be
entitled to receive the long-term disability payments provided by such insurance
program, and if there is an initial exclusion period, then the Employer shall
pay
2
<PAGE> 3
to the Executive during such exclusion period after the Executive utilizes
all accrued and unused sick and vacation pay an amount equal to 66 2/3% of the
Executive's base annual salary (less any payments received by the Executive
under any short-term disability insurance programs maintained by the Employer
for the benefit of its employees and any payments received by the Executive
under any other disability insurance program paid for by the Employer for the
benefit of the Executive).
9. Termination. The Employer, by action taken by its Board, may
terminate the employment of the Executive as follows:
(a) At any time and immediately upon written notice to
the Executive if said discharge is for cause. In the notice of
termination furnished to the Executive under this subparagraph (a), the
reason or reasons for said termination shall be given and if no reason
or reasons are given for said termination, said termination shall be
deemed to be without cause and not permitted under this subparagraph
(a). By way of illustration and not limitation, any one or more of the
following conditions shall be deemed to be grounds for termination of
the employment of the Executive for cause under this subparagraph (a):
(i) In the event the Executive shall expressly
fail or refuse to comply with the policies, standards and
regulations of the Holding Corporation or the Bank applicable
to all employees from time to time established or conducts
himself in an unprofessional manner; provided, however, that
for the first two such failures or refusals, the Executive
shall be given written warnings, and the third failure or
refusal shall be grounds for termination for cause.
(ii) In the event that the Board finds that the
Executive has been involved in any fraudulent conduct or an
activity involving theft or that the Executive's conduct
discredits the Holding Corporation or the Bank or is
detrimental to the reputation, character and standing of the
Holding Corporation or the Bank or that the Executive's
conduct involves a breach of fiduciary duty relating to
personal profit or an intentional failure to perform the
stated duties described above; provided, however, the
Executive shall be given written warnings, and the third
occurrence shall be grounds for termination for cause (except
that in the case of theft or fraudulent conduct no such
written warning need be given and the employment may be
terminated on the first such occurrence).
(iii) In the event the Holding Corporation or the
Bank receives written notification from its chartering
authority or authorities that (a) there is a mismanagement of
the Holding Corporation or the Bank by the Executive, or that
(b) as a result of conditions or circumstances arising from
the Executive's actions after January 18, 1993, the Holding
Corporation or the Bank's operations, conditions or soundness
are marginal, significantly below average or unsatisfactory,
or are not in compliance with any federal or state law, or any
rule or regulation issued thereunder under the control of the
Executive.
3
<PAGE> 4
In the event of termination for cause, the Employer
shall pay the Executive only the salary, vacation time accrued
but unused, and bonus amounts accrued and unpaid as of the
date of termination, and all outstanding and unexercised
options shall immediately terminate.
(b) In the event the Executive's employment is terminated
without cause, the Employer shall, for a period of the greater of 18
months after said termination or until the expiration of this
Agreement, (i) continue to pay to the Executive the base wage or salary
in effect under paragraph 4(a) on the date of said termination, (ii)
continue to provide for the benefit of Executive the life insurance
benefits set forth in paragraph 4(c) of this Agreement, and (iii)
reimburse the Executive for continued coverage under the Consolidated
Omnibus Budget Reconciliation Act ("COBRA") by the Employer's current
medical insurance plan. Any stock options shall remain subject to the
stock option plan. The Executive also shall be entitled to receive
vacation time accrued but unused as of the date of the termination of
employment. The foregoing shall be exclusive of fringes and other
benefits, except as required by law. The Executive shall be deemed to
have been terminated without cause if (i) there is a significant
reduction in the authority of the Executive as set forth in paragraph
2(a) or a reduction of the Executive's title, in each case without
cause as defined in paragraph 9(a), (ii) the Executive's office is
relocated outside of Lee County, Florida or (iii) the Employer
terminates the employment of the Executive and no reason or reasons are
given to the Executive for said termination as contemplated by
paragraph 9(a). The Executive also shall be deemed to have been
terminated without cause if there is a Change in Control and, following
such Change in Control, there is a significant reduction in the
authority of the Executive as set forth under paragraph 2(a), a
reduction of the Executive's title, a reduction of the Executive's
compensation as set forth under paragraph 4, or a termination of the
Executive's employment (except for death, resignation, or disability).
(i) Change in Control. For purposes of this
Agreement, a "Change in Control" shall be deemed to have taken
place if (i) a person, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934 (the
1934 Act"), becomes the beneficial owner (as defined in Rule
13d-3 promulgated pursuant to the 1934 Act) of shares of the
Company having 45% or more of the total number of votes that
may be cast for the election of directors of the Employer;
(ii) at any time those persons who were directors of the
Employer as of the date of this Agreement shall cease to
constitute a majority of the Board or any successor to the
Employer; or (iii) any spin-off, split-off, split-up or
similar corporate division occurs that results in the
distribution to stockholders of the Employer of a business or
businesses whose assets represent 20% or more of the fair
market value of the total assets of the Employer immediately
before the division.
(c) In the event the Executive's employment is terminated
because of the Executive's resignation, the Employer shall be obligated
to pay to the Executive any salary which is accrued and unpaid at the
date of said resignation pursuant to paragraph 4(a) and
4
<PAGE> 5
also any bonuses payable to Executive solely pursuant and subject to
paragraph 4(b). The Executive also shall be entitled to receive
vacation time accrued but unused as of the date of the termination of
employment. Any stock options shall remain subject to the stock option
plan.
(d) If the Executive's employment is terminated by the
death of the Executive, this Agreement shall automatically terminate,
and the Employer shall be obligated to pay to the Executive any salary
which is accrued and unpaid at the date of death pursuant to paragraph
4(a) and also any bonuses payable to Executive solely pursuant and
subject to paragraph 4(b). The Executive also shall be entitled to
receive vacation time accrued but unused as of the date of death. Any
stock options shall remain subject to the stock option plan.
10. Notice. All notices permitted or required to be given to
either party under this Agreement shall be in writing and shall be deemed to
have been given (a) in the case of delivery, when addressed to the other party
as set forth in the preamble to this Agreement and delivered to said address,
(b) in the case of mailing, three days after the same has been mailed by
certified mail, return receipt requested, and deposited postage prepaid in the
U.S. Mails, addressed to the other party at the address as set forth in the
preamble to this Agreement, and (c) in any other case, when actually received by
the other party. Either party may change the address at which said notice is to
be given by giving notice of such to all other parties to this Agreement in the
manner set forth herein.
11. Confidential Matters. The Executive agrees that during his
employment by the Employer and thereafter subsequent to the termination of his
employment by the Employer for any reason whatsoever and with or without cause,
the Executive will not release or divulge any confidential information
whatsoever relating to the Employer to any other person or persons whomsoever
without the prior express written consent of the Employer. The Executive is
aware and acknowledges that the Executive shall have access to confidential
information by virtue of his employment and the Executive agrees to keep such
information confidential at all times. The type of confidential information
covered by this paragraph shall include, but is not limited to, lists of the
customers and deposits of the Employer, financial information, marketing and
other information relating to the operations of the Employer.
12. Injunction Without Bond. In the event there is a breach or
threatened breach by the Executive of the provisions of paragraph 11, the
Employer shall be entitled to an injunction without bond to restrain the
Executive from disclosing in whole or in part any confidential matters or from
rendering a service to any person, firm, corporation, association or other
entity, in the course of which service such information has been disclosed or is
threatened to be disclosed, and the Employer will be entitled to reimbursement
for all costs and expenses, including reasonable attorneys' fees in connection
therewith. Nothing herein shall be construed as prohibiting the Employer from
pursuing such other remedies available to it for such breach or threatened
breach including recovery of damages from the Executive.
5
<PAGE> 6
13. Noncompetition. The Executive agrees that during the period of
time the Executive is retained by the Employer to provide services to the
Employer, and for a period of two years thereafter (except where (i) the
employment of the Executive is terminated by the Executive or the Employer
following a Change in Control, (ii) the term of employment is not renewed
pursuant to Paragraph 3, or (iii) the employment of the Executive is terminated
without cause), Executive will not enter the employ of, or have any interest in,
directly or indirectly (either as executive, partner, director, officer,
consultant, principal, agent or employee), any other firm, corporation or other
entity (including a bank, a state or federal savings and loan association or
credit-union), whether presently existing or subsequently established, which is
engaged as of the date of this Agreement, or becomes engaged during the period
of the noncompetition set forth in this paragraph, in the business of providing
any service similar or equivalent to that provided by the Holding Corporation or
the Bank at any time. The covenant of the Executive set forth in this paragraph
shall be limited to Lee County, Florida.
14. Nonsolicitation; Noninterference. The Executive agrees that
during the period of time the Executive is retained by the Employer to provide
services to the Employer, and for a period of two years thereafter (except where
(i) the employment of the Executive is terminated by the Executive or the
Employer following a Change in Control, (ii) the term of employment is not
renewed pursuant to Paragraph 3, or (iii) the employment of the Executive is
terminated without cause), the Executive will not (a) solicit for employment by
Executive, or anyone else, or employ any employee of the Holding Corporation or
the Bank or any person who was an employee of the Holding Corporation or the
Bank within twelve months prior to such solicitation of employment; (b) induce,
or attempt to induce, any employee of the Holding Corporation or the Bank to
terminate such employee's employment; (c) induce, or attempt to induce, anyone
having a business relationship with the Holding Corporation or the Bank to
terminate or curtail such relationship or, on behalf of himself or anyone else,
compete with the Holding Corporation or the Bank; (d) to make any untrue
statement concerning the Holding Corporation or the Bank to anyone; or (e)
permit anyone controlled by the Executive, or any person acting on behalf of the
Executive or anyone controlled by an employee of the Executive to do any of the
foregoing. This covenant shall be limited to the Executive being employed by a
business providing any service similar or equivalent to that provided by the
Holding Corporation or the Bank.
15. Remedies. The Executive agrees that the restrictions set forth
in this Agreement are fair and reasonable. The covenants set forth in this
Agreement are not dependent covenants and any claim against the Holding
Corporation or the Bank, whether arising out of this Agreement or any other
agreement or contract between Employer and/or the Bank, and Executive shall not
be a defense to a claim against Executive for a breach or alleged breach of any
of the covenants of Executive contained in this Agreement. Executive
acknowledges that a breach by Executive of any of the covenants contained in
this Agreement may result in irreparable and continuing damage to the Holding
Corporation and the Bank and their successors and assigns and agrees that, in
the event of any actual or threatened breach of any of the covenants of
Executive contained in this Agreement, the Employer and its respective
successors and assigns shall be entitled to injunctive relief without bond or
such other relief as may be proper or provided for in this Agreement. It is
expressly
6
<PAGE> 7
understood by and between the parties hereto that the covenants contained in
this Agreement shall be deemed to be a series of separate covenants. The
Executive understands and agrees that if any of the separate covenants are
judicially held invalid or unenforceable, such holding shall not release him
from his obligations under the remaining covenants of this Agreement. If in any
judicial proceedings, a court shall refuse to enforce any or all of the separate
covenants because taken together they are more extensive (whether as to
geographic area, duration, scope of business or otherwise) than necessary to
protect the business and goodwill of the Holding Corporation and the Bank, it is
expressly understood and agreed between the parties hereto that those separate
covenants which, if eliminated or restricted, would permit the remaining
separate covenants or the restricted separate covenant to be enforced in such
proceeding shall, for the purposes of such proceeding, be eliminated from the
provisions of this Agreement or restriction, as the case may be.
16. Invalid Provision. In the event any provision should be or
become invalid or unenforceable, such facts shall not affect the validity and
enforceability of any other provision of this Agreement. Similarly, if the scope
of any restriction or covenant contained herein should be or become too broad or
extensive to permit enforcement thereof to its full extent, then any such
restriction or covenant shall be enforced to the maximum extent permitted by
law, and Executive hereby consents and agrees that the scope of any such
restriction or covenant may be modified accordingly in any judicial proceeding
brought to enforce such restriction or covenant.
17. Governing Law. This Agreement shall be construed in accordance
with and shall be governed by the laws of the State of Florida.
18. Attorneys' Fees and Costs. In the event a dispute arises
between the parties under this Agreement and suit is instituted, the prevailing
party shall be entitled to recover his costs and attorneys' fees from the
non-prevailing party. As used herein, costs and attorneys' fees include any
costs and attorneys' fees in any appellate proceeding.
19. No Third Party Beneficiary. This Agreement is solely between
the parties hereto and the Employer, and no person not a party to this Agreement
(other than the Bank) shall have any rights hereunder, either as a third party
beneficiary or otherwise. The rights and obligations of the parties under this
Agreement shall inure to the benefit of and shall be binding upon their
successors and legal representatives.
20. Miscellaneous. The rights and duties of the parties hereunder
are personal and may not be assigned or delegated without the express written
consent of all other parties to this Agreement. The captions used herein are
solely for the convenience of the parties and are not used in construing this
Agreement. Time is of the essence of this Agreement and the performance by each
party of its or his duties and obligations hereunder.
21. Complete Agreement. This Agreement constitutes the complete
agreement between the parties hereto and incorporates all prior discussions,
agreements and representations made in
7
<PAGE> 8
regard to the matters set forth herein. This Agreement may not be amended,
modified or changed except by a writing signed by the party to be charged by
said amendment, change or modification.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"EMPLOYER"
SOUTH FLORIDA BANK HOLDING CORPORATION
By: /s/ Robert Ernest Hendry
----------------------------------------
Robert Ernest Hendry
Its: Chairman of the Board
SOUTH FLORIDA BANK
By: /s/ William P. Valenti
----------------------------------------
William P. Valenti
Its: President and Chief Executive Officer
"EXECUTIVE"
/s/ Harold S. Taylor
-----------------------------------------------
Harold S. Taylor, Jr., Individually
Address: 4775-10 Barkley Circle
Fort Myers, Florida 33907
8
<PAGE> 1
EXHIBIT 13.1
SOUTH FLORIDA BANK HOLDING CORPORATION
MISSION STATEMENT
South Florida Bank is a locally-owned community commercial bank:
- Serving Lee County businesses and professionals.
- Building long-term customer relationships.
- Providing prompt and informed local banking decisions.
- Maximizing its shareholders' equity.
- Utilizing "extraordinary" products and services to benefit our
customers.
- Employing superior people in a rewarding work environment to
best serve our customers.
INDEX TO 1998 ANNUAL REPORT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LETTER TO SHAREHOLDERS ........................... 1
SELECTED FINANCIAL DATA .......................... 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ............................... 3
BUSINESS OF THE COMPANY .......................... 20
CAPITAL STOCK .................................... 20
HOLDING CORPORATION DIRECTORS AND OFFICERS ....... 21
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS .......................... 22
CONSOLIDATED FINANCIAL STATEMENTS ................ 23
</TABLE>
<PAGE> 2
March, 1999
Dear Shareholders:
We have come to the end of our most successful year ever, and the beginning
of many new opportunities. On October 22, 1998, your Board announced the signing
of an Affiliation Agreement with Fifth Third Bancorp. Although the transaction
is subject to shareholder and regulatory approval, if approved, South Florida
Bank will be merged into Fifth Third Bank of Florida during the second quarter
of 1999. Together our banks will be able to provide more convenient locations in
both Lee and Collier counties and a broader range of product offerings. One
thing, however, will not change and that is our combined dedication to you, our
shareholders, clients, and neighbors.
During 1998, South Florida Bank Holding Corporation earned $1.7 million or
$1.37 per share, an increase of 18% over the $1.4 million or $1.18 per share
earned in the previous year. Income before taxes increased to $1.6 million for
the year ended December 31, 1998 from $1.2 million for the year ended December
31, 1997. This increase resulted primarily from the gain on the sale of other
real estate totaling $.4 million. The 1998 return on average equity was 21.0%
and the return on average assets was 1.97%.
As our community has grown so has our bank. Total assets of our combined
company grew to $90.2 million as of December 31, 1998 from $82.9 million as of
December 31, 1997, an increase of $7.3 million or 8.8%. The bank's loan
portfolio grew to $53.2 million at December 31, 1998 from $49.7 million at
December 31, 1997, an increase of $3.5 million or 7.0%.
Although 1998 was our most successful year since the opening of our bank in
May 1988, we are even more optimistic about our future. Our plans include a
relocation of our existing Colonial Office to a new site at the intersection of
Summerlin Road and Boy Scout Drive, the installation of two new ATM's, plans for
a permanent location for our office at Metro and Daniels, and expansion plans
into other Lee County markets.
We live and work in a wonderful place and at a robust time in our economy.
We have achieved great successes over these last ten years, but we are even more
optimistic about the next ten.
You will soon be receiving notice of a Special Shareholder Meeting to be
held on Wednesday, May 12, 1999, and proxy material in connection with the
proposed merger. Please complete the proxy material and return it as directed in
the instructions. We hope you will attend and look forward to seeing you.
Please read the following report as it provides an in-depth analysis of
your Company's financial condition.
Very truly yours,
Robert Ernest Hendry William P. Valenti
Chairman of the Board President and Chief
Executive Officer
<PAGE> 3
SOUTH FLORIDA BANK HOLDING CORPORATION
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Total interest income .............. $ 6,215,100 $ 5,839,160 $ 4,869,672 $ 4,534,245 $ 3,749,349
Total interest expense ............. 2,317,311 2,406,550 1,956,622 2,009,174 1,402,489
------------ ------------ ------------ ------------ ------------
Net interest income ............ 3,897,789 3,432,610 2,913,050 2,525,071 2,346,860
Provision for loan losses .......... -- -- -- 28,000 (75,000)
Non-interest income ................ 1,008,931 576,078 611,513 547,321 515,196
Non-interest expense ............... 3,282,906 2,846,185 2,632,357 2,711,569 2,894,585
------------ ------------ ------------ ------------ ------------
Income before
income taxes ................ 1,623,814 1,162,503 892,206 332,823 42,471
Benefit for income taxes ........... 54,898 261,218 108,000 260,000 --
------------ ------------ ------------ ------------ ------------
Net income ..................... 1,678,712 $ 1,423,721 $ 1,000,206 $ 592,823 $ 42,471
============ ============ ============ ============ ============
Net income per share:
Basic ....................... $ 1.37 $ 1.18 $ .83 $ 0.59 $ 0.04
============ ============ ============ ============ ============
Diluted ..................... $ 1.36 $ 1.15 $ .82 $ 0.59 $ 0.04
============ ============ ============ ============ ============
Return on average assets ........... 1.97% 1.82% 1.57% 1.01% .08%
Return on average equity ........... 21.03 21.39 18.44 14.89 1.20
Loans charged-off .................. $ (108,273) $ (72,116) $ (98,341) $ (815,193) $ (163,072)
Loans recovered .................... 115,315 49,588 150,633 296,700 507,821
------------ ------------ ------------ ------------ ------------
Net loans (charged-off)
recovered ................... $ 7,042 $ (22,528) $ 52,292 $ (518,493) $ 344,749
============ ============ ============ ============ ============
STATEMENTS OF FINANCIAL CONDITION:
Total loans ........................ $ 53,153,764 $ 49,706,387 $ 44,040,268 $ 36,545,637 $ 32,854,507
Allowance for loan losses .......... 889,076 882,034 904,562 852,270 1,342,763
------------ ------------ ------------ ------------ ------------
Loans - net .................... 52,264,688 48,824,353 43,135,706 35,693,367 31,511,744
Total loan delinquencies 30
days and over .................. 844,966 377,034 390,345 904,198 1,609,520
Other real estate owned ............ 156,000 514,211 548,500 582,500 2,361,035
------------ ------------ ------------ ------------ ------------
Total .......................... 1,000,966 891,245 938,845 1,486,698 3,970,555
Investments ........................ 26,325,231 24,551,768 16,639,176 17,867,052 13,461,342
Federal funds sold ................. 2,210,539 1,998,000 5,179,000 5,337,000 1,428,000
Total assets ....................... 90,180,422 82,859,358 71,529,527 63,590,119 52,751,846
Total deposits ..................... 77,025,314 73,099,288 63,887,775 55,990,836 48,136,291
Total shareholders' equity ......... 9,343,569 7,622,486 6,407,725 5,386,085 3,803,037
Book value per share ............... 7.38 6.29 5.29 4.50 3.79
Number of branches ................. 4 4 3 3 3
Average equity to average assets ... 9.38% 8.49% 8.52% 6.48% 6.56%
Total risk-based capital ratio ..... 17.45 15.46 13.70 13.33 11.04
Tier 1 capital to average total
asset ratio ..................... 10.00 8.55 8.82 8.05 6.92
</TABLE>
2
<PAGE> 4
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 $90.2 million as of December 31,
1998, from $82.9 million as of December 31, 1997, an increase of $7.3 million or
8.84%. During 1998 and 1997, the Bank emphasized growth by means of an
advertising campaign, an officer calling program and the opening of a new branch
(in July 1997). The Company's shareholders' equity increased to $9.3 million as
of December 31, 1998 from $7.6 million as of December 31, 1997, an increase of
$1.7 million or 22.58%. This increase was primarily the result of net income of
$1.7 million, exercise of stock options totaling $274,000 and the $22,000
increase resulting from unrealized securities gains offset by the $253,000
dividend declared and payable as of December 31, 1998. As of December 31, 1998,
the Bank's total risk-based capital ratio was 17.45% and leverage ratio was
10.00%, as compared to 15.46% and 8.55%, respectively, as of December 31, 1997.
See "Capital Resources" for additional information regarding the Bank's capital
ratios.
Net income increased to $1.7 million for the year ended December 31, 1998,
or $1.37 per share, from $1.4 million for the year ended December 31, 1997, or
$1.18 per share, and from net income of $1.0 million for the year ended December
31, 1996, or $.83 per share. Income before income taxes increased to $1.6
million for 1998, from $1.2 million for 1997 and $892,000 for 1996. The
Company's improved earnings during 1998 as compared to the prior two years
resulted partly from net interest income increasing $465,000 from 1997 to 1998
and $520,000 from 1996 to 1997 as the Bank's total interest-earning assets grew.
In addition, the Bank realized $403,000 in gains on the sale of other real
estate owned during 1998. The Bank recorded a benefit for income taxes of
$55,000 during 1998, compared to $261,000 during 1997 and $108,000 during 1996.
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 $90.2 million as of
December 31, 1998 from $82.9 million as of December 31, 1997, an increase of
$7.3 million or 8.84%. 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 $80.8 million as of December 31, 1998 from $75.4 million as of
December 31, 1997, an increase of $5.4 million or 7.20%. 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 $9.4 million
as of December 31, 1998 from $7.5 million as of December 31, 1997, an increase
of $1.9 million or 25.31%.
Net loans increased to $52.3 million as of December 31, 1998 from $48.8
million as of December 31, 1997, an increase of $3.4 million or 7.05%. Mortgage
loans which increased $3.5 million were the primary components of outstanding
loans. In addition, installment loans increased $1.3 million (primarily with a
mobile home loan product) and commercial loans decreased $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 $818,000 as of
December 31, 1998 from $344,000 as of December 31, 1997, and the increase in the
allowance for loan losses to $889,000 as December 31, 1998 from $882,000 as of
December 31, 1997, see "--Allowance for Loan Losses."
3
<PAGE> 5
The investment portfolio increased to $28.5 million as of December 31, 1998
from $26.6 million as of December 31, 1997, an increase of $1.9 million or
7.48%. The proceeds from the increase in deposits were primarily used to fund
the increase in loans and investments.
Cash and due from banks increased to $6.1 million as of December 31, 1998
from $5.0 million as of December 31, 1997, or an increase of $1.1 million or
21.95%. This increase resulted primarily from the increase in funds on deposit
with other banks.
Premises and equipment increased to $1.8 million as of December 31, 1998
from $590,000 as of December 31, 1997, an increase of $1.2 million or 212.09%.
This increase resulted primarily from the purchase of the main branch land and
building and the purchase of land for a new branch site totaling $1.3 million,
partially offset by depreciation expense of $198,000 during 1998. Accrued
interest receivable decreased to $510,000 as of December 31, 1998 from $601,000
as of December 31, 1997, a decrease of $91,000 or 15.11%. This decrease resulted
primarily from a decrease in yields on interest-earning assets.
Other assets decreased to $774,000 as of December 31, 1998 from $779,000 as
of December 31, 1997, a decrease of $5,000 or 0.67%. This decrease resulted
primarily from a decrease in prepaid expenses, partially offset by an 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
$711,000 as of December 31, 1998. See Note F of the Notes to Consolidated
Financial Statements.
Deposits increased to $77.0 million as of December 31, 1998 from $73.1
million as of December 31, 1997, an increase of $3.9 million or 5.37%. Core
deposits increased to $71.8 million as of December 31, 1998 from $66.9 million
as of December 31, 1997, an increase of $4.9 million or 7.39%. 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
during 1997. As of December 31, 1998 and 1997, the ratio of net loans to
deposits was 67.85% and 66.79%, respectively.
Securities sold under agreements to repurchase ("Sweep Accounts") increased
to $3.1 million as of December 31, 1998 from $1.3 million as of December 31,
1997, an increase of $1.8 million or 136.48%. This increase resulted primarily
from the opening of new sweep accounts.
PENDING ACQUISITION
On October 22, 1998, the Holding Corporation announced that it entered into
an Agreement with Fifth Third Bancorp pursuant to which Fifth Third Bancorp
would acquire the Holding Corporation and Bank. In the transaction, holders of
Holding Corporation common stock would receive .348 shares of Fifth Third
Bancorp common stock in exchange therefor. Consummation of the transaction is
subject to a number of conditions, including the receipt of regulatory approval
and approval of the Agreement by the Holding Corporation shareholders. The
acquisition is expected to take place in June 1999.
4
<PAGE> 6
For the years ended December 31, 1998, 1997 and 1996, the Bank's average
statements of financial condition, interest income and expense, and yields
earned and rates paid were as follows:
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST YIELDS AND RATES
1998 1997
---------------------------------------------------------------------------------------
Average Yield/ Average Yield/
ASSETS: Balance Interest Rate Balance Interest Rate
- ------- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commercial ........................ $ 8,928,730 $ 855,551 9.58% $ 8,446,610 $ 871,378 10.32%
Mortgage (a) ..................... 35,352,558 3,018,481 8.54 31,506,620 2,801,285 8.89
Installment ...................... 5,835,817 508,940 8.72 4,059,505 346,559 8.54
Other ............................ 3,078,435 293,731 9.54 2,915,892 284,059 9.74
------------ ---------- ---- ------------ ---------- -----
Total loans, net
of unearned
income (b) ....................... 53,195,540 4,676,703 8.79 46,928,627 4,303,281 9.17
Investment securities-
all taxable ...................... 20,955,978 1,270,676 6.06 20,130,432 1,180,155 5.86
Federal funds sold .................. 4,848,593 267,721 5.52 6,542,783 355,724 5.44
------------ ---------- ---- ------------ ---------- -----
Total earning
assets (c) ....................... 79,000,111 $6,215,100 7.87% 73,601,842 $5,839,160 7.93%
========== ==== ========== =====
Cash and due
from banks ....................... 3,846,190 3,603,228
Other assets ........................ 3,112,014 2,116,596
Allowance for
loan losses ...................... (900,775) (911,423)
------------ ------------
Total assets ........................ $ 85,057,540 $ 78,410,243
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing deposits:
NOW accounts ..................... $ 11,867,694 $ 142,311 1.20% $ 9,894,916 $ 133,934 1.35%
Money market ..................... 10,327,895 278,091 2.69 9,178,891 244,917 2.67
Savings .......................... 4,500,132 90,955 2.02 3,238,009 72,016 2.22
Time deposits:
Under $100,000 ................... 26,068,685 1,451,995 5.57 28,357,929 1,624,930 5.73
$100,000 & over .................. 5,745,040 310,140 5.40 5,379,827 302,886 5.63
------------ ---------- ---- ------------ ---------- -----
Total interest-bearing
deposits ......................... 58,509,446 2,273,492 3.89 56,049,572 2,378,683 4.24
Sweep accounts ...................... 1,921,772 61,991 3.23 1,282,216 40,841 3.19
------------ ---------- ---- ------------ ---------- -----
Total interest-bearing
liabilities ...................... 60,431,218 $2,335,483 3.86% 57,331,788 $2,419,524 4.22%
========== ==== ============ ========== =====
Demand deposits ..................... 16,200,242 13,884,711
Other liabilities ................... 454,691 538,056
Shareholders' equity ................ 7,981,389 6,655,688
------------ ------------
Total ............................... $ 85,067,540 $ 78,410,243
============ ============
SPREAD AND INTEREST DIFFERENTIAL:
Interest rate spread 4.01% 3.71%
==== ====
Excess of total earning assets
over total interest-bearing
liabilities....................... $18,568,893 $ 16,270,054
=========== ============
Net yield on interest-
earning assets.................... $3,879,617 4.91% $3,419,636 4.65%
========== ==== ========== ====
<CAPTION>
1996
--------------------------------------
Average Yield/
ASSETS: Balance Interest Rate
Loans:
<C> <C> <C> <C>
Commercial ........................ $ 7,536,483 $ 767,113 10.18%
Mortgage (a) ..................... 26,930,923 2,434,924 9.04
Installment ...................... 2,593,582 224,442 8.65
Other ............................ 2,876,305 289,674 10.07
------------ ---------- -----
Total loans, net
of unearned
income (b) ....................... 39,937,293 3,716,153 9.30
Investment securities-
all taxable ...................... 16,703,169 981,321 5.88
Federal funds sold .................. 3,234,819 172,198 5.32
------------ ---------- -----
Total earning
assets (c) ....................... 59,875,281 $4,869,672 8.13%
========== ====
Cash and due
from banks ....................... 2,809,497
Other assets ........................ 1,879,234
Allowance for
loan losses ...................... (927,332)
------------
Total assets ........................ $ 63,636,680
============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing deposits:
NOW accounts ..................... $ 7,604,620 $ 123,378 1.62%
Money market ..................... 9,332,707 242,863 2.60
Savings .......................... 2,360,086 52,476 2.22
Time deposits:
Under $100,000 ................... 23,031,493 1,333,029 5.79
$100,000 & over .................. 3,145,980 178,118 5.66
------------ ---------- -----
Total interest-bearing
deposits ......................... 45,474,886 1,929,864 4.24
Sweep accounts ...................... 1,194,434 38,623 3.23
------------ ---------- -----
Total interest-bearing
liabilities ...................... 46,669,320 $1,968,487 4.22%
========== =====
Demand deposits ..................... 11,093,282
Other liabilities ................... 450,556
Shareholders' equity ................ 5,423,522
------------
Total ............................... $ 63,636,680
============
SPREAD AND INTEREST DIFFERENTIAL:
Interest rate spread 3.91%
Excess of total earning assets ====
over total interest-bearing
liabilities....................... $ 13,025,961
============
Net yield on interest-
earning assets.................... $2,901,185 4.85%
========== ====
</TABLE>
- -----------------------
See footnotes on page 6.
5
<PAGE> 7
Footnotes to page 5:
(a) Interest income on mortgage loans included loan fees recognized as
income of $14,000, $14,000 and $9,000 during the years ended December
31, 1998, 1997 and 1996, 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, 1998, 1997 and 1996, the
composition of the Bank's loan portfolio was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- --------------------------- --------------------------
% OF % OF % OF
TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------------- ---------- ------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial................... $ 8,085,544 15.21% $ 9,289,611 18.69% $ 8,062,573 18.31%
Mortgage: (a)
Construction............ 823,817 1.55 961,264 1.93 1,029,003 2.34
Non-Construction........ 35,109,188 66.05 31,508,547 63.39 28,172,195 63.97
Installment (b).............. 6,092,523 11.46 4,781,456 9.62 3,589,684 8.15
Other loans (c).............. 3,042,692 5.73 3,165,509 6.37 3,186,813 7.23
------------- ---------- ------------ ----------- ------------ ----------
Total loans, net of
unearned income......... 53,153,764 100.00% 49,706,387 100.00% 44,040,268 100.00%
========== =========== ==========
Allowance for loan losses.... (889,076) 1.67% (882,034) 1.77% (904,562) 2.05%
------------- ========== ------------ =========== ------------ ==========
Loans, net................... $ 52,264,688 $ 48,824,353 $ 43,135,706
============= ============ ============
</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 $53.2 million during the
year ended December 31, 1998 as compared to $46.9 million during the year ended
December 31, 1997, representing a $6.3 million (or 13.35%) increase. Total loans
outstanding, net of unearned income, as of December 31, 1998 were $53.2 million
as compared to $49.7 million as of December 31, 1997, representing a $3.5
million (or 6.93%) increase. The increase in loans from 1997 to 1998 was
primarily attributable to loan originations of $18.2 million which exceeded loan
repayments of $14.6 million. During 1997, loan originations were $15.2 million,
while loan repayments were $9.3 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, 1998 and 1997, 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 67.60% and 65.32%, respectively, of the loan portfolio and
were to borrowers in varying activities and businesses.
6
<PAGE> 8
As of December 31, 1998, 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.............................. $4,032,504 $2,965,563 $1,087,477 $8,085,544
Real estate-construction ............... 58,014 202,544 563,259 823,817
---------- ---------- ---------- ----------
Total $4,090,518 $3,168,107 $1,650,736 $8,909,361
========== ========== ========== ==========
Loans due after one year:
Having predetermined interest rates .... $1,262,766 $ 238,063 $1,500,829
Having floating interest rates ......... 1,905,341 1,412,673 3,318,014
---------- ---------- ----------
Total............................... $3,168,107 $1,650,736 $4,818,843
========== ========== ==========
</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.
The Company has 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
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, 1998 and 1997, impaired loans, all of which were
considered collateral dependent, totaled $1,109,000 and $687,000, respectively,
and the related allowance for loan losses was $186,000 and $128,000,
respectively. As of December 31, 1998 and 1997, the net investment in impaired
loans was $923,000 and $559,000, respectively. During the years ended December
31, 1998, 1997 and 1996, impaired loans averaged $644,000, $1,082,000 and
$1,214,000, respectively, interest income recognized on impaired loans totaled
$108,000, $72,000 and $113,000, respectively, and interest income received on
impaired loans totaled $77,000, $39,000 and $91,000, respectively.
7
<PAGE> 9
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, 1998, the allowance for loan losses was $889,000 or
1.67% of total loans, net of unearned income, as compared to $882,000 or 1.77%
of total loans, net of unearned income, as of December 31, 1997. For the years
ended December 31, 1998, 1997 and 1996, the Bank's loan loss experience and its
provision for loan losses were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
Average loans outstanding ........................ $ 53,195,541 $46,928,627 $ 39,937,293
============ =========== ============
Net loans at end of period ....................... $ 52,264,688 $48,824,353 $ 43,135,706
============ =========== ============
Allowance for loan losses at
beginning of period ......................... $ 882,034 $ 904,562 $ 852,270
Loans charged-off:
Commercial .................................. 1,244 11,386 27,535
Mortgage .................................... 78,220 25,999 17,816
Installment ................................. 763 23,613 6,110
Other loans ................................. 28,046 11,118 46,880
------------ ----------- ------------
Total loans charged-off .......................... 108,273 72,116 98,341
------------ ----------- ------------
Recoveries of loans previously charged-off:
Commercial .................................. 53,118 25,877 123,003
Mortgage .................................... 29,725 19,595 21,925
Installment ................................. 14,116 3,074 3,998
Other loans ................................. 18,356 1,042 1,707
------------ ----------- ------------
Total recoveries ................................. 115,315 49,588 150,633
------------ ----------- ------------
Net loan charged-offs (recoveries) ............... (7,042) 22,528 (52,292)
Provision charged to expense ..................... -- -- --
------------ ----------- ------------
Allowance for loan losses at end of period ....... $ 889,076 $ 882,034 $ 904,562
============ =========== ============
Ratio of net charge-offs during period
to average net loans outstanding ............ (.01)% .05% (.13)%
Allowance for loan losses as a percentage
of loans, net of unearned income
at end of period ............................ 1.67% 1.77% 2.05%
</TABLE>
During 1998, 13 loans were charged-off, none of which exceeded $31,000.
During 1998, there were 21 loans with recoveries, none of which exceeded
$23,000.
Senior management of the Bank and the loan staff meet weekly or more often
as needed to review all past due and non-performing loans and to discuss
collection actions. The Bank's Board of Directors performs a similar review on
at least a monthly basis. Loans are charged-off when and to the extent they are
deemed by management to be a loss to the Bank.
Non-performing assets increased to $974,000 as of December 31, 1998 as
compared to $858,000 as of December 31, 1997, which had increased from $811,000
at December 31, 1996, or a respective increase of $116,000 or 13.57% and $47,000
or 5.77%. The increase during 1998 resulted primarily from the increase in loans
over 90 days delinquent,
8
<PAGE> 10
partially offset by the sale of certain other real estate owned. The increase
during 1997 resulted primarily from the increase in loans over 90 days
delinquent. The ratio of non-performing loans as a percent of total loans, net
of unearned income, was 1.54%, .69% and .60% as of December 31, 1998, 1997 and
1996, respectively. The allowance for loan losses as a percentage of
non-performing loans was 108.64%, 256.59% and 344.34% as of December 31, 1998,
1997 and 1996, respectively.
As of December 31, 1998, 1997 and 1996, the Bank's non-performing loans and
repossessed assets were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ -------------------- --------------------
% 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 ...... $ 30,778 .06% $154,278 .31% $117,930 .27%
90 or more days delinquent. 787,621 1.48 189,470 .38 144,762 .33
-------- ---- -------- --- -------- ---
Total non-accruing loans............ $818,399 1.54% $343,748 .69% $262,692 .60%
======== ==== ======== === ======== ===
Total real estate owned............. $156,000 $514,211 $548,500
-------- -------- --------
Total non-performing assets......... $974,399 $857,959 $811,192
======== ======== ========
Loans delinquent and accruing:
30 to 59 days.................. $ 19,417 .04% $ 12,648 .03% $ 21,818 .05%
60 to 89 days.................. 7,150 .01 20,638 .04 105,835 .24
-------- ---- -------- --- -------- ---
Total .................. $ 26,567 .05% $ 33,286 .07% $127,653 .29%
======== ==== ======== === ======== ===
Total delinquencies
30 days and over............... $844,966 1.59% $377,034 .76% $390,345 .89%
======== ==== ======== === ======== ===
</TABLE>
As of December 31, 1998, 1997 and 1996, 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 $818,000 as of December 31, 1998 as
compared to $344,000 as of December 31, 1997, an increase of $474,000 or
138.08%. The largest non-accruing loan as of December 31, 1998 was a $580,000
first mortgage loan secured with commercial real estate. The second largest
non-accruing loan as of December 31, 1998 was a $83,000 first mortgage loan
secured with commercial real estate. As of December 31, 1998, 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, 1998, 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, is comprised of one parcel of raw land with a carrying value of
$148,000 (and a fair value of $220,000) and one single-family residential lot
with a carrying value of $8,000 (and a fair value of $10,500).
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
Although the total allowance for loan losses was available to absorb losses
from all loans, management allocated the reserve among general portfolio
categories for informational and regulatory reporting purposes.
9
<PAGE> 11
At December 31, 1998, 1997 and 1996, the allocation of the allowance for
loan losses was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ---------------------- ------------------------
LOANS LOANS LOANS
TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Commercial loans .............. $132,000 15.21% $157,000 18.69% $177,000 18.31%
Mortgage:
Construction ............. 8,000 1.55 10,000 1.93 11,000 2.34
Non-construction ......... 511,000 66.05 428,000 63.39 450,000 63.97
Installment loans ............. 87,000 11.46 74,000 9.62 57,000 8.15
Other loans ................... 53,000 5.73 58,000 6.37 57,000 7.23
Unallocated reserve ........... 98,076 -- 155,034 -- 152,562 --
-------- ------ -------- ------ -------- ------
Total allowance for loan
losses........................ $889,076 100.00% $882,034 100.00% $904,562 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
INVESTMENT PORTFOLIO
The carrying value of the Bank's investment portfolio was $28.5 million as
of December 31, 1998 as compared to $26.5 million as of December 31, 1997. The
average book yield on the Bank's investment portfolio was 6.01% and 6.03% as of
December 31, 1998 and 1997, respectively. The average maturity of the Bank's
investment portfolio as of December 31, 1998 and 1997, was 119 and 34 months,
respectively. There was unrealized net market appreciation of approximately
$60,000 as of December 31, 1998.
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, 1998, 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 AFTER 5 YEARS
WITHIN ONE YEAR THROUGH 5 YEARS THROUGH 10 YEARS AFTER 10 YEARS
-------------------- -------------------- -------------------- -----------------------
Amount Yield Amount Yield Amount Yield Amount Yield
---------- ------- --------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Agency obligations ...... $ -- --% $8,499,219 5.90% $2,206,102 6.34% $10,783,948 6.38%
=========== ====== ========== ====== ========== ====== =========== ======
HELD-TO-MATURITY:
U.S. Agency obligations ...... $ 692,715 6.23% $2,918,280 6.25% $ 503,230 6.63% $ -- --%
Collateralized mortgage
obligations ................ -- -- -- -- -- -- 721,737 5.94
=========== ====== ========== ====== ========== ====== =========== ======
Total held-to-maturity ....... $ 692,715 6.23% $2,918,280 6.25% $ 503,230 6.63% $ 721,737 5.94%
=========== ====== ========== ====== ========== ====== =========== ======
</TABLE>
DEPOSITS
The Bank's average core deposits increased to $69.0 million during the year
ended December 31, 1998 from $64.6 million during the year ended December 31,
1997 and from $53.4 million during the year ended December 31, 1996, or
respective increases of $4.4 million or 6.83% and $11.2 million or 20.84%.
Average total deposits increased to $74.7 million during 1998 from $69.9 million
during 1997 and from $56.6 million during 1996, or respective increases of $4.8
million or 6.83% and $13.3 million or 23.63%. Average non-interest bearing
deposits increased to $16.2 million during
10
<PAGE> 12
1998 from $13.9 million during 1997 and from $11.1 million during 1996, or
respective increases of $2.3 million or 16.68% and $2.8 million or 25.16%. 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, 1998, 1997 and 1996 the Bank's average deposit balances and the percent of
total average deposits were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------- -------------------------
AVERAGE % OF AVERAGE % OF AVERAGE % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Non-interest-bearing ..... $16,200,242 21.69% $13,884,711 19.85% $11,093,282 19.61%
NOW accounts ............. 11,867,694 15.89 9,894,916 14.15 7,604,620 13.44
Money Market ................. 10,327,895 13.82 9,178,891 13.13 9,332,707 16.50
Savings deposits ............. 4,500,132 6.02 3,238,009 4.63 2,360,086 4.17
Time deposits
under $100,000 ........... 26,068,685 34.89 28,357,929 40.55 23,031,493 40.72
----------- ------ ----------- ------ ----------- ------
Total core deposits .......... 68,964,648 92.31 64,554,456 92.31 53,422,188 94.44
Time deposits $100,000
and over ................. 5,745,040 7.69 5,379,827 7.69 3,145,980 5.56
----------- ------ ----------- ------ ----------- ------
Total deposits ............... $74,709,688 100.00% $69,934,283 100.00% $56,568,168 100.00%
=========== ====== =========== ====== =========== ======
</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, 1998 and 1997, the Bank had $116,000 and $225,000,
respectively, of public deposits. As of December 31, 1998 and 1997, 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, 1998, approximately 6.72% 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 77.35% of which will mature within twelve months of December 31,
1998. As of December 31, 1998, 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............................ $1,268,893
Over 3 months through 6 months.............. 1,226,286
Over 6 months trough 12 months.............. 1,510,574
Over 12 months.............................. 1,173,238
----------
Total time deposits $100,000 and over....... $5,178,991
==========
</TABLE>
SHORT-TERM BORROWINGS
The Bank has entered into short-term borrowing arrangements with certain of
its customers. These arrangements, entitled "Sweep Accounts", call for the Bank
to automatically transfer customer funds in excess of certain pre-defined
amounts from the customer's insured deposit account to the Sweep Account. The
Sweep Accounts mature weekly and were collateralized with U. S. Government
agency securities totaling $3.3 million as of December 31, 1998; accordingly,
they were classified on the Company's consolidated statements of financial
condition as securities sold under agreements
11
<PAGE> 13
to repurchase. For the years ended December 31, 1998, 1997 and 1996, the Bank's
short-term borrowings were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Year ended December 31:
Average indebtedness outstanding ..... $1,921,772 $1,282,216 $1,194,434
Average rate paid .................... 3.23% 3.19% 3.23%
Maximum indebtedness
at any month-end ................. $4,091,625 $1,793,439 $1,415,369
As of December 31:
Balance outstanding .................. $3,136,907 $1,326,473 $ 749,057
Rate paid ............................ 3.42% 3.16% 3.15%
</TABLE>
CAPITAL RESOURCES
The Holding Corporation's total shareholders' equity was $9.3 million and
$7.6 million as of December 31, 1998 and 1997, respectively. This increase was
the result of 1998's net income of $1.7 million, exercise of stock options
totaling $274,000 and the $22,000 increase in the net unrealized securities
gains to December 31, 1998 from December 31, 1997 offset by the $253,000
dividend declared and payable as of December 31, 1998. The Bank's total
shareholder's equity was $8.9 million and $7.2 million as of December 31, 1998
and 1997, respectively. The increase in the Bank's shareholder's equity was the
result of the Bank's net income of $1.7 million and the $22,000 increase in the
net unrealized securities gains to December 31, 1998 from December 31, 1997.
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, 1998, the Bank met the capital ratios of a "well capitalized"
financial institution with a total risk-based capital ratio of 17.45%, a Tier 1
risk-based capital ratio of 16.19%, and a Tier 1 leverage ratio of 10.00%.
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, 1997......................... 15.46 14.20 8.55
December 31, 1998......................... 17.45 16.19 10.00
</TABLE>
12
<PAGE> 14
ASSET AND LIABILITY MANAGEMENT
The principal objectives of asset and liability management are to manage
interest rate risks, ensure adequate liquidity and coordinate sources and uses
of funds. The Bank engages in a process of asset and liability management
through its Asset and Liability Management Committee. In the analysis of
interest rate risks, the objective is to manage, within acceptable limits, the
impact on the income statement caused by fluctuating interest rates and changing
rate relationships. In this process, interest sensitivity is analyzed employing
the traditional gap analysis. While generally the policy is to maintain a
relatively neutral interest sensitivity position, the Bank may initiate gap
exposures within prescribed limits. The Bank can then manage interest rate risk,
while responding to change within the balance sheet and financial markets as it
strives to enhance net interest income.
Bank management also meets periodically to review the Bank's asset and
liability position. Among other things, cash needs are reviewed, along with
local and national market conditions and economic trends. As necessary, the
Bank's rates are periodically adjusted. Generally, the Bank does not engage in
short-term borrowing as a substantial portion of its business market. The Bank
does not participate in the securities brokers market for deposit funds, or
actively seek jumbo certificates of deposit ($100,000 and over) through any
brokers or media advertising.
LIQUIDITY
Holding Corporation. The Holding Corporation's operating revenue and net
income are derived solely from the Bank through interest income on its deposit
accounts, dividends and management fees. There are various statutory and
contractual limitations on the ability of the Bank to pay dividends, extend
credit, or otherwise supply funds to the Holding Corporation. The FDIC and the
Florida Department of Banking and Finance also have the general authority to
limit the dividends paid by insured banks and bank holding companies. Until the
$.20 dividend declared as of December 31, 1998 and 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.
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, 1998, 1997 and 1996, investing activities used $5.9 million, $13.9
million and $6.3 million, respectively, of cash. During the years ended December
31, 1998, 1997 and 1996, financing activities provided $5.8 million, $9.8
million and $7.1 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 $1.7 million for the year ended December 31,
1998, or $1.37 per share, as compared to $1.4 million for the year ended
December 31, 1997, or $1.18 per share, and $1.0 million for the year ended
December 31, 1996, or $.83 per share. For the years ended December 31, 1998,
1997 and 1996, the Company's performance ratios were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Return on average assets....................... 1.97% 1.82% 1.57%
Return on average equity....................... 21.03 21.39 18.44
Average equity to average assets............... 9.38 8.49 8.52
</TABLE>
13
<PAGE> 15
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 $3.9 million during the year
ended December 31, 1998 from $3.4 million during the year ended December 31,
1997, an increase of $460,000 or 13.55%. The increase was primarily due to the
increase in average interest-earning assets and average interest-bearing
liabilities. The 12.99% volume increase in 1998 from 1997 in loan interest
income was primarily attributable to the 11.78% increase in average loans and
the 2.85% volume decrease in 1998 from 1997 in investment interest income was
primarily attributable to the 3.37% decrease in average investments. The yield
on the loan portfolio decreased 38 basis points, while the yield on the
investment portfolio increased 20 basis points. The interest rates paid on
interest-bearing liabilities decreased 36 basis points. The result was an
increase in the net interest margin to 4.91% during 1998 from 4.65% during 1997.
The increase (decrease) during the year ended December 31, 1998 from the
year ended December 31, 1997 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 .............................. $ 49,737 $ (62,024) $ (3,540) $ (15,827)
Mortgage ................................ 341,946 (111,179) (13,571) 217,196
Installment ............................. 151,643 7,469 3,269 162,381
Other ................................... 15,835 (5,837) (326) 9,672
--------- --------- -------- ---------
Total loans ......................... 559,161 (171,571) (14,168) 373,422
Investment securities ........................ 48,398 40,464 1,659 90,521
Federal funds sold ........................... (92,111) 5,544 (1,436) (88,003)
--------- --------- -------- ---------
Total interest income ........................ 515,448 (125,563) (13,945) 375,940
--------- --------- -------- ---------
LIABILITIES:
Interest-bearing deposits:
NOW accounts ............................ 26,703 (15,279) (3,047) 8,377
Money market accounts ................... 30,658 2,236 280 33,174
Savings deposits ........................ 28,071 (6,571) (2,561) 18,939
Time deposits:
Under $100,000 ...................... (131,175) (45,427) 3,667 (172,935)
$100,000 and over ................... 20,562 (12,462) (846) 7,254
--------- --------- -------- ---------
Total interest-bearing deposits ......... (25,181) (77,503) (2,507) (105,191)
Securities sold under agreements
to repurchase ........................... 20,371 520 259 21,150
--------- --------- -------- ---------
Total interest expense ....................... (4,810) (76,983) (2,248) (84,041)
--------- --------- -------- ---------
Net interest income .......................... $ 520,258 $ (48,580) $(11,697) $ 459,981
========= ========= ======== =========
</TABLE>
14
<PAGE> 16
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>
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, 1998, 1997 and 1996. Net loan charge-offs (recoveries) during 1998, 1997 and
1996 were $(7,000), $23,000 and $(52,000), respectively. 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, 1998 and 1997,
the allowance for loan losses as a percentage of loans net of unearned income
was 1.67% and 1.77%, respectively, and as a percentage of non-accrual loans was
108.64% and 256.59%, respectively. See "--Financial Condition-Allowance for Loan
Losses".
15
<PAGE> 17
NON-INTEREST INCOME
Deposit service charge income increased $31,000 or 6.33% to $520,000 (or
.70% of average deposits) during the year ended December 31, 1998, after
increasing $34,000 or 7.35% to $489,000 (or .70% of average deposits) during the
year ended December 31, 1997 from $455,000 (or .80% of average deposits) during
the year ended December 31, 1996. These increases primarily resulted from an
increase in service charge income on demand deposit accounts and increases in
the volume of overdraft charges. During 1998, the Bank sold certain properties
included in other real estate owned and recognized a $403,000 gain. 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 $1.6 million during the year ended December
31, 1998, from $1.4 million and $1.3 million during the respective years ended
December 31, 1997 and 1996, or respective increases of $202,000 or 14.56% and
$114,000 or 8.92%. The increase to 1998 from 1997 and 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 monthly average of
full-time equivalent employees during 1998 was 40.1 as compared to 35.8
employees during 1997 and 33.2 employees during 1996. As of December 31, 1998,
the Bank employed 37 full-time and 4 part-time employees.
Occupancy expense increased $67,000 or 12.29% during the year ended
December 31, 1998 to $612,000 after increasing $20,000 or 3.69% to $545,000
during the year ended December 31, 1997, from $525,000 during the year ended
December 31, 1996. The increase in 1998 from 1997 primarily resulted from
additional costs of the new branch and acquisition of the main office land and
building. The increase in 1997 from 1996 also resulted from additional costs of
the new branch, as well as the addition of computers.
Advertising expense decreased $23,000 or 21.84% during the year ended
December 31, 1998 to $84,000 after increasing $33,000 or 44.65% to $74,000
during the year ended December 31, 1997, from $57,000 during the year ended
December 31, 1996. The decrease in 1998 from 1997 primarily resulted from a
decrease in print advertising. The increase in 1997 from 1996 primarily resulted
from the cost of the advertising campaigns.
Supplies expense decreased to $71,000 during the year ended December 31,
1998, after increasing to $78,000 during the year ended December 31, 1997 from
$64,000 during the year ended December 31, 1996, or a decrease of $7,000 or
9.35% during 1998 and an increase of $14,000 or 21.61% during 1997. The decrease
in 1998 from 1997 resulted primarily from a decrease in bank forms expense. The
increase in 1997 from 1996 resulted from the Bank purchasing more supplies to
meet the needs of increased loans and deposits, including supplies to stock the
new branch.
Loan collection expenses, excluding legal expenses but including real
estate taxes, insurance, loss on the sale of other real estate owned, and
appraisal costs on real estate in foreclosure, decreased $34,000 or 36.48% to
$59,000 for the year ended December 31, 1998, after increasing to $93,000 during
the year ended December 31, 1997, from $50,000, or an increase of $43,000 or
87.93%. The decrease in 1998 and increase in 1997 resulted primarily from an
increase in write-downs of other real estate owned during 1997.
Legal expenses decreased to $53,000 during the year ended December 31,
1998, from $72,000 and $99,000 during the years ended December 31, 1997 and
1996, respectively, or respective decreases of $19,000 or 25.73% and $27,000 or
27.62%. These decreases reflected the reduction in collection actions handled by
the Bank's attorneys.
Other operating expenses increased to $786,000 during the year ended
December 31, 1998, from $538,000 and $521,000 during the years ended December
31, 1997 and 1996, respectively, or respective increases of $248,000 or 45.97%
and $17,000 or 3.28%. The 1998 increase primarily resulted from the item
processing and data processing being outsourced by the Bank. The 1997 increase
primarily resulted from the increased costs associated with the increase in the
size of the Bank.
16
<PAGE> 18
INCOME TAXES
During the years ended December 31, 1998, 1997 and 1996, the Company had a
benefit for income taxes of $55,000, $261,000 and $108,000 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,
1998, the Company had a net operating loss carry forward of $1.3 million for
Federal income tax reporting purposes. The Internal Revenue Service examined
without change the Bank's Federal income tax return for the year ended December
31, 1988.
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when considered necessary to reduce deferred tax assets to the
estimated amount expected to be realized. Income tax expense is the tax payable
or refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities. One of the principal differences from the
deferred method is that changes in tax rates and laws will be reflected in
income from continuing operations in the period such changes are enacted. Under
the deferred method such changes are reflected over time, if at all.
YEAR 2000 ISSUES
Overview: The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable year. As a
result, date-sensitive software and/or hardware may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a system
failure or other disruption of operations and may impede normal business
activities. In June 1996, the Federal Financial Institutions Examination Council
("FFIEC") alerted the banking industry of the serious challenges that would be
encountered with the Year 2000 issue. The FDIC has also implemented a plan to
require compliance with Year 2000 issues and regularly reviews the Bank's
progress. In accordance with FFIEC and FDIC recommendations, the Bank has
implemented a five-phase approach to address the Year 2000 problem.
State of Readiness: In accordance with FDIC guidelines, the Bank has
developed a five-phase comprehensive plan which it believes will result in
timely and adequate modifications of its systems and technology to address its
Year 2000 issues, which contemplates all system conversions and testing to be
substantially completed by December 31, 1999. The Bank has completed an
assessment of its mission-critical and other systems for Year 2000 compliance
and is currently in the third and fourth of five phases of compliance
("renovation and validation"), as defined by the FFIEC. The Bank has tested its
non-information technology systems, such as environmental and alarm systems, and
found them to be Year 2000 compliant.
To determine the readiness of its customers, the Bank has sent a
questionnaire to, and received responses from, its significant borrowers to
determine the extent of risk created by any failure by them to remediate their
own Year 2000 issues. The Bank's strategic plan provides, if necessary, a Year
2000 contingency reserve of not less than $10,000 for borrowers with high Year
2000 risks. The Bank will reassess each significant borrowing customer's risk on
a regular basis.
To determine the readiness of its vendors, the Bank has sent out a letter
to each significant vendor inquiring about their compliance with Year 2000. For
those vendors that have responded that they are Year 2000 compliant and that the
Bank has determined to not have a material impact on its operations, no further
work is performed. For those vendors that have responded they are working
towards Year 2000 compliance and that the Bank has determined to be significant,
including mission-critical vendors, the Bank plans to follow up on a regular
basis through 1999. These vendors have advised that they expect to be Year 2000
compliant before December 31, 1999. If those vendors do not demonstrate
compliance by a certain date, the Bank will seek other alternatives, which may
include seeking replacement vendors.
Costs and Risks: Most of the Bank's computer hardware and software
applications were modified or replaced in order to both upgrade its existing
systems and maintain functionality as the Year 2000 approaches. The Bank had
spent approximately $214,000 as of December 31, 1998 to address its Year 2000
issues and upgrade its systems in general. Although additional costs will likely
be incurred in preparation for the Year 2000, the Bank does not expect such
costs to have a material impact on its financial condition or results of
operations.
17
<PAGE> 19
Ultimately, the potential impact of the Year 2000 issue will depend not
only on the corrective measures the Bank undertakes, but also on the way in
which the Year 2000 issue is addressed by governmental agencies, businesses and
other entities who receive data from the Bank, or whose financial condition or
operational capability is important to the Bank, such as suppliers or customers.
At worst, the Bank's customers and vendors will face severe Year 2000 issues,
which may cause borrowers to become unable to service their loans. The Bank may
also be required to replace non-compliant vendors with more expensive Year
2000-compliant vendors. At this time, the Bank cannot determine the financial
effect on its operations if significant customer and/or vendor remediation
efforts are not resolved in a timely manner.
Contingency Plan: The Bank has created a contingency plan that would take
effect should there be circumstances preventing timely implementation. The Bank
intends to review mission-critical systems again by the end of the second
quarter of 1999 and, if such systems have not become Year 2000 compliant, will
retain a new vendor to resolve these issues. The Bank has also identified
alternate procedures to achieve a successful resumption of business in case of
mission-critical system failures, including manual systems and supplemental
power capability.
INFLATION
The financial statements and related data presented in this report have
been prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The principal element of the Company's
earnings was interest income which may be significantly affected by the level of
inflation and by government monetary and fiscal policies adopted in response to
inflationary or deflationary pressures.
Inflation affects the reported financial condition and results of
operations of all companies. However, the majority of assets and liabilities of
financial institutions are monetary in nature and therefore differ greatly from
most commercial and industrial companies that have significant investments in
fixed assets or inventories. Inflation does have an important impact on the
growth of total assets and the resulting need to increase equity capital at
higher than normal rates in order to maintain an appropriate equity to assets
ratio. Inflation also is a factor which may influence interest rates, yet the
frequency and magnitude of interest rate fluctuations do not necessarily
coincide with changes in the general inflation rate. In an effort to cope with
the effects of inflation, the Company attempts to monitor its interest rate
sensitivity gap position, as discussed above. In addition, the periodic reviews
of banking services and products are conducted to adjust pricing in view of
current costs.
INTEREST RATE SENSITIVITY
Management meets periodically to review general economic conditions,
interest rate trends, and the interest rate sensitivity of the Bank's various
portfolios. The Company's objective in managing interest rate sensitivity is to
protect the Company's interest rate margins from the negative effects of upward
or downward changes in interest rates. Legislative changes, monetary control
efforts and the effects of industry deregulation have been significant factors
affecting the task of managing interest sensitivity positions.
The Company's rate-sensitive assets are those maturing within one year or
less. Rate-sensitive liabilities include interest-bearing demand deposits
(insured money market account and NOW accounts), savings accounts and time
deposits which mature or are subject to rate changes in one year or less;
however, industry experience indicates that many interest-bearing demand
deposits and regular savings deposits are not as interest-sensitive as other
types of interest-bearing deposits. The profitability of the Company is
influenced significantly by management's ability to control the relationship
between interest rate-sensitive assets and liabilities, especially during
periods of frequent changes in interest rates. As set forth in the table below,
the difference between the amounts of interest-earning assets and
interest-bearing liabilities subject to rate changes is known as the
"interest-sensitivity gap", and is referred to as a "positive gap" when the
amount of interest-sensitive assets exceeds that of liabilities, and as a
"negative gap" when the amount of interest-sensitive liabilities exceeds that of
assets.
18
<PAGE> 20
At December 31, 1998, $34.3 million or 41.99% of the Company's total
interest-earning assets were subject to rate adjustment during 1999, while a
total of $53.7 million or 86.31% 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 $19.4 million for the
year following December 31, 1998.
At December 31, 1998, 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 ...... $ 5,785,721 $ --- $ --- $ -- $ -- $ 5,785,721
Fixed-interest rate ......... 110,904 202,514 301,005 370,834 1,314,566 2,299,823
Mortgage:
Construction:
Variable-interest rate .... 582,320 -- -- -- -- 582,320
Fixed-interest rate ....... -- -- 7,591 47,641 186,265 241,497
Non-construction:
Variable-interest rate .... 16,976,229 -- -- -- -- 16,976,229
Fixed-interest rate ....... 347,779 287,935 1,317,075 1,203,742 14,976,428 18,132,959
Installment .................... 77,784 156,136 179,280 397,258 5,282,065 6,092,523
Other .......................... 3,042,692 -- -- -- -- 3,042,692
------------ ----------- ------------ ------------ ----------- -----------
Total loans ................. 26,923,429 646,585 1,804,951 2,019,475 21,759,324 53,153,764
Federal funds sold ............. 2,210,539 -- -- -- -- 2,210,539
Investments available-
for sale .................... -- -- -- -- 21,489,269 21,489,269
Investments held-
to-maturity ................. -- -- 238,983 453,732 4,143,247 4,835,962
------------ ----------- ------------ ------------ ----------- -----------
Total earning assets ........ 29,133,968 646,585 2,043,934 2,473,207 47,391,840 $81,689,534
------------ ----------- ------------ ------------ ----------- ===========
DEPOSITS:
NOW Accounts ................... 14,431,425 -- -- -- -- $14,431,425
Money Market ................... 11,315,901 -- -- -- -- 11,315,901
Savings deposits ............... 4,742,188 -- -- -- -- 4,742,188
Time deposits:
Under $100,000 .............. 1,479,912 2,377,195 4,749,714 7,495,850 7,348,762 23,451,433
$100,000 and over ........... 400,088 868,805 1,226,286 1,510,574 1,173,238 5,178,991
------------ ----------- ------------ ------------ ----------- -----------
Total costing deposits ...... 32,369,514 3,246,000 5,976,000 9,006,424 8,522,000 59,119,938
Sweep accounts ................. 3,136,907 -- -- -- -- 3,136,907
------------ ----------- ------------ ------------ ----------- -----------
Total costing liabilities ... 35,506,421 3,246,000 5,976,000 9,006,424 8,522,000 $62,256,845
------------ ----------- ------------ ------------ ----------- ===========
INTEREST RATE
SENSITIVITY GAP:
Amount ......................... $(6,372,453) $(2,599,415) $(3,932,066) $ (6,533,217) $38,869,840
=========== =========== =========== ============ ===========
% of total assets .............. (7.07)% (2.88)% (4.36)% (7.24)% 43.10%
=========== =========== =========== ============ ===========
CUMULATIVE INTEREST
RATE SENSITIVITY GAP:
Amount ......................... $(6,372,453) $(8,971,868) $(12,903,934) $(19,437,151) $19,432,689
=========== =========== ============ ============ ===========
% of total assets .............. (7.07)% (9.95)% (14.31)% (21.55)% 21.55%
=========== =========== ============ ============ ===========
</TABLE>
19
<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 1998 and 1997 although the
trading prices of all stock transactions are not known. At December 31, 1998,
there were 1,265,350 shares of Holding Corporation common stock outstanding held
by 685 shareholders of record.
Until the $.20 per share dividend (or a total of $253,000 and $242,000) was
declared as of December 31, 1998 and 1997, respectively, 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 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------------------------ -------------------------------------
HIGH LOW SHARES HIGH LOW SHARES
---- --- ------ ---- --- ------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter.................... $10.50 $10.00 11,500 $ 7.25 $6.00 4,800
2nd Quarter.................... 11.00 10.00 1,600 10.00 7.00 3,350
3rd Quarter..................... 11.50 10.50 4,250 10.00 7.25 5,890
4th Quarter..................... --- --- --- 10.75 8.00 45,900
</TABLE>
SPECIAL SHAREHOLDERS MEETING
The Holding Corporation's Special Shareholders Meeting will be held on
Wednesday, May 12, 1999 at 4:00 p.m. at the Bank's Colonial Office, 1500
Colonial Boulevard, Fort Myers, Florida 33919.
20
<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 Florida State Legislator for District 75. She served
on the Board of Lee Memorial Health System from 1995 through 1998. She also
serves on The Children's Hospital Development Board and the Lee Memorial
Foundation.
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 a 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
21
<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, 1998 and 1997, and the
related consolidated statements of income and comprehensive income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
BREWER, BEEMER, KUEHNHACKL & KOON, P.A.
Orlando, Florida
January 29, 1999
22
<PAGE> 24
SOUTH FLORIDA BANK HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
- ------
Cash and due from banks ............................ $ 6,098,905 $ 5,001,112
Federal funds sold ................................. 2,210,539 1,998,000
Investments available-for-sale ..................... 21,489,269 16,584,500
Investments held-to-maturity (market value of
$4,861,149 and $7,980,325) .................... 4,835,962 7,967,268
Loans, net of allowance for loan losses of
$889,076 and $882,034 ......................... 52,264,688 48,824,353
Accrued interest receivable ........................ 509,791 600,536
Premises and equipment, net ........................ 1,840,965 589,881
Other real estate owned ............................ 156,000 514,211
Other assets ....................................... 774,303 779,497
------------ ------------
Total assets .................................. $ 90,180,422 $ 82,859,358
============ ============
LIABILITIES
- -----------
Deposits:
Demand deposits ............................... $ 17,905,376 $ 14,238,948
NOW accounts .................................. 14,431,425 11,125,578
Money market accounts ......................... 11,315,901 8,621,852
Savings deposits .............................. 4,742,188 3,635,619
Time deposits under $100,000 .................. 23,451,433 29,279,400
Time deposits $100,000 and over ............... 5,178,991 6,197,891
------------ ------------
Total deposits ............................ 77,025,314 73,099,288
Securities sold under agreements to repurchase ..... 3,136,907 1,326,473
Accrued interest payable ........................... 361,265 457,407
Other liabilities .................................. 313,367 353,704
------------ ------------
Total liabilities ............................. 80,836,853 75,236,872
------------ ------------
Commitments and contingencies (Notes B, E and I)
SHAREHOLDERS' EQUITY
- --------------------
Common stock, $.01 par value, 10,000,000 shares
authorized, 1,265,350 and 1,210,975 shares
outstanding ................................... 12,654 12,110
Additional paid-in capital ......................... 10,639,771 10,366,378
Net unrealized securities gains .................... 21,828 324
Retained deficit ................................... (1,330,684) (2,756,326)
------------ ------------
Total shareholders' equity .................... 9,343,569 7,622,486
------------ ------------
Total liabilities and shareholders' equity .... $ 90,180,422 $ 82,859,358
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
23
<PAGE> 25
SOUTH FLORIDA BANK HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
INTEREST AND FEE INCOME FROM EARNING ASSETS:
Loans ................................................ $4,676,703 $4,303,281 $ 3,716,153
Federal funds sold ................................... 267,721 355,724 172,198
Investment securities ................................ 1,270,676 1,180,155 981,321
---------- ---------- -----------
Total interest income ........................... 6,215,100 5,839,160 4,869,672
---------- ---------- -----------
INTEREST EXPENSE:
Deposits:
NOW accounts .................................... 142,311 133,934 123,378
Money market accounts ........................... 259,919 231,943 230,998
Savings deposits ................................ 90,955 72,016 52,476
Time deposits under $100,000 .................... 1,451,995 1,624,930 1,333,029
Time deposits $100,000 and over ................. 310,140 302,886 178,118
Other ................................................ 61,991 40,841 38,623
---------- ---------- -----------
Total interest expense .......................... 2,317,311 2,406,550 1,956,622
---------- ---------- -----------
NET INTEREST INCOME .................................. 3,897,789 3,432,610 2,913,050
PROVISION FOR LOAN LOSSES ............................ -- -- --
---------- ---------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES... 3,897,789 3,432,610 2,913,050
---------- ---------- -----------
NON-INTEREST INCOME:
Service charge income ................................ 519,648 488,711 455,246
Realized securities gains ............................ -- -- 3,828
Gain on sale of other real estate owned .............. 402,759 -- --
Other................................................. 86,524 87,367 152,439
---------- ---------- -----------
Total non-interest income ....................... 1,008,931 576,078 611,513
---------- ---------- -----------
NON-INTEREST EXPENSES:
Personnel expense .................................... 1,588,218 1,386,331 1,272,815
Occupancy expense .................................... 611,731 544,767 525,366
Advertising .......................................... 83,759 107,161 74,084
Supplies ............................................. 70,669 77,954 64,103
Loan collection expenses ............................. 59,189 93,180 49,582
Legal expenses ....................................... 53,300 71,767 99,147
FDIC insurance ....................................... 30,079 26,587 25,921
Other ................................................ 785,961 538,438 521,339
---------- ---------- -----------
Total non-interest expenses ..................... 3,282,906 2,846,185 2,632,357
---------- ---------- -----------
INCOME BEFORE INCOME TAXES ........................... 1,623,814 1,162,503 892,206
BENEFIT FOR INCOME TAXES ............................. 54,898 261,218 108,000
---------- ---------- -----------
NET INCOME ........................................... 1,678,712 1,423,721 1,000,206
NET UNREALIZED SECURITIES GAINS (LOSSES), NET OF TAX
OF $13,180, $20,370 AND $32,831, RESPECTIVELY ..... 21,504 33,235 (53,566)
---------- ---------- -----------
COMPREHENSIVE INCOME ................................. $1,700,216 $1,456,956 $ 946,640
========== ========== ===========
NET INCOME PER SHARE:
Basic ........................................... $ 1.37 $ 1.18 $ .83
========== ========== ===========
Diluted ......................................... $ 1.36 $ 1.15 $ .82
========== ========== ===========
Weighted average number of common shares ............. 1,229,924 1,210,975 1,207,696
========== ========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
24
<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, 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
Unrealized depreciation on
investments available-for-sale,
net of related taxes ........... -- -- (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
Unrealized appreciation on
investments available-for-sale,
net of related taxes. .......... -- -- 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
Proceeds from exercise of
54,375 stock options ........... 544 273,393 -- -- 273,937 54,375
Unrealized appreciation on
investments available-for-sale,
net of related taxes ........... -- -- 21,504 -- 21,504 --
Dividend declared
at $.20 per share .............. -- -- -- (253,070) (253,070) --
Net income for 1998 ............... -- -- -- 1,678,712 1,678,712 --
------- ----------- -------- ----------- ---------- ---------
Balance,
December 31, 1998 .............. $12,654 $10,639,771 $ 21,828 $(1,330,684) $9,343,569 1,265,350
======= =========== ======== =========== ========== =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
25
<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,
------------------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Interest received .................................... $ 6,305,845 5,690,445 4,914,008
Non-interest income .................................. 1,008,931 576,078 611,513
Interest paid ........................................ (2,413,453) (2,392,681) (2,035,555)
Personnel expenses ................................... (1,588,218) (1,386,331) (1,272,815)
Other operating expenditures ......................... (1,885,110) (1,268,178) (1,235,772)
------------ ------------ -----------
Net cash provided by operating activities ............ 1,427,995 1,219,333 981,379
------------ ------------ -----------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Investments available-for-sale:
Purchases ....................................... (18,959,759) (10,054,730) (6,546,175)
Maturities ...................................... 14,100,000 2,000,000 7,006,520
Sales ........................................... -- -- 2,454,923
Investments held-to-maturity:
Purchases ....................................... (2,000,000) (3,987,621) (6,948,492)
Maturities ...................................... 5,135,128 4,183,364 5,174,703
Proceeds from the sale of other real estate owned .... 788,885 83,300 78,377
Increase in loans .................................... (3,501,250) (5,737,658) (7,486,716)
Purchases of premises and equipment .................. (1,448,869) (338,011) (51,586)
------------ ------------ -----------
Net cash used in investing activities ................ (5,885,865) (13,851,356) (6,318,446)
------------ ------------ -----------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Increase (Decrease) in:
Demand deposits ................................. 3,666,428 (976,663) 4,825,558
NOW accounts .................................... 3,305,847 3,284,228 (626,162)
Money market accounts ........................... 2,694,049 872,070 (602,799)
Savings deposits ................................ 1,106,569 909,779 519,124
Time deposits ................................... (6,846,867) 5,122,099 3,781,218
Securities sold under agreements to repurchase ....... 1,810,434 577,416 (874,263)
Dividends paid to shareholders ....................... (242,195) -- --
Proceeds from exercise of stock options .............. 273,937 -- 75,000
------------ ------------ -----------
Net cash provided by financing activities ............ 5,768,202 9,788,929 7,097,676
------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ................................ 1,310,332 (2,843,094) 1,760,609
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..... 6,999,112 9,842,206 8,081,597
------------ ------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........... $ 8,309,444 $ 6,999,112 $ 9,842,206
============ ============ ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
26
<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,
-------------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net income ......................................... $ 1,678,712 $ 1,423,721 $ 1,000,206
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................. 183,637 156,564 145,666
Benefit for income taxes ...................... (54,898) (261,218) (108,000)
Writedown of other real estate owned .......... 33,000 -- --
Net gain on sale of other real estate owned.... (402,759) -- --
Decrease (Increase) in:
Accrued interest receivable ............... 90,745 (148,715) 44,336
Other assets .............................. 46,912 (34,965) 4,079
Increase (Decrease) in:
Accrued interest payable .................. (96,142) 13,869 (78,933)
Other liabilities ......................... (51,212) 70,077 (25,975)
----------- ----------- -----------
Net cash provided by operating activities .......... $ 1,427,995 $ 1,219,333 $ 981,379
=========== =========== ===========
Supplemental schedule of non-cash activities:
Loans transferred to other real estate owned... $ 60,915 $ 106,586 $ 78,377
Net unrealized securities gains (losses) ...... 21,504 33,235 (53,566)
Dividend declared, not paid ................... 253,070 242,195 --
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
27
<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.
28
<PAGE> 30
Loan Impairment and Losses
The Bank has 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 buildings, which range from ten to forty
years, and furniture and equipment, which range from three to seven
29
<PAGE> 31
years. Additions to premises and equipment and major improvements are
capitalized. Maintenance and repairs are expensed as incurred.
Income Recognition
Interest income on loans is accrued based upon the principal amount
outstanding. Non-refundable fees and costs associated with the origination of
loans are deferred and recognized over the life of the loan using a method that
approximates the interest method.
Stock-Based Compensation
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("FAS
123") which requires certain disclosures about stock-based employee compensation
arrangements, regardless of the method used to account for them, and defines a
fair value based method of accounting for an employee stock option or similar
equity instrument and encourages all entities to adopt that method of accounting
for all of their employee stock compensation plans. However, FAS 123 also allows
an entity to continue to measure compensation cost for stock-based compensation
plans using the intrinsic value method of accounting prescribed by APB Opinion
No. 25, "Accounting for Stock Issued to Employees." Entities electing to
continue using the accounting method in APB Opinion No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value method of
accounting had been adopted. Under the fair value method, compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. Under the
intrinsic value based method, compensation cost is the excess, if any, of the
quoted market price of the stock at grant date or other measurement date over
the amount an employee must pay to acquire the stock. The Company elected to
continue using the accounting method in APB Opinion No. 25. The effect of using
the fair value method of accounting on net income for the years ended December
31, 1998 and 1997 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, 1998,
1997 and 1996, the reconciliation of the denominators of the basic and diluted
per-share computations was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Common shares.................. 1,229,924 1,210,975 1,207,696
Stock options.................. 2,674 27,351 11,202
--------- --------- ---------
Diluted shares................. 1,232,598 1,238,326 1,218,898
========= ========= =========
</TABLE>
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("FAS 130") as of January 1, 1998.
Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net income. Although certain changes in net assets and
liabilities, such as
30
<PAGE> 32
unrealized gains and losses on available-for-sale securities, are reported as a
separate component of the equity section of the statement of financial
condition, such items, along with net income, are components of comprehensive
income. The adoption of FAS 130 had no effect on the Company's net income or
shareholders' equity.
Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and federal funds sold, which are invested
overnight.
NOTE B - INVESTMENTS AVAILABLE-FOR-SALE AND INVESTMENTS HELD-TO-MATURITY
At December 31, 1998 and 1997, 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>
1998
U.S. Agency obligations due:
After one year through five years .... $ 8,489,116 $19,650 $ (9,547) $ 8,499,219
After five years through ten years ... 2,227,781 -- (21,679) 2,206,102
After ten years ...................... 10,737,166 51,079 (4,297) 10,783,948
----------- ------- -------- -----------
Total investments
available-for-sale ............... $21,454,063 $70,729 $(35,523) $21,489,269
=========== ======= ======== ===========
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
=========== ======= ======== ===========
<CAPTION>
CARRYING
VALUE GROSS GROSS ESTIMATED
(AMORTIZED UNREALIZED UNREALIZED MARKET
INVESTMENTS HELD-TO-MATURITY: COST) GAINS LOSSES VALUE
---------- ------- ------- ----------
<S> <C> <C> <C> <C>
1998
U.S. Agency obligations due:
In one year or less .................. $ 692,715 $ -- $ (657) $ 692,058
After one year through five years .... 2,918,280 26,176 -- 2,944,456
After five years through ten years ... 503,230 -- (2,136) 501,094
Collateralized mortgage obligations
due after ten years .................. 721,737 1,804 -- 723,541
---------- ------- ------- ----------
Total investments held-to-maturity ........ $4,835,962 $27,980 $(2,793) $4,861,149
========== ======= ======= ==========
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
========== ======= ======= ==========
</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.
31
<PAGE> 33
As of December 31, 1998, investments available-for-sale and
held-to-maturity with a carrying value of approximately $3.3 million were
pledged to collateralize securities sold under agreements to repurchase,
$702,000 were pledged for public deposits and $301,000 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.
As of December 31, 1998 and 1997, loans consisted of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Commercial ........................... $ 8,085,544 $ 9,289,611
Mortgage:
Construction .................... 823,817 961,264
Non-construction ................ 35,109,188 31,508,547
Installment .......................... 6,092,523 4,781,456
Other loans .......................... 3,042,692 3,165,509
----------- -----------
Total loans, net of unearned income... 53,153,764 49,706,387
Less - allowance for loan losses ..... 889,076 882,034
----------- -----------
Loans, net ...................... $52,264,688 $48,824,353
=========== ===========
</TABLE>
For the years ended December 31, 1998, 1997, and 1996, an analysis of
the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Beginning balance .................... $ 882,034 $ 904,562 $ 852,270
Provision for loan losses............. -- -- --
Charge-offs .......................... (108,273) (72,116) (98,341)
Recoveries ........................... 115,315 49,588 150,633
--------- --------- ---------
Ending balance .................. $ 889,076 $ 882,034 $ 904,562
========= ========= =========
</TABLE>
As discussed in Note A, the Company has adopted the provisions of FAS
114 and FAS 118 related to impaired loans. As of December 31, 1998 and 1997, the
total recorded investment in impaired loans was $1,109,000 and $687,000,
respectively, and the Bank recorded an allowance for loan losses of $186,000 and
$128,000, respectively, related to its impaired loans. As of December 31, 1998
and 1997, the net investment in impaired loans was $923,000 and $559,000,
respectively. During the years ended December 31, 1998, 1997 and 1996, the
recorded investment in impaired loans averaged $644,000, $1,082,000 and
$1,214,000, respectively, and interest income recognized on impaired loans
totaled $108,000, $72,000 and $113,000, respectively, and interest income
received on impaired loans totaled $77,000, $39,000 and $91,000, 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, 1998 and 1997, 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 67.60% and
65.32%, 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
32
<PAGE> 34
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, 1998 and 1997 premises and equipment were comprised
of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land ............................ $1,157,650 $ --
Buildings ....................... 176,297 --
Leasehold improvements .......... 1,000,677 981,177
Furniture and equipment ......... 1,175,304 1,091,997
---------- ----------
Total ...................... 3,509,928 2,073,174
Less - accumulated depreciation
and amortization ........... 1,668,963 1,483,293
---------- ----------
Premises and equipment, net ..... $1,840,965 $ 589,881
========== ==========
</TABLE>
NOTE E - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
As of December 31, 1998, 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 $8,127,000 and $7,193,000 at December 31, 1998 and
1997, 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 $479,000 and $1,106,000 at December 31, 1998
and 1997, respectively.
NOTE F - INCOME TAXES
As discussed in Note A, the Company has adopted 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, 1998, 1997 and 1996,
the Company recorded $55,000, $261,000 and $108,000, respectively, of income tax
benefits resulting from the corresponding reduction in the valuation allowance
associated with the Company's tax loss carryforwards.
33
<PAGE> 35
For the years ended December 31, 1998, 1997 and 1996, 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>
1998 1997 1996
------------------- ------------------- -------------------
AMOUNT % AMOUNT % AMOUNT %
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Expected expense using statutory rate... $ 617,049 38.00% $ 441,751 38.00% $ 339,038 38.00%
Decrease in valuation allowance ........ (655,974) (40.40) (755,026) (64.95) (283,000) (31.72)
Other, net ............................. (15,973) (0.98) 52,057 4.48 (164,038) (18.38)
--------- ------ --------- ------ --------- ------
Total income tax expense ............... $ (54,898) (3.38)% $(261,218) (22.47)% $(108,000) (12.10)%
========= ====== ========= ====== ========= ======
</TABLE>
During the years ended December 31, 1998, 1997 and 1996, the Company
utilized net operating loss carryforwards totaling $1,620,000, $1,284,000 and
$955,000, respectively.
As of December 31, 1998, the Company had net operating loss
carryforwards remaining for federal tax purposes of approximately $1.3 million,
which may be used to offset future taxable income or will expire, if unused, as
follows: $256,000 in 2007, $1,026,000 in 2008, and $18,000 in 2009. Should
certain substantial changes (as defined by the federal income tax code), occur
in the Company's ownership, an annual limitation would be imposed on the amount
of loss which could be utilized in any one year. Because realization of the
Company's net operating losses carried forward is uncertain, a valuation
allowance has been established against the related deferred tax assets. The
valuation allowance is used to reduce deferred tax assets to the estimated
amount that management believes is more likely than not to be realized. In
determining the amount of any necessary valuation allowance, management takes
into consideration all available evidence and information, both positive and
negative, that a valuation allowance is needed. Such evidence includes the
Company's current and historical financial condition, results of operations and
cumulative losses, as well as current and enacted future tax laws. Management
also takes into consideration the length of its loss carryforwards, its estimate
of the likelihood and amount of earnings during the carryforward period and the
reduction in the benefit those carryforwards would provide should substantial
changes occur in the Company's ownership during the carryforward period. As of
December 31, 1998 and 1997 the Company's deferred tax assets and liabilities
consisted of the following:
<TABLE>
<CAPTION>
1998 1997
-------- -----------
<S> <C> <C>
Gross deferred tax assets:
Net operating loss carryforward........ $498,456 $ 1,106,229
Fixed assets .......................... 143,934 149,569
Other real estate owned ............... 58,720 46,302
Other ................................. 41,122 49,296
Valuation allowance ................... -- (655,974)
-------- -----------
Total ............................. 742,232 695,422
-------- -----------
Gross deferred tax liabilities:
Allowance for loan losses ............. 30,916 39,449
-------- -----------
Total ............................. 30,916 39,449
-------- -----------
Net deferred tax asset ..................... $711,316 $ 655,973
======== ===========
</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, 1998, 1997 and 1996, the Company's expense for the
Savings Plan was $32,000, $29,000 and $24,000, 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, 1998, options totaling 5,000 expire on January 1, 2007, and
options totaling 2,125 expire on January 13, 2008.
34
<PAGE> 36
Options granted, exercised and exercisable were as follows:
<TABLE>
<CAPTION>
PRICE NUMBER EXERCISABLE
----- ------ -----------
<S> <C> <C> <C>
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
Granted .................. 10.50 2,500
Canceled ................. -- --
Exercised ................ 5.04 (54,375)
-------
Balance, December 31, 1998..... 6.64 7,125 750
=======
</TABLE>
NOTE H - RELATED PARTIES
Deposits of the Company's directors, officers and relatives of
directors totaled approximately $2,634,000, $2,755,000, and $1,922,000 at
December 31, 1998, 1997 and 1996, respectively. Several of the Company's
directors, officers, and relatives and affiliated entities of directors obtained
loans and lines of credit from the Bank. These loans and lines of credit were
granted in accordance with the normal lending policies of the Bank. For the
years ended December 31, 1998, 1997, and 1996 the activity in loans and lines of
credit from related parties were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ----------- -----------
<S> <C> <C> <C>
Beginning balance ............. $ 852,246 $ 1,348,811 $ 1,274,714
New loans ..................... 125,153 939,127 584,747
Other changes ................. 352,442 (492,025) (11,256)
Repayments .................... (727,053) (943,667) (499,394)
--------- ----------- -----------
Ending balance ........... $ 602,788 $ 852,246 $ 1,348,811
========= =========== ===========
</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, 1998, 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 $45,000, $35,000 and $28,000 during the years ended December 31,
1998, 1997 and 1996, 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 $1,910 per month. Total rent expense under
this lease was $24,000, $23,000 and $29,000 during the years ended December 31,
1998, 1997 and 1996, 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, 1998, 1997, and 1996 totaled $29,000, $45,000, and $54,000, respectively.
NOTE I - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases building facilities under noncancellable operating
leases which expire at various dates through 2002. 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 $222,000, $233,000, and
$220,000 during the years ended December 31, 1998, 1997, and 1996, respectively.
35
<PAGE> 37
As of December 31, 1998, future minimum lease payments under leases
with initial or remaining noncancellable lease terms in excess of one year were
as follows:
<TABLE>
<S> <C>
1999.............................................. $177,000
2000.............................................. 63,000
2001.............................................. 35,000
2002.............................................. 18,000
--------
Future minimum lease payments..................... $293,000
========
</TABLE>
Year 2000
Because many computerized systems use only two digits to record the
year in date fields, such systems may not be able to process dates accurately in
the year 2000 and after. The effects of this problem will vary from system to
system and could adversely affect the Company's operations.
The Company has implemented a plan to remediate, replace and test all
systems that may be negatively affected by the Year 2000 issue, particularly
mission-critical systems. As of December 31, 1998, the Company has completed
substantially all of the anticipated work required by the plan. Costs incurred
specifically related to the Year 2000 issue totaled approximately $214,000 as of
December 31, 1998. Although additional costs will likely be incurred in
preparation for the Year 2000, the Company does not expect such costs to have a
material impact on its financial condition or results of operations.
To determine the readiness of its customers and vendors, the Bank has
corresponded with its significant borrowers and vendors to determine the extent
of risk created by any failure by them to remediate their own Year 2000 issues.
The Bank's strategic plan provides, if necessary, a Year 2000 contingency
reserve of not less than $10,000 for borrowers with high Year 2000 risks. In
addition, if certain vendors do not demonstrate Year 2000 compliance by a
certain date, the Bank will seek other alternatives, which may include seeking
replacement vendors.
Ultimately, the potential impact of the Year 2000 issue will depend not
only on the corrective measures the Bank undertakes, but also on the way in
which the Year 2000 issue is addressed by governmental agencies, businesses and
other entities who receive data from the Bank, or whose financial condition or
operational capability is important to the Bank, such as suppliers or customers.
At this time, the Bank cannot determine the financial effect on its operations
if significant customer and/or vendor remediation efforts are not resolved in a
timely manner.
NOTE J - CAPITAL RATIOS
As of December 31, 1998 and 1997, a comparison of the required minimum
capital ratios to actual capital ratios was as follows:
<TABLE>
<CAPTION>
BANK RATIOS
---------------------- REGULATORY
1998 1997 REQUIREMENTS
----- ----- ------------
<S> <C> <C> <C>
Total capital to risk weighted assets...................... 17.45% 15.46% 8.00%
Tier 1 capital (common shareholders'
equity) to risk-weighted assets....................... 16.19 14.20 4.00
Tier 1 capital to average total assets -
Leverage ratio........................................ 10.00 8.55 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.
Florida Banking Statutes also limit the amount of dividends that may be
paid by the Bank to the Company without prior approval of the Bank's regulatory
agency. Retained earnings of the Bank which may be paid to the Company as
dividends without prior approval totaled approximately $3,898,000 and $2,814,000
as of December 31, 1998 and 1997, respectively.
36
<PAGE> 38
NOTE K - PENDING ACQUISITION
On October 22, 1998, the Holding Corporation announced that it entered
into an Agreement with Fifth Third Bancorp pursuant to which Fifth Third Bancorp
would acquire the Holding Corporation and Bank. In the transaction, holders of
Holding Corporation common stock would receive .348 shares of Fifth Third
Bancorp common stock in exchange therefor. Consummation of the transaction is
subject to a number of conditions, including the receipt of regulatory approval
and approval of the Agreement by the Holding Corporation shareholders. The
acquisition is expected to take place in June 1999.
NOTE L - CONDENSED HOLDING CORPORATION FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
STATEMENTS OF FINANCIAL CONDITION DECEMBER 31,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks ................................... $ 696,486 $ 447,393
Dividend receivable from the Bank ......................... -- 246,908
Investment in the Bank .................................... 8,900,153 7,170,380
------------ ------------
Total assets ......................................... $ 9,596,639 $ 7,864,681
============ ============
Dividend payable .......................................... $ 253,070 $ 242,195
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized,
1,265,350 and 1,210,975 shares outstanding ........... 12,654 12,110
Additional paid-in capital ................................ 10,639,771 10,366,378
Net unrealized securities gains of the Bank ............... 21,828 324
Retained deficit .......................................... (1,330,684) (2,756,326)
------------ ------------
Total shareholders' equity ........................... 9,343,569 7,622,486
------------ ------------
Total liabilities and shareholders' equity ........... $ 9,596,639 $ 7,864,681
============ ============
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------
STATEMENTS OF OPERATIONS 1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Equity in the Bank's earnings ............................. $ 1,708,269 $ 1,429,521 $ 1,007,316
Interest income from the Bank ............................. 18,172 12,974 11,865
Legal expenses ............................................ 20,959 9,512 4,899
Non-interest expense - other .............................. 26,770 9,262 14,076
----------- ----------- -----------
Net income ................................................ 1,678,712 1,423,721 1,000,206
Net unrealized securities gains (losses) .................. 21,504 33,235 (53,566)
----------- ----------- -----------
Comprehensive income ................................. $ 1,700,216 $ 1,456,956 $ 946,640
=========== =========== ===========
STATEMENTS OF CASH FLOWS
Cash flows used in operating activities:
Other operating expenditures ......................... $ (29,557) $ (5,800) $ (7,110)
----------- ----------- -----------
Cash flows provided by investing activities:
Receipt of dividend from the Bank .................... 246,908 -- --
----------- ----------- -----------
Cash flows provided by financing activities:
Proceeds from exercise of stock options .............. 273,937 -- 75,000
Dividends paid to shareholders ....................... (242,195) -- --
----------- ----------- -----------
Cash flows provided by financing activities ...... 31,742 -- 75,000
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ...... 249,093 (5,800) 67,890
Cash and cash equivalents at beginning of period .......... 447,393 453,193 385,303
----------- ----------- -----------
Cash and cash equivalents at end of period ................ $ 696,486 $ 447,393 $ 453,193
=========== =========== ===========
</TABLE>
37
<PAGE> 39
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net income to net cash used in operating activities:
Net income ........................................ $ 1,678,712 $ 1,423,721 $ 1,000,206
Equity in the Bank's earnings ..................... (1,708,269) (1,429,521) (1,007,316)
----------- ----------- -----------
Net cash used in operating activities.............. $ (29,557) $ (5,800) $ (7,110)
=========== =========== ===========
</TABLE>
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("FAS 107"), requires that the Company
disclose estimated fair values of financial instruments for which it is
practicable to estimate that value. Fair value estimates, methods and
assumptions are set forth as follows for the Company's financial instruments.
Cash and Due From Banks and Federal Funds Sold For these short-term
investments, the carrying amount was a reasonable estimate of fair value,
primarily due to their relatively short period to maturity.
Investments Available-for-Sale and Held-to-Maturity For investments
available-for-sale and held-to-maturity, fair values were based on quoted market
prices, if available. If a quoted market price was not available, fair value was
estimated using quoted market prices for similar securities.
Loans Fair values were estimated for groups of similar loans based
upon type of loan, credit quality and maturity. For variable-interest rate
loans, the carrying amount was considered to approximate fair value. The fair
value of fixed-interest rate mortgage loans was based on quoted market prices of
similar loans sold in conjunction with securitization transactions, adjusted for
any differences in loan characteristics, with servicing retained. The carrying
amount of loans on non-accrual status was used as their fair value. The fair
value of all other loans was estimated by discounting estimated cash flows using
interest rates being charged by the Bank on December 31, 1998 and 1997,
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, 1998 and 1997, 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.
38
<PAGE> 40
The carrying amount and estimated fair value of the Company's financial
instruments as of December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------- -----------------------------
CARRYING FAIR CARRYING FAIR
FINANCIAL ASSETS: AMOUNT VALUE AMOUNT VALUE
- ----------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and due from banks ................................... $ 6,098,905 $ 6,098,905 $ 5,001,112 $ 5,001,112
Federal funds sold ........................................ 2,210,539 2,210,539 1,998,000 1,998,000
Investments available-for-sale ............................ 21,489,269 21,489,269 16,584,500 16,584,500
Investments held-to-maturity .............................. 4,835,962 4,861,149 7,967,268 7,980,325
Loans ..................................................... 53,153,764 53,174,000 49,706,387 49,441,000
FINANCIAL LIABILITIES:
Deposits .................................................. 77,025,314 77,056,000 73,099,288 73,164,000
Securities sold under agreements
to repurchase ........................................ 3,136,907 3,136,907 1,326,473 1,326,473
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT:
Commitments to extend credit .............................. -- -- -- --
Standby letters of credit ................................. -- -- -- --
</TABLE>
NOTE N - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
For the years ended December 31, 1998 and 1997, the Company's condensed
quarterly financial information was as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1998:
Interest income ........................................... $1,535,027 $1,577,354 $1,565,962 $1,536,757
Interest expense .......................................... 597,061 595,344 569,345 555,561
---------- ---------- ---------- ----------
Net interest income ....................................... 937,966 982,010 996,617 981,196
Non-interest income ....................................... 154,848 147,348 149,489 557,246
Non-interest expense ...................................... 774,426 822,346 831,168 854,966
---------- ---------- ---------- ----------
Income before income taxes ................................ 318,388 307,012 314,938 683,476
Benefit (provision) for income taxes ...................... 60,000 60,000 60,000 (125,102)
---------- ---------- ---------- ----------
Net income ................................................ 378,388 367,012 374,938 558,374
Net unrealized securities gains (losses)................... 6,713 (5,595) 51,141 (30,755)
---------- ---------- ---------- ----------
Comprehensive income ...................................... $ 385,101 $ 361,417 $ 426,079 $ 527,619
========== ========== ========== ==========
Net income per share:
Basic ................................................ $ 0.31 $ 0.30 $ 0.31 $ 0.45
========== ========== ========== ==========
Diluted .............................................. $ 0.30 $ 0.30 $ 0.31 $ 0.45
========== ========== ========== ==========
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 unrealized securities gains (losses)................... (30,857) 26,898 27,458 9,736
---------- ---------- ---------- ----------
Comprehensive income ...................................... $ 276,446 $ 397,689 $ 377,544 $ 405,277
========== ========== ========== ==========
Net income per share:
Basic ................................................ $ 0.25 $ 0.31 $ 0.29 $ 0.33
========== ========== ========== ==========
Diluted .............................................. $ 0.25 $ 0.30 $ 0.29 $ 0.31
========== ========== ========== ==========
</TABLE>
39
<PAGE> 41
SOUTH FLORIDA BANK
Lee County's Banking Advantage
Member FDIC
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
Jeffrey J. Ritter Vice President/Loan Officer
Suzanne Hummel Assistant Vice President/Branch Manager
</TABLE>
BRANCH LOCATIONS
MAIN OFFICE
2017 McGregor Boulevard
(941) 334-2020 - Fax (941) 334-6203
24 Hour Advantage Banking (941) 334-7589
COLONIAL OFFICE
1500 Colonial Boulevard
(941) 278-0220 - Fax (941) 278-0387
METRO-DANIELS OFFICE
13391 Metro Parkway
(941) 768-5300 - Fax (941) 768-3877
IONA OFFICE
15280 McGregor Boulevard
(941) 466-6100 - Fax (941) 334-6203
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, 1998
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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,098,905
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,210,539
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,489,269
<INVESTMENTS-CARRYING> 4,835,962
<INVESTMENTS-MARKET> 4,861,149
<LOANS> 53,153,764
<ALLOWANCE> 889,076
<TOTAL-ASSETS> 90,180,422
<DEPOSITS> 77,025,314
<SHORT-TERM> 3,136,907
<LIABILITIES-OTHER> 674,632
<LONG-TERM> 0
0
0
<COMMON> 12,654
<OTHER-SE> 9,330,915
<TOTAL-LIABILITIES-AND-EQUITY> 90,180,422
<INTEREST-LOAN> 4,676,703
<INTEREST-INVEST> 1,270,676
<INTEREST-OTHER> 267,721
<INTEREST-TOTAL> 6,215,100
<INTEREST-DEPOSIT> 2,255,320
<INTEREST-EXPENSE> 2,317,311
<INTEREST-INCOME-NET> 3,897,789
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 785,961
<INCOME-PRETAX> 1,623,814
<INCOME-PRE-EXTRAORDINARY> 1,623,814
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,678,712
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.36
<YIELD-ACTUAL> 4.91
<LOANS-NON> 818,399
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 882,034
<CHARGE-OFFS> 108,273
<RECOVERIES> 115,315
<ALLOWANCE-CLOSE> 889,076
<ALLOWANCE-DOMESTIC> 791,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 98,076
</TABLE>
