<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-37307
CITIZENS NATIONAL BANK AND TRUST COMPANY
9550-1 U.S. Highway 19
Port Richey, Florida 34668
December 12, 1997
Dear Stockholder:
On behalf of the Board of Directors, we cordially invite you to attend a
Special Meeting of Stockholders (the "Special Meeting") of Citizens National
Bank and Trust Company ("Citizens National") to be held at Citizens National's
principal office located at 9550-1 U.S. Highway 19, Port Richey, Florida 34668,
on Wednesday, January 14, 1998, at 5:30 p.m. local time.
As described in the enclosed Proxy Statement/Prospectus, at the Special
Meeting stockholders of Citizens National will be asked to consider and vote
upon a proposal to approve the Amended and Restated Agreement and Plan of Merger
dated as of October 16, 1997 (the "Merger Agreement"), by and among Gulf West
Banks, Inc. ("Gulf West"), Mercantile Bank, a wholly owned subsidiary of Gulf
West ("Mercantile"), and Citizens National, providing for the merger (the
"Merger") of Citizens National with and into Mercantile. Upon consummation of
the Merger, except as described in the Proxy Statement/Prospectus, each issued
and outstanding share of Citizens National common stock, par value $5.00 per
share ("Citizens National Common Stock"), will be converted into the right to
receive 3.2337 shares of Gulf West common stock, par value $1.00 per share
("Gulf West Common Stock"), subject to certain adjustments as described in the
Proxy Statement/Prospectus, with cash to be paid in lieu of fractional shares.
The transaction is expected to result in the issuance of up to 1,950,000 shares,
or approximately 36.9% of the then outstanding Gulf West Common Stock.
Further information concerning the Merger is contained in the
accompanying Notice of Special Meeting and the Proxy Statement/Prospectus. The
Proxy Statement/Prospectus contains a detailed description of the Merger
Agreement, its terms and conditions, and the transactions contemplated thereby.
Please review these materials carefully and consider thoughtfully the
information set forth therein.
THE BOARD OF DIRECTORS OF CITIZENS NATIONAL BELIEVES THE MERGER IS IN
THE BEST INTERESTS OF CITIZENS NATIONAL'S STOCKHOLDERS, HAS APPROVED UNANIMOUSLY
THE MERGER AGREEMENT, AND RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF
THE MERGER AGREEMENT.
YOUR VOTE IS IMPORTANT! Citizens National's management team would
greatly appreciate your attendance at the Special Meeting. However, since the
affirmative vote of the holders of at least two-thirds of the outstanding
Citizens National Common Stock entitled to vote is necessary to adopt the Merger
Agreement and to approve the Merger, it is important that your shares be
represented at the meeting, whether or not you plan to attend the Special
Meeting. An abstention or the failure to vote has the same effect as a vote
against the Merger. Accordingly, we urge you to complete, sign, and date the
enclosed proxy card and return it in the enclosed prepaid envelope as soon as
possible, even if you currently plan to attend the Special Meeting. Submitting a
proxy will not prevent you from voting in person, but will assure that your vote
is counted if you should be unable to attend the Special Meeting. If you do
attend the Special Meeting and desire to vote in person, you may do so by
withdrawing your proxy at that time. Your prompt cooperation will be greatly
appreciated.
Very truly yours,
/s/ Henry W. Hanff M.D. /s/ Philip H. Chesnut
Dr. Henry W. Hanff Philip H. Chesnut
Chairman of the Board President
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CITIZENS NATIONAL BANK AND TRUST COMPANY
9550-1 U.S. HIGHWAY 19
PORT RICHEY, FLORIDA 34668
----------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 14, 1998
----------------------------
To the Stockholders of Citizens National Bank and Trust Company:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders of
Citizens National Bank and Trust Company, a national banking association
("Citizens National"), will be held at Citizens National's principal office,
located at 9550-1 U.S. Highway 19, Port Richey, Florida 34668, on Wednesday,
January 14, 1998, at 5:30 p.m. Eastern Standard Time, for the following
purposes:
(1) To consider and vote upon a proposal to adopt the Amended
and Restated Agreement and Plan of Merger, dated October 16, 1997 (the
"Merger Agreement"), by and among Gulf West Banks, Inc. ("Gulf West"),
Mercantile Bank, a wholly owned subsidiary of Gulf West ("Mercantile"),
and Citizens National, pursuant to which Citizens National will be
merged with and into Mercantile (the "Merger"), and upon consummation of
the Merger, except as described in the Proxy Statement/Prospectus, each
issued and outstanding share of Citizens National common stock, par
value $5.00 per share ("Citizens National Common Stock"), will be
converted into the right to receive 3.2337 shares of Gulf West common
stock, par value $1.00 per share ("Gulf West Common Stock"), subject to
certain adjustments as described in the Proxy Statement/Prospectus; and
(2) To transact such other business as may properly come
before the Special Meeting or adjournments or postponements thereof.
NOTICE OF RIGHT TO DISSENT. If Proposal 1 above is approved and the
Merger is consummated, each holder of shares of Citizens National Common Stock
would have the right to dissent from the approval of Proposal 1 and would be
entitled to the rights and remedies of dissenting stockholders provided in Title
12, Chapter 2, Section 214a, of the United States Code ("12 U.S.C. ss. 214a").
The right of any such stockholder to any dissenters' rights and remedies is
contingent upon the consummation of the Merger. In addition, the right of any
such holder to such rights and remedies is contingent upon strict compliance
with the provisions of 12 U.S.C. ss. 214a, which require, among other things,
that the stockholder either give Citizens National notice of such stockholder's
intention to dissent at or prior to the Special Meeting or that the stockholder
vote his or her respective shares against the Merger and that such stockholder
thereafter perfect his or her dissenters' rights by written notice to Citizens
National within 30 days of the date of consummation of the Merger. FOR A SUMMARY
OF THE REQUIREMENTS OF 12 U.S.C. SS.214A, SEE "THE MERGER -- DISSENTERS'
RIGHTS" IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
The Merger Agreement is more completely described in the accompanying
Proxy Statement/Prospectus, and a copy of the Merger Agreement is attached as
Annex A to the accompanying Proxy Statement/Prospectus.
Action may be taken on the foregoing proposal at the Special Meeting on
the date specified above or on any date or dates to which the Special
Meeting may be adjourned. The Board of Directors has fixed December 11, 1997 as
the record date ("Record Date"). Only holders of record of Citizens National
Common Stock at the close of business on the Record Date will be entitled to
notice of, and to vote at, the Special Meeting or any adjournments or
postponements thereof. The affirmative vote of the holders of two-thirds of the
shares of Citizens National Common Stock outstanding on the Record Date is
required for adoption of the Merger Agreement.
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Each stockholder, whether or not he or she plans to attend the Special
Meeting in person, is requested to complete, sign, and date the enclosed proxy
and return it promptly in the enclosed postage prepaid envelope. This will
assure your representation at the Special Meeting and may avoid the costs of
additional communications. This will not prevent a stockholder from voting in
person at the Special Meeting. Your proxy may be revoked at any time before it
is voted by signing and returning a later dated proxy with respect to the same
shares, by filing with the Cashier of Citizens National a written revocation
bearing a later date, or by attending and voting at the Special Meeting.
By Order of the Board of Directors
Carol L. Kinnard, Cashier
Port Richey, Florida
December 12, 1997
----------------------------
WHETHER OR NOT YOU PLAN
TO ATTEND THIS MEETING,
PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD.
----------------------------
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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-37307
GULF WEST BANKS, INC.
PROSPECTUS FOR
1,950,000 SHARES OF COMMON STOCK
---------
CITIZENS NATIONAL BANK AND TRUST COMPANY
PROXY STATEMENT
-------
This Proxy Statement/Prospectus is being furnished to the holders of the
Common Stock, $5.00 par value per share, of Citizens National Bank and Trust
Company ("Citizens National") in connection with the solicitation of proxies by
the Citizens National Board of Directors for use at a Special Meeting of
Stockholders of Citizens National to be held at 9550-1 U.S. Highway 19, Port
Richey, Florida on January 14, 1998 at 5:30 p.m. Eastern Standard Time, and
at any postponements or adjournments thereof (the "Special Meeting"). The
Special Meeting is for the purpose of considering an Amended and Restated
Agreement and Plan of Merger (the "Merger Agreement") whereby Citizens National
will merge into a subsidiary of Gulf West Banks, Inc. ("Gulf West") (the
"Merger"). A copy of the Merger Agreement is attached as Annex A and
incorporated herein by reference.
Pursuant to the Merger Agreement, upon consummation of the Merger,
except as described herein, each outstanding share of Citizens National common
stock, $5.00 par value per share ("Citizens National Common Stock") will be
converted into 3.2337 shares of Gulf West common stock, par value $1.00 per
share ("Gulf West Common Stock"), subject to certain adjustments as described in
this Proxy Statement/Prospectus (the "Exchange Ratio"). See "THE AGREEMENT AND
PLAN OF MERGER -- Terms of the Merger". Each holder of Citizens National Common
Stock who would otherwise be entitled to receive a fractional share of Gulf West
Common Stock will receive cash in lieu thereof.
This Proxy Statement/Prospectus also constitutes part of a Registration
Statement on Form S-4 filed by Gulf West with the Securities and Exchange
Commission relating to the Gulf West Common Stock to be issued in the Merger
(the "Registration Statement").
THE BOARD OF DIRECTORS OF CITIZENS NATIONAL UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF CITIZENS NATIONAL VOTE TO APPROVE THE MERGER AGREEMENT. FAILURE
TO VOTE IS EQUIVALENT TO VOTING AGAINST THE MERGER AGREEMENT.
Approval of the Merger requires the affirmative vote of two-thirds of
the outstanding Citizens National Common Stock. Directors and executive officers
of Citizens National hold approximately 60.9% of the outstanding shares of
Citizens National Common Stock and have indicated that they intend to vote their
shares in favor of the Merger Agreement at the Special Meeting.
Alex Sheshunoff & Co. Investment Banking ("Sheshunoff") has rendered its
opinion, dated December 8, 1997, confirming and updating its prior opinion
of July 30, 1997 to the Board of Directors of Citizens National that the
consideration as provided in the Merger Agreement is fair, from a financial
point of view, to the holders of Citizens National Common Stock. See "THE MERGER
- -- Opinion of Citizens National's Financial Advisor".
This Proxy Statement/Prospectus, Notice of Special Meeting, and the
accompanying Proxy are first being mailed to stockholders of Citizens National
on December 12, 1997.
----------------
SEE "RISK FACTORS" BEGINNING AT PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN EVALUATING THE MERGER AND THE RECEIPT OF THE GULF WEST
COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF GULF WEST COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS
ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER FUND
OR AGENCY.
The date of this Proxy Statement/Prospectus is December 12, 1997
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION............................................................................................ 6
SUMMARY ......................................................................................................... 7
The Companies............................................................................................ 7
The Merger............................................................................................... 7
Gulf West Common Stock Outstanding....................................................................... 8
Citizens National Special Meeting........................................................................ 8
Record Date; Vote Required............................................................................... 8
Regulatory Approvals..................................................................................... 8
Recommendation of Citizens National Board of Directors................................................... 8
Opinion of Financial Advisor............................................................................. 9
Dissenters' Rights....................................................................................... 9
Modification, Waiver, and Termination.................................................................... 9
Certain Differences in the Rights of Stockholders........................................................ 9
Interests of Certain Persons in the Merger............................................................... 9
Resales by Affiliates.................................................................................... 9
Certain Federal Income Tax Considerations................................................................10
Comparative Per Share Data...............................................................................10
RISK FACTORS.....................................................................................................11
SUMMARY OF FINANCIAL INFORMATION................................................................................ 13
PRO FORMA FINANCIAL INFORMATION................................................................................. 17
SPECIAL MEETING OF CITIZENS NATIONAL STOCKHOLDERS............................................................... 27
General................................................................................................. 27
Record Date and Voting Rights........................................................................... 27
Vote Required........................................................................................... 27
Voting and Revocation of Proxies........................................................................ 27
Solicitation of Proxies................................................................................. 28
Recommendation.......................................................................................... 28
THE MERGER...................................................................................................... 29
Background of and Reasons for the Merger................................................................ 29
Citizens National Reasons for the Merger................................................................ 30
Gulf West Reasons for the Merger........................................................................ 31
Opinion of Citizens National's Financial Advisor........................................................ 31
Interests of Certain Named Persons in the Merger........................................................ 35
Terms of the Merger..................................................................................... 36
Business Pending the Effective Time..................................................................... 36
Exchange of Share Certificates.......................................................................... 36
Conditions to the Merger................................................................................ 37
Termination and Amendment............................................................................... 37
Effectiveness of Merger................................................................................. 37
Regulatory Requirements................................................................................. 38
Accounting Treatment.................................................................................... 38
Certain Federal Income Tax Consequences................................................................. 38
Dissenters' Rights...................................................................................... 39
Shares Received......................................................................................... 39
MARKET PRICE AND DIVIDEND DATA.................................................................................. 40
GULF WEST BANKS, INC............................................................................................ 41
Introduction............................................................................................ 41
</TABLE>
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<TABLE>
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Activities of Gulf West................................................................................. 41
Activities of Mercantile................................................................................ 41
Market Area............................................................................................. 42
Operating Strategy...................................................................................... 42
Competition............................................................................................. 43
Employees .............................................................................................. 43
Properties.............................................................................................. 43
Legal Proceedings....................................................................................... 45
SELECTED FINANCIAL DATA......................................................................................... 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................................................... 48
General .............................................................................................. 48
Regulation and Legislation.............................................................................. 48
Pending Acquisition..................................................................................... 48
Credit Risk............................................................................................. 49
Results of Operations................................................................................... 50
Rate/Volume Analysis.................................................................................... 52
Liquidity and Capital Resources......................................................................... 53
Regulatory Capital Requirements......................................................................... 54
Asset and Liability Management.......................................................................... 55
Comparison of Nine Months Ended September 30, 1997 and 1996..................................................... 60
General .............................................................................................. 60
Interest Income and Expense............................................................................. 60
Provision for Loan Losses............................................................................... 60
Noninterest Income...................................................................................... 60
Noninterest Expense..................................................................................... 60
Comparison of Years Ended December 31, 1996 and 1995............................................................ 61
General .............................................................................................. 61
Interest Income and Expense............................................................................. 61
Provision for Loan Losses............................................................................... 61
Noninterest Income...................................................................................... 61
Noninterest Expense..................................................................................... 61
Impact of Inflation and Changing Prices......................................................................... 61
Future Accounting Requirements.................................................................................. 62
SUPERVISION AND REGULATION...................................................................................... 62
Supervision and Regulation of Gulf West................................................................. 62
Supervision and Regulation of Mercantile................................................................ 65
Payment of Dividends.................................................................................... 66
Risk Based Capital Regulations.......................................................................... 67
Federal Reserve System.................................................................................. 67
Liquidity .............................................................................................. 68
Monetary Policy and Economic Controls................................................................... 68
Regulation of Sale of Securities........................................................................ 69
MANAGEMENT OF GULF WEST......................................................................................... 70
Directors and Executive Officers........................................................................ 70
Compensation of Executive Officers and Directors........................................................ 71
Summary Compensation Table.............................................................................. 72
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values....................... 72
Option/SAR Grants in Last Fiscal Year and Long-Term Incentive Plans..................................... 72
Salary Continuation Agreements.......................................................................... 72
</TABLE>
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<TABLE>
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Key Man Life Insurance................................................................................. 73
Transactions with Management and Others................................................................ 74
Stock Purchase Plan.................................................................................... 74
Stock Option Plan...................................................................................... 74
Committees of the Board of Directors of Gulf West and Mercantile....................................... 76
Indebtedness of Management............................................................................. 76
Registration Rights Agreement.......................................................................... 77
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................. 78
Security Ownership of Certain Beneficial Owners........................................................ 78
Security Ownership of Management....................................................................... 79
DESCRIPTION OF CAPITAL STOCK OF GULF WEST...................................................................... 80
Common Stock........................................................................................... 80
Preferred Stock........................................................................................ 81
Reports to Stockholders................................................................................ 82
CITIZENS NATIONAL BANK AND TRUST COMPANY....................................................................... 82
Introduction........................................................................................... 82
Activities of Citizens National........................................................................ 82
Market for Services.................................................................................... 83
Competition............................................................................................ 83
Employees ............................................................................................. 83
Property ............................................................................................. 84
Legal Proceedings...................................................................................... 84
Certain Regulatory Matters............................................................................. 84
Certain Relationships and Related Transactions......................................................... 84
Security Ownership of Certain Beneficial Owners and Management......................................... 85
Citizens National...................................................................................... 86
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CITIZENS NATIONAL......................................................... 89
General ............................................................................................. 89
Regulation and Legislation............................................................................. 89
Pending Acquisition of Citizens National............................................................... 90
Credit Risk............................................................................................ 90
Non-Performing Loans................................................................................... 90
Results of Operations.................................................................................. 93
Rate/Volume Analysis................................................................................... 95
Liquidity and Capital Resources........................................................................ 96
Investment Activities.................................................................................. 96
Regulatory Capital Requirements........................................................................ 98
Asset and Liability Management......................................................................... 99
MATERIAL DIFFERENCES IN RIGHTS OF STOCKHOLDERS................................................................. 107
Comparison of Rights of Stockholders of Citizens National and Gulf West................................ 107
Charter and Bylaw Provisions Affecting Gulf West Common Stock.......................................... 107
Stockholder Approval of Mergers........................................................................ 107
Dissenters' Rights..................................................................................... 107
Stockholders' Meetings and Voting...................................................................... 108
Dividends ............................................................................................. 109
Preemptive Rights...................................................................................... 110
Liquidation Rights..................................................................................... 110
Limitation of Liability and Indemnification............................................................ 110
Antitakeover Provisions................................................................................ 110
</TABLE>
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LEGAL MATTERS.................................................................................................. 112
EXPERTS ....................................................................................................... 112
OTHER MATTERS.................................................................................................. 112
Index to Financial Statements........................................................................... F-1
</TABLE>
Annex A -- Amended and Restated Agreement and Plan of Merger between
Citizens National Bank and Trust Company and Gulf West Banks,
Inc. and Mercantile Bank
Annex B -- 12 U.S.C. Section 214a of the National Bank Act
Annex C -- Opinion of Alex Sheshunoff & Co. Investment Banking.
5
<PAGE> 9
AVAILABLE INFORMATION
Gulf West has filed with the Securities and Exchange Commission (the
"Commission" or the "SEC") a Registration Statement on Form S-4 (together with
any amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933 with respect to the securities offered hereby. This Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which were omitted in accordance with
the rules and regulations of the Commission. For further information about Gulf
West and the Gulf West Common Stock, reference is made to the Registration
Statement and exhibits thereto. The Registration Statement, together with such
exhibits, may be inspected without charge at the public reference facilities of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies may be
obtained from the SEC at prescribed rates. The SEC maintains an Internet web
site that contains reports, proxy and information statements and other
information regarding issuers who file electronically with the SEC. The address
of that site is http://www.sec.gov. Upon consummation of the Merger, Gulf West
will be subject to the Exchange Act reporting responsibilities under rules and
regulations of the SEC. Statements contained in this Proxy Statement/Prospectus
or in any document incorporated by reference herein as to the contents of any
contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION
WITH THE SOLICITATION OF PROXIES AND THE OFFERING MADE HEREBY AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY GULF WEST OR CITIZENS NATIONAL.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF
A PROXY OR AN OFFER TO EXCHANGE OR SELL, OR A SOLICITATION OF AN OFFER TO
EXCHANGE OR PURCHASE, THE SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS
IN ANY JURISDICTION IN WHICH SUCH SOLICITATION OR OFFER IS NOT AUTHORIZED OR TO
OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION OR OFFER.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT COVER ANY RESALES OF THE GULF
WEST COMMON STOCK OFFERED HEREBY TO BE RECEIVED BY STOCKHOLDERS OF CITIZENS
NATIONAL DEEMED TO BE AFFILIATES OF GULF WEST OR CITIZENS NATIONAL UPON THE
CONSUMMATION OF THE MERGER. NO PERSON IS AUTHORIZED TO MAKE USE OF THIS PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH ANY SUCH RESALES. SEE "THE MERGER --
Shares Received."
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS SPEAKS AS
OF THE DATE HEREOF UNLESS OTHERWISE SPECIFICALLY INDICATED. NEITHER THE DELIVERY
OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH
HEREIN OR IN THE AFFAIRS OF GULF WEST OR CITIZENS NATIONAL SINCE THE DATE
HEREOF.
6
<PAGE> 10
SUMMARY
The following is a summary of certain information relating to the
Special Meeting, the proposed Merger, and the offering of shares of Gulf West
Common Stock to be issued upon consummation thereof. This summary does not
purport to be complete and is qualified in its entirety by the more detailed
information appearing elsewhere or incorporated by reference in this Proxy
Statement/Prospectus. Citizens National Stockholders are urged to read carefully
the entire Proxy Statement/Prospectus, including the Appendices. As used in this
Proxy Statement/Prospectus, the terms "Gulf West" and "Citizens National" refer
to those entities, respectively, and, where the context requires, to those
entities and their respective subsidiaries. The term "Combined Company" refers
to Gulf West and Citizens National after consummation of the Merger.
Certain information and statements contained in this Proxy
Statement/Prospectus are "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, such as statements relating to
financial results, plans for future business development activities, capital
spending or financing services, capital structure, and the effects of regulation
and competition, and are thus prospective. Potential risks and uncertainties
include, but are not limited to, economic conditions, competition, and other
uncertainties described herein and as detailed from time to time in Gulf West's
future filings with the Commission.
THE COMPANIES
Gulf West is a Florida corporation whose principal assets are all of the
outstanding shares of capital stock of Mercantile Bank, a Florida state banking
corporation ("Mercantile"). Mercantile's only activity is banking services which
are offered in Pinellas and Hillsborough Counties, Florida. At September 30,
1997, Gulf West had total assets of $184.5 million, total deposits of $166.4
million and total stockholders' equity of $14.1 million. Gulf West's executive
offices are located at 425 22nd Avenue North, St. Petersburg, Florida 33704,
telephone (813) 894-5696.
Citizens National is a national banking association originally chartered
by the Office of the Comptroller of the Currency (the "OCC") on February 29,
1988. The principal executive offices of Citizens National and its sole banking
facility are located at 9550-1 U.S. Highway 19, Port Richey, Florida, and its
telephone number is (813) 846-1444. Citizens National engages in commercial
banking and trust services from its one location in Pasco County, Florida. As of
September 30, 1997, Citizens National had total assets of approximately $73.8
million, total deposits of approximately $64.9 million, and stockholders' equity
of approximately $8.7 million. For additional information regarding the business
of Citizens National, see "THE MERGER -- Background of and Reasons for the
Merger" and "CITIZENS NATIONAL BANK AND TRUST COMPANY".
THE MERGER
Terms of the Merger. The Merger Agreement provides for the merger of
Citizens National with and into Mercantile, a wholly owned subsidiary of Gulf
West, whereupon the separate existence of Citizens National shall cease.
Pursuant to the Merger, except as described in "THE MERGER - Dissenter's
Rights", at the "Effective Time" (as defined below) each outstanding share of
Citizens National Common Stock will be converted into and exchanged for 3.2237
shares of Gulf West Common Stock (the "Exchange Ratio"), with cash to be paid in
lieu of any resulting fractional shares. After consummation of the Merger, each
outstanding share of Gulf West Common Stock shall remain outstanding after the
Effective Time. The Merger Agreement also provides that the Exchange Ratio may
be adjusted to prevent dilution in the event Gulf West changes the number of
shares of Gulf West Common Stock issued and outstanding prior to the Effective
Time as a result of a stock split, stock dividend, recapitalization,
reclassification, or similar transaction, or through any issuance of authorized
and previously unissued shares (except for the exercise of certain options
outstanding on the date of the Merger Agreement and issuances made pursuant to
Gulf West's employee stock purchase plan). It is anticipated that any such
adjustment would be made by Gulf West's accountants prior to the Effective Time.
See "THE MERGER - Terms of the Merger". Assuming no adjustment is made to the
Exchange Ratio, Gulf West will issue 1,950,000 shares of Gulf West Common Stock,
representing approximately 36.9% of the outstanding Gulf West Common Stock as of
the Effective Date.
Conditions of the Merger. Consummation of the Merger is subject to the
satisfaction or waiver of certain conditions, including approval of the Merger
Agreement by the holders of Citizens National Common Stock ("Stockholders"),
receipt of all necessary approvals and consents, regulatory or otherwise,
including the Federal Deposit Insurance Corporation ("FDIC") and the Florida
Department of Banking and Finance (the "Department"), effectiveness
7
<PAGE> 11
under the Securities Act of a Registration Statement for shares of Gulf West
Common Stock to be issued in the Merger, receipt of an opinion of Alex
Sheshunoff & Co. Investment Banking ("Sheshunoff") as to the fairness of the
transaction to the Stockholders of Citizens National, that Citizens National has
a minimum specified equity at closing, and certain other conditions customary in
a transaction of this nature. See "THE MERGER - Conditions to the Merger;
Regulatory Requirements."
Effective Time of the Merger. Unless otherwise agreed by Gulf West and
Citizens National, the Effective Time is expected to occur on the date and at
the time the Articles of Merger are accepted for filing by the Department
("Articles of Merger"). This filing is expected to be made at closing and the
parties have agreed to use their reasonable best efforts to cause the closing to
occur within five business days following the last to occur of: (i) the
effective date of the receipt of the last required consent of any state or
federal regulatory authority having authority over the Merger (including the
expiration of any applicable waiting periods following such consents or the
delivery of appropriate notices) or (ii) the date on which the Stockholders of
Citizens National approve the Merger Agreement. If approved by the Stockholders
and applicable regulatory authorities, the parties expect the Merger to become
effective on or about January 16, 1998, although there can be no assurance as to
whether or when the Merger will occur. See "THE MERGER - Effectiveness of
Merger."
GULF WEST COMMON STOCK OUTSTANDING
As of December 1, 1997, there were 3,342,676 shares of Gulf West
Common Stock outstanding held by approximately 416 holders of record. The terms
of Gulf West's Common Stock are described under "DESCRIPTION OF CAPITAL STOCK OF
GULF WEST."
CITIZENS NATIONAL SPECIAL MEETING
Citizens National will hold a Special Meeting on January 14, 1998
at 5:30 p.m., at Citizens National's principal office, 9550-1 U.S. Highway 19,
Port Richey, Florida 34668 at which time Stockholders will be asked to approve
the Merger Agreement and the transactions contemplated thereby. Approval of the
Merger requires the affirmative vote of two-thirds of the outstanding shares of
Citizens National Common Stock entitled to vote at the Special Meeting. As of
the record date for the Special Meeting, officers and directors of Citizens
National beneficially owned approximately 367,300 shares, or 60.9% of the
Citizens National Common Stock entitled to vote at the Special Meeting. Pursuant
to the terms of the Merger Agreement, these officers and directors will vote
their Shares in favor of the Merger.
RECORD DATE; VOTE REQUIRED
Only holders of record of Citizens National Common Stock at the close of
business on December 11, 1997, will be entitled to vote at the Special
Meeting (the "Record Date"). As of the Record Date, there were approximately
173 holders of record of Citizens National Common Stock and 603,030 shares of
Citizens National Common Stock outstanding and entitled to vote at the Special
Meeting. See "SPECIAL MEETING OF CITIZENS NATIONAL STOCKHOLDERS".
REGULATORY APPROVALS
Consummation of the transactions contemplated by the Merger Agreement is
subject to approval by the FDIC and the Department. All required applications
for regulatory review and appeal or notice have been filed in connection with
the Merger. See "The Merger - Regulatory Requirements."
RECOMMENDATION OF CITIZENS NATIONAL BOARD OF DIRECTORS
The Board of Directors of Citizens National has unanimously approved the
Merger Agreement and the transactions contemplated thereby. The Board of
Directors of Citizens National believes that the Merger is in the best interests
of Citizens National and its Stockholders and recommends the Stockholders vote
"FOR" approval of the Merger Agreement.
In the course of reaching its decision to approve the Merger Agreement
and the transactions contemplated thereby, the Citizens National Board of
Directors consulted with its legal advisors regarding the legal terms of the
Merger Agreement and with its financial advisors, Sheshunoff, as to the
fairness, from a financial point of view, of the consideration to be received by
Stockholders in the Merger. For a discussion of the factors considered by the
Citizens National Board in reaching its conclusions, see "THE MERGER -
Background of and Reasons for the Merger".
8
<PAGE> 12
OPINION OF FINANCIAL ADVISOR
Sheshunoff, in its capacity as financial advisor to Citizens National,
has rendered an opinion to the Board of Directors of Citizens National that the
terms of the Merger are fair, from a financial point of view, to the
Stockholders. A copy of such opinion, dated December 8, 1997, confirming and
updating its prior opinion of July 30, 1997, is attached hereto as Annex C and
should be read in its entirety with respect to the assumptions made, matters
considered, and limitation of the review undertaken by Sheshunoff in rendering
such opinion. See "THE MERGER - Opinion of Citizens National's Financial
Advisor".
DISSENTERS' RIGHTS
Citizens National Stockholders may exercise their right to dissent from
the Merger by complying with the provisions of the National Bank Act relating to
rights of dissenting stockholders, 12 U.S.C. Section 214a, a copy of which is
attached as Annex B. SEE "THE MERGER -- Dissenters' Rights;" "MATERIAL
DIFFERENCES IN RIGHTS OF STOCKHOLDERS -- Dissenters' Rights;" AND ANNEX B.
MODIFICATION, WAIVER, AND TERMINATION
The Merger Agreement provides that it may be amended by a subsequent
writing signed by each party upon the approval of each of their respective Board
of Directors. However, no amendment that reduces the Merger Consideration to be
paid pursuant to the Merger or which materially and adversely affects the rights
of the Stockholders may be made after the Special Meeting without further
approval of such Stockholders. The Merger Agreement provides that each party may
waive any of the conditions precedent to its obligations to consummate the
Merger, to the extent legally permitted.
The Merger Agreement may be terminated by mutual agreement of the Board
of Directors of Gulf West and Citizens National. The Merger Agreement also may
be terminated by either Gulf West or Citizens National (i) in the event of
material breach of the Merger Agreement by the other party that cannot or has
not been cured within thirty (30) days of notice of such breach, (ii) if the
required approval of the Citizens National Stockholders or any applicable
regulatory authority is not obtained, or (iii) if the Merger is not consummated
by April 30, 1998. In addition, the Merger Agreement may be terminated by Gulf
West if, among other things, dissenters' rights are perfected by 5% or more of
the outstanding Citizens National Common Stock. See "THE MERGER - Termination
and Amendment".
CERTAIN DIFFERENCES IN THE RIGHTS OF STOCKHOLDERS
The rights of Gulf West stockholders and other corporate matters
relating to Gulf West Common Stock are controlled by the Articles of
Incorporation of Gulf West (the "Gulf West Articles"), the Gulf West Bylaws (the
"Gulf West Bylaws"), and the Florida Business Corporation Act (the "FBCA"). The
rights of Citizens National Stockholders and other corporate matters relating to
Citizens National Common Stock are controlled by the Citizens National Articles
of Association (the "Citizens National Articles"), the Citizens National Bylaws
(the "Citizens National Bylaws"), and the National Bank Act and the FBCA. Upon
consummation of the Merger, Stockholders of Citizens National will become
stockholders of Gulf West whose rights will be governed by the Gulf West
Articles, the Gulf West Bylaws, and the provisions of the FBCA only. See
"DESCRIPTION OF CAPITAL STOCK OF GULF WEST" and "MATERIAL DIFFERENCES IN RIGHTS
OF STOCKHOLDERS."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Citizens National's management and its Board of
Directors may be deemed to have interests in the Merger in addition to their
interests, if any, as Stockholders of Citizens National generally. These
interests include, among others, (i) the election or appointment of two
individuals designated by Citizens National to the board of directors of Gulf
West and three individuals designated by Citizens National to the board of
directors of Mercantile; (ii) agreements by Gulf West to indemnify present and
former directors, officers, employees, and agents of Citizens National from and
after the Merger against certain liabilities arising prior to the Merger to the
fullest extent permitted under Florida law, the Citizens National Articles and
the Citizens National Bylaws; and (iii) provisions contained in the Merger
Agreement which permit Citizens National to extend its directors and officers
insurance policy for a period of three years following the Merger and to pay the
premiums therefor prior to the Merger. See "THE MERGER -- Interests of Certain
Named Persons in the Merger."
RESALES BY AFFILIATES
Citizens National has agreed to use its best efforts to obtain, from
each of those individuals identified by it as an affiliate, an appropriate
agreement that such individual will not transfer any shares of Gulf West Common
Stock received by it as a result of the Merger, except in compliance with the
applicable provisions of the Securities Act. See "THE MERGER -- Shares
Received."
9
<PAGE> 13
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Merger is intended to qualify as a reorganization under Section
368(a) of the Internal Revenue Code. As a result thereof the parties believe
that no gain or loss will be recognized by the Citizens National Stockholders as
a result of the Merger to the extent that they receive Gulf West Common Stock
solely in exchange for their Citizens National Common Stock. For a more complete
description of the federal income tax consequences. See "THE MERGER --Certain
Federal Income Tax Consequences."
COMPARATIVE PER SHARE DATA
Although a local brokerage firm facilitates trades of Gulf West Common
Stock in the over-the-counter market, there is no established active trading
market for Gulf West Common Stock. According to information supplied by such
brokerage firm, on July 30, 1997, the last trading day prior to announcement of
the execution of the Merger Agreement, the last reported trading price of Gulf
West Common Stock was $5.50. As of the date of this Proxy Statement/Prospectus,
no known trades of Gulf West Common Stock have been made since July 30, 1997.
There is no market for the Citizens National Common Stock. The equivalent pro
forma market value of Citizens National Common Stock prior to announcement of
the execution of the Merger Agreement was approximately $17.79 per share,
calculated by multiplying the Exchange Ratio of 3.2337 by $5.50, the last
reported trading price of Gulf West Common Stock on July 30, 1997. Gulf West's
earnings per share were $.10 for the year ended December 31, 1996 and $.21 for
the nine months ended September 30, 1997. Citizens National's earnings per share
for the same periods were $1.06 and $.31, respectively. Gulf West paid $.04 per
share in cash dividends in 1995, and a five percent (5%) stock dividend in 1996.
There are currently no plans to declare a cash dividend in 1997. Citizens
National paid no dividends during these periods except for a $.10 per share
dividend during the first quarter of 1997.
10
<PAGE> 14
RISK FACTORS
An investment in the securities offered hereby involves a degree of
risk. Holders of Citizens National Common Stock should consider the following
factors, together with the other information contained in this Proxy
Statement/Prospectus, in evaluating an investment in the Gulf West Common Stock.
LOSS OF ABILITY TO INFLUENCE OR CONTROL MANAGEMENT POLICIES AND OPERATIONS
Citizens National Stockholders currently control Citizens National
through their ability to elect the Board of Directors and vote on various
matters affecting Citizens National. If consummated the Merger will transfer
control of Citizens National from the Citizens National Stockholders to Gulf
West, and the bank office of Citizens National will become a branch of
Mercantile. As of the Effective Time of the Merger, the Citizens National
Stockholders will become stockholders of Gulf West, a bank holding company. As a
result of the Merger, the Citizens National Stockholders will no longer have the
ability to control or influence the management policies of Citizens National's
operations and as stockholders of Gulf West their ability to influence the
management policies of Gulf West will be limited due to the fact that they will
hold less than a majority of the voting stock of Gulf West.
COMPETITION
Gulf West competes with other banking institutions on the basis of
service, convenience and, to some extent, price. Due in part to both
regulatory changes and consumer demands, banks have experienced increased
competition from other financial entities offering similar products. Competition
from both bank and non-bank organizations is expected to continue. SEE "GULF
WEST BANKS, INC. -- Competition."
GENERAL ECONOMIC CONDITIONS AND OTHER SIMILAR FACTORS
In addition, general economic conditions impact the banking industry.
The credit quality of Gulf West's loan portfolio necessarily reflects, among
other things, the general economic conditions in the area in which it conducts
its business. The continued financial success of Gulf West and its subsidiaries
depends somewhat on factors which are beyond Gulf West's control, including
national and local economic conditions, the supply and demand for investable
funds, interest rates and federal, state and local laws affecting these matters.
Any substantial deterioration in any of the foregoing conditions could have a
material adverse effect on Gulf West's financial condition and results of
operations, which, in all likelihood, would adversely affect the market price of
Gulf West's Common Stock.
ANTI-TAKEOVER PROVISIONS IN GULF WEST'S ARTICLES OF INCORPORATION AND BYLAWS.
Gulf West's Articles of Incorporation, as amended, and Bylaws contain
several provisions which may make Gulf West a less attractive target for
acquisition by anyone who does not have the support of Gulf West's Board of
Directors. Such provisions include, among other things, the requirement of a
staggered Board, a fair price provision for business combinations with principal
stockholders or their affiliates (those holding 10% or more of the Gulf West
Common Stock), and the requirement that directors only be removed for cause and
after a vote of two-thirds of the Gulf West Common Stock in favor of such
removal. SEE "MATERIAL DIFFERENCES IN RIGHTS OF STOCKHOLDERS --Charter and
Bylaws Provisions Affecting Gulf West Common Stock."
ABILITY TO INTEGRATE OPERATIONS
Achieving the anticipated benefits of the Merger will depend in part
upon whether the operations and organizations of Gulf West and Citizens National
can be integrated in an efficient, effective, and timely manner. There can be no
assurance that this integration will occur and that cost savings in operations
will be achieved. After the Merger, Gulf West may also encounter unanticipated
operational or organizational difficulties. The successful combination of the
two companies will require, among other things, consolidation of certain
operations and the elimination of duplicative corporate and administrative
expenses. The integration of certain operations following the Merger will
require the dedication of management resources which may temporarily divert
attention from the day-to-day business of Gulf West. There can be no assurance
that integration will be accomplished smoothly or successfully. Failure to
accomplish effectively the integration of operations could have a material
adverse effect on the results of operations and financial condition of Gulf West
following the Merger.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
Gulf West's profitability is dependent to a large extent on its net
interest income, which is the difference between its interest income on
interest-earning assets and its interest expense on interest-bearing
liabilities. Gulf West, like most financial institutions, is affected by changes
in general interest rate levels, which are currently at relatively low levels,
and by other economic factors beyond its control. Interest rate risk arises from
mismatches between the dollar amount of repricing or maturing assets and
liabilities and is measured in terms of the ratio of the interest rate
sensitivity gap to total assets. Although management believes it has implemented
strategies to reduce the potential effects of changes in interest rates on Gulf
West's results of operations, any substantial and prolonged increase in market
interest rates could have an adverse impact on operating results. SEE
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS -- Asset and Liability Management."
11
<PAGE> 15
ADEQUACY OF ALLOWANCE FOR LOAN LOSSES
Industry experience indicates that a portion of Gulf West loans will
become delinquent and a portion of the loans will require partial or entire
charge-off. Regardless of the underwriting criteria utilized by Gulf West,
losses may be experienced as a result of various factors beyond Gulf West's
control, including, among other things, changes in market conditions affecting
the value of real estate and problems affecting the credit of the borrower. Gulf
West's determination of the adequacy of its allowance for loan losses is based
on various considerations, including an analysis of the risk characteristics of
various classifications of loans, previous loan loss experience, specific loans
which would have loan loss potential, delinquency trends, estimated fair value
of the underlying collateral, current economic conditions, the view of Gulf
West's regulators and geographic and industry loan concentration. However, if
delinquency levels were to increase as a result of adverse general economic
conditions, especially in Florida where Gulf West's exposure is greatest, the
allowance for loan losses so determined by Gulf West may not be adequate. There
can be no assurance that Gulf West's allowance for loan losses will be adequate
to cover its loan losses or that Gulf West will not experience significant
losses in its loan portfolios which may require significant increases to the
allowance for loan losses in the future. SEE "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS -- Credit Risk."
IMPACT OF CHANGES IN REAL ESTATE VALUES
A significant portion of Gulf West's loan portfolio consists of
residential and commercial mortgages secured by real estate. At September 30,
1997, 73% of Mercantile's loan portfolio was secured by residential and
commercial real estate properties. These properties are concentrated in the
Tampa Bay area of west-central Florida. Real estate values and real estate
markets generally are affected by, among other things, changes in national,
regional or local economic conditions, fluctuations in interest rates and the
availability of loans to potential purchasers, changes in the tax laws and other
governmental statutes, regulations and policies, and acts of nature. Any decline
in real estate prices, particularly in Florida, could significantly reduce the
value of the real estate collateral securing the Gulf West loans, could increase
the level of the Gulf West nonperforming loans, and could have a material
negative impact on Gulf West's financial performance. Additionally, Gulf West
has increased its level of commercial real estate loans, which are generally
considered to involve a higher degree of credit risk than that of one-to-four
family residential lending.
COMMON STOCK NOT PUBLICLY TRADED
Although area brokerages do identify willing buyers and sellers of Gulf
West Common Stock and facilitate trades in such stock in over-the-counter
transactions, Gulf West Common Stock is not publicly traded. SEE
"SUMMARY -- Comparative Per Share Data."
REGULATORY CONSIDERATIONS
A description of the regulatory considerations relating to ownership of
the Gulf West Common Stock appears elsewhere in this Proxy Statement/Prospectus.
SEE "SUPERVISION AND REGULATION."
12
<PAGE> 16
GULF WEST BANKS, INC. AND SUBSIDIARIES
SUMMARY OF FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
---------------- -------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------- ------- ------- ------- ------ ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C> <C>
Summary of Financial
Condition:
Cash and due from bank .. $ 6,946 8,631 5,555 5,882 4,488 4,148
Securities (1) .......... 46,332 43,587 39,089 29,263 23,391 14,148
Loans, net .............. 121,246 112,979 73,948 63,472 53,374 49,206
All other assets ........ 10,017 9,617 7,344 5,832 5,485 3,552
---------- --------- --------- --------- --------- ---------
Total assets ......... $ 184,541 174,814 125,936 104,449 86,738 71,054
========== ========= ========= ========= ========= =========
Deposits .................... 166,394 149,335 109,192 96,372 78,532 61,146
Other borrowings ............ 3,155 12,047 3,799 - - 1,500
All other liabilities ....... 937 332 431 149 299 1,093
Stockholders' equity ........ 14,055 13,100 12,514 7,928 7,907 7,315
---------- --------- --------- --------- --------- ---------
Total liabilities and
stockholders' equity .. $ 184,541 174,814 125,936 104,449 86,738 71,054
========== ========= ========= ========= ========= =========
Total number of banking
offices, all full service 9 8 5 4 4 3
Total shares outstanding .... 3,342,676 3,326,030 3,277,755 2,461,801 2,461,078 2,474,000
Book value per share ........ $ 4.21 3.94 3.82 3.22 3.21 2.96
========== ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ----- ------ ----- ----- ----- -----
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Total interest
income ................ $10,407 7,733 10,844 8,447 6,146 4,931 5,327
Total interest
expense ............... 4,534 3,303 4,659 3,736 2,521 2,046 2,694
------- ----- ------ ----- ----- ----- -----
Net interest income ...... 5,873 4,430 6,185 4,711 3,625 2,885 2,633
Provision for loan
losses ................ 405 296 401 240 176 40 145
------- ----- ------ ----- ----- ----- -----
Net interest income after
provision for
loan losses ........... 5,468 4,134 5,784 4,471 3,449 2,845 2,488
Noninterest income ....... 1,343 779 1,031 849 603 838 670
Noninterest
expenses .............. 5,710 4,781 6,324 4,181 3,228 3,056 2,539
------- ----- ------ ----- ----- ----- -----
Earnings before income
taxes ................. 1,101 132 491 1,139 824 627 619
Income taxes ............. 389 60 177 431 142 - -
------- ----- ------ ----- ----- ----- -----
Net earnings ............. $ 712 72 314 708 682 627 619
======= ===== ====== ===== ===== ===== =====
Earnings per share ....... $ 0.21 0.02 0.10 0.25 0.28 0.26 0.25
======= ===== ====== ===== ===== ===== =====
Cash dividends
per share .............. - - - 0.04 - - -
======= ===== ====== ===== ===== ===== =====
</TABLE>
13
<PAGE> 17
GULF WEST BANKS, INC. AND SUBSIDIARIES
SUMMARY OF FINANCIAL INFORMATION, CONTINUED
<TABLE>
<CAPTION>
AT OR FOR THE
------------------------------------------------------------------------------
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ------------------------------------------------------
1997(4) 1996(4) 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Other Data:
Return on average
assets ................ 0.52% 0.07% 0.22% 0.63% 0.74% 0.80% 0.86%
Return on average
equity ................ 7.02% 0.76% 2.45% 6.93% 8.69% 8.26% 8.83%
Average equity to
average assets
ratio ................. 7.45% 9.10% 8.87% 9.11% 8.47% 9.70% 9.77%
Interest-rate spread
during the
periods (2) ........... 3.98% 4.00% 4.01% 3.99% 3.82% 3.42% 3.66%
Net yield on average
interest-earning
assets ................ 4.76% 4.78% 4.78% 4.71% 4.37% 4.09% 4.04%
Noninterest expenses
to average assets ..... 4.20% 4.61% 4.38% 3.73% 3.49% 3.91% 3.54%
Ratio of average
interest-earning assets
to average interest-
bearing liabilities ... 1.21 1.22 1.21 1.19 1.18 1.23 1.01
Nonperforming loans
and foreclosed real
estate as a percentage
of total assets at
end of period(3) ...... 0.26% 0.32% 0.46% 1.01% 0.81% 0.26% 0.54%
Allowance for loan
losses as a
percentage
of nonperforming
loans(3) .............. 320.17% 216.83% 388.20% 312.03% 933.93% 269.11% 278.80%
</TABLE>
- -----------------------
(1) Includes Federal Funds sold, US Government and agency obligations, and
corporate and other obligations.
(2) The difference between the weighted-average yield on all
interest-earning assets and weighted-average rate on all
interest-bearing liabilities.
(3) Nonperforming loans are loans where the accrual of interest has been
discontinued.
(4) Have been annualized when applicable.
14
<PAGE> 18
CITIZENS NATIONAL BANK AND TRUST COMPANY
SUMMARY OF FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
----------------- --------------------------------------------------------
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C> <C>
Summary of Financial
Condition:
Cash and cash
equivalents .......... $ 5,293 6,946 4,047 2,941 6,687 6,982
Securities .............. 36,860 41,576 43,286 44,512 40,980 39,849
Loans, net .............. 29,644 25,492 23,397 22,409 23,348 27,854
All other assets ........ 1,992 1,968 1,927 2,066 1,474 1,586
-------- -------- -------- -------- -------- --------
Total assets ......... $ 73,789 75,982 72,657 71,928 72,489 76,271
======== ======== ======== ======== ======== ========
Deposit accounts ........ 64,882 66,913 65,554 65,858 66,276 71,065
Borrowed funds .......... - - - - - -
All other liabilities ... 250 597 464 502 598 450
Stockholders' equity .... 8,657 8,472 6,639 5,568 5,615 4,756
-------- -------- -------- -------- -------- --------
Total liabilities and
stockholders' equity .. $ 73,789 75,982 72,657 71,928 72,489 76,271
======== ======== ======== ======== ======== ========
Number of banking offices,
all full service ...... 1 1 1 1 1 1
Total shares outstanding .... 603,030 603,030 472,530 472,530 456,530 456,530
Book value per share ........ $ 14.36 14.05 14.05 11.78 12.30 10.42
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Total interest income ... $ 3,955 3,692 4,990 4,844 4,454 4,914 5,283
Total interest expense .. 2,236 2,173 2,940 2,923 2,260 2,556 2,953
------- ------- ------- ------- ------- ------- -------
Net interest income ..... 1,719 1,519 2,050 1,921 2,194 2,358 2,330
Provision (credit) for
loan losses .......... - (100) (100) - 497 171 30
------- ------- ------- ------- ------- ------- -------
Net interest income
after provision
(credit) for
loan losses .......... 1,719 1,619 2,150 1,921 1,697 2,187 2,300
Noninterest income ...... 290 253 337 342 360 828 470
Noninterest expense ..... 1,839 1,271 1,857 1,648 1,658 1,797 1,835
------- ------- ------- ------- ------- ------- -------
Earnings before income
tax provision (credit) 170 601 630 615 399 1,218 935
Income tax provision
(credit) ............. (18) 97 60 115 17 359 135
------- ------- ------- ------- ------- ------- -------
Net earnings ............ $ 188 504 570 500 382 859 800
======= ======= ======= ======= ======= ======= =======
Earnings per share ...... $ .31 .94 1.06 .98 .78 1.80 1.75
======= ======= ======= ======= ======= ======= =======
Cash dividends per share $ 0.10 - - - - - -
======= ======= ======= ======= ======= ======= =======
</TABLE>
15
<PAGE> 19
CITIZENS NATIONAL BANK AND TRUST COMPANY
SUMMARY OF FINANCIAL INFORMATION, CONTINUED
<TABLE>
<CAPTION>
AT OR FOR THE
-------------------------------------------------------------------------------
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997(3) 1996(3) 1996 1995 1994 1993 1992
------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Other Data:
Return on average assets 0.34% 0.94% .78% .70% .54% 1.15% 1.20%
Return on average equity 2.94% 9.48% 8.37% 8.47% 7.11% 16.29% 18.22%
Average equity to average
assets ............... 11.44% 9.87% 9.36% 8.26% 7.60% 7.08% 6.58%
Interest-rate spread
during the periods (1) 2.65% 2.52% 2.51% 2.44% 3.03% 3.11% 3.43%
Net yield on average
interest-earning assets 3.21% 2.95% 2.95% 2.80% 3.25% 3.33% 3.70%
Noninterest expenses to
average assets ....... 3.29% 2.36% 2.55% 2.31% 2.35% 2.41% 2.75%
Ratio of average interest-
earning assets
to average interest-
bearing liabilities .. 1.13 1.10 1.10 1.08 1.07 1.06 1.06
Nonperforming loans and
foreclosed real estate
as a percentage of
total assets at end
of period(2) ......... 0.09% 0.13% .08% .39% .52% .32% - %
Allowance for loan losses
as a percentage
of nonperforming
loans(2) ............. -- % 648.36% -- % 180.08% 153.21% 115.38% - %
</TABLE>
- ---------------------------
(1) The difference between the weighted-average yield on all
interest-earning assets and weighted-average rate on all
interest-bearing liabilities.
(2) Nonperforming loans are loans where the accrual of interest has been
discontinued.
(3) Have been annualized when applicable.
16
<PAGE> 20
PRO FORMA FINANCIAL INFORMATION
PRO FORMA PER SHARE DATA
The following table summarizes the historical consolidated and pro forma net
earnings and Stockholders' Equity of Gulf West and Citizens National after
giving effect to the proposed acquisition at and for the nine-month period ended
September 30, 1997 and at and for the year ended December 31, 1996. The pro
forma data is based on the aggregate purchase price of $10,725,000, represented
by 1,950,000 Gulf West common shares, for all of the outstanding shares of
Citizens National at January 1, 1997 for the nine months ended September 30,
1997 and January 1, 1996 for the year ended December 31, 1996. Citizens National
shares may be exchanged for Gulf West common shares, using an exchange ratio of
3.2237 shares of Gulf West for each Citizens National share tendered. The
information presented below is provided for informational purposes only and is
not necessarily indicative of the combined financial position or results of
operation which actually would have occurred if the transaction had been
consummated at the date and for the periods indicated or which may be obtained
in the future. This information should be read in conjunction with the separate
consolidated financial statements and notes thereto of both Gulf West and
Citizens National, the respective Management's Discussion and Analysis of
Financial Condition and Results of Operations of both Gulf West and Citizens
National and the other unaudited pro forma financial information, all included
elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE NINE MONTH AT OR FOR THE
PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------------- -----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Shares outstanding at end of period:
Assumed number of shares of Gulf West
common stock issued .................... 1,950,000 1,950,000
Shares of common stock of Gulf West
before acquisition ..................... 3,342,676 3,326,030
----------- ----------
Pro forma shares of Gulf West common stock
outstanding after acquisition .......... 5,292,676 5,276,030
========== =========
Consolidated net earnings:
Gulf West - historical ...................... $ 712 314
Citizens National - historical .............. 188 570
Adjustments for the acquisition ............. (95)(a) (127)(a)
----------- ----------
Combined entity - pro forma after
acquisition ........................ $ 805 757
=========== ==========
Consolidated stockholders' equity:
Gulf West - historical ...................... $ 14,055 13,100
Citizens National - historical .............. 8,657 8,472
Net issuance of Gulf West common stock ...... 10,725(b) 10,725(b)
Adjustments for the acquisition ............. (8,657)(c) (8,472)(c)
----------- ----------
Combined entity - pro forma after
acquisition ........................ $ 24,780 23,825
=========== ==========
Consolidated net earnings per share:
Gulf West - historical (d) .................. $ .21 .10
=========== ==========
Citizens National - historical (e) .......... $ .31 1.06
=========== ==========
Gulf West - proforma after acquisition ...... $ .15 .14
=========== ==========
Citizens National - proforma after
acquisition (h) ........................ $ .48 .45
=========== ==========
</TABLE>
17
<PAGE> 21
<TABLE>
<CAPTION>
AT OR FOR THE NINE MONTH AT OR FOR THE
PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Dividends per share:
Gulf West - historical ...................... $ - -
============ ============
Citizens National - historical .............. $ .10 -
============ ============
Citizens National - proforma after
acquisition ............................ $ - -
============ ============
Consolidated book value per share:
Gulf West - historical (f) .................. $ 4.21 3.94
============ ============
Citizens National - historical (g) .......... $ 14.36 14.05
============ ============
Gulf West - proforma after acquisition ...... $ 4.68 4.51
============ ============
Citizens National - proforma after
acquisition (h) ........................ $ 15.09 14.54
============ ============
</TABLE>
- -------------------------------
(a) Reflects pro forma adjustments as detailed on the pro forma combined
statement of operation.
(b) Represents gross proceeds from issuance of 1,950,000 Gulf West's shares
at $5.50 per share.
(c) Represents elimination of stockholders' equity of Citizens National.
(d) Computed using 3,335,836 for September 30, 1997 and 3,298,405 for
December 31, 1996 weighted-average shares outstanding.
(e) Computed using 603,030 for September 30, 1997 and 537,723 for December
31, 1996 weighted-average shares outstanding.
(f) Computed using 3,342,676 at September 30, 1997 and 3,326,030 at
December 31, 1996 common shares outstanding.
(g) Computed using 603,030 at September 30, 1997 and 603,030 at December
31, 1996 common shares outstanding.
(h) Computed using the related Gulf West's proforma after acquisition
amount multiplied by the exchange ratio.
18
<PAGE> 22
PRO FORMA CONDENSED COMBINED CAPITALIZATION
The following table sets forth the capitalization of Gulf West at September 30,
1997 and the pro forma capitalization of Gulf West, after giving effect to the
proposed acquisition assuming 1,950,000 shares of Gulf West shares are issued in
the acquisition. The information presented below should be read in conjunction
with the separate consolidated financial statements and notes thereto of Gulf
West and Citizens National, the respective Management's Discussion and Analysis
of Financial Condition and Results of Operations of Gulf West and Citizens
National, and other unaudited pro forma financial information, all included
elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,1997
-------------------------------------------------------------------
PROFORMA
ADJUSTMENTS
CITIZENS FOR ACQUISITION PRO
GULF WEST NATIONAL DEBIT CREDIT FORMA
--------- ------- ----- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Deposits .................................. $ 166,394 64,882 - 81(1) 231,357
Other borrowings .......................... 3,155 - - - 3,155
--------- ------- ----- ------- -------
Total .......................... $ 169,549 64,882 - 81 234,512
========= ======= ===== ======= =======
Stockholders' equity:
Common stock ......................... 3,343 3,015 3,015(2) 1,950(3) 5,293
Additional paid-in capital ........... 9,308 2,996 2,996(2) 8,775(3) 18,083
Retained earnings .................... 1,162 2,650 2,650(2) - 1,162
Unrealized gain (loss) on
securities available for sale .. 242 (4) - 4(2) 242
--------- ------- ----- ------- -------
Total stockholders' equity ..... $ 14,055 8,657 8,661 10,729 24,780
========= ======= ===== ======= =======
</TABLE>
- ----------------------
(1) Represents the write-up for the deposits of Citizens National to
estimated fair value.
(2) Reflects the elimination of the stockholders' equity of Citizens
National.
(3) Reflects the issuance of 1,950,000 shares of Gulf West Common Stock at
an assumed price of $5.50 per share as the consideration issued in the
acquisition.
19
<PAGE> 23
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following Pro Forma Condensed Combined Balance Sheet reflects the
consolidated balance sheet of Gulf West as of September 30, 1997, after giving
effect to the proposed acquisition of Citizens National by Gulf West. The
transaction will be accounted for as a purchase and is based on assumptions
explained herein and in the Notes to Pro Forma Condensed Combined Balance Sheet
and Statement of Earnings. The information presented below should be read in
conjunction with the separate consolidated financial statements and notes
thereto of Gulf West and Citizens National, the respective Management's
Discussion and Analysis of Financial Condition and Results of Operations of Gulf
West and Citizens National and the other unaudited pro forma financial
information, all included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR ACQUISITION
GULF CITIZENS ----------------
WEST NATIONAL DEBIT CREDIT PRO FORMA
---- -------- ----- ------ ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents .................. $ 17,777 5,293 - - 23,070
Securities available for sale .............. 35,501 13,955 - - 49,456
Securities held to maturity ................ - 22,905 263(2) - 23,168
Restricted securities ...................... - 408 - - 408
Loans receivable, net ...................... 120,380 29,644 517(3) - 150,541
Loans held for sale ........................ 866 - - - 866
Foreclosed real estate ..................... - 63 - - 63
Premises and equipment, net ................ 6,757 579 - - 7,336
Accrued interest receivable ................ 954 742 - - 1,696
Deferred tax asset ......................... 114 146 - 260(13) -
Goodwill ................................... - - 1,649(5) - 1,649
Other assets ............................... 2,192 54 - - 2,246
---------- ------- ------- ------ ---------
Total .............................. $ 184,541 73,789 2,429 260 260,499
========== ====== ======= ====== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits ........................ 37,368 1,946 - - 39,314
Savings, NOW and money market deposits . 54,974 22,061 - - 77,035
Time deposits .......................... 74,052 40,875 - 81(4) 115,008
---------- ------- ------- ------ ---------
Total deposits ..................... 166,394 64,882 - 81 231,357
========== ====== ======= ====== =========
Other borrowings ........................... 3,155 - - 3,155
Other liabilities .......................... 937 250 - 20 1,207
---------- ------- ------- ------ ---------
Total liabilities .................. 170,486 65,132 - 101 235,719
---------- ------- ------- ------ ---------
Stockholders' equity:
Common stock ........................... 3,343 3,015 3,015(6) 1,950(1) 5,293
Additional paid-in capital ............. 9,308 2,996 2,996(6) 8,775(1) 18,083
Retained earnings ...................... 1,162 2,650 2,650(6) - 1,162
Unrealized gain (loss) on securities
available for sale ................. 242 (4) - 4(6) 242
---------- ------- ------- ------ ---------
Total stockholders' equity ......... 14,055 8,657 8,661 10,729 24,780
---------- ------- ------- ------ ---------
Total .............................. $ 184,541 73,789 8,661 10,830 260,499
========== ====== ======= ====== =========
Book value per share ....................... $ 4.21 14.36 4.68
========== ====== =========
Common shares outstanding .................. 3,342,676 603,030 5,292,676
========== ====== =========
</TABLE>
20
<PAGE> 24
PRO FORMA CONDENSED COMBINED STATEMENTS OF EARNINGS
The following Pro Forma Condensed Combined Statements of Earnings reflect the
consolidated results of operations of Gulf West for the year ended December 31,
1996 and the nine-month period ended September 30, 1997, after giving effect to
the proposed acquisition of all of the outstanding stock of Citizens National by
Gulf West in a transaction which will be accounted for as a purchase. The
statements are based on the assumptions explained herein and in the Notes to
Unaudited Pro Forma Condensed Combined Balance Sheets and Statements of
Earnings. The Pro Forma Condensed Combined Statements of Earnings do not
necessarily reflect the results of operations as they would have been if Gulf
West and Citizens National had constituted a single entity during the year ended
December 31, 1996, or the nine-month period ended September 30, 1997. The
information presented below should be read in conjunction with the separate
consolidated financial statements and notes thereto of Gulf West and Citizens
National, the respective Management's Discussion and Analysis of Financial
Condition and Results of Operations of Gulf West and Citizens National, and the
other unaudited pro forma financial information, all included elsewhere in this
Proxy Statement/Prospectus. The historical results of operations for the nine
months ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the entire fiscal year.
21
<PAGE> 25
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------------------------
PROFORMA
ADJUSTMENTS
GULF CITIZENS FOR ACQUISITION PROFORMA
-----------------
WEST NATIONAL DEBIT CREDIT COMBINED
---------- -------- ----- ------ --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans receivable .................... $ 8,025 1,977 69(7) - 9,933
Securities .......................... 2,101 1,860 22(8) - 3,939
Other interest-earning assets ....... 281 118 - - 399
---------- -------- --- --- ---------
Total interest income ........... 10,407 3,955 91 - 14,271
---------- -------- --- --- ---------
Interest expense:
Deposits ............................ 4,148 2,236 - 36(9) 6,348
Other borrowings .................... 386 - - - 386
---------- -------- --- --- ---------
Total interest expense .......... 4,534 2,236 - 36 6,734
---------- -------- --- --- ---------
Net interest income ..................... 5,873 1,719 91 36 7,537
Provision for loan losses ....... 405 - - - 405
---------- -------- --- --- ---------
Net interest income after loan losses ... 5,468 1,719 91 36 7,132
---------- -------- --- --- ---------
Noninterest income:
Service fees on deposit accounts .... 581 47 - - 628
Loan servicing fees, net ............ 20 - - - 20
Income from mortgage banking activity 40 - - - 40
Leasing fees and commission ......... 327 - - - 327
Other income ........................ 375 243 - - 618
---------- -------- --- --- ---------
Total noninterest income ........ 1,343 290 - - 1,633
---------- -------- --- --- ---------
Noninterest expense:
Salaries and employee benefits ...... 3,086 773 - - 3,859
Occupancy expense ................... 1,219 214 - - 1,433
Data processing ..................... 294 76 - - 370
Other expense ....................... 1,111 776 62(10) - 1,949
---------- -------- --- --- ---------
Total noninterest expenses ...... 5,710 1,839 62 - 7,611
---------- -------- --- --- ---------
Earnings before income taxes ............ 1,101 170 153 36 1,154
Income taxes (credit) ........... 389 (18) - 22 349
---------- -------- --- --- ---------
Net earnings ............................ $ 712 188 153 58 805
========== ======== === === =========
Earnings per share ...................... $ .21 .31 .15
========== ======== =========
Weighted-average shares outstanding ..... 3,335,836 603,030 5,285,836
========== ======== =========
</TABLE>
22
<PAGE> 26
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------
PROFORMA
ADJUSTMENTS
FOR ACQUISITION
GULF CITIZENS ----------------------- PROFORMA
WEST NATIONAL DEBIT CREDIT COMBINED
----------- -------- --------- ---- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans receivable ..................... $ 8,272 2,288 92(7) - 10,468
Securities ........................... 2,086 2,546 29(8) - 4,603
Other interest-earning assets ........ 486 156 - - 642
----------- -------- --------- ---- ---------
Total interest income ............ 10,844 4,990 121 - 15,713
----------- -------- --------- ---- ---------
Interest expense:
Deposits ............................. 4,389 2,940 - 48(9) 7,281
Other borrowings ..................... 270 - - - 270
----------- -------- --------- ---- ---------
Total interest expense ........... 4,659 2,940 - 48 7,551
----------- -------- --------- ---- ---------
Net interest income ...................... 6,185 2,050 121 48 8,162
Provision (credit) for loan losses 401 (100) - - 301
----------- -------- --------- ---- ---------
Net interest income after loan losses .... 5,784 2,150 121 48 7,861
----------- -------- --------- ---- ---------
Noninterest income:
Service fees on deposit accounts ..... 566 47 - - 613
Loan servicing fees, net ............. 44 - - - 44
(Loss) gain from sale of securities
available for sale ............... (10) - - - (10)
Income from mortgage banking activity 39 - - - 39
Leasing fees and commission .......... 131 - - - 131
Other income ......................... 261 290 - - 551
----------- -------- --------- ---- ---------
Total noninterest income ......... 1,031 337 - - 1,368
----------- -------- --------- ---- ---------
Noninterest expense:
Salaries and employee benefits ....... 3,230 972 - - 4,202
Occupancy expense .................... 968 290 - - 1,258
Data processing ...................... 224 103 - - 327
Federal insurance premium ............ 181 1 - - 182
SAIF special assessment .............. 470 - - - 470
Other expense ........................ 1,251 491 83(10) - 1,825
----------- -------- --------- ---- ---------
Total noninterest expenses ....... 6,324 1,857 83 - 8,264
----------- -------- --------- ---- ---------
Earnings before income taxes ............. 491 630 204 48 965
Income taxes ..................... 177 60 - 29 208
----------- -------- --------- ---- ---------
Net earnings ............................. $ 314 570 204 77 757
=========== ======== ========= ==== =========
Earnings per share ....................... $ .10 1.06 .14
=========== ======== =========
Weighted-average shares outstanding ...... 3,298,405 537,723 5,248,405
=========== ======== =========
</TABLE>
23
<PAGE> 27
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
AND STATEMENTS OF EARNINGS
The Pro Forma condensed Combined Balance Sheet as of September 30,
1997, assumes the proposed acquisition of Citizens National by Gulf West
occurred on September 30, 1997. The proposed acquisition of Citizens National by
Gulf West will be accounted for as a purchase transaction, and, in accordance
with generally accepted accounting principles, the purchase price will be
allocated to the assets and liabilities of Citizens National based upon their
relative fair values, as determined by appraisals and studies to be undertaken
as of the Effective Date. The adjustments will include, among others, a
valuation of loans and investments, a valuation of premises and equipment and a
determination of the value in excess of book value, if any, of customer
checking, savings and other deposit accounts. Any excess of the fair value of
Citizens National's net assets over the purchase price over the net assets will
be allocated to goodwill.
The Pro Forma Condensed Combined Statements of Earnings (I) for the year
ended December 31, 1996, assumes that the proposed acquisition of Citizens
National by Gulf West occurred on January 1, 1996, and (ii) for the nine-month
period ended September 30, 1997, assumes the proposed acquisition occurred on
January 1, 1997.
The Pro Forma financial information included in the Pro Forma Condensed
Combined Balance Sheet and the Pro Forma Condensed Combined Statements of
Earnings assumes a purchase price of $10,725,000, represented by 1,950,000 Gulf
West common shares valued at $5.50 per share, the price of recent trades known
to management.
The adjustments shown in these pro forma statements reflect approximate
market values as of September 30, 1997, and do not reflect subsequent changes in
interest rates. The actual adjustments as of the Effective Date can not be
determined until that time and may have an impact on the pro forma financial
position and results of operations which is different from that reflected in the
accompanying Proforma Condensed Combined Balance Sheet and Statements of
Earnings.
(1) Reflects the issuance of 1,950,000 shares of Gulf West stock at an
assumed price of $5.50 per share in exchange for 100% of the
outstanding shares of Citizens National' common stock.
(2) Reflects the write-up of Citizens National' investment securities to
estimated fair value.
(3) Reflects the write-up of Citizens National' loans receivable to
estimated fair value.
(4) Reflects the write-up of Citizens National deposits to estimated fair
value.
(5) Reflects the excess of the purchase price over the estimated fair value
of the net assets acquired. Such excess has been allocated to goodwill.
(6) Reflects the elimination of stockholders' equity of Citizens National.
(7) Reflects the amortization or accretion of the premium or discount from
the write-up of the loan portfolio using the level yield method over
the remaining estimated lives of the related loans.
24
<PAGE> 28
(8) Reflects the amortization of the premiums from the write-up of the
investment portfolio using the level yield method over the remaining
estimated life of the related investments.
(9) Reflects the amortization of the premium from the write-up of the
deposits using the level-yield method over the remaining estimated life
of the related deposits.
(10) Reflects the amortization of goodwill resulting from the purchase of
Citizens National using the straight-line method over a period of
twenty years.
(11) Computed using the weighted average number of shares of Gulf West at
the dates indicated plus 1,950,000 shares of Gulf West issued as a
result of the acquisition.
(12) Costs incurred by Gulf West to complete this acquisition are not
expected to be material and accordingly have not been considered in
these pro forma statements.
(13) Reflects the tax effect (40% effective tax rate) of the amortization of
the write-up of Citizens National's investment securities, loans
receivable, and deposits.
25
<PAGE> 29
The following table sets forth the pro forma effect on future periods
results of operations, of the accretion and amortization of the valuation
adjustments to be recorded in connection with the proposed acquisition of
Citizens National by Gulf West. The actual effect of the accretion and
amortization of these valuation adjustments may vary if the assumptions used are
not realized.
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET EARNINGS
-----------------------------------------------------------------------------------------------
(IN THOUSANDS)
AMORTIZATION
AMORTIZATION OF PREMIUMS AMORTIZATION INCOME NET EFFECT
FOR THE YEAR OF PREMIUM ON INVESTMENT OF PREMIUM TAX ON RESULTS
ENDING DECEMBER 31, ON LOANS SECURITIES ON DEPOSITS GOODWILL EFFECT OF OPERATIONS
- ------------------- ------------- ------------- ------------ -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
1998 ............... $ (92) (29) 48 (83) 29 (127)
1999 ............... (94) (9) 19 (83) 34 (133)
2000 ............... (87) (9) 6 (83) 36 (137)
2001 ............... (77) (31) 6 (83) 41 (144)
2002 ............... (67) (31) 2 (83) 39 (140)
2003 ............... (52) (31) - (83) 33 (133)
2004 ............... (33) (31) - (83) 26 (121)
2005 ............... (15) (31) - (83) 18 (111)
2006 ............... - (15) - (83) 6 (92)
2007 ............... - (15) - (83) 6 (92)
2008 ............... - (15) - (83) 6 (92)
2009 ............... - (16) - (83) 6 (93)
2010 ............... - - - (83) - (83)
2011 ............... - - - (83) - (83)
2012 ............... - - - (83) - (83)
2013 ............... - - - (83) - (83)
2014 ............... - - - (83) - (83)
2015 ............... - - - (83) - (83)
2016 ............... - - - (83) - (83)
2017 ............... - - - (72) - (72)
------ ---- -- ------ --- ------
Total .............. $ (517) (263) 81 (1,649) 280 (2,068)
====== ==== == ====== === ======
</TABLE>
26
<PAGE> 30
SPECIAL MEETING OF CITIZENS NATIONAL STOCKHOLDERS
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of
Citizens National Common Stock in connection with the solicitation of proxies by
the Citizens National Board of Directors for use at the Special Meeting of
Stockholders of Citizens National to be held at 9550-1 U.S. Highway 19, Port
Richey, Florida on Wednesday, January 14, 1998 at 5:30 p.m., local time, and at
any adjournments or postponements thereof. At the Special Meeting, Stockholders
will be asked to consider and vote upon the approval of the Merger Agreement and
the transactions contemplated thereby.
This Proxy Statement/Prospectus, the Notice of Special Meeting, and the
enclosed form of proxy are first being furnished to Stockholders on or about
December 12, 1997. STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE, AND SIGN THE
ACCOMPANYING PROXY CARD AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
RECORD DATE AND VOTING RIGHTS
The Board of Directors of Citizens National has fixed 5:30 p.m., local
time, on December 11, 1997 as the Record Date for determination of the
Stockholders entitled to receive notice of, and to vote at the Special Meeting
and any adjournments thereof. At the close of business on the Record Date, there
were 603,030 shares of Citizens National Common Stock outstanding held by
approximately 173 holders of record. Each share of Citizens National Common
Stock outstanding on the Record Date is entitled to one vote as to each matter
as may properly come before the Special Meeting.
VOTE REQUIRED
Under the National Bank Act, the affirmative vote of two-thirds of the
issued and outstanding capital stock entitled to vote on the matter is required
in order to approve a proposed merger transaction of a national bank into a
state bank, unless the articles of association or the board of directors of the
national bank require a greater number of votes. Neither the Citizens National
Articles nor its Board of Directors require a greater number of votes. Since the
approval of the Merger requires the affirmative vote of two-thirds of the issued
and outstanding Citizens National Common Stock as of the Record Date, the
failure to vote the shares in favor of the Merger for any reason whatsoever --
whether by withholding the vote, by abstaining, or by causing a broker nonvote
- -- will have the same effect as a vote cast against the Merger. As of the Record
Date, the directors and executive officers of Citizens National and their
affiliates held an aggregate of approximately 367,300 shares, or 60.9%, of
Citizens National Common Stock outstanding, all of which such directors and
officers have agreed to vote in favor of the Merger Agreement.
A broker nonvote generally occurs when a broker holds shares in street
name for a customer but does not have authority to vote on certain non-routine
matters because such customer has not provided any voting instruction with
respect to the matter. Since the Citizens National Common Stock is not listed
for quotation on Nasdaq or any national stock exchange, brokers holding Citizens
National Common Stock in street name may not be subject to such voting
restrictions.
In order to take any other action on any other matter properly
submitted to Stockholders at a meeting where a quorum is present, the votes cast
in favor of the action must exceed the votes cast opposing the action, unless
the Articles of Association or applicable law requires a greater number of
votes. All abstentions and broker nonvotes, if any, will be counted as present
for determining the existence of a quorum; but since they are neither votes cast
in favor of, or votes cast opposing, a proposed action, abstentions and broker
non-votes, if any, typically will have no impact on the outcome of the matter
and will not be counted as a vote cast on such matters.
VOTING AND REVOCATION OF PROXIES
Shares of Citizens National Common Stock represented by properly
completed and executed proxies received at or prior to the Special Meeting,
unless subsequently revoked, will be voted in the manner specified therein. If a
proxy is signed and returned without indicating any voting instructions, the
proxy will be voted FOR the proposal to approve the Merger Agreement and the
transactions contemplated thereby. The Board of Directors of Citizens National
is not aware of any other business to be presented for action at the Special
Meeting. If, however, other matters are properly brought before the Special
Meeting for consideration, the persons appointed as proxies will have the
discretion to vote or act thereon according to their discretion and best
judgment.
Any Stockholder giving a proxy may revoke it at any time before it is
exercised by executing and submitting a subsequently dated duly executed proxy
relating to the same shares, or by delivering a subsequently dated written
notice of revocation to the Cashier of Citizens National prior to or at the
Special Meeting, or by attending the Special Meeting and voting in person.
Attendance of a Stockholder at the Special Meeting will not, in and of itself,
constitute a revocation of the proxy. All written notices of revocation and
other communications
27
<PAGE> 31
with respect to the revocation of Citizens National proxies should be addressed
to Citizens National Bank and Trust Company, 9550-1 U.S. Highway 19, Port
Richey, Florida 34668 Attention: Cashier.
SOLICITATION OF PROXIES
Solicitation of proxies may be made in person or by mail, telephone or
facsimile, or other form of communication by directors, officers, and employees
of Citizens National, who will not be specially compensated for such
solicitation activities. Nominees, fiduciaries, and other custodians will be
requested to forward solicitation materials to beneficial owners and to obtain
their voting instructions. Citizens National will reimburse such persons for
their reasonable expenses incurred in connection with forwarding such
solicitation materials to beneficial owners. Pursuant to the Merger Agreement,
all costs of soliciting proxies from Citizens National Stockholders will be
borne by Citizens National; provided, however, that Citizens National and Gulf
West have each agreed to pay one-half of the printing costs of this Proxy
Statement/Prospectus and related materials.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement/Prospectus and, if given or
made, such information or representation should not be relied upon as having
been authorized by Citizens National, Gulf West, or any other person. The
delivery of this Proxy Statement/Prospectus shall not, under any circumstances,
create any implication that there has been no change in the business or affairs
of Citizens National or Gulf West since the date of the Proxy
Statement/Prospectus.
RECOMMENDATION
The Board of Directors of Citizens National has unanimously approved
the Merger Agreement and the transactions contemplated thereby, and believes
that the Merger is in the best interests of Citizens National and the
Stockholders, and recommends that the Stockholders vote "FOR" approval of the
Merger Agreement. In making its recommendation, the Board of Directors of
Citizens National considered, among other things, the opinion of Sheshunoff that
the consideration to be received by Stockholders in connection with the Merger
is fair to the Stockholders from a financial point of view. See "THE MERGER --
Background of and Reasons for the Merger" and "-- Opinion of Citizens National's
Financial Advisor." Stockholders should note that certain officers and directors
of Citizens National have certain interests in and may derive certain benefits
as a result of the Merger. See "THE MERGER --Interests of Certain Named Persons
in the Merger."
CITIZENS NATIONAL STOCKHOLDERS SHOULD NOT SEND
ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
28
<PAGE> 32
THE MERGER
BACKGROUND OF AND REASONS FOR THE MERGER
In mid-1995, the Board of Directors of Citizens National began
assessing the strategic direction of the bank and its prospects for growth as an
independent institution, as well as the most advantageous means for providing
Stockholders with a return on their investment. In this regard, the Board of
Directors of Citizens National considered a number of different factors,
including, among other things, the lack of a trading market for its common
stock, and the costs of its ongoing litigation with a former president and CEO,
which costs had depressed current earnings and rendered difficult the payment of
any cash dividends. Accordingly, the Board of Directors concluded that it should
explore the alternatives available to Citizens National, including the possible
sale of the bank to a third party. In November 1995, Citizens National retained
the services of Sheshunoff to assist it in locating parties that might be
interested in acquiring the bank, and to assist in any ensuing negotiations.
Sheshunoff contacted a number of financial institutions to identify those that
might be interested in acquiring Citizens National. Only two institutions
expressed an interest. However the range of potential offers suggested by both
parties was deemed to be inadequate by the Board of Directors of Citizens
National and no further discussions were held with such parties. Citizens
National and Sheshunoff concluded that other institutions were not interested in
acquiring Citizens National because of the uncertainties surrounding certain
outstanding litigation with its former Vice Chairman and Chief Executive
Officer, Loue E. Stockwell, and its former President and Senior Lender, Camille
L. LaRose. Accordingly, Sheshunoff advised the Citizens National Board that it
could either accept the offers which Citizens National had deemed inadequate, or
it could stop the auction process and build the franchise over the next 24 to 36
months, at which time the bank's prospects could be re-evaluated. In April 1996,
Citizens National determined that it was no longer interested in selling the
bank and the engagement of Sheshunoff expired without renewal.
On or about June 4, 1996, Gulf West, an institution which had not been
contacted by Sheshunoff, contacted Citizens National to indicate that it might
be interested in exploring a potential business combination, but no formal
indication of interest or proposal was offered at that time. After holding
informal discussions regarding a potential affiliation, both parties concluded
that they did not have any interest in pursuing any further discussions. The
pending litigation against Citizens National by its prior president and CEO
materially and adversely impacted Gulf West's interest in a business
combination, and the lack of a public trading market for Gulf West Common Stock
did not offer Citizens National with the liquidity that it sought for its
Stockholders. Discussions regarding a proposed business combination were
terminated.
As a result of its failure to identify a suitable affiliation partner
for Citizens National, in late 1996 the Board of Directors of Citizens National
decided that the sale of the bank was not in the best interest of its
Stockholders at that time and in early 1997 it began formulating alternative
business strategies for Citizens National, including the development of a three-
to five-year strategic plan for the future growth of Citizens National through
the formation of a one-branch holding company and/or a branching strategy.
During this time, in February 1997, the OCC commenced a CRA review of Citizens
National under the then-newly promulgated rules and review procedures. On
February 20, 1997, Citizens National entered into a settlement of the litigation
with Messrs. Stockwell and LaRose. In late February 1997, the Board of Directors
of Citizens National concluded that given the positive earnings growth of the
bank, it would be in the best interests of Citizens National to pursue an
aggressive growth strategy through branching. Further, since there was no
trading market for the Citizens National Common Stock and none was likely to
develop in the near future, and since the Board of Directors had determined not
to pursue a sale of the bank, but rather to pursue a long term growth strategy,
the Board of Directors also concluded that in order for the Stockholders to
realize a return on their investment, Citizens National should commence the
payment of regular dividends. Further, now that the lengthy litigation
proceedings with Messrs. Stockwell and LaRose had been settled, the Board of
Directors was in a position to determine the availability of adequate regulatory
capital for such a payment. Accordingly, on February 27, 1997, Citizens National
declared a $.10 per share cash dividend payable on March 10, 1997.
However, on March 12, 1997, the OCC concluded its CRA review of
Citizens National and advised management that Citizens National's CRA compliance
was given a rating of "needs to improve" and, unexpectedly, the OCC then placed
significant specific restrictions on Citizens National's plans to implement its
proposed branching strategy and/or the formation of a bank holding company. See
"CITIZENS NATIONAL BANK AND TRUST COMPANY -- Legal Proceedings." These
developments had been completely unanticipated. Citizens National unsuccessfully
requested that the OCC reconsider its determination as it related to the
imposition of the restrictions placed on its growth strategy. Accordingly, after
being informed of the OCC's final decision that its restrictions would stand,
the Board of Directors was forced to re-evaluate its new business strategy and
to reconsider the alternatives available to the bank. As a result, Citizens
National's Board of Directors concluded that it would be very difficult to grow
the Citizens National franchise under the OCC restrictions and that it also
would be difficult for it to improve its CRA rating sufficiently to lift such
restrictions without making substantial additional loans or the sale of the
bank. As a result of the foregoing, the Board of Directors of Citizens National
decided to contact Gulf West to ascertain whether it might be interested in a
possible affiliation now that the litigation had been resolved and whether Gulf
West may consider the possible listing of its shares on Nasdaq.
On March 18, 1997, Gordon W. Campbell, President and Chairman of the
Board of Gulf West, met informally with Philip H. Chesnut and Dr. Henry W.
Hanff, President and Chairman of the Board of Citizens National, respectively,
to express its interest in a
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possible affiliation with Citizens National. At this meeting, the parties
discussed and analyzed the advantages and possible synergies that might be
achieved from a proposed business combination. The Board of Directors of
Citizens National was advised of these preliminary discussions at the next
regularly scheduled meeting of the Board of Directors on March 20, 1997. Between
late March 1997 and early May 1997 the Board of Directors of the two companies
had several formal discussions with one another.
On May 7, 1997, at a special meeting of the Board of Directors, Gulf
West made a formal proposal to acquire Citizens National in a merger
transaction. The Gulf West proposal was accepted in principle, and Citizens
National and Gulf West entered into a non-binding letter of intent ("Letter of
Intent") pursuant to which Gulf West set forth a proposal to merge Citizens
National into Mercantile in a transaction pursuant to which Gulf West would
issue 1,950,000 shares of Gulf West Common Stock to Stockholders of Citizens
National in exchange for their Citizens National Common Stock. The proposed
merger transaction was subject to the completion of due diligence examinations
by both Gulf West and Citizens National and the execution of a definitive Merger
Agreement. The Letter of Intent prohibited Citizens National from negotiating
with any other party for a period of sixty days after the signing of the Letter
of Intent. On May 13, 1997 counsel was formally engaged to assist in the
negotiation of the proposed Merger Agreement.
From May 13, 1997 through July 30, 1997, representatives of the parties
and their respective counsel negotiated the terms and conditions of the proposed
Merger. During the early stages of negotiations, it was determined that Citizens
National should engage the services of an investment banker or other financial
professional to assist it in its due diligence review of Gulf West and to
analyze the fairness, from a financial point of view, of the consideration being
offered by Gulf West. After consideration and review of proposals from Advest,
Inc. and Sheshunoff, on June 3, 1997, Citizens National retained Sheshunoff, a
firm specializing in financial institutions, to assist in analyzing the
fairness, from a financial point of view, of the terms of the Merger to Citizens
National Stockholders. Sheshunoff was selected based on its knowledge of
financial institutions, its expertise as a financial advisor in mergers and
acquisitions of financial institutions, and its familiarity with Citizens
National from its prior engagement. Consistent with the terms of the engagement,
Sheshunoff did not participate in negotiating the terms of the Merger.
Upon conclusion of the negotiation of the terms of the proposed Merger,
the Board of Directors of Citizens National held a special meeting on July 30,
1997 to review and consider Gulf West's offer, including the material terms of
the proposed definitive Merger Agreement. At this meeting, Sheshunoff provided a
comparison of recent comparable Florida bank merger acquisitions. In addition,
Sheshunoff reviewed with the Board of Directors the limited historical stock
price of Gulf West Common Stock and compared the recent operating results of
Citizens National and Gulf West with certain banks operating in the Southeastern
United States. Sheshunoff also compared the financial terms of the Gulf West
offer to those comparable transactions of similar institutions and orally
expressed its opinion to the Board of Directors of Citizens National that the
terms of the Merger were fair, from a financial point of view, to the
Stockholders. As a result of the foregoing, the Board of Directors unanimously
agreed to approve the Merger, and authorized the President of Citizens National
to finalize and execute a definitive Merger Agreement. On July 31, 1997,
Citizens National and Gulf West executed and entered into a definitive Merger
Agreement.
On October 16, 1997, Citizens National and Gulf West entered into an
Amended and Restated Agreement and Plan of Merger which eliminated as a
condition to closing the requirement that the transaction be treated as a
pooling of interests for accounting purposes. This action was taken after
consultation with the accounting staff of the SEC because Citizens National had
paid a dividend on March 10, 1997, which the SEC staff indicated would be a
problem in treating the merger as a pooling.
CITIZENS NATIONAL REASONS FOR THE MERGER
In evaluating and determining to approve the Merger Agreement, the
Board of Directors of Citizens National, with the assistance of Sheshunoff and
outside counsel, considered a variety of factors and based its opinion that the
Merger transaction is in the best interests of the Stockholders and Citizens
National on the following:
(i) The financial terms of the Merger, including the value of
consideration offered, the premium to book value paid, prices paid in comparable
transactions, relative earnings per share, and stockholders' equity of Gulf West
and Citizens National. In this regard, the Board of Directors considered the
lack of liquidity for Citizens National Common Stock and the prospects for the
future liquidity of Gulf West Common Stock, as well as the future prospects for
appreciation of such stock.
(ii) The future prospects of Citizens National and possible
alternatives to the proposed Merger, including the prospects of continuing as an
independent institution. In this regard, specific consideration was given to the
current and prospective growth prospects of Citizens National in view of the
economic environment and competitive constraints placed on it, as well as the
significant OCC restrictions placed on Citizens National's ability to undertake
a branching strategy because of its "need to improve" CRA rating.
(iii) The financial presentation by and opinion of Sheshunoff that the
consideration to be received by Citizens National Stockholders pursuant to the
Merger Agreement is fair from a financial point of view. The opinion of
Sheshunoff is set forth in Annex C to this Proxy Statement/Prospectus.
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(iv) Information with respect to the financial condition, results of
operations, and the prospects of Citizens National and the current industry,
economic, and market conditions, as well as the risks associated with achieving
those prospects.
(v) The non-financial terms and structure of the transaction; in
particular, the fact that the Merger is intended to qualify as a tax-free
reorganization to Citizens National Stockholders for federal income tax
purposes.
(vi) The financial report of Sheshunoff reviewing a comparison of
Citizens National to certain peer banking organizations and the consideration
paid in comparable merger transactions.
(vii) The business and financial prospects of Gulf West, the potential
for growth in Gulf West Common Stock, and the competence, integrity, and
experience of Gulf West and its management. In this regard, Citizens National
also considered the compatibility of Gulf West's community bank manner of
operations to Citizens National's commitment to such banking practices.
(viii) The social and economic effects of the Merger on Citizens
National and its employees, depositors, loan and other customers, creditors and
other constituencies of the community in which Citizens National operates and is
located. Citizens National's Board considered the terms of employee benefits to
be received, the proposed structure and operation of the resultant financial
institutions as community banks following the Merger, and the commitment to
customer quality and service that Gulf West would provide to Citizens National's
customers and depositors.
(ix) The likelihood of the proposed Merger being approved by
appropriate regulatory authorities.
Each of the above factors support, directly or indirectly, the
determination of Citizens National's Board of Directors as to the fairness of
the Merger. The Citizens National Board of Directors did not quantify or attempt
to assign relative weights to the specific factors considered in reaching its
determination; however, the Citizens National Board of Directors placed special
emphasis on the consideration payable in the proposed Merger and the receipt of
a favorable fairness opinion from its financial advisor. See "THE MERGER --
Opinion of Citizens National's Financial Advisor."
GULF WEST REASONS FOR THE MERGER
As part of its strategic plan to increase its market share in the Tampa
Bay region of West Central Florida, Gulf West has had informal discussions with
many of the community banks in its market area, including Citizens National,
during the past several years to explore acquisition/merger opportunities. In
evaluating these opportunities Gulf West has looked for institutions that will
expand its market area or increase its market share while bringing other
advantages to Gulf West. Gulf West believes that the acquisition of Citizens
National will expand its market area and will also benefit Gulf West by
improving the capital to assets ratio of the combined companies due to the
excess capital position of Citizens National. This increased capital level will
allow Gulf West to expand its market share without having to access the capital
markets for additional capital in the immediate future. Another benefit to Gulf
West is the ability to use the excess liquidity of Citizens National to fund its
significant loan demand. The funds currently being invested by Citizens National
in lower yielding investment securities will be redeployed in higher yielding
loans, thereby generating an overall higher return on the assets of the Combined
Company. The issuance of 1.95 million shares of Gulf West stock to Citizens
National's stockholders will bring the total number of shares of outstanding
Gulf West stock to approximately 5.3 million shares with over six hundred
stockholders. Gulf West hopes that this increased float will promote trading in
the stock and improve the overall liquidity for the stockholders of the combined
company. The merger transaction will further increase the market share of Gulf
West in the Tampa Bay area of west central Florida. The Board of Directors of
Gulf West has determined that one of the primary strategies for increasing the
value of the company for its stockholders is to emphasize growth in market share
at the expense of short term earnings provided that capital levels remain
adequate and asset quality is maintained. The proposed merger with Citizens
National is compatible with that strategy.
OPINION OF CITIZENS NATIONAL'S FINANCIAL ADVISOR
Citizens National engaged Sheshunoff during October 1995 to develop and
implement a sales strategy and assist Citizens in its negotiation of a possible
sale of Citizens; such engagement expired April, 1996. This solicitation of
possible interest in a sale of Citizens was made to 50 companies of which only
two made acquisition proposals. Citizens National Board of Directors determined
that both offers were inadequate and decided to reject the offers and abandon
the attempt to sell Citizens National at that time. Subsequently, Sheshunoff was
engaged again on June 3, 1997, to provide the Board of Directors of Citizens
National with its opinion as to the fairness, from a financial point of view, of
the Exchange Ratio to be received by Citizens' Stockholders in connection with
the proposed Merger transaction with Gulf West. Gulf West was not one of the
companies contacted in the prior solicitation efforts discussed above. The
negotiations between Citizens and Gulf West took place directly between the
parties without any involvement by Sheshunoff. At the July 30, 1997 meeting of
Citizens National's Board of Directors, Sheshunoff rendered its oral opinion to
the Board that, as of such date, the Exchange Ratio to be received in the Merger
was fair from a financial point of view to the holders of Citizens' Common
Stock.
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The full text of Sheshunoff's opinion which sets forth, among other
things, assumptions made, procedures followed, matters considered, and
limitations on the review undertaken, is attached as Annex C to this Proxy
Statement/Prospectus. Citizens National's Stockholders are urged to read the
Sheshunoff opinion carefully and in its entirety. Sheshunoff's opinion is
addressed to the Citizens' National Board of Directors and does not constitute a
recommendation to any Stockholder as to how such Stockholder should vote at the
Special Meeting.
In connection with its written opinion dated as of the date of this Proxy
Statement/Prospectus, Sheshunoff, among other things:
1. Evaluated the Exchange Ratio based on the relative contributions of each of
the companies to the Combined Company including: (i) 1996 reported earnings
adjusted in the case of Gulf West for its SAIF special assessment; (ii) 1997
estimated earnings for both companies; (iii) 1997 estimated earnings adjusted in
the case of Citizens National for their settlement of certain litigation; and
(iv) common equity. The agreed upon Exchange Ratio was negotiated between the
management of Citizens National and Gulf West without the assistance of
Sheshunoff;
2. Analyzed the potential market valuation, profitability, earnings, asset
growth and franchise benefits to Citizens National from the Merger, as an
alternative to continued operations as an independent community banking company;
3. Reviewed Citizens National's and Gulf West's most recent Annual Report as of
December 1996 and quarterly report as of March 31, 1997, as well as unaudited
financial statements;
4. Reviewed certain internal financial reports and estimates for Citizens
National and Gulf West individually and on a combined basis, and held
discussions with the management of both companies concerning their recent
operating performance and expected 1997 operating performance;
5. Compared Citizens National's and Gulf West's recent operating results with
those of certain other companies operating in the southeastern United States
that Sheshunoff deemed appropriate;
6. Reviewed the limited historical stock price and trading volumes of Gulf West;
7. Reviewed a draft of the Merger Agreement between Citizens National and Gulf
West regarding the Merger;
8. Reviewed the terms, including exchange ratios, of: (i) recent
mergers-of-equals; (ii) acquisitions of small and modestly profitable banking
companies located in the Southeast completed during the last year; and (iii)
merger and acquisition transactions in Florida during 1997;
9. Reviewed this Proxy Statement/Prospectus;
10. Discussed the results of regulatory examinations of Gulf West with executive
management;
11. Analyzed the pro forma impact of the Merger on the Combined Company's
earnings, book value and tangible book value per share, and consolidated
capitalization and financial ratios;
12. Discussed the past and current operations, financial condition, and future
prospects of both Citizens National and Gulf West with executive management;
and,
13. Performed such other analyses and examinations as Sheshunoff has deemed
appropriate.
In connection with its review, Sheshunoff assumed and relied upon
without independent verification the accuracy and completeness of the
information supplied or otherwise made available to it by Citizens National and
Gulf West for the purposes of its opinion. Sheshunoff did not make an
independent evaluation of the assets or liabilities of Citizens National or Gulf
West, nor was Sheshunoff furnished with any such appraisals. With respect to
budgets and financial forecasts, Sheshunoff assumed that they were reasonably
prepared and reflect the best currently available estimates and judgments of
management of Citizens National and Gulf West, as to the future financial
performance of Citizens National and Gulf West, and Sheshunoff has assumed such
forecasts and projections will be realized in the amounts and at the times
contemplated thereby. Sheshunoff has assumed that obtaining any necessary
regulatory approvals and third party consents for the Merger or otherwise will
not have an adverse effect on Citizens National, Gulf West or the combined
company pursuant to the Merger. Sheshunoff is not an expert in the evaluation of
loan portfolios for the purpose of assessing the adequacy of the allowance for
losses with respect thereto and has assumed that such allowances for each of the
companies are in the aggregate, adequate to provide for such losses. In
addition, Sheshunoff has not reviewed any individual credit files nor made an
independent evaluation,
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appraisal or physical inspection of the assets or individual properties of
Citizens National or Gulf West, nor has Sheshunoff been furnished with any such
evaluations or appraisals.
Sheshunoff's opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to them as of the
date thereof. Events occurring after the date thereof could materially affect
the assumptions used in preparing this opinion. Sheshunoff has also assumed that
there are no material changes in Citizens National's or Gulf West's assets,
financial condition, results of operations, litigation, business or prospects
since the respective dates of their last financial statements reviewed by them,
and that litigation and off-balance sheet activities of Citizens National and
Gulf West will not materially and adversely impact the future financial position
or results of operation of Citizens National and Gulf West. Sheshunoff has also
assumed the Merger will be completed as set forth in the Merger Agreement and
that no material changes will be made or restrictions imposed by regulatory or
other parties on the terms of the Merger Agreement.
In connection with rendering its opinion, Sheshunoff performed a
variety of financial analyses. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis of summary description. Moreover, the evaluation of the
fairness, from a financial point of view, of the consideration to be received by
the Stockholders of Citizens National is to some extent a subjective one based
on the experience and judgment of Sheshunoff and not merely the result of
mathematical analysis of financial data. Accordingly, notwithstanding the
separate factors summarized below, Sheshunoff believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors, create
an incomplete view of the evaluation process underlying its opinion. The ranges
of valuations resulting from any particular analysis described below should not
be taken to be Sheshunoff's view of the actual value of Citizens National.
In performing its analyses, Sheshunoff made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Citizens National. The analyses
performed by Sheshunoff are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses. The analyses do not purport to be appraisals or to reflect the
prices at which a company might actually be sold. In addition, Sheshunoff's
analyses should not be viewed as determinative of the Citizens National Board of
Directors or management's opinion with respect to the value of Citizens
National.
The following is a summary of the analyses performed by Sheshunoff in
connection with its oral and written opinions:
ANALYSIS OF SELECTED TRANSACTIONS. Sheshunoff performed an analysis of
premiums paid in selected pending or recently completed acquisitions of banking
organizations in the nation with comparable characteristics to the Citizens
National and Gulf West transaction. Sheshunoff analyzed three sets of comparable
transactions to ensure a thorough comparison. The three guideline groups
included: (i) all Florida transactions; (ii) all Southeast transactions with
banks having a return on equity below 10%; and (iii) all Southeast transactions
with banks having sold below 200% of stated book value and with assets of at
least $30 million but less than or equal to $150 million.
The first set of guideline transactions consisted of 26 Florida banks
which entered into a merger or acquisition of the banking organization during
the indicated period. The analysis yielded multiples of the transaction purchase
price relative to: (i) book value ranging from 1.01 times to 3.45 times with an
average of 2.09 times and a median of 1.91 times, compared with Citizens
National's reported 1.25 times book value at June 30, 1997; (ii) tangible book
value ranging from 1.30 times to 3.45 times with an average of 2.14 times and a
median of 1.92 times, compared with Citizens National's reported 1.25 times
tangible book value June 30, 1997; (iii) last 12 months earnings ranging from
10.17 times to 26.69 times with an average of 19.70 times and a median of 20.72
times, compared with Citizens National's reported 30.6 times last twelve month
earnings and 17.7 times last twelve month adjusted earnings (adjusted for a one
time expense associated with litigation settlement expenses) for the period
ended June 30, 1997; (iv) total deposits ranging between 7.4% and 34.3% with an
average of 20.2% and a median of 19.7%, compared with Citizens National's
reported 16.6% of total deposits as of June 30, 1997, and (v) total assets
ranging between 5.6% and 28.1% with an average of 17.5% and a median of 17.3%,
compared with Citizens National's reported 14.6% of total assets as of June 30,
1997.
The second set of guideline transactions consisted of 30 Southeast
banks having a return on equity below 10%, which entered into a merger or
acquisition of a banking organization during the indicated period. The analysis
yielded multiples of the transaction purchase price relative to: (i) book value
ranging from 0.99 times to 3.46 times with an average of 1.72 times and a median
of 1.67 times, compared with Citizens National's reported 1.25 times book value
at June 30, 1997; (ii) tangible book value ranging from 0.99 times to 3.63 times
with an average of 1.77 times and a median of 1.74 times, compared with Citizens
National's reported 1.25 times tangible book value June 30, 1997; (iii) last 12
months earnings ranging from 13.5 times to 34.1 times with an average of 23.5
times and a median of 22.5 times, compared with Citizens National's reported
30.6 times last twelve month earnings and 17.7 times last twelve month adjusted
earnings for the period ended June 30, 1997; (iv) total deposits ranging between
7.4% and 35.3% with an average of 20.2% and a median of 21.4%, compared with
Citizens National's reported 16.6% of total deposits as of June 30, 1997, and
(v) total assets ranging between 5.6% and 28.0% with an average of 17.4% and a
median of 18.2%, compared with Citizens' reported 14.6% of total assets as of
June 30, 1997.
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The third set of guideline transactions consisted of 26 Southeast banks
having sold below 200% of stated book value and assets of at least $30 million,
but less than or equal to $150 million, which entered into a merger or
acquisition of the banking organization during the indicated period. The
analysis yielded multiples of the transaction purchase price relative to: (i)
book value ranging from 1.01 times to 1.99 times with an average of 1.59 times
and a median of 1.61 times, compared with Citizens National's reported 1.25
times book value at June 30, 1997; (ii) tangible book value ranging from 1.02
times to 2.07 times with an average of 1.61 times and a median of 1.61 times,
compared with Citizens National's reported 1.25 times tangible book value June
30, 1997; (iii) last 12 months earnings ranging from 9.9 times to 34.1 times
with an average of 18.9 times and a median of 18.5 times, compared with Citizens
National's reported 30.6 times last twelve month earnings and 17.7 times last
twelve month adjusted earnings for the period ended June 30, 1997; (iv) total
deposits ranging between 7.4% and 35.3% with an average of 20.9% and a median of
22.1%, compared with Citizens National's reported 16.6% of total deposits as of
June 30, 1997, and (v) total assets ranging between 5.6% and 27.6% with an
average of 17.7 and a median of 18.4%, compared with Citizens National's
reported 14.6% of total assets as of June 30, 1997.
CONTRIBUTION ANALYSIS. Sheshunoff performed a contribution analysis
comparing the Merger, on a pro-forma basis, with all mergers of equals
transactions during the indicated period. This set of guideline transactions
consisted of five mergers of equals. The buyer's pro-forma ownership
contribution based on outstanding shares ranged from a high of 59% to a low of
45% with an average of 53% and a median of 54%, compared with Gulf West's
reported 63% pro-forma ownership contribution. The seller's pro-forma ownership
contribution ranged from a high of 55% to a low of 41% with an average of 47%
and a median of 46%, compared with Citizens National's reported 37% pro-forma
ownership contribution. The buyer's pro-forma equity contribution ranged from a
high of 60% to a low of 50% with an average of 54% and a median of 51%, compared
with Gulf West's reported 61% pro-forma equity contribution. The seller's pro-
forma equity contribution ranged from a high of 50% to a low of 40% with an
average of 46% and a median of 49%, compared with Citizens National's reported
39% pro-forma equity contribution. The buyer's pro-forma income contribution
ranged from a high of 97% to a low of 36% with an average of 59% and a median of
53%, compared with Gulf West's reported 59% pro-forma income contribution, based
on Citizens National's normalized 1997 net income, normalized for certain
litigation settlement expenses. The seller's pro-forma income contribution
ranged from a high of 64% to a low of 3% with an average of 41% and a median of
47%, compared with Citizens National's reported 41% pro-forma income
contribution, based on Citizens National's normalized 1997 net income,
normalized for certain litigation settlement expenses. Earnings of the combined
company do not include any revenue enhancements or expense savings associated
with the Merger. Based upon March 31, 1997 total stockholders' equity and
estimated earnings, Citizens National contributes approximately 39%, and 31% and
41% of the combined company's equity, 1997 estimated earnings and 1997
normalized earnings, respectively.
EARNINGS DILUTION ANALYSIS. Sheshunoff performed an earnings pro-forma
dilution analysis on the Merger. Prior to the Merger, Citizens National provided
projected earnings of $724,000 (normalized) for 1997, or $0.37 EPS based on
1,950,000 shares (the total number of shares issued in the Merger). Based on
these EPS projections, the combined pro-forma earnings equals $1,782,000, and
utilizing a pro-forma 5,283,721 shares outstanding, the pro-forma EPS equals
$0.34, or approximately 8.11% earnings dilution to Citizens National.
DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow analysis,
Sheshunoff estimated the present value of the future stream of after-tax cash
flows that Citizens National could produce through the year March, 2002, under
various circumstances, assuming that Citizens National performed in accordance
with the earnings/return projections of management. Citizens National's
projected earnings reflect a "recovery" of approximately $725,000 and are
projected to grow at approximately 7% thereafter, while assets are assumed to
grow at 3% annually, resulting in a projected return on assets and equity of
approximately 1.05% and 8.25%, respectively, by March, 2002.
Sheshunoff estimated the terminal value for Citizens National at the
end of the period by applying multiples of earnings ranging from 12.5 times to
14.5 times terminal earnings and then discounting the cash flow streams,
dividends paid to the stockholders (assuming all earnings in excess of that
required to maintain a tangible equity to tangible asset percentage of 6.0% are
paid out in dividends) and terminal value using discount rates ranging from
14.0% to 18.0% chosen to reflect different assumptions regarding the required
rates of return for Citizens National, and the inherent risk surrounding the
underlying projections. This discounted cash flow analysis indicated a range of
$10 million to $11.9 million, in the aggregate.
Sheshunoff also performed a cash flow analysis using an estimated
terminal value for Citizens National at the end of the period by applying
multiples of book value ranging from 150% to 175% and then discounting the cash
flow streams, dividends paid to the stockholders (assuming all earnings in
excess of that required to maintain a tangible equity to tangible asset
percentage of 6.0% are paid out in dividends) and terminal value using discount
rates ranging from 14.0% to 18.0% chosen to reflect different assumptions
regarding the required rates of return of Citizens National and the inherent
risk surrounding the underlying projections. This discounted cash flow analysis
indicated a range of $9 million to $10.6 million, in the aggregate.
No company or transaction used in the comparable transaction analyses
is identical to Citizens National or the Merger. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
Citizens National and other factors that could affect the public trading value
of the companies
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to which they are being compared. Mathematical analysis (such as determining the
average or median) is not in itself a meaningful method of using comparable
transaction data or comparable company data.
As part of its investment banking business, Sheshunoff is regularly
engaged in the valuation of securities in connection with mergers and
acquisitions, private placements, and valuations for estate, corporate and other
purposes. The Citizens National Board of Directors retained Sheshunoff based on
its prior engagement with the bank, experience as a financial advisor in mergers
and acquisitions of financial institutions, and its knowledge of financial
institutions to provide its opinion of the fairness, from a financial point of
view, of the Exchange Ratio to be received by holders of Citizens National
Common Stock in the Merger. For these services, Sheshunoff was paid a
professional fee of $35,000 upon delivery of its opinion to the Citizens
National Board of Directors.
INTERESTS OF CERTAIN NAMED PERSONS IN THE MERGER
Certain officers and directors of Citizens National have interests in
the Merger that are in addition to any interests they may have as Stockholders
of Citizens National generally. These interests include, among others,
provisions in the Merger Agreement relating to indemnification of Citizens
National directors and officers and directors' and officers' liability
insurance.
No officer of Citizens National, other than Carol Kinnard (an Executive
Vice President of Citizens National), currently has an employment contract with
Citizens National. Ms. Kinnard's current employment agreement expires on
February 28, 1998, and Mercantile does not intend to renew such agreement or
enter into a new employment agreement with Mrs. Kinnard upon such expiration. In
addition, neither Mercantile nor Gulf West intend to enter into employment
contracts with any other officer or director of Citizens National upon (or
after) the Effective Time of the Merger. At the Effective Time, all officers of
Citizens National (other than Ms. Kinnard, as noted above) will become
employees-at-will of Mercantile and will be entitled to only such employee
benefits as are accorded to similar-level employees at Mercantile. In the event
that the employment of any former officer of Citizens National is terminated
after consummation of the Merger, such officer will be entitled only to such
severance benefits, if any, as are generally available to existing officers of
Mercantile.
The Merger Agreement provides that the officers and directors of
Mercantile following the Merger shall consist of those persons who are serving
in such capacity immediately prior to the effective time of the Merger. However,
the Merger Agreement also provides that immediately following or at the
Effective Time, Gulf West shall cause two (2) vacancies to be created (by
increasing the number of directors) on its board of directors which shall be
filled by persons designated by Citizens National. It is currently contemplated
that Citizens National will designate Henry W. Hanff, M.D., and Pandurang V.
Kamat, M.D., both of whom are currently directors of Citizens National, to fill
such vacancies. Additionally, Mercantile shall cause three (3) vacancies to be
created on its board of directors (by increasing the number of directors) which
also shall be filled by persons designated by Citizens National. It is currently
contemplated that Citizens National will designate Messrs. Hanff and Kamat, as
well as a third person who has not yet been determined, to fill such vacancies.
The Merger Agreement further provides that Citizens National may obtain
an extended reporting period (otherwise known as "Tail Coverage") for three
years under Citizens National's existing directors and officers liability
policy. These rights will survive the closing of the Merger Agreement and
continue in full force and effect.
The parties have agreed in the Merger Agreement that Gulf West will
cover the officers and employees of Citizens National who are employed by Gulf
West under employee benefit plans of Gulf West which in the aggregate will be no
less favorable to such employees than those benefits generally afforded to other
employees of Gulf West holding similar positions as follows:
(a) Each employee of Citizens National will be entitled to credit for
his or her prior service with Citizens National for all purposes under the
employee welfare benefit plans and other employee benefit plans and programs
sponsored by Gulf West to the extent Citizens National sponsored a similar type
of plan in which the Citizens National employee participated prior to the
Effective Time. Any preexisting condition exclusion applicable to such plans and
programs shall be waived with respect to any Citizens National employee. For
purposes of determining each Citizens National employee's benefit for the year
in which the Merger occurs under the Gulf West vacation program, any vacation
taken by a Citizens National employee immediately preceding the Effective Time
for the year in which the Merger occurs will be deducted from the total Gulf
West vacation benefit available to such Citizens National employee during such
year. The number of vacation days available for Citizens National's employees
during the year in which the Merger occurs shall be determined under the
Citizens National vacation policy in effect as of January 1, 1997. Unused sick
leave and vacation leave accrued by employees of Citizens National as of the
Effective Time will be recognized by Gulf West to the extent it is used in the
fiscal year of Gulf West in which the Effective Time occurs. Gulf West has
further agreed to credit each Citizens National employee for the year during
which such coverage under the Gulf West welfare benefit plan begins, with any
deductibles already incurred during such year under Citizens National's group
health plan.
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(b) On or before, but effective as of, the Effective Time of the
Merger, Citizens National may take such actions as may be necessary to cause
each individual employed by Citizens National immediately prior to the effective
time to have a fully vested and nonforfeitable interest in such employee's
account balance under the 401(k) plan sponsored by Citizens National as of the
Effective Time.
TERMS OF THE MERGER
The description of the Merger which follows summarizes the principal
provisions and material terms of the Merger Agreement. However, this description
is not complete and is qualified in all respects by reference to the Merger
Agreement, a copy of which is attached hereto as Annex A and incorporated
herein. Stockholders are urged to read the appendices in their entirety.
At the Effective Time of the Merger, Citizens National will be merged
with and into Mercantile, with Mercantile as the surviving entity and a
wholly-owned subsidiary of Gulf West. The Articles of Incorporation and Bylaws
of Gulf West and Mercantile in effect at the Effective Time of the Merger will
govern the surviving corporation and the bank holding corporation until amended
or repealed in accordance with applicable law. Pursuant to the Merger, except
for those exercising dissenters' rights, Stockholders of Citizens National will
be converted into the right to receive 3.2337 shares of Gulf West Common Stock
in exchange for each share of Citizens National Common Stock held by them (the
"Exchange Ratio"), subject to the termination provisions of the Merger
Agreement.
The Merger Agreement provides that, in the event Gulf West changes the
number of shares of Gulf West Common Stock issued and outstanding between the
date of the Merger Agreement and the Effective Time of the Merger as a result of
a stock split, stock dividend, recapitalization, reclassification, or similar
transaction, or through any issuance of authorized and previously unissued
shares (except for issuances pursuant to the exercise of options outstanding as
of the date of the Merger Agreement or purchases under the Gulf West employee
stock purchase plan), then the Exchange Ratio will be adjusted proportionately.
More specifically, in any such event, the Exchange Ratio will be adjusted to
prevent the dilutive effect of such transactions on the number of shares of Gulf
West Common Stock to be issued in connection with the Merger. It is anticipated
that any such adjustment would be determined by Gulf West's accountants with a
view toward effectuating the intent of the parties under the Merger Agreement.
At the present time, Gulf West does not intend to engage in any transaction or
make an issuance of Gulf West stock that would necessitate any such adjustment
to the Exchange Ratio.
Certificates for shares of Gulf West Common Stock, together with any
dividends declared and paid prior to the Effective Date of the Merger, without
interest thereon, will be issued in exchange for Citizens National Common Stock
certificates. Instructions for submitting Citizens National Common Stock
certificates will be issued upon consummation of the Merger. No fractional
shares of Gulf West Common Stock will be issued in the Merger. In lieu of
fractional shares, holders of Citizens National Common Stock will receive an
amount in cash equal to such fractional part of a share of Gulf West Common
Stock multiplied by $5.87, without interest thereon, at the time of the exchange
of share certificates. Shares of Gulf West Common Stock issued and outstanding
immediately prior to the Effective Time of the Merger will remain issued and
outstanding after the Merger.
If the Merger is consummated pursuant to the Merger Agreement,
dissenting stockholders will be entitled to payment in cash of the value of
their shares upon compliance with the provisions of the National Bank Act, 12
U.S.C., Section 214a, a copy of which is attached as Annex B. SEE "THE MERGER -
Dissenters' Rights."
BUSINESS PENDING THE EFFECTIVE TIME
The Merger Agreement imposes certain limitations on the conduct of
Citizens National's business pending consummation of the Merger. Among other
things, Citizens National must conduct its business only in the ordinary course,
consistent with prudent banking practices.
EXCHANGE OF SHARE CERTIFICATES
As soon as practicable after the Effective Time, SunTrust, N.A. which
will serve as the exchange agent in connection with the Merger, will furnish
each holder of record of Citizens National Common Stock as of the Effective Time
with transmittal materials for use in exchanging certificates representing
Citizens National Common Stock for certificates representing Gulf West Common
Stock. The transmittal materials will contain information and instructions with
respect to the procedure for exchanging such certificates. The certificates for
Gulf West Common Stock will be delivered to the persons entitled thereto, within
a reasonable time after delivery of Citizens National Common Stock certificates
for exchange accompanied by the appropriate transmittal materials.
Under the terms of the Merger Agreement, Gulf West will not issue
certificates representing fractional shares of Gulf West Common Stock, and in
lieu thereof, shall pay cash to any holder of Citizens National Common Stock
otherwise entitled to receive such fractional share. SEE "SUMMARY -- Certain
Federal Income Tax Considerations"; "THE MERGER -- Certain Federal Income Tax
Consequences."
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Persons who are entitled to receive Gulf West Common Stock pursuant to
the Merger will not be entitled to vote such Gulf West Common Stock or to
receive any dividends thereon until they have properly surrendered their
certificates representing Citizens National Common Stock in exchange for
certificates representing Gulf West Common Stock.
Upon the Effective Time of the Merger, former Citizens National Common
Stockholders will cease to have any rights as shareholders of Citizens National,
and the Citizens National Stockholders shall only have the right to receive the
Merger Consideration specified in the Merger Agreement or, in the case of
dissenting shareholders, to exercise their rights under the National Bank Act.
SEE "THE MERGER -- Dissenters' Rights."
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction prior to the
Effective Time of the Merger of the conditions set forth in the Merger
Agreement. These conditions include approval of the Merger Agreement by the
respective Boards of Directors of Gulf West and Citizens National, and approval
of the Merger Agreement by two thirds of the outstanding shares of Citizens
National Common Stock entitled to vote at the Special Meeting. Also, the parties
must have received all regulatory approvals required, and all notice or waiting
periods required with respect to such approvals must have passed and any
conditions contained in any such regulatory approval must have been met. Gulf
West and Citizens National have submitted applications regarding the Merger to
the Department and the FDIC and have received a waiver of the Federal Reserve
Board's application requirement.
In addition, no stop order suspending the effectiveness of the
Registration Statement, of which this Proxy Statement/Prospectus is a part,
shall have been received and Gulf West shall have complied with all applicable
state securities laws with respect to the Merger. None of the parties shall be
subject to any order, decree or injunction of a court or agency joining or
prohibiting consummation of the transactions contemplated by the Merger
Agreement. Both Gulf West and Citizens National shall have received an opinion
of the law firm of Fowler, White, Gillen, Boggs, Villareal and Banker, P.A., to
the effect that the Merger will constitute a reorganization under the Internal
Revenue Code and that no gain or loss will be recognized by Citizens National
Stockholders who exchange all of their Citizens National Common Stock solely for
Gulf West Common Stock except with respect to cash received in lieu of
fractional share interests in Gulf West Common Stock.
Consummation of the Merger also is subject to the satisfaction or
waiver of various other conditions specified in the Merger Agreement, including,
among others: (i) the delivery by Gulf West and Mercantile of opinions of their
respective counsel and certificates executed by their respective duly authorized
officers as to compliance with the Merger Agreement and, (ii) the holders of no
more than 5% of the shares of Citizens National Common Stock shall have
exercised dissenters' rights, (iii) the sum of Citizens National Common Stock,
Additional Cash for Capital, Surplus, Retained Earnings, and Undivided Profits
shall be equal to or greater than $8,500,000, (iv) the loan loss reserve of
Citizens National shall be equal to or greater than 1.50% of its gross loans,
and (v) as of the Closing Date, the accuracy of certain representations and
warranties, and the compliance in all material respects with the agreements and
covenants of each party.
TERMINATION AND AMENDMENT
Either before or after approval by Stockholders of Citizens National,
the Merger Agreement may be terminated and the merger abandoned by either Gulf
West or Citizens National (i) if there is a material breach by the other party
of any covenant, agreement, or obligation of the Merger Agreement which breach
cannot be or has not been cured within 30 days after the giving of written
notice to the party committing such breach, (ii) if the required applications
for approval have been denied or Stockholders do not approve the transaction at
the meeting called for that purpose, or (iii) if the closing has not occurred by
the close of business on April 30, 1998. Citizens National may also terminate
the Merger Agreement if it is advised by its counsel that under corporate
principles of fiduciary law it must consider, and Citizens National decides to
accept, a competing transaction, but only if Citizens National agrees to pay
Gulf West a break-up fee of $500,000.
The parties may amend the Merger Agreement at any time, but any
amendment affecting the consideration to be paid to Citizens National
Stockholders must be approved by two thirds of the outstanding shares of
Citizens National Common Stock entitled to vote on the Merger.
EFFECTIVENESS OF MERGER
The Merger of Citizens National into Mercantile will become effective
at such time as the Articles of Merger are accepted for filing by the Department
or such later date and time as is agreed to by the parties as specified in the
Articles of Merger. Unless otherwise agreed by the parties, the parties have
agreed to use their best efforts to cause the Effective Time to occur on the
date of the closing of the Merger and to use their reasonable best efforts to
cause the closing to take place within five business days following the last to
occur of: (i) the effective date of the last required consent of any state or
federal regulatory authority having authority over the Merger (including
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the expiration of any applicable waiting periods following such consents or the
delivery of appropriate notices), and (ii) the date on which the Stockholders of
Citizens National approve the Merger and adopt the Merger Agreement. There can
be no assurance, however, as to whether or when the Merger will occur.
REGULATORY REQUIREMENTS
The Merger is subject to certain regulatory approvals, as set forth
below. To the extent that the following information describes statutes and
regulations, it is qualified in its entirely by reference to the particular
statutes and the rules and regulations promulgated under such statutes.
The Federal Reserve Board waived its required approval under the Bank
Holding Company Act of 1956, as amended. Consummation of the Merger also is
subject to the approval of the FDIC and the Florida Department of Banking and
Finance. The FDIC and the Florida Department have issued their respective
approvals of the Merger. The FDIC approval of the Merger dated October 24, 1997,
was also subject to a 15 day waiting period during which the United States
Department of Justice pursuant to the Bank Merger Act, could have opposed the
Merger under antitrust laws. This waiting period has also expired with no
objection or adverse action by the Justice Department.
ACCOUNTING TREATMENT
The Merger will be accounted for by Gulf West as a "purchase" under
generally accepted accounting principles ("GAAP"). Under the purchase method of
accounting, the assets and liabilities of Citizens National will be, as of the
Effective Time, recorded at their respective fair values and added to those of
Gulf West. The expected excess of the consideration paid by Gulf West over the
fair value of Citizens National's assets and liabilities will be recorded as
goodwill.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The parties to the Merger have not and do not intend to seek a ruling
from the IRS as to the federal income tax consequences of the Merger. Instead,
the Merger Agreement provides that, as a condition to closing, Gulf West and
Citizens National shall have received an opinion of Fowler, White, Gillen,
Boggs, Villareal and Banker, P.A. (the "Opinion"), counsel to Gulf West, to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code and that no gain or loss will be
recognized by a Citizens National stockholder who exchanges all of the
stockholder's Citizens National Common Stock for Gulf West Common Stock in the
Merger, except with respect to cash received in lieu of fractional shares. The
Opinion is based upon representations from Gulf West and Citizens National and
is subject to various assumptions. Legal opinions as to the tax consequences of
a reorganization are not binding on the IRS.
The following discussion summarizes the principal Federal income tax
consequences of the Merger to holders of Citizens National Common Stock and does
not purport to be a complete analysis or listing of all potential tax effects
relevant to the Merger. The discussion does not reflect the individual tax
position of any holder of Citizens National Common Stock and does not address
the tax consequences that may be relevant to holders of Citizens National Common
Stock with special tax status, including but not limited to financial
institutions, dealers in securities, holders that are not citizens or residents
of the United States, tax-exempt entities and holders that acquired Citizens
National Common Stock upon the exercise of employee stock options or otherwise
as compensation. Moreover, the discussion does not address any consequences
arising under the laws of any state, locality or foreign jurisdiction. The
discussion is based on the Internal Revenue Code, Treasury Regulations
thereunder and administrative rulings and court decisions as of the date hereof.
All of the foregoing are subject to change and any such change could affect the
continuing validity of this discussion. Holders of Citizens National Common
Stock are urged to consult with their own tax advisors regarding the tax
consequences of the Merger to them, including the effects of federal, state,
local, foreign and other tax laws.
Gulf West and Citizens National believe that, if consummated as
described herein, the Merger will constitute a tax-free reorganization within
the meaning of Section 368 (a) of the Internal Revenue Code. Accordingly, the
following will be the material Federal income tax consequences of the Merger:
(i) no gain or loss will be recognized by the Citizens National
stockholders upon receipt of Gulf West Common Stock in exchange for their
Citizens National Common Stock, except that a holder of Citizens National Common
Stock who receives cash in lieu of a fractional share of Gulf West Common Stock
will recognize gain or loss equal to the difference between the amount of such
cash and the tax basis allocated to such stockholder's fractional share of Gulf
West Common Stock. If, at the effective time of the Merger, such stockholder's
Citizens National Common Stock is held as a capital asset, such gain or loss
will, depending on the holding period, constitute short-term (12 months or
less), mid-term (12-18 months) or long-term (more than 18 months) capital gain
or loss.
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(ii) the tax basis of the Gulf West Common Stock received by Citizens
National stockholders will be the same as the tax basis of such stockholders'
Citizens National Common Stock exchanged therefor;
(iii) the holding period of the Gulf West Common Stock in the hands of
the Citizens National stockholders will include the holding period of such
stockholders' Citizens National Common Stock exchanged therefor, provided that
such Citizens National Common Stock is held as a capital asset at the effective
time of the Merger; and
(iv) Citizens National stockholders who exercise dissenters' rights and
receive cash will recognize a taxable gain for federal income tax purposes which
will be long or short-term, depending upon the holding period for their Citizens
National Common Stock. The exchange of shares for cash upon the exercise of
dissenters' rights could also cause Citizens National Common Stock deemed to be
constructively owned by the stockholder and exchanged for Gulf West Common Stock
to be treated as substantially equivalent to a dividend and, therefore, taxed as
ordinary income. Shares owned by spouses, children, grandchildren, parents and
other relatives and by entities that are 50% owned by a stockholder are
generally treated as constructively owned by that stockholder.
DISSENTERS' RIGHTS
Pursuant to federal law, each Stockholder of Citizens National entitled
to vote on the approval of the Merger Agreement who objects to the Merger shall
be entitled to the rights and remedies of dissenting stockholders under 12
U.S.C. ss.214a and any Stockholder who follows the procedures specified therein
will be entitled to receive the value of his or her shares of Citizens National
Common Stock in cash. THE PROVISIONS OF 12 U.S.C. SS.214A CONTAIN DETAILED
INFORMATION AS TO DISSENTING STOCKHOLDERS' RIGHT TO PAYMENT AND THE PROCEDURAL
STEPS TO BE FOLLOWED. A STOCKHOLDER MUST COMPLY STRICTLY WITH THE PROCEDURES SET
FORTH IN 12 U.S.C. SS.214A. THE FAILURE TO FOLLOW ANY OF THESE PROCEDURES MAY
RESULT IN THE TERMINATION OR WAIVER OF HIS OR HER DISSENTERS' RIGHTS. The
following description is only a summary of such provisions and is qualified in
its entirety by reference to 12 U.S.C. ss.214a, a copy of which is attached
hereto as Annex B.
In order to perfect dissenters' rights, a Stockholder must (a) vote
against the Merger, or (b) otherwise give notice in writing to Citizens National
at or prior to the Special Meeting at which the Merger is approved, that he
dissents from the plan. The dissenting stockholder must make a request for
payment in writing to Mercantile within thirty days after the date of
consummation of such merger, accompanied by the surrender of his or her stock
certificates. The value of such shares shall be determined as of the date on
which the Special Meeting was held authorizing the Merger, by a committee of
three persons, one to be selected by majority vote of the dissenting
stockholders entitled to receive the value of their shares, one by the directors
of Mercantile, and the third by the two so chosen. The valuation agreed upon by
any two of three appraisers shall govern. If that valuation is not satisfactory,
the dissenting stockholder may, within five days after being notified of the
appraised value of his shares, appeal to the Comptroller of the Currency. The
Comptroller's reappraisal will be final and binding as to the value of the
shares of the appellant. If, within ninety days from the date of consummation of
the merger, for any reason one or more of the appraisers is not selected as
herein provided, or the appraisers fail to determine the value of such shares,
the Comptroller shall upon written request of any interested party, cause an
appraisal to be made, which shall be final and binding on all parties.
Gulf West has the right to terminate the Merger if the number of shares
of Citizens National Common Stock asserting dissenters' rights exceed 5% of the
total outstanding shares of Citizens National Common Stock on the Record Date.
SHARES RECEIVED
Gulf West shares received in the Merger will not immediately be listed
for quotation on Nasdaq or any stock exchange. However, Gulf West Common Stock
is currently traded on a limited basis by Raymond James & Associates, Inc.,
Tampa, Florida. Pursuant to Section 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), commencing with the effectiveness of the
Registration Statement containing this Proxy Statement/Prospectus, Gulf West
became subject to certain of the periodic reporting requirements under the
Exchange Act. Gulf West, however, is not subject to, among other things, the
proxy rules, Section 16 beneficial ownership requirements under the Exchange
Act, or the tender offer rules. Gulf West intends to apply for listing on the
Nasdaq National Market System. However, the ability of Gulf West to achieve
listing on Nasdaq National Market System will depend in part on whether it can
attract sufficient market makers to meet Nasdaq's qualification requirements.
Shares received may be traded without restriction under the Securities Act of
1933 by Citizens National Stockholders who are not affiliates of Citizens
National at the time of the Merger. Those persons who are affiliates will be
able to sell their shares through the provisions of Rules 145 and 144
promulgated under the Securities Act of 1933 without the necessity of observing
any holding period for their stock prior to the sale. This Proxy
Statement/Prospectus does not cover any resales of Gulf West Common Stock by
affiliates of Citizens National. However, the affiliates have also agreed not to
sell any of their shares until Gulf West has published results of operations
covering a period of thirty days which include the operations of Citizens
National.
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MARKET PRICE AND DIVIDEND DATA
There is no established public trading market for Gulf West Common Stock. As
of December 1, 1997, there were 3,342,676 shares of Gulf West Common Stock
outstanding held by approximately 416 holders of record. According to records
kept by a local brokerage firm, since January 1, 1996, there have been a limited
number of trades in the Gulf West Common Stock involving an aggregate of 146,790
shares. To the best of Gulf West's knowledge, which is based on limited and
incomplete information, Gulf West believes the negotiated sales of shares
of Gulf West Common Stock ranged between $4.62 and $5.50 during this period. The
most recent trade of which the local brokerage firm has knowledge occurred in
March 1997 at a reported price of $5.50 per share. In view of the extremely
limited volume of transactions and lack of reliable pricing information (because
such information is not required to be furnished to Gulf West), there is no
assurance that the stated prices paid for the Gulf West Common Stock provide a
reliable or relevant indication of the value of Gulf West Common Stock.
The only dividends ever paid on Gulf West's Common Stock were a $0.04 per
share cash dividend paid in the fourth quarter of 1995 and a 5% stock dividend
paid in the fourth quarter of 1996. There are currently no plans to declare a
cash dividend in 1997. Due to Mercantile's anticipated continued growth and
management's intent to maintain certain regulatory capital levels, dividend
payments on the Gulf West Common Stock are not expected in the foreseeable
future.
There is no established public trading market for Citizens National Common
Stock. As of December 1, 1997, there were 603,030 shares of Citizens
National Common Stock outstanding held by approximately 173 holders of record.
According to records kept by management, since January 6, 1996, there have been
34 trades in the Citizens National Common Stock involving an aggregate of
131,717 shares. Citizens National has no information regarding the prices at
which Citizens National Common Stock was traded during this period.
Prior to 1997, Citizens National never paid any dividends on its common
stock. In the first quarter of 1997, the Board of Directors of Citizens National
declared and paid a dividend of $0.10 per share of Citizens National Common
Stock.
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GULF WEST BANKS, INC.
INTRODUCTION
Gulf West is a one-bank holding company registered under the Bank
Holding Company Act of 1956, as amended, and was incorporated under the laws of
the State of Florida effective October 24, 1994. Gulf West's principal assets
are all of the issued and outstanding shares of capital stock of Mercantile , a
Florida state banking corporation which is located in St. Petersburg, Florida,
and the issued and outstanding shares of Liberty Leasing Corporation
("Liberty"), Tampa, Florida, a Florida corporation engaged in equipment leasing.
On January 19, 1995, Gulf West acquired all the outstanding common stock of
Mercantile in a share exchange transaction whereby two shares of the $1.00 par
value common stock of Gulf West were exchanged for each outstanding share of
common stock of Mercantile. This transaction was accounted for as a pooling of
interests and as if it had occurred on December 31, 1994. Accordingly, all
financial information presented herein is restated to the beginning of the
earliest period presented. Mercantile converted to a Florida state commercial
banking charter in May 1990. Effective September 1, 1996, Gulf West acquired all
the outstanding common shares of Liberty in exchange for 30,000 shares of Gulf
West Common Stock. Liberty is an equipment leasing company that arranges
financing for a variety of equipment for all types of businesses. The
acquisition was accounted for using the purchase method of accounting. Liberty
has nominal assets and liabilities, and goodwill of $157,000 resulted from the
acquisition. The goodwill is being amortized over ten years.
The principal executive offices of Gulf West and Mercantile are located
at 425 22nd Avenue North, St. Petersburg, Florida 33704 and their telephone
number is (813) 894-5696. Liberty is located at 5440 Mariner Street, Suite 204,
Tampa, Florida 33609 and its telephone number is (813) 287-2982.
ACTIVITIES OF GULF WEST
Currently the only business activity of Gulf West is to own and operate
Mercantile and Liberty. Liberty currently comprises a de minimis portion of Gulf
West's total assets and earnings and is therefore omitted from the discussion
below. As a part of the Merger, Mercantile will amend its charter to include
trust powers so that it can continue the trust business of Citizens. Although
other activities are permitted under the Bank Holding Company Act of 1956,
management of Gulf West has no current plans to engage in any other activities
but may choose to do so at a later date.
ACTIVITIES OF MERCANTILE
The principal services offered by Mercantile include commercial and
individual checking and savings accounts, money market accounts, certificates of
deposit, most types of loans, including commercial and working capital loans and
real estate, home equity and installment loans, as well as financing through
letters of credit. Mercantile also provides credit card services through a
national credit card issuer and acts as issuing agent for U.S. Savings Bonds,
travelers checks and cashiers checks. It offers collection teller services, wire
transfer facilities, safe deposit and night depository facilities. The
transaction accounts and time certificates are tailored to Mercantile's
principal market area at rates competitive with those offered in Mercantile's
primary service area. In addition, Mercantile offers certain retirement account
services, including individual retirement accounts. All deposit accounts are
insured by the FDIC up to the maximum amount allowed by law.
Mercantile offers a wide range of short to medium-term commercial and
personal loans. Commercial loans include both secured and unsecured loans for
working capital (including inventory and receivables), business expansion
(including acquisition of real estate and improvements), purchase of equipment
and machinery, and Small Business Administration ("SBA") loans. Consumer loans
include secured and unsecured loans for financing automobiles, home
improvements, and personal investments. Mercantile also originates and holds
construction and acquisition loans on residential real estate. At December 31,
1996, commercial and consumer loans accounted for approximately 71.34% and
9.29%, respectively, of Mercantile's loan portfolio. Loans on residential real
estate accounted for the remaining 19.37% of the loan portfolio. All loans are
made in compliance with applicable federal and state regulations.
Mercantile's lobby business hours are generally from 9:00 a.m. to 4:00
p.m., Monday through Thursday, 9:00 a.m. to 6:00 p.m. on Fridays, and 9:00 a.m.
to 12:00 p.m. on Saturdays. The drive-up teller hours are generally 8:00 a.m. to
5:00 p.m. on Monday through Thursday, 8:00 a.m. to 6:00 p.m. on Fridays, and
8:00 a.m. to 12:00 p.m. on Saturdays. However, drive-in hours do vary slightly
from office to office depending on customer requirements. Mercantile also has
24-hour automatic teller machines (ATM's) at each of its offices. Mercantile
issues debit cards to its customers that can be used in any bank ATM as well as
any ATM's which are members of the HONOR and CIRRUS networks.
Mercantile's data processing is handled by an outside service bureau --
FiServ, Inc. of Atlanta, Georgia. Item processing is handled by Barnett
Technologies, Inc., Tampa, Florida. The amount paid for these services is
dependent on the volume of transactions and the number of accounts being
processed. In the year ended December 31, 1996, Mercantile paid $224,000 for
data processing services. Mercantile
41
<PAGE> 45
makes extensive use of personal computers in all areas of its operations that
permit efficient handling of deposit and loan accounts and other paper intensive
applications such as word processing.
MARKET AREA
Seven of Mercantile's banking offices are located in Pinellas County,
Florida and two are located in Hillsborough County, Florida. Both counties are
in the west central Gulf Coast of Florida. The residential population of
Pinellas County as of the 1990 census was 852,000 and the estimated population
in 1997 is 887,000. Hillsborough County had a residential population of 834,000
as of the 1990 census and the estimated 1997 population is 911,000. The area has
many more seasonal residents. The majority of Mercantile's business is generated
from customers whose businesses or residences are located in an area within a
radius of three miles of each of its banking offices. Four of the Pinellas
County offices are located within the city limits of St. Petersburg, one is
located in the unincorporated community of Tierra Verde, one is located in the
city limits of Dunedin and another one in the city limits of Pinellas Park. The
Hillsborough County offices are located within the city limits of Tampa and
Temple Terrace.
OPERATING STRATEGY
Management believes that the emerging dominance of large regional
holding companies in the banking industry has created a need for more
locally-owned institutions with personalized banking services. Mercantile was
organized as a locally-owned, locally-managed community financial institution,
owned and managed by people who are actively involved in Mercantile's market
area and committed to its economic growth and development. With local ownership,
management and directors, Gulf West's management believes that Mercantile can be
more responsive to the communities it serves and tailor services to its
customers' needs rather than provide the standardized services that large
holding companies tend to offer. Local ownership and operation will allow
faster, more responsive and flexible decision-making which is not available at
the majority of financial institutions in or near Mercantile's market area which
are branch offices of large regional holding company banks with headquarters
located elsewhere in Florida or in the United States.
The principal business of Mercantile is to attract deposits from the
general public and to invest those funds in various types of loans and other
interest-earning assets. Funds are provided for the operations of Mercantile
through proceeds from the sale of investments and loans, from amortization and
repayment of outstanding loans, investments, net deposit inflow, and from
borrowings. Earnings of Mercantile depend primarily upon the difference between
(1) the interest and fees received by Mercantile from loans, the securities held
in its investment portfolio, and other investments and (2) expenses incurred by
Mercantile in connection with obtaining funds for lending (including interest
paid on deposits and other borrowings) and expenses relating to day-to-day
operations.
To the extent market conditions permit, Mercantile follows a strategy
intended to insulate Mercantile's interest rate gap from adverse changes in
interest rates by maintaining spreads through the adjustability of its
interest-earning assets and interest-bearing liabilities. It is Mercantile's
intention that its interest-earning assets have a high degree of sensitivity to
interest rate changes. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." Mercantile's ability to reduce
interest-rate risk in its loan and investment portfolios will depend upon a
number of factors, many of which are beyond Mercantile's control, including
among others, competition for loans and deposits in its market area and
conditions prevailing in the secondary market. See "Competition" below.
The primary sources of Mercantile's funds for lending and for other
general business purposes are Mercantile's capital, deposits, loan repayments
and borrowings. Mercantile expects that loan repayments will be relatively
stable sources of funds, while deposit inflows and outflows will be
significantly influenced by prevailing interest rates, money market and general
economic conditions. Generally, short-term borrowings may be used to compensate
for reductions in normal sources of funds while longer-term borrowings may be
used to support expanded lending activities.
Mercantile's customers are primarily individuals, professionals, small
and medium size businesses, and seasonal retirees located predominantly in
Pinellas and Hillsborough Counties, Florida. Mercantile's locations are situated
in areas that are convenient to these types of customers.
Mercantile continually seeks to develop new business though an ongoing
program of personal calls on both present and potential customers. As a local
independent bank, Mercantile utilizes traditional local advertising media as
well as direct mailings, telephone contacts, and brochures to promote the bank
and develop loans and deposits. In addition, Mercantile's directors all have
worked and/or lived in or near Mercantile's market area for a number of years.
Management believes that this factor coupled with the past and continued
involvement of the directors and officers in various local community activities
will further promote Mercantile's image as a locally-oriented independent
institution, which management believes is an important factor to its targeted
customer base.
42
<PAGE> 46
COMPETITION
The banking industry in general, and Mercantile's market in particular,
is characterized by significant competition for both deposits and lending
opportunities. In its market area, Mercantile competes with other commercial
banks, savings and loan associations, credit unions, finance companies, mutual
funds, insurance companies, brokerage and investment banking firms and various
other nonbank competitors. Competition for deposits may have the effect of
increasing the rates of interest Mercantile will pay on deposits, which would
increase Mercantile's cost of money and possibly reduce its net earnings.
Competition for loans may have the effect of lowering the rate of interest
Mercantile will receive on its loans, which would lower Mercantile's return on
invested assets and possibly reduce its net earnings. Many of Mercantile's
competitors have been in existence for a significantly longer period of time
than Mercantile, and are larger and have greater financial and other resources
and lending limits than Mercantile and may offer certain services, such as trust
services, that Mercantile does not provide at this time. However, management
feels that the market is rich with opportunity to provide tailor-made custom
banking products and services which cannot be provided by the large institutions
which offer many banking products and services on an impersonal basis. With the
recent acquisitions by larger institutions, the opportunity has been enhanced as
customers are looking for more personalized service. This concept known as
"niche" or "boutique" banking will enable Mercantile to capture its share of the
professional market, entrepreneurs and small to medium size commercial
businesses while continuing to provide exceptional banking services to all
customers. The profitability of Mercantile depends upon its ability to compete
in this market area. At the present time, Mercantile is unable to predict the
extent to which competition may adversely affect its financial condition and
operating results.
There are 31 commercial banks and savings and loan associations in
Pinellas County. In Hillsborough County there are approximately 30 such
institutions. Mercantile expects to receive competition from all of these
financial institutions, a significant number of which have offices located in
the St. Petersburg and Tampa areas. In order to compete with major financial
institutions and others in Mercantile's market area, Mercantile emphasizes
specialized and personal service by its directors, officers, and employees.
Mercantile believes that its local ownership and community oriented operating
philosophy and personalized banking service are competitive factors which
strengthen Mercantile.
EMPLOYEES
As of September 30, 1997, Gulf West employed 109 employees of which 99
were full-time and 9 part-time, including six executive officers. There are no
material increases in the work force scheduled for the remainder of 1997. Gulf
West's employees are not represented by a collective bargaining group and Gulf
West considers its relations with its employees to be excellent. Gulf West
provides employees with benefits customary in the banking industry, which
include major medical insurance, group term life insurance, dental insurance,
long term disability insurance, a 401(k) savings plan and vacation and sick
leave.
PROPERTIES
Gulf West corporate offices are located within the main office of
Mercantile. Liberty Leasing occupies approximately 1,800 square feet of leased
space in the Tampa Koger Center located at 5440 Mariner Street. The lease is for
a three-year term expiring July 31, 1999, automatically renewable for successive
three-year terms unless a ninety-day notice is provided by either party to the
lease. The rental payments are subject to annual CPI escalators with a minimum
of 5%. The current base monthly rent is $2,105 plus taxes.
In addition to its main office in St. Petersburg, Mercantile also has
four additional locations throughout St. Petersburg, at the Koger Executive
Center, in the "Maximo" area of South St. Petersburg, in the downtown business
district and an operations center on Scherer Drive. Mercantile also has branches
in Tierra Verde, in the Westshore area in Tampa, in the Countryside area in
Clearwater, in Temple Terrace, and in Largo.
Mercantile's main office is located at 425 22nd Avenue North, St.
Petersburg, Florida 33704. This office also serves as Mercantile's main office
banking facility. It has approximately 9,000 square feet and houses a branch
office on the first floor, the commercial lending department and Mercantile's
and Gulf West's executives offices. The building was constructed in 1987 and is
a two-story structure located on a 71,000 square foot parcel of land which
Mercantile owns. Two other buildings are also located on this site, both one
story structures containing 3,100 and 6,500 square feet of space which
Mercantile currently leases to small retailers and professional offices. The
property is located less than two miles north of the downtown business district
of St. Petersburg. Mercantile's branch office at this location was opened in
1987. It contains approximately 2,700 square feet and has two drive-in lanes, an
ATM, a night depository, safety deposit boxes and four lobby teller stations. At
December 31, 1996, this office had $41,315,494 in deposits.
The Tierra Verde office is located at 1110 Pinellas Bayway, Tierra
Verde, Florida 33715. Tierra Verde is an unincorporated island community
southwest of downtown St. Petersburg, Florida. The residents of Tierra Verde are
generally affluent, with one of the highest per capita income levels on
Florida's west coast. Mercantile opened for business at this office in May 1986
and this was Mercantile's main office until November 1988 when the main office
was relocated to its current location. Mercantile's branch office in Tierra
Verde is located on the first floor of a two story commercial condominium
complex which fronts on the island's main thoroughfare. The branch contains
43
<PAGE> 47
2,000 square feet with three lobby teller stations, an ATM, night depository,
safety deposit boxes and one drive-in teller lane. Mercantile also owns 2,000
square feet of office space directly above the branch which houses a conference
room, meeting room and office space. At December 31, 1996, this office had
$31,597,191 in deposits.
The Koger office is located at 9400 4th Street North, St. Petersburg,
Florida 33702. Mercantile rents approximately 2,500 square feet on the first
floor of a building that is part of a multi-building professional office complex
known as the Koger Executive Center. The complex is located approximately five
miles north of Mercantile's main office and the building in which the branch is
located fronts on 4th Street North, which is a major north-south traffic artery
in St. Petersburg. The office was opened in 1991 and at December 31, 1996, had
$18,795,109 in deposits. The office has four lobby teller stations, an ATM, a
night depository, safe deposit boxes and three drive-in teller lanes.
The Westshore branch office is located at 4202 West Kennedy Boulevard,
Tampa, Florida 33609, on the corner of Lois Avenue and Kennedy Boulevard. The
office is in a 4,000 square foot, free-standing, one story building which is
leased by Mercantile. The office is within one mile of the center of the
Westshore business district which is a major business center of Tampa. The
office was opened in late 1993 and at December 31, 1996, had $15,795,012 in
deposits. The office has four lobby teller stations, four drive-in teller lanes,
an ATM, a night depository and safe deposit boxes.
Mercantile's Countryside office at 28100 U.S. Highway 19 North,
Clearwater, Florida 33761 is located within the city limits of Dunedin but has a
Clearwater mailing address. Mercantile leases approximately 3,325 square feet on
the first floor of a five story, 80,000 square foot professional office
building. Chase Manhattan Bank of Florida occupied this facility until late
1994, when the office was closed due to a consolidation program by that
institution. The facility has four lobby teller stations, three drive-in teller
lanes, an ATM, a night depository and safe deposit boxes. This office opened in
March, 1995, and at December 31, 1996, had $15,329,755 in deposits.
The Temple Terrace office is located at 9400 North 56th Street, Temple
Terrace, Florida 33617. This facility is a 4,000 square foot, free-standing,
one-story building located on two acres of land that was purchased by Mercantile
in November, 1995. The office has six lobby teller stations, three drive-in
teller lanes, an ATM, a night depository and safe deposit boxes and was opened
in January, 1996. Total deposits of this office at December 31, 1996, were
$12,190,989.
Mercantile's Bryan Dairy office is located at 8040 Bryan Dairy Road,
Largo, Florida 33777, within the corporate city limits of Pinellas Park.
Mercantile rents 5,000 square feet in a commercial complex that was constructed
in mid-1996. The office opened in September 1996, and has four lobby teller
stations, three drive-in teller lanes, an ATM, a night depository and safe
deposit boxes. At December, 31, 1996, total deposits of this office were
$2,354,087.
The Maximo office is located at 3655 50th Avenue South, St. Petersburg,
Florida 33711. Mercantile built this 3,000 square-foot facility in late 1996 and
opened the office in December, 1996. The building is situated on one acre of
land and contains four lobby teller stations, three drive-in teller lanes, an
ATM, a night depository and safe deposit boxes. On December 31, 1996, deposits
were $1,294,898.
Mercantile's Downtown St. Petersburg office is located at 240 1st
Avenue South, St. Petersburg, Florida 33701 in the heart of the downtown
business district. The Bank rents approximately 3,436 square feet on the first
floor of a four story office building. The facility has four lobby teller
stations, a walk-up teller station, two drive-in teller lanes, an ATM, a night
depository and safe deposit boxes. The office was opened in February 1997. At
June 30, 1997, total deposits of this office were $2,367,464.
Mercantile also rents approximately 6,636 square feet in a professional
office complex located at 2860 Scherer Drive, St. Petersburg, Florida 33716.
This facility houses Mercantile's consumer and residential lending departments,
the data processing operations department, the deposit and loan operations
department and the accounting department.
44
<PAGE> 48
The following table presents information regarding the terms of the leases
which Mercantile is currently a party to:
<TABLE>
<CAPTION>
CURRENT
SQUARE START/ MONTHLY
LOCATION FEET END OPTIONS BASE RENT OTHER TERMS
- -------- ---- --- ------- --------- -----------
<S> <C> <C> <C> <C> <C>
Koger Office 2,500 4/1/96 - Automatic 2,931 Annual CPI increases
9400 4th Street N. 3/31/01 5 Year Plus use tax
St. Petersburg Renewals CAM
Countryside Office 3,325 3/1/95 - Two option 4,741 Annual CPI not less than 4%
28100 US 19 North 2/28/05 Periods of Plus use tax
Clearwater 5 years each CAM
Westshore Office 4,000 9/1/93 - Two option 4,499 Annual CPI not less than 4%
4202 W. Kennedy Blvd. 8/31/98 Periods of Plus use tax
Tampa 5 years each CAM
Bryan Dairy Office 5,000 7/1/96 - Four option 6,250 Fixed for 1st 5 years -
8040 Bryan Dairy Road 6/30/11 periods of Plus use tax 3% annual increases thereafter
Largo 5 years each CAM
Downtown St.
Petersburg Office 3,436 1/1/97 - Sublease 4,583
240 1st Avenue South 7/31/98 Plus use tax
St. Petersburg
8/1/98 - One option Year 1 - 4,054
7/31/03 period for Year 2 - 4,369
5 years Year 3 - 4,518
Year 4 - 4,673
Year 5 - 4,833
Plus use tax
CAM
Operations Center 6,636 6/1/96 - One option Year 1 - 4,015
2860 Scherer Drive 5/31/01 period of Year 2 - 4,153
Suite 630 5 years Year 3 - 4,291
St. Petersburg Year 4 - 4,429
Year 5 - 4,567
Plus use tax
CAM
</TABLE>
LEGAL PROCEEDINGS
Gulf West and Mercantile are parties to various legal proceedings in
the ordinary course of business. Management does not believe that there is any
pending or threatened proceeding against Gulf West or Mercantile which, if
determined adversely, would have a material adverse effect on the business,
results of operations, or financial position of Gulf West or Mercantile.
45
<PAGE> 49
GULF WEST BANKS, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
The following is a summary of selected financial data for Gulf West and
subsidiaries for the nine-month periods ended September 30, 1997 and 1996 and
the five years ended December 31, 1996. This Summary should be read in
conjunction with the financial statements and notes thereto which are
incorporated by reference herein.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
----------------- --------------------------------------------------------
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks .......... $ 6,946 8,631 5,555 5,882 4,488 4,148
Federal funds sold ............... 10,831 3,356 5,600 5,300 6,300 3,600
Investment securities ............ 35,501 40,231 33,489 23,963 17,091 10,548
Loans ............................ 121,246 112,979 73,948 63,472 53,374 49,206
All other assets ................. 10,017 9,617 7,344 5,832 5,485 3,552
-------- -------- -------- -------- -------- --------
Total assets ............ $184,541 174,814 125,936 104,449 86,738 71,054
======== ======== ======== ======== ======== ========
Deposits ......................... 166,394 149,335 109,192 96,372 78,532 61,146
Other borrowings ................. 3,155 12,047 3,799 - - 1,500
All other liabilities ............ 937 332 431 149 299 1,093
Stockholders' equity ............. 14,055 13,100 12,514 7,928 7,907 7,315
-------- -------- -------- -------- -------- --------
Total liabilities and
stockholders' equity .. $184,541 174,814 125,936 104,449 86,738 71,054
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest
income ............. $ 10,407 7,733 10,844 8,447 6,146 4,931 5,327
Total interest
expense ............ 4,534 3,303 4,659 3,736 2,521 2,046 2,694
--------- --------- --------- --------- --------- --------- ---------
Net interest income ......... 5,873 4,430 6,185 4,711 3,625 2,885 2,633
Provision for
loan losses ........ 405 296 401 240 176 40 145
--------- --------- --------- --------- --------- --------- ---------
Net interest income
after provision
for loan losses .... 5,468 4,134 5,784 4,471 3,449 2,845 2,488
Other income ................ 1,343 779 1,031 849 603 838 670
Other expense ............... 5,710 4,781 6,324 4,181 3,228 3,056 2,539
--------- --------- --------- --------- --------- --------- ---------
Earnings before
income taxes ....... 1,101 132 491 1,139 824 627 619
Income taxes ................ 389 60 177 431 142 - -
--------- --------- --------- --------- --------- --------- ---------
Net earnings ................ $ 712 72 314 708 682 627 619
========= ========= ========= ========= ========= ========= =========
Earnings per
share (1) .......... $ 0.21 0.02 0.10 0.25 0.28 0.26 0.25
========= ========= ========= ========= ========= ========= =========
Cash dividends per share .... - - - 0.04 - - -
========= ========= ========= ========= ========= ========= =========
Dividend pay-out ratio ...... -- -- -- .16 -- -- --
========= ========= ========= ========= ========= ========= =========
Weighted-average number
of shares
outstanding (1) .... 3,335,836 3,317,030 3,298,405 2,830,265 2,461,439 2,454,415 2,474,000
========= ========= ========= ========= ========= ========= =========
</TABLE>
46
<PAGE> 50
<TABLE>
<CAPTION>
AT OR FOR THE
---------------------------------------------------------------------------------
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD:
Return on average
assets ............... 0.52% 0.07% 0.22% 0.63% 0.74% 0.80% 0.86%
Return on average
equity ............... 7.02% 0.76% 2.45% 6.93% 8.69% 8.26% 8.83%
Average equity to
average assets ....... 7.45% 9.10% 8.87% 9.11% 8.47% 9.70% 9.77%
Interest rate spread
during the
period (2) ........... 3.98% 4.00% 4.01% 3.99% 3.82% 3.42% 3.66%
Net yield on average
interest-earning
assets ............... 4.76% 4.78% 4.78% 4.71% 4.37% 4.09% 4.04%
Other expense to
average assets ....... 4.20% 4.61% 4.39% 3.73% 3.49% 3.91% 3.54%
AT THE END OF THE PERIOD:
Ratio of average interest-
earning assets to
average interest-
bearing liabilities .. 1.21 1.22 1.21 1.19 1.18 1.23 1.01
Nonperforming loans,
and foreclosed real
estate as a percentage
of total assets ...... 0.26% 0.32% 0.46% 1.01% 0.81% 0.26% 0.54%
Allowance for loan losses
as a percentage
of total loans ....... 1.25% 1.17% 1.04% 1.11% 1.04% 1.14% 1.29%
Allowance for loan
losses as
a percentage of
nonperforming
loans ................ 320.17% 216.83% 388.20% 312.03% 933.93% 269.11% 278.80%
Total number of
offices .............. 9 7 8 5 4 4 3
Full service banking
offices .............. 9 7 8 5 4 4 3
Total shares
outstanding at
end of period ........ 3,342,676 3,158,941 3,326,030 3,277,755 2,461,801 2,461,078 2,474,000
Book value per
share (1) ............ $ 4.21 4.01 3.94 3.82 3.22 3.21 2.96
</TABLE>
- ------------------------
(1) All per share information is presented to reflect all stock dividends
and stock splits.
(2) Difference between weighted-average yield on all interest-earning
assets and weighted-average rate on all interest-bearing liabilities.
47
<PAGE> 51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Gulf West is a one-bank holding company and owns 100% of the
outstanding stock of Mercantile. Mercantile is a Florida state chartered
commercial bank. Mercantile, through nine banking offices, provides a wide range
of banking services to individuals and businesses located primarily in Pinellas
and Hillsborough Counties, Florida. During 1996, Gulf West acquired all the
outstanding common shares of Liberty Leasing Corporation ("Liberty"), a Florida
corporation, in exchange of 30,000 shares of Gulf West's Common Stock. Liberty
is an equipment leasing company that arranges financing for a variety of
equipment for all types of businesses and is headquartered in Tampa. The
acquisition has been accounted for using the purchase method of accounting.
Liberty had nominal assets and liabilities and $157,000 was recorded as
goodwill. The goodwill is being amortized over ten years and is included in
other assets. Gulf West's only business activities are the operations of
Mercantile and Liberty. An inactive subsidiary of the Bank, Portfolio Recoveries
Inc., was dissolved in 1995. Collectively the entities are referred to herein as
"Gulf West."
Gulf West's consolidated assets amounted to $184.5 million at September
30, 1997, an increase of 5.5% over total assets of $174.8 million as of December
31, 1996. During the nine months ended September 30, 1997, loans receivable
increased from $112.9 million to $121.2 million. Gulf West's portfolio of
investment securities decreased to $35.5 million as of September 30, 1997 from
$40.2 million as of December 31, 1996. Gulf West's deposits increased to $166.4
million as of September 30, 1997 from $149.3 million as of December 31, 1996, a
11.5% increase. Gulf West had consolidated net earnings of $712,000 or $0.21 per
share for the nine months ended September 30, 1997 compared to consolidated net
earnings of $72,000 or $0.02 per share for the 1996 period.
At December 31, 1996, Gulf West had total consolidated assets of $174.8
million, an increase of 38.8% over total assets of $125.9 million at December
31, 1995. During the year ended December 31, 1996, loans receivable increased
$39.0 million or 52.8%. The Company's portfolio of investment securities
increased to $40.2 million as of December 31, 1996 from $33.5 million as of
December 31, 1995. Gulf West's deposits increased to $149.3 million as of
December 31, 1996 from $109.2 million as of December 31, 1995, a 36.7% increase.
The Company had consolidated net earnings of $314,000 or $.10 per share for the
year ended December 31, 1996 compared to consolidated net earnings of $708,000
or $.25 per share for 1995. The consolidated net earnings for the year ended
December 31, 1996 included the effect of the SAIF special assessment of $470,000
(before taxes).
REGULATION AND LEGISLATION
As a state-chartered commercial bank, Mercantile is subject to
extensive regulation by the Department and the FDIC. Mercantile files reports
with the Department and the FDIC concerning its activities and financial
condition, in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with or acquisitions of other financial
institutions. Periodic examinations are performed by the Department and the FDIC
to monitor Mercantile's compliance with the various regulatory requirements.
Gulf West and Mercantile are also subject to regulation and examination by the
Federal Reserve Board of Governors. As a Florida corporation, Mercantile is also
subject to the FBCA, the FFIC and the regulation of the Florida Department of
State under the authority to administer and implement the Florida Act.
PENDING ACQUISITION
On July 31, 1997, Gulf West, Mercantile, and Citizens National entered
into the Merger Agreement whereby Citizens National will merge with and into
Mercantile. Gulf West will issue 1,950,000 shares of Gulf West Common Stock in
exchange for all the outstanding shares of Citizens National Common Stock. This
transaction is subject to the approval of Citizens National's Stockholders and
various regulatory authorities. Gulf West expects to account for this
transaction using the purchase method of accounting in accordance with GAAP.
48
<PAGE> 52
CREDIT RISK
Mercantile's primary business is making commercial, business, consumer
and real estate loans. That activity entails potential loan losses, the
magnitude of which depend on a variety of economic factors affecting borrowers
which are beyond the control of Mercantile. While management has instituted
underwriting guidelines and credit review procedures to protect Mercantile from
avoidable credit losses, some losses will inevitably occur.
The following table sets forth certain information regarding nonaccrual
loans and foreclosed real estate, including the ratio of such loans and
foreclosed real estate to total assets as of the dates indicated, and certain
other related information.
<TABLE>
<CAPTION>
AT SEPTEMBER 30 AT DECEMBER 31,
1997 1996 1995
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans:
Residential real estate loans ........................................ $ 46 91 -
Commercial real estate ............................................... 892 628 747
Commercial loans ..................................................... 185 41 -
Consumer loans and other ............................................. 2 39 26
------ --- -----
Total nonaccrual loans ............................................. 1,125 799 773
------ --- -----
Total nonperforming loans .......................................... 1,125 799 773
------ --- -----
Total nonperforming loans to total assets .......................... .61% .46% .61%
====== === =====
Foreclosed real estate:
Real estate acquired by foreclosure or deed
in lieu of foreclosure ............................................. -- -- 497
------ --- -----
Total nonperforming loans and foreclosed real estate ............. $1,125 799 1,270
====== === =====
Total nonperforming and foreclosed real estate to total assets.... .61% .46% 1.01%
====== === =====
</TABLE>
Interest income that would have been recorded under the original terms
of nonaccrual loans and the interest income actually recognized are summarized
below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31,
------------------- ----------------
1997 1996 1996 1995
---- ----- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income that would have been recognized ....... $81 48 82 23
Interest income recognized ............................ 63 31 66 15
--- --- --- ---
$18 17 16 8
=== === === ===
</TABLE>
The following table sets forth information with respect to activity in
Mercantile's allowance for loan losses during the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31,
----------------------- ---------------------
1997 1996 1996 1995
--------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Average loans outstanding, net ........................... $ 114,183 82,963 87,000 65,747
========= ======= ======== =======
Allowance at beginning of period ......................... 1,184 830 830 663
--------- ------- -------- -------
Charge-offs:
Commercial loans ................................... (36) -- -- (41)
Consumer loans ..................................... (50) (49) (54) (57)
--------- ------- -------- -------
Total loans charged-off .................... (86) (49) (54) (98)
--------- ------- -------- -------
Recoveries ............................................... 37 5 7 25
--------- ------- -------- -------
Net charge-offs ............................ (49) (44) (47) (73)
--------- ------- -------- -------
Provision for loan losses charged to operating expenses .. 405 296 401 240
--------- ------- -------- -------
Allowance at end of period ............................... $ 1,540 1,082 1,184 830
========= ======= ======== =======
Ratio of net charge-offs to average loans outstanding .... .0004 .0005 .0005 .0011
========= ======= ======== =======
Allowance as a percent of total loans at end of period ... 1.26% 1.19% 1.04% 1.11%
--------- ------- ======== =======
Total loans at end of period ............................. $ 121,920 91,022 114,065 74,654
========= ======= ======== =======
</TABLE>
49
<PAGE> 53
The following table presents information regarding Mercantile's total
allowance for loan losses as well as the allocation of such amounts to the
various categories of loans:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1996 1995
----------------------- ---------------------
% OF % OF
LOANS TO LOANS TO
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
--------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial loans ................................. $ 179 15.9% $ 136 19.5%
Commercial real estate loans ..................... 782 55.4 447 37.2
Residential real estate loans .................... 67 19.4 120 33.4
Consumer loans ................................... 156 9.3 127 9.9
--------- ------- -------- -------
Total allowance for loan losses ............ $ 1,184 100.0% $ 830 100.0%
========= ======= ======== =======
</TABLE>
RESULTS OF OPERATIONS
The operating results of Gulf West depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities, consisting
primarily of deposits. Net interest income is determined by the difference
between yields earned on interest-earning assets and rates paid on
interest-bearing liabilities ("interest-rate spread") and the relative amounts
of interest-earning assets and interest-bearing liabilities. Gulf West's
interest-rate spread is affected by regulatory, economic and competitive factors
that influence interest rates, loan demand and deposit flows. In addition, Gulf
West's net earnings are also affected by the level of nonperforming loans and
foreclosed real estate, as well as the level of its noninterest income, and its
noninterest expenses, such as salaries and employee benefits, occupancy and
equipment costs and provisions for losses on foreclosed real estate and income
taxes.
The following tables sets forth for the periods indicated, information
regarding (i) the total dollar amount of interest and dividend income of Gulf
West from interest-earning assets and the resultant average yields; (ii) the
total dollar amount of interest expense on interest-bearing liabilities and the
resultant average cost; (iii) net interest/dividend income; (iv) interest-rate
spread; (v) interest margin; and (vi) ratio of average interest-earning asset to
average interest-bearing liabilities.
50
<PAGE> 54
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1996 1995
------------------------------- ---------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- ------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) .............................. $ 87,000 8,272 9.51% $ 65,747 6,326 9.62%
Securities ............................. 33,387 2,086 6.25% 29,573 1,842 6.23%
Other interest-earning assets (2) ...... 9,084 486 5.35% 4,714 279 5.92%
-------- ------- -------- -----
Total interest-earning assets ...... 129,471 10,844 8.38% 100,034 8,447 8.44%
------- -----
Noninterest-earning assets ................ 14,966 12,159
-------- --------
Total assets ....................... $144,437 $112,193
======== ========
Interest-bearing liabilities:
Savings and NOW deposits ............... 28,219 812 2.88% 21,501 645 3.00%
Money-market deposits .................. 11,716 317 2.70% 10,068 304 3.02%
Time deposits .......................... 61,226 3,260 5.32% 50,245 2,669 5.31%
Other borrowings ....................... 5,447 270 4.96% 2,073 118 5.69%
-------- ------- -------- -----
Total interest-bearing liabilities . 106,608 4,659 4.37% 83,887 3,736 4.45%
------- -------- -----
Demand deposits ........................... 25,005 17,671
Noninterest-bearing liabilities ........... 17 415
Stockholders' equity ...................... 12,807 10,220
-------- --------
Total liabilities and stockholders'
equity ........................... $144,437 $112,193
======== ========
Net interest income ....................... $ 6,185 $4,711
======= ======
Interest-rate spread (3) .................. 4.01% 3.99%
==== =====
Net Yield on Interest Earning Assets (4)... 4.78% 4.71%
==== =====
Ratio of average interest-earning assets to
average interest-bearing liabilities ... 1.21 1.19
======== ========
</TABLE>
- --------------------------------
(1) Includes nonaccrual loans.
(2) Includes interest-bearing deposits, federal funds sold and securities
purchased under agreements to resell.
(3) Interest-rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-
bearing liabilities.
(4) Net interest margin is net interest income dividend by average
interest-earning assets.
51
<PAGE> 55
RATE/VOLUME ANALYSIS
The following table sets forth certain information regarding changes in
interest income and interest expense of Gulf West for the periods indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in rate (change
in rate multiplied by prior volume), (2) changes in volume (change in volume
multiplied by prior rate) and (3) changes in rate-volume (change in rate
multiplied by change in volume).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 VS. 1994
---------------------------------------------------------
INCREASE (DECREASE) DUE TO
---------------------------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
--------- ------- -------- -------
(In thousands)
<S> <C> <C> <C> <C>
Interest earning assets:
Loans ........................................ $ (73) 2,043 (24) 1,946
Securities ................................... 6 237 1 244
Other interest-earning assets ................ (27) 259 (25) 207
--------- ------- -------- -------
Total ...................................... (94) 2,539 (48) 2,397
--------- ------- -------- -------
Interest-bearing liabilities:
Deposit accounts:
Savings and NOW deposits ................... (26) 201 (8) 167
Money market deposits ...................... (32) 50 (5) 13
Time deposits .............................. 5 584 2 591
Other borrowings ........................... (15) 192 (25) 152
--------- ------- -------- -------
Total deposit accounts ..................... (68) 1,027 (36) 923
--------- ------- -------- -------
Net change in net interest income ................ $ (26) 1,512 (12) 1,474
========= ======= ======== =======
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 VS. 1994
---------------------------------------------------------
INCREASE (DECREASE) DUE TO
---------------------------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
--------- ------- -------- -------
(In thousands)
<S> <C> <C> <C> <C>
Interest earning assets:
Loans ........................................ $ 721 715 107 1,543
========= ======= ======== =======
Securities ................................... 182 372 55 609
========= ======= ======== =======
Other interest-earning assets ................ 53 68 28 149
========= ======= ======== =======
Total ...................................... 956 1,155 190 2,301
========= ======= ======== =======
Interest-bearing liabilities:
Deposit accounts:
Savings and NOW deposits ................... 141 122 53 316
========= ======= ======== =======
Money market deposits ...................... 59 (74) (13) (28)
========= ======= ======== =======
Time deposits .............................. 349 451 88 888
========= ======= ======== =======
Other borrowings ........................... 16 19 4 39
========= ======= ======== =======
Total deposit accounts ..................... 565 518 132 1,215
========= ======= ======== =======
Net change in net interest income ................ $ 391 637 58 1,086
========= ======= ======== =======
</TABLE>
52
<PAGE> 56
LIQUIDITY AND CAPITAL RESOURCES
A Florida chartered commercial bank is required to maintain a liquidity
reserve of at least 15% of its total transaction accounts and 8% of its total
nontransaction accounts less deposits of certain public funds. The liquidity
reserve may consist of cash on hand, cash on demand with other correspondent
banks and other investments and short-term marketable securities as determined
by the rules of the Department, such as federal funds sold and United States
securities or securities guaranteed by the United States or agencies thereof. As
of September 30, 1997 and December 31, 1996, the Bank has liquidity of
approximately $53.2 million and $52.2 million, or approximately 31.4% and 32.3%
of total deposits combined with borrowings, respectively.
During the nine months ended September 30, 1997, Gulf West's primary
sources of funds consisted of principal payments on loans and securities sales
and maturities of securities and net increases in deposits. Gulf West used its
capital resources principally to purchase investment securities and fund
existing and continuing loan commitments. At September 30, 1997, Gulf West had
commitments to originate loans totaling $3.3 million. Scheduled maturities of
certificates of deposit during the 12 months following September 30, 1997
totaled $62.0 million as of September 30, 1997. Management believes Gulf West
has adequate resources to fund all its commitments, that substantially all of
its existing commitments will be funded within the next twelve months and, if so
desired, that it can adjust the rates on certificates of deposit to retain
deposits in a changing interest-rate environment.
During the year ended December 31, 1996, Gulf West's primary sources of
funds consisted of principal payments on loans and investment securities,
proceeds from sales and maturities of securities available for sale and net
increases in deposits. Gulf West used its capital resources principally to
purchase investment securities and fund existing and continuing loan
commitments. At December 31, 1996, Gulf West had commitments to originate loans
totaling $7.6 million. Scheduled maturities of certificates of deposit during
the 12 months following December 31, 1996 totaled $53.2 million as of December
31, 1996.
The following table sets forth the carrying value of Gulf West's
investment portfolio as of the dates indicated (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1996 1995
------- ------
<S> <C> <C>
Securities available for sale:
U.S. agency obligations .................. $ 1,008 5,900
Municipal obligations .................... 699 700
U.S. Treasury securities ................. 15,967 10,966
Mortgage-backed securities ............... 22,557 15,923
------- ------
Total available for sale .................... $40,231 33,489
======= ======
</TABLE>
The following table sets forth, by maturity distribution, certain
information pertaining to the investment securities portfolio at December 31,
1996 (dollars in thousands):
<TABLE>
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
ONE YEAR OR LESS TO FIVE YEAR TO TEN YEARS
------------------------ ----------------------- ------------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD
--------- ------- --------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996:
U.S. agency
obligations .... $ - -% $ 1,008 7.00% $ - -%
Municipal
obligations .... 350 5.39 249 5.67 100 6.28
U.S. Treasury
securities ..... 2,507 5.63 13,460 5.72 -
Mortgage-backed
securities ..... 2,462 7.08 9,454 7.08 4,738 7.08
--------- --------- ---------
Total .......... $ 5,319 6.28% $ 24,171 6.30% $ 4,838 7.06%
========= ===== ========= ========= ========= ======
<CAPTION>
AFTER TEN YEARS TOTAL
----------------------- -----------------------
CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996:
U.S. agency
obligations .... $ - -% $ 1,008 7.00%
Municipal
obligations .... - - 699 5.62
U.S. Treasury
securities ..... - - 15,967 5.70
Mortgage-backed
securities ..... 5,903 7.08 22,557 7.08
--------- ---------
Total .......... $ 5,903 7.08% $ 40,231 6.51%
========= ========= ========= =========
</TABLE>
53
<PAGE> 57
REGULATORY CAPITAL REQUIREMENTS
Under FDIC regulations, Mercantile is required to meet certain minimum
regulatory capital requirements. This is not a valuation allowance and has not
been created by charges against earnings. It represents a restriction on
stockholders' equity.
Quantitative measures established by regulation to ensure capital
adequacy require Mercantile 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 September 30, 1997, that
Mercantile meets all capital adequacy requirements to which it is subject.
As of September 30, 1997, the most recent notification from the state
and federal regulators categorized Mercantile 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 below. There are no
conditions or events since that notification that management believes have
changed Mercantile's category.
54
<PAGE> 58
The following table summarizes the FDIC's capital requirements for
Mercantile:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
------------------- -------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AT SEPTEMBER 30, 1997:
Total Capital
(to Risk-Weighted Assets)..... $14,604 11.2% $10,432 8.0% $13,040 10.0%
Tier I Capital
(to Risk-Weighted Assets)..... 13,189 10.1 5,216 4.0 7,824 6.0
Tier I Capital
(to Average Assets) .......... 13,189 7.1 7,483 4.0 9,354 5.0
AT DECEMBER 31, 1996:
Total Capital
(to Risk-Weighted Assets) .... 13,719 11.4% 9,664 8.0% 12,079 10.0%
Tier I Capital
(to Risk-Weighted Assets) .... 12,535 10.4 4,832 4.0 7,248 6.0
Tier I Capital
(to Average Assets) .......... 12,535 7.7 6,495 4.0 8,118 5.0
</TABLE>
ASSET AND LIABILITY MANAGEMENT
As part of its asset and liability management, Gulf West has emphasized
establishing and implementing internal asset-liability decision processes, as
well as communications and control procedures to aid in managing Gulf West's
earnings. Management believes that these processes and procedures provide Gulf
West with better capital planning, asset mix and volume controls, loan-pricing
guidelines, and deposit interest-rate guidelines which should result in tighter
controls and less exposure to interest-rate risk.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest-rate sensitive" and by
monitoring an institution's interest-rate sensitivity "gap." An asset or
liability is said to be interest-rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest-rate sensitivity
gap is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period.
The gap ratio is computed as dividing rate-sensitive assets by rate-sensitive
liabilities. A gap ratio of 1.0% represents perfect matching. A gap is
considered positive when the amount of interest-rate sensitive assets exceeds
interest-rate sensitive liabilities. A gap is considered negative when the
amount of interest-rate sensitive liabilities exceeds interest-rate sensitive
assets. During a period of rising interest rates, a negative gap would adversely
affect net interest income, while a positive gap would result in an increase in
net interest income. During a period of falling interest rates, a negative gap
would result in an increase in net interest income, while a positive gap would
adversely affect net interest income.
Since gap analysis does not take into account the probability that
potential maturities or repricings of interest-rate sensitive assets and
liabilities will occur, or the relative magnitude of the repricings, Gulf West
also uses an industry standard computer modeling system to perform "Income
Simulation Analysis." Income simulation analysis captures not only the potential
of assets and liabilities to mature or reprice but the probability that they
will do so. In addition, income simulation analysis attends to the relative
sensitivities of balance sheet items and projects their behavior over an
extended period of time and permits management to assess the probable effects on
balance sheet items of not only changes in market interest rates but also of
proposed strategies for responding to such changes.
On a quarterly basis, management of Gulf West performs an income
simulation analysis to determine the projected effect on net interest income of
both a 200 basis point increase and a 200 basis point decrease in the level of
interest rates. These scenarios assume that the 200 basis point rate changes
occur in even monthly increments over twelve months and then hold constant for
an additional twelve months. The volatility of net interest income over this
twenty-four month period in both an up and down rate scenario is measured by
reference to the levels of such income in a flat rate scenario. Gulf West has
55
<PAGE> 59
established guidelines for the acceptable volatility of net interest income for
the twenty-four month period and management institutes appropriate strategies
designed to keep the volatility levels within those guidelines.
In order to minimize the potential for adverse effects of material and
prolonged increases in interest rates on the results of operations, Gulf West's
management continues to monitor asset and liability management policies to
better match the maturities and repricing terms of its interest-earning assets
and interest-bearing liabilities. Such policies have consisted primarily of: (i)
emphasizing the origination of adjustable-rate loans; (ii) maintaining a stable
core deposit base; and (iii) maintaining a significant portion of liquid assets
(cash and short-term investments).
Gulf West has also maintained a relatively large portfolio of liquid
assets (cash and assets maturing or repricing in one year or less) in order to
reduce its vulnerability to shifts in market rates of interest. At December 31,
1996, 8% of Gulf West's total assets consisted of cash and short-term U.S.
Government securities maturing in one year or less. Furthermore, as of such
date, the Company's liquidity ratio was 32.3%.
Gulf West also seeks to maintain a large stable core deposit base by
providing quality service to its customers without significantly increasing its
cost of funds or operating expenses. The success of Gulf West's core deposit
strategy is demonstrated by the stability and growth of its demand accounts,
money-market deposit accounts, savings accounts and NOW accounts, which totaled
$77.3 million, representing 51.8% of total deposits at December 31, 1996.
Management anticipates that these accounts will increase and in the future
comprise a significant portion of its deposit base.
As of December 31, 1996, Gulf West's one-year negative interest-rate
sensitivity gap in dollars was $56.7 million. Although management believes that
the implementation of the foregoing strategies has reduced the potential adverse
effects of changes in interest rates on Gulf West's results of operations, any
substantial and prolonged increase in market rates of interest could have an
adverse impact on Gulf West's results of operations. As discussed above, on a
quarterly basis management performs an income simulation analysis to measure the
volatility of Gulf West's projected net interest income when subjected to 200
basis point interest rate shocks. As a result of this simulation analysis,
management believes that its present gap position is appropriate for the current
interest rate environment and that a negative gap will continue in the one year
time period.
56
<PAGE> 60
The following table sets forth certain information relating to Gulf
West's interest-earning assets and interest-bearing liabilities at December 31,
1996 that are estimated to mature or are scheduled to reprice within the period
shown.
<TABLE>
<CAPTION>
More Than More Than More Than
One Month to Three Months Six Months One Year More Than
Three Months To Six Months To One Year To Five Years Five Years Total
------------ ------------- ----------- ------------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Loans (1),(2):
Adjustable rate ................... $ 30,351 3,602 9,140 45,135 800 89,028
Fixed rate ........................ 970 35 318 5,201 3,881 10,405
Consumer and other loans .......... 5,243 294 105 6,391 2,599 14,632
-------- ------- ------- ------- ------ -------
Total loans .................. 36,564 3,931 9,563 56,727 7,280 114,065
Investments (3),(4) ................... 3,356 1,005 1,852 17,261 20,113 43,587
-------- ------- ------- ------- ------ -------
Total rate-sensitive assets .. 39,920 4,936 11,415 73,988 27,393 157,652
-------- ------- ------- ------- ------ -------
Deposit accounts (5):
Savings and NOW ................... 33,733 -- -- -- -- 33,733
Money market ...................... 13,976 -- -- -- -- 13,976
Time deposits ..................... 19,781 14,426 18,956 18,832 30 72,025
-------- ------- ------- ------- ------ -------
Total deposit accounts ................ 67,490 14,426 18,956 18,832 30 119,734
Other borrowings ...................... 12,047 -- -- -- -- 12,047
-------- ------- ------- ------- ------ -------
Total rate-sensitive liabilities .. 79,537 14,426 18,956 18,832 30 131,781
-------- ------- ------- ------- ------ -------
Gap (repricing differences) ........... $(39,617) (9,490) (7,541) 55,156 27,363 25,871
======== ======= ======= ======= ====== =======
Cumulative GAP ........................ $(39,617) (49,107) (56,648) (1,492) 25,871
======== ======= ======= ======= ======
Cumulative GAP/total assets ........... (22.66)% (28.09)% (32.40)% (.85)% 14.80%
======== ======= ======= ======= ======
</TABLE>
- -------------------------
(1) In preparing the table above, adjustable-rate loans are included in the
period in which the interest rates are next scheduled to adjust rather
than in the period in which the loans mature. Fixed-rate loans are
scheduled, including repayment, according to their contractual
maturities.
(2) Includes nonaccrual loans.
(3) Investments are scheduled according to their respective repricing and
maturity dates.
(4) Includes federal funds sold.
(5) NOW accounts and savings accounts are regarded as readily accessible
withdrawable accounts. All other time accounts are scheduled according
to their respective maturity dates.
57
<PAGE> 61
The following table reflects the contractual principal repayments by period
of Gulf West's loan portfolio at December 31, 1996.
<TABLE>
<CAPTION>
RESIDENTIAL
YEARS ENDING COMMERCIAL MORTGAGE CONSUMER
DECEMBER 31, LOANS LOANS LOANS TOTAL
------------ -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997 .......... $21,449 605 2,619 24,673
1998 .......... 8,048 817 2,163 11,028
1999 .......... 6,068 662 1,996 8,726
2000-2001 ..... 10,718 1,635 2,855 15,208
2002-2003 ..... 6,782 1,200 617 8,599
2004-2011 ..... 28,311 6,736 344 35,391
Thereafter .... - 10,440 - 10,440
------- ------ ------ -------
Total .... $81,376 22,095 10,594 114,065
======= ====== ====== =======
</TABLE>
Of the $89.4 million of loans due after 1997, 25% of such loans have fixed
interest rates and 75% have adjustable rates.
The following table displays loan originations by type of loan and
principal reductions during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1996 1995
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Originations:
Commercial loans ............... $ 12,543 8,030
Commercial real estate loans ... 49,234 18,342
Residential real estate ........ 3,125 2,314
Consumer loans ................. 9,689 8,979
-------- -------
Total loans originated ...... 74,591 37,665
Principal reductions ................. (35,180) (27,070)
-------- -------
Increase in gross loans ..... $ 39,411 10,595
======== =======
</TABLE>
The following table sets forth information concerning Gulf West's loan
portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------
1996 1995
------------------------- --------------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
--------- -------- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial loans ........................... $ 18,169 15.9% $ 14,531 19.5%
Commercial real estate loans ............... 63,207 55.4 27,772 37.2
Residential real estate loans .............. 22,095 19.4 24,949 33.4
Consumer loans ............................. 10,594 9.3 7,402 9.9
--------- ----- -------- -----
Total loans ............................ 114,065 100.0% 74,654 100.0%
===== =====
Less:
Deferred loan fees ....................... (221) (134)
Allowance for loan losses ................ (1,184) (830)
--------- --------
Loans, net ............................. $ 112,660 $ 73,690
========= ========
</TABLE>
58
<PAGE> 62
The following table shows the distribution of, and certain other information
relating to, deposit accounts by type:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------
1996 1995
--------------------- ---------------------
% OF % OF
AMOUNT DEPOSIT AMOUNT DEPOSIT
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Demand deposits .............................. $ 29,601 19.8% $ 20,106 18.4%
Savings and NOW deposits ..................... 33,733 22.6 25,754 23.6
Money-market deposits ........................ 13,976 9.4 11,530 10.6
Time deposits ................................ 72,025 48.2 51,802 47.4
-------- -------- -------- --------
Total deposits ............................... $149,335 100.0% $109,192 100.0%
======== ======== ======== ========
</TABLE>
Jumbo certificates ($100,000 and over) mature as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996
------
(IN THOUSANDS)
<S> <C>
Due three months or less ..................................... $ 7,357
Due over three months to six months .......................... 3,628
Due over six months to one year .............................. 6,757
Due over one year ............................................ 4,938
-------
$22,680
=======
</TABLE>
The scheduled maturities of time deposits are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996
------
(IN THOUSANDS)
<S> <C>
Due in one year or less .................................... $53,170
Due in more than one but less than three years ............. 16,696
Due in more than three but less than five years ............ 2,159
Due in over five years ..................................... 0
-------
$72,025
=======
</TABLE>
The following table sets forth the net deposit flows of Gulf West during the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1996 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Net increase before interest credited ...................... $35,508 9,075
Net credited ............................................... 4,635 3,745
------- ------
Net deposit increase .................................. $40,143 12,820
======= ======
</TABLE>
The following table shows the average amount of and the average rate paid on
each of the following interest-bearing deposit account categories during the
periods indicated:
<TABLE>
<CAPTION>
1996 1995
----------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE YIELD BALANCE YIELD
--------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Savings and NOW deposits .............................. $ 28,219 2.88% $ 21,501 3.00%
Money-market deposits ................................. 11,716 2.70 10,068 3.02
Time deposits ......................................... 61,226 5.32 50,245 5.31
--------- ----- -------- -----
Total interest-bearing deposits .................. $ 101,161 4.34% $ 81,814 4.42%
========= ===== ======== =====
</TABLE>
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COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
GENERAL
Net earnings for the nine months ended September 30, 1997 were $712,000 or
$0.21 per share compared to net earnings of $72,000 or $.02 per share for the
nine months ended September 30, 1996. This increase in Gulf West's net earnings
was primarily due to an increase in net interest income and noninterest income,
partially offset by an increase in noninterest expenses, provision for loan
losses and income taxes.
INTEREST INCOME AND EXPENSE
Interest income increased from $7.7 million for the nine months ended
September 30, 1996 to $10.4 million for the nine months ended September 30,
1997. Interest income on loans increased $2.1 million due an increase in the
average loan portfolio balance from $82.9 million for the nine period ended
September 30, 1996 to $114.2 million for the nine-month period ended September
30, 1997, partially offset by a decrease in the weighted-average yield earned on
the portfolio. Interest on investment securities increased $675,000 due to an
increase in the average yield earned from 6.18% in 1996 to 6.47% in 1997, as
well as an increase in the average investment securities portfolio to $43.3
million in 1997 from $30.8 million in 1996. Interest on other interest-earning
assets decreased $115,000 due to a decrease in average other interest-earning
assets from $9.9 million in 1996 to $7.0 million in 1997.
Interest expense increased to $4.5 million for the nine months ended
September 30, 1997 from $3.3 million for the nine months ended September 30,
1996. Interest expense on deposit accounts increased primarily due to an
increase in average interest-bearing deposit balances from $96.4 million during
the nine months ended September 30, 1996 to $125.9 million for the comparable
period in 1997. Interest expense on other borrowings increased $199,000 from
$187,000 to $386,000 primarily due to an increase in average borrowings from
$5.0 million in 1996 to $9.7 million in 1997 as well as an increase in average
rates. The average cost of all interest-bearing liabilities increased from 4.34%
for the nine months ended September 30, 1996 to 4.46% for the nine months ended
September 30, 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses is charged to earnings to bring the total
allowance to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by Mercantile,
industry standards, the amounts of nonperforming loans, general economic
conditions, particularly as they relate to Mercantile's market areas, and other
factors related to the collectibility of Mercantile's loan portfolio. The
provision increased from $296,000 for the nine months ended September 30, 1996
to $405,000 for the nine months ended September 30, 1997. This increase resulted
from growth in the loan portfolio. Management believes that the allowance for
loan losses of $1,540,000 is adequate at September 30, 1997.
NONINTEREST INCOME
Total noninterest income increased $564,000 for the nine months ended
September 30, 1997 compared to the 1996 period, principally from an increase in
leasing fees and commissions due to the acquisition of Liberty Leasing on
September 1, 1996 and service fees on deposits.
NONINTEREST EXPENSE
Total noninterest expense increased $929,000 to $5.7 million for the nine
months ended September 30, 1997 from $4.8 million for the nine months ended
September 30, 1996, primarily due to an increase in salaries and employee
benefits and occupancy expense relating to additional banking offices opened in
1996 and 1997. Also, the SAIF special assessment was incurred in 1996, with no
comparable amount in 1997.
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COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
GENERAL
Net earnings for the year ended December 31, 1996 were $314,000 or $.10 per
share compared to $708,000 or $.25 per share for the year ended December 31,
1995. This decrease in Gulf West's net earnings was primarily due to an increase
in noninterest expenses, including the one-time SAIF special assessment,
partially offset by an increase in net interest income and noninterest income as
well as a decrease in income taxes.
INTEREST INCOME AND EXPENSE
Interest income increased by $2.4 million from $8.4 million for the year
ended December 31, 1995 to $10.8 million for the year ended December 31, 1996.
Interest income on loans increased $1.9 million due an increase in the average
loan portfolio balance from $65.7 million for the year ended December 31, 1995
to $87.0 million for 1996, partially offset by a decrease in the weighted
average yield from 9.6% in 1995 to 9.5% in 1996. Interest on securities
increased $244,000 due to an increase in the average securities balance from
$29.6 million in 1995 to $33.4 million in 1996, as well as an increase in
average yield from 6.2% in 1995 to 6.3% in 1996. Interest on other
interest-earning assets increased $207,000 primarily due to an increase from
$4.7 million in average other interest-earning assets in 1995 to $9.1 million in
1996, partially offset by a decrease in weighted average yield.
Interest expense increased to $4.7 million for the year ended December 31,
1996 from $3.7 million for the year ended December 31, 1995. Interest expense on
deposit accounts and other borrowings increased because of a $22.7 million
increase in the average balance, which was only partially offset by a decrease
of 8 basis points in the average yield paid on deposits and other borrowings.
PROVISION FOR LOAN LOSSES
The provision for loan losses is charged to earnings to bring the total
allowance to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by Mercantile,
industry standards, the amounts of nonperforming loans, general economic
conditions, particularly as they relate to Mercantile's market areas, and other
factors related to the collectibility of Mercantile's loan portfolio. The
provision increased from $240,000 for the year ended December 31, 1995 to
$401,000 for the year ended December 31, 1996. The increase in the loan loss
provision resulted from growth in the loan portfolio. Management believes that
the allowance for loan loss of $1,184,000 is adequate at December 31, 1996.
NONINTEREST INCOME
Total noninterest income increased $182,000 for the year ended December 31,
1996 compared to 1995 primarily from an increase in leasing fees due to the
acquisition of Liberty Leasing on September 1, 1996 and commissions, service
fees on deposit accounts and other income.
NONINTEREST EXPENSE
Total noninterest expense increased $2.1 million for the year ended
December 31, 1996 compared to 1995, primarily due to an increase in employee
compensation and benefits, occupancy and equipment expenses, the SAIF special
assessment, as well as other expenses. The increase in compensation and
occupancy expense was related to new banking offices opened during 1996.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared in accordance with GAAP, which requires the measurement of financial
position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation. Unlike most industrial companies, substantially all of the assets and
liabilities of Gulf West are monetary in nature. As a result, interest rates
have a more significant impact on Mercantile's performance than the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services, since
such prices are affected by inflation to a larger extent than interest rates.
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FUTURE ACCOUNTING REQUIREMENTS
The FASB has issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"). This statement specifies the computation,
presentation and disclosure requirements for net earnings per share for entities
with publicly-held common stock. SFAS 128 is effective for both interim and
annual periods ending after December 15, 1997 and upon adoption, all prior
period net earnings per share data presented will be restated to conform with
SFAS 128.
SUPERVISION AND REGULATION
Mercantile and Gulf West are subject to a number of statutes and
regulations affecting financial institutions. These laws and regulations are
intended to protect depositors, not stockholders. The following excerpts of
certain material statutes and regulations are meant to be illustrative and do
not purport to include all laws and regulations to which Mercantile and Gulf
West are subject. Such summaries are qualified in their entirety by reference to
such statutes and regulations. Any change in applicable laws or regulations may
have a material effect on the business and prospects of Gulf West or Mercantile.
Gulf West and Mercantile are unable to predict the nature or the extent of the
effect on its business and earnings that monetary policies, economic control, or
new federal or state legislation may have in the future.
SUPERVISION AND REGULATION OF GULF WEST
FEDERAL LAW. The Bank Holding Company Act of 1956. As a bank holding
company, Gulf West is subject to the Bank Holding Company Act of 1956, as
amended (the "BHCA") and to regulation by the Board of Governors of the Federal
Reserve System (the "Federal Reserve"). Gulf West must file annual reports with
the Federal Reserve and provide the Federal Reserve with such other information
and reports as the Federal Reserve may request from time to time. The Federal
Reserve is also authorized to conduct examinations of Gulf West and each of its
subsidiaries, including Mercantile.
Under the BHCA, prior approval of the Federal Reserve will be required for
any acquisition by Gulf West of more than 5% of the stock of any other bank or
bank holding company, or for merging or consolidating with another bank holding
company. Gulf West, except as noted below, is also prohibited from acquiring a
direct or indirect interest in or control of more than 5% of the voting shares
of any company which is not a bank, including any foreign company, and from
engaging directly or indirectly in activities other than those of banking,
managing or controlling banks or furnishing services to its subsidiaries.
Control is conclusively presumed to exist if an individual or company acquires
25% or more of any class of voting securities of the bank holding company. Under
Federal Reserve regulations applicable to Gulf West, after registration of its
Common Stock under the Exchange Act control will be rebuttably presumed to exist
if a person acquires at least 10% of the outstanding shares of any class of
voting securities of Gulf West. Gulf West may, however, with Federal Reserve
approval, engage in, and may own shares of companies engaged in, certain
activities found by the Federal Reserve to be "so closely related to banking or
managing or controlling banks as to be a proper incident thereto".
To date, the Federal Reserve has stated that the following activities,
among others, come within the above-quoted standard under certain limitations
set out more fully in Regulation Y: (1) making or acquiring, for its own account
or for the account of others, loans and other extensions of credit such as would
be made, for example, by a mortgage, finance, credit card or factoring company;
(2) operating an industrial bank, Morris Plan bank or industrial loan company;
(3) servicing loans and other extensions of credit for any person; (4)
performing or carrying on any of the activities that may be performed or carried
on by a trust company; (5) acting as investment or financial adviser for a
mortgage investment or real estate investment trust or for a registered
investment company, providing general financial advice to state and local
governments; (6) leasing personal property and real estate, or acting as agent,
broker or adviser in connection therewith, where the lease serves as the
functional equivalent of an extension of credit to the lessee of the property
and the transaction meets certain other specified criteria; (7) making equity
and debt investments designed primarily to promote community welfare; (8)
providing bookkeeping or data processing services for the bank holding company
and its subsidiaries or storing and processing certain other banking, financial
or related economic data; (9) acting as insurance agent or broker with respect
to any insurance for the bank holding company and its subsidiaries or with
respect to certain types of insurance written in connection with the extension
of credit by the bank or bank-related subsidiaries of the bank holding company
or written under certain other circumstances; (10) acting as an underwriter for
credit life insurance and credit accident and health insurance which is directly
related to extension of credit by the bank holding company system; (11)
providing courier services for certain purposes; (12) providing management
consulting advice to nonaffiliated banks under specified conditions; (13)
selling at retail money orders, travelers checks and United States savings
bonds; (14) performing appraisals of real property; (15) acting as intermediary
for the financing of commercial or industrial income-producing real estate in
certain large transactions; (16) providing
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securities brokerage services, related securities credit activities and
incidental activities; (17) underwriting and dealing in obligations of the
United States, general obligations of the state and their political subdivisions
and certain other obligations; (18) providing general information and
forecasting with respect to foreign exchange markets and certain transaction
service with respect to foreign exchange; (19) acting as a futures commission
merchant for nonaffiliated persons in the execution and clearing on major
commodity exchanges of futures contracts and options on futures contracts for
certain monetary instruments; (20) providing investment advice as a futures
commissions merchant or as a commodity trading adviser with respect to certain
monetary instruments; (21) providing advice, educational courses and instruction
materials to consumers on individual financial management matters; (22)
providing individual businesses and nonprofit organization tax planning and tax
preparation services; (23) authorizing subscribing merchants to accept personal
checks tendered by the merchants' customers in payment of goods and services and
purchasing from the merchant validly authorized checks that are subsequently
dishonored; (24) collecting overdue accounts receivable for third parties and
maintaining files on the past credit histories on consumers and providing that
information to a credit grantor who is considering a borrower's application for
credit; and (25) owning, controlling or operating a savings association, if the
savings association engages only in deposit-taking activities and lending and
other activities which are permissible for bank holding companies.
In determining whether a particular activity is permissible, the Federal
Reserve must consider whether the performance of such an activity reasonably can
be expected to produce benefits to the public, such as greater convenience,
increased competition, or gains in efficiency, that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices. For example,
factoring accounts receivable, acquiring or servicing loans, leasing personal
property, conducting discount securities brokerage activities, performing
certain data processing services, acting as agent or broker in selling credit
life insurance and certain other types of insurance in connection with credit
transactions, and performing certain insurance underwriting activities all have
been determined by the Federal Reserve to be permissible activities of bank
holding companies. The BHCA does not place territorial limitations on
permissible nonbanking activities of bank holding companies. Despite prior
approval, the Federal Reserve has the power to order a bank holding company or
its subsidiaries to terminate any activity or to terminate its ownership or
control of any subsidiary when it has reasonable cause to believe that
continuation of such activity or such ownership or control constitutes a serious
risk to the financial safety, soundness, or stability of any bank subsidiary of
that bank holding company.
The BHCA further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community served. The Federal Reserve is also required to consider the
financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the communities
to be served. Consideration of financial resources generally focuses on capital
adequacy, and consideration of convenience and needs issues includes the
parties' performance under the Community Reinvestment Act of 1977 (the "CRA").
Under Federal Reserve policy, bank holding companies are expected to act as
a sources of financial strength to, and to commit resources to support, their
subsidiary banks. This support may be required at times when, absent such
Federal Reserve policy, the holding company may not be inclined to provide it.
In addition, any capital loans by a bank holding company to any bank subsidiary
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority payment.
The Federal Deposit Insurance Corporation Improvement Act of 1991. The
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
establishes several requirements and restrictions applicable to insured banks
that are deemed to be "undercapitalized." These provisions also affect bank
holding companies that control undercapitalized banks. Among these provisions
are restrictions on capital distributions, including dividend payments,
restrictions on asset growth, the establishment of branch offices and merger and
acquisition transactions, as well as provisions requiring bank holding companies
to guarantee the capital adequacy of certain subsidiary banks and the
divestiture of both bank and nonbank subsidiaries by bank holding companies in
certain circumstances.
The Financial Institution Reform, Recovery and Enforcement Act of 1989. The
Financial Institution Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
generally allows bank holding companies to acquire healthy savings
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and loan associations as well as failed or failing savings and loan
associations. However, FIRREA also provides for a cross guarantee which may
require a multi-bank holding company to indemnify the Federal Deposit Insurance
fund against losses it incurs with respect to such company's affiliated banks,
effectively making a bank holding company's equity investment in healthy bank
subsidiaries available to the FDIC to assist the company's failing or failed
bank subsidiaries.
FIRREA also grants regulatory agencies the ability to levy expanded civil
and criminal penalties against certain "institution-affiliated parties" who
cause or are likely to cause material financial loss to or a significant adverse
effect on a regulated institution or who knowingly or recklessly violate a law
or regulation, breach a fiduciary duty or engage in an unsafe or unsound
practice. Institution-affiliated parties are defined to include management,
employees, and agents of a financial institution, independent contractors such
as attorneys and accountants and others who participate in the conduct of the
financial institution's affairs. These practices can include the failure of an
institution to timely file required reports, the filing of false or misleading
information, or the submission of inaccurate reports. Civil penalties may be as
high as $1 million a day for such violations. Criminal penalties for some
financial institution crimes have been increased to 20 years. In addition,
regulators are provided with greater flexibility to commence enforcement actions
against institutions and institution-affiliated parties. Possible enforcement
actions include the termination of deposit insurance. Furthermore, FIRREA
expands the appropriate banking agencies' power to issue cease and desist orders
that may, among other things, require affirmative action to correct any harm
resulting from a violation or practice, including restitution, reimbursement,
indemnification or guarantees against loss. A financial institution may also be
ordered to restrict its growth, dispose of certain assets, rescind agreements or
contracts, or take other actions as determined by the ordering agency to be
appropriate.
FLORIDA LAW. The provisions of the Florida Business Corporation Act apply
to Gulf West.
The Regional Reciprocal Bank Act of 1984 (Florida Statutes, Section
658.295) allows regional interstate banking by permitting banking organizations
in certain Southeastern states (Alabama, Arkansas, Florida, Georgia, Louisiana,
Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Texas,
Virginia, West Virginia and the District of Columbia) to acquire Florida banking
organizations if Florida banking associations are allowed to acquire banking
organizations in their states. As a result of this legislation, banking
organizations in other states have entered the Florida market through
acquisitions of Florida institutions.
The Regional Reciprocal Bank Act of 1984 was repealed effective May 1,
1995, and was replaced with the Florida Reciprocal Banking Act (Florida
Statutes, Section 658.295) (the "Act"). The Act permits entry into Florida by an
out-of-state bank holding company only by acquisition of a Florida bank or a
Florida bank holding company (except that an out-of-state bank holding company
may acquire all or substantially all of the shares of a bank organized solely
for the purpose of facilitating the acquisition of a bank which has been in
existence and continuously operated as a bank for more than three years), if the
approval of the Department, is obtained. The term "out-of-state bank holding
company" means a bank holding company that has its principal place of business
in a state other than Florida or the District of Columbia. The term "Florida
bank" means a bank that is organized under the laws of Florida or the United
States and that has banking offices located only in Florida. The term "Florida
bank holding company" means a bank holding company that has its principal place
of business in Florida and which is not controlled by an out-of-state bank
holding company.
The foregoing approval need not be obtained by a bank holding company that
controlled a Florida bank or Florida bank holding company subsidiary that was
acquired before May 14, 1994 and that was not acquired in a transaction
involving assistance by the Federal Deposit Insurance Corporation and under
certain other circumstances specified in the Act.
The Act gives the Department power to enforce the prohibitions of the Act
through the imposition of fines and penalties, the issuance of cease and desist
orders, injunctions, divestiture orders, and such other remedies as are provided
by law.
GLASS-STEAGALL ACT. Gulf West is restricted in its activities by the
provisions of the Glass-Steagall Act, which prohibits Gulf West from engaging as
principal in the issue, flotation, underwriting, public sale, or distribution of
securities. The interpretation, scope and application of the provisions of the
Glass-Steagall Act currently are being considered and reviewed by regulators and
legislators and the interpretation and application of certain of those
provisions have been challenged in the federal courts.
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SUPERVISION AND REGULATION OF MERCANTILE
Mercantile is organized as a Florida-chartered commercial bank and its
operations are primarily subject to supervision and regulation by the State of
Florida and as a non-member bank, the FDIC. Florida and federal regulations
include requirements for the maintenance of reserves against deposits, as well
as restrictions relating to loans, investments, payment of dividends, branching,
and other activities. Accordingly, the Department and the FDIC conduct regular
examinations of Mercantile, reviewing the adequacy of the loan loss reserves,
quality of loans and investments, liquidity, propriety of management practices,
compliance with laws and regulations, and other aspects of the Mercantile's
operations. In addition to these regular examinations, Mercantile must furnish
to the FDIC quarterly reports containing detailed financial statements and
schedules.
THE FDIC. Mercantile is subject to deposit insurance assessments. The FDIC
establishes rates for the payment of premiums by federally insured banks and
savings associations for deposit insurance. A Bank Insurance Fund ("BIF") is
maintained for commercial banks and a Savings Association Insurance Fund
("SAIF") is maintained for savings associations. Although Mercantile is a
commercial bank, its deposits of up to $100,000 (the maximum amount currently
permitted by law) for each account holder are insured by SAIF because Mercantile
was originally incorporated as a federal savings association. In September of
1992, the FDIC adopted regulations which established, beginning in 1993, a
risk-based deposit insurance premium system for all insured depository
institutions, including Mercantile. Under those regulations, institutions are
divided into three groups--well capitalized, adequately capitalized, and
under-capitalized--based on criteria consistent with those established pursuant
to the prompt corrective action provisions of the FDICIA. Each of these groups
is further divided into three subgroups, based on a subjective evaluation of
risk to the insurance fund posed by the institution. Insurance premium rates are
then established for each of the nine categories with the lowest rate being
charged to those institutions that are well- capitalized and are considered to
pose little or no risk to the insurance fund. From January, 1993 to October,
1996, the premiums ranged from 23 to 31 basis points per $100 of insured
deposits. Mercantile's premium during this time period was equal to the lowest
rate of 23 basis points per $100 of insured deposits. On September 30, 1996, the
Deposit Insurance Funds Act of 1996 was enacted which, among other things,
placed a special assessment on all SAIF insured deposits for the purpose of
recapitalizing the SAIF fund to the targeted reserve ratio of 1.25% of insured
deposits. Mercantile's portion of this assessment was $470,111 and was paid in
September, 1996. As a result of the SAIF recapitalization, the FDIC was able to
lower premium assessment rates while simultaneously widening the spread between
the lowest and highest rates to improve the effectiveness of the FDIC's risk
based premium system. For the last quarter of 1996 and for calendar year 1997,
the highest premium rate is 27 basis points per $100 of insured deposits while
the well-capitalized, lowest risk institutions pay no premium. Mercantile paid
no SAIF premium for the last quarter of 1996 and likewise is not being assessed
a premium in 1997. Another provision of the Deposit Insurance Funds Act of 1996
was to separate, effective January 1, 1997, the Financing Corporation (the
"FICO") assessment to service the interest on its bond obligations from the SAIF
assessment. Starting on that date, the amount assessed individual institutions
by the FICO will be in addition to the amount paid for deposit insurance
according to the FDIC's risk-related assessment rate schedules. The Act
established the FICO rate on BIF assessable deposits to be one-fifth the rate on
SAIF assessable deposits until January 1, 2000, or the funds are merged,
whichever occurs first. The FDIC may change the rates quarterly to reflect
changes in the assessment bases for the BIF and the SAIF. For the first nine
months of 1997, the FICO assessment rate for SAIF assessable deposits was 6.48
basis points annually and 1.30 basis points for BIF assessable deposits.
Federal and Florida banking laws and regulations govern all areas of the
operations of Mercantile, including reserves, loans, mortgages, capital,
issuances of securities, payment of dividends, liquidity requirements and
establishment of branches. As its primary federal regulator, the FDIC has
authority to impose penalties, initiate civil and administrative actions, and
take other steps intended to prevent Mercantile from engaging in unsafe or
unsound practices. SAIF insurance of deposits may be terminated by the FDIC,
after notice and hearing, upon a finding that an institution has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC. When
conditions warrant, the FDIC may impose less severe sanctions as an alternative
to termination of insurance. Management of Mercantile does not know of any
present condition pursuant to which the FDIC would seek to impose sanctions on
Mercantile or terminate insurance of its deposits.
Mercantile also is subject to the provisions of the CRA. Under the CRA,
Mercantile has a continuing and affirmative obligation consistent with its safe
and sound operation to help meet the credit needs of its entire communities,
including low-and moderate-income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit Mercantile's discretion to develop the types of products and services that
it believes are best suited to its particular communities, consistent with the
CRA. The CRA requires the appropriate federal bank regulatory agency (in the
case of Mercantile, the FDIC), in connection with its regular examination of a
bank, to assess the bank's record in meeting the credit needs of the community
serviced by the bank. The FDIC's assessment of Mercantile's record is made
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available to the public. Further, such assessment is required whenever
Mercantile applies to, among other things, establish a new branch that will
accept deposits, relocate an existing office or merge or consolidate with, or
acquire the assets of or assume the liabilities of, a federally-regulated
financial institution. Mercantile received a "Satisfactory" CRA rating in its
most recent examination.
In April 1995, the federal banking agencies adopted amendments revising
their CRA regulations, with a phase-in schedule applicable to various
provisions. Among other things, the amended CRA regulations, which became
effective on July 1, 1997, substitute for the prior process-based assessment
factors a new evaluation system that will rate an institution based on its
actual performance in meeting community needs. In particular, the system will
focus on three tests: (i) a lending test, to evaluate the institution's record
of making loans in its service areas; (ii) an investment test, to evaluate the
institution's record of investing in community development projects; and (iii) a
service test, to evaluate the institution's delivery of services through its
branches and other offices. The amended CRA regulations also clarify how an
institution's CRA performance will be considered in the application process.
Mercantile does not anticipate that the revised CRA regulations will have any
material impact on Mercantile's operations or that they will have any impact on
Mercantile's CRA rating.
LOANS, INTEREST RATES AND CONSUMER SERVICES. Interest and certain other
charges collected or contracted for by Mercantile are subject to state usury
laws and certain federal laws concerning interest rates. Mercantile's loan
operations are also subject to federal laws applicable to credit transactions,
such as the Federal Truth-in-Lending Act governing disclosures of credit terms
to consumer borrowers, the CRA requiring financial institutions to meet their
obligations to provide for the total credit needs of the communities they serve,
including investing their assets in loans to low and moderate income borrowers,
the Home Mortgage Disclosure Act providing information to enable the public and
public officials to determine whether a financial institution is fulfilling its
obligation to meet the housing needs of the community it serves, the Equal
Credit Opportunity Act prohibiting discrimination on the basis of race, creed or
other prohibited factors in extending credit, the Fair Credit Reporting Act
governing the use and provision of information to credit reporting agencies, the
Fair Debt Collection Practices Act governing the manner in which consumer debts
may be collected by collection agencies, and the rules and regulations of
various federal agencies charged with the responsibility of implementing such
federal laws. The deposit operations of Mercantile are subject to the Electronic
Funds Transfer Act and Regulation E issued by the Federal Reserve Board to
implement that Act, which govern automatic deposits to and withdrawals from
deposit accounts and customers' rights and liabilities arising from the use of
automated teller machines and other electronic banking services, and the
Truth-in-Savings Act which governs disclosure of the fees and yields upon
deposit accounts with Mercantile. All of the services provided by Mercantile to
its customers are subject to the Right to Financial Privacy Act, which imposes a
duty to maintain confidentiality of consumer financial records and prescribes
procedures for complying with the administrative subpoenas of financial records.
INTEREST RATE RISK AND GOVERNMENTAL MONETARY POLICY. The earnings of Gulf
West and Mercantile can be significantly affected by the policies of the Federal
Reserve Board, which regulates the money supply in order to mitigate
recessionary and inflationary pressures in the United States economy. Among the
techniques used to implement these objectives are open market operations in
United States government securities, changes in the rates paid by banks on bank
borrowings, changes in reserve requirements against bank deposits, and
limitations on interest rates which banks may pay on time and savings deposits.
These techniques are used in varying combinations to influence overall growth
and distribution of bank loans, investments, and deposits and their use also may
affect interest rates charged on loans or paid for deposits. The nature of
future monetary policies and the effect of such policies on the future business
and earnings of Mercantile and Gulf West cannot be predicted accurately.
The monetary policies of the Federal Reserve Board have had a significant
effect on the operating results of commercial banks in the past, and are
expected to do so in the future. Controls on interest rates paid by banks on
deposits and the types of deposits that may be offered by banks are also
important. The authority of the Depository Institutions Deregulation Committee
("DIDC"), created by Congress in 1980 to set ceilings on time, savings and NOW
accounts, expired on March 31, 1986, and has left the prohibition of payment of
interest on demand deposits as the only regulatory deposit-rate constraint. The
effect of the deregulation of deposit interest rates has been to make banks'
costs of funds, and thus their profits and liquidity, more sensitive to
fluctuations in money market rates.
PAYMENT OF DIVIDENDS
As a Florida-chartered commercial bank, Mercantile is subject to the laws
of Florida as to the payment of dividends. Under the Florida Financial
Institutions Code, the prior approval of the Department is required if the total
of all dividends
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<PAGE> 70
declared by a bank in any calendar year will exceed the sum of the bank's net
profits for that year and its retained net profits for the preceding two years.
Under Federal law, if, in the opinion of the federal banking regulator, a
bank or thrift under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), such regulation
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Prompt
Corrective Action regulations adopted by the federal banking agencies in
December 1992, a depository institution may not pay any dividend to its holding
company if payment would cause it to become undercapitalized or if it already is
undercapitalized.
Due to Mercantile's anticipated continued growth and management's intent to
maintain certain regulatory capital levels, dividend payments on the Gulf West
Common Stock are not expected in the foreseeable future.
RISK BASED CAPITAL REGULATIONS
Gulf West and Mercantile are required to comply with the capital adequacy
standards established by the Federal Reserve (for Gulf West), and the FDIC (for
Mercantile). There are three basic measures of capital adequacy for banks that
have been promulgated by the Federal Reserve; two risk-based measures and a
leverage measure. All applicable capital standards must be satisfied for a bank
holding company to be considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guidelines for the ratio of total capital ("Total Capital") to
risk-weighted assets (including certain off-balance-sheet items, such as standby
letters of credit) is 8%. At least half of Total Capital (i.e., 4% of
risk-weighted assets) must comprise common stock, minority interests in the
equity accounts of consolidated subsidiaries, noncumulative perpetual preferred
stock, and a limited amount of cumulative perpetual preferred stock, less
goodwill and certain other intangible assets ("Tier 1 Capital"). The remainder
may consist of subordinated debt, other preferred stock, and a limited amount of
loan loss reserves ("Tier 2 Capital"). In addition, the Federal Reserve has
established minimum leverage ratio guidelines for bank holding companies. These
guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less
goodwill and certain other intangible assets, of 3% for bank holding companies
that meet certain specified criteria, including having the highest regulatory
rating. All other bank holding companies generally are required to maintain a
Leverage Ratio of at least 3.0%, plus an additional cushion of 100 to 200 basis
points. The guidelines also provide that bank holding companies experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets. Furthermore, the Federal Reserve has
indicated that it will consider a "tangible Tier I Capital leverage ratio"
(deducting all intangibles) and other indicators of capital strength in
evaluating proposals for expansion or new activities.
FEDERAL RESERVE SYSTEM
The Federal Reserve regulations require banks to maintain
non-interest-earning reserves against their transaction accounts (primarily NOW
and regular checking accounts). The new Federal Reserve regulations effective
April 1, 1997, generally require that reserves be maintained against aggregate
transaction accounts as follows: (i) for accounts aggregating $49.3 million or
less (subject to adjustment by the Federal Reserve) the reserve requirement is
3.0%; and (ii) for accounts greater than $49.3 million, the reserve requirement
is $1.5 million plus 10.0% (subject to adjustment by the Federal Reserve between
8.0% and 14.0%) against that portion of total transaction accounts in excess of
$49.3 million. The first $4.4 million of otherwise reservable balances (subject
to adjustments by the Federal Reserve) are exempted from the reserve
requirements. Mercantile anticipates that it will be in compliance with the
foregoing requirements. The balances maintained to meet the reserve requirements
imposed by the Federal Reserve may be used to satisfy liquidity requirements
imposed by the Department. Because required reserves must be maintained in the
form of either vault cash, a noninterest-bearing account at a Federal Reserve
Bank or a pass-through account as defined by the Federal Reserve, the effect of
this reserve requirement is to reduce Mercantile's interest-earning assets.
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<PAGE> 71
LIQUIDITY
Under Florida banking regulations, Mercantile is required to maintain a
daily liquidity position equal to at least 15 percent of its total transaction
accounts and eight percent of its total nontransaction accounts, less those
deposits of public funds for which security has been pledged as provided by law.
Mercantile may satisfy its liquidity requirements with cash on hand (including
cash items in process of collection), deposits held with the Federal Reserve,
demand deposits due from correspondent banks, Federal funds sold,
interest-bearing deposits maturing in 31 days or less and the market value of
certain unencumbered, rated, investment-grade securities and securities issued
by Florida or any county, municipality or other political subdivision within the
State. The FDIC also reviews Mercantile's liquidity position as part of its
examination and imposes similar requirements on Mercantile. Any
Florida-chartered commercial bank that fails to comply with its liquidity
requirements generally may not further diminish liquidity either by making any
new loans (other than by discounting or purchasing bills of exchange payable at
sight) or by paying dividends. At September 30, 1997, Mercantile's net liquid
assets exceeded the minimum amount required under the applicable Florida
regulations.
MONETARY POLICY AND ECONOMIC CONTROLS
The banking business is affected not only by general economic conditions,
but also by the monetary policies of the Federal Reserve. Changes in the
discount rate on member bank borrowing, availability of borrowing at the
"discount window," open market operations, the imposition of changes in reserve
requirements against bank deposits and the imposition of and changes in reserve
requirements against certain borrowings by banks and their affiliates are some
of the instruments of monetary policy available to the Federal Reserve. The
monetary policies have had a significant effect on the operating results of
commercial banks and are expected to continue to do so in the future. The
monetary policies of the Federal Reserve are influenced by various factors,
including inflation, unemployment and short- and long-term changes in the
international trade balance and in the fiscal policies of the United States
Government. Future monetary policies and the effect of such policies on the
future business and earnings of the Mercantile cannot be predicted.
OTHER REGULATORY LIMITATIONS. Mercantile, Liberty and Gulf West are "affiliates"
within the meaning of the Federal Reserve Act. As such, the amount of loans or
extensions of credit which Mercantile may make to Gulf West and Liberty or to
third parties secured by securities or obligations of Gulf West or Liberty are
substantially limited by the Federal Reserve Act and the FDIC. Such acts further
restrict the range of permissible transactions between a bank and an affiliated
company.
RECENT LEGISLATION. In September 1994, Congress enacted the Riegle-Neal
Interstate Banking and Branching Efficiency Act (the "Interstate Banking Act"),
which allows the Federal Reserve Board (the "Board") to approve an application
by a bank holding company to acquire control of, or acquire all or substantially
all of the assets of, a bank located in a state other than the home state of
such bank holding company, without regard to whether such transaction is
prohibited under the law of any state. However, the Board may not approve an
application that would have the effect of permitting an out-of-state bank
holding company to acquire a bank in a host state that has not been in existence
for the minimum period of time, if any, specified in the statutory law of the
host state, unless the bank in question has been in existence for at least five
years, in which case the Federal Reserve Board may approve the acquisition
without regard to any longer minimum period of time specified in a statutory law
of the host state. Under the Interstate Banking Act, the Board may not approve
an application if (1) the applicant and certain affiliates control, or upon
consummation of the acquisition would control, more than ten percent of the
total amount of deposits of insured depository institutions in the United
States; or (2) immediately before the acquisition the applicant (including
certain affiliates) controls any insured depository institution or any branch of
an insured depository institution in the home state of any bank to be acquired
or in any host state in which any such bank maintains a branch and the applicant
(including certain affiliates), upon consummation of the acquisition, would
control thirty percent or more of the total amount of deposits of insured
depository institutions in any such state.
Notwithstanding the provisions discussed above, the Interstate Banking Act
permits states to limit the percentage of the total amount of deposits of
insured depository institutions in the state which may be held or controlled by
any bank or bank holding company to the extent such limitation does not
discriminate against out-of-state banks, out-of-state bank holding companies, or
subsidiaries of such banks or holding companies. The provisions discussed above
became effective in September, 1995.
The Interstate Banking Act also provides that, beginning June 1, 1997, the
responsible agency may approve a merger transaction between insured banks with
different home states, without regard to whether such transaction is prohibited
under the law of any state, unless the transaction involves a bank the home
state of which has enacted a law after the date of
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enactment of the Interstate Banking Act and before June 1, 1997, that (1)
applies equally to all out-of-state banks; and (2) expressly prohibits merger
transactions involving out-of-state banks. However, a merger transaction may be
approved before June 1, 1997, if the home state of each bank involved in the
transaction has in effect, as of the date of the approval of such transaction, a
law that (1) applies equally to all out-of-state banks, and (2) expressly
permits interstate merger transactions with all out-of-state banks. An
interstate merger transaction may involve the acquisition of a branch of an
insured bank without the acquisition of the bank only if the law of the state in
which the branch is located permits out-of-state banks to acquire a branch of a
bank in such state without acquiring the bank. For this purpose the branch bank
shall be treated as an insured bank the home state of which is the state in
which the branch is located. Various other provisions of the Interstate Banking
Act have the effect of facilitating mergers between insured banks with different
home states and the opening of branches in states other than a bank's home
state.
The chances for enactment of legislation containing additional measures
which would affect the ability of Mercantile of Gulf West to engage in various
activities, or the possibility of elimination of burdensome regulations, in the
future is at present uncertain.
REGULATION OF SALE OF SECURITIES
Gulf West is subject to federal and state securities laws which regulate
any sale of its securities. Accordingly, Gulf West must either register with the
SEC and the securities regulators of the various states in which it offers such
securities, or it must avail itself of an exemption from such registration under
the applicable securities laws.
THE FOREGOING IS AN ATTEMPT TO SUMMARIZE SOME OF THE RELEVANT LAWS, RULES
AND REGULATIONS GOVERNING BANKS AND BANK HOLDING COMPANIES. IT DOES NOT,
HOWEVER, PURPORT TO BE A COMPLETE SUMMARY OF ALL APPLICABLE LAWS, RULES AND
REGULATIONS GOVERNING MERCANTILE AND GULF WEST.
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MANAGEMENT OF GULF WEST
DIRECTORS AND EXECUTIVE OFFICERS
The bylaws of Gulf West and Mercantile both provide that directors will be
divided into three classes with the number of directors in each class being as
nearly equal as possible. The terms of all members of one class expire in the
same year and each class is elected for a three-year term. The members of the
Board of Directors of Gulf West were all elected for the first time in 1994. All
of the directors of Mercantile are directors of Gulf West. There are no
arrangements or understandings between either Gulf West or Mercantile or any
director or executive officer pursuant to which any such individual has been
elected a director or executive officer of Gulf West or Mercantile. All
executive officers of Gulf West and Mercantile hold office at the pleasure of
their respective Boards of Directors. The following table sets forth the names
of the directors and executive officers of Gulf West and Mercantile, their ages,
and positions held by them with Gulf West and Mercantile.
<TABLE>
<CAPTION>
POSITION(S) POSITION(S) DIRECTOR OF TERM
NAME AGE WITH GULF WEST WITH MERCANTILE BANK SINCE EXPIRES(1)
- ---- --- ------------------ ------------------------ ----------- -------
<S> <C> <C> <C> <C> <C>
Robert A. Blakley 49 Vice President Executive Vice President N/A N/A
Gordon W. Campbell 65 Chairman/President Chairman/President 1990 2000
John Wm. Galbraith 76 Director N/A N/A 2000
Thomas M. Harris 64 Director Director 1986 1998
Algis Koncius 53 Director Director 1989 1999
Barry K. Miller 49 Secretary/Treasurer Executive Vice President/ N/A N/A
Secretary/Treasurer
Louis P. Ortiz, CPA 53 Director Director 1986 1999
John C. Petagna, Jr. 48 Director Director 1994 2000
P. N. Risser, III 56 Director Director 1986 1999
Ross E. Roeder 59 Director Director 1995 1998
John T. Sica 57 Vice President Executive Vice President N/A N/A
Douglas Winton 50 Vice President Executive Vice President N/A N/A
</TABLE>
(1) To the extent any of the directors are directors of both Gulf West and
Mercantile, the terms of their directorships are concurrent.
Biographical information about the executive officers and directors of
Mercantile and Gulf West is set forth below. All such information has been
furnished to Gulf West by each such person.
GORDON W. CAMPBELL has served as director of Gulf West, in the capacity of
Chairman of the Board, and President of Gulf West since its inception and has
served as Chairman of the Board and President of Mercantile since 1990. He was
Chairman of SouthTrust Bank of Tampa (formerly Gulf/Bay Bank) from 1985 to 1990,
Vice Chairman of NCNB National Bank, Tampa from 1983-1984 and President and CEO
of Exchange Bancorp of Tampa from 1974-1983.
JOHN WM. GALBRAITH has served as director of Gulf West since its inception
and served as a director of Mercantile from 1990 to 1996. He has been the
President and owner of Galbraith Properties, Inc. since 1991, through which he
conducts his personal investments. He was Chairman of Templeton Funds
Management, Inc., a mutual funds management company
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located in St. Petersburg, Florida from 1974-1992, and was re-elected to the
Board in 1995 and continues to serve as a director presently.
THOMAS M. HARRIS has served as director of Gulf West since its inception
and has served as a director of Mercantile since 1986. He has been a partner
with the law firm of Harris, Barrett, Mann & Dew in St. Petersburg, Florida,
since 1979.
ALGIS KONCIUS has served as director of Gulf West since its inception and
has served as a director of Mercantile since 1989. He has been the owner and
President of Koncius Enterprises, a real estate investment company in
Cincinnati, Ohio, since 1968.
LOUIS P. ORTIZ, CPA has served as director of Gulf West since its inception
and has served as a director of Mercantile since 1986. He has been a partner
with the public accounting firm of McNulty, Garcia & Ortiz, P.A. located in St.
Petersburg, Florida, since 1972.
JOHN C. PETAGNA, JR. has served as director of Gulf West since its
inception and began serving as a director of Mercantile in 1994. He has been the
President of American Municipal Securities, Inc., an investment brokerage firm
with headquarters in St. Petersburg, Florida, since 1980.
P. N. RISSER, III has served as director of Gulf West since its inception
and has been a director of Mercantile since 1986. Since 1975 he also has been
the Chairman and Chief Executive Officer of Risser Oil Corporation which is
involved in the petroleum industry with headquarters in Clearwater, Florida.
ROSS E. ROEDER joined the Board of Gulf West and Mercantile in 1995. Mr.
Roeder was Chairman and CEO of M.D.R., Inc., an international consulting group
from 1980 to present. He is also Chairman of Morgan Kaufman Publishers, San
Francisco, California; a director of Smart & Final Stores Corporation, Vernon,
California; a director of HTI Technologies, Inc., St. Petersburg, Florida; a
director of Henry Lee, Miami, Florida; a director of Chicos FAS, Inc., Ft.
Myers, Florida; and a director of Port Stockton Foods, Stockton, California.
BARRY K. MILLER serves as Executive Vice President, Chief Financial
Officer, Corporate Secretary and Treasurer of Mercantile and has held an officer
position with Mercantile since 1986. He is also Corporate Secretary and
Treasurer of Gulf West. He has over 25 years of banking experience.
ROBERT A. BLAKLEY serves as Chairman of the Board of Liberty Leasing
Corporation, Vice President of Gulf West and Executive Vice President of
Mercantile and manages all bank lending functions. He has been with Mercantile
since 1991. Prior to joining Mercantile he was with Southeast Bank from 1989 to
1991 as Vice President in Commercial Lending. He has been in the banking
business since 1978.
JOHN T. SICA serves as Vice President of Gulf West and as Executive Vice
President of Mercantile, with responsibility for administration of Mercantile's
branch office network. He joined Mercantile in 1993. Prior to joining Mercantile
he was Executive Vice President and Chief Operating Officer with SouthTrust Bank
of Tampa where he was employed from 1985 to 1993.
DOUGLAS WINTON serves as Vice President of Gulf West and as Executive Vice
President of Mercantile with responsibility for community banking, marketing,
and business development. He joined Mercantile in 1995. Prior to joining
Mercantile, he was President, Chief Executive Officer and a director of The
Terrace Bank in Temple Terrace, Florida.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The compensation of the executive officers of Gulf West and Mercantile is
established from time to time by the respective Boards of Directors. Currently,
the executive officers of Gulf West are not compensated for their services. The
following table shows the aggregate compensation paid by Mercantile for the last
three years to Messrs. Campbell and Miller (the "Named Officers"). There was no
other executive officer of Gulf West or Mercantile whose total annual salary and
bonus exceeded $100,000 for the periods indicated.
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<PAGE> 75
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------------------------------------
All
Other Other
Name & Principal Salary Bonus Annual Compensation(2)
Position Year ($) ($) Compensation(1) ($)
---------------- ---- ------- ------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Gordon W. Campbell 1996 145,000 14,500 6,000 5,182
Chairman and President 1995 145,000 -- 1,000 2,662
1994 134,583 -- -- 2,086
Barry K. Miller 1996 100,000 10,000 6,000 3,630
Executive Vice President 1995 100,000 -- 1,000 1,841
Secretary/Treasurer 1994 97,520 -- -- 1,512
</TABLE>
(1) An automobile allowance of $500 per month instituted in November, 1995.
(2) Represents Bank's match of officer's contribution to 401(k) plan.
Directors of Gulf West are currently paid an annual retainer fee of $2,100.
In 1997, this fee was paid to the directors in the form of 420 shares of Gulf
West Common Stock. Directors of Mercantile who are otherwise employed by
Mercantile are not compensated for their services as directors. Outside
directors of Mercantile are currently paid $500 per each Board meeting attended
and $100 per each committee meeting attended.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information with respect to the Named
Officers concerning the exercise of options during 1996 and unexercised options
held by the Named Officers at fiscal year end.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Acquired on Value Options held at 12/31/96 At 12/31/96
Name Exercise (#) Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Gordon W. Campbell -0- $-0- 97,125/10,500 207,375/21,840
Barry K. Miller -0- -0- 52,500/0 92,925/0
</TABLE>
- -----------------
OPTION/SAR GRANTS IN LAST FISCAL YEAR AND LONG-TERM INCENTIVE PLANS
No options were granted to Messrs. Campbell or Miller during 1996, and
there are no long-term incentive programs for Messrs. Campbell or Miller.
SALARY CONTINUATION AGREEMENTS
Mercantile has entered into agreements with five of its executive officers
whereby Mercantile has agreed to make certain payments to the executives upon
their severance or retirement and to their designated beneficiaries in the event
of their deaths. The payments will be made to the officers or beneficiaries over
a period of fifteen years. The table below provides information relative to each
of the executives covered under this plan.
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<PAGE> 76
<TABLE>
<CAPTION>
ANNUAL BENEFIT RETIREMENT EFFECTIVE VESTING
OFFICER AT RETIREMENT DATE DATE PERIOD
------- -------------- ---------- --------- --------
<S> <C> <C> <C> <C>
Gordon W. Campbell....... $50,000 9/1/02 8/17/92 10 years
Barry K. Miller ........ $50,000 2/1/14 1/01/94 20 years
Robert A. Blakley ....... $50,000 2/1/14 1/01/94 20 years
John T. Sica............. $25,000 6/1/05 5/01/95 10 years
Douglas Winton........... $40,000 2/1/13 1/01/97 16 years
</TABLE>
Mercantile has not committed to fund these agreements and the covered
executives or their beneficiaries shall be general creditors of Mercantile in
the same manner as any other creditor having an unsecured claim against
Mercantile.
The cost of providing these benefits is being accrued by Mercantile over
the working lives of the executives. The benefits are self-funded because the
plan is self-funded. Mercantile will have use of these assets for investment in
Mercantile's loan and securities portfolio throughout the term. These accruals
are charged to employee benefit expense on Mercantile's income statement. The
table below shows the amount which was or will be charged to expense by period
indicated.
<TABLE>
<CAPTION>
TIME EXPENSE AMOUNT
---- --------------
<S> <C>
1995 $ 66,000
1996 76,000
1997 96,000
1998 106,000
1999 115,000
2000 124,000
2001-2005 524,000
2006-2010 421,000
</TABLE>
KEY MAN LIFE INSURANCE
Mercantile is the beneficiary of life insurance contracts purchased on
the lives of five of its executive officers. These policies are whole life
policies with the premiums paid either lump sum at inception or over a five year
period. The cash values of these policies are carried as an asset on Gulf West's
financial statements. Information relative to these policies is shown below.
<TABLE>
<CAPTION>
CASH VALUE AT
INSURED PREMIUM FACE AMOUNT DECEMBER 31, 1996
------- ------- ----------- -----------------
<S> <C> <C> <C>
Robert A. Blakley............. $ 42,187(1) $ 771,235 $ 75,532
$100,000(2) $ 285,000 $107,538
Gordon W. Campbell............ $500,000(3) $ 900,000 $602,522
Barry K. Miller............... $ 58,014(1) $1,026,895 $103,369
John T. Sica.................. $200,000(4) $ 428,000 $214,157
Douglas Winton................ $305,000(5) $ 775,000 Issued in 1997
</TABLE>
(1) Annual premium paid over five year period from 1993-1997. Insurer
is Confederation Life Insurance Company (U.S.).
(2) Lump sum premium paid in 1995. Insurer is West Coast Life
Insurance Company.
(3) Lump sum premium paid in 1992. Insurer is Alexander Hamilton Life
Insurance Company of America.
(4) Lump sum premium paid in 1995. Insurer is Chubb Life America.
(5) Lump sum premium paid in 1997. Insurer is The Mutual Group.
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<PAGE> 77
The life insurance policies on Mr. Blakley and Mr. Miller were placed
through the United States subsidiary of Confederation Life Insurance Company
("Confederation"), a Canadian mutual insurance company. In August 1994, the
Canadian parent was placed in liquidation by the Canadian courts and the U.S.
subsidiary was placed in rehabilitation by the Michigan Commissioner of
Insurance. While in rehabilitation, all payouts of accumulated cash values have
been suspended until a course of action has been determined by the
rehabilitators. Several options exist, including the sale of portions or all of
Confederation. Mercantile has been advised that Confederation is continuing to
honor death benefit claims. Until this matter has been resolved, Mercantile has
discontinued making the annual premium payments on the Increasing Whole Life
Rider portion of the coverages amounting to $52,740 for Mr. Miller and $38,352
for Mr. Blakley. The base policy premiums are being paid out of accumulated cash
values. In addition, Mercantile has suspended the accrual of any earnings on
these policies. The State of Florida has a Florida Guarantee Fund which pays up
to $100,000 in cash surrender values per insured individual should a life
insurance company fail. Mercantile was informed in March, 1997, that the
liquidator of Confederation has entered into an Assumption Reinsurance Agreement
(the "Reinsurance Agreement") with Phoenix Home Life Mutual Insurance Company
("Phoenix"). If implemented, the terms of the Reinsurance Agreement provide for
the assumption of certain individual policies, including Mercantile's policies,
on a paid in full basis. Closing of the transaction is anticipated in the fourth
quarter of 1997. The exact effect of the Reinsurance Agreement on the carrying
value and other terms of Mercantile's policies has not yet been determined but
management anticipates minimal, if any, losses.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Mercantile has entered into an employment contract with Gordon W. Campbell.
The contract is for a term of ten years ending August 25, 2002 at such
reasonable salary as the parties shall agree to from time to time. The contract
requires him to perform the duties associated with the position of Chairman and
President. Upon separation from Mercantile for any reason other than cause, Mr.
Campbell shall be retained as a consultant for a salary of $60,000 per year for
the remaining term of the contract. In the event there is a "sale of the bank"
(as defined therein), the term of the contract may be reduced to the lesser of
five (5) years from the date of the reduction or the balance of the contract.
Additionally, pursuant to the contract, Mr. Campbell was granted options to
acquire Fifty-Two Thousand Five Hundred (52,500) shares of stock at the price of
Three Dollars and Four Cents ($3.04) per share, as adjusted for stock dividends
and stock splits, upon execution. For loan transactions with management, see
"--Indebtedness of Management."
STOCK PURCHASE PLAN
Gulf West maintains an Employee Stock Purchase Plan for the officers and
employees of Gulf West and Mercantile. Under the plan, officers and employees
are able to purchase up to 480 shares of Gulf West Common Stock each calendar
year, with a minimum purchase of 24 shares per year. Stock purchases must be
paid for in cash or through payroll deduction during the year of purchase.
Elections to purchase stock must be made prior to January 15 of each year. The
purchase price is the greater of market value or book value as of the close of
business on December 31 of the year immediately prior to the year of purchase
($5.12 per share for December 31, 1996), with certificates issued on January 31,
if paid for in cash by January 15, and/or December 31 if paid for through
payroll deductions. Any officer or employee who can not complete the current
year's purchase commitment will be barred from any more purchases under the plan
for the current year plus one full calendar year, and will receive a refund of
all money collected for that year.
STOCK OPTION PLAN
Gulf West has a stock option plan for the directors and employees of Gulf
West and Mercantile. Under the plan, Gulf West's Board may award options
totaling up to 12% of Gulf West's total outstanding shares. Thus, the total
shares authorized under the stock option plan increases when additional shares
are issued. Consequently, when the shares are issued pursuant to the Merger, the
shares authorized under the stock option plan will automatically increase. The
option price is established by Gulf West's Board but shall not be less than the
greater of the fair market value of the stock as of the date the option is
granted or the par value of such shares. If the shares are not publicly traded,
the book value may be substituted for the fair market value. The period over
which options may be exercised and vesting periods are determined by the Board
for each option granted. Upon sale or change in control of Gulf West, all
options become immediately vested and exercisable. The following table provides
information regarding the options that have been granted to directors and
executive officers as of September 30, 1997.
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<TABLE>
<CAPTION>
EXERCISABLE OPTION
GRANT OPTIONS AT EXPIRATION EXERCISE
DIRECTOR/OFFICER DATE GRANTED SEPTEMBER 30, 1997 DATE PRICE
---------------- -------- ------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Robert A. Blakley.................... 1/16/92 13,125 13,125 11/16/02 2.91
6/17/93 5,250 5,250 6/17/03 3.05
9/22/94 7,875 5,906 9/22/04 3.25(1)
8/21/97 4,000 4,000 8/21/07 5.50
Gordon W. Campbell................... 8/16/90 2,625 -0- (3) 3.81
1/16/92 52,500 49,530 1/16/02 2.91(1)(4)
8/28/92 52,500 52,500 8/28/02 3.04
8/21/97 8,500 8,500 8/21/07 5.50
John Wm. Galbraith................... 8/16/90 2,625 -0- (2) 3.81
1/16/92 2,625 -0- (2) 2.91
8/21/97 2,500 2,500 8/21/07 5.50
Thomas M. Harris..................... 8/16/90 2,625 2,625 8/16/00 3.81
1/16/92 2,625 2,625 1/16/02 2.91
8/21/97 2,500 2,500 8/21/07 5.50
Algis Koncius........................ 8/16/90 2,625 2,625 8/16/00 3.81
1/16/92 2,625 2,625 1/16/02 2.91
8/21/97 2,500 2,500 8/21/07 5.50
Barry K. Miller...................... 5/2/86 5,250 5,250 7/1/98 3.81
7/1/87 5,250 5,250 7/1/98 3.81
7/1/88 5,250 5,250 7/1/98 3.81
7/1/89 5,250 5,250 7/1/99 3.81
7/1/90 5,250 5,250 7/1/00 3.81
1/16/92 26,250 26,250 1/16/02 2.91(1)
8/21/97 4,000 4,000 8/21/07 5.50
Louis P. Ortiz, CPA.................. 8/16/90 2,625 2,625 8/16/00 3.81
1/16/92 2,625 2,625 1/16/02 2.91
8/21/97 2,500 2,500 8/21/07 5.50
J. Cooper Petagna.................... 4/21/94 5,250 5,250 4/21/04 3.13
8/21/97 2,500 2,500 8/21/07 5.50
P.N. Risser, III..................... 8/16/90 2,625 2,625 8/16/00 3.81
1/16/92 2,625 2,625 1/16/02 2.91
8/21/97 2,500 2,500 8/21/07 5.50
Ross E. Roeder....................... 8/17/92 5,250 5,250 8/17/02 4.28
8/21/97 2,500 2,500 8/21/07 5.50
John T. Sica......................... 6/17/93 13,125 13,125 6/17/03 3.05
2/20/97 3,875 -0- 2/20/07 5.13(1)
8/21/97 4,000 4,000 8/21/07 5.50
Douglas Winton....................... 10/19/95 13,125 3,281 10/19/05 4.28(1)
2/20/97 3,875 -0- 2/20/07 5.13(1)
8/21/97 4,000 4,000 8/21/07 5.50
All Directors and
Employees as a group................. -- 388,968 323,190 -- $2.91 - 5.50
</TABLE>
- -----------------
(1) The options covered by these grants are vested over a four-year period.
(2) These options were exercised in 1996.
(3) These options were exercised in 1997.
(4) Mr. Campbell exercised options on 2,970 shares in 1997.
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COMMITTEES OF THE BOARD OF DIRECTORS OF GULF WEST AND MERCANTILE
Gulf West has an Executive Committee comprised of Messrs. Campbell, Harris,
Ortiz, Petagna and Roeder. Mr. Campbell serves as Chairman. The Executive
Committee, when the Board is not in session, has the authority to act on behalf
and exercise all powers of the Board except as limited by any resolution of the
Board or by the Bylaws of Gulf West. The Executive Committee may not declare
dividends; amend the charter or bylaws; recommend to stockholders a merger,
consolidation or conversion; sell, lease or otherwise dispose of all or
substantially all of the property and assets of Gulf West; dissolve the company;
or approve a transaction in which any member of the Executive Committee has any
material beneficial interest.
Mercantile presently has four committees -- an Executive Committee, an
Audit Committee, an Investment Committee, and a Director Loan Committee, which
meet as necessary. Pursuant to the Bylaws of Mercantile, the Board of Directors,
by resolution adopted by a majority of the full Board, shall designate members
of the various committees of the Board.
The Executive Committee is comprised of Messrs. Campbell (who serves as
Chairman), Koncius, Harris, Risser and Roeder. The principal function of the
Executive Committee is to act on behalf and exercise all powers of the Board of
Directors of Mercantile which may lawfully be delegated to it in the management
of the business and affairs of Mercantile, when the Board of Directors is not in
session. The Executive Committee also serves as Mercantile's Compensation/Stock
Option Committee. The function of this committee is to review and establish
compensation and benefit plans for executive officers of Mercantile and to
recommend the award of stock options to Bank officers and directors.
The Audit Committee is comprised of Messrs. Ortiz (who serves as Chairman),
Risser and Roeder. This committee's principal functions is to oversee and direct
the internal audit program of Mercantile and determine that adequate internal
audit controls and procedures are being maintained.
The Investment Committee is comprised of Messrs. Koncius (who serves as
Chairman), Campbell and Petagna. The Investment Committee's principal function
is to ensure adherence to investment policies, to recommend amendments thereto
and to advise management on investment strategies.
The Director Loan Committee is comprised of Messrs. Campbell (who serves as
Chairman), Harris, Ortiz, Petagna and Roeder. Messrs. Koncius and Risser serve
as alternate members. The principal function of the Director Loan Committee is
to ensure compliance with loan policies, to recommend any amendments thereto, to
approve or recommend action on designated credits above any bank officer's
lending authority, to exercise authority regarding loans and to exercise, when
the Board of Directors is not in session, all other powers of the Board
regarding loans that may be lawfully delegated to it. This committee meets
jointly with the Board of Directors at its regularly scheduled monthly meetings
and on-call as needed.
INDEBTEDNESS OF MANAGEMENT
Mercantile has made loans to its directors, executive officers and their
affiliates in the ordinary course of business. All the loans were made on
substantially the same terms, including interest rate and collateral, as those
prevailing at the time for comparable transactions with other persons, and do
not involve more than the normal risk of collectibility or present other
unfavorable features.
Mercantile has had, and Gulf West and Mercantile expect to continue to
have, banking and other transactions in the ordinary course of business with
directors and officers of Gulf West and Mercantile and their affiliates,
including members of their families or corporations, partnerships or other
organizations in which such officers or directors have a controlling interest,
on substantially the same terms (including interest rates and collateral) as
those prevailing at the time for comparable transactions with unrelated parties.
Such transactions are not expected to involve more than the normal risk of
collectibility nor present other unfavorable features to Gulf West and
Mercantile. Although Mercantile has set no limits in the aggregate amount it
would be willing to lend to its directors and officers as a group, loans to
individual directors and officers must comply with Mercantile's lending policies
and statutory and regulatory lending limits, and directors with a personal
interest in any loan application are excluded from the consideration of such
loan application.
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<PAGE> 80
At December 31, 1996 Mercantile had loans outstanding to its directors,
executive officers and their related entities in the amount of $697,000,
representing 5.53% of total capital. The following table presents information
regarding loans outstanding to each of the directors, executive officers and/or
their related entities which totaled $60,000 or more for each borrower at June
30, 1997 and December 31, 1996 and 1995.
<TABLE>
<CAPTION>
BALANCE AT
----------------------------------------------
SEPTEMBER
AVAILABLE 30, DECEMBER 31,
NAME LOAN TYPE LINE 1997 1996 1995
---- --------- -------------- ------ ------------ -------
<S> <C> <C> <C> <C> <C>
Gordon W. Campbell........... First Mortgage Loan N/A $ 280,674 $284,844 $132,655
Credit Cards 8,500 633 102 2,054
Thomas M. Harris............. Personal Line of Credit 100,000 -0- -0- -0-
Credit Cards 25,000 1,276 1,491 1,447
Overdraft Protection 5,000 -0- -0- -0-
Algis Koncius................ Personal Line of Credit 150,000 141,396 129,896 112,596
Credit Cards 30,000 2,313 3,092 1,041
Overdraft Protection 5,000 -0- -0- -0-
J. Cooper Petagna............ Personal Line of Credit 250,000 -0- -0- -0-
Business Line of Credit 100,000 -0- -0- -0-
Credit Cards 10,000 -0- -0- 613
Business Loan N/A 26,637 38,678 -0-
Overdraft Protection 5,000 -0-
P. N. Risser, III............ Commercial Mortgage N/A 123,646 128,146 134,146
Business Line of Credit 500,000 375 -0- 500,000
Commercial Mortgage N/A 351,659 -0- -0-
Ross E. Roeder............... Commercial Mortgage N/A 67,213 69,156 -0-
Personal Line of Credit 75,000 -0- 25,000 -0-
Credit Cards 15,000 2,646 6,064 -0-
--------- -------- --------
TOTAL $ 998,468 $686,469 $884,552
========= ======== ========
</TABLE>
Total loans outstanding to Mercantile's directors, executive officers, and
their related interests at September 30, 1997 and December 31, 1996 and 1995
were $1,028,000, $697,000 and $899,000 respectively.
REGISTRATION RIGHTS AGREEMENT
Gulf West has entered into a Registration Rights Agreement with Gordon W.
Campbell and John Wm. Galbraith. Under the Registration Rights Agreement, Gulf
West has agreed with Messrs. Campbell and Galbraith that if it files a
registration statement as to any of its securities with the SEC at any time
while either of them owns Gulf West stock, Gulf West will at its expense
register or qualify all or, at their option, any portion of the Gulf West stock
owned by them concurrently with the registration of Gulf West securities.
However, the Registration Rights Agreement specifically excludes the instant
case registration statement because it is being filed on Form S-4.
In addition, Messrs. Campbell and Galbraith have the right under the
Registration Rights Agreement (subject to certain exceptions) at any time to
direct Gulf West to prepare and file with the SEC, at Gulf West's expense, a
registration statement sufficient to permit the public offering and sale of Gulf
West stock owned by them through the facilities of all appropriate securities
exchanges and the over-the-counter market. Gulf West shall, however, only be
obligated to file one such registration statement at the direction of Messrs.
Campbell and Galbraith.
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<PAGE> 81
If the managing underwriter of any offering covered by a registration
statement described above advises Messrs. Campbell and Galbraith in writing that
marketing factors require a limitation of the number of shares to be
underwritten, Gulf West stock held by stockholders other than Messrs. Campbell
and Galbraith shall first be excluded from such registration on a pro rata basis
in proportion to ownership of Gulf West stock by such other holders of Gulf West
stock to the extent required by such limitation. Thereafter, Gulf West stock
held by Messrs. Campbell and Galbraith shall be excluded from such registration
on a pro rata basis in proportion to their ownership of Gulf West stock to the
extent required by such limitation.
The Registration Rights Agreement also contains provisions pursuant to which
(i) Gulf West agrees to indemnify Messrs. Campbell and Galbraith against losses,
costs, and expenses incurred by them as a result of any untrue statement of a
material fact contained in any registration statement, preliminary prospectus,
or final prospectus, or any amendment or supplement thereto, relating to the
sale of any of the Gulf West stock owned by them, or in any application or other
document or communication executed by or on behalf of Gulf West or based upon
written information furnished by or on behalf of Gulf West filed in any
jurisdiction in order to register or qualify Gulf West stock owned by them under
the securities or blue sky laws of any state or filed with the SEC or any other
securities commission, and (ii) Messrs. Campbell and Galbraith agree to
indemnify Gulf West, to the same extent as the foregoing indemnity by Gulf West,
and under the same circumstances, with respect to information furnished by them.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers, and controlling persons of Gulf West
pursuant to such provisions, or otherwise, Gulf West has been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The only class of voting securities of Gulf West is its Common Stock,
3,342,676 shares of which were outstanding as of September 30, 1997. To the best
knowledge of Gulf West, no one except management and/or directors listed in the
table under "Security Ownership of Management" owns more than five percent (5%)
of the Gulf West Common Stock.
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<PAGE> 82
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of September 30, 1997, the beneficial
ownership of Gulf West's outstanding Common Stock by (i) each of the Named
Officers named in the Summary Compensation Table and each director of Mercantile
and Gulf West, (ii) all executive officers and directors as a group. Unless
otherwise indicated, all shares are held with sole voting and investment power.
<TABLE>
<CAPTION>
AMOUNT PERCENT
BENEFICIAL OWNER ADDRESS BENEFICIALLY OWNED(1) OF CLASS(2)
---------------- ------- ------------------- ---------
<S> <C> <C> <C>
Gordon W. Campbell 2000 Bayview Drive 546,821(3) 14.91
Tierra Verde, FL 33715
John Wm. Galbraith 1 Beach Drive S.E., #1802 810,500(4) 21.10
St. Petersburg, FL 33701
Thomas M. Harris 12375 Fifth Street East 78,898(5) 2.15
Treasure Island, FL 33706
Algis Koncius 4340 Willow Hills Lane 131,760(6) 3.59
Cincinnati, OH 45243
Louis P. Ortiz, CPA 6 Island Drive 65,062(7) 1.09
Treasure Island, FL 33706
John Cooper Petagna 615 16th Avenue N.E. 14,470(8) *
St. Petersburg, FL 33704
P.N. Risser, III 1844 Brightwaters Blvd. 169,750(9) 4.63
St. Petersburg, FL 33704
Ross E. Roeder 6901-B 16th St. N.E. 34,420(10) *
St. Petersburg, FL 33702
Barry K. Miller 7266 Rosetree Place West 57,025(11) 1.55
Seminole, FL 33772
All Directors and Executive
Officers as a group (12 persons) -- 1,974,324(12) 53.86
</TABLE>
- -----------------
*less than 1%
(1) The amount beneficially owned by each person has been determined under Rule
13d-3, and includes shares which each person has the right to acquire
within the next sixty (60) days.
(2) In calculating the percentage ownership for a given individual or group,
the number of shares of Gulf West Common Stock outstanding includes
unissued shares subject to options, rights, or conversion privileges
exercisable within sixty (60) days held by such individual or group, but
are not deemed outstanding by any other person or group.
(3) Consists of 110,530 shares which Mr. Campbell has the right to acquire
under presently exercisable outstanding stock options, 25,791 shares held
in a Revocable Trust, 10,500 shares held in an IRA account, and 400,000
shares held in a limited family partnership in which Mr. Campbell is
general partner.
(4) Includes 2,500 shares which Mr. Galbraith has the right to acquire under
presently exercisable outstanding stock options, and 94,500 owned by his
spouse and as to which Mr. Galbraith disclaims beneficial ownership.
(5) Includes 7,750 shares which Mr. Harris has the right to acquire under
presently exercisable outstanding stock options, 2,835 shares owned jointly
with his spouse, and 420 shares held only in his spouse's name and as to
which Mr. Harris disclaims beneficial ownership.
(6) Includes 7,750 shares which Mr. Koncius has the right to acquire under
presently exercisable outstanding stock options, and 6,825 shares owned by
his spouse.
(7) Consists of 7,750 shares which Mr. Ortiz has the right to acquire under
presently exercisable outstanding stock options, and 57,312 shares in the
name of his partnership.
(8) Includes 7,750 shares which Mr. Petagna has the right to acquire under
presently exercisable outstanding stock options, and 6,720 shares held
jointly with his spouse.
(9) Includes 7,750 shares which Mr. Risser has the right to acquire under
presently exercisable outstanding stock options, and 40,830 shares held
through his company retirement plan.
(10) Includes 7,750 shares which Mr. Roeder has the right to acquire under
presently exercisable outstanding stock options.
(11) Includes 56,500 shares which Mr. Miller has the right to acquire under
presently exercisable outstanding stock options.
(12) Includes 281,842 shares the executive officers and directors have the right
to acquire under agreements and presently exercisable stock options.
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<PAGE> 83
DESCRIPTION OF CAPITAL STOCK OF GULF WEST
COMMON STOCK
Shares of Gulf West Common Stock are evidenced by common stock
certificates, which will be mailed to stockholders of Citizens National who
forward their shares in Citizens National together with the applicable
transmittal letter, to the Paying Agent (SunTrust), as soon as practicable
following receipt of transmittal letters. The following summary of the rights of
the holders of Gulf West Common Stock is qualified in its entirety by reference
to the Articles of Incorporation and Bylaws of Gulf West, the general
corporation laws of the State of Florida, and other applicable law.
NUMBER OF SHARES; PAR VALUE. Gulf West is authorized by the Gulf West
Articles to issue 10,000,000 shares of Gulf West Common Stock, par value $1.00
per share. As of September 30, 1997, there were 3,342,676 shares of Common Stock
issued and outstanding, excluding shares available for issuance pursuant to Gulf
West's stock options plans. Gulf West's Common Stock is not presently
registered under the Exchange Act.
VOTING RIGHTS. Each holder of Gulf West Common Stock is entitled to one
vote per share held of record on all matters submitted to a vote of holders of
Gulf West Common Stock. Stockholders have no cumulative voting rights in any
matters coming before them for a vote, including the election of directors.
DIVIDENDS. All shares of Gulf West Common Stock are entitled to share
equally in dividends from funds legally available therefor, when, as and if
declared by the Board of Directors. Gulf West's ability to declare and pay
dividends will depend on a large extent on its receipt of dividends from
Mercantile, as well as on future earnings, results of operations, financial
position, capital requirements and capital needs of Mercantile, tax
considerations and general economic conditions. Payment of dividends is also
subject to regulatory requirements at both Mercantile and holding company
levels. SEE "SUPERVISION AND REGULATION."
PREEMPTIVE RIGHTS. Holders of Gulf West Common Stock have no preemptive
rights to subscribe for and purchase a proportionate share of any additional
stock issued by Gulf West. There are no conversion, redemption, or sinking fund
provisions applicable to the Gulf West Common Stock.
LIQUIDATION RIGHTS. Upon liquidation or dissolution of Gulf West, whether
voluntary or involuntary, holders of Gulf West Common Stock will have the right
to share equally in the assets of Gulf West available for distribution to
stockholders.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Gulf West Articles provide,
to the extent permitted by Florida law, that directors, officers, employees and
agents of Gulf West be indemnified against certain liabilities which they may
incur in their capacity as such. With certain exceptions, such indemnification
is generally available if the person acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to, the best interests of Gulf
West, and with respect to any criminal proceeding, had no reasonable cause to
believe his or her conduct was unlawful. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers, and controlling persons of Gulf West pursuant to such provisions, or
otherwise, Gulf West has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
STAGGERED BOARD. The Articles of Incorporation of Gulf West provide that
the Gulf West Board shall be divided into three classes of directors. Such
classes shall be as nearly equal in number as is possible with the terms of all
members of one class expiring each year. Successors to the class of directors
whose term has then expired are chosen for a full term of three years.
FAIR PRICE AND ANTITAKEOVER PROVISIONS. The Articles of Incorporation of
Gulf West provide for a "fair price" requirement in certain takeover
transactions. In general, under the "fair price" requirement (and subject to
certain exceptions set forth in the Gulf West Articles), the ratio of (i) the
aggregate amount of cash and fair market value of other consideration to be
received per share by the holders of Gulf West Common Stock in a Business
Combination (hereafter defined) to (ii) the Market Price (hereafter defined) of
the Gulf West Common Stock immediately before the announcement of the Business
Combination or the solicitation of holders of Gulf West Common Stock regarding
the Business Combination, whichever is first, shall be at least as great as the
ratio of (x) the highest price per share previously paid by the Principal
Stockholder (hereafter defined) for any Gulf West Common Stock at any time
beneficially owned by the Principal Stockholder to (y) the Market Price
(hereafter defined) of the Gulf West Common Stock on the trading date
immediately before the earliest date on which the Principal Stockholder
purchased any Gulf West Common Stock during the two year period before the date
on which the Principal Stockholder acquired the Gulf West Common Stock at any
time
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<PAGE> 84
owned by it for which it paid the highest price per share (or, if the Principal
Stockholder did not purchase any shares of Gulf West during such two year
period, the Market Price of the Gulf West Common Stock on the date two years
before the date on which the Principal Stockholder acquired the shares of Gulf
West Common Stock at any time owned by it for which it paid the highest price
per share).
Subject to certain exceptions contained in the Gulf West Articles, the
aggregate amount of cash and fair market value of the other consideration to be
received per share by the holders of Gulf West Common Stock in the Business
Combination shall be not less than the highest price per share previously paid
by the Principal Stockholder for any of the Gulf West Common Stock at any time
beneficially owned by the Principal Stockholder.
The foregoing provisions shall not apply to a Business Combination approved
by two-thirds of those members of the Board of Directors of Gulf West who were
Directors prior to the time when the Principal Stockholder became a Principal
Stockholder.
As used above, the terms "Business Combination," "Market Price," and
"Principal Stockholder" have the following meanings:
"Business Combination" means any merger, reorganization, or consolidation
of Gulf West, including certain combinations of subsidiary corporation.
"Market Price" is the mean between the high "bid" and the low "asked"
prices of the Gulf West Common Stock in the over-the-counter market on the day
on which such value is to be determined or, if no shares were traded on such
date, on the next preceding day on which such shares were traded, as reported by
the National Association of Securities Dealers Automated Quotation System
("Nasdaq") or other national quotation service. If the Gulf West Common Stock is
not regularly traded in such market but is registered on a national securities
exchange or traded in the national over-the-counter market, the term "Market
Value" shall mean the closing price on such national securities exchange or
market on the date on which such value is to be determined or, if no shares were
traded on such day, on the next preceding day on which shares were traded, as
reported by Nasdaq or other national quotation service. If no such quotations
are available, the fair market value on the date in question shall be as
determined by the Board of Directors of Gulf West in good faith and, in the case
of property other than cash, such property shall be valued by the Board of
Directors in good faith.
"Principal Stockholder" means any individual or entity which, together with
its affiliates and associates beneficially owns ten percent or more of the
outstanding shares of Gulf West Stock, and any affiliate or associate of any
such individual or entity.
The foregoing is intended only as a brief summary of the fair pricing
provisions contained in Article X of the Articles of Incorporation of Gulf West.
EVALUATION OF OFFERS. The Gulf West Articles provide that in evaluating any
offer to (i) make a tender or exchange offer for any equity security of Gulf
West, (ii) merge or consolidate Gulf West with another corporation or entity, or
(iii) purchase or otherwise acquire all or substantially all of the properties
and assets of Gulf West, the Board of Directors of Gulf West may give due
consideration to all relevant factors including the social and economic effect
of acceptance of such offer (i) on Gulf West's present and future customers and
employees and those of its subsidiaries, (ii) on the communities in which Gulf
West and its subsidiaries operate or are located, (iii) on the ability of Gulf
West to fulfill its corporate objective as a bank holding company, and (iv) on
the ability of its subsidiary bank to fulfill the objectives of the bank under
applicable statutes and regulations.
BYLAW AMENDMENTS; REMOVAL OF DIRECTORS. The Gulf West Articles provide that
(i) the Board of Directors is authorized to make, repeal, alter, amend, and
rescind the Bylaws of Gulf West and that the stockholders cannot do so except by
vote of the holders of not less than two-thirds of the outstanding shares of
capital stock of Gulf West entitled to vote generally in the election of
directors cast at a meeting called for that purpose (a "Two-Thirds Vote"), and
(ii) no member of the Board of Directors may be removed except for cause and
then only by a Two-Thirds Vote.
PREFERRED STOCK
Gulf West is authorized to issue 1,000,000 shares of "Class A Preferred
Stock," with a par value of $5.00 per share (the "Preferred Stock"). The
Preferred Stock may be issued in different series. Preferred Stock has no voting
rights in Gulf West. There are no outstanding shares of Preferred Stock.
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<PAGE> 85
DIVIDENDS. Holders of Gulf West Preferred Stock are entitled to receive on
a noncumulative basis out of any assets at the time legally available therefor
and when and as declared by the Board of Directors of Gulf West, dividends at
the rate determined by the Board for each series of Preferred Stock.
LIQUIDATION RIGHTS. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of Gulf West, the holders of Preferred
Stock then outstanding shall be entitled to be paid out of the assets of Gulf
West available for distribution to its stockholders, before any payment is made
in respect of the Common Stock, an amount equal to $5.00 per share plus all
unpaid but declared dividends thereon to the date fixed for distribution. The
remaining assets of Gulf West are to be distributed exclusively among holders of
Gulf West Common Stock. If upon liquidation the assets of Gulf West shall be
insufficient to pay the holders of Preferred Stock the full amount to which they
shall be entitled, they shall share ratably in any distribution of assets
according to the respective amounts which would be payable in respect to the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
OTHER RIGHTS. Except as provided above, the Board of Directors shall
establish the series and determine the relative rights and preferences between
series.
REPORTS TO STOCKHOLDERS
Gulf West intends to furnish its stockholders with annual reports
containing Company prepared financial statements, and may distribute quarterly
and/or other interim reports containing unaudited financial information to its
stockholders as it deems appropriate.
CITIZENS NATIONAL BANK AND TRUST COMPANY
INTRODUCTION
Citizens National, headquartered in Port Richey, Florida, is a national
banking association chartered on December 29, 1988. Citizens National engages in
general commercial banking and related businesses from its one full service
banking location located in Pasco County, Florida. At September 30, 1997,
Citizens National had total assets of approximately $73.8 million, net portfolio
loans of approximately $29.6 million, total deposits of $64.9 million, and
stockholders' equity of $8.7 million.
ACTIVITIES OF CITIZENS NATIONAL
The business of Citizens National consists primarily of attracting
deposits from the general public in the areas served by its banking office and
applying those funds, together with funds derived from other sources, to the
origination of loans for various types of collateralized and uncollateralized
consumer and commercial loans, and loans for the purchase, construction,
financing and refinancing of commercial and residential real estate primarily in
West Pasco County, Florida and surrounding communities. The revenues of Citizens
National are derived primarily from interest on, and fees received in connection
with its lending activities, and from interest and dividends from investment
securities and short-term investments and other services. The principal sources
of funds for Citizens National's lending and investment activities are deposits,
amortization and prepayment of loans, the repayment of loans, and proceeds from
the maturity of investment securities. The principal expenses of Citizens
National are the interest paid on deposits and operating and general and
administrative expenses.
Citizens National originates commercial, consumer, and real estate
loans to individuals and businesses. Commercial loans include both
collateralized and uncollateralized loans for working capital (including
inventory and receivables), business expansion (including real estate
acquisitions and improvements), and purchases of equipment and machinery.
Consumer loans include collateralized and uncollateralized loans for financing
automobiles, boats, home improvements, and personal investments. Citizens
National also originates a variety of residential real estate loans, including
conventional mortgages collateralized by first mortgage liens to enable
borrowers to purchase, refinance, construct upon or improve real property.
Citizens National is a general commercial bank which offers a variety
of corporate and personal banking services to individuals, businesses, and other
institutions located in its market area. Deposit services include certificates
of deposit, individual retirement accounts ("IRAs") and other time deposits,
checking and other demand deposit accounts, interest paying checking accounts
("NOW accounts"), savings accounts and money market accounts. The transaction
accounts and time certificates are tailored to the principal market areas at
rates competitive to those in the area. All deposit accounts are insured by the
FDIC up to the maximum limits permitted by law. Citizens National solicits these
accounts from small to medium sized businesses, professional firms and
households located throughout its primary market area.
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<PAGE> 86
Citizens National also offers ATM cards with access to local, state, and
national and international networks, safe deposit boxes, wire transfers, direct
deposit of payroll and social security checks, and automatic drafts for various
accounts. Citizens National provides personal and corporate credit cards, VISA
or MasterCard credit cards as issued by a correspondent bank which assumes all
liabilities relating to underwriting of the credit applicant. Citizens National
has a trust department which specializes in personal trust and estate services.
Securities and other property held by the trust department in a fiduciary
capacity are not included in Citizens National's balance sheet since such items
are not assets of Citizens National.
Citizens National is subject to examination and comprehensive regulation by
the Office of the Comptroller of the Currency ("OCC") and, as a member of the
Federal Reserve System, the Federal Reserve Board, and the FDIC. As is the case
with banking institutions generally, Citizens National's operations are
materially and significantly influenced by general economic conditions and by
related monetary and fiscal policies of financial institution regulatory
agencies, including the OCC and the FDIC. Deposit flows and cost of funds are
influenced by interest rates on competing investments and general market rates
of interest. Lending activities are affected by the demand for financing of real
estate and other types of loans, which in turn are affected by the interest
rates at which such financing may be offered and other factors affecting local
demand and availability of funds. Citizens National has faced strong competition
in attracting deposits (its primary source of lendable funds) and in the
origination of real estate loans.
MARKET FOR SERVICES
Citizens National's primary market area is West Pasco County, Florida
located in Pasco County. Management of Citizens National believes that its
principal markets have been: (i) the expanding residential market within its
primary market area; (ii) the established and expanding commercial market within
its primary market area; and (iii) the real estate mortgage market within its
primary market areas and their environs. Specifically, Citizens National has
targeted businesses with annual gross revenues up to $10 million, and all
households within the primary market area. Businesses have been solicited
through the personal efforts of Citizens National's directors and officers.
The primary source of income generated by Citizens National is from the
interest earned from both its loan and investment portfolios. In this regard,
Citizens National has introduced competitive mortgage products and increased its
business development through marketing of its services by direct solicitation.
Citizens National has attempted to maintain diversification when considering
investments and the approval of loan requests. Emphasis has been placed on the
borrower's ability to generate cash flow sufficient to support its debt
obligations and other cash related expenses. Current lending activities
presently include commercial and consumer loans, and loans for residential
purposes. Commercial real estate loans are originated for commercial
construction, acquisition, refinancing, or remodeling. Consumer loans include
the origination of conventional mortgages, residential lot loans and residential
acquisition, development or construction loans for the purchase, construction or
refinancing of single family housing or lots.
At September 30, 1997, Citizens National's net loan portfolio was
approximately $29.6 million representing approximately 40.1% of its total
assets. As of such date, the loan portfolio consisted of 8.0% commercial loans,
37.0% commercial real estate loans, 48.9% residential real estate mortgage
loans, and 6.1% installment or consumer loans.
COMPETITION
Citizens National encounters competition both in attracting deposits and
the origination of loans. The deregulation of the banking industry and the
widespread enactment of state laws which permit multi-bank holding companies as
well as a degree of interstate banking has created a highly competitive
environment for commercial banking in Citizens National's primary market area.
In one or more aspects of its business, Citizens National has competed with
other commercial banks, savings and loan associations, credit unions, finance
companies, mutual funds, insurance companies, brokerage and investment banking
companies, and other financial intermediaries operating in its market area and
elsewhere. Most of these competitors, some of which are affiliated with large
bank holding companies, have substantially greater resources and lending limits,
and may offer certain services, such as brokerage services, that Citizens
National does not provide. In addition, many of Citizens National's non-bank
competitors are not subject to the same extensive federal regulations that
govern federal chartered and insured banks.
Competition among financial institutions is based upon interest rates
offered on deposit accounts, interest rates charged on loans and other credit
and service charges, the quality of the services rendered, the convenience of
banking facilities, and, in the case of loans to commercial borrowers, relative
lending limits.
83
<PAGE> 87
EMPLOYEES
At June 30, 1997, Citizens National employed twenty-two full-time employees
and one part-time employee. None of these employees is covered by a collective
bargaining agreement and management believes that its employee relations are
good.
PROPERTY
The principal executive and administrative offices of Citizens National
located at 9550-1 U.S. Highway 19, Port Richey, Florida 34668 serves as Citizens
National's sole banking facility. This facility consists of approximately 10,210
square feet on two floors. The first floor which is a comprised of a lobby,
administrative offices, four (4) inside teller stations, safe deposit booths and
related non-vault area, and vault operations, is the location of the primary
retail banking operations a the main office. The second floor houses the trust
department and space for future expansion. Citizens National's banking office
also includes two (2) outside drive-in teller operations. Citizens National
leases this building and improvements thereon pursuant to a ten year, triple net
lease, which expires in 1998. Under the lease, Citizens National pays a base
rent of approximately $9,436 per month. Citizens National has the option to
renew the lease with respect to the first floor or second floor of the building,
or both, for up to an additional ten (10) year period.
LEGAL PROCEEDINGS
Citizens National has periodically been a party to or otherwise involved in
legal proceedings arising in the normal course of business, such as claims to
enforce liens, foreclose on loan defaults, claims involving the making and
servicing of real property loans, and other issues incident to Citizens
National's business. Management is not aware of any proceeding threatened or
pending against Citizens National which, if determined adversely, would have a
material effect on the business or financial position of Citizens National.
In February 1997, Citizens National entered into a settlement agreement
with Mr. Loue E. Stockwell and the estate of Mr. Camille L. LaRose in connection
with a lawsuit filed by Mr. Stockwell and Mr. Camille L. LaRose, former
executive officers of Citizens National, against Citizens National to enforce
their employment contracts with Citizens National. Under this settlement
agreement, on or about February 24, 1997, Citizens National paid $220,000,
including attorney's fees, to Mr. LaRose's estate and $240,000, including
attorney's fees, to Mr. Stockwell. Citizens National, pursuant to this
settlement, also has forgiven the amount outstanding on Mr. Stockwell's loan
with Citizens National (including any rights to interest which may have accrued
under this loan), previously charged-off on June 30, 1994, in the amount of
approximately $89,227 ($96,143 less recoveries of $6,916).
CERTAIN REGULATORY MATTERS
In February 1997, the OCC commenced an examination of Citizens National
reviewing certain bank data through December 31, 1996. Citizens National
received a report in March 1997 of combined safety and soundness, consumer
compliance, Community Reinvestment Act (CRA), and fiduciary examinations by the
OCC. The report reflected that Citizens National (i) remains sound, (ii) has
satisfactorily complied with consumer regulations and (iii) has received a
favorable review with respect to its trust department. However, Citizens
National received a "needs to improve" rating with respect to CRA. Although
Citizens National satisfactorily met four of the five assessment criteria used
by the OCC to evaluate small banking institutions, the OCC gave Citizens
National this CRA rating due to Citizens National's low loan-to-deposit ratio.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Citizens National has had various loan and other banking transactions in
the ordinary course of business with the directors, executive officers, and
principal stockholders of Citizens National (or an associate of such person).
All such transactions: (i) have been made in the ordinary course of business;
(ii) have been made on substantially the same terms, including interest rates
and collateral on loans, as those prevailing at the time for comparable
transactions with unrelated persons; and (iii) in the opinion of management do
not involve more than the normal risk of collectibility or present other
unfavorable features. At September 30, 1997 and December 31, 1996, the total
dollar amount of extensions of credit to directors and executive officers
identified above and principal stockholders of Citizens National identified
below, and any of their associates (excluding extensions of credit which were
less than $60,000 to any one such person and their associates) were $1,036,781
and $663,052, respectively, which represented approximately 8.35% and 7.83%,
respectively, of total stockholders' equity.
Each director of Citizens National is paid a $300 fee for each meeting of
Citizens National's Board of Directors attended and each non-employee director
receives a $60 fee for each committee meeting attended.
84
<PAGE> 88
Outside of normal customer relationships, none of the directors or
executive officers of Citizens National, and its stockholders holding over 5% of
the Citizens National Common Stock and no corporations or firms with which such
persons or entities are associated, currently maintains or has maintained since
the beginning of the fiscal year, any significant business or personal
relationship with Citizens National, other than such as arises by virtue of such
position or ownership interest of Citizens National.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the outstanding Citizens National Common Stock as of August 31,
1997, by (i) each person known to Citizens National to own beneficially more
than 5% of its outstanding Citizens National Common Stock, (ii) each director
and executive officer of Citizens National, and (iii) all directors and
executive officers of Citizens National as a group. Except as otherwise
indicated, the persons named in the table have sole voting and investment power
with respect to all Citizens National Common Stock owned by them.
<TABLE>
<CAPTION>
CURRENT BENEFICIAL OWNERSHIP
--------------------------------
NUMBER PERCENT
NAME OF BENEFICIAL OWNER (1) OF SHARES(2) OF CLASS(3)
- ---------------------------- ------------- -----------
<S> <C> <C>
DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
Philip A. Chesnut (1).................................................. 1,325 *
Melvin C. Draft........................................................ 50,500 8.37%
4354 Reeves Road
New Port Richey, FL 34652
Austin L. Fillmon...................................................... 15,000 2.49%
7319 Sunfish Circle
Spring Hill, FL 34607
Henry W. Hanff, M.D.................................................... 69,875 11.59%
5243 Hanff Lane
New Port Richey, FL 34652
Pandurang V. Kamat, M.D................................................ 79,500 13.18%
3565 Seaway Drive
New Port Richey, FL 34652
Carol L. Kinnard (1)................................................... 8,600 1.43%
Lester Mallett......................................................... 40,000 6.64%
5703 Main Street
New Port Richey, FL 34652
Charles B. McKenzie (1)................................................ 17,500 2.90%
Dennis L. Murphy....................................................... 17,500 2.90%
281 Rue des Chateaux
Tarpon Springs, FL 34689
Ralph W. Shannon....................................................... 8,500 1.41%
5015 Waterside Drive
Port Richey, FL 34673
Thomas D. Stelnicki, D.P.M............................................. 29,000 4.81%
13944 Lake Shore Boulevard, Suite A
Hudson, FL 34667
N. John Stewart, Jr.................................................... 30,000 4.97%
5435 Main Street
New Port Richey FL 34652
All Directors and Executive Officers as a group (13 persons)........... 367,300 60.91%
OTHER PRINCIPAL STOCKHOLDERS
Selma P. Marlowe....................................................... 43,100 7.15%
Post Office Box 358
Trenton, FL 32693-0358
</TABLE>
- ----------
* Less than 1%.
85
<PAGE> 89
(1) The business address for Mr. Chesnut, Ms. Kinnard and Mr. McKenzie is
9550-1 U.S. Highway 19, Port Richey, Florida 34668.
(2) In accordance with Rule 13d-3 promulgated under the Exchange Act, a person
is deemed to be the beneficial owner of a security for purposes of the rule
if he or she has or shares voting power or dispositive power with respect
to such security or has the right to acquire such ownership with sixty (60)
days. As used herein, "voting power" is the power to vote or direct the
voting of shares, and "dispositive power" is the power to dispose or direct
the disposition of shares, irrespective of any economic interest therein.
(3) In calculating the percentage ownership for a given individual or group,
the number of shares of Citizens National Common Stock outstanding includes
unissued shares subject to options, warrants, rights or conversion
privileges exercisable within sixty (60) days held by such individual or
group, but are not deemed outstanding by any other person or group.
CITIZENS NATIONAL
The following is a summary of selected financial data for Citizens
National for the six month periods ended September 30, 1997 and 1996 and the
five years ended December 31, 1996. This summary should be read in conjunction
with the financial statements and notes thereto of Citizens National which are
presented elsewhere herein.
86
<PAGE> 90
CITIZENS NATIONAL BANK AND TRUST COMPANY
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
----------------- ----------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks.................... $ 1,393 1,896 1,847 1,241 1,837 4,982
Securities ................................. 36,860 41,576 43,286 44,512 40,980 39,849
Federal funds sold ......................... 3,900 5,050 2,200 1,700 4,850 2,000
Loans, net ................................. 29,644 25,492 23,397 22,409 23,348 27,854
All other assets ........................... 1,992 1,968 1,927 2,066 1,474 1,586
-------- ------ ------ ------ ------ ------
Total assets.................... $ 73,789 75,982 72,657 71,928 72,489 76,271
======== ====== ====== ====== ====== ======
Deposit accounts ........................... 64,882 66,913 65,554 65,858 66,276 71,065
Other borrowings ........................... - - - - - -
All other liabilities ...................... 250 597 464 502 598 450
Stockholders' equity ....................... 8,657 8,472 6,639 5,568 5,615 4,756
-------- ------ ------ ------ ------ ------
Total liabilities and
stockholders' equity.......... $ 73,789 75,982 72,657 71,928 72,489 76,271
======== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income ....... $ 3,955 3,692 4,990 4,844 4,454 4,914 5,283
Total interest expense ...... 2,236 2,173 2,940 2,923 2,260 2,556 2,953
--------- -------- -------- ------- ------- ------- -------
Net interest income ......... 1,719 1,519 2,050 1,921 2,194 2,358 2,330
Provision (credit) for
loan losses .......... - (100) (100) - 497 171 30
--------- -------- -------- ------- ------- ------- -------
Net interest income after
provision (credit)
for loan losses ...... 1,719 1,619 2,150 1,921 1,697 2,187 2,300
Noninterest income .......... 290 253 337 342 360 828 470
Noninterest expense ......... 1,839 1,271 1,857 1,648 1,658 1,797 1,835
--------- -------- -------- ------- ------- ------- -------
Earnings before income tax
provision (credit).... 170 601 630 615 399 1,218 935
Income tax provision (credit) (18) 97 60 115 17 359 135
--------- -------- -------- ------- ------- ------- -------
Net earnings ................ $ 188 504 570 500 382 859 800
========= ======== ======== ======= ======= ======= =======
Net earnings per share ...... $ .31 .94 1.06 .98 .78 1.80 1.75
========= ======== ======== ======= ======= ======= =======
Cash dividends per share .... $ 0.10 - - - - - -
========= ======== ======== ======= ======= ======= =======
Dividend pay-outs ratio ..... .33 - - - - - -
========= ======== ======== ======= ======= ======= =======
Weighted average number of
shares outstanding.... 603,030 535,477 537,723 509,256 493,510 477,900 456,530
========= ======== ======== ======= ======= ======= =======
</TABLE>
87
<PAGE> 91
CITIZENS NATIONAL BANK AND TRUST COMPANY
SELECTED FINANCIAL DATA, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS
ENDED SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Return on average assets ......... 0.34% 0.94% 0.78% 0.70% 0.54% 1.15% 1.20%
Return on average equity ......... 2.94% 9.48% 8.37% 8.47% 7.11% 16.29% 18.22%
Average equity to average
assets ................ 11.44% 9.87% 9.36% 8.26% 7.60% 7.08% 6.58%
Interest rate spread
during the period (1).. 2.65% 2.52% 2.51% 2.44% 3.03% 3.11% 3.43%
Net yield on average
interest-earning assets 3.21% 2.95% 2.95% 2.80% 3.25% 3.33% 3.70%
Noninterest expenses to
average assets ........ 3.29% 2.36% 2.55% 2.31% 2.35% 2.41% 2.75%
Ratio of average
interest-earning assets
to average interest-
bearing liabilities ... 1.13 1.10 1.10 1.08 1.07 1.06 1.06
Nonperforming loans, and
foreclosed real
estate as a percentage
of total assets ....... .09% .13% .08% .39% .52% .32% -%
Allowance for loan losses
as a percentage
of total loans ........ 1.45% 1.64% 1.65% 2.12% 2.21% 1.13% .99%
Allowance for loan losses
as a percentage of
nonperforming loans ... -% 648.36% -% 180.08% 153.21% 115.38% -%
Number of banking offices ........ 1 1 1 1 1 1 1
Total shares outstanding
at end of period ...... 603,030 492,530 603,030 472,530 472,530 456,530 456,530
Book value per share ............. 14.36 14.72 14.05 14.05 11.78 12.30 10.42
</TABLE>
- -----------------------------
(1) Difference between weighted-average yield on all interest-earning
assets and weighted-average rate on all interest-bearing liabilities.
88
<PAGE> 92
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CITIZENS NATIONAL
GENERAL
Citizens National is a nationally-chartered BIF-insured commercial bank
which provides a wide range of banking services to small and middle-market
businesses and individuals through its one office in Pasco County, Florida.
Citizens National conducts a general commercial banking business which consists
of attracting deposits from the general public and applying those funds to the
origination of loans for commercial, consumer, and residential purposes.
Citizens National's profitability depends primarily on net interest income,
which is the difference between interest income generated from interest-earning
assets (i.e., loans and investments) less the interest expense incurred on
interest-bearing liabilities (i.e., customer deposits and borrowed funds). Net
interest income is affected by the relative amounts of interest-earning assets
and interest-bearing liabilities, and the interest rate paid on these balances.
Net interest income is dependent upon Citizens National's interest rate
spread, which is the difference between the average yield earned on its
interest-earning assets and the average rate paid on its interest-bearing
liabilities. When interest-earning assets approximate or exceed interest-bearing
liabilities, any positive interest rate spread will generate net interest
income. During 1996, Citizens National maintained a return on average earning
assets of 0.78%. The return is impacted by interest rates, deposit flows, and
loan demand.
Additionally, Citizens National profitability also is affected by such
factors as the level of non-interest income and expenses, the provision for loan
losses, and the effective tax rate. Non-interest income consists primarily of
loan service charges and other fees. Citizens National's non-interest expenses
primarily consist of compensation and benefits, occupancy related expenses,
deposit insurance premiums paid to the FDIC, and other operating expenses.
As of September 30, 1997, the total assets of Citizens National were
approximately $73.8 million, a decrease of 2.9% compared to total assets of
$76.0 million as of December 31, 1996. During the nine-months ended September
30, 1997, net loans receivable increased $4.2 million or 16.3%. Citizens
National's total securities portfolio decreased to $36.9 million as of September
30, 1997 from $41.6 million as of December 31, 1996. Citizens National's cash
and cash equivalents decreased from $6.9 million at December 31, 1996 to $5.3
million at September 30, 1997. Citizens National's deposits decreased from $66.9
million as of December 31, 1996 to $64.9 million as of September 30, 1997.
Citizens National, for the nine months ended September 30, 1997 had net earnings
of $188,000 compared to net earnings of $504,000 for the comparable period in
1996. The decrease in net earnings is primarily due to the loss incurred by
Citizens National in connection with a litigation settlement of $324,000.
As of December 31, 1996, the total assets of Citizens National was
approximately $76.0 million, an increase of 4.5% over total assets of $72.7
million at December 31, 1995. During the year ended December 31, 1996 net loans
receivable increased $2.1 million or 9.0%. Citizens National's total securities
portfolio decreased to $41.6 million as of December 31, 1996 from $43.3 million
as of December 31, 1995. Citizens National's deposits increased to $66.9 million
as of December 31, 1996 from $65.6 million as of December 31, 1995, a 2.0%
increase. Citizens National for the year ended December 31, 1996, had net
earnings of $570,000 compared to net earnings of $500,000 for 1995.
REGULATION AND LEGISLATION
As a nationally-chartered commercial bank, Citizens National is subject to
extensive regulation by the OCC and the FDIC, and it files reports with these
regulators concerning its activities and financial condition, in addition to
obtaining regulatory approvals prior to entering into certain transactions such
as mergers with or acquisitions of other financial institutions. Periodic
examinations are performed by the OCC to monitor Citizens National's compliance
with the various regulatory requirements. Citizens National is also subject to
regulation by the Federal Reserve Board with respect to reserves required to be
maintained against deposits and certain other matters.
In March 1997, Citizens National received a report from the OCC indicating
a "needs to improve" rating with respect to its CRA compliance. See "CITIZENS
NATIONAL BANK AND TRUST COMPANY -- Certain Regulatory Matters". Although this
CRA rating does not have an immediate or direct impact on Citizens National's
operating results or liquidity, it imposes certain restrictions on any growth or
expansion activities, including the establishment of new branches, and the
formation of a bank holding company structure. Further, since the adverse CRA
rating was due to Citizens National's low loan-to-deposit ratio, corrective
measures would require Citizens National to either lower its level of deposits
or increase its loan volume. A reduction in deposits is not an alternative
consideration by Citizens National. However, an increase in its loan volume from
its single banking facility is an amount sufficient to satisfy its CRA
requirements, while possible, cannot be achieved in a short time frame.
89
<PAGE> 93
PENDING ACQUISITION OF CITIZENS NATIONAL
On July 31, 1997, the Board of Directors of Citizens National signed a
definitive agreement for the merger of Citizens National into another financial
institution (Gulf West Banks, Inc.). Under the terms of the agreement Citizens
National's stockholders will collectively receive 1.95 million shares of Gulf
West Banks, Inc. common stock, an exchange ratio of 3.2337 shares, for each
share of Citizens National's common stock. The merger is expected to be
completed near the end of 1997 or early 1998 and is subject to various
regulatory approvals as well as the approval of Citizens' stockholders.
CREDIT RISK
Generally, interest on loans is accrued and credited to income based upon
the principal balance outstanding. It is management's policy to discontinue the
accrual of interest income and classify a loan as non-accrual when principal or
interest is past due ninety (90) days or more and the loan is not adequately
collateralized, or when in the opinion of management, principal or interest is
not likely to be paid in accordance with the terms of the obligation. If a loan
or a portion of a loan is classified as doubtful or partially charged-off, the
loan will be classified as non-accrual. Loans that are on a current payment
status or past due less than ninety (90) days also may be classified as
non-accrual if repayment in full of principal, interest, or both is in doubt.
Consumer installment loans will be charged-off after ninety (90) days of
delinquency unless adequately collateralized and in the process of collection.
Loans will not be returned to accrual status until principal and interest
payments are brought current and future payments appear certain. Interest
accrued and unpaid at the time a loan is placed on non-accrual status is charged
against interest income. While a loan is classified as non-accrual and the
future collectibility of the recorded loan balance is doubtful, collections of
interest and principal are generally applied as a reduction to principal
outstanding. When the future collectibility of the recorded loan balance is
expected, interest income may be recognized on a cash basis. In the case where a
non-accrual loan had been partially charged off, recognition of interest on a
cash basis is limited to that which would have been recognized on the recorded
loan balance at the contractual interest rate. Cash interest receipts in excess
of that amount are recorded as recoveries to the allowance for credit losses
until prior charge-offs have been fully recovered.
Real estate acquired by Citizens National as a result of foreclosure or
acceptance of deeds in lieu of foreclosure is classified as foreclosed real
estate. These properties are recorded on the date acquired at fair value. If the
fair value after deducting the estimated selling costs of the acquired property
is less than the recorded investment in the related loan, the estimated loss is
charged to the allowance for loan losses at that time. The resulting carrying
value established at the date of foreclosure becomes the new cost basis for
subsequent accounting. After foreclosure, if the fair value less estimated
selling costs of the property becomes less than its cost, the deficiency is
charged to the provision for losses on foreclosed real estate. Costs relating to
the developmental improvement of the property are capitalized, whereas those
relating to holding the property for sale are charged as an expense.
NON-PERFORMING LOANS
The following table sets forth certain information regarding nonaccrual
loans, non-performing loans, and foreclosed real estate, including the ratio of
such loans and foreclosed real estate to total assets as of the dates indicated,
and certain other related information.
<TABLE>
<CAPTION>
AT
------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
---------------- -------------
1997 1996 1995
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans:
Residential real estate loans ..................... $ - - -
Commercial real estate ............................ - - 63
Commercial loans .................................. - - 218
Consumer loans and other .......................... - - -
---- ---- ---
Total nonaccrual loans ..................... - - 281
==== ==== ===
Total nonperforming loans (1) .............. - - 281
==== ==== ===
Total nonperforming loans to total assets .. -% -% .39%
==== ==== ===
Foreclosed real estate:
Real estate acquired by foreclosure or deed
in lieu of foreclosure ..................... 63 63 -
==== ==== ===
Total nonperforming loans and foreclosed real estate .. 63 $ 63 281
==== ==== ===
Total nonperforming and foreclosed real estate
to total assets...................................... 09% .08% .39%
==== ==== ===
</TABLE>
(1) Accruing loans which are contractually past due 90 days or more as to
principal or interest.
90
<PAGE> 94
Interest income that would have been recorded under the original terms of
nonaccrual loans and the interest income actually recognized are summarized
below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
------------------ ------------
SEPTEMBER 30, DECEMBER 31
-------------------- ---------------------
1997 1996 1996 1995
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income that would have been recognized..................... $ - 4 4 59
Interest income recognized.......................................... - - - -
-------- ------- ------- -------
$ - 4 4 59
======== ======= ======= =======
</TABLE>
In originating loans, Citizens National recognizes that credit losses will
be experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of a collateralized loan, the quality of the
collateral for the loan as well as general economic conditions. It is
management's policy to maintain an adequate allowance for loan losses based on,
among other things, Citizens National's historical loan loss experience,
evaluation of economic conditions and regular reviews of delinquencies and loan
portfolio quality.
The allowance for loan losses has been established through charges to
earnings in the form of a provision for possible loan losses. Increases and
decreased in the allowance due to changes in the measurement of the impaired
loans are included in the provision for possible loan losses. Loans continue to
be classified as impaired unless they are brought fully current and the
collection of scheduled interest and principal is considered probable. When a
loan or portion of a loan is determined to be uncollectible, the portion deemed
uncollectible is charged against the allowance.
Although management believes it uses the best information available to make
determinations with respect to the allowance for possible loan losses, there can
be no assurances that such allowance will be adequate if economic conditions
differ from the economic conditions in the assumptions used in making the
initial determinations.
The following table sets forth information with respect to activity in
Citizens National's allowance for loan losses during the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31
--------------------- ----------------------
1997 1996 1996 1995
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Average loans outstanding, net ............... $ 27,942 23,897 24,202 22,837
Allowance at beginning of period ............ 427 507 507 507
--------- ------- -------- -------
Charge-offs:
Commercial loans ......................... - - - -
Consumer loans ........................... - - - -
Residential real estate loans ............ - - - (58)
--------- ------- -------- -------
Total loans charged-off .......... - - - (58)
--------- ------- -------- -------
Recoveries ................................... 11 4 20 58
--------- ------- -------- -------
Net recoveries ................... 11 4 20 -
--------- ------- -------- -------
Credit for loan losses ................... - (100) (100) -
--------- ------- -------- -------
Allowance at end of period ............... 438 411 $ 427 507
========= ======= ======== =======
Ratio of net charge-offs (recoveries)
to average net loans outstanding ...... - - (.001) -
========= ======= ======== =======
Ratio of allowance to period-end loans .. .015 .016 .016 .021
========= ======= ======== =======
Ratio of allowance to non-performing loans - - - 1.80
========= ======= ======== =======
Period end total loans .................. 30,082 25,918 $ 25,925 23,911
========= ======= ======== =======
</TABLE>
91
<PAGE> 95
The following table presents information regarding Citizens National's
total allowance for losses as well as the allocation of such amounts to the
various categories of loans:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
1996 1995
------------------------ -----------------------
% OF % OF
LOANS TO LOANS TO
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
------ -------- ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial loans ............................. $ 36 8.7% $ 34 7.1%
Commercial real estate loans ................. 216 36.3 217 30.1
Residential real estate loans ................ 147 50.3 218 58.9
Consumer loans ............................... 28 4.7 38 3.9
----- ----- ----- ------
Total allowance for loan losses .......... $ 427 100.0% $ 507 100.0%
===== ===== ===== ======
</TABLE>
RESULTS OF OPERATIONS
The operating results of Citizens National depend primarily on its net
interest income, which is the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities,
consisting primarily of deposits. Net interest income is determined by the
difference between yields earned on interest-earning assets and rates paid on
interest-bearing liabilities ("interest-rate spread") and the relative amounts
of interest-earning assets and interest-bearing liabilities. Citizens National's
interest-rate spread is affected by regulatory, economic and competitive factors
that influence interest rates, loan demand and deposit flows. In addition,
Citizens National's net earnings are also affected by the level of nonperforming
loans and foreclosed real estate, as well as the level of its noninterest
income, and its noninterest expenses, such as salaries and employee benefits,
occupancy and equipment costs and provisions for losses on foreclosed real
estate and income taxes.
The following tables sets forth for the periods indicated, information
regarding (i) the total dollar amount of interest and dividend income of
Citizens National from interest-earning assets and the resultant average yields;
(ii) the total dollar amount of interest expense on interest-bearing liabilities
and the resultant average cost; (iii) net interest/dividend income; (iv)
interest-rate spread; (v) net interest margin and (vi) the ratio of average
interest-earning assets to average interest-bearing liabilities.
92
<PAGE> 96
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1995
------------------------------ ---------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- ------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1)..................................... $ 24,202 2,288 9.45% $ 22,837 2,101 9.20%
Securities.................................... 42,626 2,546 5.97% 43,814 2,625 5.99%
Other interest-earning assets (2)............. 2,745 156 5.68% 2,035 118 5.80%
Total interest-earning assets........... 69,573 4,990 7.17% 68,686 4,844 7.05%
Noninterest-earning assets....................... 3,133 2,745
Total assets............................ $ 72,706 $ 71,431
Interest-bearing liabilities:
Savings and NOW deposits...................... 22,460 703 3.13% 23,185 733 3.16%
Time deposits................................. 40,645 2,237 5.50% 40,174 2,190 5.45%
Total interest-bearing liabilities...... 63,105 2,940 4.66% 63,359 2,923 4.61%
Demand deposits.................................. 1,682 1,341
Noninterest-bearing liabilities.................. 1,111 831
Stockholders' equity............................. 6,808 5,900
Total liabilities and stockholders' equity $ 72,706 $ 71,431
Net interest income.............................. $ 2,050 $ 1,921
Interest rate spread (3)......................... 2.51% 2.44%
Net interest margin (4).......................... 2.95% 2.80%
Ratio of average interest-earning assets to
average interest-bearing liabilities.......... 1.10 1.08
</TABLE>
- ----------------------------------------
(1) Includes nonaccrual loans and amortization of deferred loan fees and direct
underwriting costs.
(2) Includes Federal Funds sold and tax-exempt interest has not been calculated
on a tax-equivalent basis.
(3) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
93
<PAGE> 97
RATE/VOLUME ANALYSIS
The following table sets forth certain information regarding changes in
interest income and interest expense of Citizens National for the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (1) changes in
rate (change in rate multiplied by prior volume), (2) changes in volume (change
in volume multiplied by prior rate) and (3) changes in rate-volume (change in
rate multiplied by change in volume).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 VS. 1995
------------------------
INCREASE (DECREASE) DUE TO
----------------------------
RATE/
RATE VOLUME VOLUME TOTAL
---- ------ ------ -----
(In thousands)
<S> <C> <C> <C> <C>
Interest earning assets:
Loans ................................................................. $ 57 126 4 187
Securities ................................................................. (9) (71) 1 (79)
Other interest-earning assets......................................................... (2) 41 (1) 38
-- --- -- ---
Total....................................................................... 46 96 4 146
-- --- -- ---
Interest-bearing liabilities:
Deposit accounts:
Savings and NOW deposits.................................................... (6) (22) (2) (30)
Time deposits............................................................... 20 26 1 47
-- --- -- ---
Total....................................................................... 14 4 (1) 17
-- --- -- ---
Net change in net interest income........................................................ $ 32 92 5 129
== === == ===
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 VS. 1994
------------------------
INCREASE (DECREASE) DUE TO
----------------------------
RATE/
RATE VOLUME VOLUME TOTAL
---- ------ ------ -----
(In thousands)
<S> <C> <C> <C> <C>
Interest earning assets:
Loans ................................................................. $ 31 60 1 92
==== ==== === ====
Securities ................................................................. 208 123 11 342
==== ==== === ====
Other interest-earning assets......................................................... 53 (73) (24) (44)
---- ---- --- ----
Total....................................................................... 292 110 (12) 390
---- ---- --- ----
Interest-bearing liabilities:
Deposit accounts:
Savings and NOW deposits.................................................... 220 (309) (76) (165)
==== ==== === ====
Time deposits............................................................... 156 604 69 829
---- ---- --- ----
Total....................................................................... 376 295 (7) 664
---- ---- --- ----
Net change in net interest income........................................................ $(84) (185) (5) (274)
==== ==== === ====
</TABLE>
94
<PAGE> 98
LIQUIDITY AND CAPITAL RESOURCES
A nationally chartered commercial bank is required to maintain a liquidity
reserve of at least 10% of its total transaction accounts. The liquidity reserve
may consist of cash on hand, cash on demand with other correspondent banks and
other investments and short-term marketable securities as determined by the
rules of the Federal Reserve Bank, such as federal funds sold and United States
securities or securities guaranteed by the United States. As of September 30,
1997 and December 31, 1996, Citizens National has liquidity of approximately
$12.1 million and $17.7 million, respectively, or approximately 18.7% and 26.5%
of total deposits, respectively.
During the nine months ended September 30, 1997, Citizens National's
primary sources of cash were from principal repayments and maturities of
securities of $11.8 million. Cash was used during this period to fund net loan
disbursements of $4.2 million, purchase securities of $7.5 million and fund net
deposit outflows of $2.0 million. This resulted in a net decrease in cash and
cash equivalents of $1.7 million from December 31, 1996 to September 30, 1997.
At September 30, 1997, Citizens National had approved commitments to fund $2.1
million in loans. It is expected that these commitments will be funded from
principal repayments of loans and securities and maturities of securities.
During the year ended December 31, 1996, Citizens National's primary
sources of cash were from principal repayments and maturities of securities of
$16.2 million, net deposit inflows of $1.4 million, proceeds from the issuance
of common stock of $1.3 million and cash flow from operations of $.7 million.
Cash was used during 1996 to purchase securities of $14.6 million and fund net
loan disbursements of $2.1 million. This resulted in an increase of cash and
cash equivalents of $2.9 million from December 31, 1995 to December 31, 1996.
INVESTMENT ACTIVITIES
Securities that management has the intent and Citizens National has the
ability at the time of purchase to hold until maturity are classified securities
held to maturity. Securities in this category are carried at amortized cost
adjusted for accretion of discounts and amortization of premiums using the
effective interest method over the estimated life of the securities. If a
security has a decline in fair value below its amortized cost that is other than
temporary, then the security will be written down to its new cost basis by
recording a loss in statement of earnings. Securities to be held for indefinite
periods of time and not intended to be held to maturity are classified as
available for sale. Assets included in this category are those assets that
management intends to use as part of its asset/liability management strategy and
that may be sold in response to changes in interest rates, resultant prepayment
risk and other factors related to interest rate and resultant prepayment risk
changes. Securities available for sale are recorded at fair value. Both
unrealized holding gains and losses on securities available for sale, net of
taxes, are included as a separate component of stockholders' equity in the
balance sheets until these gains or losses are realized. The cost of investment
securities sold is determined by the specific identification method. If a
security has a decline in fair value that is other than temporary, then the
securities will be written down to its fair value by recording a loss in the
statement of earnings. These securities are recorded at fair value. Both
unrealized gains and losses are included in the balance sheet.
At September 30, 1997, Citizens National had an unrealized loss net of
taxes, of $4,000. This unrealized loss, net of taxes, was shown as a decrease of
stockholders' equity at September 30, 1997 compared to a loss, net of taxes, of
$61,000 as of December 31, 1996.
At September 30, 1997, Citizens National's investment portfolio totaled
approximately $36.9 million, compared to $41.6 million at December 31, 1996. The
portfolio at September 30, 1997 primarily consisted of U.S. government agencies
and agency-backed securities.
95
<PAGE> 99
The following table sets forth the carrying value of Citizens National's
securities portfolio as of the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Securities available for sale:
U.S. government agencies and corporations................................................ $ 8,527 9,173
U.S. Treasury securities................................................................. - 1,999
Mortgage-backed securities............................................................... 2,208 2,570
-------- ------
Total available for sale............................................................... $ 10,735 13,742
======== ======
Securities held to maturity:
U.S. government agencies and corporations................................................ 14,848 9,631
U.S. Treasury securities................................................................. 995 1,495
Mortgage-backed securities............................................................... 6,579 9,426
Tax-exempt securities.................................................................... 7,210 7,224
Corporate securities..................................................................... 1,209 1,768
-------- ------
Total held to maturity................................................................. $ 30,841 29,544
======== ======
</TABLE>
The following table sets forth, by maturity distribution, certain
information pertaining to the securities portfolio at December 31, 1996, as
follows:
<TABLE>
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
ONE YEAR OR LESS TO FIVE YEARS TO TEN YEARS AFTER TEN YEARS TOTAL
---------------- ------------- ------------- --------------- -------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE
FOR SALE:
U.S. government
agencies and
corporations ... $ 549 5.52% $7,487 5.74% $ 491 6.44% $ - - % $ 8,527 5.77%
Mortgage-backed
securities ..... - - - - - - 2,208 6.11 2,208 6.11
------ ------ ------- ------ -------
Total .......... $ 549 5.52% $7,487 5.74% $ 491 6.44% $2,208 6.11% $10,735 5.84%
====== ==== ======= ==== ======= ==== ====== ==== ======= ====
SECURITIES HELD TO
MATURITY:
U.S. government
agencies and
corporations ... 2,998 6.88% 11,850 6.36% - -% - -% 14,848 6.46%
U.S. Treasury
securities ..... 995 6.47 - - - - - - 995 6.47
Mortgage-backed
securities ..... 159 4.92 768 6.56 4,315 6.34 1,337 6.23 6,579 6.31
Tax-exempt
securities (1) . - - 1,567 4.01 1,939 5.57 3,704 5.80 7,210 5.35
Corporate
securities ..... 809 5.69 400 6.44 - - - - 1,209 5.94
------ ---- ------- ---- ------ ---- ------ ---- ------- ----
Total .......... $4,961 6.54% $14,585 6.12% $6,254 6.10% $5,041 5.91% $30,841 6.15%
====== ==== ======= ==== ====== ==== ====== ==== ======= ====
</TABLE>
(1) The yields on tax-exempt securities are not presented on a tax
equivalent basis.
96
<PAGE> 100
REGULATORY CAPITAL REQUIREMENTS
Under OCC regulations, Citizens National is required to meet certain
minimum regulatory capital requirements. This is not a valuation allowance and
has not been created by charges against earnings. It represents a restriction on
stockholders' equity.
In accordance with risk based capital guidelines issued by the OCC, all
national banks are required to maintain a minimum standard of total capital to
weighted risk assets of at least 8% of total assets. In addition, national banks
must maintain "Core" or "Tier-I" capital of at least 4% of total assets. Those
national banks operating at or near the 4% Tier I capital level are expected to
have well diversified risk, including no undue interest risk rate exposure,
excellent control systems, good earnings, high asset quality, high liquidity and
well managed on and off balance sheet activities; and in general be considered
strong banking organization with a composite 1 rating under the CAMEL rating for
banks. For all but the most highly rated banks meeting the above conditions, the
minimum leverage requirement has been increased to 5% of total assets.
Management believes, as of September 30, 1997, that Citizens National meets all
capital adequacy requirements to which it is subject.
As of September 30, 1997, the most recent notification from the Federal
regulators categorized Citizens National as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, Citizens National must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table below. There
are no conditions or events since that notification that management believes
have changed Citizens National's category.
The following table summarizes the current capital requirements for
Citizens National (dollars in thousands):
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
------------------ -------------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AT SEPTEMBER 30, 1997:
Total Capital
(to Risk Weighted Assets)............ $ 9,074 27.4% $2,652 8.0% $3,315 10.0%
Tier I Capital
(to Risk Weighted Assets)............ 8,661 26.1 1,326 4.0 1,989 6.0
Tier I Capital
(to Average Assets).................. 8,661 11.7 2,954 4.0 3,692 5.0
AT DECEMBER 31, 1996:
Total Capital
(to Risk-Weighted Assets)............ 9,255 29.5% 2,507 8.0% 3,134 10.0%
Tier I Capital
(to Risk-Weighted Assets)............ 8,863 28.3 1,254 4.0 1,880 6.0
Tier I Capital
(to Average Assets).................. 8,863 12.2 2,908 4.0 3,635 5.0
</TABLE>
97
<PAGE> 101
ASSET AND LIABILITY MANAGEMENT
As part of its asset and liability management, Citizens National has
emphasized establishing and implementing internal asset-liability decision
processes, as well as communications and control procedures to aid in managing
Citizens National's earnings. Management believes that these processes and
procedures provide Citizens National with better capital planning, asset mix and
volume controls, loan-pricing guidelines, and deposit interest-rate guidelines
which should result in tighter controls and less exposure to interest-rate risk.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest-rate sensitive" and by
monitoring an institution's interest-rate sensitivity "gap." An asset or
liability is said to be interest-rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest-rate sensitivity
gap is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period.
The gap ratio is computed by dividing rate-sensitive assets by rate-sensitive
liabilities. A gap ratio of 1.0% represents perfect matching. A gap is
considered positive when the amount of interest-rate sensitive assets exceeds
interest-rate sensitive liabilities. A gap is considered negative when the
amount of interest-rate sensitive liabilities exceeds interest-rate sensitive
assets. During a period of rising interest rates, a negative gap would adversely
affect net interest income, while a positive gap would result in an increase in
net interest income. During a period of falling interest rates, a negative gap
would result in an increase in net interest income, while a positive gap would
adversely affect net interest income.
In order to minimize the potential for adverse effects of material and
prolonged increases in interest rates on the results of operations, Citizens
National's management continues to monitor asset and liability management
policies to better match the maturities and repricing terms of its
interest-earning assets and interest-bearing liabilities. Such policies have
consisted primarily of: (i) emphasizing the origination of adjustable-rate
loans; (ii) maintaining a stable core deposit base; and (iii) maintaining a
significant portion of liquid assets (cash and short-term securities).
Citizens National has also maintained a relatively large portfolio of
liquid assets (cash and assets maturing or repricing in one year or less) in
order to reduce its vulnerability to shifts in market rates of interest. As of
December 31, 1996, Citizens National's liquidity ratio was 26.5%.
Citizens National also seeks to maintain a large stable core deposit base
by providing quality service to its customers without significantly increasing
its cost of funds or operating expenses. The success of Citizens National's core
deposit strategy is demonstrated by the stability of its demand deposit
accounts, savings accounts and NOW accounts, which totaled $25.6 million,
representing 38.3% of total deposits at December 31, 1996. The interest-bearing
portion of these accounts bore a weighted average nominal rate of 3.13% at
December 31, 1996. Management anticipates that these accounts will increase and
in the future comprise a significant portion of its deposit base.
As of December 31, 1996, Citizens National's one-year negative
interest-rate sensitivity gap in dollars was $28.1 million. Although management
believes that the implementation of the foregoing strategies has reduced the
potential adverse effects of changes in interest rates on Citizens National's
results of operations, any substantial and prolonged increase in market rates of
interest could have an adverse impact on Citizens National's results of
operations. Management of Citizens National monitors Citizens National's
interest-rate sensitivity on a quarterly basis. Management believes that its
present gap position is appropriate for the current interest rate environment.
98
<PAGE> 102
The following table sets forth certain information relating to Citizens
National's interest-earning assets and interest-bearing liabilities at December
31, 1996 that are estimated to mature or are scheduled to reprice within the
period shown.
<TABLE>
<CAPTION>
ONE MORE
YEAR THAN ONE
OR YEAR TO MORE THAN
LESS FIVE YEARS FIVE YEARS TOTAL
---- ---------- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans (1):
Adjustable rate.................................................. $ 3,188 4,626 - 7,814
Fixed rate....................................................... 2,255 4,205 10,433 16,893
Consumer and other loans......................................... 151 1,067 - 1,218
-------- ------ ------ ------
Total loans................................................. 5,594 9,898 10,433 25,925
Securities (2)(3).................................................... 15,020 20,523 11,083 46,626
-------- ------ ------ ------
Total rate-sensitive assets................................. 20,614 30,421 21,516 72,551
-------- ------ ------ ------
Deposit accounts:
Savings and NOW (4).............................................. 23,902 - - 23,902
Time deposits.................................................... 24,788 16,523 - 41,311
-------- ------ ------ ------
Total rate-sensitive liabilities............................ 48,690 16,523 - 65,213
-------- ------ ------ ------
Gap (repricing differences).......................................... (28,076) 13,898 21,516 7,338
-------- ------ ------ ======
Cumulative GAP....................................................... $(28,076) (14,178) 7,338
======== ====== ======
Cumulative Ratio of rate-sensitive assets to
rate-sensitive liabilities....................................... 0.42 0.78 1.11
Cumulative GAP/total assets.......................................... (36.95)% (18.66)% 9.66%
======== ====== ======
</TABLE>
(1) In preparing the table above, adjustable-rate loans are included in the
period in which the interest rates are next scheduled to adjust rather than
in the period in which the loans mature. Fixed rate loans are scheduled,
including repayment, according to their contractual maturities.
(2) Securities are scheduled according to their respective repricing and
maturity dates.
(3) Includes federal funds sold and mortgage backed securities.
(4) NOW accounts, and savings accounts are regarded as readily accessible
withdrawable accounts. All other time accounts are scheduled according to
their respective maturity dates.
99
<PAGE> 103
The following table reflects the contractual principal repayments by
period of Citizens National's loan portfolio at December 31, 1996.
<TABLE>
<CAPTION>
COMMERCIAL RESIDENTIAL
YEARS ENDED COMMERCIAL REAL ESTATE REAL ESTATE CONSUMER
DECEMBER 31, LOANS LOANS LOANS LOANS TOTAL
------------ ---------- ----------- ------------ -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1997........................... $ 1,870 1,122 748 520 4,260
1998........................... 164 778 527 257 1,726
1999........................... 57 1,993 540 191 2,781
2000-2001...................... 65 1,003 1,323 192 2,583
2002-2006...................... 104 1,555 4,937 58 6,654
Thereafter..................... - 2,970 4,951 - 7,921
------- ----- ------ ----- ------
Total........................ $ 2,260 9,421 13,026 1,218 25,925
======= ===== ====== ===== ======
</TABLE>
Of the $21.7 million of loans due after 1997, 73% of such loans have fixed
interest rates and 27% have adjustable rates.
The following table displays loan origination by type of loan and principal
reductions during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Originations:
Commercial and commercial real estate loans........................ $ 4,733 5,402
Residential real estate............................................ 868 743
Consumer loans..................................................... 741 625
------- ------
Total loans originated......................................... 6,342 6,770
Principal reductions........................................................ (4,328) (5,783)
------- ------
Increase in gross loans ....................................... $ 2,014 987
======= ======
</TABLE>
100
<PAGE> 104
The following table sets forth information concerning Citizens National's
loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------
1996 1995
------------------ ------------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial loans........................................................ $ 2,260 8.7% $ 1,699 7.1%
Commercial real estate loans............................................ 9,421 36.3 7,195 30.1
Residential real estate loans........................................... 13,026 50.3 14,094 58.9
Consumer loans.......................................................... 1,218 4.7 923 3.9
------- ----- ------- -----
Total loans......................................................... 25,925 100.0% 23,911 100.0%
===== =====
Less:
Deferred loan fees.................................................... 6 7
Allowance for loan losses............................................. 427 507
------- ------
Loans, net.......................................................... $ 25,492 $ 23,397
====== ======
</TABLE>
Deposits are the major source of Citizens National's funds for lending and
other investment purposes. In addition to deposits, Citizens National derives
funds from interest payments, loan principal payments, loan sales, and funds
provided from operations. Scheduled loan repayments are a relatively stable
source of funds, while deposit inflows are significantly influenced by general
interest rates and money market conditions. Citizens National may use borrowings
on a short-term basis if necessary to compensate for reductions in the
availability of other sources of funds. They also may be used on a longer-term
basis for general business purposes.
Deposits are attracted principally from within Citizens National's market
area through the offering of a broad variety of deposit instruments including
checking accounts, money market accounts, regular savings accounts, term
certificate accounts (including "jumbo" certificates in denominations of
$100,000 or more) and retirement savings plans. As of September 30, 1997, jumbo
certificates accounted for approximately $4.7 million of Citizens National's
deposits. Of this amount, $3.5 million had a term of one year or less.
Maturity terms, service fees and withdrawal penalties are established by
Citizens National on a periodic basis. The determination of rates and terms is
predicated on funds acquisition and liquidity requirements, rates paid by
competitors, growth goals and federal regulations.
Regulations promulgated by the FDIC pursuant to the FDICIA place
limitations on the ability of insured depository institutions to accept, renew,
or roll-over deposits by offering rates of interest which are significantly
higher than the prevailing rates of interest on deposits offered by other
insured depository institutions having the same type of charter in such
depository institution's normal market area. Under these regulations, "well
capitalized" depository institutions may accept, renew, or roll such deposits
over without restriction, "adequately capitalized" depository institutions may
accept, renew or roll such deposits over with a waiver from the FDIC (subject to
certain restrictions on payments of rates), and "undercapitalized" depository
institutions may not accept, renew or roll such deposits over. The regulations
contemplate that the definitions of "well capitalized," "adequately capitalized"
and "undercapitalized" will be the same as the definitions adopted by the
agencies to implement the corrective action provisions of the FDICIA. As of
September 30, 1997, Citizens National met the definition of a "well capitalized"
depository institution.
101
<PAGE> 105
The following table shows the distribution of, and certain other
information relating to Citizens National deposit accounts by type:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------
1996 1995
------------------- -------------------
% OF % OF
AMOUNT DEPOSIT AMOUNT DEPOSIT
------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Demand deposits.................................................... $ 1,700 2.54% $ 1,914 2.92%
Savings and NOW deposits........................................... 23,902 35.72 21,646 33.02
------ ------ ------ ------
Subtotal........................................................... 25,602 38.26 23,560 35.94
------ ------ ------ ------
Time deposits by rate:
5.00%- 5.99%....................................................... 34,979 52.28 37,130 56.64
6.00%- 6.99%....................................................... 6,332 9.46 4,864 7.42
------ ------ ------ ------
Total time deposits................................................ 41,311 61.74 41,994 64.06
------ ------ ------ ------
Total deposits..................................................... $ 66,913 100.00% $ 65,554 100.00%
====== ====== ====== ======
</TABLE>
Jumbo certificates ($100,000 and over) mature as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
(IN THOUSANDS)
<S> <C>
Due three months or less.................................................................................$ 1,346
Due over three months to six months...................................................................... 1,491
Due over six months to one year.......................................................................... 1,020
Due over one year........................................................................................ 1,133
-------
$ 4,990
=======
</TABLE>
The following table sets forth the net deposit flows of Citizens National
during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Net decrease before interest credited...............................................................$(1,583) (3,214)
Net interest credited............................................................................... 2,942 2,909
------- ------
Net deposit increase (decrease)..................................................................$ 1,359 (305)
======= ======
</TABLE>
102
<PAGE> 106
The following table shows the average amount of and the average rate paid
on each of the following interest-bearing deposit account categories during the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995
------------------ --------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE YIELD BALANCE YIELD
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Savings and NOW deposits.......................................... $ 22,460 3.13% $ 23,185 3.16%
Time deposits..................................................... 40,645 5.50 40,174 5.45
------ ---- ------ ----
Total interest-bearing deposits................................ $ 63,105 4.66% $ 63,359 4.61%
====== ==== ====== ====
</TABLE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
GENERAL
Net earnings for the nine months ended September 30, 1997 were $188,000, or
$0.31 per share compared to net earnings of $504,000, or .94 per share, for the
nine months ended September 30, 1996. This decrease in Citizens National's net
earnings was primarily due to an increase in noninterest expenses partially
offset by an increase in net interest income. The increase in noninterest
expenses was primarily due to additional expense of approximately $324,000
resulting from the settlement of litigation with certain of Citizens National's
original executive officers during the first quarter of 1997.
INTEREST INCOME AND EXPENSE
Interest income increased by $300,000 from $3.7 million for the nine months
ended September 30, 1996 to $4.0 million for the nine months ended September 30,
1997. Interest income on loans increased $281,000 primarily due to an increase
in the average loan portfolio balance from $23.9 million during the period ended
September 30, 1996 to $27.9 million during the period ended September 30, 1997.
Interest on securities decreased $45,000 due to a decrease in the average
securities portfolio to $40.8 million in 1997 from $42.8 million in 1996
partially offset by an increase in the average yield earned from 5.94% in 1996
to 6.08% in 1997. Interest on other interest-earning assets increased $27,000
primarily due to an increase from $2.1 million in average other interest earning
assets in 1996 to $2.6 million in 1997.
Interest expense increased to $2.24 million for the nine months ended September
30, 1997 from $2.17 million for the nine months ended September 30, 1996.
Interest expense increased primarily because of an increase in average deposits
from $62.4 million during 1996 to $62.9 million during 1997.
PROVISION FOR LOAN LOSSES
A provision for loan losses is charged to earnings to bring the total allowance
to a level deemed appropriate by management and is based upon historical
experience, the volume and type of lending conducted by Citizens National,
industry standards, the amounts of nonperforming loans, general economic
conditions, particularly as they relate to Citizens National's market areas, and
other factors related to the collectibility of Citizens National's loan
portfolio. Citizens National did not record a provision for loan losses during
the nine months ended September 30, 1997. Management believes that the allowance
for loan losses of $438,000 is adequate at September 30, 1997.
NONINTEREST EXPENSE
Total other expense increased to $1.8 million for the nine months ended
September 30, 1997 from $1.3 million for the nine months ended September 30,
1996. This increase was primarily due to additional expense of approximately
$324,000 resulting from the settlement of litigation with certain of Citizens
National's original executive officers.
103
<PAGE> 107
INCOME TAXES
The income tax credit was $18,000, an effective rate of 10.6% for the nine
months ended September 30, 1997 compared to a provision of $97,000, an effective
rate of 16.1% for the comparable period in 1996. The lower tax rate, compared to
the statutory tax rate, for both periods is due to the tax exempt interest on
certain securities.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
GENERAL
Net earnings for the year ended December 31, 1996 were $570,000 or $1.06 per
share compared to $500,000 or $.98 per share for the year ended December 31,
1995. This increase in Citizens National's net earnings was primarily due to an
increase in net interest income partially offset by an increase in noninterest
expenses.
INTEREST INCOME AND EXPENSE
Interest income increased by $146,000 from $4.8 million for the year ended
December 31, 1995 to $5.0 million for the year ended December 31, 1996. Interest
income on loans increased $187,000 due an increase in the average loan portfolio
balance from $22.8 million for the year ended December 31, 1995 to $24.2 million
for 1996, as well as an increase in the weighted average yield of 25 basis
points. Interest on securities decreased $79,000 due to an decrease in the
average securities balance from $43.8 million in 1995 to $42.6 million in 1996,
as well as a decrease in the average yield from 5.99% in 1995 to 5.97% in 1996.
Interest on other interest-earning assets increased $38,000 primarily due to an
increase from $2.0 million in average other interest-earning assets in 1995 to
$2.7 million in 1996.
Interest expense increased $17,000 in 1996 compared to 1995. Interest expense
increased due to an increase of 5 basis points in the average yield paid on
deposits for the year ended December 31, 1996 compared to 1995, partially offset
by a decrease in average deposits from $63.4 million to $63.1 million from 1995
to 1996.
CREDIT FOR LOAN LOSSES
The credit for loan losses was added to earnings to bring the total allowance to
a level deemed appropriate by management and is based upon historical
experience, the volume and type of lending conducted by Citizens National,
industry standards, the amounts of nonperforming loans, general economic
conditions, particularly as they relate to Citizens National's market areas, and
other factors related to the collectibility of Citizens National's loan
portfolio. Management believes that the allowance for loan losses of $427,000 is
adequate at December 31, 1996.
NONINTEREST EXPENSE
Total noninterest expense increased $209,000 for the year ended December 31,
1996 when compared to 1995, primarily due to an increase in employee
compensation and benefits of $181,000 and other operating expenses of $145,000,
partially offset by a decrease in federal deposit insurance premiums of
$108,000.
INCOME TAXES
The income tax provision was $60,000 (an effective rate of 9.5%) for 1996
compared to $115,000 (an effective rate of 18.6%) for 1995. The lower tax rate
(compared to the statutory tax rate) is due to the tax-exempt interest on
certain securities.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been prepared in
accordance with GAAP, which requires the measurement of financial position and
operating results in terms of historical dollars, without considering changes in
the relative purchasing power of money over time due to inflation. The primary
impact of inflation on the operations of Citizens National
104
<PAGE> 108
is reflected in increased operating costs. Unlike most industrial companies,
substantially all of the assets and liabilities of Citizens National are
monetary in nature. As a result, interest rates have a more significant impact
on Citizens National's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services, since such prices are
affected by inflation to a larger extent than interest rates.
FUTURE ACCOUNTING REQUIREMENTS
The FASB has issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"). This statement specifies the computation,
presentation and disclosure requirements for net earnings per share for entities
with publicly-held common stock. SFAS 128 is effective for both interim and
annual periods ending after December 15, 1997 and upon adoption, all prior
period net earnings per share data presented will be restated to conform with
SFAS 128.
105
<PAGE> 109
MATERIAL DIFFERENCES IN RIGHTS OF STOCKHOLDERS
COMPARISON OF RIGHTS OF STOCKHOLDERS OF CITIZENS NATIONAL AND GULF WEST
At the Effective Time, the Stockholders of Citizens National, a national
bank, will become Stockholders of Gulf West, a Florida corporation and bank
holding company, and Florida law will govern Stockholder rights after the
Merger. Differences between the National Bank Act and the FBCA and between the
Citizens National Articles and the Citizens National Bylaws and the Gulf West
Articles and the Gulf West Bylaws will result in various changes in the rights
of Stockholders of Citizens National.
The following is a summary of the material differences between the rights of
Gulf West Stockholders under Florida law, compared with those of Citizens
National Stockholders under the National Bank Act, the Citizens National
Articles, and the Citizens National Bylaws. This summary does not purport to be
a complete description of the provisions discussed and is qualified in its
entirety by the National Bank Act, the FBCA, the Citizens National Articles, the
Citizens National Bylaws, the Gulf West Articles and the Gulf West Bylaws, to
which Citizens National Stockholders are referred.
CHARTER AND BYLAW PROVISIONS AFFECTING GULF WEST COMMON STOCK
The Gulf West Articles and Bylaws contain several provisions which may make
Gulf West a less attractive target for an acquisition of control by anyone who
does not have the support of Gulf West's Board of Directors and stockholders.
Such provisions include, among other things, (a) the requirement of a
supermajority vote of stockholders or directors to approve certain business
combinations and other corporate actions involving "Principal Stockholders"
(defined generally as any person who is the beneficial owner of 10% of the
voting shares of Gulf West), (b) a minimum price provision, (c) several special
procedural rules, and (d) a staggered Board of Directors. The Citizens National
Articles and Bylaws do not contain similar restrictions on the stockholders'
ability to control Citizens National. However, federal law does require the
approval of the holders of two-thirds of the outstanding shares for a merger of
a national banking association.
STOCKHOLDER APPROVAL OF MERGERS
The National Bank Act (the "NBA") requires that two-thirds of the
stockholders of a national banking association approve the participation of a
national banking association in a merger, whether or not the association is the
surviving institution. However, the stockholders of the surviving institution do
not have dissenters' rights.
The FBCA generally permits a merger to become effective without the approval
of the surviving corporation's stockholders if the articles of incorporation of
the surviving corporation do not change following the merger except for certain
changes not materially altering the rights of existing stockholders, and the
board of directors of the surviving corporation adopts a resolution approving
the plan of merger.
Where stockholder approval is required under the FBCA, a merger which does
not involve an "Interested Person" can be approved by a majority vote of the
outstanding shares of capital stock of each class entitled to vote thereon,
unless provided otherwise by the Board of Directors. If the proposed merger or
other business combination were to involve an "Interested Stockholder," as
defined in the FBCA, however, the FBCA imposes supermajority approval
requirements with certain qualifications. The Gulf West Articles impose similar
and more restrictive supermajority approval requirements, as described elsewhere
in this Proxy Statement/Prospectus. SEE "RISK FACTORS," "MATERIAL DIFFERENCES
IN RIGHTS OF STOCKHOLDERS--Charter and Bylaw Provisions Affecting Gulf West
Common Stock" AND "MATERIAL DIFFERENCES IN RIGHTS OF STOCKHOLDERS--Antitakeover
Legislation."
DISSENTERS' RIGHTS
Federal law provides that a stockholder who votes against a merger or gives
notice of his or her dissent in writing prior to or at the meeting at which the
merger is approved generally has the right to dissent from any merger. Any
stockholder who exercises his or her right to dissent in the prescribed manner
will be entitled to receive the appraised value of his shares in cash.
SEE "THE MERGER--Dissenters' Rights."
106
<PAGE> 110
Under the FBCA, a stockholder is entitled to dissent and obtain payment of
the fair value of his shares in the event of, among other things, (a)
consummation of a plan of merger to which the corporation is a party, if either
(i) stockholder approval is required and the stockholder is entitled to vote on
the merger or (ii) the corporation is a subsidiary that is owned 80% by and is
merged into its parent; (b) consummation of a plan of share exchange to which
the corporation is a party as the corporation whose shares will be acquired, if
the stockholder is entitled to vote on the plan; (c) consummation of a sale or
exchange of substantially all of the property of the corporation other than in
the usual and regular course of the business if stockholder approval is
required; (d) an amendment to the articles of incorporation that adversely
affects the rights in respect of the dissenter's shares in specified ways; (e)
in the event of a control share acquisition as discussed in Section 607.0902 of
the FBCA; or (f) any corporate action pursuant to a stockholder vote to the
extent that the articles of incorporation provide that dissenters' rights shall
apply. Dissenters' rights are not available, however, if the class of securities
entitled to vote on those matters identified above are either registered on a
national securities exchange, designated for listing on Nasdaq National Market,
or are held by 2,000 or more stockholders. SEE "THE MERGER--Dissenters' Rights"
AND "MATERIAL DIFFERENCES IN RIGHTS OF STOCKHOLDERS--Stockholder Approval of
Mergers."
STOCKHOLDERS' MEETINGS AND VOTING
SPECIAL MEETINGS. Federal law does not set forth specific rules for the
calling of special meetings of stockholders of national banking associations
such as Citizens National. Federal law, however, does require that a notice of
all stockholder meetings notifying all stockholders of the time, place, and
purpose of the meeting be sent by first class mail postage prepaid at least 10
days prior to the meeting. The association bylaws or articles may require a
longer period of notice. The Citizens National Articles and Bylaws provide that
the Board of Directors, or any fifteen or more stockholders owning, in the
aggregate, not less than 33 percent of the stock of Citizens National, may call
a special meeting of stockholders at any time. The period of notice for a
special meeting set forth in the Citizens National Articles is 10 days.
Under the FBCA, a special meeting of stockholders of a Florida corporation
may be called by the holders of shares entitled to cast not less than 10% of all
shares entitled to vote at the meeting, unless a different percentage, not to
exceed 50%, is provided in the articles of incorporation. Although the Gulf West
Bylaws provide that special meetings of stockholders may be called only by the
Board of Directors or by a committee of the Board of Directors, because Gulf
West's Articles do not provide for a different percentage than the FBCA, the
holders of 10% or more of Gulf West's shares may call a special meeting.
ACTIONS WITHOUT A MEETING. Neither the Citizens National Articles, nor the
Bylaws of Citizens National, nor the NBA, nor the regulations enforcing and
interpreting the NBA addresses whether or not the stockholders of a national
banking association are entitled to take action without a meeting.
Under the FBCA, the stockholders may take action without a meeting if a
consent in writing to such action is signed by the stockholders having the
minimum number of votes that would be necessary to take such action at a
meeting, unless prohibited in the articles or certificate of incorporation. Gulf
West's Articles provide that stockholder action may be taken without a meeting
by the written consent of a majority of the outstanding shares entitled to vote
thereon. SEE "RISK FACTORS."
ELECTION AND REMOVAL OF DIRECTORS. Under the NBA, each stockholder has the
right in all elections of directors to cumulative voting, i.e., each stockholder
is entitled to vote the number of shares owned by him for as many persons as
there are directors to be elected, or to cumulate such shares and give one
candidate the number of votes equal to the number of directors multiplied by the
number of his shares, or to distribute his votes on the same cumulative
principle among as many candidates as he wishes. The candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected. Under cumulative voting, stockholders who own less than a majority of a
corporation's common stock can obtain representation on the board of directors.
If voting is not conducted by cumulative voting, each share is entitled to one
vote, and the holders of a majority of the shares voting at the meeting can
elect all of the directors if they choose to do so, leaving the other
stockholders unable to elect a director.
According to federal regulations, a director may be removed by stockholders
at a meeting called to remove him or her, when notice of the meeting stating
that the purpose or one of the purposes is to remove him or her is provided, if
there is a failure to fulfill one of the affirmative requirements for
qualification, or for cause; provided, however, that a director may not be
removed if the number of votes sufficient to elect him or her under cumulative
voting is voted against his or her removal.
107
<PAGE> 111
Under the FBCA, the directors of a corporation shall be elected by a
plurality of the votes cast by the holders of shares entitled to vote in the
election of directors at a meeting of stockholders at which a quorum is present,
unless the articles of incorporation provide otherwise. Gulf West's Articles do
not provide for cumulative voting. SEE "DESCRIPTION OF CAPITAL STOCK OF GULF
WEST--Voting Rights."
Once elected, under the FBCA, unless the articles of incorporation provide
otherwise, in the case of a corporation whose board of directors is staggered
(as is Gulf West's), stockholders may effect a removal of a director only for
cause. The Gulf West Articles provide for a classified board, and any such
removal must be for cause after a supermajority vote (two-thirds) of the
stockholders.
VOTING ON OTHER MATTERS. Under the NBA, any action requiring the approval
of stockholders of a national banking association may be obtained by a vote of
the majority of stockholders, except where a law specifically mandates a greater
vote with respect to a particular issue. Amendments to the articles of
association require only a majority vote of stockholders. Liquidation of a
National Banking Association must be approved by two-thirds of its stockholders.
Under the FBCA, an amendment to the articles of incorporation requires the
approval of the holders of at least a majority of the outstanding shares of the
corporation entitled to vote thereon, unless the articles of incorporation
requires a greater vote. The Gulf West Articles does require a greater vote
(two-thirds) of the stockholders to approve the amendment of certain, but not
all, of the provisions thereof.
Under the FBCA, a corporation may sell, lease, exchange or otherwise
dispose of all, or substantially all, of its property and assets (with or
without the goodwill), otherwise than in the usual and regular course of its
business, only with the approval of the holders of a majority of all of the
outstanding shares of the corporation entitled to vote thereon, unless the
articles of incorporation requires a greater vote. The Gulf West Articles do not
require a greater vote on this matter.
Under the FBCA, the dissolution of a corporation must be approved by the
holders of a majority of the corporation's stock entitled to vote thereon,
unless the articles of incorporation requires a greater vote. The Gulf West
Articles do not require a greater vote for approval of a dissolution.
DIVIDENDS
Under the NBA, the directors of a national banking association may declare
a dividend quarterly, semiannually, or annually equal to that amount of the net
profits of the association as they determine, except that no dividend may be
declared until the surplus fund of the association at least equals its common
capital stock, and there has been carried to the surplus fund not less than 10%
of the association's net profits for the appropriate time period preceding the
dividend. The OCC must approve all dividends declared by an association where
the total of those dividends exceeds the total of its net profits of that year
combined with its retained net profits (defined as the remainder of all earnings
from current operations plus actual recoveries on loans and investments and
other assets, after deducting current operating expenses, losses, taxes, and
accrued dividends on preferred stock) of the preceding two years, less any
required transfers to surplus or a fund for the retirement of any preferred
stock.
The FBCA provides that a corporation may declare and pay a dividend to its
stockholders to the extent the corporation's total assets exceed the sum of its
total liabilities plus the amount that would be needed, in the case of
dissolution, to satisfy the preferential rights of stockholders whose
preferential rights are superior to those receiving the dividend (a surplus),
unless the corporation would not be able to pay its debts as they become due in
the usual course of business. In addition to these limitations, there are
various statutory limitations on the ability of Mercantile to pay dividends to
Gulf West, which is the primary source of funds from which Gulf West declares
dividends to the Gulf West Stockholders. SEE "SUPERVISION AND REGULATION."
Holders of Gulf West Common Stock are entitled to receive dividends ratably
when, as and if declared by Gulf West's Board of Directors from assets legally
available therefor, after payment of all dividends on preferred stock, if any is
outstanding.
108
<PAGE> 112
PREEMPTIVE RIGHTS
Federal regulations require that the articles of association of a national
bank grant or deny preemptive rights in the stockholders thereof. Any amendment
to a national bank's articles of association modifying such preemptive rights
must be approved by affirmative vote of two thirds of the outstanding voting
shares of Citizens National. Citizens National's articles of association
specifically deny preemptive rights.
Under the FBCA, stockholders do not possess preemptive rights as to the
issuance of additional securities by the corporation, unless the corporation's
articles of incorporation provide otherwise. The Gulf West Articles do not
provide for preemptive rights.
LIQUIDATION RIGHTS
Generally under the FBCA, stockholders are entitled to share ratably in the
distribution of assets upon the dissolution of their corporation. Preferred
stockholders typically do not participate in the distribution of assets of a
dissolved corporation beyond their established contractual preferences. Once the
rights of preferred stockholders have been fully satisfied, common stockholders
are entitled to the distribution of any remaining assets.
Upon liquidation, dissolution or the winding up of the affairs of Gulf
West, holders of Gulf West Common Stock are entitled to receive their pro rata
portion of the remaining assets of Gulf West after the holders of Gulf West
Class A Preferred Stock have been paid in full any sums to which they may be
entitled. Although a series of Gulf West Class A Preferred Stock has been
designated with a liquidation value of $5.00 per share, plus accrued and unpaid
dividends, there are no shares of Gulf West Preferred Stock outstanding as of
the date hereof.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Federal laws pertaining to national banking associations do not include
specific provisions regarding the limitation of liability and indemnification of
directors of the association. Federal regulations provide that a national bank
may provide in its articles of association for the indemnification of directors,
officers, and employees for expenses reasonably incurred in actions to which the
directors, officers, or employees are parties or potential parties by reason of
the performance of their official standards of law as evidenced by the law of
the state in which Citizens National is headquartered, or the relevant
provisions of the Model Business Corporation Act are presumed by the OCC to be
within the corporate powers of a national bank. However, the indemnification
articles may not allow the indemnification against expenses, penalties, or other
payments incurred in an administrative proceeding or action instituted by a bank
regulatory agency which results in a final order assessing civil money penalties
or requiring affirmative action by an individual or individuals in the form of
payments to Citizens National.
The Citizens National Articles provide that any person, his/her heirs,
executors, or administrators may be indemnified or reimbursed by the association
for reasonable expenses actually incurred in defending law suits brought against
the them by reason of the performance of their official duties. The Citizens
National Articles provide that Citizens National will pay all premiums for
insurance covering such indemnification of officers, directors, and other
employees. However, no indemnification is permitted where the director, officer,
or employee is judged guilty of, or liable for, willful misconduct, gross
neglect of duty, or criminal acts.
It is mandatory for a Florida corporation to indemnify a director, officer,
employee or agent against expenses actually and reasonably incurred in
successfully defending an action, provided the person acted in good faith and in
a manner reasonably believed to be in, or not opposed to, the best interests of
the corporation. The Gulf West Articles authorize the indemnification of Gulf
West's directors, officers and others to the fullest extent permitted by law.
ANTITAKEOVER PROVISIONS
Neither the NBA nor the federal regulations interpreting the NBA
specifically permit anti-takeover provisions in the articles of association or
bylaws of a national bank.
109
<PAGE> 113
The FBCA requires that any affiliated transaction, which term includes a
merger, sale of significant assets of the corporation and similar extraordinary
corporate transactions, between the corporation and an interested stockholder
(generally defined as any person who is the beneficial owner of more than 10% of
the outstanding voting shares of the corporation) be approved by the affirmative
vote of the holders of two-thirds of the voting shares of the corporation other
than the shares beneficially owned by the interested stockholder. The voting
requirements of the FBCA will not apply, however, to an affiliated transaction
if: (a) the affiliated transaction has been approved by a majority of the
corporation's disinterested directors; (b) the corporation has not had more than
300 stockholders at any time during the preceding three years; (c) the
interested stockholder has been the beneficial owner of at least 80% of the
corporation's outstanding voting shares for at least five years; (d) the
interested stockholder is the beneficial owner of at least 90% of the
outstanding voting shares of the corporation; or (e) certain fair price
requirements have been met. The statute also provides that the restrictions
contained therein shall not apply to any corporation whose certificate of
incorporation contains a provision expressly electing not to be governed
thereby. The Gulf West Articles do not contain such a provision.
The Gulf West Articles contain additional provisions affecting
control-share acquisitions. Under the Gulf West Articles, no merger,
reorganization or consolidation of Gulf West may be effected with any interested
stockholder who beneficially owns 10% or more of the outstanding voting shares
of the corporation unless certain conditions are met. Those conditions include
requirements that (i) the ratio of (a) the aggregate amount of the consideration
received in the business combination to (b) the market price of the Common Stock
of Gulf West immediately prior to the announcement of the business combination
must meet or exceed a certain ratio set forth therein, (ii) the aggregate amount
of the consideration received by the stockholders of Gulf West in the business
combination shall not be less than the highest price per share previously paid
by the interested stockholder, and (iii) the consideration received by the
stockholders of Gulf West in the business combination shall be in the same form
and kind as the consideration paid by the interested stockholder in acquiring
the majority of the shares of Gulf West Common Stock already owned by the
interested stockholder.
Unless the articles of incorporation provide otherwise (which the Gulf West
Articles do not), the FBCA restricts the voting rights of a person who acquires
"control shares" in an "issuing public corporation." "Control shares" are
defined under the FBCA as those shares that, when added to all other shares of
the issuing public corporation owned by a person or in respect to which that
person may exercise or direct the exercise of voting power, would entitle that
person to exercise the voting power of the corporation in the election of
directors within any of the following ranges of voting power: (a) one-fifth or
more but less than one-third of all voting power; (b) one-third or more but less
than a majority of all voting power; or (c) a majority or more of all voting
power. An "issuing public corporation" is a corporation that has: (a) 100 or
more stockholders; (b) its principal place of business, its principal office or
substantial assets within Florida; and (c) either (i) more than 10% of its
stockholders resident in Florida, (ii) more than 10% of its shares owned by
Florida residents, or (iii) 1,000 stockholders resident in Florida.
If a control-share acquisition has been made, the control shares have no
voting rights unless the holders of a majority of shares (other than those held
by the acquiror and the corporation's officers and directors if such directors
are employees) grant voting rights to those shares by resolution. Any person who
proposes to make or has made a control share acquisition (an "Acquiror") may, at
his or her election, deliver an acquiring person statement to the issuing public
corporation setting forth certain information concerning the Acquiror and the
acquisition of his shares, together with a request for a stockholders' meeting
to determine his voting rights, which meeting must be held within 50 days of the
date of the request. The Acquiror must pay the expenses of the stockholders'
meeting.
If an Acquiror acquires a majority of the outstanding shares of the
corporation and is granted full voting rights pursuant to the procedure outlined
above, the other stockholders of the corporation have dissenters' rights to
require the corporation to purchase their shares for a "fair value." The term
"fair value" is defined as a value not less than the highest price paid per
share by the acquiror in the control share acquisition.
Although certain of the specific differences between the voting and other
rights of Citizens National Stockholders and Gulf West stockholders are
discussed above, the foregoing summary is not intended to be a complete
statement of the comparative rights of such stockholders under Florida and
applicable federal law, or the rights of such persons under the respective
articles and bylaws of Gulf West and Citizens National. Nor is the
identification of certain specific differences meant to indicate that other
differences do not exist. The foregoing summary is qualified in its entirety by
reference to the particular requirements of the NBA and the FBCA, and the
specific provisions of the Gulf West Articles and Bylaws, and the Citizens
National Articles and Bylaws.
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<PAGE> 114
LEGAL MATTERS
The validity of the shares of Gulf West Common Stock offered hereby and
certain tax consequences of the Merger offering will be passed upon for Gulf
West by Fowler, White, Gillen, Boggs, Villareal and Banker, P.A.
EXPERTS
The consolidated financial statements of Gulf West as of December 31, 1996,
and for each of the years in the two-year period then ended, included herein
have been included in reliance on the report of Hacker, Johnson, Cohen & Grieb
PA, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing and
Hacker, Johnson, Cohen & Grieb PA's express consent to such use.
The financial statements of Citizens National as of December 31, 1996 and
for each of the years in the two-year period then ended, included herein have
been included in reliance on the report of Hacker, Johnson, Cohen & Grieb PA,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing and Hacker,
Johnson, Cohen & Grieb PA's express consent to such use.
OTHER MATTERS
The Board of Directors of Citizens National does not intend to bring any
matter before the Special Meeting other than as specifically set forth in the
Notice of Special Meeting, nor does it know of any other matters to be presented
at the Special Meeting by others. If any other matter does properly come before
the Special Meeting, the appointees named in the proxy will vote the proxies in
accordance with their best judgment.
111
<PAGE> 115
INDEX TO FINANCIAL STATEMENTS
GULF WEST BANKS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
AUDITED FINANCIAL STATEMENTS
<S> <C>
Independent Auditors' Report........................................................................................F-2
Consolidated Balance Sheet, December 31, 1996.......................................................................F-3
Consolidated Statements of Earnings for the Years Ended
December 31, 1996 and 1995..................................................................................F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996 and 1995......................................................................F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996 and 1995............................................................................F-6
Notes to Consolidated Financial Statements at December 31, 1996 and for each
of the years in the Two-Year Period Ended December 31, 1996......................................F-7 - F-22
UNAUDITED CONDENSED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet, September 30, 1997 (unaudited)...............................................F-23
Condensed Consolidated Statements of Earnings for the Nine Months
Ended September 30, 1997 and 1996 (unaudited)..............................................................F-24
Condensed Consolidated Statement of Stockholders' Equity for the Nine
Months Ended September 30, 1997 (unaudited)................................................................F-25
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 (unaudited)..............................................................F-26
Notes to Condensed Consolidated Financial Statements for the Nine
Months Ended September 30, 1997 and 1996 (unaudited).......................................................F-27
All schedules are omitted because of the absence of the conditions under which they are required or because the
required information is included in the financial statements and related notes.
CITIZENS NATIONAL BANK AND TRUST COMPANY
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report.......................................................................................F-28
Balance Sheet, December 31, 1996...................................................................................F-29
Statements of Earnings for the Years Ended
December 31, 1996 and 1995.................................................................................F-30
Statements of Stockholders' Equity for the
Years Ended December 31, 1996 and 1995.....................................................................F-31
Statements of Cash Flows for the Years
Ended December 31, 1996 and 1995...........................................................................F-32
Notes to Financial Statements at December 31, 1996
and for each of the years in the two-year
period then ended...................................................................................F-33 - F-44
UNAUDITED CONDENSED FINANCIAL STATEMENTS
Condensed Balance Sheet, September 30, 1997 (unaudited)............................................................F-45
Condensed Statements of Earnings for the Nine Months
Ended September 30, 1997 and 1996 (unaudited)..............................................................F-46
Condensed Statement of Stockholders' Equity for the Nine
Months Ended September 30, 1997 (unaudited)................................................................F-47
Condensed Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 (unaudited)..............................................................F-48
Notes to Condensed Financial Statements for the Nine
Months Ended September 30, 1997 and 1996 (unaudited).................................................F-49, F-50
All schedules are omitted because of the absence of the conditions under which they are required or because the
required information is included in the financial statements and related notes.
</TABLE>
F-1
<PAGE> 116
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Gulf West Banks, Inc.
St. Petersburg, Florida:
We have audited the accompanying consolidated balance sheet of Gulf West
Banks, Inc. and Subsidiaries (the "Company") at December 31, 1996 and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the years in the two-year period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 1996, and the results of its operations and its cash flows for
each of the years in the two-year period then ended, in conformity with
generally accepted accounting principles.
/s/ Hacker, Johnson, Cohen & Grieb PA
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
February 4, 1997
F-2
<PAGE> 117
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996
----
<S> <C>
ASSETS
Cash and due from banks .............................................. $ 8,631
Federal funds sold and securities purchased under agreements to resell 3,356
--------
Total cash and cash equivalents ........................... 11,987
Securities available for sale ........................................ 40,231
Loans receivable, net of allowance for loan losses of $1,184 ......... 112,660
Loans held for sale, at cost which approximates market ............... 319
Premises and equipment, net .......................................... 6,515
Accrued interest receivable .......................................... 906
Deferred tax asset ................................................... 215
Other assets ......................................................... 1,981
--------
Total ..................................................... $174,814
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits .............................................. 29,601
Savings and NOW deposits ..................................... 33,733
Money market deposits ........................................ 13,976
Time deposits ................................................ 72,025
--------
Total deposits ............................................ 149,335
Other borrowings ............................................. 12,047
Other liabilities ............................................ 332
--------
Total liabilities ......................................... 161,714
--------
Commitments and Contingency (Notes 5, 10 and 14)
Stockholders' equity:
Class A preferred stock, $5 par value, authorized
1,000,000 shares, none issued or outstanding ................ -
Common stock, $1 par value; 10,000,000 shares
authorized, 3,326,030 issued and outstanding ................ 3,326
Additional paid-in capital ................................... 9,254
Retained earnings ............................................ 450
Unrealized gain on securities available for sale,
net of tax of $42 ........................................... 70
--------
Total stockholders' equity ................................ 13,100
--------
Total ..................................................... $174,814
========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 118
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Interest income:
Loans receivable ..................................... $ 8,272 6,326
Securities available for sale ........................ 2,086 1,842
Other interest-earning assets ........................ 486 279
----------- ---------
Total interest income ............................. 10,844 8,447
----------- ---------
Interest expense:
Deposits ............................................. 4,389 3,618
Other borrowings ..................................... 270 118
----------- ---------
Total interest expense ............................ 4,659 3,736
----------- ---------
Net interest income ............................................. 6,185 4,711
Provision for loan losses ......................... 401 240
----------- ---------
Net interest income after provision for loan losses ............. 5,784 4,471
----------- ---------
Noninterest income:
Service fees on deposit accounts ..................... 566 446
Loan servicing fees, net ............................. 44 61
(Loss) gain from sale of securities available for
sale................................................. (10) 97
Income from mortgage banking activity ................ 39 71
Leasing fees and commissions ......................... 131 -
Other income ......................................... 261 174
----------- ---------
Total noninterest income .......................... 1,031 849
----------- ---------
Noninterest expenses:
Salaries and employee benefits ....................... 3,230 2,305
Occupancy expense .................................... 968 664
Data processing ...................................... 224 159
Federal insurance premium ............................ 181 208
Advertising .......................................... 186 124
Stationary, printing and supplies .................... 195 104
SAIF special assessment .............................. 470 -
General insurance .................................... 95 96
Other expense ........................................ 775 521
----------- ---------
Total noninterest expenses ........................ 6,324 4,181
----------- ---------
Earnings before income taxes .................................... 491 1,139
Income taxes ...................................... 177 431
----------- ---------
Net earnings .................................................... $ 314 708
=========== =========
Earnings per share .............................................. $ .10 .25
=========== =========
Weighted-average number of shares outstanding ................... 3,298,405 2,830,265
=========== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 119
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN
COMMON STOCK (LOSS) ON
-------------------- ADDITIONAL SECURITIES TOTAL
NUMBER OF PAID-IN RETAINED AVAILABLE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS FOR SALE EQUITY
--------- ------ ------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 ........... 2,344,572 $2,345 5,812 343 (573) 7,927
Shares issued under employee stock
purchase plan ................... 4,748 5 11 - - 16
Shares sold 772,351 772 2,639 - - 3,411
Decrease in unrealized loss on
securities available for sale ... - - - - 577 577
Cash dividends of $.04 per share ....... - - - (125) - (125)
Net earnings ........................... - - - 708 - 708
--------- ------ ----- ---- --- ------
Balance at December 31, 1995 ........... 3,121,671 3,122 8,462 926 4 12,514
Shares issued under employee stock
purchase plan ................... 7,270 7 19 - - 26
Shares issued in exchange for
Liberty Leasing Corporation ..... 30,000 30 120 - - 150
Shares issued under stock option
plan ............................ 9,000 9 21 - - 30
Stock dividend ......................... 158,089 158 632 (790) - -
Increase in unrealized gain on
securities available for sale ... - - - - 66 66
Net earnings ........................... - - - 314 - 314
--------- ------ ----- ---- --- ------
Balance at December 31, 1996 ........... 3,326,030 $3,326 9,254 450 70 13,100
========= ====== ===== ==== === ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 120
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings............................................................................ $ 314 708
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation.......................................................................... 463 333
Increase in other assets.............................................................. (139) (309)
Provision for loan losses............................................................. 401 240
Deferred income tax (credit) provision................................................ (119) 114
Income from mortgage banking activity................................................. (39) (71)
(Decrease) increase in other liabilities.............................................. (99) 251
Increase in accrued interest receivable............................................... (109) (195)
Net amortization of fees, premiums and discounts...................................... (61) (69)
Write-down on foreclosed real estate.................................................. 106 -
Losses (gains) on securities available for sale....................................... 10 (97)
Loss on other real estate............................................................. 17 1
(Gain) loss on disposal of premises and equipment..................................... (1) 3
Proceeds from sales of loans held for sale............................................ 5,225 5,421
Originations of loans held for sale................................................... (5,247) (5,184)
------- -------
Net cash flow provided by operating activities................................. 722 1,146
------- -------
Cash flows from investing activities:
Purchase of securities available for sale............................................... (27,384) (23,155)
Proceeds from sale and maturity of securities available for sale........................ 16,378 12,336
Principal repayments on securities available for sale................................... 4,421 2,322
Proceeds from sale of foreclosed real estate ........................................... 272 82
Additions to foreclosed real estate..................................................... (3) (8)
Purchase of premises and equipment...................................................... (2,807) (1,286)
Proceeds from sale of premises and equipment............................................ 51 1
Net increase in loans................................................................... (39,265) (11,385)
------- -------
Net cash used in investing activities.......................................... (48,337) (21,093)
------- -------
Cash flows from financing activities:
Net increase in time deposits........................................................... 20,223 1,921
Net increase in noninterest-bearing demand, savings and
NOW deposit accounts.................................................................. 19,920 10,899
Net increase of other borrowings........................................................ 8,248 3,799
Issuance of common stock................................................................ 56 3,427
Dividends paid.......................................................................... - (125)
------- -------
Net cash provided by financing activities...................................... 48,447 19,921
------- -------
Net increase (decrease) in cash and cash equivalents........................... 832 (26)
Cash and cash equivalents at beginning of year.............................................. 11,155 11,181
------- -------
Cash and cash equivalents at end of year.................................................... $11,987 11,155
======= =======
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest.............................................................................. $ 4,635 3,745
======= =======
Income taxes.......................................................................... $ 427 274
======= =======
Noncash transactions:
Reclassification of loans to foreclosed real estate................................... $ - 613
======= =======
Reclassification of foreclosed real estate to loans................................... $ 106 -
======= =======
Reclassification of securities to available for sale.................................. $ - 10,139
======= =======
Issuance of common stock for acquisition of Liberty Leasing........................... $ 150 -
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 121
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND FOR EACH OF THE YEARS
IN THE TWO-YEAR PERIOD THEN ENDED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL. Gulf West Banks, Inc. (the "Holding Company") is a one-bank holding
company and owns 100% of the outstanding stock of Mercantile (the
"Bank"). The Bank is a State (Florida) chartered commercial bank. The
Bank, through eight banking offices, provides a wide range of banking
services to individuals and businesses located primarily in Pinellas and
Hillsborough Counties, Florida. During 1996, the Holding Company acquired
all the outstanding common shares of Liberty Leasing Corporation
("Liberty") in exchange of 30,000 shares of the Company's common stock.
Liberty is an equipment leasing company that arranges financing for a
variety of equipment for all types of businesses and is headquartered in
Tampa. The acquisition has been accounted for using the purchase method
of accounting. Liberty had nominal assets and liabilities and goodwill of
$157,000 resulted. The goodwill is being amortized over ten years and is
included in other assets. The Holding Company's only business activities
are the operations of the Bank and Liberty. An inactive subsidiary of the
Bank, Portfolio Recoveries Inc., was dissolved in 1995. Collectively the
entities are referred to as the "Company".
BASIS OF PRESENTATION. The accompanying consolidated financial statements
include the accounts of the Holding Company and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation. The accounting and reporting practices
of the Company conform to generally accepted accounting principles and to
general practice within the banking industry. The following summarize the
more significant of the policies and practices:
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS. For purposes of reporting cash flows, cash and
cash equivalents include cash, due from banks, federal funds sold and
securities purchased under agreements to resell.
SECURITIES. The Bank may classify its securities as either trading, held to
maturity or available for sale. Trading securities are held principally
for resale and recorded at their fair values. Unrealized gains and losses
on trading securities are included immediately in earnings.
Held-to-maturity securities are those which the Bank has the positive
intent and ability to hold to maturity and are reported at amortized
cost. Available-for-sale securities consist of securities not classified
as trading securities nor as held-to-maturity securities. Unrealized
holding gains and losses, net of tax, on available-for-sale securities
are reported as a net amount in a separate component of stockholders'
equity until realized. Gains and losses on the sale of available-for-sale
securities are determined using the specific-identification method.
Premiums and discounts on securities available for sale and held to
maturity are recognized in interest income using the interest method over
the period to maturity.
LOANS HELD FOR SALE. Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated market
value in the aggregate.
(continued)
F-7
<PAGE> 122
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
LOANS RECEIVABLE. Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off
are reported at their outstanding principal adjusted for any charge-offs,
the allowance for loan losses, and any deferred fees or costs on
originated loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related
loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to
the extent cash payments are received.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic conditions.
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 the
statements of earnings.
PREMISES AND EQUIPMENT. Premises and equipment are stated at cost less
accumulated depreciation. Depreciation of premises and equipment is
provided on the straight-line basis over the estimated useful life of the
related asset.
ADVERTISING. The Company expenses all media advertising as incurred.
INCOME TAXES. Provisions for income taxes are based on taxes payable or
refundable for the current year (after exclusion of nontaxable income
such as interest on state and municipal securities) and deferred taxes on
temporary differences between the amount of taxable income and pretax
financial income and between the tax bases of assets and liabilities and
their reported amounts in the financial statements. Deferred tax assets
and liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred
tax assets and liabilities are expected to be realized or settled as
prescribed in FASB Statement No. 109, Accounting for Income Taxes. As
changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
STOCK-BASED COMPENSATION. In October 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("Statement 123").
Statement 123 establishes a "fair value" based method of accounting for
stock-based compensation plans and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees" (Opinion 25). The Company has elected to follow Opinion 25 and
related interpretations in accounting for its employee stock options.
Statement 123 requires the disclosure of pro forma net earnings and
earnings per share determined as if the Company accounted for its
employee stock options under the fair value method of that Statement.
(continued)
F-8
<PAGE> 123
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FAIR VALUES OF FINANCIAL INSTRUMENTS. The following methods and assumptions
were used by the Company in estimating fair values of financial
instruments disclosed herein:
CASH AND CASH EQUIVALENTS. The carrying amounts of cash and cash
equivalents approximate their fair value.
SECURITIES AVAILABLE FOR SALE. Fair values for securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
LOANS. For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. Fair values for certain fixed-rate mortgage (e.g. one-to-four
family residential), 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, NOW,
money-market and savings deposits are, by definition, equal to the amount
payable on demand at the reporting date (that is, their carrying
amounts). Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest
rates currently being offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits.
SHORT-TERM BORROWINGS. Rates currently available to the Company for debt
with similar terms and remaining maturities are used to estimate fair
value of existing debt.
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 standing.
EARNINGS PER SHARE. Earnings per share are computed by dividing net earnings
by the weighted-average number of common shares outstanding. Earnings per
share would not be materially diluted by the exercise of outstanding
stock options. Because of limited trading activity in the Company's
common stock, the book value was used for the purposes of determining the
materiality of dilution.
RECLASSIFICATIONS. Certain amounts in the 1995 financial statements have
been reclassified to conform to the 1996 presentation.
FUTURE ACCOUNTING REQUIREMENTS. The FASB has issued Statement of Financial
Accounting Standards No. 125 ("SFAS 125"). This Statement provides
accounting and reporting standards for transfers and servicing of
financial assets as well as extinguishments of liabilities. This
Statement also provides consistent standards for distinguishing transfers
of financial assets that are sales from transfers that are secured
borrowings. SFAS 125 is effective for transfers and servicing of
financial assets as well as extinguishments of liabilities occurring in
1997. Management does not anticipate SFAS 125 will have a material impact
on the Company.
(continued)
F-9
<PAGE> 124
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
The Bank enters into purchases of securities under agreements to resell
substantially identical securities. At December 31, 1996, these
agreements matured daily. The agreements were with a major bank.
Securities purchased under agreements to resell averaged approximately
$3,320,000 during 1996, and the maximum amounts outstanding at any
month-end during 1996 was $3,206,000. There were no such agreements
during 1995.
(3) SECURITIES AVAILABLE FOR SALE
Debt securities have been classified according to management's intent. The
carrying amounts and approximate fair values are as follows (in
thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
DECEMBER 31, 1996:
U.S. agency obligations................... $ 1,000 8 - 1,008
Municipal obligations..................... 700 - 1 699
U.S. Treasury securities.................. 15,970 - 3 15,967
Mortgage-backed securities................ 22,449 108 - 22,557
------ --- --- ------
$ 40,119 116 4 40,231
====== === == ======
</TABLE>
During the quarter ended December 31, 1995, the Company adopted the
provisions of SFAS No. 115 Questions and Answers Guide ("SFAS No. 115
Q&A") which allowed a one-time reclassification of securities between
held to maturity and available for sale between November 15, 1995 and
December 31, 1995. The Company reclassified $10,139,000 of securities
from held to maturity to available for sale. Such reclassification
resulted in a credit of $23,389 to shareholders' equity.
The scheduled maturities of securities available for sale at December 31,
1996, were as follows (in thousands).
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- -------
<S> <C> <C>
Due in one year or less................................................... $ 5,304 5,319
Due after one year through five years..................................... 24,104 24,171
Due in five years to ten years............................................ 4,825 4,838
Due after ten years....................................................... 5,886 5,903
------ ------
$ 40,119 40,231
====== ======
</TABLE>
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.
Proceeds from sales of securities available for sale were $9,478,000 and
$9,312,000 in 1996 and 1995, respectively. Gross gains (losses) of
$(10,000) and $97,000 were realized on those sales during 1996 and 1995,
respectively.
At December 31, 1996 the Company had pledged securities in the amount of
approximately $2,951,000 book value to secure public deposits. Also, at
December 31, 1996 securities in the amount of $197,000 have been pledged
to secure treasury tax deposits.
(continued)
F-10
<PAGE> 125
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) LOANS
The components of loans in the consolidated balance sheet was as follows (in
thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
<S> <C>
Commercial............................................................................... $ 18,169
Commercial real estate................................................................... 63,207
Residential real estate.................................................................. 22,095
Consumer................................................................................. 10,594
---------
Subtotal.............................................................................. 114,065
Net deferred loan fees, premiums and discounts........................................... (221)
Allowance for loan losses................................................................ (1,184)
---------
$ 112,660
=========
</TABLE>
An analysis of the change in the allowance for loan losses follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
----- ----
<C> <C>
Balance at January 1........................................................ $ 830 663
----- ---
Loans charged off........................................................... (54) (98)
Recoveries.................................................................. 7 25
----- ---
Net loans charged off.................................................... (47) (73)
Provision for loan losses................................................... 401 240
----- ---
Balance at December 31...................................................... $ 1,184 830
===== ===
</TABLE>
Impaired loans having recorded investments of $494,000 at December 31, 1996
have been recognized in conformity with FASB Statement No. 114, as
amended by FASB Statement No. 118. The average recorded investment in
impaired loans during 1996 and 1995 was $501,000 and $563,000,
respectively. The total allowance for loan losses related to these loans
was $100,000 on December 31, 1996. Interest income on impaired loans of
$52,000 and $50,000 were recognized for cash payments received in 1996
and 1995, respectively.
Management considers a variety of factors in determining whether a loan is
impaired, including (i) any notice from the borrower that the borrower
will be unable to repay all principal and interest amounts contractually
due under the loan agreement, (ii) any delinquency in the principal and
interest payments (other than minimum delays or shortfalls in payments),
and (iii) other information known by management which would indicate that
full repayment of the principal and interest is not probable. In
evaluating loans for impairment, management generally considers
delinquencies of 60 days or less to be minimum delays, and accordingly
does not consider such delinquent loans to be impaired in the absence of
other indications of impairment.
Management evaluates smaller balance, homogeneous loans for impairment and
adequacy of allowance for credit losses collectively, and evaluates other
loans for impairment individually, on a loan-by-loan basis. For this
purpose, the Company considers its portfolio of first mortgage,
single-family residential loans with outstanding balances less than
F-11
<PAGE> 126
$500,000, its consumer loan portfolio and its portfolio of credit card
loans to be smaller balance, homogeneous loans. The Company evaluates
each of these loan portfolios for impairment on an aggregate basis, and
utilizes its own historical charge-off experience, as well as the
charge-off experience of its peer group and industry statistics to
evaluate the adequacy of the allowance for credit losses. For all other
loans, the Company evaluates loans for impairment on a loan-by-loan
basis.
CREDIT RISK AND CREDIT LOSSES. A credit risk concentration results when the
Company has a significant credit exposure to an individual or a group
engaged in similar activities or having similar economic characteristics
that would cause their ability to meet contractual obligations to be
similarly affected by changes in economic or other conditions.
Most of the Company's business activity is with customers located within
Pinellas and Hillsborough Counties, Florida. The loan portfolio is
diversified among individuals and types of industries. Loans are expected
to be repaid from cash flow or proceeds from the sale of selected assets
of the borrowers. The amount of collateral obtained upon extension of
credit is based on the Company's credit evaluation of the customer.
Collateral primarily includes accounts receivable, inventory, property
and equipment, income-producing commercial properties and residential
homes.
(continued)
F-12
<PAGE> 127
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) LOANS, CONTINUED
LOANS TO RELATED PARTIES. The aggregate amount of loans owed to the Company
by its executive and senior officers, directors, and their related
entities at December 31, 1996 was approximately $697,000. The loans
outstanding as of December 31, 1996 were made up of $482,000 of mortgage
loans and $215,000 of various other types of loans. These loans have been
made on substantially the same terms, including collateral, as those
prevailing at the time for comparable transactions with unrelated persons
and do not involve more than normal risk of collectibility.
(5) PREMISES AND EQUIPMENT
A summary of premises and equipment follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
<S> <C>
Land.................................................................................... $ 1,413
Building and leasehold improvements..................................................... 3,925
Furniture, fixtures and equipment....................................................... 3,108
-----
Total, at cost...................................................................... 8,446
Less accumulated depreciation........................................................... (1,931)
-----
$ 6,515
=====
</TABLE>
The Company leases facilities and certain equipment under operating leases
with noncancellable terms. Rent expense amounted to approximately
$248,000 and $158,000 for the years ended December 31, 1996 and 1995,
respectively. A summary of the operating lease commitments at December
31, 1996 follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ --------
<S> <C>
1997.............................................................. $ 364
1998.............................................................. 326
1999.............................................................. 256
2000.............................................................. 261
2001.............................................................. 239
Thereafter........................................................ 1,177
-----
$ 2,623
=====
</TABLE>
(continued)
F-13
<PAGE> 128
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) LOAN SERVICING
Loans serviced for others are not included in the accompanying consolidated
balance sheet. The unpaid principal balances of these loans are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
<S> <C>
Loan portfolios serviced for:
FNMA............................................................................. $ 17,161
FHLMC............................................................................ 4,682
Other investors.................................................................. 7,685
------
$ 29,528
======
Custodial escrow balances maintained in connection
with loan servicing.............................................................. $ 80
======
</TABLE>
(7) DEPOSITS
A schedule of maturities for certificate accounts follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
YEAR ENDING ---------------
DECEMBER 31, 1996
------------ ----
<S> <C>
1997...................................................................... $ 53,170
1998...................................................................... 15,305
1999...................................................................... 1,391
2000...................................................................... 587
2001 and thereafter....................................................... 1,572
------
$ 72,025
======
</TABLE>
(8) OTHER BORROWINGS
Securities sold under reverse repurchase agreements were delivered to the
broker-dealers who arranged the transactions. Securities
collateralizing customer reverse repurchase agreements are held in
safekeeping by a third party. The agreements at December 31, 1996
mature within six months. Information concerning securities sold under
agreements to repurchase is summarized as follows ($ in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1996 1995
---- ----
<S> <C> <C>
Average balance during the year....................................... $ 5,447 2,019
Average interest rate during the year................................. 4.88% 5.72%
Maximum month-end balance during the year............................. $ 12,547 5,545
</TABLE>
(continued)
F-14
<PAGE> 129
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) OTHER BORROWINGS, CONTINUED
The average rate was determined by dividing the total interest paid by the
average outstanding borrowings.
Securities underlying the agreements are as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
<S> <C>
Carrying value.................................................... $ 17,090
======
Estimated fair value.............................................. $ 17,079
======
</TABLE>
At December 31, 1996, the Company had five variable-rate lines of credit
from other financial institutions, totaling $9,500,000. At December 31,
1996, there were no borrowings against these lines.
(9) INCOME TAXES
The consolidated provision for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
---------------
1996 1995
---- ----
<S> <C> <C>
Currently payable:
Federal...................................................................... $ 278 263
State........................................................................ 18 54
--- ---
Total currently payable 296 317
--- ---
Deferred:
Federal...................................................................... (102) 97
State........................................................................ (17) 17
--- ---
Total deferred........................................................... (119) 114
--- ---
Total income taxes.................................................................... $ 177 431
=== ===
(continued)
</TABLE>
F-15
<PAGE> 130
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) INCOME TAXES, CONTINUED
The provision for income taxes is different from that computed by applying
the federal statutory rate of 34% as indicated in the following
analysis (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995
---------------- ----------------
% OF % OF
PRETAX PRETAX
AMOUNT EARNINGS AMOUNT EARNINGS
------ -------- ------ --------
<S> <C> <C> <C> <C>
Tax provision at statutory rate................................ $ 167 34.0% $ 387 34.0%
Increase (reduction) in taxes
resulting from:
State taxes, net of federal income
tax benefit........................................... 18 3.7 47 4.1
Tax-exempt income........................................ (17) (3.5) - -
Other, net............................................... 9 1.8 (3) (.2)
---- ---- ---- ----
Income tax provision..................................... $ 177 36.0% $ 431 37.9%
==== ==== ==== ====
</TABLE>
The tax effects of each type of item that gives rise to deferred taxes are (in
thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
<S> <C>
Deferred tax assets:
Allowance for loan losses.................................................................. $ 346
Interest income from loans on nonaccrual status............................................ 2
Deferred compensation...................................................................... 66
---
Total gross deferred tax assets........................................................ 414
---
Deferred tax liabilities:
Net unrealized gain on securities available for sale....................................... 42
Accumulated depreciation................................................................... 129
Excess servicing........................................................................... 2
Deferred loan fees and costs............................................................... -
Prepaid expenses........................................................................... 26
---
Total gross deferred tax liabilities................................................... 199
---
Net deferred tax asset................................................................. $ 215
===
</TABLE>
(continued)
F-16
<PAGE> 131
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments are commitments to extend
credit and standby letters of credit and may involve, to varying
degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the balance sheet. The contract amounts of these
instruments reflect the extent of involvement the Company has in these
financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. The Company uses the same credit policies
in making commitments as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed-expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained if deemed necessary by the
Company upon extension of credit is based on management's credit
evaluation of the counterparty. Standby letters of credit and
conditional commitments are issued by the Company to guarantee the
performance of a customer to a third party. The credit risk involved in
issuing letters of credit is essentially the same as that included in
extending loans to customers.
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-----------------------
CARRYING FAIR
AMOUNT VALUE
------ -----
<S> <C> <C>
Financial assets:
Cash and cash equivalents......................................................$ 11,987 11,987
Securities available for sale.................................................. 40,231 40,231
Loans receivable............................................................... 112,660 112,868
Accrued interest receivable.................................................... 906 906
Financial liabilities:
Deposit liabilities............................................................ 149,335 149,433
Short-term borrowings.......................................................... 12,047 12,047
</TABLE>
A summary of the notional amounts of the Company's financial instruments,
which approximate fair value, with off-balance-sheet risk at December
31, 1996, follows (in thousands):
<TABLE>
<S> <C>
Unfunded loan commitments at variable rates.................................. $ 7,573
Available lines of credit.................................................... $ 10,582
Standby letters of credit.................................................... $ 904
</TABLE>
(continued)
F-17
<PAGE> 132
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) STOCK OPTION AND STOCK PURCHASE PLANS
Certain key employees and directors of the Company have options to purchase
shares of the Company's common stock under its stock option plan. Under
the plan, the total number of shares which may be issued shall not
exceed 12% (currently 399,124 shares) of the Company's total
outstanding shares. At December 31, 1996, 67,061 remain available for
grant. A summary of stock options transactions for the years ended
December 31, 1995 and 1996 follows ($ in thousands, except per share
amounts):
<TABLE>
<CAPTION>
OPTION PRICE WEIGHTED AGGREGATE
NUMBER OF RANGE AVERAGE PER OPTION
SHARES PER SHARE SHARE PRICE PRICE
--------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1994........... 291,375 $2.91-3.81 3.11 908
Options granted. 53,813 4.28 4.29 230
Options forfeited.......................... (6,890) 3.13-4.28 3.79 (26)
------- ---------- ---- -------
Outstanding at December 31, 1995........... 338,298 2.91-4.28 3.29 1,112
Options granted. 10,500 4.28 4.28 45
Options exercised.......................... (9,187) 3.05-3.81 3.23 (30)
Options forfeited.......................... (7,548) 3.05-4.25 4.08 (29)
------- ---------- ---- -------
Outstanding at December 31, 1996........... 332,063 2.91-4.28 3.31 $ 1,098
======= ========== ==== =======
</TABLE>
The weighted-average remaining contractual life of the outstanding stock options
at December 31, 1997, 1996 and 1995 was 69 months, 79 months, and 87 months
respectively.
These options are exercisable as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
YEAR ENDING SHARES AVERAGE EXERCISE PRICE
- ----------- ------ ----------------------
<S> <C> <C>
1997..................................................... 299,907 $ 3.22
1998..................................................... 17,061 4.00
1999..................................................... 12,469 4.28
2000..................................................... 2,626 4.28
------- ------
332,063 $ 3.31
======= ======
</TABLE>
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock- Based Compensation," which
establishes financial accounting and reporting standards for stock-based
employee compensation plans. As permitted by this Statement, the Company
has elected to continue utilizing the intrinsic value method of
accounting defined in APB Opinion No. 25. Due to the exercise price of
the options approximating the market value of the common stock at the
date of grant, no compensation expense has been recognized in the
consolidated statements of earnings.
(continued)
F-18
<PAGE> 133
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) STOCK OPTION PLAN, CONTINUED
In order to calculate the fair value of the options, it was assumed that the
risk-free interest rate was 6.0%, there would be no dividends paid by the
Company over the exercise period, the expected life of the options would be
the entire exercise period and stock volatility would be zero due to the
lack of an active market for the stock. The following information pertains
to the fair value of the options granted to purchase common stock in 1995
and 1996 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1996 1995
---- ----
<S> <C> <C>
Weighted-average grant-date fair value of options
issued during the year.............................................. $ 24 102
=== ===
Pro forma net earnings................................................... $ 280 708
=== ===
Pro forma earnings per share............................................. $ .08 .25
=== ===
</TABLE>
(12) STOCK DIVIDEND
The Board of Directors declared a 5% stock dividend payable during 1996.
All per share amounts have been presented to reflect this stock
dividend.
(13) REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the various 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 financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are
also subject to qualitative judgements by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require 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, 1996, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the State
and Federal regulators 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 below. There are no conditions or events since that
notification that management believes have changed the Bank's category.
(continued)
F-19
<PAGE> 134
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) REGULATORY MATTERS, CONTINUED
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
------ ------------------ ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
Total capital (to Risk
Weighted Assets) ........ $ 13,719 11.36% $ 9,664 8.00% $ 12,079 10.00%
Tier I Capital (to Risk
Weighted Assets) ........ 12,535 10.38 4,832 4.00 7,248 6.00
Tier I Capital
(to Average Assets)....... 12,535 7.72 6,495 4.00 8,118 5.00
</TABLE>
(14) PROFIT SHARING PLAN
The Company sponsors a Section 401(k) profit sharing plan. The profit
sharing plan is available to all employees electing to participate
after meeting certain length-of-service requirements. The Company's
contributions to the profit sharing plan are comprised of two
components: a guaranteed match and a discretionary match. Expense
relating to the Company's contributions to the profit sharing plan
included in the accompanying consolidated financial statements was
$49,000 and $26,000 for the years ended December 31, 1996 and 1995,
respectively.
(15) DEFERRED COMPENSATION PLANS
The Company has deferred compensation agreements with certain officers. The
terms of the agreements provide for the payments of specified benefits
to these participants upon severance or retirement or their
beneficiaries in the event of death of the participant while employed
by the Company or while receiving benefits. The Company is accruing the
present value of the future benefits over the terms of the agreements.
The expense of the deferred compensation plans was approximately
$76,000 and $66,000 for the years ended December 31, 1996 and 1995,
respectively.
(continued)
F-20
<PAGE> 135
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements of the Holding Company are presented below.
The Holding Company commenced business in January 1995.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
<S> <C>
ASSETS
Cash and cash equivalents with subsidiary...................................................... $ 276
Investment in wholly-owned subsidiaries........................................................ 12,655
Other assets................................................................................... 169
------
Total...................................................................................... $ 13,100
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities.............................................................................. -
Stockholders' equity........................................................................... 13,100
------
Total...................................................................................... $ 13,100
======
</TABLE>
CONDENSED STATEMENTS OF EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Revenues ...................................................................... $ - 3
Expenses ...................................................................... 25 14
--- ---
Loss before earnings of subsidiaries.......................................... (25) (11)
Earnings of subsidiaries...................................................... 339 719
--- ---
Net earnings.................................................................. $ 314 708
=== ===
</TABLE>
(continued)
F-21
<PAGE> 136
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) PARENT COMPANY ONLY FINANCIAL STATEMENTS, CONTINUED
CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings.................................................................. $ 314 708
Adjustments to reconcile net earnings to net cash used in
operating activities:
Equity in undistributed earnings of subsidiaries.......................... (339) (719)
Net (increase) decrease in other assets................................... 12 5
Decrease in other liabilities............................................. - (31)
-------- ------
Net cash used in operating activities................................. (13) (37)
-------- ------
Cash flows from investing activities:
Investment in subsidiaries.................................................... (3,082) -
Dividends received from subsidiary............................................ - 50
-------- ------
Net cash provided by (used in) investing activities................... (3,082) 50
-------- ------
Cash flows from financing activities:
Net proceeds from issuance of common stock.................................... 56 3,427
Cash dividends................................................................ - (125)
-------- ------
Net cash provided by financing activities............................. 56 3,302
-------- ------
Net (decrease) increase in cash and cash equivalents.............................. (3,039) 3,315
Cash and cash equivalents at beginning of the year................................ 3,315 -
-------- ------
Cash and cash equivalents at end of year.......................................... $ 276 3,315
======== ======
</TABLE>
F-22
<PAGE> 137
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
ASSETS 1997
----
(UNAUDITED)
<S> <C>
Cash and due from banks.............................................................................. $ 6,946
Federal funds sold and securities purchased
under agreements to resell....................................................................... 10,831
---------
Total cash and cash equivalents............................................................... 17,777
=========
Securities available for sale........................................................................ 35,501
Loans receivable, net of allowance for loan losses of $1,540......................................... 120,380
Loans held for sale, at cost which approximates market............................................... 866
Premises and equipment, net.......................................................................... 6,757
Accrued interest receivable.......................................................................... 954
Deferred tax asset................................................................................... 114
Other assets......................................................................................... 2,192
---------
Total......................................................................................... $ 184,541
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits.................................................................................. 37,368
Savings and NOW deposits......................................................................... 40,575
Money market deposits............................................................................ 14,399
Other time deposits.............................................................................. 74,052
Total deposits................................................................................ 166,394
Other borrowings................................................................................. 3,155
Other liabilities................................................................................ 937
---------
Total liabilities............................................................................. 170,486
=========
Stockholders' equity:
Class A preferred stock.......................................................................... -
Common stock.................................................................................... 3,343
Additional paid-in capital....................................................................... 9,308
Retained earnings................................................................................ 1,162
Unrealized gain on securities available for sale................................................. 242
---------
Total stockholders' equity.................................................................... 14,055
---------
Total......................................................................................... $ 184,541
=========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-23
<PAGE> 138
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
($ IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Interest income:
Loans receivable..................................................................... $ 8,025 5,911
Securities available for sale........................................................ 2,101 1,426
Other interest-earning assets........................................................ 281 396
--------- ---------
Total interest income............................................................. 10,407 7,733
--------- ---------
Interest expense:
Deposits............................................................................. 4,148 3,116
Other borrowings..................................................................... 386 187
--------- ---------
Total interest expense............................................................ 4,534 3,303
--------- ---------
Net interest income...................................................................... 5,873 4,430
Provision for loan losses......................................................... 405 296
--------- ---------
Net interest income after provision for loan losses...................................... 5,468 4,134
--------- ---------
Noninterest income:
Service fees on deposit accounts..................................................... 581 404
Loan servicing fees, net............................................................. 20 34
Gain (loss) from sale of securities available for sale............................... 21 (10)
Income from mortgage banking activity................................................ 40 35
Leasing fees and commissions......................................................... 327 13
Other income......................................................................... 354 303
--------- ---------
Total noninterest income.......................................................... 1,343 779
--------- ---------
Noninterest expenses:
Salaries and employee benefits....................................................... 3,086 2,290
Occupancy expense.................................................................... 1,219 752
Data processing...................................................................... 294 155
Federal insurance premium............................................................ 69 181
Advertising.......................................................................... 148 137
Stationary, printing and supplies.................................................... 161 140
Telephone and postage................................................................ 163 115
SAIF special assessment.............................................................. - 470
General insurance.................................................................... 80 69
Other expense........................................................................ 490 472
--------- ---------
Total noninterest expenses........................................................ 5,710 4,781
--------- ---------
Earnings before income taxes ............................................................ 1,101 132
Income taxes............................................................................. 389 60
--------- ---------
Net earnings............................................................................. $ 712 72
========= =========
Earnings per share....................................................................... $ .21 .02
========= =========
Weighted-average number of shares outstanding............................................ 3,335,836 3,317,030
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-24
<PAGE> 139
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
ADDITIONAL SECURITIES TOTAL
NUMBER OF COMMON PAID-IN RETAINED AVAILABLE STOCKHOLDERS'
SHARES STOCK CAPITAL EARNINGS FOR SALE EQUITY
------ ----- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996............ 3,326,030 $ 3,326 9,254 450 70 13,100
Shares issued (unaudited)............... 16,646 17 54 - - 71
Increase in unrealized gain on
securities available
for sale (unaudited)............. - - - - 172 172
Net earnings (unaudited)................ - - - 712 - 712
--------- ------- ------- ------- ----- ------
Balance at September 30, 1997
(unaudited)...................... 3,342,676 $ 3,343 9,308 1,162 242 14,055
========= ======= ======= ======= ===== ======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-25
<PAGE> 140
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings............................................................................. $ 712 72
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation........................................................................... 551 318
Increase in other assets............................................................... (211) (143)
Provision for loan losses.............................................................. 405 296
Deferred income tax credit............................................................. - (242)
Income from mortgage banking activity.................................................. (40) (35)
Increase in other liabilities.......................................................... 605 461
Increase in accrued interest receivable................................................ (48) (87)
Net amortization of fees, premiums and discounts....................................... 34 71
(Gain) loss on sales of foreclosed real estate......................................... (23) 17
Write-down on foreclosed real estate................................................... - 106
(Gains) losses on securities available for sale........................................ (21) 10
Proceeds from sales of loans held for sale............................................. 4,584 4,651
Originations of loans held for sale.................................................... (5,091) (4,411)
--------- -------
Net cash flow provided by operating activities.................................... 1,457 1,084
--------- -------
Cash flows from investing activities:
Purchase of securities available for sale................................................ (9,970) (27,384)
Proceeds from sale and maturity of securities available for sale......................... 12,881 15,067
Principal repayments on securities available for sale.................................... 2,088 4,060
Additions to foreclosed real estate...................................................... - (4)
Net purchase of premises and equipment................................................... (793) (1,736)
Proceeds from sales of foreclosed real estate........................................... 74 272
Net increase in loans.................................................................... (8,185) (17,618)
--------- -------
Net cash used in investing activities............................................. (3,905) (27,343)
--------- -------
Cash flows from financing activities:
Net (decrease) increase in time deposits................................................. 2,027 16,030
Net increase in noninterest-bearing demand, savings and
NOW deposit accounts................................................................... 15,032 11,219
Net (decrease) increase of other borrowings.............................................. (8,892) 2,742
Issuance of common stock................................................................. 71 26
--------- -------
Net cash provided by financing activities......................................... 8,238 30,017
--------- -------
Net (decrease) increase in cash and cash equivalents.............................. 5,790 3,758
Cash and cash equivalents at beginning of period............................................. 11,987 11,155
--------- -------
Cash and cash equivalents at end of period................................................... $ 17,777 14,913
========= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................................................... $ 4,466 3,279
========= =======
Income taxes........................................................................... $ 423 363
========= =======
Noncash transactions:
Reclassification of loans to foreclosed real estate.................................... $ 179 -
========= =======
Reclassification of foreclosed real estate to loans.................................... $ 128 106
========= =======
Issuance of common stock for acquisition of Liberty Leasing............................ $ - 150
========= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-26
<PAGE> 141
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION. In the opinion of the management of Gulf West Banks,
Inc., the accompanying condensed consolidated financial statements contain
all adjustments (consisting of normal recurring accruals) necessary to
present fairly the financial position at September 30, 1997 and the
results of operations and cash flows for the nine-month periods ended
September 30, 1997 and 1996. The results of operations and cash flows for
the nine months ended September 30, 1997, are not necessarily indicative
of results that may be expected for the year ending December 31, 1997.
The condensed consolidated financial statements include the accounts of
Gulf West Banks, Inc. (the "Holding Company"), its wholly-owned
subsidiaries, Mercantile Bank (the "Bank") and Liberty Leasing Corporation
(together, the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
2. LOAN IMPAIRMENT AND LOAN LOSSES. The Company prepares a quarterly review of
the adequacy of the allowance for loan losses to also identify and value
impaired loans in accordance with guidance in the Statements of Financial
Accounting Standards No. 114 and 118. Impaired loans identified by the
Company at September 30, 1997 and 1996 were $481,000 and $499,000, net of
loan loss allowance of $100,000 and $100,000,
respectively.
An analysis of the change in the allowance for loan losses follows (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
---- ----
<S> <C> <C>
Beginning balance.....................................................................$ 1,184 830
Provision for loan losses............................................................. 405 296
Loans charged-off, net of recoveries.................................................. 49 44
----- ---
Ending balance........................................................................$ 1,540 1,082
===== =====
</TABLE>
3. IMPACT OF NEW ACCOUNTING ISSUES. In September 1996, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" ("SFAS No. 125"). That
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. That
Statement also provides consistent standards for distinguishing transfers
of financial assets that are sales from transfers that are secured
borrowings. SFAS No. 125 is effective for transfers and servicing of
financial assets as well as extinguishments of liabilities occurring in
1997. The adoption of SFAS No. 125 had no significant effect on the
Company's financial position at September 30, 1997 or results of
operations for the nine months then ended.
4. FUTURE ACCOUNTING REQUIREMENTS. The FASB has issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). The
statement specifies the computation, presentation and disclosure
requirements for net earnings per share for entities with publicly-held
common stock. SFAS 128 is effective for both interim and annual periods
ending after December 15, 1997 and upon adoption, all prior period net
earnings per share data presented will be restated to conform with SFAS
128.
5. PENDING ACQUISITION. On July 31, 1997, the Company entered into an
agreement to acquire Citizens National Bank and Trust Company, Port
Richey, Florida ("Citizens"). The Company will exchange 1.95 million
shares of its common stock for all the outstanding shares of
Citizens. This transaction is subject to the approval of stockholders
and various regulatory authorities. The Company expects to account for
this transaction as a purchase.
F-27
<PAGE> 142
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Citizens National Bank and Trust Company
Port Richey, Florida:
We have audited the accompanying balance sheet of Citizens National Bank and
Trust Company (the "Bank") as of December 31, 1996 and the related statements of
earnings, stockholders' equity and cash flows for each of the years in the
two-year period 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Bank as of December 31,
1996 and the results of its operations and its cash flows for each of the years
in the two-year period then ended, in conformity with generally accepted
accounting principles.
/s/ Hacker, Johnson, Cohen & Grieb PA
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
January 10, 1997
F-28
<PAGE> 143
CITIZENS NATIONAL BANK AND TRUST COMPANY
Balance Sheet
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
------------
1996
----
<S> <C>
ASSETS
Cash and due from banks ................................... $ 1,896
Federal funds sold ........................................ 5,050
--------
Cash and cash equivalents ........................ 6,946
Securities available for sale ............................. 10,735
Securities held to maturity (market value of $31,078) ..... 30,841
Restricted securities:
Federal Reserve stock ................................ 141
Federal Home Loan Bank stock ......................... 239
Loans receivable, net of allowance for loan losses of $427 25,492
Accrued interest receivable ............................... 711
Premises and equipment, net ............................... 603
Deferred income taxes ..................................... 158
Other assets .............................................. 53
Foreclosed real estate .................................... 63
--------
Total ....................................... $ 75,982
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand deposits .................................. 1,700
Savings and NOW deposits ......................... 23,902
Time deposits .................................... 41,311
--------
Total deposits .............................. 66,913
Accrued expenses and other liabilities ............... 597
--------
Total liabilities ........................... 67,510
--------
Commitments and Contingency (Notes 4, 11, 13 and 14)
Stockholders' Equity:
Common stock, $5 par value, 750,000 shares authorized,
603,030 shares issued and outstanding ............ 3,015
Additional paid-in capital ........................... 2,996
Retained earnings .................................... 2,522
Net unrealized depreciation on available-for-sale
securities, net of tax of $32 .................... (61)
--------
Total stockholders' equity .................. 8,472
--------
Total ....................................... $ 75,982
========
</TABLE>
See Accompanying Notes to Financial Statements.
F-29
<PAGE> 144
CITIZENS NATIONAL BANK AND TRUST COMPANY
Statements of Earnings
($ in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995
--------- -------
<S> <C> <C>
Interest income:
Loans receivable ................................... $ 2,288 2,101
Securities held to maturity ........................ 1,847 1,822
Securities available for sale ...................... 699 803
Federal funds sold ................................. 156 118
--------- -------
Total interest income .......................... 4,990 4,844
--------- -------
Interest expense-
Deposits ........................................... 2,940 2,923
--------- -------
Net interest income ............................ 2,050 1,921
Credit for loan losses .................................. (100) --
--------- -------
Net interest income after credit for loan losses 2,150 1,921
--------- -------
Noninterest income:
Service charges on deposit accounts ................ 47 47
Income from fiduciary activities ................... 255 250
Other income ....................................... 35 45
--------- -------
Total noninterest income ....................... 337 342
--------- -------
Noninterest expenses:
Salaries and employee benefits ..................... 972 791
Occupancy and equipment expense .................... 290 299
Professional fees .................................. 130 133
Data processing .................................... 103 100
Federal deposit insurance premiums ................. 1 109
Other operating expense ............................ 361 216
--------- -------
Total noninterest expenses ..................... 1,857 1,648
--------- -------
Earnings before income taxes ............................ 630 615
Income taxes ............................................ 60 115
--------- -------
Net earnings ................................... $ 570 500
========= =======
Earnings per share ...................................... $ 1.06 .98
========= =======
Dividends per share ..................................... $ -- --
========= =======
Weighted-average number of shares outstanding ........... 537,723 509,256
========= =======
</TABLE>
See Accompanying Notes to Financial Statements.
F-30
<PAGE> 145
CITIZENS NATIONAL BANK AND TRUST COMPANY
Statements of Stockholders' Equity
Years Ended December 31, 1996 and 1995
($ in thousands)
<TABLE>
<CAPTION>
Net
Unrealized
Depreciation
on
Additional Available Total
Common Paid-In Retained for-Sale Stockholders'
Stock Capital Earnings Securities Equity
------ ------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1994 ...................... $2,363 2,343 1,452 (590) 5,568
Net earnings ................... -- -- 500 -- 500
Net changes in unrealized
depreciation on available
for-sale securities, net of
taxes of $294 ............. -- -- -- 571 571
------ ----- ----- --- -----
Balance, December 31,
1995 ...................... 2,363 2,343 1,952 (19) 6,639
Net earnings ................... -- -- 570 -- 570
Issuance of 130,500
shares of common stock
in connection with
stock option plan ......... 652 653 -- -- 1,305
Net changes in unrealized
depreciation on available-
for-sale securities, net of
taxes of $22 .............. -- -- -- (42) (42)
------ ----- ----- --- -----
Balance, December 31,
1996 ...................... $3,015 2,996 2,522 (61) 8,472
====== ===== ===== === =====
</TABLE>
See Accompanying Notes to Financial Statements.
F-31
<PAGE> 146
CITIZENS NATIONAL BANK AND TRUST COMPANY
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995
-------- ------
<S> <C> <C>
Cash flows from operating activities:
Net earnings ...................................................... $ 570 500
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization ................................. 64 64
Credit for loan losses ........................................ (100) --
(Increase) decrease in accrued interest receivable ............ (19) 26
Decrease (increase) in other assets ........................... 46 (44)
Increase (decrease) in accrued expenses and other liabilities . 133 (38)
(Credit) provision for deferred income taxes .................. (25) 23
-------- ------
Net cash provided by operating activities ................ 669 531
-------- ------
Cash flows from investing activities:
Purchases of securities available for sale ........................ (2,984) (2,510)
Purchases of securities held to maturity .......................... (11,600) (4,343)
Proceeds from sales of securities available for sale .............. -- 101
Proceeds from principal repayments and
maturities of securities held to maturity ..................... 10,302 5,388
Proceeds from principal repayments and maturities
of securities available for sale .............................. 5,928 3,228
Purchase of restricted securities ................................. (17) --
Net increase in loans ............................................. (2,088) (988)
Net purchases of premises and equipment ........................... (5) (37)
Proceeds from sale of foreclosed real estate ...................... 30 41
-------- ------
Net cash (used in) provided by investing activities ...... (434) 880
-------- ------
Cash flows from financing activities:
Net increase (decrease) in demand, savings and NOW deposit accounts 2,041 (3,760)
Net (decrease) increase in time deposits .......................... (682) 3,455
Proceeds from issuance of common stock ............................ 1,305 --
-------- ------
Net cash provided by (used in) financing activities ...... 2,664 (305)
-------- ------
Increase in cash and cash equivalents .................................. 2,899 1,106
Cash and cash equivalents at beginning of year ......................... 4,047 2,941
-------- ------
Cash and cash equivalents at end of year ............................... $ 6,946 4,047
======== ======
Supplemental cash flows information:
Cash paid for interest ............................................ $ 2,942 2,909
======== ======
Cash paid for income taxes ........................................ $ 68 119
======== ======
Noncash transactions:
Net change in unrealized depreciation on available-
for-sale securities, net of taxes ........................ $ (42) 571
======== ======
Loans receivable reclassified to foreclosed real estate ....... $ 94 --
======== ======
</TABLE>
See Accompanying Notes to Financial Statements.
F-32
<PAGE> 147
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND FOR EACH OF THE YEARS
IN THE TWO-YEAR PERIOD THEN ENDED
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL. Citizens National Bank and Trust Company (the "Bank") is a
nationally-chartered Bank. The Bank provides a wide range of banking
services to small and middle-market businesses and individuals through its
one office in Pasco County, Florida. The accounting and reporting practices
of the Bank conform to generally accepted accounting principles and to
general practices within the banking industry. The following summarizes the
more significant of these policies and practices.
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 disclosures 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.
SECURITIES AVAILABLE FOR SALE. Available-for-sale securities consist of
U.S. Government agencies and corporations and mortgage-backed securities
not classified as trading securities nor as held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as a net amount in a separate component of
stockholders' equity until realized. Gains and losses on the sale of
available-for-sale securities are determined using the specific
identification method. Premiums and discounts are recognized in interest
income using the interest method over the period to maturity.
SECURITIES HELD TO MATURITY. Securities for which the Bank has the positive
intent and ability to hold to maturity are reported at cost, adjusted for
amortization of premiums and accretion of discounts which are recognized in
interest income using the interest method over the period to maturity.
LOANS RECEIVABLE. Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off are
reported at their outstanding principal adjusted for any charge-offs, the
allowance for loan losses, and any deferred fees or costs on originated
loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related
loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as
they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
(continued)
F-33
<PAGE> 148
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
LOANS RECEIVABLE, CONTINUED. The allowance for loan losses is increased by
charges to earnings and decreased by charge-offs (net of recoveries).
Management's periodic evaluation of the adequacy of the allowance is
based on the Bank's past loan loss experience, known and inherent risks
in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, and
current economic conditions.
TRUST FEES. Trust fees are recorded on the accrual basis. Securities and
other property held by the trust department in a fiduciary or agency
capacity are not included in the balance sheet since such items are not
assets of the Bank.
PREMISES AND EQUIPMENT. Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation expense is
computed using the straight-line method over the estimated useful life
of each type of asset. Leasehold improvements are amortized on the
straight-line method over the shorter of their estimated useful life or
the lease term.
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 and
changes in the valuation allowance are included in the statements of
earnings.
INCOME TAXES. Deferred income tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which
the deferred tax assets or liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income
taxes.
ADVERTISING. The Bank expenses all media advertising as incurred.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS. In the ordinary course of
business, the Bank has entered into off-balance-sheet financial
instruments consisting of commitments to extend credit. Such financial
instruments are recorded in the financial statements when they are
funded or related fees are incurred or received.
FAIR VALUES OF FINANCIAL INSTRUMENTS. The following methods and assumptions
were used by the Bank in estimating fair values of financial
instruments as disclosed herein:
CASH AND CASH EQUIVALENTS. The carrying amounts of cash and cash
equivalents approximate their fair value.
SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY. Fair values for
securities are based on quoted market prices.
RESTRICTED SECURITIES. Book value of these securities approximates
fair value.
(continued)
F-34
<PAGE> 149
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED.
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 fixed-rate residential mortgage loans,
fixed-rate 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. Fair values for impaired loans are estimated using
discounted cash flow analyses or underlying collateral values, where
applicable.
ACCRUED INTEREST. The carrying amounts of accrued interest approximates
their fair value.
DEPOSIT ACCOUNTS. The fair values disclosed for demand, savings and NOW
deposits are, by definition, equal to the amount payable on demand at
the reporting date (that is, their carrying amounts). Fair values for
fixed-rate certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregate expected monthly
maturities on time deposits.
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.
EARNINGS PER SHARE. Earnings per share has been computed by dividing net
earnings for the period by the weighted average number of shares
outstanding. Stock options are regarded as common stock equivalents and
are therefore considered in both primary and fully diluted earnings per
share calculations. Common stock equivalents are computed using the
treasury stock method. The following table presents the calculation of
earnings per share.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Weighted average shares of common stock issued and
outstanding before adjustment for common stock
options .................................................... 492,864 472,530
Shares assumed outstanding to reflect the dilutive
effect of common stock options ............................. 44,859 36,726
------- -------
Weighted average shares, including common stock
equivalents for primary earnings per share ................. 537,723 509,256
======= =======
Primary earnings per share ..................................... $ 1.06 .98
======= =======
Total weighted average common shares and
equivalents outstanding for primary earnings
per share computation ...................................... 537,723 509,256
Additional dilutive shares using the higher of the end of period
market value versus average market value for the period
utilizing the
treasury stock method regarding stock options .............. - 10,116
------- -------
Weighted average common shares and equivalents
outstanding for fully diluted earnings per share ........... 537,723 519,372
======= =======
Fully diluted earnings per share ............................... $ 1.06 .96
======= =======
</TABLE>
(continued)
F-35
<PAGE> 150
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
RECLASSIFICATIONS. Certain reclassifications of prior year amounts have
been made to conform to the current year presentation.
FUTURE ACCOUNTING REQUIREMENTS. The FASB has issued Statement of Financial
Accounting Standards No. 125 ("SFAS 125"). This Statement provides
accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities. This Statement also
provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. SFAS
125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring in 1997. Management does not
anticipate SFAS 125 will have a material impact on the Bank.
(2) DEBT SECURITIES
Debt securities have been classified in the balance sheet according to
management's intent. The carrying amounts of securities and their
approximate fair values are summarized as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ----------- -----
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1996:
SECURITIES AVAILABLE FOR SALE:
U.S. government agencies
and corporations ............... $ 8,589 9 (71) 8,527
Mortgage-backed securities ........ 2,240 - (32) 2,208
------- ---- ------- ------
$10,829 9 (103) 10,735
======= ==== ======= ======
SECURITIES HELD TO MATURITY:
U.S. Treasury securities .......... 995 8 - 1,003
U.S. government agencies
and corporations ............... 14,848 26 (59) 14,815
Mortgage-backed securities ........ 6,579 37 (57) 6,559
Tax-exempt securities ............. 7,210 284 - 7,494
Corporate securities .............. 1,209 - (2) 1,207
------- ---- ------- ------
$30,841 355 (118) 31,078
======= ==== ======= ======
</TABLE>
Securities with a book value of approximately $1,242,000 (market value of
$1,294,000) are pledged as security for certain public deposits and
that portion of Trust Department customer deposit accounts which
exceeded the FDIC insurance coverage at December 31, 1996. At December
31, 1996, public deposits were $2,184,048.
The Bank realized gross proceeds from sales of securities available for
sale of $101,394 in 1995. There were no gross gains or losses in 1995.
There were no securities sold in 1996.
(continued)
F-36
<PAGE> 151
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(2) DEBT SECURITIES, CONTINUED
The scheduled maturities of securities available for sale and securities
held to maturity at December 31, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
----------------------- -------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------ --------- -----
<S> <C> <C> <C> <C>
Due in one year or less............... $ 549 549 4,961 4,994
Due after one year to five years...... 7,540 7,487 14,585 14,562
Due after five years to ten years..... 500 491 6,254 6,340
Due after ten years................... 2,240 2,208 5,041 5,182
------ ------ ------ ------
$ 10,829 10,735 30,841 31,078
====== ====== ====== ======
</TABLE>
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 the
underlying collateral. The mortgage-backed securities may mature
earlier than their weighted-average contractual maturities because of
principal prepayments.
At December 31, 1996, the Bank had mortgage-backed derivatives classified
as held-to-maturity with a book and market value of approximately $1.4
million. The Bank had purchased these securities between 1992 and 1994
due to their higher than market interest rates. The Bank intends to
hold these securities until maturity and does not intend to purchase
these types of securities in the future. Due to the past performance of
these securities, management does not expect these securities to have
any significant adverse effect on the financial condition of the Bank.
(3) LOANS RECEIVABLE
The components of loans receivable in the balance sheet is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------
1996
----
<S> <C>
Commercial and commercial real estate ...................... $ 11,681
Mortgage ................................................... 13,026
Consumer ................................................... 1,218
--------
25,925
Less deferred loan fees, net ............................... (6)
--------
Loans before allowance for loan losses ..................... 25,919
Less allowance for loan losses ............................. (427)
--------
Loans receivable, net ...................................... $ 25,492
========
</TABLE>
(continued)
F-37
<PAGE> 152
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(3) LOANS RECEIVABLE, CONTINUED
An analysis of the change in the allowance for loan losses was as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Balance at beginning of year .......................... $ 507 507
Credit for loan losses ................................ (100) -
Charge-offs ........................................... - (58)
Recoveries ............................................ 20 58
------- -------
Balance at end of year ................................ $ 427 507
======= =======
</TABLE>
There were no loans identified as being impaired in accordance with FASB
Statement No. 114, as amended by FASB Statement No. 118 at December 31,
1996. The average net investment in impaired loans and interest income
recognized and received on impaired loans is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------
1996 1995
---- ----
<S> <C> <C>
Average investment in impaired loans ........................... $ 47 91
======= =======
Interest income recognized on impaired loans ................... $ - 4
======= =======
Interest income received on impaired loans ..................... $ - 4
======= =======
</TABLE>
(4) PREMISES AND EQUIPMENT
Components of premises and equipment included in the balance sheet were as
follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
<S> <C>
Furniture and equipment .................................... $ 391
Leasehold improvements ..................................... 323
Electronic data processing equipment ....................... 171
Vehicles ................................................... 54
Signs ...................................................... 11
--------
Total cost ............................................. 950
Less accumulated depreciation and amortization ............. (347)
--------
Premises and equipment, net ............................ $ 603
========
</TABLE>
(continued)
F-38
<PAGE> 153
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(4) PREMISES AND EQUIPMENT, CONTINUED
The Bank leases its office facility under two leases. These leases had
initial lease terms of six to ten years and contain renewal options.
Rent expense was $142,727 and $158,993 in 1996 and 1995, respectively.
The office lease agreements contain escalation clauses based upon the
consumer price index and provide for annual adjustments. Estimated
future rentals over the remaining noncancelable lease terms are
approximately as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
1997........................................... $148
1998........................................... 19
----
$167
====
</TABLE>
(5) DEPOSITS
The aggregate amount of short-term jumbo certificates of deposit, each with
a minimum denomination of $100,000, was $4,989,714 at December 31,
1996.
At December 31, 1996, the scheduled maturities of certificates of deposit
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
1997.............................. $24,788
1998.............................. 9,684
1999.............................. 3,031
2000.............................. 2,667
2001.............................. 1,141
-------
$41,311
=======
</TABLE>
(6) OTHER BORROWINGS
The Bank has established lines of credit with three correspondent banks for
a aggregate total of $4,000,000 at December 31, 1996. There were no
amounts outstanding under these lines of credit at December 31, 1996.
The Bank has established a borrowing relationship with the Federal Home
Loan Bank of Atlanta and at December 31, 1996 had a credit availability
of $8,000,000. Borrowings will be collateralized with qualifying loans
and Federal Home Loan Bank of Atlanta stock. At December 31, 1996, the
Bank had no borrowings outstanding from the Federal Home Loan Bank of
Atlanta.
(continued)
F-39
<PAGE> 154
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(7) INCOME TAXES
The components of the provision for income taxes consisted of the following
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Current:
Federal ...................................... $ 74 81
State ........................................ 11 11
---- ---
Total current ........................... 85 92
---- ---
Deferred:
Federal ...................................... (19) 20
State ........................................ (6) 3
---- ---
Total deferred .......................... (25) 23
---- ---
Total ................................... $ 60 115
==== ===
</TABLE>
The provision for federal income taxes is less than that computed by
applying the federal statutory rate of 34% as indicated in the
following analysis:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Statutory rate ................................. 34.0% 34.0%
Increase (decrease) resulting from:
Effect of tax-exempt income ................ (21.0) (21.5)
State taxes, net of federal tax benefit .... 1.1 1.6
Other ...................................... (4.6) 4.5
----- -----
9.5% 18.6%
===== =====
</TABLE>
The tax effects of each type of significant item that gave rise to deferred
taxes are as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996
----
<S> <C>
Net unrealized depreciation on securities
available for sale ...................... $ 32
Depreciation ................................ (106)
Deferred loan fees .......................... 2
Allowance for loan losses ................... 103
Deferred compensation ....................... 127
-----
Net deferred tax asset .................. $ 158
=====
</TABLE>
(continued)
F-40
<PAGE> 155
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(8) REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends that
it may pay.
The Bank is also subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgements by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require 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, 1996, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from The Office of
the Comptroller of the Currency categorized the Bank as well
capitalized under the regulatory framework for prompt corrective
action. To be categorized as adequately or 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 Bank's actual capital amounts and ratios are
also presented in the table (dollars in thousands).
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
------------------ ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
Total Capital (to Risk-
Weighted Assets) ....... $9,255 29.5% 2,507 8.0% 3,134 10.0%
Tier I Capital (to Risk-
Weighted Assets) ....... 8,863 28.3% 1,254 4.0% 1,880 6.0%
Tier I Capital
(to Average Assets) .... 8,863 12.2% 2,908 4.0% 3,635 5.0%
</TABLE>
(continued)
F-41
<PAGE> 156
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(9) STOCK OPTIONS
The Bank has a nonqualified Stock Option Plan (the "Plan") whereby options
to purchase eighty thousand (80,000) shares of the Bank's common stock
had been granted to executive officers of the Bank. In addition,
options to purchase ninety-eight thousand five hundred (98,500) shares
of common stock were granted to certain members of the Board of
Directors.
The stock options were exercisable at $10 per share and expired in 1996.
Activity in the executive officer and director stock option plans is
summarized as follows:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICERS DIRECTORS TOTAL
-------- --------- --------
<S> <C> <C> <C>
Balance at December 31,
1994 and 1995 .......... 64,000 98,500 162,500
Options expired ............ (32,000) -- (32,000)
Options exercised .......... (32,000) (98,500) (130,500)
------- ------- --------
Balance at December 31, 1996 -- -- --
======= ======= ========
</TABLE>
Also an incentive stock option plan was adopted by the Board of Directors
and, as of December 31, 1996, no options were granted.
(10) RETIREMENT PLAN
In 1995 the Bank implemented a Section 401(k) Employee Savings Plan (the
"Plan"). Under the Plan, employees become eligible after completion of
1,000 hours of employment service. The Bank paid matching contributions
of $18,962 and $13,876 in 1996 and 1995, respectively, representing 50%
of the employee contributions to the Plan, not to exceed 6% of the
salaries of the participants.
(11) CONTINGENCY
On April 28, 1988, the Bank entered into employment contracts
("contracts") with the Bank's original executive officers. The terms of
the contracts were for ten years and included yearly salary, a deferred
compensation program as discussed below as well as certain post
retirement health care and life insurance benefits and stock options.
Terms of the executive officer nonqualified deferred compensation program,
which was effective on February 25, 1988, call for the accrual of
deferred compensation at the rate of $1,000 per month of employment up
to a maximum of 120 months with interest at 5 1/2% per year compounded
daily. On September 2, 1993, the Board suspended this program and froze
the balance of the deferred compensation liability. Also, for the
former executive officers of the Bank, salary has not been paid and no
liability has been recorded after their employment ceased with the
Bank.
(continued)
F-42
<PAGE> 157
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(11) CONTINGENCY, CONTINUED
The Bank is currently involved in litigation with respect to two of these
contracts. Two of the former executive officers have filed suits
against the Bank to receive full compensation under their employment
contracts. The Bank moved to dismiss the complaint and in July 1994,
the court granted the Bank's motion to dismiss. In August 1994, the
plaintiff filed an appeal with the Second District Court of Appeals.
The appellate court reversed in part the Bank's motion to dismiss the
lawsuit. The Bank appealed this decision to the Florida Supreme Court.
The case was heard on January 5, 1996. On June 13, 1996, the Florida
Supreme Court upheld the ruling of the Second District Court of
Appeals. The Bank has accrued $136,844 representing the amount of
deferred compensation accrued for the two former employees at the date
the deferred compensation program was suspended. The Bank intends to
defend the case vigorously and does not believe the ultimate
disposition of this matter will have a material adverse effect on the
financial statements or results of operations of the Bank.
(12) RELATED PARTIES
The aggregate amount of loans owed to the Bank by its executive and senior
officers, directors, and their related entities at December 31, 1996
was approximately $896,000. These loans have been made on substantially
the same terms, including collateral, as those prevailing at the time
for comparable transactions with unrelated persons and do not involve
more than normal risk of collectibility.
(13) FINANCIAL INSTRUMENTS
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its
customers. These financial instruments are commitments to extend
credit. Those instruments involve, to varying degrees, elements of
credit and interest-rate risk in excess of the amount recognized in the
balance sheet. The contract or notional amounts of those instruments
reflect the extent of the Bank's involvement in particular classes of
financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend
credit is represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making
commitments as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments
may expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the Bank upon extension of
credit is based on management's credit evaluation of the borrower.
Collateral held varies but may include accounts receivable, inventory,
property, plant, and equipment, and income-producing commercial
properties.
(continued)
F-43
<PAGE> 158
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(13) FINANCIAL INSTRUMENTS, CONTINUED
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
--------------------
CARRYING FAIR
VALUE VALUE
----- -----
<S> <C> <C>
Financial assets:
Cash and cash equivalents ..... $ 6,946 6,946
======= ======
Securities available for sale.. $10,735 10,735
======= ======
Securities held to maturity ... $30,841 31,078
======= ======
Loans receivable .............. $25,492 25,947
======= ======
Restricted securities ......... $ 380 380
======= ======
Accrued interest receivable ... $ 711 711
======= ======
Financial liabilities:
Deposit accounts .............. $66,913 66,664
======= ======
</TABLE>
A summary of the notional amounts, which approximate fair value, of the
Bank's financial instruments with off-balance-sheet risk at December
31, 1996, follows (in thousands):
<TABLE>
<S> <C>
Commitments to extend credit... $ 2,444
=======
</TABLE>
(14) CREDIT RISK
Most of the Bank's business activity is with customers located within
West Pasco County, Florida. In accordance with its policy, the primary
trade area which is being served by the Bank's lending function can be
defined as all of Western Pasco County, Florida with a specific
emphasis on the market area within a five-mile radius of the Bank's
location. A significant portion of the business located within this
geographic area is associated with the medical industry. Loans are
expected to be repaid from cash flow or proceeds from the sale of
selected assets of the borrowers. The distribution of commitments to
extend credit approximates the distribution of loans outstanding. The
contractual amounts of credit-related financial instruments such as
commitments to extend credit represent the amounts of potential
accounting loss should the contract be fully drawn upon, the customer
default and the value of any existing collateral become worthless.
F-44
<PAGE> 159
CITIZENS NATIONAL BANK AND TRUST COMPANY
CONDENSED BALANCE SHEET
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1997
----
ASSETS (UNAUDITED)
<S> <C>
Cash and due from banks .......................................... $ 1,393
Federal funds sold ............................................... 3,900
--------
Cash and cash equivalents .......................... 5,293
Securities available for sale .................................... 13,955
Securities held to maturity (market value of $23,168) ............ 22,905
Restricted securities:
Federal Reserve stock ....................................... 180
Federal Home Loan Bank stock ................................ 228
Loans receivable, net of allowance for loan losses of $438 ....... 29,644
Accrued interest receivable ...................................... 742
Premises and equipment, net ...................................... 579
Deferred income taxes ............................................ 146
Other assets ..................................................... 54
Foreclosed real estate ........................................... 63
--------
Total .............................................. $ 73,789
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand deposits ......................................... 1,946
Savings and NOW deposits ................................ 22,061
Time deposit 40,875
--------
Total deposits ..................................... 64,882
========
Accrued expenses and other liabilities ...................... 250
--------
Total liabilities .................................. 65,132
========
Stockholders' equity:
Common stock ................................................ 3,015
Additional paid-in capital .................................. 2,996
Retained earnings ........................................... 2,650
========
Net unrealized depreciation on available-for-sale securities,
net of tax of $2 ........................................ (4)
========
Total stockholders' equity ......................... 8,657
--------
Total .............................................. $ 73,789
========
</TABLE>
See Accompanying Notes to Condensed Financial Statements.
F-45
<PAGE> 160
CITIZENS NATIONAL BANK AND TRUST COMPANY
CONDENSED STATEMENTS OF EARNINGS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Interest income:
Loans receivable ................................... $ 1,977 1,696
Securities held to maturity ........................ 1,307 1,338
Securities available for sale ...................... 553 567
Federal funds sold ................................. 118 91
-------- -------
Total interest income .......................... 3,955 3,692
-------- -------
Interest expense-
Deposits ........................................... 2,236 2,173
-------- -------
Net interest income ............................ 1,719 1,519
Credit for loan losses .................................. -- (100)
-------- -------
Net interest income after credit for loan losses 1,719 1,619
-------- -------
Noninterest income:
Service charges on deposit accounts ................ 47 35
Income from fiduciary activities ................... 213 190
Other income ....................................... 30 28
-------- -------
Total noninterest income ....................... 290 253
-------- -------
Noninterest expenses:
Salaries and employee benefits ..................... 773 625
Occupancy and equipment expense .................... 214 218
Professional fees .................................. 169 97
Data processing .................................... 76 75
Other operating expense ............................ 607 256
-------- -------
Total noninterest expenses ..................... 1,839 1,271
-------- -------
Earnings before income taxes ............................ 170 601
Income taxes (credit) ................................... (18) 97
-------- -------
Net earnings ................................... $ 188 504
======== =======
Earnings per share ...................................... $ .31 .94
======== =======
Dividends per share ..................................... $ .10 --
======== =======
Weighted average number of shares outstanding ........... 603,030 535,477
======== =======
</TABLE>
See Accompanying Notes to Condensed Financial Statements.
F-46
<PAGE> 161
CITIZENS NATIONAL BANK AND TRUST COMPANY
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
DEPRECIATION
ON
ADDITIONAL AVAILABLE- TOTAL
COMMON PAID-IN RETAINED FOR-SALE STOCKHOLDERS'
STOCK CAPITAL EARNINGS SECURITIES EQUITY
------ ------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1996 ...................... $3,015 2,996 2,522 (61) 8,472
Cash dividends ................. -- -- (60) -- (60)
Net earnings ................... -- -- 188 -- 188
Net changes in unrealized
depreciation on available-
for-sale securities, net of
taxes ..................... -- -- -- 57 57
------ ----- ------ --- ------
Balance, September 30, 1997 ... $3,015 2,996 2,650 (4) 8,657
====== ===== ====== === ======
</TABLE>
See Accompanying Notes to Condensed Financial Statements.
F-47
<PAGE> 162
CITIZENS NATIONAL BANK AND TRUST COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1997 1996
------- -------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings ........................................................................ $ 188 504
Adjustments to reconcile net earnings to
net cash provided by (used in) operating activities:
Depreciation and amortization ................................................... 48 48
Credit for loan losses .......................................................... -- (100)
Increase in accrued interest receivable ......................................... (31) (56)
(Increase) decrease in other assets ............................................. (1) 53
Loss on sale of securities available for sale ................................... 2 --
(Decrease) increase in accrued expenses and other liabilities ................... (347) 26
Credit for deferred income taxes ................................................ (18) --
------- -------
Net cash (used in) provided by operating activities ........................ (159) 475
------- -------
Cash flows from investing activities:
Purchases of securities available for sale .......................................... (6,500) (2,000)
Purchases of securities held to maturity ............................................ (1,000) (6,600)
Proceeds from sales of securities available for sale ................................ 471 --
Proceeds from principal repayments and
maturities of securities held to maturity ....................................... 8,536 6,988
Proceeds from principal repayments and maturities
of securities available for sale ................................................ 3,294 3,623
Purchase of restricted securities, net .............................................. (28) (18)
Net increase in loans ............................................................... (4,152) (1,172)
Net purchases of premises and equipment ............................................. (24) --
------- -------
Net cash provided by investing activities .................................. 597 821
------- -------
Cash flows from financing activities:
Net (decrease) increase in demand, savings and NOW
deposit accounts ................................................................ (1,595) 771
Net decrease in time deposits ....................................................... (436) (585)
Cash dividends ...................................................................... (60) --
Proceeds from issuance of common stock .............................................. -- 200
------- -------
Net cash (used in) provided by financing activities ........................ (2,091) 386
Decrease (increase) in cash and cash equivalents ......................................... (1,653) 1,682
Cash and cash equivalents at beginning of period ......................................... 6,946 4,047
------- -------
Cash and cash equivalents at end of period ............................................... 5,293 5,729
======= =======
Supplemental cash flows information:
Cash paid for interest .............................................................. $ 2,259 2,194
======= =======
Cash paid for income taxes.......................................................... $ 86 41
======= =======
Noncash transactions:
Net change in unrealized depreciation on available-
for-sale securities, net of taxes.......................................... $ 57 (93)
======= =======
Loans receivable transferred to foreclosed real estate.......................... $ -- 30
======= =======
</TABLE>
See Accompanying Notes to Condensed Financial Statements.
F-48
<PAGE> 163
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
1. BASIS OF PRESENTATION. In the opinion of the management of Citizens
National Bank and Trust Company (the "Bank"), the accompanying
condensed financial statements contain all adjustments (consisting of
normal recurring accruals) necessary to present fairly the financial
position at September 30, 1997 and the results of operations and cash
flows for the nine-month periods ended September 30, 1997 and 1996
and changes in stockholders' equity for the nine months ended
September 30, 1997. The results of operations and other data for the
nine months ended September 30, 1997 are not necessarily indicative
of results that may be expected for the year ending December 31, 1997.
2. LOAN IMPAIRMENT AND LOAN LOSSES. No impaired loans were identified by the
Bank during the nine months ended September 30, 1997.
An analysis of the change in the allowance for loan losses was as
follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
---- ----
<S> <C> <C>
Balance at beginning of period $427 507
Credit for loan losses ....... -- (100)
Recoveries ................... 11 4
---- ----
Balance at end of period ..... $438 411
==== ====
</TABLE>
3. IMPACT OF NEW ACCOUNTING ISSUES. In September 1996, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" ("SFAS No. 125"). That
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. That
Statement also provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are
secured borrowings. SFAS No. 125 is effective for transfers and
servicing of financial assets as well as extinguishments of liabilities
occurring in 1997. The adoption of SFAS No. 125 had no effect on the
Bank's financial position at September 30, 1997 or results of
operations for the nine months then ended.
4. FUTURE ACCOUNTING REQUIREMENTS. The FASB has issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). This Statement specifies the computation, presentation and
disclosure requirements for net earnings per share for entities with
publicly-held common stock. SFAS 128 is effective for both interim and
annual periods ending after December 15, 1997 and upon adoption, all
prior period net earnings per share data presented will be restated to
conform with SFAS 128.
(continued)
F-49
<PAGE> 164
CITIZENS NATIONAL BANK AND TRUST COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
5. EARNINGS PER SHARE. Earnings per share has been computed by dividing net
earnings for the period by the weighted average number of shares
outstanding. Stock options are regarded as common stock equivalents and
are therefore considered in both primary and fully diluted earnings per
share calculations. Common stock equivalents are computed using the
treasury stock method. The following table presents the calculation of
earnings per share.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1997 1996
------- -------
<S> <C> <C>
Weighted average shares of common stock issued and
outstanding before adjustment for common stock
options .................................................... 603,030 491,362
Shares assumed outstanding to reflect the dilutive
effect of common stock options ............................. -- 44,115
------- -------
Weighted average shares, including common stock
equivalents for primary earnings per share ................. 603,030 535,477
======= =======
Primary earnings per share ..................................... $ .31 .94
======= =======
Total weighted average common shares and
equivalents outstanding for primary earnings
per share computation ...................................... 603,030 535,477
Additional dilutive shares using the higher of the end of period
market value versus average market value for the period
utilizing the treasury stock method regarding stock options. -- 2,183
------- -------
Weighted average common shares and equivalents
outstanding for fully diluted earnings per share ........... 603,030 537,660
======= =======
Fully diluted earnings per share ............................... $ .31 .94
======= =======
</TABLE>
6. LITIGATION SETTLEMENT. As of December 31, 1996, the Bank was involved in
litigation with respect to employment contracts with certain of the
Bank's original executive officers. At December 31, 1996, the Bank had
accrued $136,844 which management believed would be adequate to cover
any potential loss in connection with this litigation. In February,
1997, this litigation was settled and resulted in an additional
expense to the Bank of approximately $324,000.
7. PROPOSED ACQUISITION OF BANK. On July 31, 1997, the Board of Directors of
the Bank signed a definitive agreement for the merger of the Bank into
another financial institution (Gulf West Banks, Inc.). Under the terms
of the agreement, the Bank's shareholders will collectively receive
1.95 million shares of Gulf West Banks, Inc. common stock, an exchange
ratio of 3.23 shares, for each share of the Bank's common stock. The
merger is expected to be completed in late 1997 or early 1998 and is
subject to various regulatory approvals as well as the approval of the
shareholders of the Bank.
F-50
<PAGE> 165
ANNEX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GULF WEST BANKS, INC.
MERCANTILE BANK
AND
CITIZENS NATIONAL BANK & TRUST COMPANY
DATED AS OF OCTOBER 16, 1997
AMENDING AND RESTATING
AGREEMENT DATED JULY 31, 1997
<PAGE> 166
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I .............................................................................1
THE MERGER ...................................................................1
SECTION 1.1 The Merger ............................................1
SECTION 1.2 Effective Time ........................................1
SECTION 1.3 Certain Effects of the Merger .........................2
SECTION 1.4 Articles of Incorporation and Bylaws ..................2
SECTION 1.5 Directors and Officers ................................2
SECTION 1.6 Conversion of Shares ..................................2
SECTION 1.7 Shareholders' Meeting .................................3
SECTION 1.8 Registration of the Gulf West
Common Stock ..............................4
SECTION 1.9 Closing ...............................................4
ARTICLE II ............................................................................5
DISSENTING SHARES; EXCHANGE OF SHARES.........................................5
SECTION 2.1 Dissenting Shares .....................................5
SECTION 2.2 Exchange of Shares ....................................5
ARTICLE III............................................................................7
REPRESENTATIONS AND WARRANTIES OF THE BANK....................................7
SECTION 3.1 Organization and Qualification ........................7
SECTION 3.2 Bank Capitalization ...................................8
SECTION 3.3 Other Securities ......................................8
SECTION 3.4 Authority Relative to the Agreement ...................8
SECTION 3.5 No Violation ..........................................9
SECTION 3.6 Consents and Approvals ................................9
SECTION 3.7 Regulatory Reports ....................................9
SECTION 3.8 Securities Issuances .................................10
SECTION 3.9 Financial Statements .................................10
SECTION 3.10 Absence of Certain Changes ...........................10
SECTION 3.11 Bank Indebtedness ....................................11
SECTION 3.12 Litigation ...........................................11
SECTION 3.13 Tax Matters ..........................................13
SECTION 3.14 Employee Benefit Plans ...............................13
SECTION 3.15 Labor Matters ........................................16
SECTION 3.16 Leases, Contracts and Agreements .....................16
SECTION 3.17 Related Bank Transactions ............................17
SECTION 3.18 Compliance with Laws .................................17
SECTION 3.19 Insurance ............................................18
SECTION 3.20 Loans ................................................18
SECTION 3.21 Fiduciary Responsibilities ...........................18
SECTION 3.22 Patents, Trademarks and Copyrights ...................18
SECTION 3.23 Environmental Compliance .............................18
SECTION 3.24 Regulatory Actions ...................................20
SECTION 3.25 Title to Properties; Encumbrances ....................21
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 3.26 Shareholder List .....................................21
SECTION 3.27 Proxy Statement ......................................21
SECTION 3.28 Dissenting Shareholders ..............................22
SECTION 3.29 Section 368 Representations ..........................22
SECTION 3.30 Accounting Matters ...................................23
SECTION 3.31 Representations Not Misleading .......................23
SECTION 3.32 Opinion of Investment Bankers ........................23
ARTICLE IV............................................................................24
REPRESENTATIONS AND WARRANTIES OF GULF WEST
AND MERCANTILE..............................................................24
SECTION 4.1 Organization and Qualification .......................24
SECTION 4.2 Gulf West Capitalization .............................24
SECTION 4.3 Authority Relative to the Agreement ..................25
SECTION 4.4 No Violation .........................................25
SECTION 4.5 Consents and Approvals ...............................26
SECTION 4.6 Regulatory Reports ...................................26
SECTION 4.7 Securities Issuances .................................26
SECTION 4.8 Financial Statements .................................26
SECTION 4.9 Absence of Certain Changes ...........................27
SECTION 4.10 Gulf West Indebtedness ...............................28
SECTION 4.11 Litigation ...........................................28
SECTION 4.12 Tax Matters ..........................................28
SECTION 4.13 Employee Benefit Plans ...............................29
SECTION 4.14 Labor Matters ........................................31
SECTION 4.15 Leases, Contracts and Agreements .....................31
SECTION 4.16 Related Gulf West and Mercantile
Transactions .............................32
SECTION 4.17 Compliance with Laws .................................32
SECTION 4.18 Insurance ............................................33
SECTION 4.19 Loans ................................................33
SECTION 4.20 Fiduciary Responsibilities ...........................33
SECTION 4.21 Patents, Trademarks and Copyrights ...................33
SECTION 4.22 Environmental Compliance .............................34
SECTION 4.23 Regulatory Actions ...................................35
SECTION 4.24 Title to Properties; Encumbrances ....................36
SECTION 4.25 Proxy Statement ......................................36
SECTION 4.26 Accounting Matters ...................................37
SECTION 4.27 Representations Not Misleading .......................37
ARTICLE V ............................................................................37
CONDUCT OF BUSINESS PENDING CLOSING .........................................37
SECTION 5.1 Affirmative Covenants of the Bank ....................37
SECTION 5.2 Negative Covenants of the Bank .......................39
SECTION 5.3 Covenants of Gulf West................................42
ARTICLE VI ...........................................................................43
ADDITIONAL AGREEMENTS .......................................................43
SECTION 6.1 Access To, Information Concerning,
Properties and Records ...................43
SECTION 6.2 Filings with Regulatory Agencies .....................43
SECTION 6.3 Miscellaneous Agreements and Consents ................44
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 6.4 Bank Indebtedness ....................................44
SECTION 6.5 Best Good Faith Efforts ..............................44
SECTION 6.6 Acquisition Proposals ................................44
SECTION 6.7 Public Announcement ..................................45
SECTION 6.8 Employees and Employee Benefit Plans .................45
SECTION 6.9 Environmental Investigation: Right to
Terminate Agreement ......................46
SECTION 6.10 Florida Takeover Law..................................50
SECTION 6.11 Exchange Agreement ...................................50
SECTION 6.12 Bank's Designees......................................50
SECTION 6.13 Indemnification and Insurance.........................51
ARTICLE VII. .........................................................................52
CONDITIONS TO CONSUMMATION OF THE MERGER. ...................................52
SECTION 7.1 Conditions to Each Party's Obligation
to Effect the Merger .....................52
SECTION 7.2 Conditions to the Obligations of Gulf
West and Mercantile to Effect
the Merger ...............................53
SECTION 7.3 Conditions to the Obligations of the
Bank to Effect the Merger ................55
ARTICLE VIII. ........................................................................56
TERMINATION; AMENDMENT; WAIVER...............................................56
SECTION 8.1 Termination ..........................................56
SECTION 8.2 Effect of Termination ................................57
SECTION 8.3 Amendment ............................................57
SECTION 8.4 Extension; Waiver ....................................58
SECTION 8.5 Termination Fee ......................................58
ARTICLE IX. ..........................................................................58
SURVIVAL OF REPRESENTATIONS AND WARRANTIES...................................58
ARTICLE X. ...........................................................................58
MISCELLANEOUS. ..............................................................58
SECTION 10.1 Expenses .............................................58
SECTION 10.2 Brokers and Finders ..................................59
SECTION 10.3 Entire Agreement; Assignment .........................59
SECTION 10.4 Further Assurances ...................................59
SECTION 10.5 Enforcement of the Agreement .........................59
SECTION 10.6 Severability .........................................60
SECTION 10.7 Notices ..............................................60
SECTION 10.8 Governing Law ........................................61
SECTION 10.9 Descriptive Headings .................................61
SECTION 10.10 Parties in Interest ..................................61
SECTION 10.11 Counterparts .........................................61
SECTION 10.12 Incorporation by References ..........................61
SECTION 10.13 Obligations of Gulf West..............................61
SECTION 10.14 Fiduciary Duty........................................61
SECTION 10.15 Certain Definitions ..................................61
</TABLE>
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ATTACHMENTS
EXHIBITS
A. Articles and Plan of Merger
B. Affiliate Letter
C. Exchange Agent Agreement
D. Opinion of Counsel for the Bank
E. Opinion of Counsel for Gulf West and Mercantile
F. Release to be Executed by Executive Officers and
Directors of Bank
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER ("Agreement"),
dated as of October 16, 1997, is by and among Gulf West Banks, Inc., a Florida
corporation ("Gulf West"), its wholly owned subsidiary, Mercantile Bank, a
Florida banking corporation ("Mercantile"), and Citizens National Bank & Trust
Company, a national banking association (the "Bank"). This Agreement, as amended
and restated hereby, is effective as of, and as if executed on, July 31, 1997.
The Parties (as defined below) agree that any references to the date of this
Agreement, the date hereof, the date of this Agreement, the date of the
execution of this Agreement, and other words and phrases of similar import
relating to the date of this Agreement shall for all purposes mean July 31,
1997. Gulf West, Mercantile, and the Bank are sometimes referred to collectively
herein as the "Parties."
WHEREAS, Gulf West desires to affiliate with the Bank and the Bank
desires to affiliate with Gulf West in the manner provided in this Agreement;
WHEREAS, Gulf West and the Bank believe that the Merger (as defined
herein) of the Bank with Mercantile in the manner provided by, and subject to
the terms and conditions set forth in, this Agreement and all exhibits,
schedules and supplements hereto, is desirable and in the best interests of
their respective institutions and shareholders;
WHEREAS, the respective boards of directors of Gulf West, Mercantile
and the Bank previously have approved the execution of an Agreement and Plan of
Merger (the "Merger Agreement") and the proposed transactions substantially on
the terms and conditions set forth in the Merger Agreement;
WHEREAS, the Parties executed the Merger Agreement on July 31, 1997
providing for the Merger of the Bank with and into Mercantile upon the terms and
conditions contained therein; and
WHEREAS, the Parties desire to amend and restate the Merger Agreement
for the purpose of revising certain of the terms and conditions set forth in the
Merger Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties, intending
to be legally bound, hereby agree as follows:
<PAGE> 171
ARTICLE I.
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
hereof, at the Effective Time (as defined in Section 1.2 of this Agreement) in
accordance with the provisions of the Florida Financial Institution's Code
(which includes those Florida laws specified in Section 655.005(j) of the
Florida Statutes and referred to collectively herein as "FFIC") and the National
Banking Act (12 U.S.C. Section 1 ET SEQ.), the Bank shall be merged with and
into Mercantile (the "Merger"). Following the Merger, Mercantile shall
continue as the surviving corporation (the "Surviving Corporation") and the
separate corporate existence of the Bank shall cease.
SECTION 1.2 Effective Time. The Merger shall become effective on the
date and at the time on which the Articles and Plan of Merger are accepted for
filing by the Florida Department of Banking and Finance (the "Department"), in
substantially the form of Exhibit A attached hereto or at such later date as is
agreed upon by the Parties and specified in the Articles and Plan of Merger (the
"Effective Time"). Unless the Parties otherwise mutually agree in writing, the
Parties shall cause the Articles and Plan of Merger to be filed on the Closing
Date (as defined in Section 1.9 of this Agreement) and shall use their best
efforts to cause the Effective Time to occur on the Closing Date, but in no
event shall the Effective Time occur more than one business day after the
Closing Date.
SECTION 1.3 Certain Effects of the Merger. From and after the Effective
Time, the Merger shall have the effects set forth in the FFIC and 12 U.S.C.
Section 214b.
SECTION 1.4 Articles of Incorporation and Bylaws. Pursuant to the
Merger and without further action by the Surviving Corporation or the
stockholders, the Articles of Incorporation and the Bylaws of Mercantile in each
case as in effect at the Effective Time, shall be the Articles of Incorporation
and Bylaws of the Surviving Corporation.
SECTION 1.5 Directors and Officers. The directors and officers of
Mercantile immediately prior to the Effective Time shall be the directors and
officers of the Surviving Corporation, each to hold office from the Effective
Time until their respective successors are duly elected or appointed and
qualified in the manner provided in the Articles of Incorporation and Bylaws of
the Surviving Corporation, or as otherwise provided by law.
SECTION 1.6 Conversion of Shares.
(a) Each share of the Bank's common stock, par value $5.00 per share
("Bank Common Stock"), issued and outstanding immediately prior to the Effective
Time (the Bank Common Stock is sometimes called the "Shares"), other than
Dissenting Shares (as defined in Section 2.1), shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into and
represent
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the right to receive the consideration payable as set forth in this Section
1.6(a) and Section 1.6(d), as may be adjusted pursuant to Section 1.6(e) (the
"Merger Consideration") to the holder of record thereof, without interest
thereon subject to the terms and conditions hereof. For the purposes of
determining the number of Shares issued and outstanding at the Effective Time,
the number of Shares issued and outstanding at the Effective Time shall be
increased by the number and class of Shares that may be acquired upon exercise
or conversion of any warrant, option, convertible debenture or other security
entitling the holder thereof to acquire Shares. Each holder of Bank Common Stock
shall receive Merger Consideration for each share of Bank Common Stock so held
equal to 3.2337 (the "Exchange Ratio") shares of Gulf West common stock, $1.00
par value per share ("Gulf West Common Stock"), which is derived by dividing
1,950,000 shares of Gulf West Common Stock by 603,030, the number of Shares of
Bank Common Stock outstanding immediately prior to the Effective Time.
(b) Each of the shares of the Mercantile Common Stock, $4.00 par value
issued and outstanding immediately prior to the Effective Time shall remain
outstanding and entirely issued to Gulf West at and after the Effective Time
without any change therein and shall continue as a share of common stock of the
Surviving Corporation (the "Surviving Corporation Common Stock").
(c) Each share of Gulf West Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding from
and after the Effective Time.
(d) Notwithstanding any other provision of this Agreement, Gulf West
will not issue any fractional shares of Gulf West Common Stock and each holder
of Bank Common Stock exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fractional share of Gulf West Common Stock (after
taking into account all certificates delivered by such holder) shall receive, in
lieu thereof, cash in an amount equal to such fractional part of a share of Gulf
West Common Stock multiplied by $5.87. No such holder will be entitled to
dividends, voting rights, or any other rights as a shareholder in respect of any
fractional shares.
(e) In the event Gulf West changes the number of shares of Gulf West
Common Stock issued and outstanding prior to the Effective Time as a result of a
stock split, stock dividend, recapitalization, reclassification, or similar
transaction, or through any issuance of authorized and previously unissued
shares (whether by option, exchange, sale, or otherwise) other than those shares
issued upon the exercise of options outstanding as of the date of this Agreement
or pursuant to purchases under Gulf West's employee stock purchase plan and the
record date therefor (in the case of a stock dividend) or the effective date
thereof (in the case of a stock split, recapitalization, or similar transaction
to which a record date is not established) or the date on which Gulf West agrees
contractually
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<PAGE> 173
or otherwise to issue such shares (in the case of previously unissued shares)
shall be prior to the Effective Time, the Exchange Ratio shall be
proportionately adjusted to prevent the dilutive effect of such transactions on
the number of shares of Gulf West Common Stock to be issued in connection with
the Merger as of the date of this Agreement.
SECTION 1.7 Shareholders' Meeting. The Bank, acting through its Board
of Directors, shall, in accordance with applicable law:
(a) duly call, give notice of, convene and hold a special meeting (the
"Shareholders' Meeting") of its shareholders as soon as practicable after the
Registration Statement (as defined in Section 1.8(a) hereof is declared
effective by the Securities and Exchange Commission ("SEC") for the purpose of
considering and taking action on the approval of the Merger and adoption of this
Agreement and taking such other actions as may be required to consummate the
transactions contemplated thereby;
(b) require no greater than the minimum vote required by
applicable law of each class of shares in order to approve the
Merger;
(c) use its reasonable best efforts (i) to obtain and furnish the
information required to be included by it in the Proxy Statement, as defined
below, and cause the Proxy Statement to be mailed to its shareholders at the
earliest practicable time following the effective date of the Registration
Statement, and (ii) subject to compliance with its fiduciary duties under
applicable law as advised by counsel, to obtain the approval and adoption of the
Merger by shareholders holding the minimum vote required by applicable law for
each class of shares in order to approve the Merger of the shares of each class
entitled to vote at the Shareholders' Meeting to approve the Merger under
applicable law. The Bank's letter to shareholders, notice of meeting, proxy
statement and form of proxy to be distributed to shareholders in connection with
the Merger shall be in form and substance reasonably satisfactory to Gulf West,
and are collectively referred to herein as the "Proxy Statement;" and
(d) include in the Proxy Statement the unanimous recommendation of its
Board of Directors (subject to compliance with their fiduciary duties under
applicable law as advised by counsel) that the shareholders of the Bank vote in
favor of the approval of the Merger and adoption of this Agreement.
SECTION 1.8 Registration of the Gulf West Common Stock.
(a) After the execution of this Agreement, Gulf West will use its
reasonable best efforts to file a registration statement (the "Registration
Statement"), including the Proxy Statement, with the SEC under the Securities
Act of 1933, as amended ("Securities Act")
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<PAGE> 174
within the later of thirty (30) days from the date of this Agreement or fifteen
(15) days after the Bank provides to Gulf West all information required to be
included therein by the Bank and its Affiliates (as defined in Section 10.15(a))
in form and content substantially complying with the requirements of the
Securities Act and the rules and regulations of the SEC and shall use its
reasonable best efforts to cause the Registration Statement to become effective
under the Securities Act and take any action required to be taken under the
applicable blue sky or state securities laws in connection with the issuance of
the shares of Gulf West Common Stock to be issued to Bank shareholders in the
Merger.
(b) The Bank has identified in Section 1.8(b) of the Bank Disclosure
Letter (as defined in the preamble to Article III of this Agreement) all persons
whom it reasonably believes are "affiliates" of the Bank for purposes of Rule
145 under the Securities Act and shall use its reasonable best efforts to cause
such persons to deliver to Gulf West an Affiliate Letter in substantially the
form of Exhibit B attached hereto.
SECTION 1.9 Closing. Upon the terms and subject to the conditions
hereof, as soon as practicable after the vote of the shareholders of the Bank in
favor of the approval and adoption of this Agreement has been obtained, and the
satisfaction or waiver, if permissible, of the conditions set forth in Article
VII hereof, the Bank and Mercantile shall execute and file the Plan of Merger,
as described in Section 1.2, and the Parties hereto shall take all such other
and further actions as may be required by law to make the Merger effective.
Prior to the filing referred to in this Section, a closing (the "Closing") will
be held at the office of Fowler, White, Gillen, Boggs, Villareal and Banker,
P.A. (or such other place as the Parties may agree) for the purpose of
confirming all of the foregoing. The date such Closing will be held is herein
defined as the "Closing Date." The Parties shall use their reasonable best
efforts to cause the Closing to occur within five (5) business days following
the last to occur of: (i) the effective date of the receipt of all Required Bank
Governmental Approvals (as defined in Section 3.5 of this Agreement), (ii) the
date on which the shareholders of the Bank approve the Merger and adopt this
Agreement to the extent required by applicable law, and (iii) the effective date
of the Registration Statement to be filed with the SEC pursuant to Section 1.8
of this Agreement; provided that nothing contained herein shall be deemed to
require either Party hereto to waive any condition to Closing if it is not
satisfied on such date.
5
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ARTICLE II.
DISSENTING SHARES; EXCHANGE OF SHARES
SECTION 2.1 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, Shares which are issued and outstanding immediately
prior to the Effective Time and which are held by shareholders who have voted
such shares against the Merger or who have given notice to the Bank in writing
at or prior to the Bank's Shareholders Meeting that such shareholders dissent
from the Merger and who shall have delivered a written request for payment of
the value of such Shares within the time and in the manner provided in 12
U.S.C. Section 214(b) (the "Dissenting Shares") shall be entitled only to the
rights of appraisal granted under 12 U.S.C. Section 214(b) (the "Dissent
Provisions") and shall not be converted into or be exchangeable for the right
to receive the Merger Consideration provided in Section 1.6 of this Agreement,
unless and until such holder fails to perfect or effectively withdraws or
otherwise loses his right to appraisal and payment under the Dissent
Provisions. If, after the Effective Time, any such holder fails to perfect or
effectively withdraws or loses such right to appraisal, such holder's Shares
shall thereupon be deemed to have been converted into and to have become
exchangeable for, at the Effective Time, the right to receive the Merger
Consideration without any interest thereon. Each holder of Dissenting Shares
(a "Dissenting Shareholder") that becomes entitled, pursuant to the Dissent
Provisions, to payment for any shares of Bank Common Stock held by such
Dissenting Shareholder shall receive payment therefor from Gulf West (but only
after the amounts thereof shall have been agreed upon or at the time and in the
amounts required by the Dissent Provisions) and all of such Dissenting
Shareholder's shares of Bank Common Stock shall be canceled.
SECTION 2.2 Exchange of Shares.
(a) At the Effective Time, Gulf West shall deposit or shall cause to be
deposited in trust with the trust department of SunTrust, N.A. (the "Exchange
Agent"), pursuant to an exchange agent agreement in substantially the form
attached hereto as Exhibit C (the "Exchange Agent Agreement"), certificates
evidencing shares of Gulf West Common Stock and cash in such amounts necessary
to provide all the consideration required to be exchanged by Gulf West for the
Bank Common Stock pursuant to the terms of this Agreement (such certificates for
Gulf West Common Stock, together with any cash to be paid in lieu of fractional
shares, and any unpaid dividends or other distributions, referred to herein as
the "Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable
instructions jointly given by the Bank and Gulf West, promptly issue the
certificates representing the Gulf West Common Stock and make the payments in
lieu of fractional shares out of the Exchange Fund upon surrender of Shares in
accordance with Section 2.2(b). The Exchange Fund shall not be used for any
other purpose, except as provided in this Agreement.
(b) Promptly after the Effective Time, Gulf West shall cause the
Exchange Agent to mail to each former shareholder of the Bank as
6
<PAGE> 176
of the Effective Time, a form letter of transmittal approved by the Bank and
Gulf West (which shall specify that delivery shall be effected, and risk of loss
and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent) and instructions for use in effecting the
surrender of the certificates representing the Shares, or proof of loss thereof,
(the "Certificates"). After the Effective Time, each holder of the Bank Common
Stock shall surrender the Certificate or Certificates, together with such
transmittal letters properly executed, to the Exchange Agent and promptly upon
surrender shall receive in exchange therefor the Merger Consideration together
with all declared but unpaid dividends or other distributions in respect of such
shares. The Certificate or Certificates so surrendered shall be duly endorsed as
the Exchange Agent may require and such Certificate shall forthwith be canceled.
To the extent provided by Section 1.6(d) of this Agreement, each holder of the
Bank Common Stock issued and outstanding at the Effective Time also shall
receive upon surrender of the Certificate or Certificates any cash distributed
in lieu of any fractional shares of Gulf West Common Stock to which such holder
would be otherwise entitled. No interest will be paid or accrued on any cash
payable upon surrender of the Certificate and no dividend will be disbursed with
respect to the shares of Gulf West Common Stock until the holder's Certificates
are surrendered in exchange therefor as provided in this Section 2.2(b). If
payment or delivery of Gulf West Common Stock is to be made to a person other
than the person in whose name the Certificate surrendered for exchange is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such exchange shall pay any transfer or other
taxes required by reason of the payment and delivery of Gulf West Common Stock
to a person other than the registered holder of the Certificate surrendered or
establish to the satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 2.2, each Certificate (other than Certificates
representing Dissenting Shares) shall represent for all purposes only the right
to receive the Merger Consideration without any interest thereon which is
composed of the consideration provided under Section 1.6(a), together with any
payment under Section 1.6(d) (without any interest thereon).
(c) At the Effective Time, the stock transfer books of the
Bank shall be closed and there shall be no transfers on the stock transfer books
of the Bank of the Shares which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation, they shall be promptly presented to the Exchange Agent
and exchanged as provided in this Article II.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) which have been made available to the Exchange Agent
pursuant to Section 2.2(a) of this Agreement that
7
<PAGE> 177
remains unclaimed by the shareholders of the Bank for six months after the
Effective Time shall be paid to Gulf West. Any holders of Shares not theretofore
presented to the Exchange Agent shall look to Gulf West only, and not the
Exchange Agent, for the payment of any Merger Consideration in respect of such
shares.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank hereby makes the representations and warranties set forth in
this Article III to Gulf West and Mercantile. The Bank has delivered to Gulf
West and Mercantile the disclosure letter (the "Bank Disclosure Letter")
referred to in this Article III on July 31, 1997. Except for those
representations and warranties which are made as of a specific date or time
specified herein, the representations and warranties of the Bank set forth
hereunder are made as of the date of this Agreement. Except for these
representations and warranties which are made as of a specific date or time
specified herein, the Bank agrees at the Closing to provide Gulf West with a
supplement reflecting any changes thereto between the date of such Bank
Disclosure Letter and the date of the Closing.
SECTION 3.1 Organization and Qualification. The Bank is a national
banking association, duly organized, validly existing and in good standing under
the laws of the United States and is a member of the Federal Reserve System. The
Bank has the requisite corporate power and authority to carry on its business as
now being conducted and to own, lease and operate its properties and assets as
now owned, leased or operated. The Bank does not have any Subsidiaries (as
defined in Section 10.15(g)). True and correct copies of the Articles of
Incorporation and Bylaws of the Bank, with all amendments thereto through the
date of this Agreement, have been delivered by the Bank to Gulf West. The Bank
is duly qualified or licensed to do business and is in active status in the
State of Florida. The Bank and its activities, as currently conducted, do not
require it to be qualified to do business in any jurisdiction other than the
State of Florida.
SECTION 3.2 Bank Capitalization. The authorized capital stock of the
Bank consists of 750,000 shares of Bank Common Stock par value $5.00 per share,
of which 603,030 shares are issued and outstanding, and none of which are held
in treasury. There are no outstanding subscriptions, options, convertible
securities, rights, warrants, calls, or other agreements or commitments
("Rights") of any kind issued or granted by, or binding upon, the Bank giving
any person the right to purchase or otherwise acquire any security of or equity
interest in the Bank. There are no outstanding Rights obligating the Bank to
issue any shares of the Bank, or to the Knowledge of the Bank, irrevocable
proxies or any agreements restricting the transfer of or otherwise relating to
shares of its
8
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capital stock of any class. All of the Shares that have been issued have been
duly authorized, validly issued and are fully paid and non-assessable (except
for the right of assessments provided in 12 U.S.C. Section 55), and are free of
preemptive rights. The Bank has never declared or paid a cash or stock dividend
on the Shares other than a cash dividend of $0.10 per share declared in March
1997, which dividend has been paid as of the date of this Agreement.
SECTION 3.3 Other Securities. Section 3.3 of the Bank Disclosure Letter
sets forth a list of all equity ownership by the Bank for the account of the
Bank in any other person (excluding any pledges of securities held by the Bank
in the ordinary course of its lending activities (the "Other Securities"). The
Bank owns each Other Security free and clear of any lien, encumbrance, security
interest or charge.
SECTION 3.4 Authority Relative to the Agreement. The Bank has requisite
corporate power and authority to execute and deliver this Agreement and, subject
to the approval and adoption of this Agreement by the shareholders of the Bank
and receipt of all necessary governmental and regulatory approvals and consents
to consummate the transactions to be consummated by it as contemplated hereby.
The execution and delivery of this Agreement has been duly and validly
authorized by the Bank's Board of Directors. This Agreement has been duly
executed and delivered by the Bank and, subject to the requisite shareholder
approval and receipt of all necessary governmental and regulatory approvals and
consents (and assuming the due authorization, execution, and delivery by Gulf
West and Mercantile of this Agreement and that this Agreement constitutes the
valid and binding obligations of Gulf West and Mercantile), constitutes a valid
and legally binding obligation of the Bank, enforceable against the Bank (except
in all cases to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium, or
other similar laws, now or hereafter in effect, affecting creditors' rights
generally, and the general principles governing specific performance, injunctive
relief, and other equitable remedies). The execution, delivery and performance
of this Agreement, and the consummation of the transactions to be consummated by
the Bank as contemplated hereby, will not conflict with, or result in any
violation or breach of or default under the Articles of Incorporation or Bylaws
of the Bank. The Bank is not currently in violation of any material provisions
of its Articles of Incorporation or Bylaws.
SECTION 3.5 No Violation. Except as set forth in Section 3.5 of the
Bank Disclosure Letter, neither the execution, delivery nor performance of this
Agreement in its entirety, nor the consummation of all of the transactions to be
consummated by the Bank as contemplated hereby, following the receipt of such
approvals as may be required from the Bank's shareholders (the "Required
Stockholder Approval"), the Federal Deposit Insurance Corporation ("FDIC"), the
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Board of Governors of the Federal Reserve System ("FRB"), the Office of the
Comptroller of the Currency ("OCC"), the Department of Justice ("DOJ"), and the
Department (and the expiration of any statutorily required waiting periods) (the
"Required Bank Governmental Approvals") will (i) violate (with or without the
giving of notice or the passage of time), any law, order, writ, judgment,
injunction, award, decree, rule, statute, ordinance or regulation applicable to
the Bank other than those which do not, or are not reasonably likely to have a
Material Adverse Effect on the Bank, prevent the consummation of the Merger or
deprive Gulf West of the benefits contemplated hereby, or (ii) be in material
conflict with, result in a material breach or termination of any provision of,
cause the acceleration of the maturity of any debt or obligation pursuant to,
constitute a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any security interest, lien,
charge or other encumbrance upon any property or assets of the Bank pursuant to,
any terms, conditions or provisions of any material note, license, instrument,
indenture, mortgage, deed of trust or other agreement or understanding or any
other material restriction of any kind or character, to which the Bank is a
Party or by which any of its assets or properties are subject or bound.
SECTION 3.6 Consents and Approvals. The Bank's Board of Directors has
unanimously determined that the Merger is fair to the Bank's shareholders and
has unanimously resolved to recommend approval and adoption of this Agreement by
the Bank's shareholders. Except as described in Section 3.6 of the Bank
Disclosure Letter, no prior consent, approval or authorization of, or
declaration, filing or registration with any person, domestic or foreign, is
required of the Bank in connection with the execution, delivery and performance
by the Bank of this Agreement and the transactions contemplated hereby or the
resulting change of control of the Bank, other than (i) the filing of the
Articles of Merger under the FFIC, (ii) receipt of the Required Stockholder
Approval and Required Bank Governmental Approvals, and (iii) notices to or
filings with the IRS or the Pension Benefit Guaranty Corporation with respect to
any employee benefit plans.
SECTION 3.7 Regulatory Reports. Since January 1996, except as set forth
in Section 3.7 of the Bank Disclosure Letter, the Bank has filed all reports,
registrations and statements, together with any amendments required to be made
thereto, that it was, or is required to file with the OCC, the FRB, the FDIC, or
applicable state banking authorities.
SECTION 3.8 Securities Issuances. The Bank is not required to register
any of its securities under, and has not registered its securities under, the
provisions of Section 12 of the Exchange Act of 1934, as amended ("Exchange
Act"). All issuances of securities by the Bank were exempt from registration
under the Securities Act
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and the Florida Securities Investor Protection Act, and all other applicable
securities laws.
SECTION 3.9 Financial Statements. The Bank has provided Gulf West true
and complete copies of the audited balance sheets of the Bank as of December 31,
1996 and 1995 and the related statements of income, shareholders' equity and
cash flows for the years ended December 31, 1996, 1995 and 1994 and its
unaudited interim financial statements as of April 30, 1997 (such balance sheets
and the related statements of income, shareholders' equity and cash flows are
collectively referred to herein as the "Bank Financial Statements"). The Bank
Financial Statements (including the related notes thereto) fairly present in all
material respects the financial position of the Bank as of their respective
dates and the results of operations and cash flows of the Bank for the periods
indicated and were prepared in accordance with Generally Accepted Accounting
Principles ("GAAP") applied on a basis consistent with prior periods (subject,
in the case of the unaudited interim financial statements, to normal year-end
adjustments and the fact that they do not contain all of the footnote
disclosures required by GAAP), except as otherwise noted therein or in the notes
to the financial statements. The accounting records underlying the Bank
Financial Statements fairly reflect in all material respects the transactions of
the Bank. As of their dates, the Bank Financial Statements conformed, or will
conform when delivered, in all material respects with all applicable rules and
regulations promulgated by the OCC and the FDIC. The Bank does not have material
liabilities or obligations of a type which should be included in or reflected on
the Bank Financial Statements or in the notes thereto if prepared in accordance
with GAAP, whether related to tax or non-tax matters, accrued or contingent, due
or not yet due, liquidated or unliquidated, or otherwise, except as and to the
extent disclosed or reflected in the Bank Financial Statements for the periods
indicated. Except as set forth in Section 3.9 of the Bank Disclosure Letter, the
Bank does not have any financial derivative products.
SECTION 3.10 Absence of Certain Changes. Except as and to the extent
set forth in Section 3.10 of the Bank Disclosure Letter, and except to the
extent permitted by Gulf West in accordance with Section 5.2 of this Agreement,
since December 31, 1996 (the "Balance Sheet Date") the Bank has not:
(a) made any amendment to its Articles of Incorporation or Bylaws or
changed the character of its business in any material manner other than as may
be caused by the filing of the Articles of Merger;
(b) through the date of this Agreement, suffered any Material Adverse
Effect (as defined in Section 10.15(d));
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(c) except in the ordinary course of business and consistent with
prudent banking practices, entered into any agreement, commitment or
transaction;
(d) except in the ordinary course of business and consistent with
prudent banking practices, incurred, assumed or become subject to, whether
directly or by way of any guarantee or otherwise, any obligations or liabilities
(absolute, accrued, contingent or otherwise);
(e) except in the ordinary course of business and consistent with
prudent banking practices, permitted or allowed any of its property or assets to
be subject to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind (other than statutory liens not yet
delinquent);
(f) except in the ordinary course of business and consistent with
prudent banking practices, canceled any debts, waived any claims or rights, or
sold, transferred, or otherwise disposed of any of its properties or assets;
(g) disposed of or permitted to lapse any rights to the use of any
material registered trademark, service mark, trade name or copyright, or
disposed of or disclosed to any person other than its employees or agents, any
material trade secret not theretofore a matter of public knowledge;
(h) except as set forth in Section 3.10 of the Bank Disclosure Letter
and except for regular salary increases granted in the ordinary course of
business within the Bank's 1997 budget approved by the Bank's Board of Directors
in March 1997 and consistent with prior practices, or required by applicable
law, granted any increase in compensation or paid or agreed to pay or accrue any
bonus, percentage compensation, service award, severance payment or like benefit
to or for the credit of any director, officer, employee or agent, or entered
into any employment, consulting or severance agreement or other agreement with
any director, officer or employee or adopted, amended or terminated any pension,
employee welfare, retirement, stock purchase, stock option, stock appreciation
rights, termination, severance, income protection, golden parachute, savings or
profit-sharing plan (including trust agreements and insurance contracts
embodying such plans), any deferred compensation, or collective bargaining
agreement, any group insurance contract or any other incentive, welfare or
employee benefit plan program or agreement maintained by the Bank, for the
directors, employees or former employees of the Bank ("Employee Benefit Plan")
other than any such change required by law or that, in the opinion of counsel,
is necessary to maintain the tax-qualified status of such plan;
(i) directly or indirectly declared, set aside or paid any dividend or
made any distribution or payment in respect of shares of its capital stock or
redeemed, purchased or otherwise acquired, or
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arranged for the redemption, purchase or acquisition of, any shares of its
capital stock or other of its securities;
(j) organized or acquired any capital stock or other equity securities
or acquired any equity or ownership interest in any person (except through
settlement of indebtedness, foreclosure, the exercise of creditors' remedies or
in a fiduciary capacity, the ownership of which does not expose the Bank to any
liability from the business, operations or liabilities of such person);
(k) issued, reserved for issuance, granted, sold or authorized the
issuance of any shares of its capital stock or Rights of any kind relating to
the issuance or sale of or conversion into shares of its capital stock;
(l) except as required by GAAP, applicable law or regulation made any
or acquiesced with any change in any accounting methods, principles or practices
used in preparing the Bank Financial Statements or in keeping the Bank's books;
(m) experienced any Material Adverse Change in relations with customers
and clients of the Bank other than as caused by the pending Merger;
(n) except for the transactions contemplated by this Agreement or as
otherwise permitted hereunder, entered into any transaction, or entered into,
modified or amended any contract or commitment, other than in the ordinary
course of business and consistent with prudent banking practices; or
(o) agreed, whether in writing or otherwise, to take any action the
performance of which would adversely change the representations contained in
this Section 3.10 so that any such representation would not be true in all
material respects as of the Closing.
SECTION 3.11 Bank Indebtedness. The Bank has delivered to Gulf West
true and complete copies of all loan documents ("Bank Loan Documents") related
to indebtedness of the Bank, other than leases described in Section 3.16,
deposits, purchases of federal funds, fully secured repurchase agreements,
Federal Home Loan Bank Board advances, banker's acceptances, letters of credit
issued in the ordinary course of business, and trade payables less than 30 days
past due ("Bank Indebtedness"), and made available to Gulf West all material
correspondence concerning the status of Bank Indebtedness.
SECTION 3.12 Litigation. Except as set forth in Section 3.12 of the
Bank Disclosure Letter, there are no actions, suits, claims, investigations,
reviews or other proceedings pending or, to the Knowledge of the Bank,
threatened against the Bank or involving any of its properties or assets, at law
or in equity or before or by any foreign, federal, state, municipal, or other
governmental court,
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department, commission, board, bureau, agency, or other instrumentality or
person or any board of arbitration or similar entity ("Proceeding"). The Bank
will notify Gulf West immediately in writing of any Proceedings against the Bank
of which it receives notice.
SECTION 3.13 Tax Matters. The Bank has filed all tax returns required
to be filed by it (the "Filed Returns") or requests for extensions have been
filed and granted and have not expired and, except as set forth in Section 3.13
of the Bank Disclosure Letter, the Bank has paid or discharged, or has
established adequate reserves for the payment of, all federal income taxes and
all state and local income taxes and all franchise, property, sales, employment,
foreign or other taxes required to be paid with respect to the periods covered
by the Filed Returns. With respect to the periods for which returns have not yet
been filed or where taxes are being contested in good faith, except as set forth
in Section 3.13 of the Bank Disclosure Letter, the Bank has established adequate
reserves determined in accordance with GAAP for the payment of all federal,
state and local income taxes and all franchise, property, sales, employment,
foreign or other taxes. Except as described in Section 3.13 of the Bank
Disclosure Letter, the Bank has no direct or indirect liability for the payment
of federal, state or local income taxes, or franchise, property, sales,
employment or other taxes in excess of amounts paid or reserves established. The
Bank has not filed any Internal Revenue Service ("IRS") Forms 1139 (Application
for Tentative Refund). Except as set forth in Section 3.13 of the Bank
Disclosure Letter, there are no pending questions raised in writing by the IRS
or other taxing authority for taxes or assessments of the Bank, nor are there
any outstanding agreements or waivers extending the statutory period of
limitation applicable to any tax return of the Bank for any period. Except as
set forth in Section 3.13 of the Bank Disclosure Letter, the Bank has withheld
from employee wages and paid over to the proper governmental authorities all
amounts required to be so withheld and paid over. For the purposes of this
Agreement, the term "tax" shall include all federal, state and local taxes and
related governmental charges and any interest or penalties payable in connection
with the payment of taxes.
SECTION 3.14 Employee Benefit Plans.
(a) The Bank has delivered or made available prior to the execution of
this Agreement true and complete copies (or, in the case of unwritten bonus or
other unwritten incentive plans, summaries thereof and financial data with
respect thereto) of all material pension, retirement, profit-sharing, deferred
compensation, stock option, employee stock ownership, severance pay, vacation,
bonus or other material incentive plans, all other material employee programs,
arrangements or agreements, whether arrived at through collective bargaining or
otherwise, all material medical, vision, dental or other health plans, all life
insurance plans and all other
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employee benefit plans or fringe benefit plans, including, without limitation,
all "employee benefit plans" as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), currently
adopted by, maintained by, sponsored in whole or in part by, or contributed to
by the Bank or any affiliate thereof for the benefit of any employee or under
which any employee is eligible to participate and under which the Bank could
have any liability contingent or otherwise (collectively, the "Bank Benefit
Plans"). Any of the Bank Benefit Plans which is an "employee pension benefit
plan," as that term is defined in Section 3(2) of ERISA, is referred to herein
as a "Bank ERISA Plan." Any of the Bank Benefit Plans pursuant to which the Bank
is or may become obligated to, or obligated to cause any other person to, issue,
deliver or sell shares of capital stock of the Bank, or grant, extent or enter
into any option, warrant, call, right, commitment or agreement to issue, deliver
or sell shares, or any other interest in respect of capital stock of the Bank,
is referred to herein as a "Bank Stock Plan." No Bank Benefit Plan is or has
been a multiemployer plan within the meaning of Section 3(37) of ERISA. The Bank
has set forth in Section 3.14 of the Bank Disclosure Letter (i) a list of all of
the Bank Benefit Plans, (ii) a list of Bank Benefit Plans that are Bank ERISA
Plans, (iii) a list of Bank Benefit Plans that are Bank Stock Plans and (iv) a
list of the number of shares covered by, exercise prices for, and holders of,
all stock options granted and available for grant under the Bank Stock Plans.
(b) All Bank Benefit Plans are in substantial compliance with the
applicable terms of ERISA and the Internal Revenue Code of 1986, as amended (the
"Code") and any other applicable laws, rules and regulations.
(c) All liabilities under any Bank Benefit Plan are fully accrued or
reserved against in the Bank Financial Statements in accordance with GAAP. No
Bank ERISA Plan which is a defined benefit pension plan has any "unfunded
current liability," as that term is defined in Section 302(d)(8)(A) of ERISA,
and the present fair market value of the assets of any such plan exceeds the
plan's "benefit liabilities," as that term is defined in Section 4001(a)(16) of
ERISA, when determined under actuarial factors that would apply if the plan
terminated in accordance with all applicable legal requirements.
(d) The Bank does not have any obligations for retiree health and life
benefits under any Bank Benefit Plan or otherwise, except as set forth in
Section 3.14 of the Bank Disclosure Letter. There are no restrictions on the
rights of the Bank to amend or terminate any such Bank Benefit Plan without
incurring any material liability thereunder.
(e) Except as set forth in the Bank Disclosure Letter, neither the
execution and delivery of this Agreement nor the consummation of
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the transactions contemplated hereby or thereby will (i) result in any payment
(including, without limitation, severance, golden parachute or otherwise)
becoming due to any employees under any Bank Benefit Plan or (ii) result in any
acceleration of the time of payment or vesting of any such benefits.
SECTION 3.15 Labor Matters. Except as disclosed in the Bank Disclosure
Letter in Section 3.14 (a), (d) or (e) or 3.15 thereof, (i) the Bank is not a
Party to any oral or written contracts or agreements granting benefits or rights
to employees or any collective bargaining agreement or to any conciliation
agreement with the Department of Labor, the Equal Employment Opportunity
Commission or any federal, state or local agency which requires equal employment
opportunities or affirmative action in employment, (ii) there are no unfair
labor practice complaints pending against the Bank before the National Labor
Relations Board or any similar claims pending before any similar state, local or
foreign agency; and (iii) to the Knowledge of the Bank, there is no activity or
proceeding of any labor organization (or representative thereof) or employee
group to organize any employees of the Bank, nor of any strikes, slowdowns, work
stoppages, lockouts, or threats thereof, by or with respect to any such
employees. To the Knowledge of the Bank, the Bank is in compliance in all
material respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and the Bank
is not engaged in any unfair labor practice.
SECTION 3.16 Leases, Contracts and Agreements. Except as set forth in
Section 3.16 of the Bank Disclosure Letter and except for Bank Indebtedness,
there are no leases, subleases, licenses, contracts and agreements (other than
Excepted Contracts as defined below) to which the Bank is a party or by which
the Bank is bound which obligate or may obligate the Bank in the aggregate for
an amount in excess of $25,000 over the entire term of any such agreement or any
series of related contracts of a similar nature to one or more related parties
which in the aggregate obligate or may obligate the Bank in the aggregate for an
amount in excess of $25,000 over the entire term of such related contracts (the
"Contracts"). The Bank has made available to Gulf West true and correct copies
of all such Contracts. For the purposes of this Agreement, the Contracts shall
be deemed not to include loans made by, repurchase agreements made by, spot
foreign exchange transactions of, bankers acceptances of, agreements with Bank
customers for trust services, trade payables due within 30 days made in the
ordinary course of business, or deposits by the Bank (collectively the "Excepted
Contracts"). The Bank has provided Gulf West with a list of all unfunded loan
commitments in excess of $25,000 and letters of credit issued by the Bank in
excess of $25,000 as of the end of the most recent preceding month. Except as
set forth in Section 3.16 of the Bank Disclosure Letter, no participations or
loans have been sold which have buy back, recourse or guaranty provisions which
create contingent or direct liabilities
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of the Bank. Except as disclosed in Section 3.16 of the Bank Disclosure Letter,
all of the Contracts are legal, valid and binding obligations of the Bank, and
to the Knowledge of the Bank, the other party to the Contracts, to the Knowledge
of the Bank, each such Contract is in full force and effect and is enforceable
by the Bank in accordance with its terms, except in all cases to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium, or other similar laws, now or
hereafter in effect, affecting creditors' rights generally, and the general
principles governing specific performance, injunctive relief, and other
equitable remedies. Except as described in Section 3.16 of the Bank Disclosure
Letter, all rent and other payments by the Bank under the Contracts are current,
there are no existing defaults by the Bank under the Contracts, and to the
Knowledge of the Bank, no termination, condition or other event has occurred
which (whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute a default.
SECTION 3.17 Related Bank Transactions. Except as set forth in Section
3.17 of the Bank Disclosure Letter, there are no agreements, instruments,
commitments, extensions of credit, or other contractual agreements of any kind
between or among the Bank, whether on its own behalf or in its capacity as
trustee or custodian for the funds of any employee benefit plan (as defined in
ERISA), and any of its Affiliates (as defined in Section 10.15(a)).
SECTION 3.18 Compliance with Laws. Except as set forth in Section 3.18
of the Bank Disclosure Letter, the Bank is not in default with respect to or in
violation of (i) any judgment, order, writ, injunction or decree of any court or
(ii) to the Bank's Knowledge, any statute, law, ordinance, rule, order or
regulation of any federal, state or local governmental department, commission,
board, bureau, agency or instrumentality. The Bank has all material permits,
licenses, and franchises from governmental agencies required to conduct its
business as it is now being conducted.
SECTION 3.19 Insurance. The Bank has in effect the insurance coverage
(including fidelity bonds) described in Section 3.19 of the Bank Disclosure
Letter and has had similar insurance in force for the last 3 years. Except as
identified in Section 3.19 of the Bank Disclosure Letter, there have been no
claims under such policies of insurance within the last 3 years and the Bank is
not aware of any facts which would form the basis of a claim under such policies
of insurance. The Bank has no reason to believe that the existing fidelity
coverage will not be renewed by its carrier on substantially the same terms.
SECTION 3.20 Loans. Each loan reflected as an asset in the Bank
Financial Statements as of December 31, 1996, and each loan entered into by the
Bank subsequent thereto, (i) is evidenced in all material respects by notes,
agreements or other evidences of
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indebtedness which are true, genuine and what they purport to be, and (ii) is
the legal, valid and binding obligation of the obligor named therein,
enforceable by the Bank in accordance with its terms, except in all cases to the
extent that enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium, or similar laws, now or
hereafter in effect, affecting creditors' rights generally, and the general
principles governing specific performance, injunctive relief, and other
equitable remedies. Except as disclosed in Section 3.20 of the Bank Disclosure
Letter, the Bank is not a Party to any loan, including any loan guaranty, with
any director, executive officer or 5% shareholder of the Bank or any person,
corporation or enterprise controlling, controlled by or under common control
with any of the foregoing. Except as disclosed in Section 3.20 of the Bank
Disclosure Letter, the Bank does not have (i) any loan in its portfolio
exceeding the Bank's legal lending limit, and (ii) any known significant
delinquent (30 days past due), substandard, doubtful, loss, nonperforming or
problem loans as classified by the OCC or the Bank pursuant to its written
policies.
SECTION 3.21 Fiduciary Responsibilities. The Bank has performed in all
material respects all of its duties as a trustee, custodian, guardian or as an
escrow agent in a manner which complies in all respects with all applicable
laws, regulations, orders, agreements, instruments and common law standards.
SECTION 3.22 Patents, Trademarks and Copyrights. Except as set forth in
Section 3.22 of the Bank Disclosure Letter, the Bank does not require the use of
any material patent, patent application, invention, process, trademark (whether
registered or unregistered), trademark application, trade name, service mark,
copyright, or any material trade secret for the business or operations of the
Bank. The Bank owns or is licensed or otherwise has the right to use any items
listed in Section 3.22 of the Bank Disclosure Letter and the Bank is not
infringing on the patent, trademark or copyright of any other person.
SECTION 3.23 Environmental Compliance. Except as set forth in Section
3.23 of the Bank Disclosure Letter:
(a) To the Knowledge of the Bank, any property owned or operated by it
is in compliance in all material respects with all applicable Environmental Laws
(as defined in Section 10.15(b)) and has obtained and is in compliance with all
permits, licenses and other authorizations (individually a "Permit," and
collectively "Permits") required under any Environmental Law. To the Knowledge
of the Bank, there is no past or present event, condition or circumstance that
could reasonably be expected to (1) interfere with the conduct of the business
of the Bank in the manner now conducted relating to such entity's compliance
with Environmental Laws, or (2) constitute a material violation of any
Environmental Law, which in
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either event is reasonably likely to have a Material Adverse Effect upon the
Bank;
(b) To the Knowledge of the Bank, the Bank does not currently lease,
operate, own, or exercise managerial functions at, nor has it formerly leased,
operated, owned, or exercised managerial functions at, any facility or real
property that, to its Knowledge, is the subject of any actual, or, to the
Knowledge of the Bank, threatened or potential Proceeding under any
Environmental Law;
(c) To the Knowledge of the Bank, the Bank has not received notice of
any Proceeding pending or, threatened against the Bank under any Environmental
Law or relating to the release, threatened release, management, treatment,
storage, or disposal of, or exposure to Polluting Substances (as defined in
Section 10.15(e)) seeking to impose, or that could result in the imposition on
the Bank of any material liability under any Environmental Laws, and the Bank
has not received any notice (whether from any regulatory body or private person)
of any claim under or violation of, or potential or threatened violation of, any
Environmental Law;
(d) To the Knowledge of the Bank, the Bank has not received notice of
any action or Proceeding pending or, threatened under any Environmental Law
involving the release or threat of release of any Polluting Substances at or on
any property where Polluting Substances generated by the Bank have been
disposed, treated or stored seeking to impose, or that could result in the
imposition on the Bank of any material liability under any Environmental Laws;
(e) The Bank has not generated any Polluting Substances for which it
was required under an Environmental Law to execute any waste disposal manifest
or receipt;
(f) To the Knowledge of the Bank, there has been no release of
Polluting Substances in or on any Property (as defined below) in violation of
any Environmental Laws or which would require remediation or any report or
notification (other than routine, non-incident specific, annual reporting under
applicable Environmental Laws) to any governmental or regulatory authority;
(g) To the Knowledge of the Bank, there are no underground or above
ground storage tanks on or under any Property which are not in compliance with
Environmental Laws and any Property previously containing such tanks has been
remediated in compliance with all Environmental Laws;
(h) To the Knowledge of the Bank, there is no asbestos containing
material on any Current Controlled Property (as defined below) or any Collateral
Property (as defined below); and
(i) The Bank has fully complied in all material respects with the
guidelines issued by the FDIC on February 25, 1993, and the
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rules and regulations of any other governmental authority with jurisdiction over
the Bank, that direct banks to implement programs to reduce the potential for
banks to incur liability under, or to assess the compliance of borrowers or
Collateral Property with, Environmental Laws.
(j) For purposes of this Section 3.23 and Section 6.9, "Property"
includes (1) any real property which the Bank currently or in the past has
leased, operated or owned or managed in any manner including without limitation
any property acquired by foreclosure or deed in lieu thereof (respectively,
"Current Controlled Property" and "Former Controlled Property," and collectively
"Controlled Property") and (2) property now held as security for a loan or other
indebtedness to the Bank or property currently proposed as security for loans or
other credit the Bank is currently evaluating whether to extend or has committed
to extend a loan ("Collateral Property").
SECTION 3.24 Regulatory Actions. Except as set forth in
Section 3.24 of the Bank Disclosure Letter, there are no actions or proceedings
pending or, to the Knowledge of the Bank, threatened against the Bank by or
before any agency or department of any federal, state or local government or
regulatory authorities, including but limited to the FRB, the FDIC or the OCC
asserting that the Bank is not in compliance with any of the statutes, rules, or
regulations which such agency or authority enforces. Except as set forth in
Section 3.24 of the Bank Disclosure Letter, the Bank is not subject to a formal
or informal agreement, memorandum of understanding, enforcement action with or
in receipt of any type of financial assistance by any regulatory authority
having jurisdiction over such entity. The Bank has not taken or agreed to take
any action which would materially impede or delay receipt of any regulatory
approval required in order to consummate the transactions contemplated hereby.
Except as set forth in Section 3.24 of the Bank Disclosure Letter, the Bank has
not received or been made aware of any complaints or inquiries under the
Community Reinvestment Act, the Fair Housing Act, the Equal Credit Opportunity
Act or any other state or federal anti-discrimination fair lending law and the
Bank is not aware of any such complaint or inquiry.
SECTION 3.25 Title to Properties; Encumbrances. Except as set forth in
Section 3.25 of the Bank Disclosure Letter, the Bank has good and marketable
title to all its material properties and assets, real and personal (including,
without limitation, all the properties and assets reflected in the Bank
Financial Statements, except for those properties and assets disposed of for
fair market value in the ordinary course of business and consistent with prudent
banking practice since the date of the Bank Financial Statements), free and
clear of all mortgages, liens, pledges, charges and other encumbrances other
than those (i) for current property taxes not yet due and payable or being
contested in good faith, (ii) pledges to secure deposits, or (iii) imperfections
of title and encumbrances as
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do not materially interfere with the present use of such property or asset. Any
real property or other material assets of the Bank held under lease are held
under valid leases enforceable in accordance with their terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium, or similar laws, now or
hereafter in effect, affecting creditors' rights generally, and the general
principles governing specific performance, injunctive relief, and other
equitable remedies). Except as set forth in Section 3.25 of the Bank Disclosure
Letter, the Bank has a title policy in full force and effect from a title
insurance company which, to the best of Bank's Knowledge, is solvent, insuring
good and marketable title to all real property owned by the Bank (other than
real property held as "Other Real Estate Owned" acquired through foreclosure) in
favor of the Bank. The Bank has made available to Gulf West all of the files and
information in the possession of the Bank concerning such properties, including
any title exceptions which might affect marketable title or value of
such property. Except as set forth in Section 3.25 of the Bank Disclosure
Letter, the Bank owns all furniture, equipment, art and other property used to
transact business presently located on its premises.
SECTION 3.26 Shareholder List. The Bank has provided to Gulf West prior
to the date of this Agreement a list of the record holders of Shares as of July
31, 1997 containing the names, addresses and number of Shares or such other
securities held of record, which is accurate in all respects as of such date,
and the Bank will promptly, and in any event prior to the mailing of the Proxy
Statement, advise Gulf West of any changes thereto.
SECTION 3.27 Proxy Statement. None of the information supplied or to be
supplied by the Bank, or, to the Knowledge of the Bank, any of their respective
directors, officers, employees, agents or Affiliates thereof for inclusion in
the Registration Statement to be filed by Gulf West, the Proxy Statement, or any
other document to be filed with any regulatory or governmental agency or
authority in connection with the transactions contemplated hereby will, in the
case of the Proxy Statement, when it is first mailed to the shareholders of the
Bank contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which such statements are made, not misleading, or,
in the case of the Registration Statement, when it becomes effective, be false
or misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements therein not misleading, or, in
the case of the Proxy Statement or any amendment thereof or supplement thereto,
at the time of the Shareholders' Meeting of the Bank, including any adjournments
thereof, be false or misleading with respect to any material fact or omit to
state any material fact necessary to correct any statement or remedy any
omission in any earlier communication with respect to the solicitation of any
proxy for the Shareholders' Meeting.
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All documents that the Bank is responsible for filing with any regulatory or
governmental agency in connection with the Merger will comply in all material
respects with the provisions of applicable law.
SECTION 3.28 Dissenting Shareholders. The Bank, and its directors, have
no Knowledge of any plan or intention on the part of any Bank shareholders to
make written demand for payment of the fair value of such Shares in the manner
provided in 12 U.S.C. Section 214(b).
SECTION 3.29 General Representations.
(a) To the Knowledge of the Bank, except as set forth in Section 3.29
of the Bank Disclosure Letter, there have not been any sales or redemptions of
the Bank's capital stock in contemplation of the Merger. Section 3.29 of the
Bank Disclosure Letter sets forth all transactions in the capital stock of the
Bank since December 31, 1996 of which the Bank has Knowledge.
(b) The Bank has not disposed of any assets (either as a dividend or
otherwise) constituting more than 10% of the fair market value of all of its
assets (ignoring any liabilities) at any time either during the past twelve
months or in contemplation of the Merger.
(c) The Bank is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(d) The Bank is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
SECTION 3.30 Accounting Matters. To the knowledge of the Bank, neither
the Bank nor any of its Affiliates has taken or agreed to take any action that
would prevent the Merger from qualifying as reorganization within the meaning of
Section 368(a) of the Code.
SECTION 3.31 Representations Not Misleading. No representation or
warranty by the Bank in this Agreement, nor any information or item required to
be furnished to Gulf West or Mercantile by the Bank under and pursuant to, this
Agreement including but not limited to the Bank Disclosure Letter, intentionally
contains or intentionally will contain any untrue statement of a material fact
or intentionally omits to state a material fact necessary to make the statements
contained herein or therein not misleading. The Bank does not make and hereby
expressly disclaims any representations or warranties to Gulf West or Mercantile
with respect to any projections or budgets heretofore delivered to or made
available to Gulf West or Mercantile regarding the future revenues, expenses, or
expenditures or future results of operations of the Bank.
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SECTION 3.32 Opinion of Investment Bankers. The Bank has received the
written opinion of Alex Sheshunoff & Co. Investment Banking that the Merger
Consideration is fair, from a financial point of view, to the shareholders of
the Bank as of the date of such opinion.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF GULF WEST AND MERCANTILE
Gulf West and Mercantile hereby make the representations and warranties
set forth in this Article IV to the Bank. Gulf West and Mercantile have
delivered to the Bank the disclosure letter as of July 31, 1997 (the "Gulf West
Disclosure Letter") referred to in this Article IV . All of the representations
and warranties of Gulf West and Mercantile set forth hereunder are made as of
the date of this Agreement. Gulf West and Mercantile agree at the Closing to
provide the Bank with a supplement reflecting any changes thereto between the
date of such Gulf West Disclosure Letter and the date of the Closing.
SECTION 4.1 Organization and Qualification. Gulf West and Mercantile
are duly organized and validly existing under the laws of the State of Florida,
and Mercantile is a state chartered banking institution. Gulf West and
Mercantile each have the requisite corporate power and authority to carry on
their respective businesses as they are now being conducted and to own, lease
and operate their respective properties and assets as now owned, leased or
operated. Gulf West and Mercantile do not have any Subsidiaries (as defined in
Section 10.15(g)) except as set forth in Section 4.1 of the Gulf West Disclosure
Letter. True and correct copies of the Articles of Incorporation and Bylaws of
Gulf West and Mercantile, with all amendments thereto through the date of this
Agreement, have been delivered by Gulf West and Mercantile to the Bank. Gulf
West and Mercantile are duly qualified or licensed to do business and are in
active status in the State of Florida. Gulf West and Mercantile and their
activities, as currently conducted, do not require them to be qualified to do
business in any jurisdiction other than the State of Florida.
SECTION 4.2 Gulf West Capitalization. The authorized capital stock of
Gulf West consists of (i) 10,000,000 shares of Gulf West Common Stock par value
$1.00 per share, of which 3,337,081 shares are issued and outstanding, and none
of which are held in treasury and 1,000,000 shares of Preferred Stock, par value
$5.00 per share, none of which has been issued as of the date of this Agreement.
There are no Rights outstanding of any kind issued or granted by, or binding
upon, Gulf West or Mercantile giving any person the right to purchase or
otherwise acquire any security of or equity interest in Gulf West or Mercantile
except that Gulf West's 1995 Nonstatutory Stock Option Plan provides for up to
twelve (12%) percent of Gulf West's total outstanding Common Stock to be issued
pursuant to its
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terms, and options covering 357,001 shares of such reserved common stock have
been granted to employees and directors thereunder and remain unexercised as of
the date of this Agreement. To the Knowledge of Gulf West and Mercantile, there
are no irrevocable proxies or any agreements restricting the transfer of or
otherwise relating to shares of the capital stock of either Gulf West or
Mercantile. All of the issued and outstanding shares of capital stock of each of
Gulf West and Mercantile are, and all of the shares to be issued in exchange for
the Bank Common Stock upon consummation of the Merger will be authorized and
reserved for issuance prior to the Closing Date and, when issued in accordance
with the terms of this Agreement, will be duly authorized, validly issued and
outstanding and fully paid and non-assessable. None of the outstanding shares
has been, and none of the shares to be issued upon consummation of the Merger
will be, issued in violation of any preemptive rights of current or past
shareholders of Gulf West. Gulf West has never declared or paid a cash dividend
on its common shares except for $0.04 cash dividends declared in 1994 and 1995,
which dividends have been paid as of the date of this Agreement. Except as noted
in the Gulf West Disclosure Letter in Section 4.2, Gulf West has never paid a
dividend in stock or other securities on the Gulf West Common Stock.
SECTION 4.3 Gulf West Subsidiaries. A true and complete list of all of
the Subsidiaries of Gulf West are set forth in Section 4.3 of the Gulf West
Disclosure Letter. Except as disclosed in the Gulf West Disclosure Letter, Gulf
West owns all of the issued and outstanding shares of capital stock of each Gulf
West Subsidiary, including Mercantile. Each of Gulf West's Subsidiaries that is
a depository institution are insured by either the Bank Insurance Fund or the
Savings Association Insurance Fund. No capital stock or other equity or voting
securities of any Gulf West Subsidiary are or may become required to be issued
by reason of any options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of any Gulf
West Subsidiary, and there are no contracts, commitments, understandings or
arrangements by which any Gulf West Subsidiary is bound to issue additional
shares of its capital stock or options, warrants, or rights to purchase or
acquire any additional shares of its capital stock. All of the shares of capital
stock of each Gulf West Subsidiary held by Gulf West are fully paid and
nonassessable (except, in the case of Subsidiaries that are national banks, for
the assessment contemplated by 12 U.S.C. Section 55) and are owned by Gulf West
free and clear of any lien, claim, hypothecation, pledge, charge, security
interest, or arrangement, contingencies, or encumbrances of any kind
whatsoever. Each Gulf West Subsidiary (i) is either a banking association or a
corporation, and is duly organized, validly existing and (as to corporations)
in good standing under the laws of the jurisdiction in which it is incorporated
or organized, (ii) is duly qualified or licensed to do business and in good
standing in all jurisdictions (whether federal,
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state, local) where the character of its properties and assets owned, operated,
or leased by it, or the nature of its activities make such qualification or
license necessary, except for such jurisdictions where the failure to be so
qualified is not reasonably likely to have a Material Adverse Effect on Gulf
West, and (iii) has the requisite corporate power and authority to own, lease,
and operate its properties and assets and to carry on its business as now
conducted.
SECTION 4.4 Authority Relative to the Agreement. Each of Gulf West and
Mercantile has the requisite corporate power and authority to execute and
deliver this Agreement and, subject to the receipt of all necessary governmental
and regulatory approvals and consents to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement has been duly
and validly authorized by all necessary corporate action required to be taken by
Gulf West and Mercantile in respect thereof, including approval thereof by their
respective Boards of Directors. This Agreement has been duly executed and
delivered by Gulf West and Mercantile and, subject to receipt of all necessary
governmental and regulatory approvals and consents and the expiration of any
statutorily required waiting periods (and assuming the due authorization,
execution, and delivery by the Bank of this Agreement and that this Agreement
constitutes the valid and binding obligation of the Bank) constitutes a valid
and legally binding obligation of Gulf West and Mercantile, enforceable against
Gulf West and Mercantile (except in all cases to the extent that enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium, or other similar laws, now or hereafter in effect,
affecting creditors' rights generally, and the general principles governing
specific performance, injunctive relief, and other equitable remedies). The
execution, delivery and performance of this Agreement by Gulf West and
Mercantile, and the consummation of the transactions contemplated hereby, will
not conflict with, or result in any violation or breach of or default under the
respective Articles of Incorporation or Bylaws of Gulf West and Mercantile or
any agreement, document or instrument by which either Gulf West or Mercantile is
obligated or bound. Neither Gulf West nor Mercantile is currently in violation
of its respective Articles of Incorporation or Bylaws.
SECTION 4.5 No Violation. Except as set forth in Section 4.5 of the
Gulf West Disclosure Letter, neither the execution, delivery nor performance of
this Agreement in its entirety, nor the consummation of the Merger, following
the receipt of such approvals as may be required from the FDIC, FRB, OCC, SEC,
DOJ and the Department and the expiration of any statutorily required waiting
periods (the "Required Governmental Approvals") will (i) violate (with or
without the giving of notice or the passage of time), any law, order, writ,
judgment, injunction, award, decree, rule, statute, ordinance or regulation
applicable to Gulf West or Mercantile other than those which do not, or are not
reasonably
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likely to have a Material Adverse Effect on Gulf West and Mercantile on a
consolidated basis or prevent the consummation of the Merger, or (ii) be in
material conflict with, result in a material breach or termination of any
provision of, cause the acceleration of the maturity of any debt or obligation
pursuant to, constitute a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of any security
interest, lien, charge or other encumbrance upon any property or assets of Gulf
West or Mercantile pursuant to, any terms, conditions or provisions of any note,
license, instrument, indenture, mortgage, deed of trust or other agreement or
understanding or any other restriction of any kind or character, to which Gulf
West or Mercantile is a party or by which any of its assets or properties are
subject or bound, other than those which do not and are not reasonably likely to
have a Material Adverse Effect on Gulf West and Mercantile on a consolidated
basis.
SECTION 4.6 Consents and Approvals. Except for the Required
Governmental Approvals and as described in Section 4.6 of the Gulf West
Disclosure Letter, no prior consent, approval or authorization of, or
declaration, filing or registration with any person, domestic or foreign, is
required of Gulf West or Mercantile in connection with the execution, delivery
and performance by Gulf West and Mercantile of this Agreement and the
transactions contemplated hereby other than (i) the filing of the Articles of
Merger under the FFIC, (ii) the Required Governmental Approvals, and (iii)
notices to or filings with the IRS or the Pension Benefit Guaranty Corporation
with respect to any employee benefit plans.
SECTION 4.7 Regulatory Reports. Since January 1996, except as set forth
in Section 4.7 of the Gulf West Disclosure Letter, Gulf West and Mercantile each
have filed all reports, registrations and statements, together with any
amendments required to be made thereto, that are required to be filed with the
Department, the FRB, or the FDIC or other state banking authorities.
SECTION 4.8 Securities Issuances. As of the date of this Agreement,
Gulf West is not required to register any of its securities under, and has not
registered its securities under, the provisions of Section 12 of the Exchange
Act, nor are either of them required to file any reports under Section 13 of the
Exchange Act in accordance with Section 15(d) of the Exchange Act. All issuances
of securities by Gulf West and Mercantile prior to the date of this Agreement
either were exempt from registration under the Securities Act and the Florida
Securities Investor Protection Act, and all other applicable securities laws or
were duly registered.
SECTION 4.9 Financial Statements. Gulf West and Mercantile have
provided the Bank true and complete copies of the consolidated audited balance
sheets of Gulf West and its Subsidiaries as of December 31, 1996 and 1995 and
the related consolidated statements of income, shareholders' equity and cash
flows for the years ended
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December 31, 1996, 1995 and 1994 and its unaudited interim consolidated
financial statements as of April 30, 1997 (such balance sheets and the related
statements of income, shareholders' equity and cash flows are collectively
referred to herein as the "Gulf West Financial Statements"). The Gulf West
Financial Statements fairly present in all material respects the financial
position of Gulf West and its Subsidiaries on a consolidated basis as of their
respective dates and the consolidated results of operations and cash flows of
Gulf West and its Subsidiaries for the periods indicated and were prepared in
accordance with GAAP applied on a basis consistent with prior periods (subject,
in the case of the unaudited interim financial statements, to normal year-end
adjustments and the fact that they do not contain all of the footnote
disclosures required by GAAP), except as otherwise noted therein or in the notes
to the financial statements. The accounting records underlying the Gulf West
Financial Statements fairly reflect in all material respects the transactions of
Gulf West and its Subsidiaries. As of their dates, the Gulf West Financial
Statements conformed, and when issued, will conform, in all material respects
with all applicable rules and regulations promulgated by the Department and the
FDIC. Neither Gulf West nor any of its Subsidiaries have material liabilities or
obligations of a type which should be included in or reflected on the Gulf West
Financial Statements or in the Notes thereto if prepared in accordance with
GAAP, whether related to tax or non-tax matters, accrued or contingent, due or
not yet due, liquidated or unliquidated, or otherwise, except as and to the
extent disclosed or reflected in Gulf West Financial Statements for the periods
indicated. Except as set forth in Section 4.9 of the Gulf West Disclosure
Letter, Gulf West and its Subsidiaries do not have any off balance sheet
liabilities associated with financial derivative products or potential
liabilities associated with financial derivative products.
SECTION 4.10 Absence of Certain Changes. Except as and to the extent
set forth in Section 4.10 of the Gulf West Disclosure Letter, since December 31,
1996 neither Gulf West nor Mercantile have:
(a) made any amendment to their respective Articles of Incorporation or
Bylaws or changed the character of their business in any material manner other
than as may be caused by the filing of the Articles of Merger;
(b) through the date of this Agreement suffered any Material Adverse
Effect (as defined in Section 10.15(d));
(c) directly or indirectly declared, set aside or paid any dividend or
made any distribution in respect to their capital stock or redeemed, purchased
or otherwise acquired, or arranged for the redemption, purchase or acquisition
of, or issued or authorized for issuance any shares of their capital stock or
other of their securities except for the issuance of securities pursuant to the
exercise of stock options granted as of the date of this agreement
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and the issuance of shares pursuant to Gulf West's Employee Stock purchase Plan;
(d) except as required by GAAP, applicable law or regulation, made any
or acquiesced with any change in any accounting methods, principles or practices
used in preparing the Gulf West Financial Statements or in keeping Gulf West's
books;
(e) agreed, whether in writing or otherwise, to take any action the
performance of which would adversely change the representations contained in
this Section 4.10 in the future so that any such representation would not be
true in all material respects as of the Closing.
SECTION 4.11 Gulf West Indebtedness. Gulf West has delivered to the
Bank true and complete copies of all loan documents ("Gulf West Loan Documents")
related to indebtedness of Gulf West and its Subsidiaries, other than leases
described in Section 4.16, deposits, purchases of federal funds, fully secured
repurchase agreements, bankers' acceptances, letters of credit issued in the
ordinary course of business, and trade payables less than 30 days past due
("Gulf West Indebtedness"), and made available to the Bank all material
correspondence concerning the status of Gulf West Indebtedness.
SECTION 4.12 Litigation. Except as set forth in Section 4.12 of the
Gulf West Disclosure Letter, there are no Proceedings pending or, to the
Knowledge of Gulf West and Mercantile, threatened against Gulf West or any of
its Subsidiaries or involving any of their respective properties or assets, at
law or in equity or before or by any foreign, federal, state, municipal, or
other governmental court, department, commission, board, bureau, agency, or
other instrumentality or person or any board of arbitration or similar entity.
Gulf West will notify the Bank immediately in writing of any Proceedings against
Gulf West or any of its Subsidiaries.
SECTION 4.13 Tax Matters. Gulf West has filed all tax returns required
to be filed by it (the "Gulf West Filed Returns") or requests for extensions
have been filed and granted and have not expired and, except as set forth in
Section 4.13 of the Gulf West Disclosure Letter, Gulf West and its Subsidiaries
each have paid or discharged, or have established adequate reserves for the
payment of, all federal income taxes and all state and local income taxes and
all franchise, property, sales, employment, foreign or other taxes required to
be paid with respect to the periods covered by the Gulf West Filed Returns. With
respect to the periods for which returns have not yet been filed or where taxes
are being contested in good faith, except as set forth in Section 4.13 of the
Gulf West Disclosure Letter, Gulf West and its Subsidiaries have established
adequate reserves determined in accordance with GAAP for the payment of all
federal, state and local income taxes and all franchise, property, sales,
employment, foreign or other taxes. Except as
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described in Section 4.13 of the Gulf West Disclosure Letter, neither Gulf West
nor any of its Subsidiaries have any direct or indirect material liability for
the payment of federal, state or local income taxes, or franchise, property,
sales, employment or other taxes in excess of amounts paid or reserves
established. Gulf West and its Subsidiaries have not filed any IRS Forms 1139
(Application for Tentative Refund). Except as set forth in Section 4.13 of the
Gulf West Disclosure Letter, there are no pending questions raised in writing by
the IRS or other taxing authority for taxes or assessments of Gulf West and its
Subsidiaries, nor are there any outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return of Gulf West and its
Subsidiaries for any period. Except as set forth in Section 4.13 of the Gulf
West Disclosure Letter, Gulf West and its Subsidiaries have withheld from
employee wages and paid over to the proper governmental authorities all amounts
required to be so withheld and paid over.
SECTION 4.14 Employee Benefit Plans.
(a) Gulf West has delivered or made available prior to the execution of
this Agreement true and complete copies (or, in the case of unwritten bonus or
other unwritten incentive plans, summaries thereof and financial data with
respect thereto) of all material pension, retirement, profit-sharing, deferred
compensation, stock option, employee stock ownership, severance pay, vacation,
bonus or other material incentive plans, all other material employee programs,
arrangements or agreements, whether arrived at through collective bargaining or
otherwise, all material medical, vision, dental or other health plans, all life
insurance plans and all other employee benefit plans or fringe benefit plans,
including, without limitation, all "employee benefit plans" as that term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), currently adopted by, maintained by, sponsored in whole or
in part by, or contributed to by Gulf West or any affiliate thereof for the
benefit of any employee or under which any employee is eligible to participate
and under which Gulf West could have any liability contingent or otherwise
(collectively, the "Gulf West Benefit Plans"). Any of the Gulf West Benefit
Plans which is an "employee pension benefit plan," as that term is defined in
Section 3(2) of ERISA, is referred to herein as a "Gulf West ERISA Plan." Any of
the Gulf West Benefit Plans pursuant to which Gulf West is or may become
obligated to, or obligated to cause any other person to, issue, deliver or sell
shares of capital stock of Gulf West, or grant, extent or enter into any option,
warrant, call, right, commitment or agreement to issue, deliver or sell shares,
or any other interest in respect of capital stock of Gulf West, is referred to
herein as a "Gulf West Stock Plan." No Gulf West Benefit Plan is or has been a
multiemployer plan within the meaning of Section 3(37) of ERISA. Gulf West has
set forth in Section 4.14 of the Gulf West Disclosure Letter (i) a list of all
of the Gulf West Benefit Plans, (ii) a list of Gulf West Benefit Plans that are
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Gulf West ERISA Plans, (iii) a list of Gulf West Benefit Plans that are Gulf
West Stock Plans and (iv) a list of the number of shares covered by, exercise
prices for, and holders of, all stock options granted and available for grant
under the Gulf West Stock Plans.
(b) All Gulf West Benefit Plans are in substantial compliance with the
applicable terms of ERISA and the Code and any other applicable laws, rules and
regulations.
(c) All liabilities under any Gulf West Benefit Plan are fully accrued
or reserved against in the Gulf West Financial Statements in accordance with
GAAP. No Gulf West ERISA Plan which is a defined benefit pension plan has any
"unfunded current liability," as that term is defined in Section 302(d))8)(A) of
ERISA, and the present fair market value of the assets of any such plan exceeds
the plan's "benefit liabilities," as that term is defined in Section 4001(a)(16)
of ERISA, when determined under actuarial factors that would apply if the plan
terminated in accordance with all applicable legal requirements.
(d) Gulf West does not have any obligations for retiree health and life
benefits under any Gulf West Benefit Plan or otherwise, except as set forth in
Section 4.14 of the Gulf West Disclosure Letter. There are no restrictions on
the rights of Gulf West to amend or terminate any such Gulf West Benefit Plan
without incurring any material liability thereunder.
(e) Except as set forth in the Gulf West Disclosure Letter, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby or thereby will (i) result in any payment
(including, without limitation, severance, golden parachute or otherwise)
becoming due to any employees under any Gulf West Benefit Plan or (ii) result in
any acceleration of the time of payment or vesting of any such benefits.
SECTION 4.15 Labor Matters. Except as disclosed in Section 4.15 or
4.14(a), (d) or (e) of the Gulf West Disclosure Letter, (i) neither Gulf West
nor any of its Subsidiaries are parties to any oral or written contracts or
agreements granting benefits or rights to employees or any collective bargaining
agreement or to any conciliation agreement with the Department of Labor, the
Equal Employment Opportunity Commission or any federal, state or local agency
which requires equal employment opportunities or affirmative action in
employment, (ii) there are no unfair labor practice complaints pending against
Gulf West and Mercantile before the National Labor Relations Board or any
similar claims pending before any similar state, local or foreign agency; and
(iii) to the Knowledge of Gulf West and its Subsidiaries, there is no activity
or proceeding of any labor organization (or representative thereof) or employee
group to organize any employees of Gulf West and its Subsidiaries, nor of any
strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with
respect to any such
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employees. To the Knowledge of Gulf West, Gulf West and its Subsidiaries are in
compliance in all material respects with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and Gulf West and Mercantile are not engaged in any unfair
labor practice.
SECTION 4.16 Leases, Contracts and Agreements. Except as set forth in
Section 4.16 of the Gulf West Disclosure Letter, there are no leases, subleases,
licenses, contracts and agreements (other than Gulf West Excepted Contracts as
defined below) to which Gulf West or any of its Subsidiaries are parties or by
which Gulf West or any of its Subsidiaries are bound which obligate or may
obligate Gulf West or any of its Subsidiaries in the aggregate for an amount in
excess of $25,000 over the entire term of any such agreement or related
contracts of a similar nature to one or more related parties which in the
aggregate obligate or may obligate Gulf West or any of its Subsidiaries in the
aggregate for an amount in excess of $25,000 over the entire term of such
related contracts (the "Gulf West Contracts"). Gulf West has made available to
the Bank true and correct copies of all such Gulf West Contracts. For the
purposes of this Agreement, the Gulf West Contracts shall be deemed not to
include loans made by, repurchase agreements made by, spot foreign exchange
transactions of, bankers acceptances of trade payables due within 30 days made
in the ordinary course of business or deposits by Gulf West or Mercantile (the
"Gulf West Excepted Contracts"). Except as set forth in Section 4.16 of the Gulf
West Disclosure Letter, no participations or loans have been sold which have buy
back, recourse or guaranty provisions which create contingent or direct
liabilities of Gulf West and Mercantile. Except as disclosed in Section 4.16 of
the Gulf West Disclosure Letter, all of the Gulf West Contracts are legal, valid
and binding obligations of Gulf West and Mercantile, and to the Knowledge of
Gulf West and Mercantile, the other parties to the Gulf West Contracts. To the
Knowledge of Gulf West, each such Contract is in full force and effect and is
enforceable by Gulf West in accordance with its terms, except in all cases to
the extent that enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other similar laws now or hereafter
in effect relating to creditors' rights generally and the general principles
governing specific performance, injunctive relief, and other equitable remedies.
Except as described in Section 4.16 of the Gulf West Disclosure Letter, all rent
and other payments by Gulf West and its Subsidiaries under the Gulf West
Contracts are current, there are no existing defaults by Gulf West and its
Subsidiaries under the Gulf West Contracts, and to the Knowledge of Gulf West,
no termination, condition or other event has occurred which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute a default.
SECTION 4.17 Related Gulf West and Mercantile Transactions. Except as
set forth in Section 4.17 of the Gulf West Disclosure Letter, there are no
agreements, instruments, commitments,
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extensions of credit, or other contractual agreements of any kind between or
among Gulf West or Mercantile, whether on their own behalf or in the capacity as
trustee or custodian for the funds of any employee benefit plan (as defined in
ERISA), and any of their Affiliates (as defined in Section 10.15(a)).
SECTION 4.18 Compliance with Laws. Except as set forth in Section 4.18
of the Gulf West Disclosure Letter, neither Gulf West nor any of its
Subsidiaries are in default with respect to or in violation of (i) any judgment,
order, writ, injunction or decree of any court or (ii) to the Knowledge of Gulf
West any statute, law, ordinance, rule, order or regulation of any federal,
state or local governmental department, commission, board, bureau, agency or
instrumentality. Gulf West and its Subsidiaries have all material permits,
licenses, and franchises from governmental agencies required to conduct their
respective businesses as they are now being conducted.
SECTION 4.19 Insurance. Each of Gulf West and Mercantile have in effect
the insurance coverage (including fidelity bonds) described in Section 4.19 of
the Gulf West Disclosure Letter and have had similar insurance in force for the
lesser of the last 3 years or the time since they were organized. There have
been no claims under such policies of insurance within the last 3 years and
neither Gulf West nor Mercantile is aware of any facts which would form the
basis of a claim under such policies of insurance. Neither Gulf West nor any of
its Subsidiaries has any reason to believe that the existing fidelity coverage
will not be renewed by its carrier on substantially the same terms.
SECTION 4.20 Loans. Each loan reflected as an asset in the Gulf West
Financial Statements as of December 31, 1996, and each loan entered into by
Mercantile subsequent thereto, (i) is evidenced in all material respects by
notes, agreements or other evidences of indebtedness which are true, genuine and
what they purport to be, and (ii) is the legal, valid and binding obligation of
the obligor named therein, enforceable by the Bank in accordance with its terms,
except in all cases to the extent that enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium, or similar laws, now or hereafter in effect, affecting creditors'
rights generally, and the general principles governing specific performance,
injunctive relief, and other equitable remedies. Except as disclosed in Section
4.20 of the Gulf West Disclosure Letter, Gulf West and Mercantile are not
parties to any loan, including any loan guaranty, with any director, executive
officer or 5% shareholder of Gulf West or any person, corporation or enterprise
controlling, controlled by or under common control with any of the foregoing.
Except as disclosed in Section 4.20 of the Gulf West Disclosure Letter,
Mercantile does not have (i) any loan in its portfolio exceeding Mercantile's
legal lending limit, and (ii) any known significant delinquent (30 days past
due), substandard, doubtful, loss, nonperforming or problem loans as
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classified by the Department or the FDIC or by Mercantile pursuant to
Mercantile's written policies.
SECTION 4.21 Patents, Trademarks and Copyrights. Except as set forth in
Section 4.21 of the Gulf West Disclosure Letter, Gulf West and Mercantile do not
require the use of any material patent, patent application, invention, process,
trademark (whether registered or unregistered), trademark application, trade
name, service mark, copyright, or any material trade secret for the business or
operations of either Gulf West or any of its Subsidiaries. Each of Gulf West and
its Subsidiaries own or are licensed or otherwise have the right to use any
items listed in Section 4.21 of the Gulf West Disclosure Letter and neither Gulf
West nor any of its Subsidiaries is infringing on the patent, trademark or
copyright of any other person.
SECTION 4.22 Environmental Compliance. Except as set forth in Section
4.22 of the Gulf West Disclosure Letter:
(a) To the Knowledge of Gulf West each of Gulf West and Mercantile, and
any property owned or operated by either of them are in compliance in all
material respects with all applicable Environmental Laws (as defined in Section
10.15(b)) and has obtained and is in compliance with all material Permits
required under any Environmental Law. To the knowledge of Gulf West, there is no
past or present event, condition or circumstance that could reasonably be
expected to (1) interfere with the conduct of the business of Gulf West and
Mercantile in the manner now conducted relating to such entity's compliance with
Environmental Laws, (2) constitute a violation of any Environmental Law which in
either event is reasonably likely to have a Material Adverse Effect upon Gulf
West and Mercantile;
(b) To the Knowledge of Gulf West, neither Gulf West nor any of its
Subsidiaries currently lease, operate, own, or exercise managerial functions at,
nor has any of them formerly leased, operated, owned, or exercised managerial
functions at, any facility or real property that, to their Knowledge, is the
subject of any actual, threatened or potential Proceeding under any
Environmental Law;
(c) To the knowledge of Gulf West, Gulf West has not received notice of
any Proceeding pending or, threatened against Gulf West and Mercantile under any
Environmental Law or relating to the release, threatened release, management,
treatment, storage, or disposal of, or exposure to Polluting Substances defined
in Section 10,15(a), seeking to impose, or that could result in the imposition
on Gulf West of any material liability under any Environmental Laws, and neither
Gulf West nor any of its Subsidiaries has received any notice (whether from any
regulatory body or private person) of any claim under or violation of, or
potential or threatened violation of, any Environmental Law;
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(d) To the Knowledge of Gulf West, Gulf West has not received notice of
any action or Proceeding pending or, threatened under any Environmental Law
involving the release or threat of release of any Polluting Substances at or on
any property where Polluting Substances generated by Gulf West and Mercantile
have been disposed, treated or stored seeking to impose, or that could result in
the imposition on Gulf West and Mercantile of any material liability under any
Environmental Laws;
(e) Neither Gulf West nor any of its Subsidiaries has generated any
Polluting Substances for which any of them was required under an Environmental
Law to execute any waste disposal manifest or receipt;
(f) To the Knowledge of Gulf West and Mercantile, there has been no
release of Polluting Substances in or on any Gulf West Property (as defined
below) in violation of any Environmental Laws or which would require remediation
or any report or notification (other than routine, non-incident specific, annual
reporting under applicable Environmental Laws) to any governmental or regulatory
authority;
(g) To the Knowledge of Gulf West and Mercantile, there are no
underground or above ground storage tanks on or under any Gulf West Property
which are not in compliance with Environmental Laws and any Gulf West Property
previously containing such tanks has been in compliance with all Environmental
Laws;
(h) To the Knowledge of Gulf West, there is no asbestos containing
material on any Current Controlled Gulf West Property (as defined below) or any
Gulf West Collateral Property (as defined below); and
(i) Mercantile has fully complied in all material respects with the
guidelines issued by the FDIC on February 25, 1993, and the rules and
regulations of any other governmental authority with jurisdiction over
Mercantile, that direct banks to implement programs to reduce the potential for
banks to incur liability under, or to assess the compliance of borrowers or Gulf
West Collateral Property with, Environmental Laws.
(j) For purposes of this Section 4.22, "Gulf West Property" includes
(1) any real property which Gulf West or Mercantile currently or in the past
have leased, operated or owned or managed in any manner including without
limitation any property acquired by foreclosure or deed in lieu thereof
(respectively, "Current Controlled Gulf West Property" and "Former Controlled
Gulf West Property," and collectively "Gulf West Controlled Property") and (2)
property now held as security for a loan or other indebtedness to Gulf West or
Mercantile or property currently proposed as security for loans or other credit
Gulf West or Mercantile is currently
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evaluating whether to extend or has committed to extend a loan ("Gulf West
Collateral Property").
SECTION 4.23 Regulatory Actions. Except as set forth in Section 4.23 of
the Gulf West Disclosure Letter, there are no actions or proceedings pending or,
to the Knowledge of Gulf West, threatened against Gulf West or its Subsidiaries
by or before any agency or department of any federal, state or local government
or regulatory authorities, including the FRB, the FDIC or the Department
asserting that Gulf West or any of its Subsidiaries is not in compliance with
any of the statutes, rules, or regulations which such agency or authority
enforces. Except as set forth in Section 4.23 of the Gulf West Disclosure
Letter, neither Gulf West nor any of its Subsidiaries are subject to a formal or
informal agreement, memorandum of understanding, enforcement action with or in
receipt of any type of financial assistance by any regulatory authority having
jurisdiction over such entity. Neither Gulf West nor any of its Subsidiaries has
taken or agreed to take any action which would materially impede or delay
receipt of any regulatory approval required in order to consummate the
transactions contemplated hereby. Except as set forth in Section 4.23 of the
Gulf West Disclosure Letter, neither Gulf West nor any Subsidiary has received
or been made aware of any complaints or inquiries under the Community
Reinvestment Act, the Fair Housing Act, the Equal Credit Opportunity Act or any
other state or federal anti-discrimination fair lending law and, Gulf West is
not aware of any such complaint or inquiry.
SECTION 4.24 Title to Properties; Encumbrances. Except as set forth in
Section 4.24 of the Gulf West Disclosure Letter, Gulf West and each of its
Subsidiaries have good and marketable title to, or an adequate leasehold
interest in, all its material properties and assets, real and personal
(including, without limitation, all the properties and assets reflected in the
Gulf West Financial Statements, except for those properties and assets disposed
of for fair market value in the ordinary course of business and consistent with
prudent banking practice since the date of the Gulf West Financial Statements),
free and clear of all mortgages, liens, pledges, charges and other encumbrances
other than those (i) for current property taxes not yet due and payable or being
contested in good faith, (ii) pledges to secure deposits, or (iii) imperfections
of title and encumbrances as do not materially interfere with the present use of
such property or asset. Any real property or other material assets of Gulf West
or its Subsidiaries held under lease are held under valid leases enforceable in
accordance with their terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium, or similar laws, now or hereafter in effect, affecting creditors'
rights generally, and the general principles governing specific performance,
injunctive relief, and other equitable remedies). Except as set forth in Section
4.24 of the Gulf West Disclosure Letter, Gulf West and its Subsidiaries have a
title
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policy in full force and effect from a title insurance company which, to the
best of Gulf West Knowledge, is solvent, insuring good and marketable title to
all real property owned by Gulf West or any of its Subsidiaries (other than real
property held as "Other Real Estate Owned" acquired through foreclosure) in
favor of Gulf West or the respective Subsidiary as the case may be. Gulf West
has made available to the Bank all of the files and information in the
possession of Gulf West and its Subsidiaries concerning such properties,
including any title exceptions which might affect marketable title or value of
such property. Except as set forth in Section 4.24 of the Gulf West Disclosure
Letter, Gulf West and each of its Subsidiaries own all furniture, equipment, art
and other property used to transact its respective business as presently located
on the respective premises.
SECTION 4.25 Registration Statement. None of the information supplied
or to be supplied by Gulf West, its Subsidiaries, or, to the Knowledge of Gulf
West, any of their respective directors, officers, employees, agents, or
Affiliate thereof, for inclusion in the Registration Statement to be filed by
Gulf West with the SEC, the Proxy Statement, or any other document to be filed
with any regulatory or governmental agency or authority in connection with the
transactions contemplated hereby will, in the case of the Proxy Statement, when
it is first mailed to the shareholders of the Bank contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which such
statements are made, not misleading, or, in the case of the Registration
Statement, when it becomes effective, be false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein not misleading, or, in the case of the Proxy Statement or any
amendment thereof or supplement thereto, at the time of the Shareholders'
Meeting of the Bank, including any adjournments thereof, be false or misleading
with respect to any material fact or omit to state any material fact necessary
to correct any statement or remedy any omission in any earlier communication
with respect to the solicitation of any proxy for the Shareholders' Meeting.
All documents that Gulf West and Mercantile are responsible for filing with any
regulatory or governmental agency in connection with the Merger will comply in
all material respects with the provisions of applicable law.
SECTION 4.26 Availability of Gulf West Common Stock. As of the date of
this Agreement and until the earlier of the Effective Time or termination of the
Agreement, Gulf West has and shall continue to have available and shall reserve
for issuance a sufficient number of authorized and unissued shares of Gulf West
Common Stock to pay the Merger Consideration set forth in Section 1.6 of this
Agreement, and Gulf West will not take any action during the term of this
Agreement that will cause it not to have a
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sufficient number of authorized and unissued shares of Gulf West Common Stock
to pay such consideration upon consummation of the Merger.
SECTION 4.27 Ownership of the Bank Common Stock. Neither Gulf West, nor
its Subsidiaries, beneficially own for their own account any shares of the Bank
Common Stock.
SECTION 4.28 Representations Not Misleading. No representation or
warranty by Gulf West and Mercantile in this Agreement, nor any information or
item required to be furnished to the Bank by Gulf West and Mercantile under and
pursuant to, this Agreement including but not limited to the Gulf West
Disclosure Letter, intentionally contains or intentionally will contain any
untrue statement of a material fact or intentionally omits to state a material
fact necessary to make the statements contained herein or therein not
misleading. Gulf West and Mercantile do not make and hereby expressly disclaim
any representations or warranties to Bank with respect to any projections or
budgets heretofore delivered to or made available to Bank regarding the future
revenues, expenses, or expenditures or future results of operations of Gulf West
or Mercantile.
ARTICLE V.
CONDUCT OF BUSINESS PENDING CLOSING
SECTION 5.1 Affirmative Covenants of the Bank. During the period of
time from the date of this Agreement until the earlier of the Effective Time or
the termination of this Agreement, the Bank shall, except as specifically
contemplated by this Agreement or unless the prior written consent of Gulf West
is obtained to vary therefrom:
(a) operate and conduct the business of the Bank in the ordinary
course of business and consistent with prudent banking practices;
(b) use its reasonable best efforts to preserve intact the Bank's
business organization, assets, licenses, permits, authorizations, and business
opportunities;
(c) comply with all material contractual obligations applicable to
the Bank's operations;
(d) use its reasonable best efforts to maintain all the Bank's
properties in good repair, order and condition, reasonable wear and tear
excepted, and maintain the insurance coverages described in Section 5.1(d) of
the Bank Disclosure Letter (which shall list all Property insured by such
coverages) or obtain comparable insurance coverages from reputable insurers
which, in respect to amounts,
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types and risks insured, are adequate for the business conducted by the Bank
and, to the extent available at comparable costs, consistent with the existing
insurance coverages;
(e) in good faith and in a timely manner use its reasonable best
efforts to (i) cooperate with Gulf West and Mercantile in satisfying the
conditions in this Agreement, (ii) assist Gulf West and Mercantile in obtaining
as promptly as possible all consents, approvals, authorizations and rulings,
whether regulatory, corporate or otherwise, as are necessary for Gulf West and
Mercantile and the Bank (or any of them) to carry out and consummate the
transactions contemplated by this Agreement, including all consents, approvals
and authorizations required by any agreement or understanding existing at the
Closing between the Bank and any governmental agency or other third party, (iii)
furnish information concerning the Bank not previously provided to Gulf West
required for inclusion in any filings or applications that may be necessary in
that regard and (iv) perform all acts and execute and deliver all documents
necessary to be performed, executed or delivered by the Bank to cause the
transactions contemplated by this Agreement to be consummated at the earliest
practicable date;
(f) comply in all material respects with all applicable material laws
and regulations;
(g) promptly notify Gulf West upon obtaining Knowledge of any material
default, event of default or condition with which the passage of time or giving
of notice would constitute a default or an event of default under the Bank Loan
Documents and promptly notify and provide copies to Gulf West of any material
written communications concerning such Bank Loan Documents;
(h) promptly give written notice to Gulf West upon obtaining Knowledge
of any event or fact that would cause any of the representations or warranties
of the Bank contained in or referred to in this Agreement to be untrue or
misleading in any material respect;
(i) deliver to Gulf West a list (Section 5.1(i) of the Bank Disclosure
Letter), dated as of the Closing, showing (i) the name of each bank or
institution where the Bank has accounts or safe deposit boxes, (ii) the name(s)
in which such accounts or boxes are held and (iii) the name of each person
authorized to draw thereon or have access thereto;
(j) deliver to Gulf West a list (Section 5.1(j) of the Bank Disclosure
Letter), dated as of the Closing, showing all liabilities and obligations of the
Bank incurred since the Balance Sheet Date (except those arising in the ordinary
course of its business), certified by an officer of Bank;
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(k) promptly notify Gulf West of any material change or inaccuracies in
any data furnished in the Bank's Disclosure Letter or requested in writing by
Gulf West or Mercantile and made available to them by the Bank after the date of
this Agreement; and
(l) promptly following their availability, the Bank will provide Gulf
West with the unaudited balance sheet and statements of income of the Bank as of
the end of each month hereafter, prepared on a basis consistent with prior
periods.
SECTION 5.2 Negative Covenants of the Bank. During the period from the
date of this Agreement to the earlier of the Effective Time or the termination
of this Agreement, except as described in Section 5.2 of the Bank Disclosure
Letter or as otherwise specifically permitted by this Agreement, the Bank will
not without the prior written consent of Gulf West:
(a) except as contemplated by this Agreement, amend its articles of
incorporation or association or bylaws;
(b) except as required by GAAP, applicable law or regulation, make any
or acquiesce with any change in any accounting method, principle or practice
used in preparing the Bank Financial Statements or in keeping the Bank's books;
(c) make any change in the number of shares of the capital stock issued
and outstanding, or issue, reserve for issuance, grant, sell or authorize the
issuance of any shares of its capital stock or Rights of any kind relating to
the issuance or sale of or conversion into shares of its capital stock;
(d) contract to create any obligation or liability (absolute, accrued,
contingent or otherwise) except in the ordinary course of business and
consistent with prudent banking practices (it being understood and agreed that
the incurrence of indebtedness in the ordinary course of business shall include,
without limitation, creation of deposit liabilities, advances from Federal
Reserve Bank or Federal Home Loan Bank, entry into repurchase agreements, and
letters of credit);
(e) contract to create any mortgage, pledge, lien, security interest or
encumbrances, restrictions, or charge of any kind which attaches to any of the
Bank's Current Controlled Property (other than statutory liens for which the
obligations secured thereby shall not become delinquent), except in the ordinary
course of business and consistent with prudent banking practices;
(f) cancel any debts, waive any claims or rights of value or sell,
transfer, or otherwise dispose of any of its material properties or assets,
except in the ordinary course of business and consistent with prudent banking
practices;
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(g) sell any real estate owned as of the date of this Agreement or
acquired thereafter, which real estate qualifies as "other real estate owned"
under accounting principles applicable to it, except in the ordinary course of
business and consistent with prudent banking practices and applicable banking
laws and regulations;
(h) dispose of or permit to lapse any rights to the use of any material
registered trademark, service mark, trade name or copyright, or dispose of or
disclose to any person other than its employees any material trade secret not
theretofore a matter of public knowledge;
(i) except as set forth in Section 3.10 of the Bank Disclosure Letter
and except for regular salary increases granted in the ordinary course of
business within the Bank's 1997 budget approved by the Bank's Board of Directors
in March 1997 and consistent with prior practices, or required by applicable
law; grant any increase in compensation or pay or agree to pay or accrue any
bonus, percentage compensation, service award, severance payment or like benefit
to or for the credit of any director, officer, employee or other person (other
than pursuant to policies, contracts, agreements, or other arrangements in
effect on the date of this Agreement and disclosed in Section 5.2 of the Bank
Disclosure Letter); or enter into any employment, consulting or severance
agreement or other agreement with any director, officer or employee, or adopt,
amend or terminate any Employee Benefit Plan or change or modify the period of
vesting or retirement age for any participant of such a plan other than any
such change required by law or that, in the opinion of counsel, is necessary
or advisable to maintain the tax qualified status of such plan;
(j) directly or indirectly declare, set aside or pay any dividend or
make any distribution or payment in respect of shares of its capital stock or
redeem, purchase or otherwise acquire, or arrange for the redemption, purchase
or acquisition of, any shares of its capital stock or other of its securities
except pursuant to the Merger;
(k) except for purchases of United States Treasury securities or United
States Government agency securities, or in connection with a settlement of
indebtedness, foreclosure, the exercise of creditors' remedies or in a fiduciary
capacity, make any investment in or acquire the capital stock of or other equity
securities in any person;
(l) make any capital expenditure or a series of capital expenditures
of a similar nature relating to one capital project in excess of $25,000;
(m) make any income tax or franchise tax election or settle or
compromise any federal, state, local or foreign income tax or
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franchise tax liability, or, except in the ordinary course of business
consistent with prudent banking practices, make any other tax election or settle
or compromise any other federal, state, local or foreign tax liability;
(n) except for negotiations and discussions between the Parties hereto
relating to the transactions contemplated by this Agreement or as otherwise
permitted hereunder, enter into any transaction, or enter into, modify or amend
any contract or commitment outstanding or new loan, or acquire any loan
participation other than in the ordinary course of business and consistent with
prudent banking practices;
(o) except as contemplated by this Agreement, adopt a plan of complete
or partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization, or other reorganization or business combination of the Bank;
(p) issue any certificates of deposit except in the ordinary course
of business and in accordance with prudent banking practices;
(q) modify, amend, waive or extend either the Bank Loan
Documents or any rights under such agreements;
(r) sell or contract to sell the Bank premises or any part
thereof;
(s) change any fiscal year or the length thereof;
(t) prepay in whole or in part the Bank Indebtedness; or
(u) except as permitted by Section 6.6, enter into any agreement,
understanding or commitment, written or oral, with any other person which is in
any manner inconsistent with the obligations of the Bank and its directors under
this Agreement or any related written agreement. Nothing contained in this
Section 5.2 or in Section 5.1 is intended to influence the general management or
overall operations of the Bank in a manner not permitted by applicable law and
the provisions thereof shall automatically be reduced in compliance therewith.
SECTION 5.3. Covenants of Gulf West. From the date of this
Agreement until the earlier of the Effective Time or the
termination of this Agreement,
(a) Gulf West covenants and agrees that it will:
(i) conduct its business and the business of its
Subsidiaries in accordance with prudent practices;
(ii) take no action which would (A) materially adversely
affect the ability of any Party to this Agreement to obtain any
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approvals or consents required for the transactions contemplated hereby
without imposition of a condition or restriction of the type referred
to in the last sentence of Section 7.1(a) of this Agreement, or (B)
materially adversely affect the ability of any Party to this Agreement
to perform its covenants and agreements under this Agreement; provided
that the foregoing shall not prevent Gulf West or any of its
Subsidiaries from discontinuing or disposing of any of its properties,
assets, or business if such action is, in the judgment of Gulf West,
desirable in the conduct of the business of Gulf West and its
Subsidiaries;
(iii) promptly notify the Bank of any material change or
inaccuracy in any data previously given or made available to the Bank
pursuant to this Agreement; and
(iv) promptly give written notice to the Bank upon obtaining
Knowledge of any event or fact that would cause any of the
representations or warranties of Gulf West contained in or referred to
in this Agreement to be untrue or misleading in any material respect.
(b) Gulf West further covenants and agrees that it will not without the
Bank's written consent (which consent shall not be unreasonably withheld):
(i) amend the articles of incorporation or bylaws of Gulf
West, in each case in any manner adverse to the holders of the Bank
Common Stock; or
(ii) issue any new Rights or new shares of its capital stock
except as may be required in connection with the exercise of Rights
outstanding as of the date of this Agreement or in connection with
issuances of stock to its employees pursuant to its employee stock
purchase plan.
ARTICLE VI.
ADDITIONAL AGREEMENTS
SECTION 6.1 Access To, and Information Concerning, Properties and
Records.
(a) From the date of this Agreement until the earlier of the Effective
Time or the termination of this Agreement, each Party shall afford the other,
upon reasonable notice and to the extent permitted by law, and each other's
legal counsel, accountants and other representatives reasonable access, during
normal business hours, to all of its (and its Subsidiaries') properties, books,
contracts, commitments and records, permit such Party to make such inspections
(including without limitation, physical inspection of
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the surface and subsurface of any property thereof and any structure thereon) as
they may require and furnish to such Party during such period all such
information concerning its affairs as such Party may reasonably request. All
information disclosed by either Party to the other which is confidential and
which is not in the public domain shall be held confidential by the receiving
Party and its representatives, except to the extent counsel to the receiving
Party has advised it such information is required to or should be disclosed in
filings with regulatory agencies or governmental authorities or in proxy
materials delivered to shareholders of the receiving Party. In the event this
Agreement is terminated for any reason, each Party hereto agrees to return to
the receiving Party all copies of such confidential information, and this
Section 6.1 shall survive such termination.
(b) From the date of this Agreement until the earlier of the Effective
Time or the termination of this Agreement, Gulf West shall give to the Bank
promptly following their availability, the unaudited quarterly consolidated
balance sheet and statement of income of Gulf West and its Subsidiaries, as of
the end of each quarter hereafter, prepared on a basis consistent with prior
periods.
SECTION 6.2 Filings with Regulatory Agencies. Each Party and their
respective Subsidiaries, if any, shall file all notices, applications and
reports ("Filings") required to be filed by each of them with the FDIC, the FRB,
the OCC, the Department, and the SEC between the date of this Agreement and the
Effective Time and shall deliver to the other Parties copies of all such Filings
promptly after the same are filed. If financial statements are contained in any
such Filings filed with the FDIC, the FRB, the OCC, the Department, or the SEC,
such financial statements shall fairly present the consolidated financial
position of the entity filing such statements as of the dates indicated thereon
and the consolidated results of operations, changes in shareholders' equity, and
cash flows for the periods then ended in accordance with GAAP (subject in the
case of interim financial statements to normal year-end adjustments or any other
adjustments described therein which are not expected to be material in amount,
and except for the absence of certain footnote information in the unaudited
statements). As of their respective effective dates, such Filings filed pursuant
to the securities laws will comply in all material respects with the applicable
securities laws and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, in light of the
circumstances under which they were made, not misleading (except to the extent
that any such statement or omission therein has been corrected or otherwise
disclosed or updated in a subsequent report filed by such Party with such
governmental or regulatory agency or authority). Any financial statements
contained in any other Filings to another governmental or regulatory agency or
authority (or which are not filed pursuant to the securities laws) shall be
prepared in
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accordance with the laws, rules, and regulations applicable to such Filings.
SECTION 6.3 Miscellaneous Agreements and Consents. Subject to the terms
and conditions of this Agreement, Gulf West, Mercantile, and the Bank each agree
to use its reasonable best efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, all things necessary, proper, or advisable under
applicable laws and regulations to consummate and make effective, as soon as
practicable after the date of this Agreement, the transactions contemplated by
this Agreement, provided that nothing herein shall preclude any Party from
exercising its rights under this Agreement. Each Party shall use their
respective reasonable best efforts to obtain or cause to be obtained consents of
all third parties and governmental and regulatory authorities necessary or
desirable for the consummation of the transactions contemplated herein.
SECTION 6.4 Bank Indebtedness. Prior to the Effective Time, the Bank
shall pay all regularly scheduled payments on all Bank Indebtedness and shall
cooperate with Gulf West in taking such actions as are reasonably appropriate or
necessary in connection with the redemption, prepayment, modification,
satisfaction or elimination of any outstanding indebtedness of the Bank with
respect to which a consent is required to be obtained to effectuate the Merger
and the transactions contemplated by this Agreement and has not been so
obtained.
SECTION 6.5 Best Good Faith Efforts. All parties hereto agree that the
parties will use their reasonable best good faith efforts to secure all
regulatory approvals necessary to consummate the Merger and other transactions
provided herein and to satisfy the other conditions to Closing contained herein.
SECTION 6.6 Acquisition Proposals. The Bank will not, and will use its
best efforts to cause its directors, officers, financial advisors, legal
counsel, accountants and other agents and representatives (for purposes of this
Section 6.6 only, being referred to as "affiliates") not to, directly or
indirectly, initiate, solicit or encourage, or take any other action to
facilitate any inquiries or the making of any proposal with respect to, engage
or participate in negotiations concerning, provide any nonpublic information or
data to or have any discussions with any person other than a Party hereto or
their affiliates relating to any acquisition, tender offer (including a
self-tender offer), exchange offer, merger, consolidation, acquisition of
beneficial ownership of or the right to vote securities of such entity or any of
its subsidiaries, dissolution, business combination, purchase of all or any
significant portion of the assets or any division of, or any equity interest in,
such entity or any Subsidiary, or similar transaction other than the Merger
(such proposals, announcements, or transactions being referred to as
"Acquisition Proposals"). Notwithstanding the preceding sentence, to the extent
its Board of
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Directors determines it is required to do so in the exercise of its fiduciary
duties to the Bank's shareholders under applicable law as so advised in writing
by independent counsel, the Bank, and its affiliates, may engage and participate
in negotiations concerning, provide nonpublic information or data to and have
discussions with any person or their affiliates relating to an Acquisition
Proposal. The Bank will promptly notify Gulf West orally and in writing if any
such Acquisition Proposal (including the terms thereof and identify of the
persons making such proposal) is received and furnish to Gulf West a copy of any
written proposal.
SECTION 6.7 Public Announcement. Prior to the Effective Time, subject
to written advice of counsel with respect to legal requirements relating to
public disclosure of matters related to the subject matter of this Agreement,
the timing and content of any announcements, press releases or other public
statements concerning the proposal contained herein will occur upon, and be
determined by, the mutual consent of the Bank and Gulf West.
SECTION 6.8 Employees and Employee Benefit Plans. All employees of the
Bank at the Effective Time shall become employees at will of the Surviving
Corporation. Gulf West presently intends that, after the Merger, neither Gulf
West, nor the Surviving Corporation will make additional contributions to the
employee benefit plans sponsored by the Bank immediately prior to the Merger.
Gulf West agrees that the employees of the Bank will be entitled to
participate as newly hired employees in the employee benefit plans and programs
maintained for employees of Gulf West and its affiliates, in accordance with the
respective terms of such plans and programs, and Gulf West shall take all
actions necessary or appropriate to facilitate coverage of the Bank's employees
in such plans and programs from and after the Effective Time, as follows:
(i) Employee Welfare Benefit Plans and Programs: Each employee of the
Bank will be entitled to credit for prior service with the Bank for all purposes
under the employee welfare benefit plans and other employee benefit plans and
programs (other than those described in subparagraph (ii) below and any stock
option plans) sponsored by Gulf West to the extent the Bank sponsored a similar
type of plan which the Bank employee participated in immediately prior to the
Effective Time. Any preexisting condition exclusion applicable to such plans and
programs shall be waived with respect to any Bank employee. For purposes of
determining each Bank employee's benefit for the year in which the Merger occurs
under the Gulf West vacation program, any vacation taken by a Bank employee
immediately preceding the Effective Time for the year in which the Merger occurs
will be deducted from the total Gulf West vacation benefit available to such
Bank employee for such year. Gulf West agrees that for purposes of determining
the number of vacation days available with respect to each Bank employee for the
year in which
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the Merger occurs, that the number of vacation days for such year shall be
determined under the Bank vacation policy in effect as of January 1, 1997.
Unused sick leave and vacation leave accrued by employees of the Bank as of the
Effective Time will be recognized by Gulf West to the extent it is used in the
fiscal year of Gulf West in which the Effective Time occurs. Gulf West further
agrees to credit each Bank employee for the year during which such coverage
under the Gulf West welfare benefit plan begins, with any deductibles already
incurred during such year under the Bank's group health plan.
(ii) Employee Pension Benefit Plans: Each Bank employee
shall be entitled to credit for past service with the Bank for the purpose of
satisfying any eligibility or vesting periods applicable to the Gulf West
employee pension benefit plans which are subject to Sections 401(a) and 501(a)
of the Code (including, without limitation, the Gulf West 401(k) Plan).
On or before, but effective as of, the Effective Time, the Bank may
take such actions as may be necessary to cause each individual employed by the
Bank immediately prior to the Effective Time to have a fully vested and
non-forfeitable interest in such employee's account balance under the 401(k)
plan sponsored by the Bank as of the Effective Time.
SECTION 6.9 Environmental Investigation; Right to Terminate
Agreement.
(a) Gulf West and its consultants, agents and representatives, shall
have the right to the same extent that the Bank has such right, but not the
obligation or responsibility, to inspect any Property, including, without
limitation, for the purpose of conducting asbestos surveys and sampling, and
other environmental assessments and investigations ("Environmental
Inspections"). Gulf West' right to conduct Environmental Inspections shall
include the right to sample and analyze air, sediment, soil and groundwater of
any Property to the same extent that the Bank has such right. Gulf West may
conduct such Environmental Inspections at any time but shall complete such
inspections on or prior to the 35th day after the date of this Agreement.
(b) The Bank shall give to Gulf West written notice of any Property
acquired, leased, managed or controlled by the Bank or in which the Bank
acquires a security interest between the date of this Agreement and the Closing
("Interim Acquisition"). Such written notice shall be given to Gulf West within
5 business days of the date of an Interim Acquisition. Gulf West may elect to
conduct an Environmental Inspection of any such Property which is the subject of
an Interim Acquisition and the time periods set forth in this Section 6.9 for
the performance of Environmental Inspections, secondary investigations
(hereinafter defined) and for Gulf West' giving of notice to the Bank of
non-acceptability and need for
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remediation (as set forth below) shall commence on the date written notice of
the respective Interim Acquisition is received by Gulf West; provided however,
Gulf West shall in all events notify the Bank of any Property which is
unacceptable and requires remediation on or before the 77th day after the date
of this Agreement.
(c) Gulf West shall notify the Bank prior to any physical inspections
of Property, and the Bank may place reasonable restrictions on the time of such
inspections. If, as a result of any such Environmental Inspection, further
investigation ("secondary investigation") including, without limitation, test
borings, soil, water and other sampling is deemed desirable by Gulf West, Gulf
West shall notify the Bank of the Properties on which it intends to conduct a
secondary investigation on or prior to the 42nd day after the date of this
Agreement. Gulf West shall notify the Bank of any Properties that, in the sole
discretion of Gulf West, are not acceptable and require remediation on or prior
to the 77th day after the date of this Agreement.
(d) Gulf West agrees to indemnify and hold harmless the Bank and
occupants of such property for any claims for damage to property or injury or
death to person in connection with the Environmental Inspections or secondary
investigations conducted by it or its agents, which damage or injury is directly
or indirectly attributable to the acts or omissions of it or its agents or
employees. Gulf West shall have no liability or responsibility of any nature
whatsoever for the results, conclusions or other findings related to any
Environmental Inspection, secondary investigation or other environmental survey.
If this Agreement is terminated, then except as otherwise required by law, Gulf
West shall have no obligation to make any reports to any governmental authority
of the results of any Environmental Inspection, secondary investigation or other
environmental survey, but such reporting shall remain the responsibility of and
within the discretion of the Bank, as the case may be. Gulf West shall have no
liability to the Bank for making any report of such results to any governmental
authority. The Bank shall be furnished with a copy of any such report or results
of any environmental study if it so requests.
(e) Gulf West shall have the right to terminate this Agreement in the
following circumstances, if such circumstance, together with any other
circumstances set forth below and any breach or inaccuracy of any representation
or warranty of the Bank contained in Article III, would have a Material Adverse
Effect or would in the future have a Material Adverse Effect if the reasonably
expected potential adverse effects indicated thereby were to occur or exceeds
the specified monetary limits set forth therein:
(i) the factual substance of any representation or
warranty set forth in Section 3.23 is not true and accurate in all material
respects irrespective of the Knowledge or lack of Knowledge of the Bank;
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(ii) the results of such Environmental Inspection, secondary
investigation or other environmental survey are disapproved by Gulf West because
the Environmental Inspection, secondary investigation or other environmental
survey identifies violations or reasonably expected potential violations of
Environmental Laws;
(iii) if the Environmental Inspection, secondary investigation
or other environmental survey identifies any past or present event, condition or
circumstance that, based on the estimates of the environmental professionals
referred to in this Section 6.9, may require expenditures by the Bank or
increases in reserves, in connection with (1) remediation or monitoring of any
Controlled Property, (2) preparing and obtaining approval by the appropriate
environmental regulatory authority of remediation plans with respect to
Controlled Properties, or (3) obtaining remediation estimates in connection with
Collateral Properties which in the aggregate when taken together with all other
expenditures for environmental matters exceed $100,000.00;
(iv) the presence of any underground or above ground storage tank
in, on or under any Property (1) which has not been registered or which has not
fully qualified for and met all conditions necessary to be entitled to
applicable governmental remediation funds in the event a release of Polluting
Substances were to occur from any such tank, (2) from which a release of any
Polluting Substances has occurred or (3) which otherwise is in violation in any
material respect of an Environmental Law;
(v) the presence of any asbestos containing material in, on or
under any Controlled Property, the removal or monitoring of which would
constitute a Material Adverse Effect or which, based on the estimates of the
environmental professionals referred to in this Section 6.9, may require
expenditures by the Bank or increases in reserves that when added to all other
expenditures for environmental matters exceed $100,000.00;
(vi) Gulf West is not permitted to conduct an Environmental
Inspection or secondary investigation of any Property within the time frame and
in the manner provided in Section 6.9; or
(vii) if for any Property identified by Gulf West as
unacceptable and requiring remediation the Bank does not deliver to Gulf West
written evidence acceptable to Gulf West that the Bank has developed a
remediation plan approved by the applicable environmental regulatory authority
which is acceptable to Gulf West.
Gulf West and the Bank agree that the Bank's willful failure
to comply with (vii) above shall be conclusively deemed to cause a Material
Adverse Effect.
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(f) The Bank agrees to make available to Gulf West and its consultants,
agents and representatives all documents and other material relating to
environmental conditions of the Property including, without limitation, the
results of other environmental inspections and surveys. The Bank also agrees
that all engineers and consultants who prepared or furnished such reports may
discuss such reports and information with Gulf West and shall be entitled to
certify the same in favor of Gulf West and its consultants, agents and
representatives and make all other data available to Gulf West and its
consultants, agents and representatives; provided that the Bank is given notice
of, and the right to participate in, such discussions, and provided further that
any such certification or additional data shall be obtained at the sole cost of
Gulf West. At the written request of the Bank, Gulf West agrees to provide the
Bank with a copy of all environmental reports prepared by its consultants as a
result of the Environmental Inspections.
SECTION 6.10 Florida Takeover Law. The Bank hereby agrees that it has
or will take all action necessary so that the provisions of Florida Statutes
Section 607.0902 shall not apply to any acquisition of the Bank Common Stock
made in connection with the Merger or the transactions contemplated thereby,
including the acquisition of any proxies by Gulf West from any shareholders of
the Bank.
SECTION 6.11 Exchange Agent Agreement. Immediately prior to the
Effective Time, the Bank, Gulf West and Mercantile agree to enter into, and Gulf
West agrees to cause the Exchange Agent to enter into, the Exchange Agent
Agreement with the Exchange Agent, or if the Exchange Agent refuses to serve as
exchange agent, such other exchange agent as shall be mutually agreed to by the
Bank and Gulf West.
SECTION 6.12 Bank's Designees.
(a) Immediately following or at the Effective Time, Gulf West shall
cause two (2) vacancies to be created on the Board of Directors of Gulf West (by
increasing the number of members of the Board of Directors or otherwise) and
shall, with respect to such vacancies, thereafter immediately cause two (2)
persons designated by the Bank to be elected to its Board of Directors. Each
designee of the Bank shall serve until his successor is duly elected and
qualified.
(b) Immediately following or at the Effective Time, Mercantile shall
cause three (3) vacancies to be created on the Board of Directors of Mercantile
(by increasing the number of members of the Board of Directors or otherwise) and
shall, with respect to such vacancies, thereafter immediately cause three (3)
persons designated by the Bank to be elected to its Board of Directors. Each
designee of the Bank shall serve until his successor is duly elected and
qualified.
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SECTION 6.13 Indemnification and Insurance.
(a) Gulf West shall, and shall cause the Surviving
Corporation (and its successors and assigns) to, indemnify, defend, and hold
harmless each person who is now, or has at anytime prior to the date of this
Agreement, or who becomes prior to the Effective Time, an officer, director, or
employee of the Bank (each, an "Indemnified Party"), after the Effective Time
against any and all costs or expenses (including reasonable attorneys' fees),
judgments, fines, penalties, losses, claims, damages, liabilities, and amounts
paid in settlement in connection with any claim, action, suit, proceeding, or
investigation, whether civil, criminal, administrative, or investigative,
arising out of or pertaining to any action or omission occurring on or prior to
the Effective Time (including, without limitation, the transactions contemplated
by this Agreement) to the fullest extent then permitted under Florida law and by
the articles of incorporation and bylaws of the Bank as in effect on the date of
this Agreement, including provisions relating to advances of expenses incurred
in the defense of any action or suit. Gulf West shall, and shall cause the
Surviving Corporation, to apply such rights of indemnification in good faith and
to the fullest extent permitted by applicable law.
(b) Incident to any information furnished or disclosed by Gulf
West or any Subsidiary of Gulf West in connection with the Registration
Statement and Proxy Statement, and subject to applicable law, Gulf West shall
indemnify, defend, and hold harmless the indemnified parties against all costs
or expenses (including reasonable attorneys' fees), judgments, fines, penalties,
losses, claims, damages, liabilities, and amounts paid in settlement in
connection with any claim, action, suit, proceeding, or investigation, whether
civil, criminal, administrative, or investigative, arising out of or under the
federal securities laws or any state securities or blue sky laws based in whole
or in part on (i) any untrue statement or alleged untrue statement of a material
fact contained in such documents (including any amendment or supplement to such
document), (ii) any omission or alleged omission to state in such documents a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any violation by Gulf West or any Subsidiary of
Gulf West of the federal securities laws or the state securities or blue sky
laws in connection with such documents; provided, however, that neither Gulf
West nor any of its Subsidiaries will be liable in any case to the extent that
any such claim, action, suite, proceeding, or investigation is based on any
untrue or alleged untrue statement or omission or alleged omission made in such
Registration Statement and Proxy Statement and any amendment thereto in reliance
on and in conformity with information furnished in writing to Gulf West or its
Subsidiaries by the Bank or any Indemnified Party specifically for use therein.
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(c) Prior to Closing, the Bank may purchase extended coverage
for a period of three years under the current directors' and officers' liability
insurance maintained by the Bank with respect to matters occurring prior to the
Effective Time, provided that the cost thereof does not exceed $20,000.
(d) The provisions of this Section 6.13 are intended to be for
the benefit of and shall be enforceable by, each Indemnified Party, his or her
heirs and representatives, and shall survive the consummation of the Merger and
be binding on all successors and assigns of Gulf West and the Surviving
Corporation.
SECTION 6.14 No Acquisition Transactions. Other than acquisitions which
may be mutually agreed to by the Parties, no Party shall, or shall permit any of
its Subsidiaries to acquire or agree to acquire, by merger or consolidation with
or by purchase of a substantial equity interest in or a substantial portion of
the assets of or by any other manner any business or any corporation,
partnership, association, or other business organization or division thereof or
otherwise acquire or agree to acquire any assets in each case which are
material, individually or in the aggregate, to such Party and its Subsidiaries
taken as a whole; provided, however, that the foregoing shall not prohibit (i)
internal reorganizations, consolidations, or dissolutions involving only
existing Subsidiaries, and (ii) foreclosures and other acquisitions related to
previously contracted debt, in each case in the ordinary course of business.
SECTION 6.15 Standstill. Except as contemplated by this Agreement, for
a period of three years after the date of this Agreement, Gulf West will not
(and will ensure that its Subsidiaries and Affiliates will not), without the
prior written approval of the Board of Directors of the Bank or any committee
thereof, (i) purchase or otherwise acquire, or enter into any agreement to
purchase or otherwise acquire, any equity securities of the Bank, any warrants
or options to purchase such equity securities, any securities convertible into
such equity securities, or any other rights to acquire such equity securities;
(ii) make or in any way participate directly or indirectly in any "solicitation"
of "proxies" (as such terms are used in the proxy rules of the SEC), to vote any
equity securities of the Bank (unless any third Party shall then be engaged in
such a solicitation and such solicitation relates to a contest for control of
the Bank and except that this clause (ii) shall not apply to solicitations made
by the Bank); or (iii) make any public request to waive any provision of this
Section 6.15 or to permit any action prohibited by this Section 6.15 to be
taken.
SECTION 6.16 Shareholder Representation Agreements. The Bank shall use
its best efforts to obtain from holders of the Bank's capital stock who will
receive 50% or more of the shares of Gulf West Common Stock to be received as
Merger Consideration, a representation that they have no plan or intention to
sell or
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otherwise dispose of 50% or more of the shares of Gulf West Common Stock to be
received as Merger Consideration pursuant to the Merger.
ARTICLE VII.
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each Party to effect the Merger are subject to the
satisfaction or waiver of the following conditions prior to the Effective Time:
(a) All consents and approvals of, filings and registrations with, and
notifications to, all governmental or regulatory authorities and agencies,
required for consummation of the Merger, shall have been obtained or made and
shall be in full force and effect and all waiting periods required by law shall
have expired. No consent or approval from any governmental or regulatory
authority or agency shall have imposed any condition or requirement which in the
reasonable judgment of either Party would so adversely impact the economic or
business benefits of the transactions contemplated by this Agreement or
otherwise would in the judgment of either Party be so burdensome as to render
inadvisable the consummation of the Merger;
(b) The Merger will not violate any injunction, order or decree of any
court or governmental body having competent jurisdiction and no law or order
shall have been enacted which prohibits the Merger;
(c) The shareholders of the Bank shall have approved this Agreement and
the consummation of the transactions contemplated hereby, including the Merger,
as and to the extent required by law.
(d) The Registration Statement shall have been declared effective under
the Securities Act and all necessary approvals or permits under applicable state
securities or "blue sky" laws relating to the issuance of the Gulf West Common
Stock to be issued in the Merger shall have been obtained, and no stop order
suspending the effectiveness of such Registration Statement shall be in effect
and no Proceedings for such purpose, or any Proceedings under the SEC or
applicable state securities authorities rules with respect to the transactions
contemplated hereby, shall be pending before or threatened by the SEC or any
applicable state securities or blue sky authorities; and
(e) Each Party shall have received an opinion of Fowler, White, Gillen,
Boggs, Villareal and Banker, P.A., in form and substance reasonably satisfactory
to such Parties, dated as of the Effective Time, that the Merger will qualify as
a reorganization under Section 368(a) of the Code and that accordingly: (i) no
gain
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or loss will be recognized by the Parties or any affiliate thereof as a result
of the Merger; (ii) no gain or loss will be recognized by the shareholders of
the Bank who exchange their Bank Common Stock solely for Gulf West Common Stock
pursuant to the Merger (except with respect to cash received in lieu of a
fractional share interest in Gulf West Common Stock); and (iii) the tax basis of
the Gulf West Common Stock received by shareholders who exchange all of their
Bank Common Stock solely for Gulf West Common Stock in the Merger will be the
same as the tax basis of the Bank Common Stock surrendered in exchange therefor
(reduced by any amount allocable to a fractional share interest for which cash
is received). In rendering such opinion, Fowler, White, Gillen, Boggs, Villareal
and Banker, P.A. may require and rely upon representations contained in
certificates of officers of Gulf West and others.
SECTION 7.2 Conditions to the Obligations of Gulf West and Mercantile
to Effect the Merger.
The obligations of Gulf West and Mercantile to effect the Merger are
subject to the satisfaction by the Bank or waiver by Gulf West of the following
conditions prior to the Effective Time:
(a) all representations and warranties of the Bank qualified as to
materiality shall be true and correct in all respects and those representations
and warranties not so qualified shall be true and correct in all material
respects as of the date of this Agreement and, in either case without taking
into account any supplement to the Bank's Disclosure Letter after the date of
this Agreement, provided pursuant to Article III hereof, at and as of the
Closing, with the same force and effect as though made on and as of the Closing
(except to the extent such representations and warranties are by their express
provisions made as of a specified date and except to the extent that such
representation and warranty has been made untrue by reason of an event or
circumstance which Gulf West has expressly consented in writing pursuant to the
provision of Article V hereof), and any representation qualified by Knowledge
must be true and correct without regard to such qualification;
(b) the Bank shall have performed in all material respects all
obligations and agreements and in all material respects complied with all
covenants and conditions, contained in this Agreement to be performed or
complied with by it prior to the Effective Time;
(c) the directors and executive officers of the Bank shall have
delivered to Gulf West a release dated the Effective Time in substantially the
form of Exhibit F and each of the Director's of the Bank shall have delivered to
Gulf West their resignations as a director of the Bank;
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(d) Gulf West shall have received the opinion of counsel to the Bank
acceptable to it as to the matters set forth on Exhibit D attached hereto;
(e) the holders of no more than 5% of the Shares shall have demanded or
be entitled to demand payment of the fair value of their shares as Dissenting
Shareholders;
(f) At and as of the Closing, the sum of the Bank's Common Stock,
Additional Paid In Capital, Surplus, Retained Earnings, and Undivided Profits
determined in accordance with GAAP shall be equal to or greater than $8,500,000,
excluding the effect of any transaction expenses paid in connection with the
Merger as contemplated by Sections 6.13 and 10.1 hereof and the effects of any
FASB 115 and FASB 107 adjustments.
(g) at and as of the Closing, the loan loss reserve of the Bank shall
be equal to or greater than 1.50% of the Bank's gross loans;
(h) there shall be no Bank Indebtedness;
(i) Gulf West shall have received from holders of the Bank's capital
stock who will receive 50% or more of the shares of Gulf West Common Stock to be
received as Merger Consideration, a representation that they have no plan or
intention to sell or otherwise dispose of 50% or more of the shares of Gulf West
Common Stock to be received as Merger Consideration pursuant to the Merger;
(j) the Bank shall have delivered to Gulf West a schedule of all
transactions in the capital stock (or instruments exercisable for or convertible
into capital stock) of the Bank of which the Bank has Knowledge from and
including the date of this Agreement through the Closing Date;
(k) Gulf West shall have received the executed Affiliate
Letters required by Section 1.8(b);
(l) the Bank shall have taken such write-downs of assets on its books
as are consistent with Gulf West' accounting methods for reserving for loan
losses, as mutually agreed to by the parties; and
(m) there shall not have occurred a Material Adverse Effect as to the
Bank.
(n) Gulf West shall have received certificates dated as of
the Closing executed by the Chairman of the Board of the Bank, and the Secretary
or Cashier of the Bank, certifying in such reasonable detail as Gulf West may
reasonably request, to the effect described in Sections 7.2(a), (b), (c), (f),
(g), (h), (j) and (m).
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SECTION 7.3 Conditions to the Obligations of the Bank to Effect the
Merger. The obligations of the Bank to effect the Merger are subject to the
satisfaction by Gulf West or waiver by the Bank of the following conditions
prior to the Effective Time:
(a) all representations and warranties of Gulf West qualified as to
materiality shall be true and correct in all respects, and those representations
and warranties not so qualified shall be true and correct in all material
respects as of the date of this Agreement and, in either case without taking
into account any supplement to the Gulf West Disclosure Letter after the date of
this Agreement, provided pursuant to Article IV hereof, at and as of the
Closing, with the same force and effect as though made on and as of the Closing
(except to the extent such representations and warranties are by their express
provisions made as of a specific date and except to the extent that such
representation and warranty has been made untrue by reason of an event or
circumstance which the Bank has expressly consented to in writing pursuant to
the provisions of Article V hereof), and any representation qualified by
Knowledge must be true and correct without regard to such qualification;
(b) Gulf West and Mercantile shall have performed in all material
respects all obligations and agreements and in all material respects complied
with all covenants and conditions contained in this Agreement to be performed or
complied with by either of them prior to the Effective Time;
(c) the Bank shall have received the opinion of counsel to Gulf West
and Mercantile acceptable to it as to the matters set forth on Exhibit E
attached hereto;
(d) the Bank shall have received certificates dated the Closing,
executed by the President and Chief Financial Officer of both Gulf West and
Mercantile, respectively, certifying, in such detail as the Bank may reasonably
request, to the effect described in Sections 7.3(a) and (b);
(e) there shall not have occurred a Material Adverse Effect with
respect to Gulf West; and
(f) Gulf West shall have delivered to Exchange Agent the Merger
Consideration.
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ARTICLE VIII.
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 Termination. Prior to the Effective Time, this Agreement
may be terminated and the Merger contemplated hereby may be abandoned at any
time notwithstanding approval thereof by the shareholders of the Bank:
(a) by mutual written consent duly authorized by the Boards
of Directors of Gulf West and the Bank;
(b) by Gulf West (i) if there is a breach or inaccuracy of any
representation or warranty of the Bank contained in Article III which
constitutes a Material Adverse Effect, and which breach or inaccuracy is not
cured after thirty days written notice by Gulf West, (ii) if there shall have
been a breach of Section 6.6, or (iii) pursuant to Section 6.9; or
(c) by the Bank if there is an inaccuracy of any representation or
warranty of Gulf West or Mercantile contained in Article IV which constitutes a
Material Adverse Effect, and which breach or inaccuracy is not cured after
thirty days written notice by the Bank; or
(d) by either Gulf West or the Bank if the Effective Time shall not
have occurred on or before April 30, 1998 or such later date agreed to in
writing by Gulf West and the Bank; provided, however, that the right to
terminate this Agreement pursuant to this Section 8.1(d) shall not be available
to any Party whose failure to fulfill any obligations under this Agreement has
been the cause of, or resulted in the failure of the Merger to be consummated on
or before such date; or
(e) by Gulf West or the Bank if any court of competent jurisdiction in
the United States or other United States (federal or state) governmental body
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining, denying approval for or otherwise prohibiting the Merger
and such order, decree, ruling, denial or other action shall have become final
and nonappealable; or
(f) by Gulf West if the Board of Directors of the Bank shall have
withdrawn or modified in any manner its approval or recommendation of this
Agreement or the Merger, or shall have resolved to do the same; provided,
however, that Gulf West may not terminate this Agreement pursuant to this clause
if, as a result of the Bank's receipt of an Acquisition Proposal from a third
party, the Bank withdraws or modifies its approval or recommendation of this
Agreement or the Merger but thereafter (and prior to termination of this
Agreement by Gulf West) the Bank publicly reconfirms its recommendation of the
transactions contemplated
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hereby and notifies Gulf West of such reconfirmation prior to termination of
this Agreement by Gulf West pursuant to this clause; or
(g) by the Bank if it shall receive any Acquisition Proposal after the
date of this Agreement from a third party or parties and the Board of Directors
of the Bank shall have received a written opinion from independent legal counsel
to the effect that, and the Board of Directors shall have determined in good
faith in the exercise of its fiduciary duties that the Bank is required to
accept such Acquisition Proposal; provided, however that the Bank may only
terminate this Agreement pursuant to this clause if it simultaneously with such
termination delivers to Gulf West the termination fee provided for in Section
8.5 hereof; or
(h) by Gulf West in the event dissenters' rights are claimed, pursuant
to applicable provisions of the national Bank Act, by persons owning in the
aggregate more than 5% of the issued and outstanding Bank Common Stock; or
(i) by either Gulf West or the Bank, in the event of a material breach
by the other Party of any covenant, agreement, or obligation contained herein,
which breach cannot be or has not been cured within 30 days after the giving of
written notice to the Party committing such breach; or
(j) by either Gulf West or the Bank, if the shareholders of the Bank
fail to vote their approval of this Agreement and the transactions contemplated
as required by the FFIC or the National Banking Act at the Shareholders' Meeting
(or any adjournment thereof).
SECTION 8.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.1 hereof, this Agreement
shall forthwith become void and have no effect, without any liability on the
part of any Party or its directors, officers or shareholders, other than
pursuant to the provisions of Sections 6.9(f), the last two sentences of 6.1(a),
6.13, 6.15, 8.2, 10.1, 10.8 and 10.15. Neither Party hereto shall be liable for
monetary damages resulting from any breach of this Agreement unless such breach
results from a knowing misrepresentation which the breaching Party knows was a
misrepresentation when made, and which results in a Material Adverse Change or
results from the intentional material breach of a covenant which is within the
reasonable control of the breaching Party. Additionally, if a representation
becomes untrue between the execution of this Agreement and the Closing and such
facts and circumstances which caused such representation to become untrue were
beyond the reasonable control of the Party making such representation, such
Party shall not be liable to the other Party for the monetary damage with
respect thereto. The foregoing notwithstanding, nothing contained herein shall
be deemed to relieve
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the obligation of the Bank to pay any termination fee which may be due under
Section 8.5 hereof if payment is otherwise required under the provisions
thereof.
SECTION 8.3 Amendment. To the extent permitted by applicable law, this
Agreement may be amended by action taken by or on behalf of the Board of
Directors of the Bank, Gulf West and, if required, Mercantile at any time before
or after adoption of this Agreement by the shareholders of the Bank but, after
any submission of this Agreement to such shareholders for approval, no amendment
shall be made which reduces the Merger Consideration to be paid pursuant to the
Merger or which materially and adversely affects the rights of the Bank's
shareholders hereunder without any required approval of such shareholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of all the Parties.
SECTION 8.4 Extension; Waiver. At any time prior to the Effective Time,
the parties may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto, or (iii) waive
compliance with any of the agreements or conditions contained herein, except
that no waiver shall be effective which reduces the Merger Consideration or
which materially affects the rights of the Bank's shareholders unless such
waiver is approved by two thirds of the Bank's Shareholders. Any agreement on
the part of any Party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such Party.
SECTION 8.5 Termination Fee. If the Bank either (a) violates its
obligations set forth in Section 6.6 hereof and this Agreement is thereafter
terminated pursuant to Section 8.1(b)(ii), or (b) prior to termination of this
Agreement receives any Acquisition Proposal and this Agreement is thereafter
terminated pursuant to Sections 8.1(f) or 8.1(g) as a result of receipt of such
Acquisition Proposal, then the Bank shall pay to Gulf West a fee of $500,000 in
cash at the time of such termination.
ARTICLE IX.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
Except for this Article IX, Article II, and Sections 1.1, 1.2, 1.3,
1.4, 1.5, 1.6, 6.8, 6.13, 10.1, 10.3, 10.5 and 10.13, the Parties hereto agree
that none of their respective representations warranties and covenants contained
in this Agreement shall survive after the Effective Time. Such representations,
warranties, obligations, covenants, and agreements which do survive the
Effective Time shall be for the benefit of the employees and indemnified persons
referenced therein and if not otherwise
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referenced to the benefit of the shareholders of the Bank existing prior to the
Effective Time.
ARTICLE X.
MISCELLANEOUS
SECTION 10.1 Expenses. All costs and expenses incurred in connection
with the transactions contemplated by this Agreement, including without
limitation, attorneys' fees, accountants' fees, other professional fees and
costs related to expenses of officers and directors of the Bank, shall be paid
by the Party incurring such costs and expenses; provided, however, without the
consent of Gulf West, which consent shall not be unreasonably withheld, all such
costs and expenses paid or accrued as of the Effective Time by the Bank
including but not limited to the fairness opinion fee of Alex Sheshunoff & Co.
Investment Banker and all legal and accounting fees shall not exceed $150,000.
Each Party hereto hereby agrees to and shall indemnify the other Party hereto
against any liability arising from any such fee or payment incurred by such
Party.
SECTION 10.2 Brokers and Finders. All negotiations on behalf of Gulf
West and the Bank relating to this Agreement and the transactions contemplated
by this Agreement have been carried on by the parties hereto and their
respective agents directly without the intervention of any other person in such
manner as to give rise to any claim against Gulf West, Mercantile or the Bank
for financial advisory fees other than the fee of $35,000 payable to Alex
Sheshunoff & Co. Investment Banking in connection with the rendering of a
fairness opinion (the "Fairness Opinion Fee"), brokerage or commission fees,
finder's fees or other like payment in connection with the consummation of the
transactions contemplated hereby.
SECTION 10.3 Entire Agreement; Assignment. Except as otherwise
expressly provided herein, this Agreement (a) constitutes the entire agreement
among the Parties with respect to the transactions contemplated hereunder and
supersedes all other prior agreements, representations and understandings, both
written and oral, among the Parties or any of them with respect to the subject
matter hereof, including, without limitation, the Merger Agreement, and (b)
shall not be assigned by operation of law or otherwise, provided that Gulf West
may assign its rights and obligations or those of Mercantile to any direct or
indirect, wholly-owned, subsidiary of Gulf West, but no such assignment shall
relieve Gulf West of its obligations hereunder if such assignee does not perform
such obligations.
SECTION 10.4 Further Assurances. From time to time as and when
requested by Gulf West or its successors or assigns, the Bank and the officers
and directors of the Bank, shall execute and deliver such further agreements,
documents, deeds, certificates and
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other instruments and shall take or cause to be taken such other actions,
including those as shall be necessary to vest or perfect in or to confirm of
record or otherwise the Bank's title to and possession of, all of its property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority, as shall be reasonably necessary or advisable to carry out the
purposes of and effect the transactions contemplated by this Agreement.
SECTION 10.5 Enforcement of the Agreement. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
SECTION 10.6 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner Materially Adverse to any
Party.
SECTION 10.7 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered if delivered in person, by cable, telegram or telex or
by telecopy; five business days after mailing if delivered by registered or
certified mail (postage prepaid, return receipt requested); and two business
days after sending if delivered by overnight courier; to the respective parties
as follows:
if to Gulf West or Mercantile:
Mercantile Bank
425 22nd Avenue North
St. Petersburg, Florida 33704
Attention: Gordon W. Campbell
Chairman of the Board, President
With a required copy to:
David C. Shobe, Esq.
Fowler White Gillen Boggs Villareal & Banker, P.A.
501 E. Kennedy Blvd.
Tampa, Florida 33601
if to the Bank:
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Citizens National Bank
& Trust Company
9550-1 U.S. Highway 19
Port Richey, Florida 34668
Attention: Dr. Henry W. Hanff
Chairman of the Board
With a required copy to:
Richard A. Denmon, Esq.
Carlton Fields
One Harbour Place
Tampa, Florida 33601
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 10.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 10.9 Descriptive Headings. The descriptive headings are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 10.10 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each Party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 10.11 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
SECTION 10.12 Incorporation by References. Any and all schedules,
exhibits, annexes, statements, reports, certificates or other documents or
instruments referred to herein or attached hereto are incorporated herein by
reference hereto as though fully set forth at the point referred to in the
Agreement.
SECTION 10.13 Obligation of Gulf West. Whenever this Agreement requires
Gulf West (including the Surviving Corporation) to take any action, such
requirement shall be deemed to include an undertaking by Gulf West to cause its
Subsidiaries to take such action.
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SECTION 10.14 Fiduciary Duty. Subject to Sections 6.6, 8.1(f) and (g)
and 8.5, no provision of this Agreement shall be construed to prevent the
exercise by any director of the Bank (or the actions of the Bank thereon) of his
or her fiduciary duty.
SECTION 10.15 Certain Definitions.
(a) "Affiliate" shall mean, with respect to any person, any person
that, directly or indirectly, controls, is controlled by, or is under common
control with, such person in question. For the purposes of this definition,
"control" (including, with correlative meaning, the terms "controlled by" and
"under common control with") as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities or by contract or otherwise.
(b) "Environmental Laws" shall mean all federal, state and local laws,
ordinances, rules, regulations, and orders of courts or administrative agencies
or authorities, relating to the release, threatened release, recycling,
processing, use, handling, transportation treatment, storage, disposal,
remediation, removal, inspection or monitoring of Polluting Substances or
protection of human health or safety or the environment (including, without
limitation, wildlife, air, surface water, ground water, land surface, and
subsurface strata), including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, as amended
("SARA"), the Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), Hazardous and Solid Waste Amendments of 1984, as amended ("HSWA"), the
Hazardous Materials Transportation Act, as amended ("HMTA"), the Toxic
Substances Control Act ("TSCA"), Occupational Safety and Health Act ("OSHA"),
Federal Water Pollution Control Act, Clean Air Act, and any and all regulations
promulgated pursuant to any of the foregoing.
(c) "Knowledge," "known," "know(s)" or "knowing" -- An individual shall
be deemed to have "knowledge" of or to have "known" a particular fact or other
matter if (i) such individual is actually aware of such fact or other matter, or
(ii) such individual could be expected to discover or otherwise become aware of
such fact or other matter in the course of conducting a reasonable
investigation. A corporation or bank shall be deemed to have "Knowledge" of or
to have "known" a particular fact or other matter if any individual who is
serving, as a director, or as an officer listed on Section 10.15(c) of the
Disclosure Letter, of the corporation or bank, has, or at any time had, actual
Knowledge of such fact or other matter. Each Party hereto is understood to have
undertaken a separate investigation pursuant to which they have discussed with
the directors, senior vice president and executive officers of Gulf
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West, Mercantile, or the Bank, as the case may be, the transactions contemplated
hereby and reviewed their respective files to determine the existence or absence
of facts or other matters in any statement qualified as "known" by, or the
"Knowledge" of, each Party hereto, provided that in conducting such
investigation the parties shall not be required to conduct interviews with their
respective employees other than their respective Senior Vice Presidents,
Executive officers and Directors unless the discussions with such senior vice
presidents, executive officers and directors specifically indicates that such
employee(s) may have relevant information of a specific nature which the parties
should follow up on.
(d) "Material Adverse Effect or Change" or "Materially Adverse Effect
or Change" on a Party shall mean an event, change, or occurrence which,
individually or together with any other event, change, or occurrence, has a
material adverse impact on (i) the financial position, business, or results of
operations of such Party and its Subsidiaries, taken as a whole, or (ii) the
ability of such Party to perform its obligations under this Agreement or to
consummate the Merger or the other transactions contemplated by this Agreement;
provided, that, "Material Adverse Effect or Change" shall not be deemed to
include the impact of (a) changes in banking and similar laws of general
applicability or interpretations thereof by courts or governmental authorities,
and (b) actions and omissions of a Party (or any of its Subsidiaries) taken with
the prior informed written consent of the other Party in contemplation of the
transactions contemplated hereby.
(e) "Polluting Substances" shall mean those substances included within
the statutory or regulatory definitions, of "pollutant," "contaminant," "toxic
waste," "hazardous substance," "hazardous waste," "solid waste," or "regulated
substance" pursuant to CERCLA, SARA, RCRA, HSWA, HMTA, TSCA, OSHA, and/or any
other Environmental Laws, as amended, and shall include, without limitation, any
material, waste or substance which is or contains explosives, radioactive
materials, oil or any fraction thereof, asbestos, or formaldehyde. To the extent
that the laws or regulations of the State of Florida establish a meaning for
"hazardous substance," "hazardous waste," "hazardous materials," "solid waste,"
or "toxic waste," which is broader than that specified in any of CERCLA, SARA,
RCRA, HSWA, HMTA, TSCA, OSHA or other Environmental Laws such broader meaning
shall apply.
(f) "Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing, discarding or abandoning.
(g) "Subsidiary" shall mean, when used with reference to an entity, any
corporation, a majority of the outstanding voting securities of which are owned
directly or indirectly by such entity or any partnership, joint venture or other
enterprise in which any entity has, directly or indirectly, any equity interest.
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year first above written.
Attest CITIZENS NATIONAL BANK
& TRUST COMPANY
/s/ Carol Kinnard By:/s/ Philip Chestnut
- ------------------ -----------------------
(SEAL)
Attest GULF WEST BANKS, INC.
/s/ Barry K. Miller By:/s/ Gordon W. Campbell
- ------------------- -------------------------
(SEAL)
Attest MERCANTILE BANK
/s/ Barry K. Miller By:/s/ Gordon W. Campbell
- -------------------- ----------------------
(SEAL)
64
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ANNEX B
PROVISIONS OF THE NATIONAL BANKING ACT RELATING
TO DISSENTERS' RIGHTS OF APPRAISAL
SECTION 214A. PROCEDURE FOR CONVERSION, MERGER OR CONSOLIDATION; VOTE
OF STOCKHOLDERS
A national banking association may, by vote of the holders of at least
two-thirds of each class of its capital stock, convert into, or merge or
consolidate with, a State bank in the same State in which the national banking
association is located, under a State charter, in the following manner:
(a) Approval of board of directors; publication of notice of stockholders'
meeting; waiver of publication; notice by registered or certified mail
The plan of conversion, merger, or consolidation must be approved by a
majority of the entire board of directors of the national banking association.
The bank shall publish notice of the time, place, and object of the
stockholders' meeting to act upon the plan, in some newspaper with general
circulation in the place where the principal office of the national banking
association is located, at least once a week for four consecutive weeks:
Provided, That newspaper publication may be dispensed with entirely if waived by
all the stockholders and in the case of a merger or consolidation one
publication at least ten days before the meeting shall be sufficient if
publication for four weeks is waived by holders of at least two-thirds of each
class of capital stock and prior written consent of the Comptroller of the
Currency is obtained. The national banking association shall send such notice to
each stockholder of record by registered mail or by certified mail at least ten
days prior to the meeting, which notice may be waived specifically by any
stockholder.
(b) Rights of dissenting stockholders
A stockholder of a national banking association who votes against the
conversion, merger, or consolidation, or who has given notice in writing to the
bank at or prior to such meeting that he dissents from the plan, shall be
entitled to receive in cash the value of the shares held by him, if and when the
conversion, merger, or consolidation is consummated, upon written request made
to the resulting State bank at any time before thirty days after the date of
consummation of such conversion, merger, or consolidation, accompanied by the
surrender of his stock certificates. The value of such shares shall be
determined as of the date on which the stockholders' meeting was held
authorizing the conversion, merger, or consolidation, by a committee of three
persons, one to be selected by majority vote of the dissenting stockholders
entitled to receive the value of their shares, one by the directors of the
resulting State bank, and the third by the two so chosen. The valuation agreed
upon by any two of three appraisers thus chosen shall govern; but, if the value
so fixed shall not be satisfactory to any dissenting stockholder who has
requested payment as provided herein, such stockholder may within five days
after being notified of the appraised value of his shares appeal to the
Comptroller of the Currency, who shall cause a reappraisal to be made, which
shall be final and binding as to the value of the shares of the appellant. If,
within ninety days from the date of consummation of the conversion, merger, or
consolidation, for any reason one or more of the appraisers is not selected as
herein provided, or the appraisers fail to determine the value of such shares,
the Comptroller shall upon written request of any interested party, cause an
appraisal to be made, which shall be final and binding on all parties. The
expenses of the Comptroller in making the reappraisal, or the appraisal as the
case may be, shall be paid by the resulting State bank. The plan of conversion,
merger, or consolidation shall provide the manner of disposing of the shares of
the resulting State bank not taken by the dissenting stockholders of the
national banking association.
<PAGE> 235
ANNEX C
[LETTERHEAD OF ALEX SHESHUNOFF & CO. INVESTMENT BANKING]
July 31, 1997
Board of Directors
Citizens National Bank and Trust Company
9550-1 US Highway 19, Embassy Crossing
Port Richey, Florida 34668-4640
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding shares of common stock of Citizens
National Bank and Trust Company ("Citizens"), of the exchange ratio ("Exchange
Ratio") by which holders of the outstanding common stock of Citizens will
receive shares of the common stock of Gulf West Banks, Inc. ("Gulf West"). The
shares will be exchanged pursuant to the Agreement and Plan of Merger dated on
or about July 30, 1997 (the "Merger Agreement") which provides for the merger
(the "Merger") of Citizens with and into Mercantile Bank ("Mercantile"), a
wholly owned subsidiary of Gulf West. Pursuant to the Merger Agreement, each
share of Citizens' common stock, par value $5.00 per share, issued and
outstanding immediately prior to the Effective Time, shall be converted into
and represent the right to receive 3.2336 shares of Gulf West common stock.
Alex Sheshunoff & Co. Investment Banking ("Sheshunoff") is regularly engaged in
the valuation of securities in connection with mergers and acquisitions,
private placements, and valuations for estate, corporate and other purposes.
Sheshunoff was previously engaged, in the Fall of 1995, to assist Citizens in
assessing the possibility of a sale of Citizens to another banking
organization. On behalf of Citizens, Sheshunoff solicited more than fifty
companies, provided fourteen companies with information regarding Citizens and
received two indications of interest in a possible acquisition of Citizens for
cash and no expressions of interest in an acquisition for stock. Citizens'
Board of Directors deemed the offers inadequate and terminated its search,
electing to pursue a possible affiliation in a merger with a community bank
having similar competitive circumstances and compatible business philosophies.
Sheshunoff did not participate in Citizens' search for a possible merger
partner.
<PAGE> 236
Board of Directors
Citizens National Bank and Trust Company
July 31, 1997
Page 2
In connection with our opinion, we have, among other things:
1. Evaluated the Exchange Ratio and the relative contributions of
each of the companies to the combined company based upon: (i)
1996 reported earnings adjusted in the case of Gulf West for
their SAIF special assessment; (ii) 1997 estimated earnings for
both companies; (iii) 1997 estimated earnings adjusted in the
case of Citizens for their settlement of certain litigation; and
(iv) reported equity capital. The Exchange Ratio was negotiated
between the management of Citizens and Gulf West without the
participation or assistance of Sheshunoff;
2. Analyzed the potential improvement in stock liquidity, market
value, profitability, earnings, asset growth and franchise value
to Citizens following the Merger, as an alternative to continued
operations as an independent bank;
3. Reviewed Citizens' and Gulf West's most recent Annual Reports as
of December 1996 and quarterly reports as of March 31, 1997, as
well as unaudited internal financial statements;
4. Reviewed certain internal financial reports and earnings
estimates for Citizens and Gulf West individually and on a
combined basis, and held discussions with the management of both
companies concerning their recent operating performance and
expected 1997 operating performance;
5. Reviewed the expected cost savings in the merger as estimated by
the management of Citizens and Gulf West;
6. Compared Citizens' and Gulf West's recent operating results with
those of certain other banks and thrifts operating in the
southeastern United States that we deemed appropriate;
7. Reviewed the historical stock price and limited trading volume
of Gulf West common stock and the lack of any active market for
Citizens common stock. Reviewed the most recent pricing for a
completed trade of Gulf West's stock ($5.50 per share) for which
Gulf West has trade price information;
<PAGE> 237
Board of Directors
Citizens National Bank and Trust Company
July 31, 1997
Page 3
8. Discussed with the management of Citizens and Gulf West, Gulf
West's plans to register, with the Securities and Exchange
Commission, Gulf West's existing common stock and the stock to
be issued in connection with the Merger resulting in potentially
improved liquidity in the stock and the potential to develop a
more active trading market;
9. Reviewed a draft of the Merger Agreement;
10. Reviewed the exchange ratios and other pricing data of mergers
of small and modestly profitable banking companies in Florida
and the Southeast completed during the last year;
11. Reviewed Citizens' recent attempt to sell Citizens and the
limited number of responses to the sale solicitation. The two
expressions of interest received were both for cash
consideration in the amounts of approximately $8.6 million and
$7.8 million. Based upon the Exchange Ratio in the Merger
Agreement and a $5.50 per share market value for Gulf West
common stock, the Merger results in Citizens shareholders
receiving Gulf West common stock with an aggregate estimated
market value of $10,725,000; and,
12. Performed such other analyses as we deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information provided to us by Citizens and Gulf West
for the purposes of this opinion. In addition, where appropriate, we have
relied upon publicly available information that we believe to be reliable,
accurate and complete; however, we cannot guarantee the reliability, accuracy
or completeness of any such publicly available information. We have not made
an independent evaluation of the assets or liabilities of Citizens or Gulf
West, nor have we been furnished with any such appraisals.
We have assumed that financial forecasts and earnings estimates prepared by the
management of Citizens and Gulf West have been reasonably prepared and reflect
management's best currently available estimates and judgment as to the future
financial performance of the companies. We have assumed such forecasts and
projections will be realized in the amounts and at the times contemplated
thereby. We also relied upon management's estimate of the dollar amount and
attainability of the expected cost savings and revenue enhancements resulting
from the Merger.
<PAGE> 238
Board of Directors
Citizens National Bank and Trust Company
July 31, 1997
Page 4
We are not experts in the evaluation of loan portfolios for the purposes of
assessing the adequacy of the allowance for losses and have assumed that such
allowances for each of the companies are in the aggregate, adequate to cover
such losses. We assume that no material change in the signed final Merger
Agreement will occur when compared to the last draft of the Merger Agreement
provided to us. We have assumed that both Citizens and Gulf West will receive
all required regulatory approvals necessary to consummate the Merger without
conditions that will materially impact the Merger.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
Events occurring after the date hereof could materially affect the assumptions
used in preparing this opinion.
Our opinion is limited to the fairness, from a financial point of view, to the
holders of Citizens' common stock, of the Exchange Ratio as stated in the
Merger Agreement and does not address Citizens' underlying business decision to
undertake the Merger. Moreover, this letter, and the opinion expressed herein,
does not constitute a recommendation to any shareholder as to any approval of
the Merger or the Merger Agreement. It is understood that this letter is for
the information of the Board of Directors of Citizens and may not be used for
any other purpose without our prior written consent, except that this opinion
may be included in its entirety in any regulatory filings made by Citizens and
Gulf West with respect to the Merger.
Based on the foregoing and such other matters we have deemed relevant, it is
our opinion, as of the date hereof, that the Exchange Ratio is fair, from a
financial point of view, to the holders of Citizens common stock.
Very truly yours,
/s/ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
<PAGE> 239
[LETTERHEAD OF ALEX SHESHUNOFF & CO. INVESTMENT BANKING}
December 8, 1997
Board of Directors
Citizens National Bank and Trust Company
9550-1 US Highway 19, Embassy Crossing
Port Richey, Florida 34668-4640
Members of the Board:
In a letter dated July 31, 1997, Alex Sheshunoff & Co. Investment Banking
provided its opinion as to the fairness, from a financial point of view, to the
holders of the outstanding shares of common stock of Citizens National Bank and
Trust Company ("Citizens"), of the exchange ratio ("Exchange Ratio") by which
holders of the outstanding common stock of Citizens will receive shares of the
common stock of Gulf West Banks, Inc. ("Gulf West"). The shares will be
exchanged pursuant to the Agreement and Plan of Merger dated on or about July
30, 1997 (the "Merger Agreement") which provides for the merger (the "Merger")
of Citizens with and into Mercantile Bank ("Mercantile"), a wholly owned
subsidiary of Gulf West. Pursuant to the Merger Agreement, each share of
Citizens' common stock, par value $5.00 per share, issued and outstanding
immediately prior to the Effective Time, shall be converted into and represent
the right to receive 3.2336 shares of Gulf West common stock.
Management has indicated that since the date of our original opinion letter,
there has been no material adverse change in the financial position of Citizens
and that Citizens has not received any expression of interest from any other
potential acquirer of Citizens.
Subject to the assumptions and limitations contained in our letter of July 31,
1997, this letter confirms our opinion that the Exchange Ratio is fair, from a
financial point of view to Citizen's shareholders.
Very truly yours,
/s/Alex Sheshunoff & Co.
Investment Banking
Alex Sheshunoff & Co.
Investment Banking
<PAGE> 240
CITIZENS NATIONAL BANK AND TRUST COMPANY
SPECIAL MEETING OF STOCKHOLDERS, JANUARY 14, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder of shares of common stock of Citizens National
Bank and Trust Company ("CNB"), a national bank organized under the laws of
the United States of America, does hereby appoint Dr. Henry W. Hanff and Philip
H. Chesnut, and each of them, as due and lawful attorneys-in-fact (each of whom
shall have full power of substitution), to represent and vote as designated
below all of the shares of CNB common stock that the undersigned held of record
at 5:30 p.m., Eastern Standard Time, on December 11, 1997, at the Special
Meeting of Stockholders of CNB, to be held at 9550-1 U.S. Highway 19, Port
Richey, Florida on January 14, 1998 at 5:30 p.m. or any adjournment thereof, on
the following matters, and on such other business as may properly come before
the meeting:
1. APPROVAL OF ACQUISITION PROPOSAL
Proposal to approve and adopt the Amended and Restated Agreement and
Plan of Merger dated as of October 16, 1997, by and among Gulf West
Banks, Inc., Mercantile Bank, and CNB as described in the accompanying
Proxy Statement/Prospectus dated December 12, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, on such other business as may properly come before
the meeting.
(Please Sign and Date on Reverse Side)
<PAGE> 241
(Continued from other side)
PLEASE SIGN AND RETURN PROMPTLY.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE
APPROVAL OF THE ACQUISITION PROPOSAL.
PLEASE ENTER THE NUMBER OF SHARES OF CNB COMMON STOCK YOU OWN:_____________
(Please sign, date, and return this proxy form exactly as your name or names
appear below whether or not you plan to attend the meeting.)
[ ] I plan to attend the Special Meeting.
[ ] I do not plan to attend the Special Meeting.
Date: , 1997
Signature(s):
Title or Authority (if applicable)
PLEASE SIGN YOUR NAME HERE EXACTLY AS IT
APPEARS HEREON. JOINT OWNERS SHOULD EACH
SIGN. WHEN SIGNING AS AN ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE, GUARDIAN, CORPORATE
OFFICER OR OTHER SIMILAR CAPACITY, SO
INDICATE. IF THE OWNER IS A CORPORATION, AN
AUTHORIZED OFFICER SHOULD SIGN FOR THE
CORPORATION AND STATE HIS TITLE. THIS PROXY
SHALL BE DEEMED VALID FOR ALL SHARES HELD IN
ALL CAPACITIES THAT THEY ARE HELD BY THE
SIGNATORY.
