<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 of (I.R.S. Employer
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
NOT APPLICABLE
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
As of November 9, 1998, there were outstanding 1,265,350 shares of the
Registrant's Common Stock.
1
<PAGE> 2
SOUTH FLORIDA BANK HOLDING CORPORATION
FORM 10-Q - FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
a) Unaudited Consolidated Statements of Financial
Condition - September 30, 1998 and December 31, 1997........................ 3
b) Unaudited Consolidated Statements of Income and Comprehensive Income -
Nine Months Ended September 30, 1998 and 1997............................... 4
b) Unaudited Consolidated Statements of Income and Comprehensive Income -
Three Months Ended September 30, 1998 and 1997.............................. 5
c) Unaudited Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997............................... 6
d) Notes to Unaudited Consolidated Financial Statements...................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................................. 20
SIGNATURES............................................................................................ 21
</TABLE>
2
<PAGE> 3
SOUTH FLORIDA BANK HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks................................................ $ 3,905,370 $ 5,001,112
Federal funds sold..................................................... 5,842,837 1,998,000
Investments available-for-sale......................................... 12,994,317 16,584,500
Investments held-to-maturity (market value of
$5,471,205 and $7,980,325)..................................... 5,404,250 7,967,268
Loans, net of allowance for loan losses of
$868,160 and $882,034.......................................... 53,529,326 48,824,353
Accrued interest receivable............................................ 469,505 600,536
Premises and equipment, net............................................ 1,864,094 589,881
Other real estate owned................................................ 453,500 514,211
Other assets........................................................... 886,200 779,497
----------- -----------
Total assets................................................... $85,349,399 $82,859,358
=========== ===========
LIABILITIES
Deposits:
Demand deposits................................................ $15,892,898 $14,238,948
NOW accounts................................................... 11,434,062 11,125,578
Money market accounts.......................................... 11,660,627 8,621,852
Savings deposits............................................... 4,715,674 3,635,619
Time deposits under $100,000................................... 24,594,831 29,279,400
Time deposits $100,000 and over................................ 5,410,219 6,197,891
----------- -----------
Total deposits.......................................... 73,708,311 73,099,288
Securities sold under agreements to repurchase......................... 2,072,657 1,326,473
Accrued interest payable............................................... 353,851 457,407
Other liabilities...................................................... 145,560 353,704
----------- -----------
Total liabilities.............................................. $76,280,379 $75,236,872
----------- -----------
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........................................ 52,583 324
Retained deficit....................................................... (1,635,988) (2,756,326)
----------- -----------
Total shareholders' equity..................................... 9,069,020 7,622,486
----------- -----------
Total liabilities and shareholders' equity..................... $85,349,399 $82,859,358
=========== ===========
</TABLE>
The accompanying Unaudited Notes to Consolidated Financial Statements
are an integral part of these financial statements.
3
<PAGE> 4
SOUTH FLORIDA BANK HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1997
---------- ----------
<S> <C> <C>
INTEREST AND FEE INCOME FROM EARNING ASSETS:
Loans.................................................................. $3,530,541 $3,213,952
Federal funds sold..................................................... 159,708 279,037
Investment securities.................................................. 988,094 809,882
---------- ----------
Total interest income.......................................... 4,678,343 4,302,871
---------- ----------
INTEREST EXPENSE:
Deposits:
NOW accounts................................................... 112,060 97,325
Money market accounts.......................................... 177,476 165,051
Savings deposits............................................... 72,909 52,775
Time deposits under $100,000................................... 1,126,239 1,170,331
Time deposits $100,000 and over................................ 242,501 222,431
Other.................................................................. 30,565 29,553
---------- ----------
Total interest expense......................................... 1,761,750 1,737,466
---------- ----------
NET INTEREST INCOME.................................................... 2,916,593 2,565,405
PROVISION FOR LOAN LOSSES.............................................. -- --
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,916,593 2,265,405
---------- ----------
NON-INTEREST INCOME:
Service charge income.................................................. 388,138 360,915
Other.................................................................. 63,547 66,558
---------- ----------
Total non-interest income...................................... 451,685 427,473
---------- ----------
NON-INTEREST EXPENSES:
Personnel expense...................................................... 1,158,490 1,009,885
Occupancy expense...................................................... 460,252 396,810
Advertising............................................................ 66,879 73,406
Loan collection expenses............................................... 54,503 73,052
Supplies............................................................... 55,651 59,397
Legal expenses......................................................... 37,918 52,023
Other.................................................................. 594,247 390,125
---------- ----------
Total non-interest expenses.................................... 2,427,940 2,054,698
---------- ----------
INCOME BEFORE INCOME TAXES............................................. 940,338 938,180
BENEFIT FOR INCOME TAXES............................................... 180,000 90,000
---------- ----------
NET INCOME............................................................. 1,120,338 1,028,180
Net unrealized securities gains (losses)............................... 52,259 23,429
---------- ----------
COMPREHENSIVE INCOME................................................... $1,172,597 $1,051,609
========== ==========
NET INCOME PER SHARE:
Basic.......................................................... $ .92 $ .56
========== ==========
Diluted........................................................ $ .92 $ .55
========== ==========
Weighted average number of common shares............................... 1,217,505 1,210,975
========== ==========
</TABLE>
The accompanying Unaudited Notes to Consolidated Financial Statements
are an integral part of these financial statements.
4
<PAGE> 5
SOUTH FLORIDA BANK HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1998 1997
---------- ----------
<S> <C> <C>
INTEREST AND FEE INCOME FROM EARNING ASSETS:
Loans.................................................................. $1,229,418 $1,118,788
Federal funds sold..................................................... 40,275 118,833
Investment securities.................................................. 296,269 296,324
---------- ----------
Total interest income.......................................... 1,565,962 1,533,945
---------- ----------
INTEREST EXPENSE:
Deposits:
NOW accounts................................................... 35,267 32,851
Money market accounts.......................................... 64,314 59,754
Savings deposits............................................... 25,529 19,486
Time deposits under $100,000................................... 354,549 419,150
Time deposits $100,000 and over................................ 80,382 82,453
Other.................................................................. 9,304 13,424
---------- ----------
Total interest expense......................................... 569,345 627,118
---------- ----------
NET INTEREST INCOME.................................................... 996,617 906,827
PROVISION FOR LOAN LOSSES.............................................. -- --
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 996,617 906,827
---------- ----------
NON-INTEREST INCOME:
Service charge income.................................................. 127,322 124,198
Other.................................................................. 22,167 18,973
---------- ----------
Total non-interest income...................................... 149,489 143,171
---------- ----------
NON-INTEREST EXPENSES:
Personnel expense...................................................... 429,384 358,766
Occupancy expense........... .......................................... 160,907 154,347
Advertising............................................................ 8,115 25,568
Loan collection expenses............................................... 4,990 23,605
Supplies............................................................... 17,452 24,580
Legal expenses......................................................... 8,790 14,254
Other.................................................................. 201,530 128,792
---------- ----------
Total non-interest expenses.................................... 831,168 729,912
---------- ----------
INCOME BEFORE INCOME TAXES............................................. 314,938 320,086
BENEFIT FOR INCOME TAXES............................................... 60,000 30,000
---------- ----------
NET INCOME............................................................. 374,938 350,086
Net unrealized securities gains (losses)............................... 51,141 27,458
---------- ----------
COMPREHENSIVE INCOME................................................... $ 426,079 $ 377,544
========== ==========
NET INCOME PER SHARE:
Basic.......................................................... $ .31 $ .31
========== ==========
Diluted........................................................ $ .31 $ .30
========== ==========
Weighted average number of common shares............................... 1,217,505 1,210,975
========== ==========
</TABLE>
The accompanying Unaudited Notes to Consolidated Financial Statements
are an integral part of these financial statements.
5
<PAGE> 6
SOUTH FLORIDA BANK HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1998 1997
----------- ------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Interest received...................................................... $ 4,809,777 $ 4,253,265
Non-interest income.................................................... 451,685 427,473
Interest paid.......................................................... (1,865,306) (1,708,380)
Personnel expenses..................................................... (1,158,490) (1,009,885)
Other operating expenditures........................................... (1,273,760) (864,057)
----------- ------------
Net cash provided by (used in) operating activities.................... 963,906 1,098,416
----------- ------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Investments available-for-sale:
Purchases...................................................... (5,936,687) (5,964,058)
Maturities..................................................... 9,609,681 2,000,000
Investments held-to-maturity:
Purchases...................................................... (2,003,700) (3,987,090)
Maturities..................................................... 4,567,794 996,992
Proceeds from the sales of other real estate owned..................... 107,303 83,300
Increase in loans...................................................... (4,812,276) --
Increase in premises and equipment..................................... (1,376,070) (266,679)
----------- ------------
Net cash provided by (used in) investing activities.................... 156,045 (10,988,801)
----------- ------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Increase (Decrease) in:
Demand deposits................................................ 941,789 1,604,279
NOW accounts................................................... 308,484 1,575,641
Money market accounts.......................................... 3,750,936 (2,401,358)
Savings deposits............................................... 1,080,055 646,396
Time deposits.................................................. (5,472,241) 6,953,776
Securities sold under agreements to repurchase......................... 746,184 992,612
Proceeds from issuance of common stock................................. 273,937 --
----------- ------------
Net cash provided by financing activities.............................. 1,629,144 10,965,504
----------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS............................................... 2,749,095 1,075,119
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....................... 6,999,112 9,842,206
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................. $ 9,748,207 $ 10,917,325
=========== ============
</TABLE>
The accompanying Unaudited Notes to Consolidated Financial Statements
are an integral part of these financial statements.
6
<PAGE> 7
SOUTH FLORIDA BANK HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Reconciliation of net income to net cash provided by operating activities
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net income............................................................. $1,120,338 $1,028,180
Adjustments:
Depreciation and amortization.................................. 102,260 111,145
Benefit for income taxes....................................... (180,000) (90,000)
Writedowns of other real estate owned.......................... 60,711 --
Decrease (Increase) in:
Accrued interest receivable............................. 131,031 (49,606)
Other assets............................................ 41,266 (6,594)
Increase (Decrease) in:
Accrued interest payable................................ (103,556) 29,086
Other liabilities....................................... (208,144) 76,205
---------- ----------
Net cash provided by operating activities.............................. $ 963,906 $1,098,416
========== ==========
Supplemental schedule of non-cash activities:
Loans transferred to other real estate owned................... $ -- $ 106,586
Net unrealized securities gains (losses)....................... 51,141 (23,499)
</TABLE>
The accompanying Unaudited Notes to Consolidated Financial Statements
are an integral part of these financial statements.
7
<PAGE> 8
SOUTH FLORIDA BANK HOLDING CORPORATION
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of South
Florida Bank Holding Corporation (the "Holding Corporation"), South Florida
Bank (the "Bank"), New Town Properties, Inc., and Valu Prop, Inc.
(collectively, the "Company") after elimination of all material intercompany
balances and transactions. The accompanying unaudited consolidated financial
statements have been prepared in accordance with the instructions to Form
10-QSB and do not include all of the information and footnotes required by
generally accepted accounting principles for complete consolidated financial
statements. In the opinion of the Company, the consolidated financial
statements reflect all adjustments which are of a normal recurring nature and
which are necessary to present fairly the consolidated financial position of
the Company as of September 30, 1998 and December 31, 1997, and the results of
operations for the nine and three months ended September 30, 1998 and 1997, and
cash flows for the nine months ended September 30, 1998 and 1997. The results
of operations for the nine and three months ended September 30, 1998 are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
Net Income Per Share
For the nine and three months ended September 30, 1998 and 1997, the
reconciliations of the denominators of the basic and diluted per-share
computations were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
Nine Three Nine Three
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Common shares ....................................... 1,217,505 1,217,505 1,210,975 1,210,975
Stock options ....................................... 2,676 2,523 18,356 20,932
---------- --------- --------- ---------
Diluted shares ....................................... 1,220,181 1,220,028 1,229,331 1,231,907
========= ========= ========= =========
</TABLE>
NOTE B - INVESTMENTS AVAILABLE-FOR-SALE AND INVESTMENTS HELD-TO-MATURITY
At September 30, 1998 and December 31, 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:
In one year or less............................ $ 1,000,000 $ -- $ -- $ 1,000,000
After one year through five years.............. 11,909,505 84,812 -- 11,994,317
----------- ------- ------- -----------
Total investments available-for-sale........... $12,909,505 $84,812 $ -- $12,994,317
=========== ======= ======= ===========
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
=========== ======= ======== ===========
</TABLE>
8
<PAGE> 9
<TABLE>
<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............................ $ 367,847 $ 3,678 $ -- $ 371,525
After one year through five years.............. 4,009,508 50,957 -- 4,060,465
Collateralized mortgage obligations
due after ten years........................... 1,026,893 14,452 (2,130) 1,039,215
---------- ------- ------- ----------
Total investments held-to-maturity..................... $5,404,248 $69,087 $(2,130) $5,471,205
========== ======= ======= ==========
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES
South Florida Bank Holding Corporation's (the "Holding Corporation")
total shareholders' equity was $9.1 million and $7.6 million as of September
30, 1998 and December 31, 1997, respectively. This increase was the result of
1998's net income of $1,120,000, the $52,000 increase in the net unrealized
securities gains (losses) to September 30, 1998 from December 31, 1997 and
$273,000 in proceeds from the issuance of common stock pursuant to the exercise
of stock options by certain executive officers. South Florida Bank's (the
"Bank") total shareholder's equity was $8.4 million and $7.2 million as of
September 30, 1998 and December 31, 1997, respectively. The increase in the
Bank's shareholder's equity was the result of the Bank's net income of
$1,134,000 and the $52,000 increase in the net unrealized securities gains
(losses) to September 30, 1998 from December 31, 1997.
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
as of the respective periods) ratios as compared to the ratios mandated by the
FDIC were as follows:
9
<PAGE> 10
<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
September 30, 1998................ 16.35 15.10 9.79
</TABLE>
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 the 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.
FINANCIAL CONDITION
Consolidated total assets of the Holding Corporation, its subsidiary the
Bank, and the Bank's wholly-owned subsidiaries, New Town Properties, Inc. and
Valu Prop, Inc. (collectively, the "Company") increased to $85.3 million as of
September 30, 1998, from $82.9 million as of December 31, 1997, an increase of
$2.4 million or 2.89%. The Bank's advertising campaign, coupled with an officer
calling program, resulted in an increase in total assets and deposits. 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 $77.8 million as of
September 30, 1998 from $75.4 million as of December 31, 1997, an increase of
$2.4 million or 3.18%. 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 $8.4 million as of September 30, 1998 from
$7.5 million as of December 31, 1997, an increase of $865,000 or 11.53%.
Net loans increased to $53.5 million as of September 30, 1998 from $48.8
million as of December 31, 1997, an increase of $4.7 million or 9.81%. Mortgage
loans, which increased $3.6 million, were the primary components of outstanding
loans. During the nine months ended September 30, 1998 and 1997, the Bank
originated $15.2 million and $11.5 million of loans and had loan repayments of
$10.4 million and $7.5 million, respectively. Management's strategy is to lend
to small-to-medium sized businesses.
The investment portfolio decreased to $24.2 million as of September 30,
1998 from $26.6 million as of December 31, 1997, a decrease of $1.6 million or
5.87%. The proceeds from the decrease in investments and the increase in
deposits were primarily used to fund the increase in loans.
Cash and due from banks decreased to $3.9 million as of September 30,
1998 from $5.0 million as of December 31, 1997, or a decrease of $1,096,000 or
21.91%. This decrease resulted primarily from the decrease in funds on deposit
with other banks.
Premises and equipment increased to $1.9 million as of September 30, 1998
from $590,000 as of December 31, 1997, an increase of $1.3 million or 216.01%.
This increase resulted primarily from the excess of the cost of purchasing the
main office in February, 1998 and the land on which the Bank intends to build a
branch office, over depreciation expense of $102,000 during the nine months
ended September 30, 1998.
10
<PAGE> 11
Deposits increased to $73.7 million as of September 30, 1998 from $73.1
million as of December 31, 1997, an increase of $609,000 or .83%. Core deposits
increased to $68.3 million as of September 30, 1998 from $66.9 million as of
December 31, 1997, an increase of $1.4 million or 2.09%. This increase in core
deposits primarily reflected deposit accounts opened as a result of the
advertising campaign and the officer calling program. As of September 30, 1998
and December 31, 1997, the ratio of net loans to deposits was 72.62% and
66.79%, respectively.
For the nine months ended September 30, 1998 and 1997, 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/
Balance Interest Rate Balance Interest Rate
----------- ---------- ------ ----------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
- -------
Loans:
Commercial............................. $ 9,040,513 $ 653,303 9.66% $ 8,221,553 $ 645,477 10.50%
Mortgage (a)........................... 35,127,749 2,278,085 8.67 31,371,114 2,103,325 8.96
Installment............................ 5,691,745 374,327 8.79 3,905,886 250,785 8.58
Other.................................. 3,063,015 224,826 9.81 2,921,318 214,365 9.81
----------- ---------- ---- ----------- --------- -----
Total loans, net of unearned income (b)..... 52,923,022 3,530,541 8.92 46,419,871 3,213,952 9.26
Investment securities - all taxable......... 21,698,419 988,054 6.07 18,476,791 809,882 5.84
Federal funds sold.......................... 3,860,273 159,708 5.53 6,867,941 279,037 5.43
----------- ---------- ---- ---------- ---------- -----
Total earning assets (c).................... 78,481,714 $4,678,303 7.97% 71,764,603 $4,302,871 8.02%
=========== ========== ==== =========== ========== =====
Cash and due from banks..................... 3,309,862 3,703,351
Other assets................................ 3,074,780 2,053,673
Allowance for loan losses................... (906,917) (918,392)
----------- -----------
Total assets................................ $83,959,439 $76,603,235
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest bearing deposits:
NOW accounts........................... $11,576,041 $ 112,060 1.29% 9,699,675 $ 97,325 1.34%
Money market........................... 9,695,640 188,927 2.61 9,050,382 174,697 2.58
Savings................................ 4,466,137 72,909 2.18 3,171,479 52,775 2.22
Time deposits under $100,000........... 26,668,270 1,126,239 5.65 27,371,901 1,170,331 5.72
Time deposits $100,000 and over........ 5,952,993 242,501 5.45 5,296,073 222,431 5.62
----------- ---------- ---- ----------- ---------- -----
Total interest-bearing deposits............. 58,359,081 1,742,636 3.99 54,589,510 1,717,559 4.21
Sweep accounts.............................. 1,610,777 30,565 2.54 1,233,959 29,553 3.20
----------- ---------- ---- ----------- ---------- -----
Total interest-bearing liabilities.......... 59,969,858 $1,773,201 3.95% 55,823,469 $1,747,112 24.18%
=========== ========== ==== =========== ========== =====
Demand deposits............................. 15,798,303 13,792,957
Other liabilities........................... 457,380 507,976
Shareholders' equity........................ 7,733,898 6,478,833
----------- -----------
Total....................................... $83,959,439 $76,603,235
=========== ===========
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
SPREAD AND INTEREST DIFFERENTIAL:
Interest rate spread........................ 4.02% 3.84%
==== =====
Excess of total earning assets over
total interest-bearing liabilities..... $18,589,120 $15,669,505
=========== ===========
Net yield on interest-earning assets........ $1,913,578 4.89% $1,653,914 4.79%
========== ==== ========== =====
</TABLE>
(a) Interest income on mortgage loans include loan fees recognizes as
income of $10,000 and $13,000 during the three months ended September
30, 1998 and 1997, 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.
For the three months ended September 30, 1998 and 1997, 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/
Balance Interest Rate Balance Interest Rate
----------- ---------- ------ ----------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
- -------
Loans:
Commercial............................. $ 8,791,400 $ 212,008 9.57% $ 8,350,592 $ 216,594 10.29%
Mortgage (a)........................... 36,052,362 774,222 8.52 31,817,917 733,734 9.15
Installment............................ 6,521,772 140,669 8.56 4,209,549 95,761 9.03
Other.................................. 3,057,354 102,519 13.30 2,947,791 72,699 9.78
----------- ---------- ----- ----------- ---------- -----
Total loans, net of unearned income (b)..... 54,422,888 1,229,418 8.96 47,325,849 1,118,788 9.38
Investment securities-all taxable........... 20,175,551 296,269 5.87 20,216,393 296,324 5.86
Federal funds sold.......................... 2,873,639 40,275 5.56 8,505,805 118,833 5.54
----------- ---------- ---- ----------- ---------- -----
Total earning assets (c).................... $77,472,078 $1,565,962 8.02% $76,048,047 $1,533,945 8.00%
=========== ========== ==== =========== ========== =====
Cash and due from banks..................... 2,878,602 3,834,144
Other assets................................ 3,436,641 2,189,186
Allowance for loan losses................... (886,214) (912,930)
----------- -----------
Total assets................................ $82,901,107 $81,158,447
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest bearing deposits:
NOW accounts........................... $12,507,125 $ 35,267 1.12% $ 9,698,549 $ 32,851 1.34%
Money market........................... 8,926,012 69,367 3.08 9,820,842 64,736 2.62
Savings................................ 4,766,644 25,529 2.12 3,479,631 19,486 2.22
Time deposits under $100,000........... 25,082,384 354,549 5.61 29,102,632 419,150 5.71
Time deposits $100,000 and over........ 5,828,668 80,382 5.47 5,807,309 82,453 5.64
----------- -------- ---- ----------- ---------- -----
Total interest-bearing deposits............. 57,110,833 565,094 3.93 57,908,963 618,676 4.24
Sweep accounts.............................. 2,003,917 9,304 1.84 1,654,691 13,424 3.22
----------- -------- ---- ----------- ---------- -----
Total interest-bearing liabilities.......... 59,114,750 $574,398 3.85% 59,563,654 $ 632,100 4.21%
=========== ======== ==== =========== ========== =====
Demand deposits............................. 15,329,149 14,204,347
Other liabilities........................... 351,715 559,333
Shareholders' equity........................ 8,105,494 6,831,113
----------- -----------
Total....................................... $82,901,109 $81,158,447
=========== ===========
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
SPREAD AND INTEREST DIFFERENTIAL:
Interest rate spread........................ 4.17% 3.79%
==== =====
Excess of total earning assets over
total interest-bearing liabilities..... $18,357,328 $16,484,393
=========== ===========
Net yield on interest-earning assets........ $991,564 5.08% $ 901,845 4.70%
======== ==== ========== =====
</TABLE>
(a) Interest income on mortgage loans included loan fees recognizes as
income of $3,000 and $5,000 during the three months ended September
30, 1998 and 1997, 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 September 30, 1998 and December 31,
1997, the composition of the Bank's loan portfolio was as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
% OF % OF
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
----------- ------ ----------- ------
<S> <C> <C> <C> <C>
Commercial.................................. $ 8,601,865 15.81% $ 9,289,611 18.69%
Mortgage: (a)
Construction........................... 953,286 1.75 961,264 1.93
Non-construction....................... 35,345,110 64.98 31,508,547 63.39
Installment (b)............................. 6,479,232 11.91 4,781,456 9.62
Other loans (c)............................. 3,017,993 5.55 3,165,509 6.37
----------- ----------
Total loans, net of unearned income......... 54,397,486 100.00% 49,706,387 100.00%
====== ======
Allowance for loan losses................... (868,160) 1.60% (882,034) 1.77%
----------- ====== ----------- ======
Loans, net.................................. $53,529,326 $48,824,353
=========== ===========
</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.
13
<PAGE> 14
ALLOWANCE FOR LOAN LOSSES
As of September 30, 1998, the allowance for loan losses was $868,000 or
1.60% of total loans, net of unearned income, as compared to $882,000 or 1.77%
as of December 31, 1997. For the nine months ended September 30, 1998 and 1997,
the Bank's loan loss experience and its provision for loan losses were as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Average loans outstanding ......................... $52,923,022 $46,419,871
=========== ===========
Net loans at end of period ........................ $53,529,326 $46,922,961
=========== ===========
Allowance for loan losses at beginning of period... $882,034 $ 904,562
Loans charged-off:
Commercial................................. 1,244 11,386
Mortgage................................... 78,220 25,999
Installment................................ 763 12,506
Other loans................................ 18,291 5,979
----------- -----------
Total loans charged-off ........................... 98,518 55,870
----------- -----------
Recoveries of loans previously charged-off:
Commercial ................................ 46,396 24,799
Mortgage .................................. 23,623 19,595
Installment................................ 4,712 674
Other loans................................ 9,915 703
----------- -----------
Total recoveries................................... 84,646 45,771
----------- -----------
Net loan charged-offs (recoveries)................. 13,872 10,099
Provision charged to expense....................... -- --
----------- -----------
Allowance for loan losses at end of period......... $ 868,161 $ 894,463
=========== ===========
Ratio of net charge-offs during period
to average net loans outstanding........... .02% .03%
Allowance for loan losses as a percentage of loans,
net of unearned income at end of period.... 1.60% 1.87%
</TABLE>
During 1998, sixteen loans were charged-off, none of which exceeded
$31,000, and there were thirty-four loans with recoveries, none of which
exceeded $23,000.
Non-performing assets decreased to $709,000 as of September 30, 1998, as
compared to $858,000 as of December 31, 1997, or a decrease of $149,000 or
17.37%. The decrease during 1998 resulted from a decrease in non-accruing loans
of $88,000 and writedowns of other real estate owned of $61,000. The ratio of
non-performing loans as a percent of total loans, net of unearned income, was
.48% and .69% as of September 30, 1998 and December 31, 1997, respectively. The
allowance for loan losses as a percentage of non-performing loans was 339.74%
and 256.59% as of September 30, 1998 and December 31, 1997, respectively. As of
September 30, 1998 and December 31, 1997, the Bank's non-performing loans and
repossessed assets were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------- ----------------------
% OF % OF
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
--------- ----- -------- -----
<S> <C> <C> <C> <C>
Non-accruing loans:
Under 90 days delinquent .............. $135,529 .25% $154,278 .31%
90 or more days delinquent............. 120,005 .23 189,470 .38
-------- --- -------- ---
Total non-accruing loans..................... $255,534 .48% $343,748 .69%
======== === ======== ===
Total real estate owned....................... $453,500 $514,211
-------- --------
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C>
Total non-performing assets................. 709,034 857,959
======== ========
Loans delinquent and accruing:
30 to 59 days.......................... $ 4,060 .008% $ 12,648 .03%
60 to 89 days.......................... 32,870 .060 20,638 .04
======== ==== ======== ====
Total $ 36,930 .068% $ 33,286 .07%
======== ==== ======== ====
Total delinquencies 30 days and over...... $292,464 .548% $377,034 .76%
======== ==== ======== ====
</TABLE>
As of September 30, 1998 and December 31, 1997, 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 $256,000 as of September
30, 1998 as compared to $344,000 as of December 31, 1997, a decrease of $88,000
or 25.581%. The largest non-accruing loan as of September 30, 1998 was an
$85,000 first mortgage loan secured with commercial real estate. As of
September 30, 1998, this loan was 72 days past due.
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.
LIQUIDITY
During the nine months ended September 30, 1998 and 1997, investing
activities provided $156,000 and used $4.7 million, respectively, of cash.
During the nine months ended September 30, 1998 and 1997, financing activities
provided $1.6 million and $11 million, respectively, of cash. These activities
primarily resulted from the Bank focusing its efforts on growth through an
advertisement campaign and an officer calling campaign.
RESULTS OF OPERATIONS
SUMMARY
The Company's net income was $1,120,000 and $375,000 for the nine and
three months ended September 30, 1998, or $.92 and $.31 per basic share,
respectively, as compared to $1,028,000 and $350,000 for the nine and three
months ended September 30, 1997, or $.84 and $.29 per basic share,
respectively. For the nine and three months ended September 30, 1998 and 1997,
the Company's performance ratios (annualized) were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------- ----------------------
NINE THREE NINE THREE
------- ----- ------ -----
<S> <C> <C> <C> <C>
Return on average assets 1.80% 2.22% 1.79% 1.73%
Return on average equity 19.55 21.62 21.16 20.50
Average equity to average assets 9.21 9.78 8.46 8.42
</TABLE>
NET INTEREST INCOME
The Bank's earnings are dependent primarily on its net interest income
which is the excess of interest income earned on earning assets (primarily
loans and the investment portfolio - all of which are taxable) over interest
expense paid on deposits and short-term borrowings. Changes in net interest
income are caused by changes in the interest rates earned or paid and by volume
changes in loans, the investment portfolio, deposits and short-term borrowings.
15
<PAGE> 16
The increase (decrease) during the nine months ended September 30, 1998
from the nine months ended September 30, 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.......................... $ 64,473 $ (51,496) $ (5,151) $ 7,826
Mortgage............................ 252,561 (69,052) (8,749) 174,760
Installment......................... 114,980 6,109 2,453 123,542
Other............................... 10,426 61 (26) 10,461
--------- --------- -------- ---------
Total loans.................. 442,440 (114,378) (11,473) 316,589
Investment securities....................... 141,212 31,507 5,493 178,212
Federal funds sold.......................... (122,534) 5,119 (1,914) (119,329)
--------- --------- -------- ---------
Total interest income....................... 461,118 (77,752) (7,894) 375,472
--------- --------- -------- ---------
LIABILITIES:
- ------------
Interest-bearing deposits:
NOW accounts........................ 18,879 (3,438) (706) 14,735
Money market accounts............... 12,489 1,661 80 14,230
Savings deposits.................... 21,603 (1,004) (465) 20,134
Time deposits:
Under $100,000............... (30,168) (14,416) 492 (44,092)
$100,000 and over............ 27,666 (6,709) (887) 20,070
--------- --------- -------- ---------
Total interest-bearing deposits..... 50,469 (23,906) (1,486) 25,077
Securities sold under agreements
to repurchase....................... 9,049 (6,155) (1,882) 1,012
--------- --------- -------- ---------
Total interest expense...................... 59,518 (30,061) (3,368) 26,089
--------- --------- -------- ---------
Net interest income......................... $ 401,600 $ (47,691) $ (4,526) $ 349,383
========= ========= ======== =========
</TABLE>
The Bank's net interest income increased to $2.9 million during the nine
months ended September 30, 1998 from $2.6 million during the nine months ended
September 30, 1997, an increase of $350,000 or 13.67%. The increase was
primarily due to the increase in average interest-earning assets and average
interest-bearing liabilities. The 13.77% volume increase in 1998 from 1997 in
loan interest income was primarily attributable to the 12.29% increase in
average loans. The 1.72% volume increase in 1998 from 1997 in investment
interest income was primarily attributable to the .84% increase in average
investments. The 3.41% volume increase in 1998 from 1997 in interest expense
was primarily attributable to the 6.91% increase in average interest-bearing
liabilities. The yield on the loan portfolio decreased 34 basis points, while
the yield on the investment portfolio increased 24 basis points. The interest
rates paid on interest-bearing liabilities decreased 21 basis points. The
result was an increase in the net interest margin to 4.95% during 1998 from
4.76% during 1997.
The increase (decrease) during the three months ended September 30, 1998
from the three months ended September 30, 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>
ASSETS: VOLUME RATE RATE TOTAL
- ------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Loans:
Commercial ......................... $ 11,340 $(15,092) $ (834) $ (4,586)
Mortgage............................ 96,852 (50,035) (6,329) 40,488
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C> <C> <C>
Installment ........................ 52,171 (4,924) (2,339) 44,908
Other .............................. 2,680 25,933 1,207 29,820
-------- -------- ------- --------
Total loans ................. 163,043 (44,118) (8,295) 110,630
Investment securities ...................... (599) 545 (1) (55)
Federal funds sold ......................... (78,044) 376 (890) (78,558)
-------- -------- ------- --------
Total interest income ...................... 84,400 (43,197) (9,186) 32,017
-------- -------- ------- --------
LIABILITIES:
- ------------
Interest-bearing deposits:
NOW accounts ....................... 9,436 (5,459) (1,561) 2,416
Money market accounts .............. (5,850) 11,491 (1,010) 4,631
Savings deposits ................... 7,149 (843) (263) 6,043
Time deposits:
Under $100,000 .............. (57,430) (7,710) 539 (64,601)
$100,000 and over............ 301 (2,346) (26) (2,071)
-------- -------- ------- --------
Total interest-bearing deposits .... (46,394) (4,867) (2,321) (53,582)
Securities sold under agreements
to repurchase....................... 2,810 (5,695) (1,235) (4,120)
-------- -------- ------- --------
Total interest expense...................... (43,584) (10,562) (3,556) (57,702)
-------- -------- ------- --------
Net interest income......................... $127,984 $(32,635) $(5,630) $ 89,719
======== ======== ======= ========
</TABLE>
The Bank's net interest income increased to $992,000 during the three
months ended September 30, 1998 from $902,000 during the three months ended
September 30, 1997, an increase of $90,000 or 9.95%. The increase was primarily
due to the increase in average interest-earning assets and average
interest-bearing liabilities. The 13.34% volume increase in 1998 from 1997 in
loan interest income was primarily attributable to the 11.87% increase in
average loans and the 8.53% volume decrease in 1998 from 1997 in investment
interest income was primarily attributable to the 9.92% decrease in average
investments. The 1.99% volume decrease in 1998 from 1997 in interest expense
was primarily attributable to a shift in the deposit mix from time deposits to
savings and now accounts. The yield on the loan portfolio decreased 40 basis
points and the yield on the investment portfolio decreased 65 basis points. The
interest rates paid on interest-bearing liabilities increased 51 basis points.
The result was an increase in the net interest margin to 4.93% during 1998 from
4.76% during 1997.
PROVISION FOR LOAN LOSSES
The Bank made no provisions for loan losses during the nine months ended
September 30, 1998 and 1997. Net loan charge-offs during the nine months ended
September 30, 1998 and 1997 were $14,000 and $10,000, 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 September
30, 1998 and December 31, 1997, the allowance for loan losses as a percentage
of loans net of unearned income was 1.60% and 1.77%, respectively, and as a
percentage of non-accrual loans was 339.74% and 256.59%, respectively.
NON-INTEREST INCOME
Deposit service charge income increased $27,000 or 7.54% to $388,000 (or
1.05% of average deposits) during the nine months ended September 30, 1998,
from $361,000 (or .70% of average deposits) during the nine months ended
September 30, 1997, and increased $3,000 or 2.52% to $127,000 (or .35% of
average deposits) during the nine months ended September 30, 1998, from
$124,000 (or .69% of average deposits) during the three months ended September
30, 1997. These increases primarily resulted from the increase in the volume of
overdraft charges.
17
<PAGE> 18
NON-INTEREST EXPENSE
Personnel expenses increased to $1,158,000 and $429,000 during the nine
and three months ended September 30, 1998, respectively, from $1,010,000 and
$359,000 during the nine and three months ended September 30, 1997, or
respective increases of $148,000 or 14.72% and $70,000 or 19.82%. These
increases primarily resulted from salaries paid to the employees at the Bank's
Iona branch which opened in July, 1997, as well as compensation increases for
existing employees. The monthly average of full-time equivalent employees
during the nine and three months ended September 30, 1998 was 39.9 and 42.8 as
compared to 36.2 and 36.75 employees during the nine and three months ended
September 30, 1997, respectively. As of September 30, 1998 and December 31,
1997, the Bank employed 40 and 33 full-time and four and three part-time
employees, respectively.
Occupancy expense increased to $460,000 and $161,000 during the nine and
three months ended September 30, 1998, respectively, from $397,000 and $154,000
for the nine and three months ended September 30, 1997, or respective increases
of $63,000 or 15.99% and $7,000 or 4.25%. These increases primarily resulted
from additional costs of the new branch and computers.
Advertising expense decreased to $67,000 and $8,000 during the nine and
three months ended September 30, 1998, respectively, from $73,000 and $25,000
during the nine and three months ended September 30, 1997, or respective
decreases of $6,000 or 8.89% and $17,000 or 68.26%. These decreases primarily
resulted from an overall decrease in the cost of the advertising campaign.
Other operating expenses increased to $594,000 and $202,000 during the
nine and three months ended September 30, 1998, respectively, from $390,000 and
$129,000 during the nine and three months ended September 30, 1997, or
respective increases of $204,000 or 52.32% and $73,000 or 56.48%. These
increases primarily resulted from the increased costs associated with the
increase in the size of the Bank, as well as the additional banking office.
INCOME TAXES
During the nine and three months ended September 30, 1998, the Company
had a benefit for income taxes of $180,000 and $60,000, respectively, compared
to $90,000 and $30,000 during the nine and three months ended September 30,
1997, respectively. These income tax benefits resulted from recording deferred
income tax assets resulting from the corresponding reduction in the valuation
allowance associated with the Company's tax loss carry forward.
18
<PAGE> 19
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 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 issues. The FDIC has also implemented a plan to require
compliance with Year 2000 issues and regularly reviews our progress. In
accordance with FFIEC and FDIC recommendations, South Florida Bank has
implemented a five-phase approach to address the Year 2000 problem.
Our State of Readiness
In accordance with FDIC guidelines, we have developed a five phase
comprehensive plan which we believe will result in timely and adequate
modifications of our systems and technology to address our Year 2000 issues,
which contemplates all system conversions and testing to be substantially
completed by December 31, 1999. We have completed a top down assessment of our
mission-critical and other systems for Year 2000 compliance and are currently
in the third and fourth of five phases of compliance, "renovation and
validation", as defined by the FFIEC. We have tested our non-information
technology systems, such as environmental and alarm systems, and found them to
be Year 2000 compliant.
To determine the readiness of our customers, we have sent a questionnaire to,
and received responses from, our significant borrowers to determine the extent
of risk created by any failure by them to remediate their own Year 2000 issues.
Our strategic plan provides, if necessary, a Year 2000 contingency reserve of
not less than $10,000 for borrowers with high Year 2000 risks. We will
re-assess each significant borrowing customer's risk on a regular basis.
To determine the readiness of our vendors, we have 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 we have
determined to not have a material impact on the Bank's operations, no further
work is performed. For those vendors that have responded they are working
towards Year 2000 compliance and that we have determined to be significant,
including mission critical vendors, we will 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, we will seek other alternatives, which may
include seeking replacement vendors.
Our Costs and Risks
Most of our computer hardware and software applications were modified or
replaced in order to both upgrade our existing systems and maintain
functionality as the Year 2000 approaches. We have spent approximately $200,000
as of September 30, 1998 to address our Year 2000 issues and upgrade our
systems in general. Although additional costs will be
19
<PAGE> 20
incurred in preparation for the Year 2000, we do not expect them to materially
impact our results of operations in any one reporting period.
Ultimately, the potential impact of the Year 2000 issue will depend not only on
the corrective measures we undertake, but also on the way in which the Year
2000 issue is addressed by governmental agencies, businesses, and other
entities who receive data from us, or whose financial condition or operational
capability is important to us, such as suppliers or customers. At worst, our
customers and vendors will face severe Year 2000 issues, which may cause
borrowers to become unable to service their loans. We may also be required to
replace non-compliant vendors with more expensive Year 2000-compliant vendors.
At this time we cannot determine the financial effect on us if significant
customer and/or vendor remediation efforts are not resolved in a timely manner.
Our Contingency Plans
We have created a contingency plan that would take effect should there be
circumstances preventing timely implementation. We intend 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, we will retain a new vendor to
resolve these issues. We have 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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits
27 -- Financial Data Schedule (for SEC use only).
Reports on Form 8-K
During the three months ended September 30, 1998, the Company filed no reports
on Form 8-K.
20
<PAGE> 21
S I G N A T U R E S
Pursuant to the requirements 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.
SOUTH FLORIDA BANK HOLDING CORPORATION
--------------------------------------
Date: February 2, 1999 By: /s/ William P. Valenti
---------------- ---------------------------------------
William P. Valenti,
President and Chief Executive
Officer (Principal financial
officer)
Date: February 2, 1999 By: /s/ Jim Booth
---------------- ---------------------------------------
Jim Booth,
Vice President and Controller
(Principal accounting officer)
21
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOUTH FLORIDA BANK HOLDING CORPORATION FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 3,905,370
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,842,837
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,994,317
<INVESTMENTS-CARRYING> 5,404,250
<INVESTMENTS-MARKET> 5,471,205
<LOANS> 54,397,486
<ALLOWANCE> 868,160
<TOTAL-ASSETS> 85,349,399
<DEPOSITS> 73,708,311
<SHORT-TERM> 2,072,657
<LIABILITIES-OTHER> 499,411
<LONG-TERM> 0
0
0
<COMMON> 10,652,425
<OTHER-SE> (1,583,405)
<TOTAL-LIABILITIES-AND-EQUITY> 85,349,399
<INTEREST-LOAN> 3,530,541
<INTEREST-INVEST> 988,094
<INTEREST-OTHER> 159,708
<INTEREST-TOTAL> 4,678,343
<INTEREST-DEPOSIT> 1,731,185
<INTEREST-EXPENSE> 1,761,750
<INTEREST-INCOME-NET> 2,916,593
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,427,940
<INCOME-PRETAX> 940,338
<INCOME-PRE-EXTRAORDINARY> 1,120,338
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,120,338
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
<YIELD-ACTUAL> 0
<LOANS-NON> 255,534
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 882,034
<CHARGE-OFFS> 98,518
<RECOVERIES> 84,646
<ALLOWANCE-CLOSE> 868,161
<ALLOWANCE-DOMESTIC> 868,161
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
