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, 1999
-------------------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to ____________________
Commission file number 33-41045
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SARASOTA BANCORPORATION, INC.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Florida 65-0235255
- ---------------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Two North Tamiami Trail, Suite 100, Sarasota, Florida 34236
- ----------------------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(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: $7,747,095
-------------
Aggregate market value of the voting and non-voting common equity held by
non-affiliates as of March 15, 2000:*
$3,957,738 (322,554 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 15, 2000
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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, 1999.
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>
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 2000 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 102 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.
-2-
<PAGE>
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, 1999 and 1998. This
presentation includes all major categories of interest- earning assets and
interest-bearing liabilities:
<TABLE>
AVERAGE CONSOLIDATED ASSETS
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Cash and due from banks......................................... $ 3,151,723 $ 2,511,438
Taxable securities.............................................. 16,651,146 15,418,296
Tax exempt securities........................................... 1,027,914 0
Federal funds sold.............................................. 4,650,395 3,916,915
Net loans....................................................... 63,912,665 47,378,278
---------- ----------
Total earning assets....................................... 89,393,843 69,224,927
Other assets.................................................... 1,198,799 1,126,590
--------- ---------
Total assets............................................... $ 90,592,642 $ 70,351,517
=========== ==========
</TABLE>
-3-
<PAGE>
<TABLE>
AVERAGE CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Non interest-bearing deposits.............................. $ 9,854,934 $ 8,649,340
NOW and money market deposits.............................. 24,351,326 14,262,465
Savings deposits........................................... 940,740 958,847
Time deposits.............................................. 43,231,332 38,306,561
Repurchase agreements...................................... 3,359,901 2,057,791
Other liabilities.......................................... 2,513,477 481,934
--------- ------------
Total liabilities........................................ 84,251,710 64,716,938
Stockholders' equity....................................... 6,340,932 5,634,579
--------- -----------
Total liabilities and stockholders' equity............... $ 90,592,642 $ 70,351,517
=========== ==========
</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>
Year Ended December 31, 1999
-----------------------------
Average Interest Average
Assets Amount Earned Yield
-------- ------ -------- ------
<S> <C> <C> <C>
Taxable securities...................................... $16,651,146 $ 1,032,095 6.20%
Tax-exempt securities................................... 1,027,914 83,836 8.16%
--------- ------ -----
Total securities....................................... 17,679,060 1,115,933 6.31%
Federal funds sold...................................... 4,650,395 230,970 4.97%
Net loans............................................... 63,912,665 6,011,268 (1) 9.41%
---------- ---------
Total earning assets.................................. $86,242,120 $7,358,171 8.53%
========== ========= ====
Average Interest Average
Liabilities Amount Paid Rate Paid
----------- ------ -------- ---------
NOW and money market deposits........................... $24,351,326 $1,028,669 4.22%
Savings deposits........................................ 940,740 12,567 1.34%
Time deposits........................................... 43,227,615 2,320,988 5.37%
Repurchase agreements................................... 3,359,901 150,214 4.47%
Other interest-bearing liabilities...................... 1,934,246 93,404 4.83%
----------- ----------
Total interest-bearing liabilities.................... $73,813,828 $3,605,842 4.89%
========== ========= ====
Net yield on earning assets............................. 4.35%
====
- ----------------------------
<FN>
(1) Interest earned on net loans includes $266,825 in loan fees and loan service
fees for 1999.
</FN>
</TABLE>
-4-
<PAGE>
<TABLE>
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%
Tax-exempt securities.................................... 0 0 -
----------- --------- ----
Total Securities....................................... 15,418,296 918,394 5.96%
Federal funds sold....................................... 3,916,915 212,040 5.41%
Net loans (before allowance)............................. 47,378,278 4,606,255(1) 9.72%
----------- --------- ----
Total earning assets................................... $66,713,489 $5,736,689 8.60%
=========== ========= ====
Liabilities Average Interest Average
----------- Amount Paid Rate Paid
------- -------- ---------
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%
====
- -----------------------
<FN>
(1) Interest earned on net loans includes $ 196,242 in loan fees and loan
service fees for 1998.
</FN>
</TABLE>
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.
-5-
<PAGE>
<TABLE>
Year Ended December 31, 1999
compared with
Year Ended December 31, 1998
Increase (decrease) due to:
----------------------------
Volume Rate Total
--------- --------- ----------
Interest earned on:
<S> <C> <C> <C>
Taxable securities......................................... $ 75,412 $ 38,289 $ 113,701
Tax-exempt securities...................................... 83,838 0 83,838
Federal funds sold......................................... 33,847 (14,917) 18,930
Net loans.................................................. 1,549,736 (144,723) 1,405,013
--------- --------- ---------
Total interest income........................................ 1,742,833 (121,351) 1,621,482
--------- ---------
Interest paid on:
NOW and money market deposits............................. 414,402 98,498 512,900
Savings deposits........................................... (355) (6,232) (6,587)
Time deposits.............................................. 243,877 127,191) 116,686
Repurchase agreements...................................... 57,744 (5,971) 51,773
Other interest bearing liabilities........................ 73,175 18,316 91,491
------ --------- --------
Total interest expense....................................... 788,842 (22,579) 766,263
------- --------- --------
Change in net interest income................................ $ 953,991 $ (98,772) $ 855,219
======== ========= ========
</TABLE>
-6-
<PAGE>
<TABLE>
Year Ended December 31, 1998
compared with
Year Ended December 31, 1997
Increase (decrease) due to:
----------------------------
Volume Rate Total
------ ---- -----
Interest earned on:
<S> <C> <C> <C>
Taxable securities......................................... $ 169,656 $ (46,691) $ 122,965
Tax-exempt securities...................................... 0 0 0
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
---------- --------- ---------
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
========== ========= =========
</TABLE>
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 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 commercial customers a courier service
for picking up and delivering deposits to the Bank.
-7-
<PAGE>
The following table presents, for the periods indicated, the average
amount of and average rate paid on each of the following deposit categories:
<TABLE>
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
Average Average Average Average
Deposit Category Amount Rate Paid Amount Rate Paid
---------------- ------ --------- ------ ---------
<S> <C> <C>
Non interest-bearing demand deposits............. $ 9,854,934 N/A $ 8,649,340 N/A
NOW and money market deposits.................... 24,351,326 4.23% 14,262,465 3.62%
Savings deposits................................. 940,740 1.33% 958,847 2.00%
Time deposits.................................... 43,231,332 5.37% 38,306,561 5.76%
Repurchase agreements............................ 3,359,901 4.47% 2,057,791 4.78%
Other interest-bearing liabilities............... 1,934,246 4.83% 154,137 1.24%
</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, 1999:
Time Certificates
of Deposit
-----------------
3 months or less..................... $ 2,779,989
3 to 6 months........................ 422,084
6 to 12 months....................... 8,237,105
Over 12 months....................... 638,834
-----------
Total................................ $12,078,012
===========
Loan Portfolio
The Bank engages in a full complement of lending activities, including
commercial, consumer/installment and real estate loans. As of December 31, 1999,
the Bank had a legal lending limit for unsecured loans of up to $1,020,000 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
-8-
<PAGE>
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 is reviewed by either the President or the Executive Vice
President of the Bank before disbursement. All unsecured loans in excess of
$200,000 and all secured loans in excess of $500,000 (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 $1,500,000.
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.
The following table presents various categories of loans contained in
the Bank's loan portfolio as of December 31, 1999 and 1998 and the total amount
of all loans for such periods:
<TABLE>
Type of Loan Amount Amount
1999 1998
---- ----
<S> <C> <C>
Commercial, financial and agricultural........................ $10,002,808 $ 9,409,815
Real estate-mortgage and equity............................... 44,939,924 32,797,439
Installment and other loans to individuals.................... 17,644,968 12,627,398
------------ -----------
Subtotal...................................................... 72,587,700 54,834,652
------------ -----------
Less: deferred loan fees........................................ (156,018) (125,288)
Allowance for possible loan losses............................ (773,526) (557,546)
------------ -----------
Total (net of allowance)........................................ $71,658,156 $54,151,818
============ ===========
</TABLE>
-9-
<PAGE>
The following is a presentation of an analysis of maturities of loans as
of December 31, 1999:
<TABLE>
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.............. $ 7,699,801 $ 1,458,006 $ 845,001 $10,002,808
Real estate-mortgage and equity...................... 13,428,216 18,616,531 12,895,177 44,939,924
Installment and other loans to individuals........... 1,099,310 15,088,726 1,456,932 17,644,968
----------- ---------- ----------- -----------
Total................................................ $22,227,327 $35,163,263 $15,197,110 $72,587,700
=========== ========== =========== ===========
</TABLE>
The following is a presentation of an analysis of sensitivities of
loans to changes in interest rates as of December 31, 1999:
Loans due after 1 year with
predetermined interest rates............................. $17,279,557
Loans due after 1 year with
floating interest rates.................................. $33,080,816
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, 1999, the Bank had 34 loans in the aggregate amount of $360,789
accounted for on a nonaccrual basis, and 17 loans were contractually past due 90
days or more as to principal or interest payments. For the year ended December
31, 1998, the Bank 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.
At December 31, 1999, 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 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.
-10-
<PAGE>
Summary of Loan Loss Experience
An analysis of the Bank's loss experience is furnished in the following
table for the periods indicated.
<TABLE>
Analysis of the Allowance for Loan Losses
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Balance at beginning of period..................................... $ 557,546 $ 482,398
Charge-offs
Commercial, financial and agricultural.......................... (15,337) (35,654)
Installment and other loans to individuals...................... (42,377) (59,931)
Recoveries
Commercial, financial and agricultural.......................... 7,253 6,158
Installment and other loans to individuals...................... 3,341 45,175
----- ------
Net charge-offs.................................................... (47,120) (44,252)
Additions charged
to operations.................................................... 263,100 119,400
Balance at end of period........................................... $ 773,526 $ 557,546
======= =======
Ratio of net charge-offs during the period to
average loans outstanding during the period...................... 0.07% 0.09%
</TABLE>
At December 31, 1999, 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 rating, specific allocations,
economic conditions, off balance sheet items (unfunded loans), concentrations of
credit, loss experience, 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, 1999, 13.8%
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 Bank's loan portfolio. However, over 89.3% of these
commercial loans at December 31, 1999 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 Bank's consumer loan portfolio is also well secured. At December 31,
1999 the majority of the Bank'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.
As of December 31, 1999, real estate mortgage loans constituted 61.9% of
the Bank's outstanding loans. Approximately $15,180,495, or 33.8%, of this
category represents residential real estate mortgages. The remaining portion of
this category consists of commercial real estate loans. Risk of loss for
commercial real estate loans is generally higher than residential loans.
-11-
<PAGE>
The Bank'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, 1999, investment securities comprised approximately
18.5% of the Bank's assets and loans comprised approximately 75.3% 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. All securities held at December 31, 1999 and 1998 were
categorized as available-for-sale.
Investment Category December 31,
- -------------------------------------------------------- ------------------
Available-for-Sale 1999 1998
- ------------------ ---- ----
Obligations of U.S. Treasury and other U.S. agencies... $16,277,850 $17,630,691
Obligations of States and Political Subdivisions ...... 2,209,373 0
The following table indicates for the year ended December 31, 1999 the
amount of investments due in (i) one year or less; (ii) one to five years; (iii)
five to ten years; and (iv) over ten years and the weighted average yields of
such investment securities:
<TABLE>
Investment Weighted Average
Category Amount Yield(1)
-------- ------ --------
Obligations of U.S. Treasury
and other U.S. agencies:
<S> <C> <C>
0-1 year................................................... $ 3,128,473 6.67%
Over 1 through 5 years..................................... 8,252,656 6.50%
After 5 through 10 years................................... 7,106,094 5.80%
Over 10 years.............................................. 0 -
-----------
Total...................................................... $18,487,223 6.26%
=========== =====
- -----------------
<FN>
(1) The Bank has invested in tax-exempt obligations. Yields on tax exempt
obligations have not been computed on a tax equivalent basis.
</FN>
</TABLE>
-12-
<PAGE>
Return on Equity and Assets
Returns on average consolidated assets and average consolidated equity
for the periods indicated are as follows:
<TABLE>
December 31,
---------------------------
1999 1998
---- ----
<S> <C> <C>
Return (loss) on average assets ........................................ 1.27% 1.08%
Return (loss) on average equity ........................................ 16.99% 12.27%
Average equity to average assets ratio.................................. 7.69% 7.90%
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 purchases 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,
Bank of America, Federal Reserve Bank, Marshall & Isley (M&I) Bank, The Federal
Home Loan Bank, First Tennessee Bank, N.A., Mercantile Bank, Huntington Bank,
Busey Bank and Century Bank. As compensation for services provided by a
correspondent, the Bank may maintain
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<PAGE>
certain balances with such correspondents in non-interest bearing accounts. At
December 31, 1999, the Bank had $3,957,715 in participations sold and $1,855,933
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.
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.
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
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<PAGE>
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.
On November 12, 1999, the Gramm-Leach-Bliley Financial Services
Modernization Act was signed into law. The Financial Services Modernization Act
eliminates the barriers erected by the 1933 Glass- Steagall Act and amends the
Bank Holding Company Act of 1956, among other statutes. Further, it allows for
the affiliation of banking, securities and insurance activities in new financial
services organizations.
A dominant theme of the new legislation is functional regulation of
financial services, with the primary regulator of the company being the agency
which traditionally regulates the activity in which the company wishes to
engage. For example, the Securities and Exchange Commission will regulate bank
securities transactions, and the various banking regulators will oversee banking
activities.
The principal provisions of the Financial Services Modernization Act
will permit the Company, if it meets the standards for a "well-managed" and
"well-capitalized" institution and has at least a "satisfactory" Community
Reinvestment Act performance, to engage in any activity that is "financial in
nature," including security and insurance underwriting, investment banking, and
merchant banking investing in commercial and industrial companies. The Company,
if it satisfies the above criteria, can file a declaration of its status as a
"financial holding company" ("FHC") with the Federal Reserve, and thereafter
engage directly or through nonbank subsidiaries in the expanded range of
activities which the Financial Services Modernization Act identifies as
financial in nature. Further, the Company, if it elects FHC status, will be able
to pursue additional activities which are incidental or complementary in nature
to a financial activity, or which the Federal Reserve subsequently determines to
be financial in nature.
It is expected that the Financial Services Modernization Act will
facilitate further consolidation in the financial services industry on both a
national and international basis, and will cause existing bank holding companies
to restructure their existing activities in order to take advantage of the new
powers granted and comply with their attendant requirements and conditions.
A bank holding company which has not elected to become a FHC will
generally be 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, these non-FHC bank holding companies
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will still be able to engage in 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.
These activities, including those listed below, are left unchanged by
the Financial Services Modernization Act which does not prohibit non-FHC bank
holding companies from engaging in these activities. The list of permissible
nonbanking activities includes the following activities: extending credit and
servicing loans; acting as investment or financial advisor to any person, with
certain limitations; leasing personal and 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 requires every bank holding company to obtain the prior
approval of the Florida Department before acquiring more than 5% of the voting
shares of any Florida bank or all or substantially all of the assets of a
Florida bank, or before merging or consolidating with any Florida bank holding
company. A bank holding company is generally prohibited from acquiring ownership
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or control of 5% or more of the voting shares of any Florida bank or Florida
bank holding company unless the Florida bank or all Florida bank subsidiaries of
the bank holding company to be acquired have been in existence and continuously
operating, on the date of the acquisition, for a period of three years or more.
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.
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, 1999, the Company's total risk-based capital and
tier-one risk- based capital ratios were 11.14% and 10.08%, respectively while
the Company's tier-one leverage ratio was 7.72%.
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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 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.
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<PAGE>
The Federal Reserve Board and the FDIC have 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 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.
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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>
Total Risk - Tier 1 Risk - Tier 1
Based Capital Based Capital Leverage
Ratio Ratio Ratio
<S> <C> <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)
- ---------------------------
<FN>
(1) An institution must meet all three minimums.
(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.
</FN>
</TABLE>
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
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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 $215,500. The facility includes four teller stations, four
executive offices, a vault, a night depository, a bookkeeping/operations room, a
loan 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.
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,
1999 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 15, 2000, the number of holders of record of the
Company's Common Stock was 432.
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
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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 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.
Recent Sales of Unregistered Securities
In February and May 1998, eight directors of the Company and a former
organizer of the Bank exercised warrants to purchase an aggregate of 87,640
shares of common stock of the Company at a price of $10.00 per share for an
aggregate purchase price of $876,400.
The issuances of securities described above were made in reliance on
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933 as transactions by an issuer not involving a public offering. All of the
securities were acquired by the recipients thereof for investment and with no
view toward the resale or distribution thereof. In each instance, the purchaser
had a pre-existing relationship with the Company, the offers and sales were made
without any public solicitation, the certificates bear restrictive legends and
appropriate stop transfer instructions have been or will be given to the
transfer agent. No underwriter was involved in the transactions and no
commissions were paid.
Item 6. Management's Discussion and Analysis or Plan of Operations.
Overview
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.
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.
Net income for the year ended December 31, 1999 was $1,134,205,
compared to $740,273 in 1998. Net income per common share was $2.03 in 1999
compared to $1.34 in 1998. The increase in 1999 net income resulted principally
from increases in the volume of earning assets, primarily loans, which increased
net interest income 28.4%, or $824,199 over 1998.
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<PAGE>
Total assets were $95,189,848 at December 31, 1999, 21.3% over total
assets of $78,447,666 at December 31, 1998. Average assets for the year ended
December 31,1999 were $90,592,642 as compared to average assets of $70,351,517
for the year ended December 31, 1998. This 28.8% increase in average assets was
the result of a 34.9% increase in average loans and a 14.7% increase in average
securities over the prior year.
Results of Operations and Financial Condition
Fiscal 1999 Compared to Fiscal 1998
The Company experienced continued asset, loan and deposit growth
during 1999. Total assets increased 21.3% to $95,189,848 at December 31, 1999
from $78,447,666 at December 31, 1998. This increase is primarily attributable
to an increase in loans of approximately $17.3 million during the year. Net
total loans at December 31, 1999 were $71.2 million, compared to $54.0 million
at December 31, 1998. Securities available for sale decreased 0.01% or $19,398
to $17,659,424 at December 31, 1999 from $17,678,822 at December 31, 1998. This
decrease was attributable to the decrease in the market value of the securities
portfolio at year end.
The Company's net income grew proportionately with asset growth
during 1999. Net income increased 53.2% to $1,134,205 or $2.03 per share of at
December 31, 1999 as compared to net income of $740,273 or $1.34 per share of at
December 31, 1998. The increases in net income are primarily attributable to a
30.5% increase in interest and fees earned on loans. Interest and fees earned on
loans were $6.0 million at December 31, 1999 compared to $4.6 million at
December 31, 1998.
Net interest income after provision for loan losses increased
$680,499, or 24.5%, to $3,458,209 for the year ended December 31, 1999 compared
to $2,777,710 for the year ended December 31, 1998. 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 4.28% for the year ended December 31, 1999 compared to 4.40% for the
year ended December 31, 1998. The net interest margin was 4.64% as of December
31, 1999 on average earning assets of $86.2 million compared to a net interest
margin of 4.52% on average earning assets of $69.2 million as of December 31,
1998. This increase in net interest margin is primarily the result of growth in
earning assets and the repricing of floating rate assets quicker than the
repricing of interest-bearing liability accounts.
Non-interest expense increased $155,566, or 8.2%, to $2,052,292 for
the year ended December 31, 1999 as compared to $1,896,726 fro the year ended
December 31, 1998. This increase is primarily the result of increased
compensation expenses and increased advertising and marketing expenses.
Non-interest income increased $131,455, or 45.6%, to $419,944 for the
year ended December 31, 1999 compared to $288,489 for the year ended December
31, 1998. This increase is attributable to increased income for fees on
depository accounts. Service fees increased $88,306, or 48.4%, to $270,785 for
the year ended December 31, 1999 compared to $188,479 for the year ended
December 31, 1998. The Bank began charging maintenance fees for its commercial
accounts during 1999. Those fees accounted for a $25,000 increase in income for
1999. A significant increase was also observed in insufficient funds and
overdraft fee activity. Other income, which includes rental income, increased
$34,272, or 35.5%, to $130,898 for the year ended December 31, 1999 compared to
$96,626 for the year ended December 31, 1998.
-23-
<PAGE>
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
rating, 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 increased $143,700, or 120.4%, to $263,100 at December
31, 1999 compared to $119,400 at December 31, 1998. The increased allowance for
loan losses in 1999 was due to the increase in total loans outstanding during
fiscal 1999. Net charge-offs for 1999 were $47,120, or 0.07%, of average loans
outstanding for 1999 compared to $44,252, or 0.09%, of average loans outstanding
for 1998. The ratio of non-performing loans (including loans 90 days or more
past due) to total outstanding loans was 0.50% as of December 31, 1999. At year
ended December 31, 1998, non-performing loans were 0.49% 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, 1999, 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 $4.0 million, or 4.2%, of assets at December 31, 1999, compared
to $5.3 million, or 6.71%, of total assets at December 31, 1998. 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 $14,188,884 at December 31, 1999 compared
to $6,724,669 at December 31, 1998. Management intends to fund these commitments
primarily from deposit growth and federal funds balances. With a loan to deposit
ratio of 83.5%, cash and due from banks of $3.5 million and federal funds sold
of $0.5 million, management does not anticipate any events which would require
liquidity beyond that which is available through deposit growth or its
investment portfolio.
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, 1999. 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.
-24-
<PAGE>
<TABLE>
The following is an analysis of rate sensitive assets and liabilities
as of December 31, 1999 (in thousands):
5 yrs
0-3 mos. 3-12 mos. 1-5 yrs. or more Total
-------- --------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
Taxable securities.............................. $2,095 $4,206 $6,967 $3,010 $16,278
Tax exempt securities........................... 0 0 0 2,209 2,209
Federal funds sold.............................. 535 0 0 0 535
Loans........................................... 16,479 12,915 39,385 2,794 71,573
------ ------ ------ ----- ------
Total rate sensitive assets................ 19,109 17,121 46,352 8,013 90,595
====== ====== ====== ===== ======
NOW and money market deposits................... 24,671 0 3,964 0 28,635
Savings deposits................................ 0 0 835 0 835
Repurchase account deposits..................... 2,202 0 0 0 2,202
Time deposits................................... 9,890 28,210 8,516 0 46,616
----- ------ ----- - ------
Total rate sensitive liabilities........... 36,763 28,210 13,315 0 78,288
====== ====== ====== = ======
Excess (deficiency) of rate sensitive
assets less rate sensitive liabilities........ (17,654) (11,089) 33,037 8,013 12,307
Ratio of rate sensitive assets to rate
sensitive liabilities........................... .52 .6 3. --- 1.16
Cumulative gap.................................. (17,654) (28,743) 4,294 12,307 --
</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. 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
-25-
<PAGE>
capital into total assets. Banks that are not rated CAMELS 1 by their primary
regulator should maintain a minimum leverage ratio of 3.0% 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, 1999 was $6,842,229. Management
believes that the Bank's capitalization is adequate to sustain growth which is
anticipated for fiscal 2000. 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, 1999:
<TABLE>
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% 7.72% 4.0% 10.08% 8.0% 11.14%
Bank................... 3.0% 7.68% 4.0% 10.03% 8.0% 11.08%
</TABLE>
Item 7. Financial Statements.
The following financial statements are filed with this report:
Independent Auditor's Report
Consolidated Balance Sheet--December 31, 1999 and 1998
Consolidated Statements of Income--For the years ended December 31, 1999
and 1998
Consolidated Statements of Changes in Stockholders' Equity--For the
years ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows--For the years ended December 31,
1999 and 1998
Notes to Consolidated Financial Statements
-26-
<PAGE>
[LETERHEAD OF SALTMARSH, CLEAVELAND & GUND]
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, 1999 and
1998, 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, 1999 and 1998,
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
February 4, 2000
<PAGE>
<TABLE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
---------------- ---------------
<S> <C> <C>
Cash and due from banks $ 3,499,503 $ 3,660,872
Federal funds sold 535,000 1,605,000
Securities available for sale 17,659,424 17,678,822
Loans receivable, less of allowance for loan losses
of $ 773,526 in 1999 and $ 557,546 in 1998 71,234,573 53,955,285
Accrued interest receivable 560,533 478,024
Foreclosed real estate 57,273 71,673
Repossessed assets 423,583 195,376
Furniture and equipment, net 355,233 387,602
Deferred income taxes 582,286 187,192
Other assets 282,440 227,820
---------------- ---------------
Total Assets $ 95,189,848 $ 78,447,666
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits $ 9,702,466 $ 9,173,316
NOW and money market deposits 28,613,750 12,729,289
Savings deposits 837,752 1,162,127
Other time deposits 46,616,740 43,462,019
---------------- ---------------
Total deposits 85,770,708 66,526,751
FHLB advances -0- 2,000,000
Repurchase agreements 2,157,832 2,897,485
Income taxes payable 59,300 441,791
Accrued interest payable 200,372 136,301
Accrued expenses and other liabilities 159,407 194,488
---------------- ---------------
Total liabilities 88,347,619 72,196,816
---------------- ---------------
Commitments and Contingencies - -
Stockholders' Equity:
Common stock, $ .01 par value; 10,000,000 shares
authorized, 559,140 shares issued 5,591 5,591
Additional paid-in capital 5,588,927 5,588,927
Treasury stock, at cost;
1,619 shares in 1999 and 2,393 shares in 1998 (18,839) (27,848)
Retained earnings 1,788,063 653,858
Accumulated other comprehensive income (loss) (521,513) 30,322
---------------- ---------------
Total stockholders' equity 6,842,229 6,250,850
---------------- ---------------
Total Liabilities and Stockholders' Equity $ 95,189,848 $ 78,447,666
================ ===============
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---------------- ---------------
Interest Income:
<S> <C> <C>
Loans receivable and fees on loans $ 6,011,268 $ 4,606,255
Investment securities 1,084,913 918,394
Federal funds sold 230,970 212,040
---------------- ---------------
Total interest income 7,327,151 5,736,689
---------------- ---------------
Interest Expense:
Deposits 3,362,224 2,739,225
Other 243,618 100,354
---------------- ---------------
Total interest expense 3,605,842 2,839,579
---------------- ---------------
Net interest income 3,721,309 2,897,110
Provision for Loan Losses 263,100 119,400
---------------- ---------------
Net interest income after provision for loan losses 3,458,209 2,777,710
---------------- ---------------
Noninterest Income:
Service charges on deposit accounts 270,785 182,479
Net gain from sale of loans 18,261 9,384
Other income 130,898 96,626
---------------- ---------------
Total noninterest income 419,944 288,489
---------------- ---------------
Noninterest Expenses:
Salaries and employee benefits 949,941 869,474
Occupancy expense 254,005 247,391
Data processing 57,964 68,792
Professional fees 94,197 120,257
Other expense 696,185 590,812
---------------- ---------------
Total noninterest expenses 2,052,292 1,896,726
---------------- ---------------
Income Before Income Taxes 1,825,861 1,169,473
Income Tax Expense 691,656 429,200
---------------- ---------------
Net Income $ 1,134,205 $ 740,273
================ ===============
Net Income Per Share of Common Stock $ 2.03 $ 1.34
================ ===============
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
Accumulated
Other
Additional Retained Comprehensive
Common Paid-In Treasury Earnings Income
Stock Capital Stock (Deficit) (Loss) Total
------------- ------------- ------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $ 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 (loss), net of tax:
Change in unrealized gain (loss)
on securities available-for-sale,
net of tax of $ 17,488 (29,777) (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
-------------
Net income 1,134,205 1,134,205
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss)
on securities available-for-sale,
net of tax of $ 324,094 (551,835) (551,835)
-------------
TOTAL COMPREHENSIVE INCOME 582,370
-------------
Sale of 774 treasury shares,
at cost 9,009 9,009
------------- ------------- ------------- ------------- ------------- -------------
Balance, December 31, 1999 $ 5,591 $ 5,588,927 $ (18,839) $ 1,788,063 $ (521,513) $ 6,842,229
============= ============= ============= ============= ============= =============
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---------------- --------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net income $ 1,134,205 $ 740,273
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 48,498 50,027
Provision for loan losses 263,100 119,400
Net amortization of securities 41,722 92,720
Deferred tax benefit (71,000) (18,800)
Net change in -
Accrued interest receivable and other assets (122,729) (102,733)
Income taxes payable (382,491) 429,791
Accrued interest payable and other liabilities 28,990 81,054
---------------- ---------------
Net cash provided by operating activities 940,295 1,391,732
---------------- ---------------
Cash Flows From Investing Activities:
Purchases of available-for-sale securities (5,447,645) (10,307,480)
Proceeds from sales and maturities of available-for-sale securities 2,000,000 2,100,000
Principal reductions received on available-for-sale securities 2,549,392 3,570,080
Net increase in loans (17,770,595) (14,679,914)
Purchases of furniture and equipment (16,129) (9,496)
Sale (purchases) of treasury stock 9,009 (6,750)
---------------- ---------------
Net cash used in investing activities (18,675,968) (19,333,560)
---------------- ---------------
Cash Flows From Financing Activities:
Net increase in demand, NOW, money market
and savings deposits 16,089,236 2,709,043
Net increase in time deposits 3,154,721 9,440,944
Net (decrease) increase in repurchase agreements (739,653) 2,283,040
Net (decrease) increase in FHLB advances (2,000,000) 2,000,000
Proceeds from issuance of common stock -0- 879,518
---------------- ---------------
Net cash provided by financing activities 16,504,304 17,312,545
---------------- ---------------
Net Change in Cash and Cash Equivalents (1,231,369) (629,283)
Cash and Cash Equivalents at Beginning of Year 5,265,872 5,895,155
---------------- ---------------
Cash and Cash Equivalents at End of Year $ 4,034,503 $ 5,265,872
================ ===============
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 3,541,771 $ 2,821,785
================ ===============
Income taxes paid $ 1,143,750 $ 16,222
================ ===============
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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 loan and deposits 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. Material estimates that are particularly susceptible to change
in the near term relate to the determination of the allowance for loan
losses and deferred taxes.
Cash Equivalents:
For purposes of the statements of cash flows, cash and cash equivalents
include cash and due from banks and federal funds sold, all of which
mature within 90 days.
Securities Available for Sale:
All securities are classified as "available for sale" and recorded at
fair value, with unrealized gains and losses excluded from earnings and
reported in other comprehensive income.
Purchase premiums and discounts are recognized in interest income using
the interest method over the terms of the securities. Declines in the
fair value of available-for-sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized
losses. Gains and losses on the sale of securities are recorded on the
trade date and are determined using the specific identification method.
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans Receivable:
The Bank grants real estate mortgage, commercial and consumer loans to
customers. A substantial portion of the loan portfolio is represented by
commercial real estate mortgage loans throughout Sarasota County,
Florida. The ability of the Bank's debtors to honor their contracts is
dependent upon the real estate and general economic conditions in this
area.
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off generally are reported at
their outstanding unpaid principal balances adjusted for charge-offs, the
allowance for loan losses, and any deferred fees or costs on originated
loans. Interest income is accrued on the unpaid principal balance. Loan
origination fees, net of certain direct origination costs, are deferred
and recognized as an adjustment of the related loan yield using the
interest method.
The accrual of interest on real estate and commercial loans is
discontinued at the time the loan is 90 days delinquent unless the credit
is well-secured and in process of collection. Other loans are typically
charged off no later than 180 days past due. In all cases, loans are
placed on nonaccrual or charged-off at an earlier date if collection of
principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed against interest income. The
interest on these loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably
assured.
Allowance for Loan Losses:
The allowance for loan losses is evaluated on a regular basis by
management and is based upon management's periodic review of the
collectibility of the loans in light of historical experience, the nature
and volume of the loan portfolio, adverse situations that may affect the
borrower's ability to repay, estimated value of any underlying collateral
and prevailing economic conditions. This evaluation is inherently
subjective as it requires estimates that are susceptible to significant
revisions as more information becomes available.
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses (Continued):
A loan is considered impaired when, based on current information and
events, it is probable that the Bank will be unable to collect the
contractual terms of the loan agreement. Factors considered by management
in determining impairment include payment status, collateral value, and
the probability of collecting scheduled principal and interest payments
when due. Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a
case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay,
the reasons for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan by loan basis for real estate and
commercial loans by the present value of expected future cash flows
discounted at the loan's effective interest rate, the loan's obtainable
market price, or the fair value of the collateral if the loan is
collateral dependent.
Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment. Accordingly, the Bank does not separately
identify individual consumer for impairment disclosures.
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.
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 net expenses in net expenses
from foreclosed real estate.
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.
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes:
Deferred income tax assets and liabilities are determined using the
liability (or balance sheet) method. Under this method, the net deferred
tax asset or liability is determined based on the tax effects of the
temporary differences between the book and tax bases of the various
balance sheet assets and liabilities and gives current recognition to
changes in tax rates and laws.
The Company and the Bank file consolidated income tax returns, with
income tax expense or benefit computed and allocated on a separate return
basis.
Credit Related Financial Instruments:
In the ordinary course of business, the Bank has entered into commitments
to extend credit and letters of credit. Such financial instruments are
recorded when they are funded.
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.
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------- --------------- ---------------- ---------------
Available-For-Sale:
December 31, 1999 -
<S> <C> <C> <C> <C>
U.S. government agency securities $ 16,277,850 $ 9,515 $ (638,703) $ 15,648,662
Municipal securities 2,209,373 4 (198,615) 2,010,762
---------------- --------------- ---------------- ---------------
$ 18,487,223 $ 9,519 $ (837,318) $ 17,659,424
================ =============== ================ ===============
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
================ =============== ================ ===============
</TABLE>
There were no realized gains or losses on the sale of available-for-sale
securities in 1999 or 1998.
Included in U.S. government agency securities are investments in
collateralized mortgage obligations ("CMOs") with a carrying value of
approximately $ 2,479,500 at December 31, 1999 and $ 3,088,900 at
December 31, 1998. The effective yield on CMOs was approximately 6.5% in
1999 and 1998.
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 2 - INVESTMENT SECURITIES (Continued)
The scheduled maturities of securities available-for-sale at December 31,
1999, are as follows:
Amortized Fair
Cost Value
---------------- ---------------
Due in one year or less $ 3,128,473 $ 3,018,034
Due from one to five years 8,252,656 8,067,261
Due from five to ten years 7,106,094 6,574,129
---------------- ---------------
$ 18,487,223 $ 17,659,424
================ ===============
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 $ 6,181,600 at December
31, 1999 and $ 8,618,700 at December 31, 1998, were pledged to secure
consumer 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:
1999 1998
---------------- ---------------
Real estate $ 44,939,924 $ 32,888,200
Commercial 10,002,808 9,409,815
Consumer 16,374,652 12,279,817
Other 846,733 60,287
---------------- ---------------
72,164,117 54,638,119
Net deferred loan fees (156,018) (125,288)
Allowance for loan losses (773,526) (557,546)
---------------- ---------------
Loans receivable, net $ 71,234,573 $ 53,955,285
================ ===============
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.
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 3 - LOANS RECEIVABLE (Continued)
An analysis of the change in the allowance for loan losses follows:
1999 1998
---------------- ---------------
Balance at January 1 $ 557,546 $ 482,398
---------------- ---------------
Loans charged-off (57,714) (77,509)
Recoveries 10,594 33,257
---------------- ---------------
Net loans charged-off (47,120) (44,252)
---------------- ---------------
Provision for loan losses 263,100 119,400
---------------- ---------------
Balance at December 31 $ 773,526 $ 557,546
================ ===============
Loans on which the accrual of interest has been discontinued or reduced,
for which impairment had not been recognized, amounted to approximately $
115,100 at December 31, 1999 and $ 96,800 at December 31, 1998. If
interest on these loans had been accrued, such income would have
approximated $ 5,100 in 1999 and $ 4,300 in 1998. Interest income on
these loans is recorded only when received. The Bank did not have any
loans that were considered impaired as of December 31, 1999 and 1998.
NOTE 4 - FURNITURE AND EQUIPMENT
Components of furniture and equipment included in the statements of
financial condition are as follows:
1999 1998
----------- ----------
Furniture and equipment $ 270,133 $ 254,004
Leasehold improvements 411,203 411,203
----------- ----------
681,336 665,207
Less: Accumulated depreciation and amortization (326,103) (277,605)
----------- ----------
$ 355,233 $ 387,602
=========== ==========
Depreciation and amortization expense charged to operations amounted to $
48,498 in 1999 and $ 50,027 in 1998.
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 5 - TIME DEPOSITS
The aggregate amount of time deposits, each with a minimum denomination
of $ 100,000 was approximately $ 12,078,000 in 1999 and $ 11,792,000 in
1998.
At December 31, 1999, the scheduled maturities of time deposits are as
follows:
2000 $ 40,704,093
2001 5,276,779
2002 197,163
2003 314,510
2004 124,195
-----------------
$ 46,616,740
=================
NOTE 6 - CONCENTRATIONS
At December 31, 1999, eighteen deposit relationships represented
approximately 10% 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 which had been repaid as of December 31,
1999. The advance bore interest at 4.96% and matured in December 1999.
The advance is secured by a blanket lien on the Bank's 1-4 residential
loan portfolio and FHLB stock which amounted to $ 240,500 as of December
31, 1999. Total unused advances available to be drawn by the Bank
amounted to approximately $ 8,400,000 at December 31, 1999.
NOTE 8 - REPURCHASE AGREEMENTS
At December 31, 1999, 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 $
3,453,000 and 4.54% in 1999 and $ 2,053,600 and 4.79% in 1998.
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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, warrants were exercised in 1998 to purchase 87,640
shares of the Company's common stock at $10.04 per share. Proceeds from
the exercise of these warrants were 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, 1999 and 1998.
NOTE 10 - INCOME TAXES
The provision for income taxes consists of the following:
1999 1998
---------------- ---------------
Current tax provision:
Federal $ 665,700 $ 395,584
State 96,956 52,416
---------------- ---------------
762,656 448,000
Deferred federal benefit (71,000) (18,800)
---------------- ---------------
$ 691,656 $ 429,200
================ ===============
The provision for income taxes differs from that computed by applying the
statutory federal income tax rate to income before income taxes as
follows:
1999 1998
---------------- -------------
Tax based on statutory rate $ 627,886 $ 404,347
State tax, net of federal benefit 63,991 34,595
Tax exempt interest income (17,618) -0-
Other, net 17,397 (9,742)
---------------- -------------
$ 691,656 $ 429,200
================ =============
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 10 - INCOME TAXES (Continued)
Deferred tax assets and liabilities included in the statements of
financial condition were as follows:
<TABLE>
1999 1998
---------------- ----------
Deferred tax assets:
<S> <C> <C>
Allowance for loan losses $ 276,000 $ 205,000
Net unrealized depreciation on available-for-sale securities 306,286 -0-
---------------- ---------------
582,286 205,000
Deferred tax liabilities:
Net unrealized appreciation on available-for-sale securities -0- (17,808)
---------------- ---------------
Net deferred tax asset $ 582,286 $ 187,192
================ ===============
</TABLE>
NOTE 11 - STOCK WARRANTS AND OPTIONS
Outstanding Warrants:
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 were 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.
Stock Options:
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," and accounts for these options under APB Opinion No. 25,
"Accounting for Stock Issued to Employees", 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 1999 and 1998
operating results.
The Company has granted options to officers, directors, and other
individuals to purchase up to 64,216 shares of common stock at prices
approximating fair value at the date of the grant. All outstanding stock
options expire in December 2002.
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 11 - STOCK WARRANTS AND OPTIONS (Continued)
A summary of the status of the Company's outstanding stock options is
presented below:
<TABLE>
1999 1998
-------------------------- --------------------------
Weighted Weighted
Average Average
Exercise Exercise
Number Price Number Price
------------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 64,216 $ 11.17 23,575 $ 10.00
Granted - - 40,641 11.86
Forfeited - - - -
------------- --------------
Outstanding at end of year 64,216 $ 11.17 64,216 $ 11.17
============= =========== ============== ===========
Weighted average fair value of options
Granted during the year $ 0.00 $ 0.00
=========== ===========
</TABLE>
The fair value of each option granted is estimated on the grant date
using the minimum value method. In using the minimum value method, the
Company assumed (a) no dividend yield; (b) an expected life of five
years; and (c) a risk-free interest rate of 5.96% in 1998. No options
were granted in 1999.
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:
2000 $ 223,608
2001 231,610
----------------
Total future minimum lease payments $ 455,218
================
Rental expense relating to operating leases amounted to approximately $
215,250 in 1999 and $ 208,500 in 1998.
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
Future Minimum Rentals:
The Bank subleases a portion of its facilities at a monthly rate of $
4,400 plus applicable state sales tax. Rental income from the sublease
amounted to approximately $ 52,800 in 1999 and 1998. The sublease expires
in June 2000, and allows for a one year renewal option.
Financial Instruments:
The Bank is a party to credit related 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 and letters of credit. These 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 Bank's exposure to credit loss is represented by the contractual
amount of these instruments. The Bank follows the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments.
A summary of the contract amounts of the Bank's financial instruments
with off-balance-sheet credit risk at December 31, 1999 and 1998,
follows:
1999 1998
---------------- ---------------
Commitments to extend credit $ 19,999,065 $ 8,474,272
================ ===============
Letters of credit $ 428,515 $ 829,303
================ ===============
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. The commitments to extend
credit may expire without being drawn upon. Therefore, the total
commitment amounts do not necessarily represent future cash requirements.
The amount of collateral obtained, if deemed necessary by the Bank is
based on management's credit evaluation of the counterparty.
Unfunded commitments under commercial lines-of-credit, revolving credit
lines and overdraft protection agreements are commitments for possible
future extensions of credit to existing customers. These lines-of-credit
may be uncollateralized and usually do contain a specified maturity date
and may not be drawn upon to the total extent to which the Bank is
committed.
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
Letters-of-credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those letters
of credit are primarily issued to support public and 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 generally holds collateral for those commitments for
which collateral is deemed necessary.
The Bank has not incurred any losses on its commitments in 1999.
Unused Lines-of-Credit:
At December 31, 1999, the Bank had lines of credits with banks enabling
the Bank to borrow up to $ 1,500,000 subject to such terms as outlined in
the related agreements. The arrangements are reviewed annually for
renewal of the credit lines. At December 31, 1999, there were no advances
outstanding under the lines-of-credit.
Other:
Various legal claims arise from time to time in the normal course of
business which, in the opinion of management, will have no material
effect on the Company's and the Bank's financial statements.
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, 1999 and 1998,
was approximately $ 444,200 and $ 543,500, respectively. During 1999, new
loans to such related parties amounted to approximately $ 52,200 and
repayments amounted to approximately $ 151,500. Also, certain related
parties maintain significant deposit balances with the Bank in the
aggregate amount of approximately $ 1,852,000 and $ 1,830,000 at December
31, 1999 and 1998, respectively.
One of the Bank's directors provides various legal services to the Bank.
Fees for these services amounted to approximately $ 11,000 in 1999 and $
16,500 in 1998. 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
$ 56,000 in 1999 and $ 62,000 in 1998.
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 14 - REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by 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, 1999, that the Company and the Bank meet all
capital adequacy requirements to which they are subject.
As of December 31, 1999, the most recent notification that the Bank had
received from the Federal Deposit Insurance Corporation categorized the
Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized 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 Bank's
category. The Company's and the Bank's actual capital amounts and ratios
as of December 31, 1999 and 1998 are presented in the table below:
<TABLE>
Minimum
To Be Well
Minimum Capitalized Under
Capital Prompt Corrective
Actual Requirement: Action Provisions:
---------------------------- ------------------------------ -----------------------
Amount Ratio Amount Ratio Amount Ratio
-------------- ----------- ----------------- ----------- --------------- ---------
As of December 31, 1999:
Total Capital
(to Risk Weighted Assets)
<S> <C> <C> <C> <C> <C>
Consolidated $ 8,137,268 11.14% =>$ 5,841,760 => 8.0% =>$ N/A => N/A
Bank $ 8,094,761 11.09% =>$ 5,841,760 => 8.0% =>$ 7,302,200 => 10.0%
Tier I Capital
(to Risk Weighted Assets)
Consolidated $ 7,363,742 10.08% =>$ 2,920,880 => 4.0% =>$ N/A => N/A
Bank $ 7,321,235 10.03% =>$ 2,920,880 => 4.0% =>$ 4,381,320 => 6.0%
Tier I Capital
(to Average Assets)
Consolidated $ 7,363,742 8.13% =>$ 3,623,706 => 4.0% =>$ N/A => N/A
Bank $ 7,321,235 8.08% =>$ 3,623,706 => 4.0% =>$ 4,529,632 => 5.0%
</TABLE>
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 14 - REGULATORY MATTERS (Continued)
<TABLE>
Minimum
To Be Well
Minimum Capitalized Under
Capital Prompt Corrective
Actual Requirement: Action Provisions:
---------------------------- ------------------------------ --------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------- ----------- ----------------- ----------- --------------- ---------
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets)
<S> <C> <C> <C> <C> <C>
Consolidated $ 6,778,075 11.53% =>$ 4,704,240 => 8.0% =>$ N/A => N/A
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% =>$ N/A => N/A
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% =>$ N/A => N/A
Bank $ 6,166,167 8.76% =>$ 2,814,061 => 4.0% =>$ 3,517,576 => 5.0%
</TABLE>
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the current amount that would
be exchanged between willing parties, other than in a forced liquidation.
Fair value is best determined based upon quoted market prices. However,
in many instances, there is no quoted market prices for the Company's
various financial instruments. In cases where quoted market prices are
not available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected
by the assumptions used, including the discount rate used, including the
estimates of future cash flows. Accordingly, the fair value estimates may
not be realized in an immediate settlement of the instrument. Statement
of Financial Accounting Standards No. 107, "Disclosure about Fair Value
of Financial Instruments", excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented may not necessarily represent
the underlying fair value of the Company.
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.
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
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 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 and FHLB advances. The carrying amounts of
repurchase agreements with Bank customers and FHLB advances 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, 1999 and 1998.
<PAGE>
SARASOTA BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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>
1999 1998
--------------------------------- ---------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------- --------------- ---------------- ---------------
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 4,034,503 $ 4,034,503 $ 5,265,872 $ 5,265,872
Securities available-for-sale 17,659,424 17,659,424 17,678,822 17,678,822
Loans receivable 71,234,573 72,309,241 53,955,285 54,420,637
Accrued interest receivable 560,533 560,533 478,024 478,024
Financial liabilities:
Deposits 85,770,708 85,739,631 66,526,751 66,759,440
FHLB advances -0- -0- 2,000,000 2,000,000
Repurchase agreements 2,157,832 2,157,832 2,897,485 2,897,485
Accrued interest payable 200,372 200,372 136,301 136,301
</TABLE>
<PAGE>
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:
Name Position with Company
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
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.
-28-
<PAGE>
Susan M. Baker, age 43, 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 and lumber business since 1981. Ms. Baker 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. Ms. Baker is also a certified financial planner.
Kenneth H. Barr, age 59, served as part owner and general manager of
Schenkel's Restaurant on Longboat Key, Florida from 1968 to 1994. Since 1994,
Mr. Barr has been a restauranteur.
Timothy J. Clarke, age 55, has served as President of Clark
Advertising & Public Relations, Inc. since 1987.
James W. Demler, M.D., age 53, served as Chairman of the Board of the
Company from December 1990 to April 1996. Dr. Demler is a physician specializing
in urological surgery. Dr. Demler helped establish Florida Urological Associates
(formerly Sarasota Urological Associates) and has been in private practice since
1983. Dr. Demler is former Chief of Surgery at Doctor's Hospital of Sarasota.
Susan K. Flynn, age 38, 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 an Assistant Branch
Manager, Consumer Loan Officer and Compliance Officer for First Union National
Bank in Tampa, Florida.
Christine L. Jennings, age 54, 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 36 years of banking
experience.
Edward S. Levi, age 75, 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 40, is a partner in the law firm of Norton, Gurley,
Hammersley & Lopez, P.A. in Sarasota and has been engaged in private practice
since 1985. Mr. Norton practices law in the areas 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 48, is a certified public accountant, and
has been a partner of Cavanaugh & Co., CPAs, since 1979.
A. Dean Pratt, age 69, 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.
-29-
<PAGE>
Paul D. Thatcher, age 51, 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 78, 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.
There are no family relationships between any director or executive
officer and any other director or executive officer of the Company.
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 and Executive Vice President (collectively, the "Named
Executive Officers") for the years ended December 31, 1999, 1998 and 1997. No
other executive officer's compensation exceeded $100,000 during 1999.
<TABLE>
Summary Compensation Table
Long Term
Compensation Awards
Annual Compensation -------------------
------------------- Securities
Name and Principal Position Year Salary Bonus Underlying Options
- --------------------------- ---- ------ ----- -------------------
<S> <C> <C> <C> <C>
Christine L. Jennings 1999 $ 129,925 $32,500(1) 3,285
President and 1998 $ 120,001 $30,000(2) 3,285
Chief Executive Officer 1997 $ 104,730 $26,250(3) -
Paul D. Thatcher 1999 $ 91,813 $19,020(1) 3,881
Executive Vice President 1998 $ 81,786 $17,000(2) 3,881
1997 $ 68,543 $14,620(3) -
- ------------------------------
<FN>
(1) Earned in 1999 but paid in January 2000.
(2) Earned in 1998 but paid in January 1999.
(3) Earned in 1997 but paid in January 1998.
</FN>
</TABLE>
Compensation of Directors
The Company's outside directors are paid $500 per quarter based on their
attendance at meetings. The Bank's outside directors are paid $500 per month and
$100 per Committee meeting attended. Directors who are also executive officers
of the Bank are not additionally compensated as members of the Bank's Board of
Directors.
-30-
<PAGE>
Employment Agreement
On January 1, 1998, the Company entered into an employment agreement
with Christine L. Jennings, pursuant to which she serves as President and Chief
Executive Officer of the Company and the Bank. The terms of the employment
agreement provide that Ms. Jennings shall be employed as President and Chief
Executive Officer and shall serve as a director of the Company and the Bank for
a period commencing on January 1, 1998 and ending on December 31, 2002, and
shall be entitled to receive an annual base salary of $120,000, which may be
increased at the discretion of the Board of Directors of the Company, subject to
certain performance requirements. The terms of the agreement also provide for a
bonus in the amount of 5% of the Bank's after tax net income, such amount not to
exceed 25% of Ms. Jennings' base salary, subject to certain performance
conditions by the Bank. In addition, the terms of the employment agreement
provide for the grant of incentive stock options to Ms. Jennings pursuant to the
1998 Stock Option Plan.
Severance Protection Agreement
On June 17, 1998, the Company and the Bank entered into an agreement
with Paul Thatcher, pursuant to which he is entitled to receive an amount equal
to one and a half (1 1/2) times the rate of his annual regular compensation in
the event that Mr. Thatcher is terminated by the Bank without cause upon the
occurrence of a "change in control" as defined in the agreement. Under the
severance agreement, Mr. Thatcher is also entitled to receive the severance
payment discussed above if, following a "change in control," he chooses to
terminate his employment as a result of (i) a reduction in his regular rate of
compensation as in effect prior to the "change in control;" or (ii) a reduction
in his duties, title, and/or responsibilities, as were previously set prior to
the "change in control." The severance protection agreement is in effect until
December 31, 2002, but may be extended annually , by mutual agreement of the
parties, to December 31 of the next calendar year.
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. The Plan was
approved by the Company's shareholders at the 1999 Annual Meeting of
Shareholders. 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 30, 2000, options to purchase 49,134 shares of
Common Stock were outstanding pursuant to the Plan.
No options were exercised by the Named Executive Officers during 1999.
The following table presents certain information concerning grants of stock
options to the Company's Named Executive Officers under the Company's 1998 Stock
Option Plan made during the year ended December 31, 1999.
-31-
<PAGE>
<TABLE>
Option Grants in Last Fiscal Year
Individual Grants
% of Total Options Exercise
Options Granted to Price
Granted Employees in ($ Per Expiration
Name (#) Fiscal Year Share) Date
----- ----------- ------ ----
<S> <C> <C> <C> <C> <C>
Christine L. Jennings.................. 3,285 43.6% $12.50 12/31/08
Paul D. Thatcher....................... 3,881 51.5% $12.50 12/31/08
</TABLE>
The following table presents information regarding the value of options
held by the Company's Named Executive Officers at December 31, 1999.
<TABLE>
Fiscal Year End Option Values
Number of Value of Unexercised
Unexercised Options in-the-Money Options
at Fiscal Year End at Fiscal Year End(1)
Name/Position Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------------------------------- ------------------------- -------------------------
Christine L. Jennings
<S> <C> <C> <C> <C>
President and Chief Executive Officer 30,145 / 6,570 $126,764 / $14,783
Paul D. Thatcher
Executive Vice President 17,239 / 7,762 $ 62,480 / $17,465
- ----------------------
<FN>
(1) Dollar values calculated by determining the difference between the estimated
fair market value of the Company's Common Stock at December 31, 1999 ($14.75)
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.
</FN>
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of March 30, 2000
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:
-32-
<PAGE>
<TABLE>
Percent of
Shares of Common Stock Outstanding
Name of Beneficial Owner Beneficially Owned (1) Shares
- ------------------------ ---------------------- ----------
<S> <C> <C>
Susan M. Baker 17,283 3.1%
Kenneth H. Barr (2) 17,233 3.1%
Timothy J. Clarke (3) 9,442 1.7%
James W. Demler, M.D. (4) 19,566 3.4%
Christine L. Jennings (5) 43,207 7.3%
Edward S. Levi (6) 15,000 2.7%
Sam D. Norton 11,919 2.1%
Michael R. Pender, Jr. (7) 10,650 1.9%
A. Dean Pratt (8) 24,492 4.3%
Gilbert J. Wellman (9) 95,779 17.1%
Charles V. Wellman, M.D. (10) 31,020 5.6%
All executive officers and directors 284,560 45.0%
as a group (12 persons)(11)
- --------------------------------
<FN>
(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 3,800 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 11,514 shares owned individually by Ms. Jennings and 1,548 shares
held by her individual retirement account. In addition, amount includes
30,145 shares subject to presently exercisable stock options.
(6) All 15,000 shares are held by Mr. Levi's individual retirement account.
(7) Includes 5,350 shares owned individually by Mr. Pender, 2,500 shares held
by Mr. Pender's individual retirement account and 2,800 shares held by his
spouse's individual retirement account.
(8) Includes 14,660 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 Mr. Wellman for which he serves
as the trustee and 40,000 shares held by a trust for Mr. Wellman's wife for
which he also serves as the trustee.
(10) Includes 28,020 shares owned individually by Dr. Wellman and 3,000 shares
held by his three minor children for which he
is the custodian.
(11) Includes 73,532 shares subject to presently-exercisable warrants or
options.
</FN>
</TABLE>
Item 12. Certain Relationships and Related Transactions.
Sam D. Norton, a director of the Company, is a partner with the law firm
of Norton, Gurley, Hammersly & Lopez, P.A., which received from the Company
legal fees during fiscal 1999 and 1998 totaling $11,000 and $16,500,
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
-33-
<PAGE>
a total of $56,000 and $62,025 during 1999 and 1998, 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
1999 and 1998 totaling $2,250 and $3,965, 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"); or (v) the Annual Report on Form
10-KSB for the year ended December 31, 1998 (the "1998 10-KSB"). The exhibit
numbers correspond to the exhibit numbers in the referenced document.
Exhibit No. Description of Exhibit
*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. (1998 10-KSB)
*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. (1998 10-KSB)
-34-
<PAGE>
*10.6 - Form of Incentive Stock Option Agreement. (1998 10-KSB)
10.7 - Severance Protection Agreement dated June 17, 1998 between the
Company, the Bank and Paul D. Thatcher.
*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).
(b) Reports on Form 8-K. No Current Reports on Form 8-K were filed by
the Company during the quarter ended December 31, 1999.
-35-
<PAGE>
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 30, 2000 By: /s/ Christine L. Jennings
------------------------------
Christine L. Jennings
President and Chief Executive Officer (Principal
Executive Officer)
Dated: March 30, 2000 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:
Signature Date
/s/ Susan M. Baker March 30, 2000
- ------------------------------------------
SUSAN M. BAKER
Class II Director
/s/ Kenneth H. Barr March 30, 2000
- ------------------------------------------
KENNETH H. BARR
Class II Director
/s/ Timothy J. Clarke March 30, 2000
- ------------------------------------------
TIMOTHY J. CLARKE
Class III Director
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
/s/ James W. Demler, M.D. March 30, 2000
- -------------------------------------------
JAMES W. DEMLER, M.D.
Class I Director
/s/ Christine L. Jennings March 30, 2000
- -------------------------------------------
CHRISTINE L. JENNINGS
President, Chief Executive
Officer and Class III Director
/s/ Edward S. Levi March 30, 2000
- -------------------------------------------
EDWARD S. LEVI
Class I Director
/s/ Sam D. Norton March 30, 2000
- -------------------------------------------
SAM D. NORTON
Secretary and Class III Director
/s/ Michael R. Pender, Jr. March 30, 2000
- -------------------------------------------
MICHAEL R. PENDER, JR.
Treasurer and Class III Director
/s/ A. Dean Pratt March 30, 2000
- -------------------------------------------
A. DEAN PRATT
Class I Director
/s/ Gilbert J. Wellman March 30, 2000
- -------------------------------------------
GILBERT J. WELLMAN
Chairman of the Board and
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>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
10.7 - Severance Protection Agreement dated June 17, 1998 between the
Company, the Bank and Paul D. Thatcher.
23.1 - Consent of Saltmarsh, Cleaveland & Gund.
27.1 - Financial Data Schedule (for SEC use only).
SEVERANCE PROTECTION AGREEMENT
This Severance Protection Agreement ("Agreement") is made 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 Paul Thatcher, an employee of the Bank (the
"Employee").
W I T N E S S E T H:
-------------------
WHEREAS, the Bank is a banking association chartered under the laws of the
State of Florida and is engaged in the banking business in Sarasota County,
Florida; and
WHEREAS, the Bank is a wholly-owned subsidiary of Sarasota Bancorporation
(the "Company"), a bank holding company organized under the laws of the state of
Florida; and
WHEREAS, the Employee is currently an officer of the Bank holding the title
of Executive Vice President; and
WHEREAS, the Bank and the Employee desire to provide for the payment of
severance pay to the Employee in the event of termination of his employment with
the Bank following a change in control of the Bank, on the terms and conditions
set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and conditions set forth herein, the Company, the Bank and the
Employee agree herein as follows:
1. OPERATION OF AGREEMENT. This Agreement shall be effective beginning
on January 1, 1998 but its provisions shall not be operative unless and until a
"change in control" (as such term is defined in paragraph 2 hereof) has
occurred. The provisions of this Agreement shall not be operative and shall not
apply to any termination of employment, for any reason, prior to the occurrence
of a Change in Control.
2. CHANGE IN CONTROL. Unless otherwise provided, the term "Change in
Control" as used in this Agreement shall mean the first to occur of any of the,
following;
(a) 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;
(b) the sale of all or substantially all of the assets of
the Company; or
(c) the liquidation of the Company.
1
<PAGE>
3. SEVERANCE PAY UPON TERMINATION BY THE BANK WITHOUT
CAUSE OR BY EMPLOYEE FOR CAUSE. If, following a Change in Control, the
Employee's employment with the Bank is terminated either:
(a) by the Bank for no reason or for any reason other than:
(i) failure of Employee to follow reasonable
written instruction or policies of the Board
of Directors of the Company or the Bank;
(ii) receipt by the Bank of written notice from
either the Florida Department of Banking and
Finance ("DBF") or Federal Deposit of
Insurance Corporation ("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
Employee materially damaging to the business
of the Company or the Bank during the term
of this Agreement, or at any time while he
was employed by the Bank prior to the term
of this Agreement if not disclosed to the
Company or the Bank prior to the
commencement of the term of this Agreement;
or
(iv) conviction of Employee during the term of
this Agreement of a crime involving breach
of trust or moral turpitude.
(b) by the Employee as a result of, and within thirty
(30) days following:
(i) a reduction in his rate of regular
compensation from the Bank to an amount
below the rate of his regular compensation
as in effect immediately prior to the Change
in Control; or
(ii) a reduction in his duties, title, and/or
responsibilities, as were previously set
prior to the Change in Control,
then the Bank shall pay the Employee an amount equal to one and a half (1 1/2 )
times the rate of his annual regular compensation (not including bonuses,
benefits, grant of options or any other compensation other than regular periodic
salary payments) as in effect immediately prior to the Change in Control. Such
compensation shall be paid in a lump sum by delivery to the Employee of a
cashier's check or other official Bank check not later than ten (10) days after
the date of notice to the Employee of his termination or ten (10) days after the
date of closing of the transaction effecting the Change of Control of the
Company, whichever the case may be.
2
<PAGE>
4. SEVERANCE PAY UPON TERMINATION BY THE EMPLOYEE. In the
event of a Change in Control of the Company, as defined herein, the Employee
shall be entitled, within thirty (30) days from the date of closing of the
transaction affecting such change in control and at his election, to give
written notice to the Company and the Bank of his election to receive a cash
payment equal to one and a half (1 1/2) times the rate of his regular
compensation (not including bonuses, benefits, grant of options, or any other
compensation other than regular periodic salary payments) as in effect
immediately prior to the "change in control". Such compensation shall be paid in
a lump sum by delivery to the Employee of a cashier's check or other official
Bank check not later than ten (10) days after the date of notice from the
Employee or ten (10) days after the date of closing of the transaction effecting
the Change of Control of the Company, whichever is later.
5. NO SEVERANCE PAY UPON OTHER TERMINATION. Upon any termination
of Employee's employment with the Bank other than a termination specified in
paragraphs 3 and 4, the sole obligation of the Bank to the Employee shall be to
pay his regular compensation up to the effective date of the termination.
6. ENTIRE OBLIGATION. Payment to the Employee pursuant to,
paragraph 3 or 4 of this Agreement shall constitute the entire obligation of the
Company and Bank to the Employee in full settlement of any claim at law or in
equity that the Employee may otherwise assert against the Company or the Bank or
any of its employees, officers or directors on account of the Employee's
termination of employment.
7. NO OBLIGATION TO CONTINUE EMPLOYMENT. This Agreement does not
create any obligation on the part of the Company or the Bank to continue to
employ the Employee following a Change in Control or in the absence of a Change
in Control.
8. TERM OF AGREEMENT. This Agreement shall remain in effect until
December 31, 2002. At December 31, 2002 and December 31st of each succeeding
calendar year in which the Employee is employed by the Company or the Bank, this
Agreement may be extended, by mutual agreement of the parties hereto, to
December 31st of the next calendar year thereafter.
9. SEVERABILITY. Should any clause, portion or section of this
Agreement be unenforceable or invalid for any reason, such unenforceability or
invalidity shall not affect the enforceability or validity of the remainder of
this Agreement.
10. ASSIGNMENT, SUCCESSOR AND INTEREST. This Agreement being
personal to the Employee may not be assigned by him. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of the Company or the Bank and the heirs, executors and personal
representatives of the Employee.
3
<PAGE>
11. WAIVER. Failure to insist upon strict compliance with any
of the terms, covenants and conditions of this Agreement shall not be deemed a
waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
IN WITNESS WHEREOF, the parties have entered into this Agreement on
this 17th day of June, 1998.
The "Company"
SARASOTA BANCORPORATION
By: /s/ Gilbert J. Wellman
----------------------
Gilbert J. Wellman, Director, on behalf
of the Board of Directors
The "Bank"
SARASOTA BANK
By: /s/ Christine L. Jennings
---------------------------
Christine L. Jennings, President
The "Employee"
/s/ Paul Thatcher
Paul Thatcher, Executive Vice President
4
[LETTERHEAD OF SALTMARSH, CLEAVELAND & GUND]
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 February 4,
2000, 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,
1999.
/s/Saltmarsh, Cleaveland & Gund
Pensacola, Florida
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,499,503
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 535,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,659,424
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 72,008,099
<ALLOWANCE> (773,526)
<TOTAL-ASSETS> 95,189,848
<DEPOSITS> 85,770,708
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,576,911
<LONG-TERM> 0
0
0
<COMMON> 5,591
<OTHER-SE> 6,836,638
<TOTAL-LIABILITIES-AND-EQUITY> 95,189,848
<INTEREST-LOAN> 6,011,268
<INTEREST-INVEST> 1,084,913
<INTEREST-OTHER> 230,970
<INTEREST-TOTAL> 7,327,151
<INTEREST-DEPOSIT> 3,362,224
<INTEREST-EXPENSE> 3,605,842
<INTEREST-INCOME-NET> 3,721,309
<LOAN-LOSSES> 263,100
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,052,292
<INCOME-PRETAX> 1,825,861
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 691,656
<CHANGES> 0
<NET-INCOME> 1,134,205
<EPS-BASIC> 2.03
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.93
<LOANS-NON> 360,789
<LOANS-PAST> 0
<LOANS-TROUBLED> 82,854
<LOANS-PROBLEM> 163,849
<ALLOWANCE-OPEN> 557,546
<CHARGE-OFFS> (57,714)
<RECOVERIES> 10,594
<ALLOWANCE-CLOSE> 773,526
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
