<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-KSB
(Mark One)
[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 UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 33-41045
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SARASOTA BANCORPORATION, INC.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
Florida 65-0235255
- -------------------------------------------------------------- ------------------------------------
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
Two North Tamiami Trail, Suite 100, Sarasota, Florida 34236
- -------------------------------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(941) 955-2626
- --------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
none none
------------------- ---------------------
Securities registered under Section 12(g) of the Exchange Act:
none
- --------------------------------------------------------------------------------
Title of class
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
------ ------
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year: $6,025,178
---------------------
Aggregate market value of the voting and non-voting common equity held by
non-affiliates as of March 8, 1999:*
$3,554,670 (317,949 shares)
- --------------------------------------------------------------------------------
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
559,140 as of March 8, 1999
- --------------------------------------------------------------------------------
Transitional Small Business Disclosure Format (check one):
Yes No X
------- -------
* As of such date, no organized trading market existed for the Common Stock
of the Registrant. The aggregate market value was computed by reference to
the book value of the Common Stock of the Registrant at December 31, 1998.
For the purpose of this response, directors, officers and holders of 5% or
more of the Registrant's Common Stock are considered the affiliates of the
Registrant at that date.
<PAGE> 2
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this Annual Report on Form 10-KSB contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which statements generally can be identified by
the use of forward-looking terminology, such as "may," "will," "expect,"
"estimate," "anticipate," "believe," "target," "plan," "project," or "continue"
or the negatives thereof or other variations thereon or similar terminology, and
are made on the basis of management's plans and current analyses of the Company,
its business and the industry as a whole. These forward-looking statements are
subject to risks and uncertainties, including, but not limited to, economic
conditions, competition, interest rate sensitivity and exposure to regulatory
and legislative changes. The above factors, in some cases, have affected, and in
the future could affect, the Company's financial performance and could cause
actual results for fiscal 1998 and beyond to differ materially from those
expressed or implied in such forward-looking statements. The Company does not
undertake to publicly update or revise its forward-looking statements even if
experience or future changes make it clear that any projected results expressed
or implied therein will not be realized.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Sarasota BanCorporation, Inc. (the "Company") was incorporated under the
laws of the State of Florida on December 28, 1990 for the purpose of organizing
Sarasota Bank (the "Bank") and purchasing 100% of the outstanding capital stock
of the Bank. The holding company structure provides flexibility for expansion of
the Company's banking business through acquisition of other financial
institutions and provision of additional banking-related services which the
traditional commercial bank may not provide under present laws.
The Bank commenced operations on September 15, 1992 in an office suite
on the ground floor of One Sarasota Tower, a twelve story glass-faced building
at the intersection of U.S. Highway 41 (Tamiami Trail) and Gulfstream Avenue in
downtown Sarasota, Florida.
The Bank is a full service commercial bank, without trust powers. The
Bank offers a full range of interest bearing and non-interest bearing accounts,
including commercial and retail checking accounts, money market accounts, NOW
accounts, individual retirement accounts, regular interest bearing statement
savings accounts and certificates of deposit. Commercial loans, real estate
loans, home equity loans and consumer/installment loans are offered by the Bank.
In addition, the Bank provides such consumer services as travelers checks,
cashiers checks, safe deposit boxes, bank by mail services, direct deposit
service, Visa and Mastercard accounts, automated teller services and wire
transfer services. The Bank's deposits are insured by the FDIC; however, the
Bank is not a member of the Federal Reserve System.
MARKET AREA AND COMPETITION
The primary service area ("PSA") for the Bank encompasses approximately
fifteen square miles in and around Sarasota, Florida, and includes Bird Key, St.
Armand and Lido Key, which lie just off the coast of the City of Sarasota. In
addition, the Bank services customers outside the Bank's PSA, but within other
parts of Sarasota County. Competition among financial institutions in this area
is intense. There are 130
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<PAGE> 3
banking offices and 16 offices of savings and loan associations within the PSA
of the Bank. Most of these offices are branches of or are affiliated with major
bank holding companies.
Financial institutions primarily compete with one another for deposits.
In turn, a bank's deposit base directly affects such bank's loan activities and
general growth. Primary methods of competition include interest rates on
deposits and loans, service charges on deposit accounts and the designing of
unique financial services products. The Bank competes with financial
institutions which have much greater financial resources than the Bank, and
which may be able to offer a greater number and more unique services and
possibly better terms to their customers. However, management of the Bank
believes that the Bank will be able to attract sufficient deposits to enable the
Bank to compete effectively with other area financial institutions.
The Bank is in competition with existing area financial institutions
other than commercial banks and savings and loan associations, including
insurance companies, consumer finance companies, brokerage houses, credit
unions, and other business entities which have recently been invading the
traditional banking markets. Due to the growth of the Sarasota area, it is
anticipated that additional competition will continue from new entrants to the
market.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES AND
INTEREST DIFFERENTIAL
The following is a presentation of the average consolidated balance
sheet of the Company for the years ended December 31, 1998 and 1997. This
presentation includes all major categories of interest-earning assets and
interest-bearing liabilities:
AVERAGE CONSOLIDATED ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Cash and due from banks ........... 2,511,438 $ 1,392,477
Taxable securities ................ 15,418,296 12,493,585
Federal funds sold ................ 3,916,915 3,764,592
Net loans ......................... 47,378,278 34,924,524
----------- -----------
Total earning assets ......... 69,224,927 52,575,178
Other assets ...................... 1,126,590 1,061,072
----------- -----------
Total assets ................. $70,351,517 $53,636,250
=========== ===========
</TABLE>
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<PAGE> 4
AVERAGE CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Non interest-bearing deposits .............. $ 8,649,340 $ 6,590,138
NOW and money market deposits .............. 14,262,465 10,032,748
Savings deposits ........................... 958,847 801,262
Time deposits .............................. 38,306,561 30,452,404
Repurchase agreements ...................... 2,057,791 1,261,961
Other liabilities .......................... 481,934 247,047
----------- -----------
Total liabilities ........................ 64,716,938 49,385,560
Stockholders' equity ....................... 5,634,579 4,250,690
----------- -----------
Total liabilities and stockholders' equity $70,351,517 $53,636,250
=========== ===========
</TABLE>
The following is a presentation of an analysis of the net interest
earnings of the Company for the periods indicated with respect to each major
category of interest-earning asset and each major category of interest-bearing
liability:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------
Average Interest Average
Assets Amount Earned Yield
------ ------- -------- -------
<S> <C> <C> <C>
Taxable securities ....................... $15,418,296 $ 918,394 5.96%
Federal funds sold ....................... 3,916,915 212,040 5.41%
Net loans ................................ 47,378,278 4,606,255(1) 9.72%
----------- ---------- ----
Total earning assets ................... $66,713,489 $5,736,689 8.60%
=========== ========== ====
<CAPTION>
Average Interest Average
Liabilities Amount Paid Rate Paid
----------- ------- -------- ---------
<S> <C> <C> <C>
NOW and money market deposits ............ $14,262,465 $ 515,769 3.62%
Savings deposits ......................... 958,847 19,154 2.00%
Time deposits ............................ 38,298,989 2,204,302 5.76%
Repurchase agreements .................... 2,057,791 98,441 4.78%
Other interest-bearing liabilities ....... 154,136 1,913 1.24%
----------- ---------- ----
Total interest-bearing liabilities ..... $55,732,228 $2,839,579 5.10%
=========== ========== ====
Net yield on earning assets .............. 4.34%
====
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------
Average Interest Average
Assets Amount Earned Yield
------ ------ ------ -----
<S> <C> <C> <C>
Taxable securities ..................................................... $12,493,585 $ 795,429 6.37%
Federal funds sold ..................................................... 3,764,592 201,114 5.34
Net loans (before allowance) ........................................... 35,325,710 3,407,472(1) 9.65
----------- ---------- ----
Total earning assets ................................................. $51,583,887 $4,404,015 8.54%
=========== ========== ====
<CAPTION>
Average Interest Average
Liabilities Amount Paid Rate Paid
----------- ------- -------- ---------
<S> <C> <C> <C>
NOW and money market deposits .......................................... $10,032,748 $ 334,954 3.34%
Savings deposits ....................................................... 801,262 15,983 1.99%
Time deposits .......................................................... 30,452,404 1,747,527 5.74%
Repurchase agreements .................................................. 1,261,961 62,120 4.92%
Other interest-bearing liabilities ..................................... 2,658 139 5.23%
----------- ---------- ----
Total interest-bearing liabilities ................................... $42,551,033 $2,160,723 5.08%
=========== ========== ====
Net yield on earning assets ............................................ 4.35%
====
</TABLE>
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(1) Interest earned on net loans includes $196,242 in loan fees and loan
service fees for 1998 and $122,103 for 1997.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The effect on interest income, interest expense and net interest income
in the periods indicated, of changes in average balance and rate from the
corresponding prior period is shown below. The effect of a change in average
balance has been determined by applying the average rate in the earlier period
to the change in average balance in the later period, as compared with the
earlier period. Changes resulting from average balance/rate variances are
included in changes resulting from rate. The balance of the change in interest
income or expense and net interest income has been attributed to a change in
average rate.
<TABLE>
<CAPTION>
Year Ended December 31, 1998
compared with
Year Ended December 31, 1997
----------------------------
Increase (decrease) due to:
Volume Rate Total
------ ---- -----
<S> <C> <C> <C>
Interest earned on:
Taxable securities .... $ 169,656 $(46,691) $ 122,965
Federal funds sold .... 8,219 2,707 10,926
Net loans ............. 1,170,733 62,222 1,232,955
---------- -------- ----------
Total interest income ... 1,348,608 18,238 1,366,846
---------- -------- ----------
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
Year Ended December 31, 1998
compared with
Year Ended December 31, 1997
----------------------------
Increase (decrease) due to:
Volume Rate Total
------ ---- -----
(continued from previous page)
<S> <C> <C> <C>
Interest paid on:
NOW and money market deposits .......................................... $ 150,831 $ 31,388 $ 182,219
Savings deposits ........................................................ 3,148 23 3,171
Time deposits ........................................................... 451,957 4,818 456,775
Repurchase agreements ................................................... 38,019 (1,698) 36,321
Other interest bearing liabilities ..................................... 1,569 205 1,774
----------- -------- -----------
Total interest expense .................................................... 645,524 34,736 680,260
----------- -------- -----------
Change in net interest income ............................................. $ 703,084 $(16,498) $ 686,586
=========== ======== ===========
<CAPTION>
Year Ended December 31, 1997
compared with
Year Ended December 31, 1996
----------------------------
Increase (decrease) due to:
Volume Rate Total
------ ---- -----
<S> <C> <C> <C>
Interest earned on:
Taxable securities ...................................................... $ 131,047 $ 20,743 $ 151,790
Federal funds sold ...................................................... 108,357 709 109,066
Net loans ............................................................... 826,791 24,180 850,971
----------- -------- -----------
Total interest income ..................................................... 1,066,195 45,632 1,111,827
----------- -------- -----------
Interest paid on:
NOW and money market deposits .......................................... 38,352 55,065 93,417
Savings deposits ........................................................ 818 (1,384) (566)
Time deposits ........................................................... 555,395 4,985 560,380
Repurchase agreements ................................................... (5,567) (1,411) (6,978)
Other interest bearing liabilities ...................................... (8,954) (8,391) (17,345)
----------- -------- -----------
Total interest expense .................................................... 580,045 48,863 628,908
----------- -------- -----------
Change in net interest income ............................................. $ 486,150 $ (3,231) $ 482,919
=========== ======== ===========
</TABLE>
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<PAGE> 7
DEPOSITS
The Bank offers a full range of interest bearing and non-interest bearing
accounts, including commercial and retail checking accounts, money market
accounts, NOW accounts, individual retirement accounts, regular interest bearing
statement savings accounts and certificates of deposit with fixed and variable
rates and a range of maturity date options. The sources of deposits are
residents, businesses and employees of businesses within the Bank's market area,
obtained through the personal solicitation of the Bank's officers and directors,
direct mail solicitation and advertisements published in the local media. The
Bank pays competitive interest rates on time and savings deposits up to the
maximum permitted by law or regulation. In addition, the Bank offers maintenance
free commercial deposit accounts and has implemented a service charge fee
schedule competitive with other financial institutions in the Bank's market
area, covering such matters as maintenance fees on checking accounts, per item
processing fees on checking accounts, returned check charges and the like. The
Bank also offers its customers a courier service for picking up and delivering
deposits to the Bank.
The following table presents, for the periods indicated, the average
amount of and average rate paid on each of the following deposit categories:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Average Average Average Average
Deposit Category Amount Rate Paid Amount Rate Paid
---------------- ------ --------- ------ ---------
<S> <C> <C> <C> <C>
Non interest-bearing demand deposits ... $ 8,649,340 N/A $ 6,590,138 N/A
NOW and money market deposits .......... 14,262,465 3.62% 10,032,748 3.34%
Savings deposits ....................... 958,847 2.00% 801,262 1.99%
Time deposits .......................... 38,306,561 5.76% 30,452,404 5.74%
Repurchase agreements .................. 2,057,791 4.78% 1,261,961 4.92%
Other interest-bearing liabilities ..... 154,137 1.24% 2,658 5.23%
</TABLE>
The following table indicates amounts outstanding of time certificates
of deposit of $100,000 or more and respective maturities for the year ended
December 31, 1998:
<TABLE>
<CAPTION>
Time Certificates
of Deposit
-----------------
<S> <C>
3 months or less............. $ 2,949,849
3 to 6 months................ 836,406
6 to 12 months............... 5,599,036
Over 12 months............... 2,202,206
-----------
Total........................ $11,587,497
===========
</TABLE>
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<PAGE> 8
LOAN PORTFOLIO
The Bank engages in a full complement of lending activities, including
commercial, consumer/installment and real estate loans. The Bank has a legal
lending limit for unsecured loans of up to $929,464 to any one person. See
"--Supervision and Regulation."
Commercial lending is directed principally towards businesses whose
demands for funds fall within the Bank's legal lending limits and which are
potential deposit customers of the Bank. This category of loans includes loans
made to individual, partnership or corporate borrowers, and obtained for a
variety of business purposes. Particular emphasis is placed on loans to small
and medium-sized businesses. Real estate loans are made for owner occupied and
investment purpose commercial property and for owner occupied residential
property with floating interest rates. Real estate loans for owner occupied
property are considered to be less risky than other types of real estate
lending. Consumer loans are made for all legitimate purposes and consist
primarily of installment loans to individuals for family and household purposes,
including automobile loans to individuals and pre-approved lines of credit. The
Bank makes most of its loans in Sarasota County, although some loans are made in
the contiguous counties. The Bank makes loans to borrowers with good credit,
character and personal reputations and after verification of financial
information supporting the borrowers' ability to repay the loans.
The Bank requires independent appraisals (by appraisers who are approved
by the Board of Directors) to support the value of collateral for all real
estate loans. The real estate borrowers' cash flow projections are analyzed
carefully before loans are made, and annually during the life of the loan, to
support the borrowers' ability to repay the loans. Loan guarantee programs
offered by the Small Business Administration are offered to customers with long
term borrowing requirements. Construction loans are made for owner occupying
borrowers with draws made upon, among other things, proof of lien waivers,
payment to subcontractors, and architects' and contractors' approval.
The Bank's officers thoroughly document the purpose of each loan and the
borrowers' ability to repay before the loans are disbursed. The documentation
for most loans are reviewed by either the President or the Executive Vice
President before disbursement. All unsecured loans in excess of $200,000 and all
secured loans in excess of $300,000 (to any single borrower or group of related
borrowers) require approval of the Bank's Loan Committee (comprised of four
outside directors) as well as concurrence of both the President and the
Executive Vice President before disbursement. Total borrowings by any party or
group of related parties is normally limited to $500,000 which is the Bank's
in-house lending limit. Larger loans are made when participating banks accept
the excess loan balances without recourse against the Bank. The Bank has engaged
an independent company to perform annually a review of its loan portfolio.
While risk of loss in the Bank's loan portfolio is primarily tied to the
credit quality of the various borrowers, risk of loss may also increase due to
factors beyond the Bank's control, such as local, regional and/or national
economic downturns. General conditions in the real estate market may also impact
the relative risk in the Bank's real estate portfolio. Of the Bank's target
areas of lending activities, commercial loans are generally considered to have
greater risk than real estate loans or consumer installment loans.
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<PAGE> 9
The following table presents various categories of loans contained in
the Bank's loan portfolio as of December 31, 1998 and 1997 and the total amount
of all loans for such periods:
<TABLE>
<CAPTION>
Type of Loan Amount
------------ ------
1998 1997
---- ----
<S> <C> <C>
Commercial, financial and agricultural ......... $ 9,409,815 $ 8,882,707
Real estate-mortgage and equity ................ 32,797,439 26,180,145
Installment and other loans to individuals ..... 12,627,398 5,128,983
------------
Subtotal ....................................... 54,834,652 40,191,835
------------ ------------
Less: deferred loan fees ......................... (125,288) (119,290)
Allowance for possible loan losses ............. (557,546) (482,398)
------------ ------------
Total (net of allowance) ......................... $ 54,151,818 $ 39,590,147
============ ============
</TABLE>
The following is a presentation of an analysis of maturities of loans as
of December 31, 1998:
<TABLE>
<CAPTION>
Due in 1 Due after 1 to Due After
Type of Loan year or less 5 Years 5 Years Total
------------ ------------ -------------- ----------- -----
<S> <C> <C> <C> <C>
Commercial, financial and agricultural ... $3,869,779 $ 4,346,890 $ 1,193,146 $ 9,409,815
Real estate-mortgage and equity .......... 2,369,750 11,758,786 18,668,903 32,797,439
Installment and other loans to individuals 3,653,222 8,772,762 201,414 12,627,398
---------- ----------- ----------- -----------
Total .................................... $9,892,751 $24,878,438 $20,063,463 $54,834,652
========== =========== =========== ===========
</TABLE>
The following is a presentation of an analysis of sensitivities of
loans to changes in interest rates as of December 31, 1998:
Loans due after 1 year with
predetermined interest rates............................. $18,857,800
Loans due after 1 year with
floating interest rates.................................. $25,931,896
Accrual of interest is discontinued on a loan when management of the
Bank determines upon consideration of economic and business factors affecting
collection efforts that collection of interest is doubtful. For the year ended
December 31, 1998, the Company had 31 loans in the aggregate amount of $270,894
accounted for on a nonaccrual basis and six loans were contractually past due 90
days or more as to principal or interest payments. For the year ended December
31, 1997, the Company had one loan in the amount of $11,834 accounted for on a
nonaccrual basis, and no loans were contractually past due 90 days or more as to
principal or interest payments.
At December 31, 1998, there were no loans classified for regulatory
purposes as doubtful, substandard or special mention that have not been
disclosed above which (i) represent or result from trends
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<PAGE> 10
or uncertainties which management reasonably expects will materially impact
future operating results, liquidity or capital resources, or (ii) represent
material credits about which management is aware of any information which causes
management to have serious doubts as to the ability of such borrowers to comply
with the loan repayment terms.
SUMMARY OF LOAN LOSS EXPERIENCE
An analysis of the Bank's loss experience is furnished in the following
table for the periods indicated.
Analysis of the Allowance for Loan Losses
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Balance at beginning of period ................... $ 482,398 $ 313,938
Charge-offs
Commercial, financial and agricultural ........ (35,654) (8,997)
Installment and other loans to individuals .... (59,931) (44,410)
Recoveries
Commercial, financial and agricultural ........ 6,158 6,450
Installment and other loans to individuals .... 45,175 21,917
Net charge-offs .................................. (44,252) (25,040)
Additions charged
to operations .................................. 119,400 193,500
Balance at end of period ......................... $ 557,546 $ 482,398
========= =========
Ratio of net charge-offs during the period to
average loans outstanding during the period .... 0.9% .07%
</TABLE>
At December 31, 1998, the allowance was not allocated among the various
categories of loans in the Bank's loan portfolio. The allowance is determined by
the following factors: internally assigned loan grade, specific allocations,
economic conditions, off balance sheet items (unfunded loans), concentrations of
credit and external loan review.
LOAN LOSS RESERVE
In considering the adequacy of the Company's allowance for possible loan
losses, management has focused on the fact that as of December 31, 1998, 17.16%
of outstanding loans are in the category of commercial loans. Commercial loans
are generally considered by management as having greater risk than other
categories of loans in the Company's loan portfolio. However, over 86.47% of
these commercial loans at December 31, 1998 were made on a secured basis.
Management believes that the secured condition of the preponderant portion of
its commercial loan portfolio greatly reduces any risk of loss inherently
present in commercial loans.
The Company's consumer loan portfolio is also well secured. At December
31, 1998 the majority of the Company's consumer loans were secured by collateral
primarily consisting of automobiles, boats and other personal property.
Management believes that these loans involve less risk than other categories of
loans.
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<PAGE> 11
Real estate mortgage loans constitute 59.81% of outstanding loans.
Approximately $11,881,386 or 36.23% of this category represents residential real
estate mortgages. The remaining portion of this category consists of commercial
real estate loans. Risk of loss for these loans is generally higher than
residential loans.
The Company's Board of Directors monitors the loan portfolio quarterly
to enable it to evaluate the adequacy of the allowance for loan losses. The
loans are rated and the reserve established based on the assigned rating. The
provision for loan losses charged to operating expenses is based on this
established reserve. Factors considered by the Board in rating the loans include
delinquent loans, underlying collateral value, payment history and local and
general economic conditions affecting collectibility.
INVESTMENTS
As of December 31, 1998, investment securities, excluding Federal Funds,
comprised approximately 22.5% of the Bank's assets and loans comprised
approximately 6.88% of the Bank's assets. The Bank invests primarily in
obligations of the United States or obligations guaranteed as to principal and
interest by the United States. In addition, the Bank enters into Federal Funds
transactions with its principal correspondent banks, and acts as a net seller of
such funds. The sale of Federal Funds amounts to a short-term loan from the Bank
to another bank.
The following table presents, at the dates indicated, the book value of
the Bank's investments:
<TABLE>
<CAPTION>
December 31,
-------------------------------
Investment Category 1998 1997
------------------- ---- ----
<S> <C> <C>
Obligations of U.S. Treasury and other U.S. agencies.......................... $17,630,691 $13,086,012
</TABLE>
The following table indicates for the year ended December 31, 1998 the
respective maturities and weighted average yields of securities:
<TABLE>
<CAPTION>
Investment Weighted Average
Category Amount Yield(1)
- ---------- ----------- ----------------
<S> <C> <C>
Obligations of U.S. treasury
and other U.S. agencies: 0-3 months ..... $ 1,001,763 7.39%
3-6 Months ............................... 1,211,524 6.19%
6-12 Months .............................. 3,678,634 6.25%
1 through 5 years ........................ 1,119,272 6.28%
Over 5 years ............................. 10,619,496 6.55
-----------
Total .................................... $17,630,691 6.49%
===========
</TABLE>
- ------------------
(1) The Company has not invested in any tax-exempt obligations. All
securities have been designated as Available For Sale Investments by the
Bank's Board of Directors.
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<PAGE> 12
RETURN ON EQUITY AND ASSETS
Returns on average consolidated assets and average consolidated equity
for the periods indicated are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
---- ----
<S> <C> <C>
Return (loss) on average assets .......... 1.08% 1.39%
Return (loss) on average equity .......... 12.27% 16.10%
Average equity to average Assets ratio ... 7.90% 7.74%
Dividend payout ratio .................... -- --
</TABLE>
ASSET/LIABILITY MANAGEMENT
It is the objective of the Bank to manage assets and liabilities to
provide a satisfactory, consistent level of profitability within the framework
of established cash, loan, investment, borrowing and capital policies. Certain
of the officers of the Bank will be responsible for monitoring policies and
procedures that are designed to ensure acceptable composition of the
asset/liability mix, stability and leverage of all sources of funds while
adhering to prudent banking practices. It is the overall philosophy of
management to support asset growth primarily through growth of core deposits,
which include deposits of all categories made by individuals, partnerships and
corporations. Management of the Bank seeks to invest the largest portion of the
Bank's assets in commercial, consumer and real estate loans.
The Bank's asset/liability mix is monitored on a daily basis with a
monthly report reflecting interest-sensitive assets and interest-sensitive
liabilities and maturing assets and maturing liabilities being prepared and
presented to the Bank's Board of Directors. The objective of this policy is to
control interest-sensitive assets and liabilities so as to minimize the impact
of substantial movements in interest rates on the Bank's earnings.
Management is not aware of any known events or uncertainties that will
have or are reasonably likely to have a material effect on the Bank's liquidity,
capital resources or results of operations. Management is not aware of any
current recommendations by the regulatory authorities which if they were to be
implemented would have a material effect on the Bank's liquidity, capital
resources or results of operations.
CORRESPONDENT BANKING
Correspondent banking involves the providing of services by one bank to
another bank which cannot provide that service for itself from an economic or
practical standpoint. The Bank is required to purchase correspondent services
offered by larger banks, including check collections, purchase of Federal Funds,
security safekeeping, investment services, coin and currency supplies, overline
and liquidity loan participations and sales of loans to or participations with
correspondent banks.
The Bank occasionally 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 National Bank of Commerce,
NationsBank, Federal Reserve Bank, Marshall & Iisley (M&I) Bank, The Federal
Home Loan Bank, and First Tennessee Bank, N.A. As compensation for services
provided by a correspondent, the Bank may maintain certain balances with such
correspondents in non-interest bearing
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accounts. At December 31, 1998, the Bank had $2,272,324 in participations sold
and $1,444,267 in participations purchased.
DATA PROCESSING
The Bank has a data processing servicing agreement with M&I Data
Services, Inc. This servicing agreement provides for the Bank to receive a full
range of data processing services, including an automated general ledger,
deposit accounting, commercial, real estate and installment lending data
processing, payroll, central information file and ATM processing.
YEAR 2000
A critical issue affecting companies that rely extensively on
electronic data processing systems, such as the Company, is the Year 2000 issue.
The Year 2000 issue has arisen due to the widespread use of computer programs
that rely on two-digit date codes to perform computations or decision-making
functions. Many of these programs may fail as a result of their inability to
properly interpret date codes beginning January 1, 2000. For example, such
programs may misinterpret "00" as the year 1900 rather than 2000. In addition,
some equipment, being controlled by microprocessor chips, may not deal
appropriately with the year "00." This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in similar
normal business activities.
The Bank uses a third-party vendor for processing its primary banking
applications. During 1998, the Company developed a plan to address the Year 2000
issue, conduct a comprehensive review of the Company's systems and ensure that
the Company takes any necessary measures. The Company believes that its systems,
those of the Bank and its data processing vendor are currently Year 2000
compliant and does not believe that material expenditures will be necessary to
implement any further modifications. As of December 31, 1998, the Company had
spent approximately $22,000 to help ensure that its systems would be Year 2000
compliant. The Company's data processing vendor has assured the Company that its
systems are Year 2000 compliant now or will be well in advance of the Year 2000.
However, there can be no assurance that unforeseen difficulties or costs will
not arise. In addition, there can be no assurance that the systems of other
companies on which the Company's systems rely, such as the Bank's data
processing vendor, will be modified on a timely basis, or that the failure by
another company to properly modify its systems will not negatively impact the
Company's systems or operations.
FACILITIES
The Bank operates out of an office suite on the ground floor of One
Sarasota Tower, a twelve story glass-faced building at the intersection of U.S.
Highway 41 (Tamiami Trail) and Gulfstream Avenue in downtown Sarasota, Florida.
The facility includes four teller stations, four executive offices, a vault, a
night depository, a bookkeeping/operations room and a board room. The Bank also
operates a two-lane drive through facility on property which is contiguous to
the office space.
EMPLOYEES
The Bank presently employs 20 persons on a full-time basis, including 8
officers. The Bank will hire additional persons as needed, including additional
tellers and financial service representatives.
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<PAGE> 14
MONETARY POLICIES
The results of operations of the Bank will be affected by credit
policies of monetary authorities, particularly the Federal Reserve Board. The
instruments of monetary policy employed by the Federal Reserve Board include
open market operations in U.S. Government securities, changes in the discount
rate on member bank borrowings, changes in reserve requirements against member
bank deposits and limitations on interest rates which member banks may pay on
time and savings deposits. In view of changing conditions in the national
economy and in the money markets, as well as the effect of action by monetary
and fiscal authorities, including the Federal Reserve Board, no prediction can
be made as to possible future changes in interest rates, deposit levels, loan
demand or the business and earnings of the Bank.
SUPERVISION AND REGULATION
The Company and the Bank operate in a highly regulated environment, and
their business activities are governed by statute, regulation and administrative
policies. The business activities of the Company and the Bank are closely
supervised by a number of regulatory agencies, including the Federal Reserve
Board, the Florida Department of Banking and Finance (the "Florida Department")
and the FDIC. In addition, the Company is subject to certain periodic reporting
and disclosure requirements of the Securities and Exchange Commission.
The Company is regulated by the Federal Reserve Board under the federal
Bank Holding Company Act of 1956 (the "Act"), which requires every bank holding
company to obtain the prior approval of the Federal Reserve Board before
acquiring more than 5% of the voting shares of any bank or all or substantially
all of the assets of a bank, and before merging or consolidating with another
bank holding company. The Federal Reserve Board (pursuant to regulation and
published policy statements) has maintained that a bank holding company must
serve as a source of financial strength to its subsidiary banks. In adhering to
the Federal Reserve Board policy the Company may be required to provide
financial support to a subsidiary bank at a time when, absent such Federal
Reserve Board policy, the Company may not deem it advisable to provide such
assistance.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994, the Company, or any other bank holding company located in Florida, may
acquire a bank located in any other state, and a bank holding company located
outside Florida may acquire any Florida-based bank, in either case subject to
certain deposit percentage and other restrictions. In addition, adequately
capitalized and managed bank holding companies may consolidate their multi-state
bank operations into a single bank subsidiary and may branch interstate through
acquisitions unless an individual state has elected to prohibit out-of-state
banks from operating interstate branches within its territory. De novo branching
by an out-of-state bank is lawful only if it is expressly permitted by the laws
of the host state. The authority of a bank to establish and operate branches
within a state remains subject to applicable state branching laws.
A bank holding company is generally prohibited from acquiring control
of any company which is not a bank and from engaging in any business other than
the business of banking or managing and controlling banks. However, there are
certain activities which have been identified by the Federal Reserve Board to be
so closely related to banking as to be a proper incident thereto and thus
permissible for bank holding companies. Effective April 21, 1997, the Federal
Reserve Board revised and expanded the list of permissible nonbanking
activities, which includes the following activities: extending credit and
servicing loans; acting as investment or financial advisor to any person, with
certain limitations; leasing personal and
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<PAGE> 15
real property or acting as a broker with respect thereto; providing management
and employee benefits consulting advice and career counseling services to
nonaffiliated banks and nonbank depository institutions; operating certain
nonbank depository institutions; performing certain trust company functions;
providing certain agency transactional services, including securities brokerage
services, riskless principal transactions, private placement services, and
acting as a futures commission merchant; providing data processing and data
transmission services; acting as an insurance agent or underwriter with respect
to limited types of insurance; performing real estate appraisals; arranging
commercial real estate equity financing; providing check-guaranty, collection
agency and credit bureau services; engaging in asset management, servicing and
collection activities; providing real estate settlement services; acquiring
certain debt which is in default; underwriting and dealing in obligations of the
United States, the states and their political subdivisions; engaging as a
principal in foreign exchange trading and dealing in precious metals; providing
other support services such as courier services and the printing and selling of
checks; and investing in programs designed to promote community welfare.
In determining whether an activity is so closely related to banking as
to be permissible for bank holding companies, the Federal Reserve Board is
required to consider whether the performance of such activities by a bank
holding company or its subsidiaries can reasonably be expected to produce such
benefits to the public as greater convenience, increased competition or gains in
efficiency that outweigh such possible adverse effects as undue concentration of
resources, decreased and unfair competition, conflicts of interest and unsound
banking practices. Generally, bank holding companies are required to obtain
prior approval of the Federal Reserve Board to engage in any new activity not
previously approved by the Federal Reserve Board.
As a state-chartered bank, the Bank is subject to comprehensive
regulation, examination and supervision by 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 cost and terms of
such credit. The Bank will be examined periodically by both the Florida
Department and the FDIC, to each of whom it will submit regular 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 bank affiliated
parties including employees and controlling shareholders.
Florida law contains provisions that limit interest rates that may be
charged by banks and other lenders on certain types of loans. Numerous
exceptions exist to the general interest limitations imposed by Florida law. The
relative importance of these interest limitation laws to the financial
operations of the Bank will vary from time to time, depending upon a number of
factors, including conditions in the money markets, the cost and availability of
funds and prevailing interest rates.
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.
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<PAGE> 16
Pursuant to Florida law, no person or group of persons may, directly or
indirectly or acting by or through one or more persons, purchase or acquire a
controlling interest in any bank which would result in the change in control of
that bank unless the Florida Department first shall have approved such proposed
acquisition. A person or group will be deemed to have acquired "control" of a
bank if the person or group directly or indirectly or acting through one or more
other persons (i) owns, controls or has power to vote 25% or more of any class
of voting securities of the bank, (ii) controls in any manner the election of a
majority of the directors of the bank, (iii) owns, controls or has power to vote
10% or more of any class of voting securities of the bank and exercises a
controlling influence over the management or policies of the bank or (iv) if the
Florida Department determines that such person exercises a controlling influence
over the management or policies of the bank.
Both the Company and the Bank are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the FDIC. The Federal
Reserve Board and the FDIC have issued risk-based capital guidelines for bank
holding companies and banks which make regulatory capital requirements more
sensitive to differences in risk profiles of various banking organizations. The
capital adequacy guidelines issued by the Federal Reserve Board are applied to
bank holding companies, on a consolidated basis with the banks owned by the
holding company, as well as to state member banks. The FDIC's risk capital
guidelines apply directly to national banks regardless of whether they are a
subsidiary of a bank holding company. Both agencies' requirements (which are
substantially similar), provide that banking organizations must have capital
equivalent to at least 8% of risk-weighted assets. The risk weights assigned to
assets are based primarily on credit risks. Depending upon the riskiness of a
particular asset, it is assigned to a risk category. For example, securities
with an unconditional guarantee by the United States government are assigned to
the lowest risk category, while a risk weight of 50% is assigned to loans
secured by owner-occupied one to four family residential mortgages provided that
certain conditions are met. The aggregate amount of assets assigned to each risk
category is multiplied by the risk weight assigned to that category to determine
the weighted values, which are added together to determine total risk-weighted
assets. At December 31, 1998, the Company's total risk-based capital and
tier-one ratios were 11.43% and 10.49%, respectively.
Both the Federal Reserve Board and the FDIC have also implemented
minimum capital leverage ratios to be used in tandem with the risk-based
guidelines in assessing the overall capital adequacy of banks and bank holding
companies. Under these rules, banking institutions must maintain a ratio of at
least 3% "Tier 1" capital to total weighted risk assets (net of goodwill,
certain intangible assets, and certain deferred tax assets). Tier 1 capital
includes common shareholders equity, noncumulative perpetual preferred stock and
related surplus, and minority interests in the equity accounts of consolidated
subsidiaries.
Both the risk-based capital guidelines and the leverage ratio are
minimum requirements. They are applicable to all banking institutions unless the
applicable regulating authority determines that different minimum capital ratios
are appropriate for a particular institution based upon its circumstances.
Institutions operating at or near these ratios are expected to have
well-diversified risks, excellent control systems, high asset quality, high
liquidity, good earnings, and in general must be considered strong banking
organizations, rated composite 1 under the CAMELS rating system of banks or the
BOPEC rating system of bank holding companies.
The Federal Reserve Board requires bank holding companies without a
BOPEC-1 rating to maintain a ratio of at least 4% Tier 1 capital to total
assets; furthermore, banking organizations with supervisory, financial,
operational, or managerial weaknesses, as well as organizations that are
anticipating or
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<PAGE> 17
experiencing significant growth, are expected to maintain capital ratios well
above the 3% and 4% minimum levels.
The FDIC adopted a rule substantially similar to that issued by the
Federal Reserve Board, providing that FDIC-regulated banks with anything less
than a CAMELS-1 rating must maintain a ratio of at least 4%. In addition, the
FDIC rule specifies that a depository institution operating with less than the
applicable minimum leverage capital requirement will be deemed to be operating
in an unsafe and unsound manner unless the institution is in compliance with a
plan, submitted to and approved by the FDIC, to increase the ratio to an
appropriate level. Finally, the FDIC requires any insured depository institution
with a leverage ratio of less than 2% to enter into and be in compliance with a
written agreement between it and the FDIC (or the primary regulator, with the
FDIC as a party to the agreement). Such an agreement will nearly always
contemplate immediate efforts to acquire the capital required to increase the
ratio to an appropriate level. Institutions that fail to enter into or maintain
compliance with such an agreement will be subject to enforcement action by the
FDIC.
The risk-based capital guidelines of the Federal Reserve Board and the
FDIC explicitly include provisions regarding a bank's exposure to declines in
the economic value of its capital due to changes in interest rates to ensure
that the guidelines take adequate account of interest rate risk. Interest rate
risk is the adverse effect that changes in market interest rates may have on a
bank's financial condition and is inherent to the business of banking. The
exposure of a bank's economic value generally represents the change in the
present value of its assets, less the change in the value of its liabilities,
plus the change in the value of its interest rate off-balance sheet contracts.
Concurrently, the agencies issued a joint policy statement to bankers, effective
June 26, 1996, to provide guidance on sound practices for managing interest rate
risk. In the policy statement, the agencies emphasize the necessity of adequate
oversight by a bank's Board of Directors and senior management and of a
comprehensive risk management process. The policy statement also describes the
critical factors affecting the agencies' evaluations of a bank's interest rate
risk when making a determination of capital adequacy. The agencies' risk
assessment approach used to evaluate a bank's capital adequacy for interest rate
risk relies on a combination of quantitative and qualitative factors. Banks that
are found to have high levels of exposure and/or weak management practices will
be directed by the agencies to take corrective action.
The Federal Reserve Board and the FDIC recently added a provision to
the risk-based capital guidelines that supplements and modifies the usual
risk-based capital calculations to ensure that institutions with significant
exposure to market risk maintain adequate capital to support that exposure.
Market risk is the potential loss to an institution resulting from changes in
market prices. The modifications are intended to address two types of market
risk: general market risk, which includes changes in general interest rates,
equity prices, exchange rates, or commodity prices, and specific market risk,
which includes particular risks faced by the individual institution, such as
event and default risks. The provision defines a new category of capital, Tier
3, which includes certain types of subordinated debt. The provision
automatically applies only to those institutions whose trading activity, on a
worldwide consolidated basis, equals either (i) 10% or more of total assets or
(ii) $1 billion or more, although the agencies may apply the provision's
requirements to any institution for which application of the new standard is
deemed necessary or appropriate for safe banking practices. For institutions to
which the modifications apply, Tier 3 capital may not be included in the
calculation rendering the 8% credit risk ratio; the sum of Tier 2 and Tier 3
capital may not exceed 100% of Tier 1 capital; and Tier 3 capital is used in
both the numerator and denominator of the normal risk-based capital ratio
calculation to account for the estimated maximum amount that the value of all
positions in the institution's trading account, as well as all foreign exchange
and commodity positions, could decline within certain parameters set forth in a
model defined by the statute. Furthermore, beginning
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<PAGE> 18
no later than January 1, 1999, covered institutions must "backtest," comparing
the actual net trading profit or loss for each of its most recent 250 days
against the corresponding measures generated by the statutory model. Once per
quarter, the institution must identify the number of times the actual net
trading loss exceeded the corresponding measure and must then apply a statutory
multiplication factor based on that number for the next quarter's capital charge
for market risk.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"), enacted on December 19, 1991, provides for the development of a
regulatory monitoring system requiring prompt action on the part of banking
regulators with regard to certain classes of undercapitalized institutions.
While the FDICIA does not change any of the minimum capital requirements, it
directs each of the federal banking agencies to issue regulations putting the
monitoring plan into effect. The FDICIA creates five "capital categories" ("well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized") which are defined in the
FDICIA and which will be used to determine the severity of corrective action the
appropriate regulator may take in the event an institution reaches a given level
of undercapitalization. For example, an institution which becomes
"undercapitalized" must submit a capital restoration plan to the appropriate
regulator outlining the steps it will take to become adequately capitalized.
Upon approving the plan, the regulator will monitor the institution's
compliance. Before a capital restoration plan will be approved, any entity
controlling a bank (i.e., a holding company) must guarantee compliance with the
plan until the institution has been adequately capitalized for four consecutive
calendar quarters. The liability of the institution is limited to the lesser of
five percent of the institution's total assets or the amount which is necessary
to bring the institution into compliance with all capital standards. In
addition, "undercapitalized" institutions will be restricted from paying
management fees, dividends and other capital distributions, will be subject to
certain asset growth restrictions and will be required to obtain prior approval
from the appropriate regulator to open new branches or expand into new lines of
business.
As an institution's capital levels decline, the extent of action to be
taken by the appropriate regulator increases, restricting the types of
transactions in which the institution may engage and ultimately providing for
the appointment of a receiver for certain institutions deemed to be critically
undercapitalized.
In response to the directive issued under the Act, the regulators have
established regulations which, among other things, prescribe the capital
thresholds for each of the five capital categories established by the Act. The
following table reflects the capital thresholds:
<TABLE>
<CAPTION>
Total Risk - Tier 1 Risk - Tier 1
Based Capital Based Capital Leverage
Ratio Ratio Ratio
<S> <C> <C> <C>
Well capitalized(1) >=10% >= 6% >= 5%
Adequately Capitalized(1) >= 8% >= 4% >= 4%(2)
Undercapitalized(4) < 8% < 4% < 4%(3)
Significantly Undercapitalized(4) < 6% < 3% < 3%
Critically Undercapitalized - - <= 2%(5)
</TABLE>
- ---------------------------
(1) An institution must meet all three minimums.
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<PAGE> 19
(2) >=3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(3) < 3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(4) An institution falls into this category if it is below the specified
capital level for any of the three capital measures.
(5) Ratio of tangible equity to total assets.
The FDICIA also provides that each Federal banking agency must
prescribe safety and soundness standards in certain areas of banking practice.
In order to comply with the FDICIA, the Federal Reserve Board, the Comptroller
and the FDIC have adopted regulations defining operational and managerial
standards relating to internal controls, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits.
The capital standards and the safety and soundness standards which
the FDICIA seeks to implement are designed to bolster and protect the deposit
insurance fund.
The legislature of the State of Florida has enacted an interstate
banking statute which allows bank holding companies located throughout the
United States to acquire banks and bank holding companies located in Florida
under certain conditions. Such legislation has had the effect of increasing
competition among financial institutions in the Bank's market area and in the
State of Florida generally.
As a bank holding company, the Company is required to file with the
Federal Reserve Board 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 Act. The Federal Reserve Board may also make
examinations of the Company and each of its subsidiaries.
The scope of regulation and permissible activities of the Company and
the Bank is subject to change by future federal and state legislation.
ITEM 2. DESCRIPTION OF PROPERTY.
On June 3, 1991, the Company entered into a lease for two office
suites on the ground floor of One Sarasota Tower, a twelve story glass-faced
building at the intersection of U.S. Highway 41 (Tamiami Trail) and Gulfstream
Avenue in downtown Sarasota, Florida. The two suites contain an aggregate of
9,300 square feet of useable space. The Company is presently using all of one
suite and 1,100 square feet of the second for banking operations. The remainder
of the second suite is being subleased by the Company and will be used to
accommodate future expansion of the Bank's operations as needed.
The lease agreement provides for a term of 10 years commencing on
December 31, 1991, with options to extend the lease for two additional periods
of five years each. The effective annual rent over the term of the lease is
approximately $208,500. The facility includes four teller stations, three
executive offices, a vault, a night depository, a bookkeeping/operations room
and a board room. The Company is subleasing the facility to the Bank at a rate
which will include reimbursement to the Company for payment of rent, taxes,
insurance, repairs and maintenance of the property.
On November 30, 1993, the Company entered into a ground lease on
contiguous property on which it has constructed a two-lane drive through
facility. The lease term coincides with that of the current banking facility
with an effective annual rent of approximately $23,600.
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<PAGE> 20
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Company
or the Bank is a party or of which any of their properties are subject; nor are
there material proceedings known to the Company to be contemplated by any
governmental authority; nor are there material proceedings known to the Company,
pending or contemplated, in which any director, officer or affiliate or any
principal security holder of the Company, or any associate of any of the
foregoing is a party or has an interest adverse to the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter ended December 31,
1998 to a vote of security holders of the Company.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
During the period covered by this report and to date, there has been
no established public trading market for the Company's Common Stock.
HOLDERS OF COMMON STOCK
As of March 8, 1999, the number of holders of record of the Company's
Common Stock was 417.
DIVIDENDS
To date, the Company has not paid any cash dividends on its Common
Stock. It is the policy of the Board of Directors of the Company to reinvest
earnings for such period of time as is necessary to ensure the success of the
operations of the Company and of the Bank. There are no current plans to
initiate payment of cash dividends, and future dividend policy will depend on
the Bank's earnings, capital requirements, financial condition and other factors
considered relevant by the Board of Directors of the Company.
Dividends are payable with respect to the Common Stock of the Bank
only when and if declared by the Bank's Board of Directors. Under Florida law
applicable to banks and subject to certain limitations, after charging off bad
debts, depreciation and other worthless assets, if any, and making provisions
for reasonably anticipated future losses on loans and other assets, the board of
directors of a bank may declare a dividend of so much of the bank's aggregate
net profits for the current year combined with its retained net profits 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 net
profits which accrued prior to the preceding two 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 current year
combined with the retained net income from the preceding two
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<PAGE> 21
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 state or federal regulatory agency.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
OVERVIEW
The Company was incorporated under the laws of the State of Florida
on December 28, 1990 for the primary purpose of organizing the Bank and
purchasing 100% of the outstanding capital stock of the Bank. The following
discussion is intended to assist in understanding the financial condition and
results of operation of the Company and should be read in conjunction with the
Consolidated Financial Statements of the Company included herein.
Net income for the year ended December 31, 1998 was $740,273,
compared to $729,000 in 1997. Net income per common share was $1.34 in 1998
compared to $1.55 in 1997. The increase in 1998 net income resulted principally
from increases in the volume of earning assets, primarily loans, which increased
net interest income 36.55%, or $1,232,955 over 1997.
Total assets were $78,447,666 at December 31, 1998, 30.92% over total
assets of $59,920,530 at December 31, 1997. Average assets for 1998 were
$70,351,517 as compared to average assets of $53,636,250 in 1997. This 31.16%
increase in average assets was the result of a 35.66% increase in average loans
and a 23.41% increase in average securities over the prior year.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Fiscal 1998 Compared to Fiscal 1997
The Company experienced continued asset, loan and deposit growth
during 1998. Total assets increased 30.92% to $78,447,666 at December 31, 1998
from $59,920,530 at December 31, 1997. This increase is primarily attributable
to an increase in loans of approximately $14 million during the year. Net total
loans at December 31, 1998 were $54.0 million, compared to $39.6 million at
December 31, 1997. Securities available for sale accounted for 34.1% of the
asset growth as they increased to $17,678,822 at December 31, 1998 from $13.3
million at December 31, 1997.
The Company's net income grew proportionately with asset growth
during 1998. Net income increased 1.55% to $740,273 or $1.34 per share of Common
Stock at December 31, 1998 as compared to net income of $729,000 or $1.55 per
share of Common Stock at December 31, 1997. The increases in net income are
primarily attributable to a 36.55% increase in interest and fees on loans.
Interest and fees earned on loans were $4.6 million at December 31, 1998
compared to $3.4 million at December 31, 1997.
Net interest income after provision for loan losses increased
$760,686 or 37.71% to $2,777,710 at December 31, 1998 compared to $2,017,004 for
the same period of 1997. The increases in net interest income resulted primarily
from an increase in loan volume and a corresponding increase in interest and
fees on loans. The cost of deposits averaged 4.40% for the year 1998 compared to
4.38% for the year 1997. The net interest margin was 4.52% as of December 31,
1998 on average earning assets of $69.2 million compared to a net interest
market of 4.16% on average earning assets of $52.6 million as of December 31,
1997. This increase in net interest margin is reflective of growth in earning
assets and repricing of floating rate assets quicker than repricing of
interest-bearing liability accounts.
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<PAGE> 22
Non-interest expense increased $429,126 or 29.24% to $1,896,726 at
December 31, 1998 as compared to $1,467,000 at December 31, 1997. This increase
is primarily the result of increased compensation expenses and increased
advertising and marketing expenses.
Non-interest income increased $44,413 or 18.20% to $288,489 at
December 31, 1998 compared to $209,914 at December 31, 1997. This increase is
attributable to increased income for fees on depository accounts. Service fees
increased $26,904 or 17.29% to $188,479 at December 31, 1998 compared to
$155,575 at December 31, 1997. While the Bank does not charge maintenance fees
for its commercial accounts, a significant increase was observed in insufficient
funds and overdraft activity. Other income, which includes rental income,
increased $11,474 or 13.47% to $96,626 at December 31, 1998 compared to $85,152
at December 31, 1997.
The allowance for loan losses represents management's estimate of an
amount adequate to provide for potential losses inherent in the loan portfolio.
In its continuing evaluation of the allowance and its adequacy, management
considers the Company's loan loss experience, an internally assigned loan grade,
current and anticipated economic conditions, off-balance sheet items,
concentrations of credit and other factors which affect the allowance for
potential credit losses. While it is the Company's policy to charge-off, in the
current period, the loans in which a loss is considered probable, there are
additional risks for future losses which cannot be quantified precisely or
attributed to particular loans or classes of loans. Because these risks include
the state of the economy, management's judgment as to the adequacy of the
allowance is necessarily approximate and imprecise. The expense for the
allowance for loan losses decreased $74,100 or 38.29% to $119, 400 at December
31, 1998 compared to $193,500 at December 31, 1997. The increased allowance for
loan losses in 1998 was due to the increase in total loans outstanding during
fiscal 1998. Net charge-offs for 1998 were $44,252 or 0.09% of average loans
outstanding for 1998 compared to $25,040 or .07% of average loans outstanding
for 1997. The ratio of non-performing loans (including loans 90 days or more
past due) to total outstanding loans was 0.49% as of December 31, 1998. At year
ended December 31, 1997, non-performing loans were .02% of loans outstanding.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Company maintains its liquidity through the management of its
assets and liabilities. Liquidity management involves meeting the funds flow
requirements of customers who may withdraw funds on deposit or may need to
obtain funds to meet their credit needs. Banks in general must maintain adequate
cash balances to meet daily cash flow requirements as well as satisfy reserves
required by applicable regulations. The cash balances held are one source of
liquidity. Other sources are provided by the investment portfolio, federal funds
sold, interest-bearing deposits in financial institutions, loan payments and the
Company's ability to borrow funds as well as issue new capital.
At December 31, 1998, the Company continued to exhibit a high degree
of liquidity. Primary liquidity rests in federal funds sold, which can be
converted to cash in the same day. Federal funds sold and cash and due from
banks aggregated $5.3 million or 6.71% of assets at December 31, 1998 compared
to $5.9 million or 9.8% of total assets at the end of 1997. Current securities
held in the Company's investment portfolio (with a market value of approximately
$17.7 million) are classified as "Available For Sale." Future investments may
also be designated as "Available for Sale." Secondary liquidity rests in
established secured federal funds purchased from a correspondent bank.
Commitments to extend credit totaled $6,724,669 at December 31, 1998 compared to
$5,972,368 at December 31, 1997. Management intends to fund these commitments
primarily from deposit growth and federal funds balances. With a loan to deposit
ratio of 78.96%, cash and due from banks of $3.7 million and federal funds sold
of $1.6 million, management does not anticipate any events which would require
liquidity beyond that which is available through deposit growth or its
investment portfolio.
-21-
<PAGE> 23
Management monitors the Company's asset and liability positions in
order to maintain a balance between maturing assets and maturing liabilities
along with rate sensitive assets and rate sensitive liabilities to maintain
sufficient liquid assets to meet expected liquidity needs. Management believes
that the Company's liquidity is satisfactory at December 31, 1998. Except as set
forth above, there are no trends, demands, commitments, events or uncertainties
that will result in or are reasonably likely to result in the Company's
liquidity increasing or decreasing in any material way. The Company is not aware
of any current recommendations by the regulatory authorities which if they were
to be implemented would have a material effect on the Company's liquidity,
capital resources, or results of operations.
The following is an analysis of rate sensitive assets and liabilities
as of December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
5 yrs
0-3 mos. 3-12 mos. 1-5 yrs. or more Total
-------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Taxable securities ..................... $ 2,574 $ 4,954 $10,020 $ 277 $17,825
Federal funds sold ..................... 1,605 -0- -0- -0- 1,605
Loans .................................. 12,862 10,733 28,746 2,354 54,695
-------- -------- ------- --------- -------
Total rate sensitive assets ....... 17,041 15,687 38,766 2,631 74,125
======== ======== ======= ========= =======
NOW and money market deposits .......... 9,178 -0- 3,606 -0- 12,784
Savings deposits ....................... -0- -0- 1,162 -0- 1,162
Time deposits .......................... 10,986 23,259 9,237 -0- 43,482
-------- -------- ------- --------- -------
Total rate sensitive liabilities .. 20,164 23,259 14,005 -0- 57,428
======== ======== ======= ========= =======
Excess (deficiency) of rate sensitive
assets less rate sensitive liabilities $ (3,123) $ (7,572) $24,761 $ 2,631 $16,697
Ratio of rate sensitive assets to rate
sensitive liabilities ................. .85 .67 2.77 - 1.29
Cumulative gap ......................... $ (3,123) $(10,695) $14,066 $ 16,697 $ --
</TABLE>
As indicated in the above table, a positive gap between rate sensitive assets
and rate sensitive liabilities would allow the Company to reprice its assets
faster than its liabilities in a falling interest rate environment which would
have a negative effect on earnings. However, in an increasing interest rate
environment, the Company may experience an increase in earnings. The above table
has been prepared based on principal payment due dates, contractual maturity
dates or repricing intervals on variable rate instruments.
CAPITAL ADEQUACY
There are now two primary measures of capital adequacy for banks and
bank holding companies: (i) risk-based capital guidelines; and (ii) the leverage
ratio.
The risk-based capital guidelines measure the amount of a bank's
required capital in relation to the degree of risk perceived in its assets and
its off-balance sheet items. Capital is divided into two "tiers." Tier 1 capital
consists of common shareholders' equity, non-cumulative and cumulative (bank
holding companies only), perpetual preferred stock and minority interests.
Goodwill is subtracted from the total.
-22-
<PAGE> 24
Tier 2 capital consists of the allowance for loan losses, hybrid capital
instruments, term subordinated debt and intermediate term preferred stock. Banks
are required to maintain a minimum risk-based capital ratio of 8.0%, with at
least 4.0% consisting of Tier 1 capital.
The second measure of capital adequacy relates to the leverage ratio.
The FDIC has established a 3.0% minimum leverage ratio requirement. Note that
the leverage ratio is computed by dividing Tier 1 capital into total assets.
Banks that are not rated CAMELS-1 by their primary regulator should maintain a
minimum leverage ratio of 4.0% plus an additional cushion of at least 1 to 2
percent, depending upon risk profiles and other factors.
In 1996, the Federal Reserve Board, the Office of the Comptroller of the
Currency and the FDIC adopted a new rule that adds a measure of interest rate
risk to the determination of supervisory capital adequacy. Concurrently, the
agencies issued a joint policy statement to bankers, effective June 26, 1996, to
provide guidance on sound practices for managing interest rate risk. In the
policy statement, the agencies emphasize the necessity of adequate oversight by
a bank's Board of Directors and senior management and of a comprehensive risk
management process. The policy statement also describes the critical factors
affecting the agencies' evaluations of a bank's interest rate risk when making a
determination of capital adequacy. The agencies' risk assessment approach used
to evaluate a bank's capital adequacy for interest rate risk relies on a
combination of quantitative and qualitative factors. Banks that are found to
have high levels of exposure and/or weak management practices will be directed
by the agencies to take corrective action. See "Item 1. Business--Supervision
and Regulation."
Stockholders' equity at December 31, 1998 was $6,250,850. Management
believes that the Bank's capitalization is adequate to sustain growth which is
anticipated for fiscal 1999. The following table sets forth the applicable
required capital ratios for the Company and the Bank and the actual capital
ratios for both entities as of December 31, 1998:
<TABLE>
<CAPTION>
Leverage Ratio Tier 1 Capital Risk-Based Capital
------------------------- --------------------------- ------------------------
Regulatory Regulatory Regulatory
Minimum Actual Minimum Actual Minimum Actual
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Company................ 3.0% 8.51% 4.0% 10.58% 8.0% 11.53%
Bank................... 3.0% 8.44% 4.0% 10.49% 8.0% 11.43%
</TABLE>
ITEM 7. FINANCIAL STATEMENTS.
The following financial statements are filed with this report:
Independent Auditor's Report
Consolidated Balance Sheet--December 31, 1998 and 1997
Consolidated Statements of Income--For the years ended December 31,
1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity--For the
years ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows--For the years ended December 31,
1998 and 1997
Notes to Consolidated Financial Statements
-23-
<PAGE> 25
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
SARASOTA, FLORIDA
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<PAGE> 26
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
SARASOTA, FLORIDA
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
CONTENTS
PAGE
Independent Auditors' Report 26
Consolidated Statements of Financial Condition 27
Consolidated Statements of Income 28
Consolidated Statements of Changes in Stockholders' Equity 29
Consolidated Statements of Cash Flows 30
Notes to Consolidated Financial Statements 31
-25-
<PAGE> 27
[SC&G Letterhead]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Sarasota BanCorporation, Inc. and Subsidiary
Sarasota, Florida
We have audited the accompanying consolidated statements of financial condition
of Sarasota BanCorporation, Inc. and Subsidiary as of December 31, 1998 and
1997, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Bank'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
Sarasota BanCorporation, Inc. and Subsidiary as of December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Saltmarsh, Cleaveland & Gund
Pensacola, Florida
January 29, 1999
-26-
<PAGE> 28
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash and due from banks $ 3,660,872 $ 1,626,155
Federal funds sold 1,605,000 4,269,000
Securities available for sale 17,678,822 13,181,407
Loans receivable, less of allowance for loan losses
of $ 557,546 in 1998 and $ 482,398 in 1997 53,955,285 39,590,147
Accrued interest receivable 478,024 380,541
Foreclosed real estate 71,673 71,673
Repossessed assets 195,376 -0-
Furniture and equipment, net 387,602 428,133
Deferred income taxes 187,192 150,904
Other assets 227,820 222,570
------------ ------------
Total Assets $ 78,447,666 $ 59,920,530
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits $ 9,173,316 $ 6,678,554
NOW and money market deposits 12,729,289 12,878,302
Savings deposits 1,162,127 798,833
Other time deposits 43,462,019 34,021,075
------------ ------------
Total deposits 66,526,751 54,376,764
FHLB advances 2,000,000 -0-
Repurchase agreements 2,897,485 614,445
Income taxes payable 441,791 12,000
Accrued interest payable 136,301 110,288
Accrued expenses and other liabilities 194,488 139,447
------------ ------------
Total liabilities 72,196,816 55,252,944
------------ ------------
Commitments and Contingencies -- --
Stockholders' Equity:
Common stock, $ .01 par value; 10,000,000 shares
authorized, 559,140 and 471,500 shares issued
and outstanding in 1998 and 1997, respectively 5,591 4,715
Additional paid-in capital 5,588,927 4,710,285
Treasury stock, at cost (27,848) (21,098)
Retained earnings (deficit) 653,858 (86,415)
Accumulated other comprehensive income 30,322 60,099
------------ ------------
Total stockholders' equity 6,250,850 4,667,586
------------ ------------
Total Liabilities and Stockholders' Equity $ 78,447,666 $ 59,920,530
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
-27-
<PAGE> 29
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Interest Income:
Loans receivable and fees on loans $4,606,255 $3,373,300
Investment securities 918,394 795,429
Federal funds sold 212,040 201,114
---------- ----------
Total interest income 5,736,689 4,369,843
---------- ----------
Interest Expense:
Deposits 2,739,225 2,097,060
Other 100,354 62,259
---------- ----------
Total interest expense 2,839,579 2,159,319
---------- ----------
Net interest income 2,897,110 2,210,524
Provision for Loan Losses 119,400 193,500
---------- ----------
Net interest income after provision for loan losses 2,777,710 2,017,024
---------- ----------
Noninterest Income:
Service charges on deposit accounts 182,479 155,575
Net gain from sale of loans 9,384 3,349
Other income 96,626 85,152
---------- ----------
Total noninterest income 288,489 244,076
---------- ----------
Noninterest Expenses:
Salaries and employee benefits 869,474 677,771
Occupancy expense 247,391 233,307
Data processing 68,792 37,188
Professional fees 120,257 75,617
Other expense 590,812 443,717
---------- ----------
Total noninterest expenses 1,896,726 1,467,600
---------- ----------
Income Before Income Taxes 1,169,473 793,500
Income Tax Expense 429,200 64,500
---------- ----------
Net Income $ 740,273 $ 729,000
========== ==========
Net Income Per Share of Common Stock $ 1.34 $ 1.55
========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
-28-
<PAGE> 30
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Treasury Accumulated Comprehensive
Stock Capital Stock Deficit Income Total
--------- ----------- --------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 4,715 $ 4,710,285 $ -0- $ (815,415) $ 27,093 $ 3,926,678
-----------
Net income 729,000 729,000
Other comprehensive income,
net of tax:
Change in unrealized gain (loss)
on securities available-for-sale,
net of tax of $ 19,384 33,006
Less: reclassification adjustment
for gains included in net income -0- 33,006
-----------
TOTAL COMPREHENSIVE INCOME 762,006
-----------
Purchase of 1,893 treasury shares,
at cost (21,098) (21,098)
--------- ----------- --------- ---------- --------- -----------
Balance, December 31, 1997 4,715 4,710,285 (21,098) (86,415) 60,099 4,667,586
----------
Issuance of 87,640 shares of common
stock at $10.04 per share 876 878,642 879,518
----------
Net income 740,273 740,273
Other comprehensive income,
net of tax:
Change in unrealized gain (loss)
on securities available-for-sale,
net of tax of $ 17,488 (29,777)
Less: reclassification adjustment
for gains included in net income -0- (29,777)
--------- ----------
TOTAL COMPREHENSIVE INCOME 710,496
----------
Purchase of 600 treasury shares,
at cost (6,750) (6,750)
--------- ---------- -------- ---------- --------- ----------
Balance, December 31, 1998 $ 5,591 $5,588,927 $(27,848) $ 653,858 $ 30,322 $6,250,850
========= ========== ======== ========== ========= ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
-29-
<PAGE> 31
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 740,273 $ 729,000
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 50,027 49,226
Provision for loan losses 119,400 193,500
Net accretion/amortization on securities 92,720 47,522
Deferred tax (benefit) expense (18,800) 50,000
Amortization of organizational expenses -0- 26,441
Change in operating assets and liabilities -
Increase in accrued interest receivable and other assets (102,733) (272,202)
Increase in income tax payable 429,791 -0-
Increase in accrued interest payable and other liabilities 81,054 62,796
------------ ------------
Net cash provided by operating activities 1,391,732 886,283
------------ ------------
Cash Flows From Investing Activities:
Purchases of available-for-sale securities (10,307,480) (5,539,045)
Proceeds from sales and maturities of available-for-sale securities 2,100,000 2,500,000
Principal reductions received on available-for-sale securities 3,570,080 1,075,018
Net increase in loans (14,679,914) (8,788,804)
Purchases of furniture and equipment (9,496) (44,480)
Purchases of treasury stock (6,750) (21,098)
------------ ------------
Net cash used in investing activities (19,333,560) (10,818,409)
------------ ------------
Cash Flows From Financing Activities:
Net increase in demand, NOW, money market and savings deposits 2,709,043 3,227,399
Net increase in time deposits 9,440,944 7,287,602
Net increase (decrease) in repurchase agreements 2,283,040 (873,378)
Proceeds from FHLB advance 2,000,000 -0-
Proceeds from issuance of common stock 879,518 -0-
------------ ------------
Net cash provided by financing activities 17,312,545 9,641,623
------------ ------------
Net (Decrease) Increase in Cash and Cash Equivalents (629,283) (290,503)
Cash and Cash Equivalents at Beginning of Year 5,895,155 6,185,658
------------ ------------
Cash and Cash Equivalents at End of Year $ 5,265,872 $ 5,895,155
============ ============
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 2,821,785 $ 2,118,572
============ ============
Income taxes paid $ 16,222 $ -0-
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
-30-
<PAGE> 32
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization:
Sarasota BanCorporation, Inc. (the "Company"), is a bank holding
company organized under the laws of the State of Florida.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Sarasota Bank (the "Bank"). All material
intercompany balances and transactions have been eliminated in
consolidated.
Business Activity:
The Bank is a banking corporation organized in 1992 under the laws of the
State of Florida with deposits being insured by the Federal Deposit
Insurance Corporation. The Bank considers its primary market area as
Sarasota County, and the majority of its commercial and mortgage loans
granted are to customers in this area. The Bank is regulated by various
federal and state agencies and is subject to periodic examination by
those regulatory authorities.
Accounting 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.
Cash Equivalents:
For the purpose of presentation in the statements of cash flows, cash and
cash equivalents are defined as those amounts included in the
balance-sheet caption "cash and due from banks" and "federal funds sold."
Generally, federal funds are sold for one day periods.
Securities Available for Sale:
Available-for-sale securities consist of bonds, notes and other
securities not classified as trading securities or as held-to-maturity
securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported in other comprehensive income.
Realized gains and losses on the sale of available-for-sale securities
are determined using the specific-identification method, and included in
other income (expense) and, when applicable, are reported as a
reclassification adjustment, net of tax, in other comprehensive income.
-31-
<PAGE> 33
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Declines in the fair value of individual available-for-sale securities
below their cost, that are other than temporary, result in write-downs of
the individual securities to their fair value. The related write-downs
are included in earnings as realized losses.
Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
Loans Receivable:
Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for
loan losses, and any deferred fees or costs on originated loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related
loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to
the extent cash payments are received.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic conditions.
Sale of Loan Participations:
The Bank originates loans partially guaranteed by the U.S. Small Business
Administration. The Bank may sell the guaranteed portion of certain of
these loans in the secondary market at a premium. The premiums on these
transactions are recorded as gains on sales of loans and included in
noninterest income.
-32-
<PAGE> 34
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreclosed Real Estate:
Real estate properties acquired through, or in lieu of, loan foreclosure
are to be sold and are initially recorded at fair value at the date of
foreclosure establishing a new cost basis. After foreclosure, valuations
are periodically performed by management and the real estate is carried
at the lower of carrying amount or fair value less cost to sell. Revenue
and expenses from operations are included in current earnings.
Furniture and Equipment:
Furniture and equipment and leasehold improvements are carried at cost,
less accumulated depreciation and amortization computed principally by
the straight-line method.
Income Taxes:
Deferred tax assets and liabilities are reflected at current income tax
rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
The Company and the Bank file consolidated income tax returns, with
income tax expense or benefit computed and allocated on a separate return
basis.
Financial Instruments:
In the ordinary course of business the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to
extend credit, standby letters of credit, and financial guarantees. Such
financial instruments are recorded in the financial statements when they
are funded or related fees are incurred or received.
Net Income Per Share of Common Stock:
Net income per share of common stock is computed on the basis of the
weighted average number of shares outstanding.
Reclassifications:
Certain prior year amounts have been reclassified to conform to the
current period presentation.
-33-
<PAGE> 35
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - INVESTMENT SECURITIES
Investment securities have been classified in the statements of financial
condition according to management's intent. The carrying amount of
securities and their approximate fair values are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Available-For-Sale:
December 31, 1998 -
U.S. Treasury securities $ 2,002,624 $ 12,064 $ -0- $ 2,014,688
U.S. government agency securities 15,628,067 92,951 (56,884) 15,664,134
----------- ------------ ------------ -----------
$17,630,691 $ 105,015 $ (56,884) $17,678,822
=========== ============ ============ ===========
December 31, 1997 -
U.S. Treasury securities $ 3,119,270 $ 25,687 $ (4,551) $ 3,140,406
U.S. government agency securities 9,966,742 86,053 (11,794) 10,041,001
----------- ------------ ------------ -----------
$13,086,012 $ 111,740 $ (16,345) $13,181,407
=========== ============ ============ ===========
</TABLE>
There were no realized gains or losses on the sale of
available-for-sale securities in 1998 or 1997.
Included in U.S. government agency securities are investments in
collateralized mortgage obligations ("CMOs") with a carrying value of
approximately $ 3,088,900 at December 31, 1998. The effective yield on
CMOs was 6.47% at December 31, 1998. The Bank did not have any
investments in CMOs at December 31, 1997.
-34-
<PAGE> 36
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
The scheduled maturities of securities available-for-sale at December 31,
1998, are as follows:
Amortized Fair
Cost Value
------------- -------------
Due in one year or less $ 2,002,624 $ 2,014,688
Due from one to five years 9,711,918 9,780,582
Due from five to ten years 5,916,149 5,883,552
------------- -------------
$ 17,630,691 $ 17,678,822
============= =============
For purposes of the maturity table, mortgage-backed securities, which are
not due at a single maturity date, have been allocated over maturity
groupings based on the weighted-average contractual maturities of
underlying collateral. The mortgage-backed securities may mature earlier
than their weighted-average contractual maturities because of principal
prepayments.
Investment securities carried at approximately $ 8,618,700 at December
31, 1998 and $ 3,642,900 at December 31, 1997, were pledged to secure
public deposits and for other purposes required or permitted by law.
NOTE 3 - LOANS RECEIVABLE
The components of loans in the statements of financial condition are as
follows:
1998 1997
-------------- --------------
Real estate $ 32,888,200 $ 26,177,542
Commercial 9,409,815 8,882,707
Consumer 12,279,817 5,093,512
Other 60,287 38,074
-------------- --------------
54,638,119 40,191,835
Net deferred loan fees (125,288) (119,290)
Allowance for loan losses (557,546) (482,398)
-------------- --------------
Loans receivable, net $ 53,955,285 $ 39,590,147
============== ==============
The Bank grants commercial, real estate and consumer loans in the State
of Florida with its primary concentration being in Sarasota County,
Florida. Although the Bank's loan portfolio is diversified, a significant
portion of its loans are secured by real estate.
-35-
<PAGE> 37
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 - LOANS RECEIVABLE (CONTINUED)
An analysis of the change in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1998 1997
--------------- --------------
<S> <C> <C>
Balance, at January 1 $ 482,398 $ 313,939
--------------- --------------
Loans charged off (77,509) (63,906)
Recoveries 33,257 38,865
--------------- --------------
Net loans charged-off (44,252) (25,041)
--------------- --------------
Provision for loan losses 119,400 193,500
--------------- --------------
Balance, at December 31 $ 557,546 $ 482,398
=============== ==============
</TABLE>
Loans on which the accrual of interest has been discontinued or reduced,
for which impairment had not been recognized, amounted to approximately $
96,800 at December 31, 1998. If interest on these loans had been accrued,
such income would have approximated $ 4,300 in 1998. Interest income on
these loans is recorded only when received. There were no loans on which
the accrual of interest had been discontinued or reduced at December 31,
1997.
NOTE 4 - FURNITURE AND EQUIPMENT
Components of furniture and equipment included in the statements of
financial condition are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ----------------
<S> <C> <C>
Furniture and equipment $ 254,004 $ 244,508
Leasehold improvements 411,203 411,203
--------------- ----------------
665,207 655,711
Less: Accumulated depreciation and amortization (277,605) (227,578)
--------------- ----------------
$ 387,602 $ 428,133
=============== ================
</TABLE>
Depreciation and amortization expense charged to operations amounted
to $ 50,027 in 1998 and $ 49,226 in 1997.
-36-
<PAGE> 38
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 5 - TIME DEPOSITS
The aggregate amount of time deposits, each with a minimum denomination
of $ 100,000 was approximately $ 11,792,000 in 1998 and $ 8,104,000 in
1997.
At December 31, 1998, the scheduled maturities of time deposits are as
follows:
<TABLE>
<S> <C>
1999 $ 34,224,767
2000 8,228,125
2001 550,345
2002 166,358
2003 292,424
-----------------
$ 43,462,019
=================
</TABLE>
NOTE 6 - CONCENTRATIONS
At December 31, 1998, thirteen deposit relationships represented
approximately 9% of the Bank's total deposits.
The Bank maintains cash balances at financial institutions in Alabama and
Florida. Accounts at each institution are insured by the Federal Deposit
Insurance Corporation (the "FDIC") up to $ 100,000. At various times
throughout the year uninsured balances exceed the FDIC insured limits.
The Bank's management monitors these institutions on a quarterly basis in
order to determine that the institutions meet "well-capitalized"
guidelines as established by the FDIC.
NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES
At December 31, 1998, the Bank had an advance from the Federal Home Loan
Bank amounting to $ 2,000,000. The advance bears interest at 4.96% and
matures in December 1999. The advance is secured by a blanket lien on the
Bank's 1-4 residential loan portfolio. Total unused advances available to
be drawn by the Bank amounted to approximately $ 5,000,000 at December
31, 1998. The Bank did not have any advances outstanding as of December
31, 1997.
NOTE 8 - REPURCHASE AGREEMENTS
At December 31, 1998, the Bank had entered into repurchase agreements
with Bank customers. The repurchase agreements generally mature within
one to four days from the transaction date. The average balance and
interest rate under the repurchase agreements amounted to approximately $
2,053,600 and 4.86 % in 1998 and $ 1,299,500 and 4.93% in 1997.
-37-
<PAGE> 39
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 9 - STOCKHOLDERS' EQUITY
The Company and the Bank are subject to certain restrictions on the
amount of dividends that they may declare without regulatory approval. As
discussed in Note 11, in 1998 warrants were exercised to purchase 87,640
shares of the Company's common stock at $10.04 per share. Proceeds from
the exercise of these warrants was used to make a $ 825,000 capital
contribution to the Bank.
In 1991, the Company authorized 1,000,000 shares of preferred stock with
a par value of $ .10 per share; however, there were no shares of
preferred stock issued and outstanding at December 31, 1998 and 1997.
NOTE 10 - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Current tax provision:
Federal $ 395,584 $ 14,500
----------- ------------
State 52,416 -0-
----------- ------------
448,000 14,500
Deferred federal (benefit) expense (18,800) 50,000
----------- ------------
$ 429,200 $ 64,500
=========== ============
</TABLE>
The provision for income taxes differs from that computed by applying the
statutory federal income tax rate to income before income taxes as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Tax based on statutory rate $ 404,347 $ 275,963
State tax, net of federal benefit 34,595 -0-
Benefit of net operating loss carryforwards (13,920) (275,963)
Change in deferred tax valuation allowance -0- 50,000
Other, net 4,178 14,500
----------- ------------
$ 429,200 $ 64,500
=========== ============
</TABLE>
In 1997, the current tax provision represents income taxes calculated for
alternative minimum tax. At December 31, 1998, all cumulative federal net
operating loss carryforwards had been utilized.
-38-
<PAGE> 40
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities included in the statements of
financial condition were as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 205,000 $ 146,550
Expected benefit of net operating loss carryforwards -0- 39,650
----------- ----------
205,000 186,200
Deferred tax liabilities:
Net unrealized appreciation on available-for-sale securities (17,808) (35,296)
----------- ----------
Net deferred tax asset $ 187,192 $ 150,904
=========== ==========
</TABLE>
NOTE 11 - STOCK WARRANTS AND OPTIONS
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," and accounts for these options under APB Opinion No. 25,
for which no compensation cost has been recognized. Based on the option
pricing model utilized by the Company, the pro forma after-tax effect of
compensation costs attributable to the options below was immaterial to
1998 and 1997 operating results.
On September 15, 1992, the Company's organizers were granted warrants to
purchase additional common stock equal to 72.83% of their initial
investment in the common stock (117,500 shares) of the Company. The
warrants are exercisable at any time during the five-year period
commencing on the date of the grant. The exercise price of the warrants
is the greater of $ 10 per share of common stock or the book value per
share of common stock on the exercise date. In 1998, warrants were
exercised to purchase 87,640 shares of the Company's common stock at $
10.04 per share. The expiration date of the 29,860 warrants not exercised
was extended until December 2002.
In April 1991, the Bank's president was granted stock options to purchase
23,575 shares of the Company's common stock at $ 10 per share. The
options expire on December 31, 2002. In addition, in 1998 the Bank's
president received incentive stock options to purchase 3,285 shares of
the Company's common stock. Additional options may be granted to the
president based on the Company's meeting certain operational objectives
or in the event of a change in control of the Company. Total incentive
options available is 13,140 shares, including the 3,285 incentive stock
options received in 1998. The incentive options are exercisable at any
time at $ 10 per share and expire in December 2002. No options were
exercised in 1998.
In June 1998, the Company granted stock options to two executive officers
to each acquire 1,000 shares of the Company's common stock. All options
are exercisable at any time at $10 per share. The options expire in
December 2002. No options were exercised in 1998.
-39-
<PAGE> 41
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 11 - STOCK WARRANTS AND OPTIONS (CONTINUED)
The fair value of each option granted is estimated on the date of the
grant using the minimum value method, assuming weighted average risk free
rates. The weighted average fair value of each option granted amounted to
$ 8.32 in 1998 and $ 7.52 in 1997.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Leases:
The Bank leases its banking facility and an adjacent parcel of land under
operating leases expiring in 2001. The leases require payment of taxes,
insurance and maintenance costs in addition to rental payments. The lease
on the banking facility provides for two consecutive five-year renewal
options.
Future minimum lease payments under operating leases are summarized as
follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 215,914
2000 223,608
2001 231,610
-----------
Total future minimum lease payments $ 671,132
===========
</TABLE>
Rental expense relating to operating leases amounted to approximately
$208,500 in 1998 and $201,000 in 1997.
Future Minimum Rentals:
The Bank subleases a portion of its facilities at a monthly rate of
$4,400 plus applicable state sales tax.
Financial Instruments:
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit, standby letters of credit, and financial guarantees. Those
instruments involve, to varying degrees, elements of credit and
interest-rate risk in excess of the amount recognized in the statements
of financial condition. The contract or notional amounts of those
instruments reflect the extent of the Bank's involvement in particular
classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit,
standby letters of credit, and financial guarantees written is
represented by the contractual notional amount of those instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
-40-
<PAGE> 42
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Commitments to Extend Credit and Financial Guarantees. Commitments to
extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and
may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable; inventory;
property, plant, and equipment; and income-producing commercial
properties.
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 private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The Bank holds collateral for those commitments for which
collateral is deemed necessary.
The Bank has not incurred any losses on its commitments in 1998.
A summary of the notional amounts of the Bank's financial instruments
with off-balance-sheet risk at December 31, 1998, follows:
Commitments to extend credit $ 8,474,272
=============
Standby letters of credit $ 829,303
=============
Unused Lines-of-Credit:
At December 31, 1998, the Bank had lines of credits with banks enabling
the Bank to borrow up to $ 1,000,000 subject to such terms as outlined in
the related agreements. The arrangements are reviewed annually for
renewal of the credit lines. At December 31, 1998, there were no advances
outstanding under the lines-of-credit.
Other:
In the ordinary course of business, the Bank has various outstanding
contingent liabilities that are not reflected in the accompanying
financial statements. In addition, the Bank is a defendant in certain
claims and legal actions arising in the ordinary course of business. In
the opinion of management, after consultation with legal counsel, the
ultimate disposition of these matters is not expected to have a material
adverse effect on the financial condition of the Bank.
-41-
<PAGE> 43
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 13 - RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its directors, significant
stockholders, and their affiliates (related parties). The aggregate
amount of loans to such related parties at December 31, 1998 and 1997,
was approximately $ 543,500 and $ 488,000, respectively. During 1998, new
loans to such related parties amounted to approximately $ 102,800 and
repayments amounted to approximately $ 47,600. Also, certain related
parties maintain significant deposit balances with the Bank in the
aggregate amount of approximately $ 1,830,000 and $ 2,545,600 at December
31, 1998 and 1997, respectively.
One of the Bank's directors provides various legal services to the Bank.
Fees for these services amounted to approximately $ 16,500 in 1998 and
$11,400 in 1997. Another director provides advertising, printing, and
other miscellaneous services to the Bank. The gross billings for these
services, which includes cost passed through by other companies who are
actually providing their services to the Bank, amounted to approximately
$ 62,000 in 1998 and $ 42,100 in 1997.
NOTE 14 - REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's and the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company and the
Bank must meet specific capital guidelines that involve quantitative
measures of the Company's and the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Company's and the Bank's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier I capital (as
defined in the regulations) to risk-weighted assets (as defined), and of
Tier I capital (as defined) to average assets (as defined). Management
believes, as of December 31, 1998, that the Company and the Bank meet all
capital adequacy requirements to which they are subject.
-42-
<PAGE> 44
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 14 - REGULATORY MATTERS (CONTINUED)
As of December 31, 1998, the most recent notification that the Company
and the Bank had received from the Federal Deposit Insurance Corporation
categorized the Company and the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized the Company and the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the Company's or the institution's
category.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
--------------------- ----------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ----- ------------ ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets)
Consolidated $ 6,778,075 11.53% >=$ 4,704,240 >= 8.0% >=$5,880,300 >= 10.0%
Bank $ 6,723,713 11.43% >=$ 4,704,240 >= 8.0% >=$5,880,300 >= 10.0%
Tier I Capital
(to Risk Weighted Assets)
Consolidated $ 6,220,529 10.58% >=$ 2,352,120 >= 4.0% >=$3,528,180 >= 6.0%
Bank $ 6,166,167 10.49% >=$ 2,352,120 >= 4.0% >=$3,528,180 >= 6.0%
Tier I Capital
(to Average Assets)
Consolidated $ 6,220,529 8.84% >=$ 2,814,061 >= 4.0% >=$3,517,576 >= 5.0%
Bank $ 6,166,167 8.76% >=$ 2,814,061 >= 4.0% >=$3,517,576 >= 5.0%
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets)
Consolidated $ 5,089,885 12.43% >=$ 3,275,600 >= 8.0% >=$4,094,500 >= 10.0%
Bank $ 5,063,510 12.37% >=$ 3,275,600 >= 8.0% >=$4,094,500 >= 10.0%
Tier I Capital
(to Risk Weighted Assets)
Consolidated $ 4,607,487 11.25% >=$ 1,637,800 >= 4.0% >=$2,456,700 >= 6.0%
Bank $ 4,581,112 11.18% >=$ 1,637,800 >= 4.0% >=$2,456,700 >= 6.0%
Tier I Capital
(to Average Assets)
Consolidated $ 4,607,487 8.47% >=$ 2,176,240 >= 4.0% >=$2,720,300 >= 5.0%
Bank $ 4,581,112 8.42% >=$ 2,176,240 >= 4.0% >=$2,720,300 >= 5.0%
</TABLE>
-43-
<PAGE> 45
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments as disclosed herein:
Cash and short term instruments. The carrying amounts of cash and
short-term instruments approximate their fair value.
Available-for-sale securities. Fair values for securities are based on
quoted market prices.
Loans receivable. For variable-rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on
carrying values. Fair values for certain mortgage loans (for example,
one-to-four family residential) and other consumer loans are based on
quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan
characteristics. Fair values for commercial real estate and commercial
loans are estimated using discounted cash flow analyses using interest
rates currently being offered for loans with similar terms to borrowers
of similar credit quality.
Deposit liabilities. The fair values disclosed for demand deposits are,
by definition, equal to the amount payable on demand at the reporting
date (that is, their carrying amounts). The carrying amounts of
variable-rate, fixed-term money market accounts and certificates of
deposit ("CDs") approximate their fair values at the reporting date. Fair
values for fixed-rate CDs are estimated using a discounted cash flow
calculation that applies interest rates currently being offered to a
schedule of aggregated expected monthly maturities on time deposits.
Repurchase agreements. The carrying amounts of repurchase agreements with
Bank customers approximate their fair values.
Accrued interest. The carrying amounts of accrued interest approximate
their fair values.
Off balance-sheet instruments. Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the counterparties' credit standings. The estimated fair value for these
instruments was insignificant at December 31, 1998 and 1997.
Limitations. Fair value estimates are made at a specific point in time
and are based on relevant market information which is continuously
changing. Because no quoted market prices exist for a significant portion
of the Bank's financial instruments, fair values for such instruments are
based on management's assumptions with respect to future economic
conditions, estimated discount rates, estimates of the amount and timing
of future cash flows, expected loss experience, and other factors. These
estimates are subjective in nature involving uncertainties and matters of
significant judgment; therefore, they cannot be determined with
precision. Changes in the assumptions could significantly affect the
estimates.
-44-
<PAGE> 46
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 5,265,872 $ 5,265,872 $ 5,895,155 $ 5,895,155
Securities available-for-sale 17,678,822 17,678,822 13,181,407 13,181,407
Loans receivable 53,955,285 54,420,637 39,590,147 39,335,060
Accrued interest receivable 478,024 478,024 380,541 380,541
Financial liabilities:
Deposits 66,526,751 66,759,440 54,376,764 54,535,462
FHLB advances 2,000,000 2,000,000 -0- -0-
Repurchase agreements 2,897,485 2,897,485 614,445 614,445
Accrued interest payable 136,301 136,301 110,288 110,288
</TABLE>
-45-
<PAGE> 47
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no occurrence requiring a response to this item.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The Company's directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME POSITION WITH COMPANY
- ---- ---------------------
<S> <C>
Susan M. Baker Class II Director
Kenneth H. Barr Class II Director
Timothy J. Clarke Class III Director
James W. Demler, M.D. Class I Director
Susan K. Flynn Senior Vice President, Chief Financial Officer and
Cashier
Christine L. Jennings President, Chief Executive Officer and
Class III Director
Edward S. Levi Class I Director
Sam D. Norton Secretary and Class III Director
Michael R. Pender, Jr. Treasurer and Class III Director
A. Dean Pratt Class I Director
Paul D. Thatcher Executive Vice President and Chief Lending Officer
Gilbert J. Wellman Chairman of the Board and Class II Director
</TABLE>
Each of the Company's directors has served in such capacity since May
1991. The Company has a classified Board of Directors, whereby approximately
one-third of the members are elected each year at the Company's annual meeting
of shareholders. Upon such election, each director of the Company will serve for
a term of three years. The Company's officers are appointed by its Board of
Directors and hold office at the will of the Board.
-46-
<PAGE> 48
JAMES W. DEMLER, M.D., age 52, served as Chairman of the Board of the
Company from December 1990 to April 1996. Dr. Demler joined the organizational
group in October 1990. Dr. Demler is a physician specializing in urological
surgery. Dr. Demler helped establish Sarasota Urological Associates and has been
in private practice since 1983. Dr. Demler is former Chief of Surgery at
Doctor's Hospital of Sarasota.
CHRISTINE L. JENNINGS, age 53, has served as President and Chief
Executive Officer of the Company since May 1991 and of the Bank since September
1992 and has been engaged in the organization of the Company and the Bank since
May 1990. From 1987 to 1990, Ms. Jennings served as Senior Vice President and
Chief Lending Officer, as well as a director, of Liberty National Bank in
Bradenton, Florida. From 1985 to 1987, she served as Vice President - Commercial
Real Estate of NCNB National Bank of Florida in Sarasota/Tampa, Florida. From
1984 to 1985, Ms. Jennings served as Vice President of Southeast Bank. Prior to
that, she served in various capacities with Huntington National Bank in
Columbus, Ohio from 1970 to 1984. Ms. Jennings has 32 years of banking
experience.
SUSAN M. BAKER, age 42, served in the commercial lending and corporate
banking department of NationsBank in Sarasota from 1985 to 1987 and served as a
branch manager for NationsBank from 1983 to 1985. Mrs. Baker has served as an
office administrator for the medical practice of her husband since 1987 and has
been a partner in a family-owned real estate, lumber and insurance business
since 1981. Mrs. Baker is also a certified financial planner.
KENNETH H. BARR, age 58, served as part owner and general manager of
Schenkel's Restaurant on Longboat Key, Florida from 1968 to 1994. Mr. Barr
presently is a restauranteur.
TIMOTHY J. CLARKE, age 54, has served as President of Clarke
Advertising & Public Relations, Inc. since 1987. From 1985 to 1987, he served as
Vice President of Advertising and Public Relations for Murray Industries.
SUSAN K. FLYNN, age 37, has served as the Senior Vice President, Chief
Financial Officer and Cashier of the Company and the Bank since 1995. From 1991
to 1995, Ms. Flynn served as the Vice President and Cashier of University State
Bank in Tampa, Florida. Prior to that, Ms. Flynn served as the Assistant Branch
Manager, the Consumer Loan Officer and the Compliance Officer for First Union
National Bank in Tampa, Florida.
EDWARD S. LEVI, age 74, is currently retired. Mr. Levi served as
President and Chief Executive Officer of Samuel Levi & Company, Inc. a retail
furniture business headquartered in Portsmouth, Ohio, from 1948 to 1988. Mr.
Levi has been retired since 1988. Mr. Levi also served as a director of Bank
One, N.A. in Portsmouth, Ohio from 1977 to 1988 and was a member of that bank's
executive, personnel and compensation committees.
SAM D. NORTON, age 39, is a partner in the law firm of Norton, Moran,
Hammersley & Lopez, P.A. in Sarasota and has been engaged in private practice
since 1988. Mr. Norton practices law in the area of real estate, general
business law and lender representation. He also serves as a director of Surgical
Safety Products, Inc.
MICHAEL R. PENDER, JR., age 47, is a certified public accountant, and
has been a partner of Cavanaugh & Co., CPAs, since 1979.
-47-
<PAGE> 49
A. DEAN PRATT, age 68, has been retired since 1985. Prior to his
retirement, Mr. Pratt served as Chairman of the Board, President and Chief
Executive Officer of First State Bank of Morrisonville in Morrisonville,
Illinois from 1968 to 1984.
PAUL D. THATCHER, age 50, has served as the Executive Vice President
and Chief Lending Officer of the Company and the Bank since February 1994. From
1986 to 1994, Mr. Thatcher served as the Vice President, Credit Review for
NationsBank in Tampa, Florida.
GILBERT J. WELLMAN, age 77, has served as the Chairman of the Board of
Directors of the Company since April 1996. Mr. Wellman served as President and
Chief Executive Officer of Tower National Bank in Lima, Ohio from 1964 to 1983
and was the Organizing Chairman of that bank. From 1983 when the Bank was sold
to BancOne Corporation until his retirement in 1987, Mr. Wellman served as
Chairman and Chief Executive Officer of the BancOne subsidiary. Mr. Wellman was
an insurance broker from 1988 until 1998.
The Company is not subject to the requirements of Section 16 of the
Securities Exchange Act of 1934, as amended.
ITEM 10. EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer for the years ended December 31, 1998, 1997 and 1996. No
other executive officer's compensation exceeded $100,000 during 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------------
Name and Principal Position Year Salary Bonus
- --------------------------- ---- ------ -----
<S> <C> <C> <C>
Christine L. Jennings 1998 $120,001 $30,000(1)
President and 1997 $104,730 $26,250(2)
Chief Executive Officer 1996 $79,082 $20,500(3)
</TABLE>
- ------------------------------
(1) Earned in 1998 but paid in January 1999.
(2) Earned in 1997 but paid in January 1998.
(3) Earned in 1996 but paid in January 1997.
COMPENSATION OF DIRECTORS
The Bank's outside directors are paid $400 per month plus $100 for each
Board meeting attended, $100 for the first Committee meeting attended each
month, and $50 for each meeting thereafter. Directors who are also executive
officers of the Bank are not additionally compensated as members of the Bank's
Board of Directors. Currently, the directors of the Company receive no
compensation for their services, and no compensation is proposed to be paid to
the Company's directors during 1999.
-48-
<PAGE> 50
EMPLOYMENT AGREEMENT
On June 1, 1998, the Company entered into an employment agreement with
Christine L. Jennings, effective on January 1, 1998, pursuant to which she
serves as President and Chief Executive Officer of the Company and the Bank. The
agreement will expire on December 31, 2002.
STOCK OPTION PLAN
On March 23, 1999, the Board of Directors approved the 1998 Stock Option
Plan (the "Plan") to promote the Company's growth and success. Options may be
granted under the Plan to the Company's directors, officers and employees as
well as certain consultants and advisors. The Plan currently provides for the
grant of incentive and non-qualified stock options to purchase up to 64,216
shares of Common Stock at the discretion of the Board of Directors of the
Company or a committee designated by the Board of Directors to administer the
Plan. The option exercise price of incentive stock options must be at least 100%
(110% in the case of a holder of 10% or more of the Common Stock) of the fair
market value of the stock on the date the option is granted. The options are
exercisable by the holder thereof in full at any time prior to their expiration
in accordance with the terms of the Plan. Incentive stock options granted
pursuant to the Plan will expire on or before (1) the date which is the tenth
anniversary of the date the option is granted, or (2) the date which is the
fifth anniversary of the date the option is granted in the event that the option
is granted to a key employee who owns more than 10% of the total combined voting
power of all classes of stock of the Company or any subsidiary of the Company.
Options granted under the Plan typically vest over a period of four to five
years. As of March 23, 1999, options to purchase 41,538 shares of Common Stock
were outstanding pursuant to the Plan.
No options were exercised by the Company's Chief Executive Officer
during 1998. The following table presents certain information concerning grants
of stock options to the Company's Chief Executive Officer under the Company's
1998 Stock Option Plan made during the year ended December 31, 1998.
Option Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
% of Total Options Exercise
Options Granted to Price
Granted Employees in ($ Per Expiration
Name (#) Fiscal Year Share) Date
- ---- ------- ----------- ------ ----
<S> <C> <C> <C> <C>
Christine L. Jennings 3,285 18.26% $10.00 December 31, 2002
</TABLE>
The following table presents information regarding the value of options
held by the Company's Chief Executive Officer at December 31, 1998.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options in-the-Money Options
at Fiscal Year End at Fiscal Year End
Name/Position Exercisable/Unexercisable Exercisable/Unexercisable
------------- ------------------------- -------------------------
<S> <C> <C>
Christine L. Jennings
President and Chief Executive Officer 26,860/9,855 94,010/34,493
</TABLE>
- ----------------------
(1) Dollar values calculated by determining the difference between the estimated
fair market value of the Company's Common Stock at December 31, 1998 ($13.50)
and the exercise price of such options. The fair market value of the Company's
Common Stock was estimated based on the sales price of the Common Stock sold in
recent private transactions.
-49-
<PAGE> 51
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of March 8, 1999
with respect to ownership of the outstanding Common Stock of the Company by (i)
all persons known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock of the Company, (ii) each director of the
Company and (iii) all executive officers and directors of the Company as a
group:
<TABLE>
<CAPTION>
PERCENT OF
SHARES OF COMMON STOCK OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) SHARES
- ------------------------ ---------------------- ------
<S> <C> <C>
Susan M. Baker 17,283 3.09%
Kenneth H. Barr (2) 15,833 2.83%
Timothy J. Clarke (3) 9,442 1.69%
James W. Demler, M.D. (4) 19,566 3.41%
Christine L. Jennings (5) 39,822 6.80%
Edward S. Levi (6) 15,000 2.68%
Sam D. Norton 10,919 1.95%
Michael R. Pender, Jr. (7) 10,300 1.84%
A. Dean Pratt (8) 24,492 4.30%
Gilbert J. Wellman (9) 95,779 17.13%
Charles V. Wellman, M.D. (10) 31,020 5.55%
All executive officers and directors 297,544 47.60%(11)
as a group (12 persons)
</TABLE>
- --------------------------------
(1) Except as otherwise indicated, each person named in this table possesses
sole voting and investment power with respect to the shares beneficially
owned by such person. "Beneficial Ownership" includes shares for which an
individual, directly or indirectly, has or shares voting or investment
power or both and also includes warrants and options which are exercisable
within sixty days of the date hereof. Beneficial ownership as reported in
the above table has been determined in accordance with Rule 13d-3 of the
Securities Exchange Act of 1934. The percentages are based upon 559,140
shares outstanding, except for certain parties who hold presently
exercisable warrants or options to purchase shares. The percentages for
those parties who hold presently exercisable warrants or options are based
upon the sum of 559,140 shares plus the number of shares subject to
presently exercisable warrants or options held by them, as indicated in the
following notes. Except as otherwise indicated, the persons named in this
table have a business address of One Sarasota Tower, Two North Tamiami
Trail, Suite 100, Sarasota, Florida 34236.
(2) Includes 13,433 shares owned individually by Mr. Barr and 2,400 shares held
by his individual retirement account.
(3) Includes 3,500 shares owned individually by Mr. Clarke and 5,942 shares
held by a company he controls.
(4) Includes 2,500 shares owned individually by Dr. Demler, 2,000 shares held
by his individual retirement account and 500 shares held by his spouse's
individual retirement account. Includes 14,566 shares of Common Stock
subject to presently exercisable stock purchase warrants granted in
connection with the Company's initial stock offering.
(5) Includes 11,414 shares owned individually by Ms. Jennings and 1,548 shares
held by her individual retirement account. In addition, amount includes
26,860 shares subject to presently exercisable stock options.
(6) All 15,000 shares are held by Mr. Levi's individual retirement account.
(7) Includes 6,800 shares owned individually by Mr. Pender, 1,000 shares held
by Mr. Pender's individual retirement account and 2,500 shares held by his
spouse's individual retirement account.
(8) All 24,492 shares held in a revocable living trust of which Mr. Pratt is
the trustee and a beneficiary. In addition, amount includes 9,832 shares of
Common Stock subject to presently exercisable stock purchase warrants
granted in connection with the Company's initial stock offering.
(9) Includes 55,779 shares held by a trust for which Mr. Wellman serves as
trustee and 40,000 shares owned by Mr. Wellman's wife.
(10) Dr. Wellman's address is 2950 Sherbrooke Valley Court, Willoughby Hills,
Ohio 44094.
(11) Includes 65,966 shares subject to presently-exercisable warrants or
options.
-50-
<PAGE> 52
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Sam D. Norton, a director of the Company, is an attorney in Sarasota,
Florida and received from the Company legal fees during fiscal 1998 and 1997
totaling $16,500 and $11,400, respectively, for services rendered to the
Company. Timothy J. Clarke, also a director of the Company, is owner of Clarke
Advertising and Public Relations, to which the Company paid a total of $62,025
and $42,100 during 1998 and 1997, respectively, which includes costs passed
through by other companies providing marketing services to the Company. Michael
R. Pender, Jr., another director of the Company, provided accounting services to
the Company and received accounting fees during fiscal 1998 and 1997 totaling
$3,965 and $2,350, respectively.
The Bank has outstanding loans to certain of the Company's 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, 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 Company or the Bank and do not involve more than
the normal risk of collectibility or present other unfavorable features.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibits are filed with or incorporated by
reference into this report. The exhibits which are denominated by an asterisk
(*) were previously filed as a part of, and are hereby incorporated by reference
from either (i) a Registration Statement on Form S-18 under the Securities Act
of 1933 for the Registrant, as filed with the Securities and Exchange Commission
on June 6, 1991, Registration No. 33-41045, as amended on July 15, 1991 by
Amendment No. 1 and as amended on August 5, 1991 by Amendment No. 2 (the
"S-18"), (ii) the Annual Report on Form 10-KSB for the year ended December 31,
1992 (the "1992 10-KSB"), (iii) the Annual Report on Form 10-KSB for the year
ended December 31, 1993 (the "1993 10-KSB") or (iv) the Current Report on Form
8-K dated November 3, 1995 (the "11/3/95 8-K"). The exhibit numbers correspond
to the exhibit numbers in the referenced document.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
*3.1 - Articles of Incorporation dated December 28, 1990 (S-18).
*3.2 - Articles of Amendment dated May 7, 1991 (S-18).
*3.3 - Articles of Amendment dated May 21, 1991 (S-18).
*3.4 - By-Laws adopted June 3, 1991 (S-18).
*10.1 - Shareholders Agreement dated April 29, 1991 by and among the Organizers
of the Registrant (S-18).
10.2 - Employment Agreement dated January 1, 1998 between the Registrant and
Christine L. Jennings.
</TABLE>
-51-
<PAGE> 53
<TABLE>
<CAPTION>
<S> <C>
*10.3 - Lease Agreement dated June 3, 1991 between the Registrant and Theodore
C. Steffens, Receiver regarding lease of office space in One Sarasota
Tower, Sarasota, Florida (S-18).
*10.4 - Ground Lease Agreement dated November 30, 1993
between the Registrant and One Sarasota Tower, Inc. (1993 10-KSB).
10.5 - 1998 Stock Option Plan.
10.6 - Form of Incentive Stock Option Agreement
*21.1 - Subsidiaries of the Registrant (1992 10-KSB).
23.1 - Consent of Saltmarsh, Cleaveland & Gund.
27.1 - Financial Data Schedule (for SEC use only).
</TABLE>
(b) Reports on Form 8-K. No Current Reports on Form 8-K were filed by
the Company during the quarter ended December 31, 1998.
-52-
<PAGE> 54
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 authorized.
SARASOTA BANCORPORATION, INC.
Dated: March 23, 1999 By: /s/ Christine L. Jennings
------------------ ----------------------------------------
Christine L. Jennings
Senior President and Chief Executive Officer
(Principal Executive Officer)
Dated: March 23, 1999 By: /s/ Susan K. Flynn
------------------ ----------------------------------------
Susan K. Flynn
Senior Vice President and Cashier (Principal
Financial and Accounting 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 and on the dates indicated:
<TABLE>
<CAPTION>
Signature Date
--------- ----
<S> <C>
, 1999
- ----------------------------------- ---------------
SUSAN M. BAKER
Class II Director
/s/ Kenneth H. Barr March 23, 1999
- -----------------------------------
KENNETH H. BARR
Class II Director
/s/ Timothy J. Clarke March 23, 1999
- -----------------------------------
TIMOTHY J. CLARKE
Class III Director
</TABLE>
[SIGNATURES CONTINUED ON NEXT PAGE]
-53-
<PAGE> 55
- ----------------------------------- , 1999
JAMES W. DEMLER, M.D. --------------
Chairman of the Board and
Class I Director
/s/ Christine L. Jennings
- ----------------------------------- March 23 , 1999
CHRISTINE L. JENNINGS --------------
President, Chief Executive
Officer and Class III Director
/s/ Edward S. Levi
- ----------------------------------- March 23 , 1999
EDWARD S. LEVI --------------
Class I Director
/s/ Sam D. Norton
- ----------------------------------- March 23 , 1999
SAM D. NORTON --------------
Secretary and Class III Director
/s/ Michael R. Pender, Jr.
- ----------------------------------- March 23 , 1999
MICHAEL R. PENDER, JR. --------------
Treasurer and Class III Director
/s/ A. Dean Pratt
- ----------------------------------- March 23 , 1999
A. DEAN PRATT -------------
Class I Director
/s/ Gilbert J. Wellman
- ----------------------------------- March 23 , 1999
GILBERT J. WELLMAN --------------
Class II Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders as of the
date of filing this report. An annual report and proxy materials will be
furnished to security holders subsequent to the filing of this Annual Report on
Form 10-KSB, and the Registrant will furnish copies of such material to the
Commission when they are sent to security holders.
<PAGE> 56
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
10.2 - Employment Agreement dated January 1, 1998 between
the Registrant and Christine L. Jennings.
10.5 - 1998 Stock Option Plan, dated March 23, 1999.
10.6 - Form of Incentive Stock Option Agreement
23.1 - Consent of Saltmarsh, Cleaveland & Gund.
27.1 - Financial Data Schedule (for SEC use only).
</TABLE>
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of the 1st day of January, 1998, by and among
SARASOTA BANCORPORATION, a Florida corporation (the "Company"), SARASOTA BANK,
a state bank chartered under the laws of Florida and a wholly-owned subsidiary
of the Company (the "Bank"), and Christine L. Jennings (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company owns 100% of the outstanding stock of the Bank;
and
WHEREAS, the Board of Directors of the Company and the Bank,
recognizing the experience and knowledge of Executive in the banking industry,
desire to retain the valuable services and business counsel of Executive, it
being in the best interest of the Company and the Bank to arrange terms of
employment for Executive so as to reasonably induce Executive to remain in her
capacities with the Company and the Bank for the term hereof; and
WHEREAS, Executive is willing to provide services to the Company and
the Bank in accordance with the terms and conditions hereinafter set forth;
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT. The Company and the Bank employ the Executive
and the Executive accepts employment upon the terms and conditions set forth in
this Agreement.
2. TERM. The term of employment of Executive under this
Agreement shall be, initially, the five year period commencing on January 1,
1998 and ending on December 31, 2002. At December 31, 2002 and December 31st of
each succeeding calendar year in which this Agreement is in effect, the term of
employment under this Agreement may be extended, by mutual agreement of the
parties hereto, to December 31st of the next calendar year thereafter.
3. COMPENSATION.
Base Salary. For all services rendered by the Executive, the
Executive shall be paid a minimum annual base salary of $120,000, payable in
equal installments during the term of this Agreement in accordance with the
Bank's normal pay practices, but not less frequently than twice per month.
Salary payments shall be subject to withholding and other applicable taxes. In
January of each year during the term of employment of Executive, the Board of
Directors of the Company shall consider (i) an adjustment to Executive's
minimum annual base salary, based upon such factors as the Board of Directors
in its sole discretion deems appropriate given Executive's performance of her
duties hereunder during the immediately preceding calendar year, and (ii) an
annual cost of living increase commensurate with those given other key
executive officers of the Company. The increase in Executive's minimum annual
base salary, if any, pursuant to this Section 3 shall be effective as of the
1st day of January of the
<PAGE> 2
year in which such increase is approved by the Board of Directors of the
Company. In the event that Executive's minimum annual base salary is increased
pursuant to such review by the Board of Directors of the Company, then such
salary, as increased, becomes the minimum annual base salary for the next
successive year for the purposes of this Agreement. The term "Base Salary" as
used in this Agreement shall mean the minimum annual base salary of Executive
as last established by the Board of Directors of the Company.
Bonus. In addition to Executive's Base Salary, beginning
January 1, 1998, for each twelve (12) month period beginning on January 1 and
ending on December 31 throughout the term of this Agreement, including any
extension thereof, Executive shall be entitled to a bonus of 5% of the Bank's
net operating income for such twelve (12) month period, not to exceed 25% of
Executive's Base Salary, if (i) the Bank meets or exceeds the return on assets
projected in the annual budget approved by the Board of Directors of the Bank
for such twelve (12) month period and (ii) the CAMELS rating of the Bank under
the Uniform Financial Institution Rating System in its last safety and
soundness examination by either the Florida Department of Banking and Finance
("DBF") or the Federal Deposit Insurance Corporation ("FDIC") is at least a
"2." For the purposes of this Agreement, "return on assets" shall mean the net
operating income of the Bank after taxes and bonuses, expressed as a percentage
of average assets. "Net operating income" of the Bank shall mean the net income
of the Bank determined in accordance with generally accepted accounting
principles excluding extraordinary expenses and nonrecurring items which have
been specifically approved by the Board of Directors of the Bank. "Average
assets" of the Bank shall mean the cumulative total of average daily balances
divided by the number of days in the year.
4. TITLE AND DUTIES. Executive shall serve as President, Chief
Executive Officer and Chairman of the Board of Directors and a Director of the
Company and the Bank. Executive shall run the day-to-day activities of the
Company and the Bank, within the framework of the approved annual budgets, with
a sound system of internal controls, and in compliance with the policies of the
Board of Directors of the Company and the Bank and all applicable laws and
regulations.
5. EXTENT OF SERVICES. Executive shall devote her entire time,
attention, and energies to the business of the Company and the Bank, and shall
not during the term of this Agreement be engaged in any other business activity
which requires the attention or participation of Executive during normal
business hours of the Company and the Bank. However, Executive may invest her
assets in such form or manner as will not require her services in the operation
of the affairs of the companies in which such investments are made.
6. WORKING FACILITIES. Executive shall have such assistants,
perquisites, facilities and services as are suitable to her position and
necessary for the performance of her duties, including membership at
appropriate social and dining clubs; provided, however, that such club
memberships shall be subject to the prior approval of the Board of Directors of
the Bank.
7. VACATIONS. Executive shall be entitled each year to a
vacation of four (4) weeks per year in accordance with the policy established
by the Company's and the Bank's Board of Directors, during which time
Executive's compensation shall be paid in full. In addition, Executive shall be
entitled to
-2-
<PAGE> 3
such other leaves of absence, with or without pay, upon such terms and
conditions as the Board of Directors of the Bank, in its discretion, may
provide.
8. ADDITIONAL COMPENSATION. During the term of this Agreement,
the Company and the Bank shall furnish to Executive:
(a) Participation in all group employee benefit programs
offered to all employees of the Bank, such as group health and hospital
insurance, etc. including, but not limited to, a term life insurance policy in
an amount equal to two times Executive's Base Salary and a disability insurance
policy containing coverage terms no less favorable than those contained in the
disability policy covering Executive currently maintained by the Bank.
(b) An automobile allowance of $600 per month. Executive
shall also be entitled to receive reimbursement from the Company for the
reasonable costs of maintenance and repair of an automobile. In addition, the
Company may, in its discretion, pay the capital cost reduction or similar
acquisition or prepayment fee associated with the lease of an automobile if (i)
in the judgment of the Company, such payment is justified by the corresponding
reduction in the monthly lease payment of such automobile and (ii) such
automobile is registered in the name of the Company.
(c) Reimbursement of reasonable and normal deductible
business expenses, including, but not limited to, travel to and attendance at
annual and periodic meetings of trade associations, and other travel and
entertainment expenses. Said expenses shall be sufficiently documented to
comply with the policies of the Company and the Bank, and standards for
deductibility of business expenses established, from time to time, by the
Internal Revenue Service.
9. STOCK OPTIONS. In addition to the compensation set forth in
Sections 3 and 8 of this Agreement, as incentive for the successful management
of the Company and the Bank by Executive, the Company hereby (i) extends the
exercise period of the options to purchase 23,575 shares of the common stock of
the Company, $.01 par value ("Company Common Stock"), granted to Executive
pursuant to that certain employment agreement by and between the Company and
Executive dated April 29, 1991, until December 31, 2002, at an exercise price
of $10.00 per share, and (ii) grants to Executive on December 31, 1998 and
December 31st of each of the succeeding three years, provided this Agreement is
then in effect and provided Executive earns a bonus pursuant to Section 3 of
this Agreement for the preceding twelve month period, incentive stock options
("Incentive Options") to purchase 3,285 shares of Company Common Stock
(totaling Incentive Options to purchase an aggregate of 13,140 shares of
Company Common Stock if all Incentive Options contemplated to be granted herein
are granted to Executive), pursuant to the terms of the Company's 1998 Stock
Option Plan; provided, however, in the event of a change in control of the
Company as defined in Section 10 of this Agreement, all of the Incentive
Options contemplated to be granted herein shall be automatically granted to
Executive and shall become immediately exercisable.
10. CHANGE IN CONTROL OF THE COMPANY. (a) In the event of a
"change in control" of the Company, as defined herein, Executive shall be
entitled, within thirty (30) days from the date of closing of the transaction
effecting such change in control and at her election, to give written notice to
the Company and the Bank of termination of this Agreement and to receive a cash
payment equal to two hundred
-3-
<PAGE> 4
ninety-nine percent (299%) times Executive's minimum annual base salary then in
effect as set forth in Section 3 herein. The cash payment will be paid to
Executive in one lump sum by delivery to Executive of a cashier's check or
other official Bank check not later than ten (10) days after the date of notice
of termination by the Executive delivered pursuant to this Section 10, or ten
(10) days after the date of closing of the transaction effecting the change of
control of the Company, whichever is later.
(b) The payments provided for by Section 10(a) shall be
payable by the Company and/or the Bank only to the extent that (i) such
payments are deductible by the Company and are not rendered non-deductible by
Section 280G of the Internal Revenue Code of 1986, as amended, and (ii) such
payments would not cause the Bank to fail to meet any applicable regulatory
capital requirements.
(c) For purposes of this Section 10, "change in control"
of the Company shall mean:
(i) any transaction, whether by merger,
consolidation, asset sale, tender offer,
reverse stock split or otherwise, which
results in the acquisition or beneficial
ownership (as such term is defined under
rules and regulations promulgated under the
Securities Exchange Act of 1934, as
amended) by any person or entity or any
group of persons or entities acting in
concert, of 50% or more of the outstanding
shares of Common Stock of the Company;
(ii) the sale of all or substantially all of the
assets of the Company; or
(iii) the liquidation of the Company.
11. TERMINATION. (a) FOR CAUSE. This Agreement may be
terminated by the Board of Directors of the Company and the Bank without notice
and without further obligation than for monies already paid, for any of the
following reasons:
(i) failure of Executive to follow reasonable
written instructions or policies of the
Board of Directors of the Company or the
Bank;
(ii) receipt by the Bank of written notice from
either the DFB or FDIC that the DBF or FDIC
has criticized Executive's performance, and
has either (a) rated the Bank a "4" or a
"5" under the Uniform Financial Institution
Rating System or (b) has determined that
the Bank is in a "troubled condition" as
defined under Section 914 of the Financial
Institutions Reform, Recovery and
Enforcement Act of 1989;
(iii) gross negligence or willful misconduct of
Executive materially damaging to the
business of the Company or the Bank during
the term of this Agreement, or at any time
while she was employed by the Company and
the Bank prior to the term of this
Agreement, if not disclosed to the Company
and the Bank prior to the commencement of
the term of this Agreement; or
-4-
<PAGE> 5
(iv) conviction of Executive during the term of
this Agreement of a crime involving breach
of trust or moral turpitude.
In the event that the Company or the Bank discharges Executive
alleging "cause" under this Section 11(a) and it is subsequently determined
judicially that the termination was "without cause," then such discharge shall
be deemed a discharge without cause subject to the provisions of Section 11(b)
hereof; provided, however, that in lieu of the severance payments to Executive
provided for in Section 11(b) of this Agreement, Executive shall be entitled,
as liquidated damages in lieu of all other claims, to severance payments in an
amount equal to one-twelfth (1/12) of Executive's minimum annual base salary
then in effect multiplied by the number of full months Executive has been
employed with the Company and the Bank, beginning from September 15, 1992, the
date the Bank opened for business. In the event that the Company or the Bank
discharges Executive alleging "cause" under this Section 11(a), such notice of
discharge shall be accompanied by a written and specific description of the
circumstances alleging such "cause." The termination of Executive for "cause"
shall not entitle the Company or the Bank to enforcement of the non-competition
and non-solicitation covenants contained in Section 13 hereof.
(b) WITHOUT CAUSE. The Company or the Bank (subject to
the approval of the Board of Directors of the Company) may, upon thirty (30)
days' written notice to Executive, terminate this Agreement without cause at
any time during the term of this Agreement upon the condition that Executive
shall be entitled, as liquidated damages in lieu of all other claims, to
severance payments, to be made in equal monthly installments the amount of
which shall be calculated by dividing the severance payment amount as indicated
below by the number of full months remaining of the term of this Agreement and
rounding such quotient to the nearest whole dollar, as follows: in the event
that this Agreement is terminated by the Company during the period of time from
January 1, 1998 to December 31, 1998 Executive shall be entitled to the payment
of $750,000. In the event that this Agreement is terminated by the Company
during the period from January 1, 1999 to December 31, 1999 Executive shall be
entitled to the payment of $500,000. In the event that this Agreement is
terminated by the Company during the period of January 1, 2000 to December 31,
2000 Executive shall be entitled to the payment of $300,000. In the event that
this Agreement is terminated by the Company during the period from January 1,
2001 until December 31, 2001 Executive shall be entitled to the payment of
$150,000. In the event that this Agreement is terminated by the Company from
the of January 1, 2002 to December 31, 2002 Executive shall be entitled to the
payment of $50,000.
The termination of employment of Executive "without cause" shall not
entitle the Company or the Bank to enforcement of the non-competition and
non-solicitation covenants contained in Section 13 hereof.
(c) NEGATIVE POST-TERMINATION STATEMENTS. In the event
that Executive terminates her employment under this Agreement prior to the
expiration of the term of this Agreement or if Executive's employment under
this Agreement is terminated by the Company or the Bank for reasons other than
those set forth in Section 11(a)(ii), (iii) or (iv), neither the Company, the
Bank nor Executive shall make any statement, whether written, oral or
otherwise, concerning Executive, the Company or the Bank which may adversely
affect the business or reputation of the Company or the Bank or which may have
a negative impact on the stockholders thereof.
-5-
<PAGE> 6
12. DEATH OR DISABILITY. In addition to the provisions for
termination of this Agreement contained in Section 10 and 11 hereof, this
Agreement shall also be terminated by the earlier to occur of either of the
following:
(a) The death of Executive; or
(b) The complete disability of Executive. "Complete
disability" as used herein shall mean the inability of Executive, due to
illness, accident, or any other physical or mental incapacity, to perform the
services provided for hereunder for an aggregate of ninety (90) days within any
period of 120 consecutive days during the term hereof.
In the event of the death or complete disability of Executive, the
Company or the Bank shall pay to Executive the compensation provided in Section
3 hereof to the effective date of termination of this Agreement, and none of
the parties hereto shall thereafter have any further obligation hereunder
except as otherwise specifically provided herein.
13. NON-COMPETITION AND NON-SOLICITATION. (a) Executive
acknowledges that she has performed services or will perform services hereunder
which directly affect the Company's and the Bank's business presently conducted
within the city and county limits of Sarasota, Sarasota County, Florida.
Accordingly, the parties deem it necessary to enter into the protective
agreement set forth below, the terms and condition of which have been
negotiated by and between the parties hereto.
(b) In the event of termination of employment under this
Agreement by action of Executive prior to the expiration of the term of this
Agreement or as a result of a change in control of the Company, Executive
agrees with the Company and the Bank that through the actual date of
termination of the Agreement, and for a period of one (1) year after such
termination date:
(i) Executive shall not, without the prior
written consent of the Company and the
Bank, within any county or city in which
any subsidiary bank of the Company has an
office, either directly or indirectly,
perform banking services in the capacity of
an executive officer of any bank, bank
holding company or other financial
institution; provided, however, that
Executive shall not be restricted from
performing non-operating activities
preparatory to the formation of a de novo
bank such as site selection, the obtaining
of regulatory approvals and related
organizational activities; and
(ii) Executive shall not, without the prior
written consent of the Company and the Bank
(1) furnish anyone with any list or lists
of customers of the Company or the Bank or
utilize such list or information herself;
(2) furnish, use or divulge to anyone any
trade secrets or proprietary, confidential
information acquired by her from the
Company or the Bank related to the
Company's or the Bank's methods of doing
business; (3) contact directly or
indirectly any customer of the Company or
the Bank in regard to offering or providing
banking services or related services;
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<PAGE> 7
(4) hire for any other employer (including
herself) any employee of the Company or the
Bank under circumstances where Executive
directly or indirectly causes such employee
to leave the employment of the Company or
the Bank; or (5) undertake a business
opportunity that came to the attention of
Executive through her employment with the
Company or the Bank which Executive had not
previously offered in writing to the
Company or the Bank and which the Company
or the Bank had rejected in writing.
(c) The covenants of Executive set forth in this Section
13 are separate and independent covenants for which valuable consideration has
been paid, the receipt, adequacy and sufficiency of which are acknowledged by
Executive, and have also been made by Executive to induce the Company and the
Bank to enter into this Agreement. Each of the aforesaid covenants may be
availed of or relied upon by the Company and the Bank in any court of competent
jurisdiction, and shall form the basis of injunctive relief and damages
including expenses of litigation (including but not limited to reasonable
attorney's fees) suffered by the Company and the Bank arising out of any breach
of the aforesaid covenants by Executive. The covenants of Executive set forth
in this Section 13 are cumulative to each other and to all other covenants of
Executive in favor of the Company and the Bank contained in this Agreement, and
shall survive the termination of this Agreement for the purposes intended.
Should any covenant, term or condition contained in this Section 13 become or
be declared invalid or unenforceable by a court of competent jurisdiction, then
the parties may request that such court judicially modify such unenforceable
provision consistent with the intent of this Section 13 so that it shall be
enforceable as modified, and in any event the invalidity of any provision of
this Section 13 shall not affect the validity of any other provision in this
Section 13 or elsewhere in this Agreement.
14. NOTICES. Any notice required or desired to be given under this
Agreement shall be deemed given if in writing sent by certified mail to her
residence in the case of Executive, or to its principal office in the case of
the Company and the Bank.
15. WAIVER OF BREACH. The waiver by the Company and the Bank of a
breach of any provision of this Agreement by Executive shall not operate or be
construed as a waiver of any subsequent breach by Executive. No waiver shall be
valid unless in writing and signed by an authorized officer of the Company and
the Bank.
16. ASSIGNMENT. Executive acknowledges that the services to be
rendered by her are unique and personal. Accordingly, Executive may not assign
any of her rights or delegate any of her duties or obligations under this
Agreement. The rights and obligations of Executive under this Agreement shall
inure to the benefit of and shall be binding upon the successors and assigns of
the Company and the Bank.
17. GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Florida.
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<PAGE> 8
18. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the unenforceability of any provision or any portion thereof
shall not affect the validity of the remainder of any such provision or the
other provisions of this Agreement.
19. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties hereto regarding employment of Executive, and
supersedes and replaces any prior agreement relating thereto. It may not be
changed orally but only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"COMPANY" "BANK"
SARASOTA BANCORPORATION SARASOTA BANK
By: By:
------------------------------- ------------------------------
Attest: Attest:
--------------------------- ---------------------------
[CORPORATE SEAL] [BANK SEAL]
"EXECUTIVE"
By:
-------------------------- (L.S.)
Christine L. Jennings
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<PAGE> 1
EXHIBIT 10.5
SARASOTA BANCORPORATION
1998 STOCK OPTION PLAN
1. PURPOSE
The purpose of the Sarasota Bancorporation 1998 Stock Option Plan (the
"Plan") is to encourage and enable eligible directors, officers and key
employees of Sarasota Bancorporation (the "Company") and its Subsidiary to
acquire proprietary interests in the Company, through the ownership of Common
Stock of the Company. The Company believes that directors, officers and key
employees who participate in the Plan will have a closer identification with
the Company by virtue of their ability as shareholders to participate in the
Company's growth and earnings. The Plan also is designed to provide motivation
for participating directors, officers and key employees to remain in the employ
of and to give greater effort on behalf of the Company and its Subsidiary. It
is the intention of the Company that the Plan provide for the award of
incentive stock options qualified under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") and the regulations promulgated
thereunder, as well as the award of nonqualified stock options. Accordingly,
the provisions of the Plan related to incentive stock options shall be
construed so as to extend and limit participation in a manner consistent with
the requirements of Section 422 of the Code.
2. DEFINITIONS
The following words or terms shall have the following meanings:
(a) "Agreement" shall mean a stock option agreement between the
Company and an Eligible Employee or Eligible Participant pursuant to the terms
of this Plan.
(b) "Board of Directors" shall mean the Board of Directors of the
Company.
(c) "Committee" shall mean the committee appointed by the Board
of Directors for the purpose of administering the Plan, which committee shall
at all times consist of two or more Non-Employee Directors.
(d) "Company" shall mean Sarasota Bancorporation, a corporation
chartered under the laws of the State of Florida.
(e) "Eligible Employee(s)" shall mean key employees regularly
employed by the Company or a Subsidiary (including officers, whether or not
they are directors) as the Board of Directors or the Committee shall select
from time to time.
<PAGE> 2
(f) "Eligible Participant(s)" shall mean an Eligible Employee, a
Non-Employee Director or consultants or advisors who are not employees of the
Company or a Subsidiary but who are providing actual services to the Company or
a Subsidiary.
(g) "Market Price" shall mean the fair market value of the
Company's Common Stock as determined by the Board of Directors or the
Committee, acting in good faith, under any method consistent with the Code, or
Treasury Regulations thereunder, which the Board of Directors or the Committee
shall in its discretion select and apply at the time of the grant of the option
concerned. Subject to the foregoing, the Board of Directors or the Committee,
in fixing the market price, shall have full authority and discretion and be
fully protected in doing so.
(h) "Non-Employee Director(s)" means a member of the Board of
Directors or a member of the board of directors of a Subsidiary, in each case,
who is not a regular salaried employee of the Company or one of its
Subsidiaries. As it relates to members of the Committee as such term is defined
in this Section 2 and for the purpose of Section 9 of the Plan, "Non-Employee
Director" shall have the meaning set forth in Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934, as amended.
(i) "Optionee" shall mean an Eligible Employee or Eligible
Participant having a right to purchase Common Stock pursuant to the Plan.
(j) "Option(s)" shall mean the right or rights granted to Eligible
Employees or Eligible Participants to purchase Common Stock under the Plan.
(k) "Permanent and total disability" shall be as defined in
Section 22(e)(3) of the Code.
(l) "Plan" shall mean this Sarasota Bancorporation 1998 Stock
Option Plan.
(m) "Shares," "Stock" or "Common Stock" shall mean shares of
the $.01 par value common stock of the Company.
(n) "Subsidiary" shall mean any state banking association, if the
Company owns or controls, directly or indirectly, more than a majority of the
voting stock of such corporation.
(o) "Ten Percent Owner" shall mean an individual who, at the time an
Option is granted, owns directly or indirectly (under the ownership attribution
rules of Code Section 424(d)) more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or a Subsidiary.
3. EFFECTIVE DATE
The effective date of the Plan (the "Effective Date") shall be the
date the Plan is adopted by the Board of Directors or the date the Plan is
approved by the shareholders of the Company,
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<PAGE> 3
whichever is earlier. The Plan must be approved by the affirmative vote of not
less than a majority of the Shares entitled to vote at a meeting at which a
quorum is present, which shareholder vote must be taken within twelve (12)
months after the date the Plan is adopted by the Board of Directors. Such
shareholder vote shall not alter the Effective Date of the Plan. In the event
shareholder approval of the adoption of the Plan is not obtained within the
aforesaid twelve (12) month period, then any Options granted in the intervening
period shall be nonqualified stock options and not entitled to incentive stock
option treatment under the provisions of Section 422 of the Code.
4. SHARES RESERVED FOR PLAN
The Common Stock to be sold to Eligible Participants under the Plan
may at the election of the Board of Directors be either treasury shares or
Shares originally issued for such purpose. The maximum number of Shares which
shall be reserved and made available for sale under the Plan shall be
__________; provided, however, that such Shares shall be subject to the
adjustments provided in Section 8(h). Any Shares subject to an Option which for
any reason expires or is terminated unexercised may again be subject to an
Option under the Plan.
5. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board of Directors or the
Committee.
Within the limitations described herein and except as otherwise
provided in the Plan, the Board of Directors or the Committee shall administer
the Plan, select the Eligible Participants to whom Options will be granted,
determine the number of Shares to be optioned to each Eligible Participant and
interpret, construe and implement the provisions of the Plan. The Board of
Directors or the Committee shall also determine the price to be paid for the
Shares upon exercise of each Option, the period within which each Option may be
exercised, and the terms and conditions, consistent with the terms of the Plan,
of each Option granted pursuant to the Plan. The Board of Directors and
Committee members shall be reimbursed for out-of-pocket expenses reasonably
incurred in the administration of the Plan.
If the Plan is administered by the Board of Directors, a majority of
the members of the Board of Directors shall constitute a quorum, and the act of
a majority of the members of the Board of Directors present at any meeting at
which a quorum is present, or acts approved in writing by all members of the
Board of Directors shall be the acts of the Board of Directors. If the Plan is
administered by the Committee, a majority of the members of the Committee shall
constitute a quorum, and the acts of a majority of the members present at any
meeting at which a quorum is present, or acts approved in writing by all of the
members of the Committee shall be the acts of the Committee.
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<PAGE> 4
6. ELIGIBILITY
Options granted pursuant to Section 8 shall be granted only to
Eligible Employees. Options granted pursuant to Section 9 may be granted to
Eligible Participants.
7. DURATION OF THE PLAN
The Plan shall expire on the tenth anniversary of the Effective Date,
but with respect to Options granted hereunder prior to such date, shall remain
in effect until all Shares subject to or which may become subject to the Plan
shall have been purchased pursuant to such Options; provided that Options under
the Plan must be granted within ten (10) years from the Effective Date.
8. QUALIFIED INCENTIVE STOCK OPTIONS
It is intended that Options granted under this Section 8 shall be
qualified incentive stock options under the provisions of Section 422 of the
Code and the regulations thereunder or corresponding provisions of subsequent
revenue laws and regulations in effect at the time such Options are granted.
Such Options shall be evidenced by Agreements in such form and not inconsistent
with this Plan as the Committee or the Board of Directors shall approve from
time to time, which Agreements shall contain in substance the following terms
and conditions:
(a) Price. The purchase price for Shares purchased upon exercise
will be equal to 100% of the Market Price on the day the Option is granted, as
determined by the Board of Directors or the Committee; provided that the
purchase price of Stock deliverable upon the exercise of a qualified incentive
stock option granted to a Ten Percent Owner shall be not less than one hundred
ten percent (110%) of the Market Price on the day the Option is granted, as
determined by the Board of Directors or the Committee, but in no case less than
the par value of such Stock.
(b) Number of Shares. The Agreement shall specify the number of
Shares which the Optionee may purchase under such Option.
(c) Exercise of Options. The Shares subject to the Option may be
purchased in whole or in part by the Optionee in accordance with the terms of
the Agreement, from time to time after shareholder approval of the Plan, but in
no event later than ten (10) years from the date of grant of the Option.
Notwithstanding the foregoing, Shares subject to an Option granted to a Ten
Percent Owner shall be exercisable no later than five (5) years from the date
of grant of the Option.
(d) Medium and Time of Payment. Stock purchased pursuant to an
Agreement shall be paid for in full at the time of purchase. Payment of the
purchase price shall be in cash. Upon receipt of payment, the Company shall,
without transfer or issue tax, deliver to the Optionee (or other person
entitled to exercise the Option) a certificate or certificates for such Shares.
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<PAGE> 5
(e) Rights as a Shareholder. An Optionee shall have no rights as
a shareholder with respect to any Shares covered by an Option until the date of
issuance of the stock certificate to the Optionee for such Shares. Except as
otherwise expressly provided in the Plan, no adjustments shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior
to the date such stock certificate is issued.
(f) Non-assignability of Option. No Option shall be assignable or
transferable by the Optionee except by will or by the laws of descent and
distribution. During the lifetime of the Optionee, the Option shall be
exercisable only by him or her.
(g) Effect of Termination of Employment or Death. In the event
that an Optionee during his or her lifetime ceases to be an employee of the
Company or of a Subsidiary for any reason (including retirement) other than
death or permanent and total disability, any Option or unexercised portion
thereof which was otherwise exercisable on the date of termination of
employment shall expire 90 days from the date of such termination, but in no
event after the term provided in the Optionee's Agreement. In the event that an
Optionee ceases to be an employee of the Company or a Subsidiary for any reason
(including retirement) other than death or permanent and total disability prior
to the time that an Option or portion thereof becomes exercisable, such Option
or portion thereof which is not then exercisable shall terminate and be null
and void. Whether authorized leave of absence for military or government
service shall constitute termination of employment for the purpose of this Plan
shall be determined by the Board of Directors or the Committee, which
determination shall be final and conclusive.
In the event that an Optionee ceases to be an employee of the Company
or a Subsidiary by reason of death or permanent and total disability, any
Option or unexercised portion thereof which was otherwise exercisable on the
date such Optionee ceased employment shall expire unless exercised within a
period of one (1) year from the date on which the Optionee ceased to be an
employee, but in no event after the term provided in the Optionee's Agreement.
In the event that an Optionee ceases to be an employee of the Company or a
Subsidiary by reason of death or permanent and total disability, any Option or
portion thereof which was not exercisable on the date such Optionee ceased
employment shall become immediately exercisable for a period of one (1) year
from the date on which the Optionee ceased to be an employee, but in no event
after the term provided in the Optionee's Agreement.
In the event of the death of an Optionee, the Option shall be
exercisable by his or her personal representatives, heirs or legatees, as
provided herein.
(h) Recapitalization. In the event that dividends are payable in
Common Stock of the Company or in the event there are splits, subdivisions or
combinations of the Common Stock, the number of Shares available under the Plan
shall be increased or decreased proportionately, as the case may be, and the
number and Option exercise price of Shares deliverable upon the exercise
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<PAGE> 6
thereafter of any Option theretofore granted shall be increased or decreased
proportionately, as the case may be, as determined to be proper and appropriate
by the Board of Directors or the Committee.
(i) Reorganization. In case the Company is merged or consolidated
with another corporation and the Company is not the surviving corporation, or
in case the property or stock of the Company is acquired by another
corporation, or in case of a separation, reorganization, recapitalization or
liquidation of the Company, the Board of Directors of the Company, or the Board
of Directors of any corporation assuming the obligations of the Company
hereunder, shall either (i) make appropriate provision for the protection of
any outstanding Options by the substitution on an equitable basis of
appropriate stock of the Company, or of the merged, consolidated or otherwise
reorganized corporation which will be issuable in respect to the Common Stock,
provided only that the excess of the aggregate fair market value of the Shares
subject to Option immediately after such substitution over the purchase price
thereof is not more than the excess of the aggregate fair market value of the
Shares subject to Option immediately before such substitution over the purchase
price thereof, or (ii) upon written notice to the Optionee provide that the
Option (including, in the discretion of the Board of Directors, any portion of
such Option which is not then exercisable) must be exercised within sixty (60)
days of the date of such notice or it will be terminated. If any adjustment
under this Section 8(i) would create a fractional share of Stock or a right to
acquire a fractional share, such shall be disregarded and the number of Shares
available under the Plan and the number of Shares covered under any Options
previously granted pursuant to the Plan shall be the next lower number of
Shares, rounding all fractions downward. An adjustment made under this Section
8(i) by the Board of Directors shall be conclusive and binding on all affected
persons.
Except as otherwise expressly provided in this Plan, the Optionee
shall have no rights by reason of any subdivision or consolidation of shares of
stock of any class, or the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class, or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off of assets or
stock of another corporation; and any issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class,
shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or prices of Common Stock subject to an Option.
The grant of an Option pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part
of its business or assets.
(j) Annual Limitation. The aggregate fair market value (determined
at the time the Option is granted) of the Shares with respect to which
qualified incentive stock options are exercisable for the first time by an
Optionee during any calendar year (under all incentive stock option plans of
the Company) shall not exceed $100,000. Any excess over such amount shall be
deemed to be related to and part of a nonqualified stock option granted
pursuant to Section 9 of the Plan.
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<PAGE> 7
(k) General Restriction. Each Option shall be subject to the
requirement that if at any time the Board of Directors shall determine, in its
discretion, that the listing, registration or qualification of the Shares
subject to such Option upon any securities exchange or under any state or
federal law, or the consent or approval of any government regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting
of such Option or the issue or purchase of Shares thereunder, such Option may
not be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board of Directors. Alternatively, such
Options shall be issued and exercisable only upon such terms and conditions and
with such restrictions as shall be necessary or appropriate to effect exemption
from such listing, registration, or other qualification requirement.
9. NONQUALIFIED STOCK OPTIONS
(a) Within the limitations described in Section 9(b), the Board
of Directors or the Committee may grant to Eligible Participants Options under
the Plan which are not qualified incentive stock options under the provisions
of Section 422 of the Code. Such nonqualified stock options shall be evidenced
by Agreements in such form and not inconsistent with this Plan as the Board of
Directors or the Committee shall approve from time to time, which Agreements
shall contain in substance the same terms and conditions as set forth in
Section 8 hereof with respect to qualified incentive stock options (except
that, with respect to Options awarded to Non-Employee Directors, references to
employment with the Company shall be deemed to mean service on the Board of
Directors); provided, however, that the limitations set forth in Sections 8(a)
and 8(c) with respect to Ten Percent Owners shall not be applicable to
nonqualified stock options granted to any Ten Percent Owner, and the limitation
set forth in Section 8(j) with respect to the annual limitation of incentive
stock options shall not be applicable to nonqualified stock option grants;
provided further, that nonqualified stock options may be granted at a purchase
price equal to not less than 75% of the Market Price on the day the Option is
granted.
(b) With respect to Non-Employee Directors then serving on the
Committee, nonqualified stock options may be granted pursuant to Section 9(a)
of the Plan to such Non-Employee Directors only upon authorization and approval
by the Board of Directors or the shareholders of the Company; provided that,
where the Board of Directors authorizes Option grants under this Section 9(b),
the Non-Employee Director to receive such Options shall not participate in the
Board of Director's authorization of such grant.
10. AMENDMENT OF THE PLAN
The Plan may at any time or from time to time be terminated, modified
or amended by the affirmative vote of not less than a majority of the shares
present and voting thereon by the Company's shareholders at a meeting of the
shareholders at which a quorum is present. The Board of Directors may at any
time and from time to time modify or amend the Plan in any respect, except that
without shareholder approval the Board of Directors may not (1) increase the
maximum number of Shares for which Options may be granted under the Plan (other
than increases due to changes in
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<PAGE> 8
capitalization as referred to in Section 8(h) hereof), or (2) extend the
maximum period during which Options may be granted or exercised, or (3) change
the class of persons eligible for Options under the Plan, or (4) otherwise
materially modify the requirements as to eligibility for participation in the
Plan. The termination or any modification or amendment of the Plan shall not,
without the written consent of an Optionee, affect his or her rights under an
Option or right previously granted to him or her. With the written consent of
the Optionee affected, the Board of Directors or the Committee may amend
outstanding Agreements in a manner not inconsistent with the Plan. Without
employee consent, the Board of Directors or the Committee may at any time and
from time to time modify or amend outstanding Agreements in such respects as it
shall deem necessary in order that incentive stock options granted hereunder
shall comply with the appropriate provisions of the Code and regulations
thereunder which are in effect from time to time respecting qualified incentive
stock options. The Board of Directors may also suspend the granting of Options
pursuant to the Plan at any time and may terminate the Plan at any time;
provided, however, no such suspension or termination shall modify or amend any
Option granted before such suspension or termination unless (a) the affected
participant consents in writing to such modification or amendment or (b) there
is a dissolution or liquidation of the Company.
11. BINDING EFFECT
All decisions of the Board of Directors or the Committee involving the
implementation, administration or operation of the Plan or any offering under
the Plan shall be binding on the Company and on all persons eligible or who
become eligible to participate in the Plan.
12. APPLICATION OF FUNDS
The proceeds received by the Company from the sale of Common Stock
pursuant to Options exercised hereunder will be used for general working
capital.
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<PAGE> 1
EXHIBIT 10.6
SARASOTA BANCORPORATION
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT ("Option Agreement") made and
entered into as of ________________________, by and between Sarasota
BanCorporation (the "Company") and ______________________ ("Employee");
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company has adopted that
certain Stock Option Plan (the "Plan"), a copy of which is attached hereto as
Exhibit "A" and incorporated herein by reference. Pursuant to the terms of the
Plan, the Board of Directors has selected Employee to participate in the Plan
and desires to grant to Employee certain incentive stock options to purchase
shares of the Company's authorized $.01 par value common stock ("Stock"),
subject to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises, agreements
and covenants contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. INCORPORATION OF PLAN PROVISIONS
This Option Agreement is subject to and is to be construed in all
respects in a manner which is consistent with the terms of the Plan, the
provisions of which are hereby incorporated by reference into this Option
Agreement. Unless specifically provided otherwise, all terms used in this
Option Agreement shall have the same meaning as in the Plan.
2. GRANT OF OPTION
Subject to the further terms and conditions of this Option Agreement,
Employee is hereby granted an incentive stock option to purchase ____________
shares of Stock, effective as of the date first written above. This stock
option is intended to be an Incentive Stock Option as provided in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code").
3. FAIR MARKET VALUE OF STOCK
The Board of Directors has determined, in good faith and in its best
judgment, that the fair market value per share of Stock as of the date this
incentive stock option is granted is $____________.
<PAGE> 2
4. OPTION PRICE
The Board of Directors has determined that the price for each share of
Stock purchased under this Option Agreement shall be $____________.
5. EXPIRATION OF OPTIONS
The option to acquire Stock pursuant to this Option Agreement shall
expire (to the extent not previously fully exercised) upon the first to occur
of the following:
(a) ____________ (the tenth anniversary of the Effective
Date);
(b) The date which is three (3) months following the date
upon which Employee ceases to be employed by the Company, or any Subsidiary of
the Company, otherwise than as a result of Employee's death, permanent and
total disability, or termination for Cause;
(c) The date which is the first anniversary of the date
upon which Employee ceases to be employed by the Company, or any Subsidiary of
the Company, by reason of Employee's death or permanent and total disability;
(d) The date upon which Employee ceases to be employed
by the Company, or any Subsidiary of the Company, if Employee has been
terminated for Cause; or
(e) The date upon which Employee ceases his employment
with the Company, or any Subsidiary of the Company, other than as a result of
Employee's death or permanent and total disability, with respect to any portion
of this option which is not then exercisable on the date Employee ceases her
employment with the Company.
6. EXERCISE OF OPTION
Unless options hereunder shall earlier lapse or expire pursuant to
Section 5 hereof, the option to acquire the aggregate number of ____________
shares under this option may be first exercised on the date hereof.
To the extent such options become exercisable in accordance with the
foregoing, Employee may exercise this incentive stock option, in whole or in
part from time to time. The option exercise price shall be paid by Employee in
cash. The aggregate fair market value (determined as of the time the option is
granted) of the shares with respect to which incentive stock options under the
Plan (and any other incentive stock option plans maintained by the Company and
its subsidiaries) are exercisable for the first time by any individual during
any calendar year shall not exceed $100,000.
7. MANNER OF EXERCISE
This incentive stock option may be exercised by written notice to the
Company specifying the number of shares to be purchased and signed by Employee
or such other person who may be entitled
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<PAGE> 3
to acquire stock under this Option Agreement. If any such notice is signed by a
person other than Employee, such person shall also provide such other
information and documentation as the Board of Directors or the Committee may
reasonably require to assure that such person is entitled to acquire Stock
under the terms of the Plan and this Option Agreement.
8. RESTRICTIONS ON TRANSFERABILITY
The incentive stock option granted hereunder shall not be transferable
by Employee otherwise than by will or by the laws of descent and distribution,
and such incentive stock option shall be exercisable during Employee's lifetime
only by Employee.
9. FURTHER RESTRICTIONS ON EXERCISE AND SALE OF STOCK
Employee acknowledges and understands that the Stock subject to this
Option Agreement is not registered under the Federal Securities Act of 1933, as
amended ("Federal Act") or under the Florida Securities Act, as amended ("State
Act"). Each option shall be subject to the requirement that if at any time the
Board of Directors shall determine, in its discretion, that the listing,
registration or qualification of the shares subject to such option upon any
securities exchange or under any state or federal law, or the consent or
approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such option or the issue
or purchase of shares thereunder, such option may not be exercised in whole or
in part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Board of Directors. The costs of any such listing, registration,
qualification, consent or approval shall be paid by the Company. Alternatively,
the Company shall not permit any exercise of this stock option unless it
receives such representations, factual assurances, and legal opinions as it may
deem necessary to determine and document the availability of an exemption from
registration under both the Federal Act and the State Act with respect to any
particular issuance of shares under this Option Agreement. Further, the Board
of Directors shall require that Stock issued in respect of any exercise of this
stock option shall bear such restrictions on further transfer as shall be
necessary to insure the availability of any exemption so claimed.
10. REORGANIZATION AND RECAPITALIZATION
In the event that dividends are payable in Stock of the Company or in
the event there are splits, subdivisions or combinations of shares of Stock of
the Company, the number of shares available under the Plan shall be increased
or decreased proportionately, as the case may be, and the number of shares
deliverable upon the exercise thereafter of any option theretofore granted
shall be increased or decreased proportionately, as the case may be, without
change in the aggregate purchase price.
In case the Company is merged or consolidated with another corporation
and the Company is not the surviving corporation, or in case the property or
stock of the Company is acquired by another corporation, or in case of a
separation, reorganization, recapitalization or liquidation of the Company, the
Board of Directors of the Company, or the Board of Directors of any corporation
assuming the obligations of the Company hereunder, shall either (i) make
appropriate provision for the protection of any outstanding Options by the
substitution on an equitable basis of appropriate stock of the Company,
-3-
<PAGE> 4
or of the merged, consolidated or otherwise reorganized corporation which will
be issuable in respect to the shares of Stock of the Company, provided only
that the excess of the aggregate fair market value of the shares subject to
option immediately after such substitution over the purchase price thereof is
not more than the excess of the aggregate fair market value of the shares
subject to option immediately before such substitution over the purchase price
thereof or (ii) upon written notice to the optionee provide that the option
(including, in the discretion of the Board of Directors, any portion of such
option which is not then exercisable) must be exercised within sixty (60) days
of the date of such notice or it will be terminated.
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
executed by a member of the Board of Directors or a duly authorized officer of
the Company, and Employee has executed this Option Agreement as of the date
first above written.
SARASOTA BANCORPORATION
By:
----------------------------
Title:
-------------------------
ATTEST:
- -------------------------------------
Secretary or Assistant Secretary
EMPLOYEE
-------------------------------
-4-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Sarasota BanCorporation, Inc.
We consent to the use in this Form 10-KSB of our report dated January
29, 1999, relating to the consolidated statements of financial condition of
Sarasota BanCorporation, Inc. and the related consolidated statements of
income, stockholder's equity, and cash flows for the fiscal year ended December
31, 1998.
/s/ Saltmarsh, Cleaveland & Gund
Pensacola, Florida
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SARASOTA
BANCORPORATION, INC. AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS
ENDED DECEMBER 31, 1998 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 3,660,872
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,605,000
<TRADING-ASSETS> 1,547,687
<INVESTMENTS-HELD-FOR-SALE> 17,678,822
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 54,512,831
<ALLOWANCE> (557,546)
<TOTAL-ASSETS> 78,447,666
<DEPOSITS> 66,526,751
<SHORT-TERM> 2,000,000
<LIABILITIES-OTHER> 3,670,065
<LONG-TERM> 0
0
0
<COMMON> 5,591
<OTHER-SE> 6,245,259
<TOTAL-LIABILITIES-AND-EQUITY> 78,447,666
<INTEREST-LOAN> 4,606,255
<INTEREST-INVEST> 918,394
<INTEREST-OTHER> 212,040
<INTEREST-TOTAL> 5,736,689
<INTEREST-DEPOSIT> 2,739,225
<INTEREST-EXPENSE> 2,839,579
<INTEREST-INCOME-NET> 2,897,110
<LOAN-LOSSES> 119,400
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,896,726
<INCOME-PRETAX> 1,169,473
<INCOME-PRE-EXTRAORDINARY> 1,169,473
<EXTRAORDINARY> 429,200
<CHANGES> 0
<NET-INCOME> 740,273
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.92
<LOANS-NON> 270,894
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 43,117
<ALLOWANCE-OPEN> 482,398
<CHARGE-OFFS> (95,585)
<RECOVERIES> 51,333
<ALLOWANCE-CLOSE> 557,546
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
