<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Year Fiscal Ended December 31, 1997
Commission File Number 33 Act File No. -33-90524
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VALRICO BANCORP, INC.
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(Exact name of registrant as specified in its Charter)
(FLORIDA) 65-0553757
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1815 EAST STATE ROAD 60, VALRICO, FLORIDA 33594
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(Address of principal executive offices and zip code)
(813) 689-1231
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. (1) Yes X (2) No
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As of December 31, 1997, there were 299,115 shares of common stock outstanding.
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PART I
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ITEM 1. BUSINESS
GENERAL
Valrico Bancorp, Inc. (the "Company") is a one-bank holding company which was a
newly-formed corporation on May 31, 1995 with its principal place of business
in Valrico, Florida. The Company subsequently acquired all of the outstanding
common stock of Valrico State Bank (the "Bank"), a wholly-owned subsidiary.
All shares held by the Bank's shareholders were exchanged on a one-to-one basis
for Valrico Bancorp, Inc. shares. The Company's common stock, no par value,
authorized 1,000,000 shares, had 299,115 issued and outstanding shares as of
December 31, 1997. The Company derives substantially all of its income from
dividends and lease from its subsidiary. The results of operations of the
Company for 1997 are minimal and are not material to the consolidated financial
statements. The Bank and the Company share the same board of directors, which
is comprised of nine individuals. Those individuals are C. Dennis Carlton, H.
Leroy English, Gregory L. Henderson, Douglas A. Holmberg, Charles E. Jennings,
Jr., J.E. McLean, III, Justo Noriega, Jr., LeVaughn Amerson, and Jerry L. Ball.
SUBSIDIARY BANK
Valrico State Bank (the "Bank") was incorporated under the laws of the state of
Florida on August 29, 1988. The Bank was chartered as a Florida state bank
effective June 23, 1989 after receiving approval to organize from the Florida
Department of Banking and Finance (the "Florida Department"). The Bank
commenced operations on June 23, 1989. The Bank is supervised, regulated and
regularly examined by the Florida State Banking Department and the Federal
Deposit Insurance Corporation. The Bank is not currently a member of the
Federal Reserve Bank.
DESCRIPTION OF BUSINESS
BANKING OFFICES AND PRIMARY MARKET AREA: The Company, through its subsidiary
bank, conducts a general commercial banking business from its main office
located at 1815 East State Road 60, Valrico, Florida 33594-3623 and its three
branch facilities located at 102 West Robertson Street, Brandon, Florida
33511, 305 South Wheeler Street, Plant City, Florida 33566, and 2602 Jim
Redman Parkway, Plant City, Florida 33566. The Company's primary telephone
number is (813) 689-1231. Valrico is a community located in the eastern
portion of Hillsborough County, Florida, and is approximately 14 miles east of
Tampa, Florida, which is located on the west coast of the state of Florida.
While the Bank's overall market area extends throughout Hillsborough County, it
expects to draw most of its business from eastern Hillsborough County (the
Brandon/Valrico/Dover/Plant City area) and estimates that more than 75% of its
business will come from customers whose businesses or residences are located in
an area within a radius of approximately five miles of the Bank's principle
offices (the "Bank's Assessment Area"). The Company, through its subsidiary
bank, intends for the near future, to service (with few exceptions) only
residents and businesses located in Hillsborough County, but may choose to
accept some business from outside of Hillsborough County.
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The Bank received approval in January 1994 from the Federal Deposit Insurance
Corporation and the Florida Department of Banking and Finance to open a branch
located at 102 West Robertson Street, Brandon, Florida 33511. Therefore, the
Bank successfully opened its first branch on April 29, 1994, which is located
approximately one and a half miles west of the main office and located in our
current community and assessment area. The location is in the center of
Brandon, extremely convenient to many businesses and professional offices.
The Bank, after receiving regulatory approval, opened its second branch on
September 15, 1995, in Plant City located at 305 South Wheeler Street (corner
of Renfro and Wheeler). The Bank purchased, from Barnett Bank, a former
Glendale Federal Bank branch, a free standing building with approximately 2,400
square feet including the land and furniture. This positioned the Bank to
better service the Plant City market in which the Bank was already servicing a
small customer base.
The Bank, after receiving regulatory approval, opened its third branch on June
23, 1997 as an in-store branch facility in the Wal-Mart Supercenter on Jim
Redman Parkway in Plant City, Florida. The Bank leases the facilities at this
site.
BANKING SERVICES: The Company, through it subsidiary, conducts substantially
the same business operations as a typical independent commercial bank with
special emphasis on retail banking. The Bank offers a wide range of consumer
and commercial banking services traditionally offered by commercial banks, such
as personal and commercial checking accounts, regular negotiable order of
withdrawal ("NOW") accounts, certificates of deposits, money market accounts,
savings accounts, IRA accounts, foreign currency exchanges, credit cards, debit
cards, money orders, travelers' cheques, notary service, safe deposit boxes and
wire transfers. It also offers discounted brokerage services, profit sharing
programs, 401(k)s and other similar programs. These depository services are
further complemented by direct deposit programs, night depository services, and
bank by mail. The Bank's main office is open from 9:00 a.m. to 4:00 p.m.,
Mondays through Thursdays, 9:00 a.m. to 6:00 p.m. on Fridays, and 9:00 a.m. to
12:00 p.m. on Saturdays. The Bank also offers drive-up teller facilities which
are open from 8:00 a.m. to 6:00 p.m., Mondays through Fridays, and 9:00 a.m. to
12:00 p.m. on Saturdays. The Brandon and Wheeler Street branches have the same
office hours, except they have no Saturday lobby hours. The Jim Redman Parkway
branch offers extended hours of service from 10:00 a.m. to 8:00 p.m. Monday
through Saturday. The Bank does currently own one automatic teller machine
(ATM) at the Jim Redman Parkway branch and has intentions on purchasing more in
the immediate future. It also offers ATM and Mastermoney Debit cards to its
customers which can be used at ATM machines which are members of the Southeast
Switch, which includes HONOR Network (Florida and other southeastern states)
and CIRRUS (a worldwide network).
The Bank originates a wide range of loans including, but not limited to,
commercial and consumer loans, as well as loans secured by deposit accounts and
other marketable collateral. As of December 31, 1997, commercial and consumer
loans accounted for approximately 52.7% and 15.3%, respectively, of the Bank's
loan portfolio. Loans are also made to enable borrowers to purchase,
refinance, construct or improve residential or other real estate and usually
are secured by mortgages on such real estate. As of December 31, 1997, real
estate mortgage loans accounted for approximately 10.8% of the Bank's loan
portfolio. To service the agricultural segment of the Bank's market area, the
Bank employs an
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agricultural lender. As of December 31, 1997, 21.2% of the total loan
portfolio was comprised of agricultural loans. All loans are made in
compliance with applicable Federal and state regulations.
The Bank uses a computer system to handle all accounting and statement
processing. In addition, the Bank makes extensive use of personal computers in
its teller and lobby locations, which allows for efficient handling and
tracking of new accounts, loans and other paper intensive services, and
provides every employee of the Bank access to complete customer profiles at all
times.
The Bank offers a complete brokerage service through a third party which
permits its customers to buy and sell stocks and bonds and otherwise trade in
securities at a discount with full accountability of their transactions. The
Bank does not currently have a trust department. However, because of potential
for growth of the Bank, the growth of the economy of Hillsborough County, and
the income-producing nature of the residents within the Bank's Assessment Area,
consideration may be given to the development and delivery of trust services in
the future. In the interim, the Bank will offer, through third parties,
standard and self-directed IRA, the new Roth and Educational IRA, qualified
pension plans, SEPs, Keogh and profit-sharing plans, including 401(k) plans,
etc.
OPERATING STRATEGY: Management of the Company 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. The Bank was organized as a locally-owned, locally- managed
community financial institution, owned and managed by people who are actively
involved in the Bank's market area and committed to its economic growth and
development. With local ownership, management and directors, the Bank believes
it can be more responsive to the community it serves and tailor services to its
customers' needs rather than the standardized services that large holding
companies tend to offer. Local ownership and operation will allow faster, more
responsive and flexible decision-making, which may not be available at the
majority of financial institutions in or near the Bank's Assessment 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 the Bank is to attract deposits from the general
public, and to invest those funds in various types of loans and other
interest-earning assets. Funds provide for the operations of the Bank through
proceeds from the sale of investments and loans, from amortization and
repayment of outstanding loans, from borrowings, and from working capital.
Earnings of the Bank depend primarily upon the difference between (1) the
interest and fees received by the Bank from loans, the securities held in its
investment portfolio, and other investments, and (2) expenses incurred by the
Bank in connection with obtaining funds for lending (including interest paid on
deposits and other borrowings) and expenses relating to day-to-day operations.
The primary sources of the Bank's funds for lending and for other general
business purposes are the Bank's capital, deposits, loan repayments, borrowings
and funds provided from operations. The Bank expects that loan repayments and
funds provided from operations 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 are used to compensate for reductions in
normal sources of funds while longer- term borrowings are used to support
expanded lending activities.
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The Bank's customers are primarily individuals, professionals, small and medium
size businesses, and citrus and agricultural enterprises located predominantly
in eastern and southern Hillsborough County, Florida. The Bank's business is
not dominated by a single customer or by a few customers. The loss of any one
or more would not have a materially adverse effect on the business of the Bank.
The Bank attempts to tailor its services to the needs of its customers since
there is a heavy emphasis on retail and service-oriented businesses in the
Company's market area. Moreover, the Bank's main office location is on a major
east-west artery in one of eastern Hillsborough County's faster growing areas
in terms of the number of new residents. The exposure provided by the site and
the population growth of the area are expected to contribute to the growth of
the Company.
The Bank continually seeks to develop new business through an ongoing program
of personal calls on both present and potential customers. As a local
independent bank, the Bank 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, the Company's directors all have
worked and/or lived in or near eastern Hillsborough County for a number of
years. The Bank believes that this factor, coupled with the past and continued
involvement of the directors in various local community activities, will
further promote its image as a locally-oriented independent institution, which
management believes is an important factor to its targeted customer base.
COMPETITION: The banking business in Florida in general, and in Hillsborough
County in particular, is highly competitive with respect to both loans and
deposits. The Bank competes with other commercial banks in Hillsborough County
and the surrounding area for all services customarily provided by commercial
banks. In addition, the Bank competes with savings and loan associations,
finance companies, insurance companies, money market mutual funds, credit
unions, other financial institutions and various other non-bank competitors.
Many of these competitors are larger and have greater resources, including more
personnel and a larger asset base, than the Bank and provide certain services,
such as trust services, which the Bank does not currently provide.
As of December 31, 1997, there were 10 commercial banks (including the
Company's subsidiary bank) with 37 offices and 1 savings and loan association
with 5 offices; at least 4 credit unions; and various other financial entities
as competitors in the Bank's Assessment Area. The Company expects to receive
substantial competition from most of these financial institutions. The Bank's
main office is located on East State Road 60, a primary east-west artery in the
Bank's Assessment Area, and 800 feet west of Valrico Road, a primary
north-south artery in the Bank's Assessment Area. The Brandon branch facility
is located in the center of Brandon, the Plant City branch facility is located
in the center of Plant City, and the Jim Redman Parkway branch is located in
the eastern section of Plant City. The Bank is one of only three financial
institutions which have their headquarters in eastern Hillsborough County. The
other financial institutions, being Sunshine State Savings and Loan in Plant
City, and the newly opened Platinum Bank in Brandon. All others are branches
of institutions which have their headquarters in other parts of Hillsborough
County or elsewhere in Florida. Several actually are owned by banks with
headquarters in Georgia, Alabama, North Carolina, Ohio, and New Jersey. The
Bank's second branch was opened in 1995 in the Plant City market and the Bank
expanded in this market area with an in-store branch which opened on June 23,
1997 within a Walmart Supercenter on Jim Redman Parkway. This location is in a
growing area and a very active shopping center with an estimated 50,000 plus
customers per week. This Wal-Mart is one of their largest supercenters in
Florida.
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In order to compete with major financial institutions and others in
the Bank's Assessment Area, the Bank will continue to emphasize specialized
services, local promotional activity and personal contacts by the Bank's
officers, directors and employees. The Bank believes that its local ownership
and community-oriented operating philosophy and personalized banking services
are competitive factors in which it has strength.
DEPOSITS: As of December 31, 1997, total deposits of the Bank were distributed
among demand deposits (16.7%), savings and time deposits (58.3%) and NOW and
money market deposits (25.0%). The Bank's deposits are attracted primarily
from individuals, professionals, small and medium size businesses and citrus
and agricultural enterprises located predominantly in eastern Hillsborough
County, Florida. As of December 31, 1997, approximately 31.7% of the Bank's
total deposits were from businesses and 68.3% were from individuals.
Management of the Bank has no reason to believe that the loss of any one or a
few of its deposit accounts would have a material adverse effect upon the
operations of the Bank or erode its deposit base.
SUPERVISION AND REGULATION: The Company is regulated under both state and
Federal law. The Company is regulated by the Federal Reserve Bank of Atlanta
and is subject to the rules and regulations of the Securities and Exchange
Commission. The Company's subsidiary bank is not a member of the Federal
Reserve System, but is subject to the rules and regulations of the Federal
Deposit Insurance Corporation ("FDIC") which agency also insures the Bank's
deposits up to applicable limits. As a state-chartered bank, the Bank is
subject to the regulations of the Florida Department. The Bank will be subject
to periodic examinations by both the FDIC and the Florida Department focusing
on fund reserves, loans and loan policy, investments, management policy and
practices, and various other aspects of the Bank's operations.
PATENTS, TRADEMARKS, ETC: Neither the Company nor its subsidiary hold any
patents, registered trademarks, licenses (other than licenses which have been
obtained from appropriate banking regulatory agencies), franchises or
concessions.
RESEARCH ACTIVITIES: Prior to the organization of the Bank, the organizers of
the Bank conducted economic and other surveys to evaluate the banking needs for
the community of Valrico and its immediate environs. The results of those
surveys were used to support the application to the Florida Department for
permission to organize the Bank and the application to the FDIC for insurance
of the Bank's accounts. Since it commenced operations, officers of the Bank
have engaged continually in marketing activities, including the evaluation of
development of new services, to enable the Bank to improve its competitive
position in the Bank's Assessment Area. The cost to the Bank for these
marketing activities cannot be calculated with any degree of certainty. In the
fourth quarter of 1993, the Bank gathered and reviewed new economic data for
the purpose of supporting an application to the Florida Department for
permission to open a full service branch facility in Brandon, Florida, and
performed similar research in the summer of 1995 to support an application to
the Florida Department for permission to open a full service branch in Plant
City, Florida. The cost of collecting and evaluating this information likewise
cannot be
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determined with any degree of certainty, as most of the information was
collected from public sources and other sources already utilized by the Company
for its day-to-day evaluations. In the fourth quarter of 1996, the Bank
reviewed data submitted by International Banking Technologies for the purpose
of supporting the application for the in-store branch in Plant City.
EMPLOYEES: As of December 31, 1997, the Bank employed 38 full-time employees,
of which two were executive officers, and 11 part-time employees, of which two
are bank officers. The Bank's employees are not represented by a collective
bargaining group, and the Bank considers its relations with its employees to be
excellent. The Bank also maintains training and educational programs designed
to equip employees for positions of increasing responsibility in both
management and operating positions. The Bank provides employees certain
benefits customary in the banking industry, which includes major medical
insurance, group term life insurance and normal vacation and sick leave. The
Bank implemented a K-SOP plan in 1997.
SEASONAL NATURE OF THE BANK'S BUSINESS: As of December 31, 1997, the Bank has
been in operation for eight and one-half years. Management believes that there
is some seasonality in its deposit base due primarily to its agricultural
relationships. The seasonality in these deposits, however, has not been
substantial to impact the core base of deposits, therefore, management does not
believe its deposit relationship is affected. In its lending portfolio, the
Bank sees a greater affect on this seasonal business during the period from
September to May reflecting larger outstandings in the agricultural portfolio.
ITEM 2. PROPERTIES
The Company, through its subsidiary, has a principal office located at 1815
East State Road 60 in Valrico, Florida, in a traditional, southern, Greek
neo-classical two-story building with 9,860 square feet. As of January 31,
1994, the last tenant which occupied lease space vacated and the Company now
utilizes the entire facility for bank operations. The Brandon office, located
at 102 West Robertson Street in Brandon, Florida, is in a leased 3,000 square
foot end unit in a retail plaza at a major intersection in the center of
Brandon. The Plant City office is located at 305 South Wheeler Street in
facilities purchased in July 1995. The Jim Redman office, located at 2606 Jim
Redman Parkway, is in a leased 507 square foot unit located within the Wal-Mart
Supercenter in Plant City.
The Bank leased its principal office space pursuant to an agreement dated March
30, 1989 (the "Lease") with Roy J. and Ann M. Winter (collectively, the
"Lessor"). Mrs. Winter was a director of the Bank.
The Lease commenced on March 30, 1989, and had an initial term of seven years.
The Bank had an option to renew the Lease for five additional five-year terms
upon six-months' prior written notice to the Lessor. Beginning on the third
anniversary of the commencement date of the Lease, annual rental payments
became subject to adjustment according to a formula based on the Consumer Price
Index, however, such adjustment may not exceed 6% nor be less than 4% over the
annual rent for the previous year of the Lease. In addition to the rental
payment, the Bank was required to pay all utilities, property
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and other taxes, insurance and any other expenses for the maintenance and
operation of the leased property (exclusive of debt service on any mortgage(s)
securing the property).
The Lease also provided the Bank with an option to purchase the property. The
option could be periodically exercised (prior to the end of the initial term of
the Lease and, thereafter, prior to the end of each successive third-year
anniversary of the Lease) upon 180 days prior written notice to the Lessor.
Additionally, in the event the Lessor wished to sell the property to a third
party, the Bank would have the right of first refusal to purchase the property.
In the event the Bank declined to exercise its right of first refusal, the Bank
would be entitled to enforce the terms of the Lease against any third party
purchaser of the leased property.
Pursuant to the Lease, the Bank had available approximately 55 parking spaces
adjacent to the Bank's office building and five drive-up lane facilities.
In October 1995, the Company mailed a notice of intent to purchase the main
office bank building from the Winters. The Bank continued to lease on a
month-to-month basis after the first term of the lease expired March 30, 1996.
In January, 1997, the premises were purchased by Valrico Bancorp, Inc. for
approximately $1,683,000. The annual lease payments from the Bank to the
Company is $204,000.
The Bank leases its Brandon branch office space pursuant to an agreement dated
March 31, 1994 (the "Lease") with J. "Bill" Noriega, Jr. (the "Lessor"). Mr.
Noriega currently serves as a director of the Bank. This lease expired March
31, 1997 and was renewed at an annual rental of $42,000. The Bank has the
option to renew the lease for four additional three-year terms at rentals to be
negotiated at the time of the renewal.
The aggregate lease expense paid by the Bank under these leases, including the
Bank building lease, totaled $64,163 for the fiscal year ended December 31,
1997.
The Company, through its subsidiary, purchased from Barnett Bank, a former
Glendale Federal Bank branch with approximately 2,400 square feet. The
purchase included building and land located at 305 South Wheeler Street (corner
of Renfro and Wheeler). On September 15, 1995, the Bank opened its second
branch at this location.
The Company, through its subsidiary, owns a parcel of land for future
expansion. The partially improved property, totaling approximately one acre,
is immediately adjacent to the Company's main office property on the west side.
The site is ideally located for the development of an Operations Center when
the growth of the Company will require additional space beyond that which is
available in the existing Company facility.
ITEM 3. LEGAL PROCEEDINGS
As of the date of this Annual Report, the management of the Company has no
knowledge of any material pending legal proceedings, including proceedings
contemplated by governmental authorities, to which the Company and its
subsidiary or any of its property is subject.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to votes of the stockholders of the Company
during the last quarter of 1997.
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PART II
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ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
There is no trading market at the current time for the Common Stock of the
Company, and it is not expected that a trading market will develop for shares
of the Company's Common Stock in the near future. The Company is aware of 24
sale transactions that occurred during fiscal year 1997 at prices ranging from
$13.75 to $14.00 per share, exclusive of commissions. The Bank is also aware
of 7 sale transactions that occurred during fiscal year 1996 at prices ranging
from $12.00 to $12.10 per share, exclusive of commissions.
As of March 20, 1998, there were 511 holders of record of the Common Stock of
the Company.
Holders of Common Stock are entitled to share pro rata in the distribution of
dividends when and as declared by the Board of Directors from funds legally
available for such purpose. The Bank cannot pay dividends in any one year in
which its net income from the current year, combined with its retained net
income for the preceding two years, is a loss or which would cause the capital
accounts of the Bank to fall below the minimum amount required by law.
Additionally, under certain circumstances, approval of the FDIC and the Florida
Department may be required prior to the payment of a dividend.
At the discretion of the Board of Directors of the Company and after careful
review of certain factors, such as results of operations, capital requirements,
regulatory restrictions, tax considerations and general economic conditions,
the Board declared its first dividend in September 1993 at ten cents per share
and paid said dividend on October 5, 1993. It likewise paid a similar dividend
in 1994, 1995, 1996 and 1997 based on respective year earnings and paid said
dividend on October 1 of each year.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth, in summary form, certain comparative financial
data of the Company for a five year period encompassing the periods ended
December 31, 1993, December 31, 1994, December 31, 1995, December 31, 1996 and
December 31, 1997. This information should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations, and Other Statistical Disclosure" and the audited financial
statements of the Company for the years ended December 31, 1995, 1996 and 1997,
and related notes thereto included elsewhere herein.
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<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
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INCOME STATEMENT DATA (in Thousands, except Per Share Data)
<S> <C> <C> <C> <C> <C>
Interest income $ 4,711 $ 4,206 $ 3,767 $ 3,107 $ 2,940
Interest expense (1,888) (1,544) (1,413) (1,057) (1,027)
--------- --------- --------- --------- ---------
Net interest income 2,823 2,662 2,354 2,050 1,913
Provision for loan losses (300) (181) (97) (78) (168)
--------- --------- --------- --------- ---------
Net interest income after
provision for loan losses 2,523 2,481 2,257 1,972 1,745
Noninterest income 516 431 383 331 284
Noninterest expense (2,614) (2,408) (2,156) (1,964) (1,723)
--------- --------- --------- --------- ---------
Income before income taxes and
change in accounting principle 425 504 484 339 306
Income taxes (101) (156) (115) (103) (93)
--------- --------- --------- --------- ---------
Income before change in
accounting principle 324 348 369 236 213
Change in accounting principle
cumulative effect FAS 109 0 0 0 0 110
--------- --------- --------- --------- ---------
Net income $ 324 $ 348 $ 369 $ 236 $ 323
========= ========= ========= ========= =========
PER SHARE DATA
Net income $ 1.09 $ 1.17 $ 1.22 $ .78 $ 1.07
Cash dividends .10 .10 .10 .10 .10
Book value 14.17 13.10 11.91 10.70 10.32
Number of shares used in net
income-per-share calculations 297,026(1) 297,545(1) 302,071(1) 302,779 302,779
BALANCE SHEET DATA
Total assets $ 63,802 $ 54,919 $ 49,592 $ 42,793 $ 40,446
Total investment securities 7,942 10,400 8,025 9,211 10,396
Total net loans (2) 47,873 37,897 33,191 29,117 25,530
Total deposits 55,047 48,876 44,774 38,792 36,452
Shareholders' equity 4,237 3,899 3,595 3,238 3,126
</TABLE>
(1) Based on average shares outstanding during the period.
(2) Net loans means total loans net of allowance for possible future loan
losses.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The purpose of this discussion is to focus on significant changes in the
financial condition and results of operations of the Company and its subsidiary
during the past three years. The discussion and analysis is intended to
supplement and highlight information contained in the accompanying consolidated
financial statements and the selected financial data presented elsewhere in
this report.
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The following discussion and analysis is based on the Company's financial
condition and results of operations for the periods from January 1, 1997
through December 31, 1997, January 1, 1996 through December 31, 1996, and
January 1, 1995 through December 31, 1995. This discussion and analysis should
be read in conjunction with the financial statements of the Company, including
the related notes thereto, and supplementary schedules, included elsewhere in
this Annual Report.
RESULTS OF OPERATIONS
The following table presents a condensed comparative summary of the Company
results of operations for the periods January 1, 1997 through December 31,
1997, January 1, 1996 through December 31, 1996, and January 1, 1995 through
December 31, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
-------------- ------------- --------------
<S> <C> <C> <C>
INCOME STATEMENT DATA
Interest income $ 4,711,323 $ 4,206,568 $ 3,767,500
Interest expense (1,887,926) (1,544,456) (1,413,236)
-------------- -------------- --------------
Net interest income 2,823,397 2,662,112 2,354,264
Provision for loan losses (300,000) (181,444) (97,500)
-------------- -------------- --------------
Net interest income after provision for
loan losses 2,523,397 2,480,668 2,256,764
Noninterest income 515,361 430,995 383,191
Noninterest expense (2,613,955) (2,407,808) (2,155,585)
-------------- -------------- --------------
Income before income taxes 424,803 503,855 484,370
Income taxes (100,991) (155,864) (115,577)
-------------- -------------- --------------
Net income $ 323,812 $ 347,991 $ 368,793
============== ============== ==============
PER SHARE DATA
Net income $ 1.09 $ 1.17 1.22
</TABLE>
The Company had a positive net income of $323,812 or $1.09 per share for the
period ended December 31, 1997, as compared to a net income of $347,991, or
$1.17 per share for the period ended December 31, 1996, and a net income of
$368,793, or $1.22 per share for the period ended December 31, 1995. Net
income is after taxes. The Bank set aside $300,000 as provision for loan
losses for the year ended December 31, 1997, compared to $181,444 and $97,500
in 1996 and 1995, respectively. The Bank continued to experience good deposit
growth during 1997 resulting in a net increase from January 1, 1997 to December
31, 1997 of $6,170,807 or 12.6%, compared to a 9.2% growth in 1996 and 15.4%
growth in 1995. During the same periods, the Bank's net loans outstanding
increased $9,975,583 or 26.3% for total net outstandings of $47,872,883, as
compared to 14.2% growth in 1996 and 14.0% in 1995. The ratio of net loans to
deposits increased slightly from the previous year from 77.5% at December 31,
1996 to 86.9% at December 31, 1997. The ratio of net loans to deposits was
74.1% at December 31, 1995.
NET INTEREST INCOME: The major component of the Bank's earning capacity is net
interest income which is the difference or spread between interest income on
earning assets (primarily loans, Federal funds sold [funds loaned on a
short-term basis to other banks] and investment securities) and interest
expense on interest-bearing liabilities (primarily deposits). The spread is
considered positive when interest income exceeds interest expense and negative
when interest expense exceeds interest income. Net interest income
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<PAGE> 12
is also affected by changes in interest rates earned and interest rates paid
and by changes in the volume of interest-earning assets and interest-bearing
liabilities.
The Bank's net interest income increased 14.9% in 1995 from $2,049,645
(includes loan fees of $81,539) in 1994 to $2,354,264 (includes loan fees of
$112,560), 13.1% in 1996 from $2,354,264 to $2,662,112 (includes loan fees of
$126,445) and 6.1% in 1997 from $2,662,112 to $2,823,397 (includes loan fees of
$110,084) for the period ended December 31, 1997. The Bank's continued
increase in net interest income from 1995 to 1997 is due to the mix of
interest-earning assets where net loans contributed a higher percent of total
interest income increasing from $3,100,765 in 1995 to $3,989,971 in 1997.
Interest income from other interest-earning assets, such as investments and
Federal funds sold which are normally the lower yielding assets, earned
$666,735 in 1995, $752,080 in 1996 and $721,352 in 1997. The substantial
increase in interest income was directly proportionate to the strong growth in
loans and Federal funds sold. During the same three year periods, interest
expense on deposits increased from $1,402,678 in 1995 to $1,514,224 in 1996
and increased to $1,659,414 in 1997 due primarily to an increase in deposits
and an increase in rates. Interest income yields on loans, which are normally
higher than interest income yields on investment securities and Federal funds
sold, was favorable to the Bank's profit. For the period from January 1, 1997
through December 31, 1997, the loan interest income of $3,879,887 earned on
average net loans of $40,773,831 gave an average interest yield of 9.52%, as
compared to 9.44% in 1996 and 9.62% in 1995. The investment interest income of
$614,512 earned on average investment securities of $9,736,655 gave an average
interest yield of 6.31% for the period from January 1, 1997 through December
31, 1997, as compared to 6.11% in 1996 and 6.24% in 1995.
The net interest spread measures the difference between the average yield on
earning assets and the average rate paid on interest-bearing sources of funds.
The net interest spread decreased from the twelve-month period ended December
31, 1995 of 4.79% to 4.67% for the twelve- month period ended December 31,
1996, and a slight increase to 5.17% for the twelve-month period ended December
31, 1997. As of December 31, 1997, the net yield on earning assets was 5.38%,
as compared to 5.29% for the year ended December 31, 1996. To the extent
possible, the Bank follows a strategy intended to insulate the Bank's interest
rate spread from adverse changes in interest rates by maintaining spreads
through the adjustability of its earning assets and interest-bearing
liabilities.
INTEREST RATE SENSITIVITY: Interest rate sensitivity is a function of the
repricing characteristics of the Bank's portfolio of assets and liabilities.
These repricing characteristics are the time frames within which the
interest-bearing assets and liabilities are subject to change in interest
rates. The change in interest rates can be either at replacement, repricing or
maturity during the life of the assets or liabilities. Interest rate
sensitivity management is to concentrate on the maturities of assets and
liabilities as they reprice during time periods of changes in market interest
rates. Effective management is to ensure that both assets and liabilities
respond to changes in interest rates within an acceptable time frame while
minimizing the effect of interest rate changes on net interest income.
The major elements used to manage interest rate risk include the mix of fixed
and variable rate assets and liabilities and the maturity pattern of assets and
liabilities. The Bank performs a monthly review of assets and liabilities that
reprice and the time bands within which the repricing occurs. Through such
analysis, the Bank monitors and manages its interest sensitivity gap to
minimize the effects of changing interest rates.
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The interest rate sensitivity structure within the Bank=s balance sheet at
December 31, 1997, indicated a net interest sensitive liability gap of 110.4%
when projecting out one year. In the near term, defined as 90 days, the Bank
had a net interest sensitivity asset gap of 33.2%. This information represents
a general indication of repricing characteristics over time; however, the
sensitivity of certain deposit products may vary during extreme swings in
interest rates. Since all interest rates and yields do not adjust at the same
velocity, the interest rate sensitivity gap is only a general indicator of the
potential effects of interest rate changes on net interest income.
EARNING ASSETS: At December 31, 1997, residential (1-4 family) real estate
related loans totaled $5,226,595, an increase of $858,497 from the total of
$4,368,098 at December 31, 1996. The increase is due primarily as a result of
several new large mortgage loans in the portfolio, as opposed to a planned
marketing strategy. The total of $5,226,595 is approximately 10.8% of the
Bank's total loan portfolio, a slight decrease from the 11.4% at December 31,
1996, and is approximately 9.1% of the Bank's earning assets, an increase from
the 9.0% at December 31, 1996. Real estate loans include primarily
intermediate-term loans secured by real estate and payable in periodic
installments. At December 31, 1997, commercial loans totaled $25,567,352, an
increase from $21,241,275 at December 31, 1996. Total commercial loans of
$25,567,352 is approximately 52.7% of the loan portfolio, a decrease from the
approximate 55.3% at December 31, 1996. Total commercial loans are
approximately 44.6% of the Bank's earning assets at December 31, 1997, an
increase from the approximate 43.7% at December 31, 1996. Commercial loans
include business purpose loans to both businesses and individuals which are
payable on demand or within a specified period of time.
As of December 31, 1997, agricultural loans totaled $10,290,535, an increase
from the $6,249,021 in 1996. The total of $10,290,535 is approximately 21.2%
of the total loan portfolio, an increase from the 16.2% in December 31, 1996,
and is approximately 12.8% of the Bank=s earning assets which is an increase
over December 31, 1996 of 13.5%. At December 31, 1997, consumer loans totaled
$7,406,185, which represented approximately 15.3% of the Bank's total loan
portfolio, a decrease from the approximately 17.1% at December 31, 1996. Total
consumer loans were approximately 12.9% off the Bank's total earning assets at
December 31, 1997, a slight decrease from the previous year of approximately
13.5%. Consumer loans are consumer purpose loans made to both businesses and
individuals.
The Bank's investment portfolio at December 31, 1997 of $7,942,162 (based on
securities held available for sale marked to approximate fair market value)
comprised approximately 13.8% of the Bank's total earning assets, as compared
to 21.4% at December 31, 1996. The investment securities are primarily
concentrated in U. S. Treasury securities, obligations of other U. S.
Government agencies, municipals and corporations. As of December 31, 1997, the
Bank's investment portfolio had 31.3% adjustable rate securities.
The FASB 115 rule regarding "Accounting For Certain Investments in Debt and
Equity Securities" was implemented the first quarter of 1994. The new rule
required financial institutions to segregate their investment portfolio into
three categories; 1) securities held-to-maturity (HTM), 2) securities available
for sale (AFS), and 3) trading securities. Securities available for sale are
to be marked to a fair market value. Unrealized holding gains and losses for
AFS securities are excluded from earnings and reported as a net amount in a
separate component of shareholders' equity until realized. Unrealized holding
gains
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<PAGE> 14
and losses for trading securities are included in earnings. As of December 31,
1997, the Bank's investment portfolio, based on Marked to Market, consisted of
$5,511,678 in AFS and $2,430,484, in HTM. The net effect to stockholders'
equity as of December 31, 1997 was a net loss in reserve for securities of
$8,907.
Reclassifying of securities as to available for sale and held-to-maturity took
place at December 1995, based upon a regulatory change which allowed a window
of opportunity to reclassify the investment portfolio.
The market value of securities fluctuates during the investment period and is
determined on the basis of market quotations. The Bank reprices its securities
on a monthly basis. The Bank invests in securities for interest income and
liquidity.
When calculating total earning assets, the amount of $892,887 as of December
31, 1997 was added to total earning assets. This amount represents the cash
surrender value of whole life insurance policies purchased primarily to fund a
deferred benefit pension plan implemented in 1993 for officers of the Bank who
qualified for the program.
NONINTEREST EARNING ASSETS: Noninterest earning assets accounted for
approximately 11.1% of the Company's total assets at December 31, 1997, a
decrease from the approximately 11.4% at December 31, 1996. The total
noninterest earning assets primarily consisted of cash and funds placed on
deposit in accounts with other banks. Of the total $7,094,162 of noninterest
earning assets, cash and noninterest bearing deposits totaled $3,516,862.
Other significant noninterest earning assets consisted of fixed assets and
interest receivable.
FUNDING SOURCES: The primary source of funds for the Bank's lending and
investment activities is deposits. At December 31, 1997, the Bank's total
deposits were $55,046,607, an increase of $6,170,807 from total deposits of
$48,875,800 at December 31, 1996 or an increase of 12.6%. Approximately 83.3%
of the Bank's total deposits at December 31, 1997 were concentrated in
interest-bearing accounts, which is typical in the Bank's market area. Also
note that included in interest-bearing accounts are the Bank's NOW accounts
which are the only types of checking accounts offered to its customers. Only a
percentage of these accounts maintain a sufficient balance to earn interest.
The Bank had 25.0% of its deposits in NOW and money market accounts, compared
with 24.8% at December 31, 1996. The Bank had 58.3% of its deposits in time
deposits (savings accounts and certificates of deposits), a slight increase
from the approximately 57.6% at December 31, 1996. The cost of funds (interest
expense) of $1,659,414 paid on the Bank's average interest-bearing deposits of
$42,880,000 for the period from January 1, 1997 through December 31, 1997 was
3.9%, as compared to the cost of funds of $1,514,224 paid on the Bank's average
interest-bearing deposits of $39,561,000 for the period from January 1, 1996
through December 31, 1996 of 3.8%. While there is a high concentration of
certificates of deposits, the Bank does not anticipate the maturity of such
certificates to affect the Bank's liquidity, as management believes that such
high concentration is primarily due to customer relationships and not the
higher than market rates typically offered by such certificates. The Bank is
not in the practice of paying above market rates on deposits.
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Effective August 15, 1995, the Federal Housing Finance Board approved Valrico
State Bank's membership to the Federal Home Loan Bank of Atlanta. Being a
member offers alternative funding sources for the Bank.
OTHER INCOME: The Bank's noninterest income for the period from January 1,
1997 through December 31, 1997 was $515,361. The sources reflected in
noninterest income were from service charges on deposit accounts of $428,698
and nondeposit income of $86,663. This is an increase of $84,366 compared to
the $430,995 of noninterest income reported for the twelve month period ended
December 31, 1996.
OTHER EXPENSES: The Bank's noninterest expenses for the period from January 1,
1997 through December 31, 1997 were $2,613,955 or approximately $217,830
average per month as compared to $2,407,808 or approximately $200,651 average
per month for the period from January 1, 1996 through December 31, 1996.
Noninterest expense for 1995 was $2,155,585 or approximately $179,632 average
per month for the twelve month period ended December 31, 1995. The amount of
$2,613,955 for December 31, 1997 consisted primarily of $1,304,265 in salaries
and benefits, $243,388 of occupancy expense for all its offices, equipment
expenses of $270,367 and $795,935 of other operating expenses. Other operating
expenses primarily consisted of marketing expense, taxes (intangible and
sales), insurance (FDIC, blanket bond and property), state assessments,
professional fees (accounting, audit and legal), office supplies, postage and
delivery, service fees and amortization of capitalized expenses.
The opening of a second branch office in September 1995 attributed to the
overall increase in expense, especially in the area of other expenses.
Therefore, as of December 31, 1997, branch related expenses for the Plant City
office operations were $209,352. Then the opening of a third branch office in
June 1997 attributed to the overall increase in expense, especially in the
areas of occupancy and other expenses. As of December 31, 1997, branch related
expenses for the Jim Redman operations were $135,379.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is established
through a provision for loan losses charged to expense. Loans are charged
against the allowance for loan losses when management of the Bank believes that
the collectibility of the principal on such loans is unlikely. The allowance
is an amount that management of the Bank believes will be adequate to absorb
losses inherent in existing loans and commitments to extend credit, based on
evaluations of the collectibility of outstanding loans and prior loan loss
experience relating to loans and commitments to extend credit. The evaluations
take into consideration such factors as changes in the nature and volume of the
loan portfolio, overall portfolio quality, review of specific problem loans,
and current economic conditions that may affect the borrowers' ability to pay.
Subsequent recoveries, if any, on loans charged against the allowance will be
credited to the allowance.
The Bank derives its loan loss reserve based on several methods. One is to
review the Bank's historical loss percentages calculated by dividing
year-to-date charge-offs by the amount of reservable loans. Secondly, a review
of classified loans based on a specific reserve allocation method, a percentage
method, and a blended reserve based on specific and percentage methods. The
reserve allocation is based on the overall assessment of all the methods to
determine the appropriate amount to charge to the provision for loan losses.
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Additionally, the Bank's loan portfolio is periodically reviewed by Federal and
state regulators as a normal part of their examination process. Governmental
examination procedures require individual judgments about a borrower's ability
to repay loans, sufficiency of collateral values and the effects of changing
economic circumstances. These procedures are similar to those employed by the
Bank in determining the adequacy of the allowance for loan losses and in
classifying loans.
As a result of their examinations, regulators may propose adjustments to the
allowance for loan losses or in the loan classifications. As a practical
matter, management and Board of Directors of the Bank promptly consider and
implement those proposed adjustments.
The Bank charged to operations $300,000 for provision for loan losses in 1997
and $181,444 and $97,500, respectively, for 1996 and 1995. The amount of
$300,000 was added to the beginning balance of $500,504 for the period ended
December 31, 1996 for a total accumulated provision less net charge-offs for
the period ended December 31, 1997 of $576,347. The Bank charged off loans
during the period from January 1, 1997 through December 31, 1997 in the amount
of $262,719 and reflected recoveries of $38,562 leaving a net balance in the
allowance for loan losses for the period ended December 31, 1997 of $576,347.
As of December 31, 1997, the allowance for loan losses of $576,347 was 1.2% of
total loans outstanding of $48,490,667.
Loans on which the accrual of interest has been discontinued are designated as
nonaccrual loans. Accrual of interest on loans is discontinued either when
reasonable doubt exists as to the full and timely collection of interest or
principal or both, or when a loan becomes contractually past due by 90 days or
more with respect to interest or principal. When a loan is placed on
nonaccrual status, all interest previously accrued but not collected is
reversed against current period interest income. Income on such loans is then
recognized only to the extent that cash is received and where the future
collection of principal is probable. Interest accruals are resumed on such
loans only when they are brought fully current with respect to interest and
principal and when, in the judgement of management, the loans are estimated to
be fully collectible as to both principal and interest. At December 31, 1997
and December 31, 1996, the Bank's loans designated as nonaccrual totaled
$49,000 and $153,277, respectively.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114 ("FASB 114"), Accounting by Creditors
for Impairment of a Loan, which sets the standard for recognition of loan
impairment and the measurement methods for certain impaired loans and loans
whose terms are modified in troubled debt restructurings.
Under FASB 114, a loan is impaired when it is probable that a creditor will be
unable to collect the full amount of principal and interest due according to
the contractual terms of the loan agreement. When a loan is impaired, a
creditor has a choice of ways to measure the impairment. The measurement of
impairment may be based on (1) the present value of the expected future cash
flows of the impaired loan discounted at the loan's original effective interest
rate, (2) the observable market price of the impaired loan, or (3) the fair
value of the collateral of a collateral-dependent loan. Creditors may select
the measurement method on a loan-by-loan basis, except that
collateral-dependent loans for which foreclosure is probable must be measured
at the fair value of the collateral. A creditor in a troubled debt
restructuring involving a restructured loan should measure impairment by
discounting the total expected future cash flows at the loan's original
effective rate of interest.
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At December 31, 1997 and December 31, 1996, loans totaling $336,362 and
$96,959, respectively, had been classified as impaired.
INCOME TAXES: Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income
Taxes," which uses the asset and liability method of accounting for income
taxes.
Provisions for income taxes are based on amounts reported in the statements of
operations, after exclusion of nontaxable income, such as interest on state and
municipal securities, tax-exempt loans, and includes deferred taxes on
temporary differences in the recognition of income and expense for tax and
financial statement purposes. Deferred taxes are computed on the liability
method pursuant in FAS 109, Accounting for Income Taxes. For 1997, net income
before taxes was $424,803 and after taxes of $100,991, the net income was
$323,812. See Note N of Notes to Consolidated Financial Statements.
CAPITAL RESOURCES: A strong capital position, which is vital to the continued
profitability of the Company, also promotes depositor and shareholder
confidence and provides a solid foundation for the future growth of the Bank.
The Bank has provided for its capital requirements through the retention of
earnings. The Bank's growth through its expansion program of opening two
branches, one in 1994 and the other in 1995, have obviously had a negative
impact on earnings. However, the Bank's net positive earnings over the past
few years has strengthened the overall capital position. At December 31, 1997,
the Bank's Tier 1 capital position was 6.67% ($4,246,056 shareholders' equity
divided by total assets of $63,802,094) and the Bank's Tier 2 capital was 7.56%
determined by adding loan loss reserves of $576,347 to shareholders' equity of
$4,246,056 and dividing by total assets of $63,802,094 Total Tier 1 capital to
total risk-weighted assets as of December 31, 1997 was 8.44% and total capital
(Tier 2) to total risk-weighted assets was 9.60% compared to 9.55% and 10.78%,
respectively, in 1996.
LIQUIDITY: Liquidity is the ability of the Bank to meet present and future
financial obligations either through the sale or maturity of existing assets or
by the acquisition of funds through asset and liability management. Management
of the Bank continually evaluates its liquidity position and seeks to achieve
its desired liquidity objectives from both assets and liabilities. Asset
liquidity is achieved through the continuous maturing of earning assets and by
investing in short-term marketable assets. Liability liquidity is available
through continued deposit growth, maturity structure and accessibility to
market sources of funds.
As of December 31, 1997, the Bank's liquidity ratio was 19.3% derived by
dividing net cash, short-term, and marketable assets of $.5 million by net
deposits of $55.1 million. The Bank's dependency ratio as of December 31, 1997
was 10.99%. This ratio is determined by taking the Bank's volatile liabilities
(primarily Jumbo certificates) of $6.6 million less short-term investments of
$.5 million divided by adjusted total earning assets of $56.4 million. In 1996
and 1995, the Bank had maintained a liquidity ratio on an average of 25% to
35%. As noted in "Funding Sources" above, management of the Bank believes that
the high concentration of time deposits is primarily due to customer
relationships and not the attraction of the higher than market rates typically
offered by certificates of deposits.
IMPACT OF INFLATION AND CHANGING PRICES: Unlike most industrial companies,
virtually all of the Bank's assets and liabilities, like those of other
financial institutions, are monetary in nature. As a result, interest rates
have a more significant impact on the Bank's performance than the effects of
inflation. Interest rates
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do not necessarily move in the same direction or with the same magnitude as the
prices of goods and services, since such prices are affected by inflation. In
the current interest rate environment, liquidity and the maturity structure of
a financial institution's assets and liabilities are also critical to the
maintenance of acceptable performance levels.
RECENT ACCOUNTING PRONOUNCEMENTS: In March 1995, the Financial Accounting
Standards Board issued Statement No. 121 ("FAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which requires impairment losses to be recorded on long- lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. FAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. FAS 121, which was effective for the
first quarter of 1996, did not have any significant effect on the Company.
The Bank does not have any financial instruments which would be affected by
Financial Accounting Standard Boards Statement No. 119 ("FAS 119"). FAS 119
requires new qualitative disclosures regarding derivative financial instruments
(e.g. futures, forwards, swaps and options).
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130 ("FAS 130"), "Reporting Comprehensive Income," establishes standards
for reporting comprehensive income in financial statements. It requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Some of the
items included in comprehensive income are unrealized gains or losses on
securities available-for-sale, underfunded pension obligations and employee
stock options. FAS 130 is effective for periods beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. Implementation of FAS 130 will require
additional disclosures in the 1998 financial statements but will not have an
impact on the Company's balance sheet or Statement of Income.
FORWARD-LOOKING STATEMENTS: This filing contains forward-looking statements
that involve risks and uncertainties, and there are certain important factors
that could cause actual results to differ materially from those anticipated.
These important factors include, but are not limited to, economic conditions
(both generally and more specifically in the Bank's market), competition for
customers from other providers of financial services, government legislation
and regulation which changes from time to time and over which the Company and
the Bank have no control, changes in interest rates, the impact of the Bank's
growth, and other risks detailed in the Annual Report on Form 10-K and in the
Company's other filings with the Securities and Exchange Commission, all of
which are difficult to predict and many of which are beyond the control of the
Company.
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TABLES TO ITEM 7
The following tables attached to this Form 10-K in response to Item 7 are
intended to be supplementary information to be read in conjunction with
management's discussion and analysis of financial condition and result of
operations.
Table I - Distribution of Assets, Liabilities, and
Stockholder's Equity; Interest Rates and
Interest Differentials
Table II - Investment Portfolio
Table III - Loan Portfolio
Table IV - Summary of Loan Loss Experience
Table V - Deposits
Table VI - Return on Equity and Assets
Table VII - Short-Term Borrowings
(Remainder of this page intentionally left blank)
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TABLE I
AVERAGE BALANCES, INTEREST, AND YIELD/RATE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- ----------------------------- -------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
--------------------------- ----------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans, net of unearned income $ 41,230 $ 3,880 9.41% $ 35,271 $ 3,328 9.44% $31,068 $ 2,988 9.62%
Investments securities:
Taxable 8,321 550 6.61% 8,812 549 6.23% 8,493 533 6.28%
Tax exempt 1,285 65 5.06% 839 41 4.89% 100 3 3.00%
Federal funds sold 2,011 107 5.32% 3,034 162 5.34% 2,254 131 5.81%
-------- ------- -------- ------- ------ ------
Total earnings assets 52,847 4,602 8.71% 47,956 4,080 8.51% 41,915 3,655 8.72%
Allowance for loan losses (541) ------- (480) ------- (458) ------
Cash and due from banks 3,994 3,035 2,723
Other assets 4,022 2,532 2,453
-------- -------- --------
Total assets $ 60,322 $ 53,043 $ 46,633
======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Interest bearing liabilities:
Deposits:
NOW accounts $ 9,459 $ 168 1.78% $ 8,275 $ 142 1.72% $ 6,782 $ 114 1.68%
Money market accounts 3,923 108 2.75% 4,228 106 2.51% 4,663 124 2.66%
Savings accounts 6,287 146 2.32% 6,195 147 2.37% 5,835 137 2.35%
Time, $100,000 and over 5,315 293 5.51% 4,398 227 5.16% 4,156 216 5.20%
Other time deposits 17,896 945 5.28% 16,465 893 5.42% 14,273 811 5.68%
-------- ----- ------- ----- ------- -----
Total interest bearing deposits 42,880 1,660 3.87% 39,561 1,515 3.83% 35,709 1,402 3.93%
Securities sold under agreement to
repurchase, Federal funds purchased
and other borrowings 3,113 228 7.32% 697 30 4.30% 209 8 3.83%
------- ----- ------- ----- ------- -----
Total interest bearing liabilities 45,993 1,888 4.10% 40,258 1,545 3.84% 35,918 1,410 3.93%
----- ----- -----
Demand deposits (noninterest bearing) 9,411 8,439 6,628
Accrued expenses and other
liabilities 862 669 689
Shareholders' equity 4,056 3,677 3,398
-------- -------- --------
Total liabilities and
shareholders' equity $ 60,322 $ 53,043 $ 46,633
======== ======== ========
Net interest income/
net interest spread $ 2,714 4.61% $ 2,535 4.67% $ 2,245 4.79%
======= ======= =======
Net yield on earning assets 5.14% 5.29% 5.36%
</TABLE>
The following table sets forth the extent to which changes in volume and rates
of earning assets and interest-bearing liabilities affected the change in
interest income or interest expense in the indicated time periods. For each
major balance sheet category, information is provided relating to 1) changes
in volume (changes in average balance multiplied by the prior year's average
interest rate), 2) changes in rate (changes in average interest rate multiplied
by the prior year's average balance), and 3) the total change in interest
income/expenses. Changes attributable jointly to volume and rate have been
allocated proportionately.
VOLUME AND RATE ANALYSIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 VERSUS 1996 1996 VERSUS 1995
CHANGE DUE TO: CHANGE DUE TO:
--------------------------- ----------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------- -------- -------- -------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 563 $ (11) $ 552 $ 397 $ (57) $ 340
Investment securities (9) 34 25 65 (11) 54
Other earning assets (54) (1) (55) 43 (12) 31
------ ------ ------ ------ ------ ------
Total 500 22 522 505 (80) 425
------ ------ ------ ------ ------ ------
INTEREST EXPENSE
Deposits 129 16 145 149 (36) 113
Borrowings 176 22 198 20 2 22
------ ------ ------ ------ ------ ------
Total 305 38 343 169 (34) 135
------ ------ ------ ------ ------ ------
Net change $ 195 $ (16) $ 179 $ 336 $ (46) $ 290
====== ======= ======= ====== ====== ======
</TABLE>
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TABLE I (CONTINUED)
INTEREST RATE SENSITIVITY - REPRICING INTERVAL
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AFTER THREE AFTER ONE AFTER THREE
WITHIN MONTHS BUT YEAR BUT YEARS BUT AFTER
THREE WITHIN ONE WITHIN THREE WITHIN FIVE FIVE
DECEMBER 31, 1997 MONTHS YEAR YEARS YEARS YEARS
- -------------------------- ----------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Loans $ 20,728 $ 6,410 $ 9,257 $ 8,795 $ 3,259
Securities 1,386 1,479 1,795 1,524 1,753
---------- ---------- ---------- ---------- ----------
Total interest sensitive assets (ISA) 22,114 7,889 11,052 10,319 5,012
---------- ---------- ---------- ---------- ----------
LIABILITIES
Interest bearing deposits 12,399 16,602 4,884 4,695 7,257
Federal funds purchased 1,872 0 0 0 0
Short term borrowings 500 0 0 0 0
---------- ---------- ---------- ---------- ----------
Total interest sensitive liabilities (ISL) 14,771 16,602 4,884 4,695 7,257
---------- ---------- ---------- ---------- ----------
Net position of ISA minus ISL $ 7,343 $ (8,713) $ 6,168 $ 5,624 $ (2,245)
Cumulative net position of ISA minus ISL $ 7,343 $ (1,370) $ 4,798 $ 10,422 $ 8,177
Cumulative net position as a percent
of total assets 11.51 (2.15) 7.52 16.33 12.82
</TABLE>
(Remainder of this page intentionally left blank)
Page 20
<PAGE> 22
TABLE II
INVESTMENT PORTFOLIO
(AMORTIZED COST)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996 1995
- ----------------------------------------- ------------- ------------- ------------
<S> <C> <C> <C>
Securities to be held-to-maturity:
1. U. S. Treasury securities $ 0 $ 0 $ 0
2. U. S. Government agencies 0 0 0
3. Mortgage-backed securities 1,147,657 1,958,698 2,643,379
4. Other 1,282,827 1,281,692 275,000
------------- ------------- ------------
Subtotals 2,430,484 3,240,390 2,918,379
------------- ------------- ------------
Securities available-for-sale:
1. U. S. Treasury securities 753,063 1,260,346 250,102
2. U. S. Government agencies 924,300 2,002,281 2,090,164
3. Mortgage-backed securities 3,295,644 3,505,924 2,397,566
4. Other 533,641 400,412 396,234
------------- ------------- ------------
Subtotals 5,506,648 7,168,963 5,134,066
------------- ------------- ------------
Total investment securities $ 7,937,132 $ 10,409,353 $ 8,052,445
============= ============= ============
</TABLE>
INVESTMENT SECURITIES MATURITY SCHEDULE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MATURITY SCHEDULE MATURITY SCHEDULE MATURITY SCHEDULE
IN 1997 IN 1996 IN 1995
------------------- -------------------- ------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ -----
WITHIN ONE YEAR WITHIN ONE YEAR WITHIN ONE YEAR
------------------- -------------------- ------------------
SECURITY TYPE:
<S> <C> <C> <C> <C> <C> <C>
1. U. S. Treasury securities $ 247,626 6.12% $ 0 0.00% $ 250,104 4.22%
2. U. S. Government agencies 0 0.00% 0 0.00% 0 0.00%
3. Mortgage-backed securities 0 0.00% 18,764 9.52% 0 0.00%
4. Other 0 0.00% 251,811 5.31% 0 0.00%
---------- ---------- ----------
Totals $ 247,626 $ 270,575 $ 250,104
========== ========== ==========
AFTER ONE YEAR BUT AFTER ONE YEAR BUT AFTER ONE YEAR BUT
WITHIN FIVE YEARS WITHIN FIVE YEARS WITHIN FIVE YEARS
------------------- ------------------- -------------------
SECURITY TYPE:
<S> <C> <C> <C> <C> <C> <C>
1. U. S. Treasury securities $ 505,437 6.23% $1,260,346 6.16% $ 0 0.00%
2. U. S. Government agencies 250,000 7.00% 1,165,000 6.38% 1,501,962 6.25%
3. Mortgage-backed securities 566,061 6.63% 630,270 7.88% 31,697 9.51%
4. Other 275,000 4.60% 0 0.00% 254,133 5.29%
--------- ---------- ----------
Totals $1,596,498 $3,055,616 $1,787,792
========== ========== ==========
AFTER FIVE YEARS BUT AFTER FIVE YEARS BUT AFTER FIVE YEARS BUT
WITHIN TEN YEARS WITHIN TEN YEARS WITHIN TEN YEARS
-------------------- -------------------- --------------------
SECURITY TYPE:
<S> <C> <C> <C> <C> <C> <C>
1. U. S. Treasury securities $ 0 0.00% $ 0 0.00% $ 0 0.00%
2. U. S. Government agencies 674,300 6.21% 673,419 6.65% 383,451 6.14%
3. Mortgage-backed securities 1,221,299 5.87% 1,451,000 7.43% 2,083,513 7.66%
4. Other 266,414 5.15% 540,647 4.82% 417,100 5.45%
---------- ---------- ----------
Totals $2,162,013 $2,665,066 $2,884,064
========== ========== ==========
AFTER TEN YEARS AFTER TEN YEARS AFTER TEN YEARS
------------------- --------------------- ----------------------
SECURITY TYPE:
<S> <C> <C> <C> <C> <C> <C>
1. U. S. Treasury securities $ 0 0.00% $ 0 0.00% $ 0 0.00%
2. U. S. Government agencies 0 0.00% 163,861 6.69% 204,751 7.43%
3. Mortgage-backed securities 2,655,941 6.44% 3,364,588 6.45% 2,925,734 6.56%
4. Other 1,275,054 6.38% 889,647 5.81% 0 0.00%
---------- ---------- ----------
Totals $3,930,995 $4,418,096 $3,130,485
========== ========== ==========
</TABLE>
Page 21
<PAGE> 23
TABLE III
LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996 1995
- ----------------------------- -------------------- --------------------- ---------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
--------------------- --------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
LOAN TYPE:
1. Commercial $ 25,567 52.7% $ 21,241 55.3% $ 17,190 51.0%
2. Agricultural 10,290 21.2% 6,249 16.2% 6,646 19.7%
3. Real estate (1-4 family) 5,227 10.8% 4,368 11.4% 3,366 10.0%
4. Installment and other 7,406 15.3% 6,576 17.1% 6,507 19.3%
---------- --------- --------- --------- ---------- -------
Total loans 48,490 100.0% 38,434 100.0% 33,709 100.0%
Less: unearned income (41) (36) (26)
Less: allowance for loan losses (576) (501) (492)
---------- --------- ---------
Total loans less allowance and
unearned income $ 47,873 $ 37,897 $ 33,191
========== ========= =========
</TABLE>
SELECTED LOAN MATURITY AND INTEREST RATE SENSITIVITY SCHEDULES
(IN THOUSANDS)
<TABLE>
<CAPTION>
DeCEMBER 31, 1997 1996 1995
- --------------------------------- ----------- ---------- ----------
WITHIN WITHIN WITHIN
LOAN TYPE: ONE YEAR ONE YEAR ONE YEAR
------------ ----------- ----------
<S> <C> <C> <C>
1. Commercial $ 14,044 $ 13,408 $ 10,161
2. Agricultural 8,363 6,078 6,377
3. Real estate (1-4 family) 1,964 2,339 1,743
4. Installment and other 3,302 2,633 2,683
---------- ---------- ----------
Totals $ 27,673 $ 24,458 $ 20,964
========== ========== ==========
AFTER ONE AFTER ONE AFTER ONE
YEAR BUT YEAR BUT YEAR BUT
WITHIN WITHIN WITHIN
LOAN TYPE: FIVE YEARS FIVE YEARS FIVE YEARS
---------- ---------- -----------
<S> <C> <C> <C>
1. Commercial $ 8,791 $ 7,600 $ 4,470
2. Agricultural 1,927 171 269
3. Real estate (1-4 family) 2,593 1,856 1,547
4. Installment and other 3,565 3,541 3,336
---------- --------- ----------
Totals $ 16,876 $ 13,168 $ 9,622
========== ========== ==========
AFTER FIVE AFTER FIVE AFTER FIVE
LOAN TYPE: YEARS YEARS YEARS
----------- ---------- ----------
<S> <C> <C> <C>
1. Commercial $ 2,732 $ 233 $ 2,559
2. Agricultural 0 0 0
3. Real estate (1-4 family) 670 173 76
4. Installment and other 539 402 3488
---------- ---------- ----------
Totals $ 3,941 $ 808 $ 3,123
========== ========== ==========
</TABLE>
RATE STRUCTURE FOR LOANS MATURING OVER ONE YEAR
(IN THOUSANDS)
<TABLE>
<CAPTION>
WITH PRE- WITH WITH PRE- WITH WITH PRE- WITH
DETERMINED FLOATING DETERMINED FLOATING DETERMINED FLOATING
INTEREST OR INTEREST OR INTEREST OR
RATE ADJUSTABLE RATE ADJUSTABLE RATE ADJUSTABLE
RATE RATE RATE
--------- -------- --------- ---------- --------- ----------
LOAN TYPE: AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
--------- -------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Commercial $ 9,107 $2,416 $ 5,487 $ 2,346 $ 3,885 $3,144
2. Agricultural 1,927 0 171 0 269 0
3. Real estate (1-4 family) 3,263 0 2,029 0 1,623 0
4. Installment and other 4,104 0 3,943 0 3,824 0
---------- ------- ---------- -------- ---------- -------
Totals $ 18,401 $2,416 $ 11,630 $ 2,346 $ 9,601 $3,144
========== ======= ========== ======== ========== =======
</TABLE>
Page 22
<PAGE> 24
TABLE IV
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of period $ 500,504 $ 491,563 $ 397,281
---------- ---------- ----------
Charge-offs:
Commercial loans 213,248 189,491 860
Commercial mortgage loans 0 0 0
Construction loans 0 0 0
Residential mortgage loans 947 0 0
Consumer loans 48,524 14,875 5,827
---------- ---------- ----------
Total charge-offs 262,719 204,366 6,687
---------- ---------- ----------
Recoveries:
Commercial loans 27,237 30,656 0
Commercial mortgage loans 0 0 0
Construction loans 0 0 0
Residential mortgage loans 0 0 0
Consumer loans 11,325 1,207 3,469
---------- ---------- ----------
Total recoveries 38,562 31,863 3,469
---------- ---------- ----------
Net of charge-offs less recoveries 224,157 172,503 3,218
Additions charged to operations 300,000 181,444 97,500
---------- ---------- ----------
Balance at end of period $ 576,347 $ 500,504 $ 491,563
========== ========== ==========
</TABLE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996 1995
- --------------------------------------- ---------------------- ---------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at end of period applicable to:
Commercial and agricultural $ 411,786 73.9 $ 350,354 71.5 $ 344,094 70.7
Real estate 100,327 10.8 100,100 11.4 98,313 10.0
Installment and other 64,234 15.3 50,050 17.1 49,156 19.3
---------- ----- ---------- ----- ---------- -----
$ 576,347 100.0 $ 500,504 100.0 $ 491,563 100.0
========== ===== ========== ===== ========== =====
</TABLE>
Page 23
<PAGE> 25
TABLE V
DEPOSITS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------------- --------------------- --------------------- --------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
--------------------- --------------------- --------------------
Deposits:
<S> <C> <C> <C> <C> <C> <C>
Noninterest demand deposits $ 9,411 0.00% $ 8,439 0.00% $ 6,628 0.00%
----------- ---------- ----------
Interest earning deposits:
NOW accounts 9,459 1.78% 8,275 1.72% 6,782 1.68%
Money market accounts 3,923 2.75% 4,228 2.51% 4,663 2.66%
Savings accounts 6,287 2.32% 6,195 2.37% 5,835 2.35%
Time, $100,000 and over 5,315 5.51% 4,398 5.16% 4,156 5.20%
Other time deposits 17,896 5.28% 16,465 5.42% 14,273 5.68%
----------- ---------- ----------
Total interest earning deposits 42,880 3.87% 39,561 3.83% 35,709 3.93%
----------- ---------- ----------
Total deposits $ 52,291 $ 48,000 $ 42,337
=========== ========== ==========
</TABLE>
MATURITIES OF TIME DEPOSITS OVER $100,000
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996 1995
- -------------------------------------- ---------------------- ------------------------ ------------------------
Other Other Other
Certificates Time Certificates Time Certificates Time
Of Deposits Deposits Of Deposits Deposits Of Deposits Deposits
Over Over Over Over Over Over
$ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Three months or less $ 1,923 $ 0 $ 1,255 $ 0 $ 1,580 0
Over three through six months 1,328 0 1,461 0 930 0
Over six through twelve months 1,953 0 300 0 700 0
Over twelve months 1,100 0 1,439 0 727 0
--------- --------- --------- --------- --------- ---------
Total $ 6,304 $ 0 $ 4,455 $ 0 $ 3,937 $ 0
========= ========= ========= ========= ========= =========
</TABLE>
Page 24
<PAGE> 26
TABLE VI
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996 1995
- -------------------------------- ----------- ----------- ------------
PERCENT PERCENT PERCENT
----------- ----------- ------------
<S> <C> <C> <C>
Return on average assets 0.54% 0.66% 0.79%
Return on average common equity 7.64% 9.46% 10.85%
Common dividend payout ratio 9.17% 8.55% 8.19%
Average equity to average assets ratio 6.72% 6.93% 7.29%
</TABLE>
LEVERAGE RATIO CALCULATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996 1995
- ------------------------------------- ---------- ----------- ----------
<S> <C> <C> <C>
Total average assets $ 60,322 $ 53,043 $ 46,633
Less intangibles 0 0 0
---------- ----------- ----------
Total tangible average assets $ 60,322 $ 53,043 $ 46,633
========== =========== ==========
Total common shareholders' equity $ 4,237 $ 3,920 $ 3,631
Less intangibles 0 0 0
---------- ----------- ----------
Total tangible period-end common
shareholders' equity $ 4,237 $ 3,920 $ 3,631
========== =========== ==========
Leverage ratio 7.02% 7.39% 7.79%
</TABLE>
RISK-BASED CAPITAL RATIOS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996 1995
- ------------------------------------ ----------- ----------- ------------
<S> <C> <C> <C>
Risk-based capital ratios:
Tier I capital ratio 8.44% 9.55% 9.81%
Total risk-based capital ratio 9.60% 10.78% 11.06%
</TABLE>
Page 25
<PAGE> 27
TABLE VII
SHORT-TERM BORROWINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
-------------------------- -------------------------- --------------------------
SECURITIES SECURITIES SECURITIES
FEDERAL SOLD UNDER FEDERAL SOLD UNDER FEDERAL SOLD UNDER
FUNDS AGREEMENTS FUNDS AGREEMENTS FUNDS AGREEMENTS
PURCHASED TO REPURCHASE PURCHASED TO REPURCHASE PURCHASED TO REPURCHASE
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Maximum outstanding at any month-end $ 3,562 $ 800 $ 1,745 $ 656 $ 359 $ 522
Average balance $ 2,011 $ 468 $ 770 $ 440 $ 50 $ 158
Ending balance $ 1,872 $ 500 $ 1,100 $ 488 $ 0 $ 390
Average interest rate 5.88% 3.75% 5.76% 5.20% 6.50% 4.77%
Average interest rate at year-end 5.82% 3.45% 5.75% 5.25% 0.00% 4.61%
</TABLE>
(Remainder of this page intentionally left blank)
Page 26
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statement of the Company and the related notes thereto required
by Subpart F have been included immediately following Item 13 in Part IV of
this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in accountants, nor were there any disagreements with
accountants on accounting and financial disclosure.
- -----------------------------------------------------------------------------
PART III
- -----------------------------------------------------------------------------
ITEM 10. DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
DIRECTORS OF THE COMPANY
The information required by Item 10 pertaining to directors of the Company is
incorporated herein by reference to the sections entitled "Election of
Directors" in the Company's definitive proxy statement for its 1998 Annual
Meeting of Shareholders, which will be filed with the Securities and Exchange
within 120 days of the end of the Company's fiscal year ended December 31,
1997.
PRINCIPAL OFFICERS OF THE COMPANY AND ITS SUBSIDIARY BANK
All principal officers of the Company are elected by the Board of Directors and
serve at the pleasure of the Board. There are no arrangements or understanding
between the Company and any principal officer pursuant to which any such person
was elected as a principal officer of the Company.
J. E. ABOB@ MCLEAN, III, 61, is Chairman of the Bank and Company and was
elected President and CEO in May 1997 of the Company. Mr. McLean is the owner
and President of J. E. McLean & Sons, a family business he took over in 1967.
He is a citrus grower who also harvests and ships fruit. Prior to that, Mr.
McLean was a banker at Marine Bank of Tampa and was employed with Tampa
Electric for three and a half years. He is a third generation of Valrico,
attending Brandon High School and the University of Florida for a couple of
years. Mr. McLean served in the Army. He has served as Chairman of the Board
of the Bank since its inception in 1989 and has served as Chairman of the Board
for the Company since May 1995.
JERRY L. BALL, 45, The President and CEO of the Bank is also the Executive
Vice President of the Company. In May 1997, Mr. Ball was promoted to his
current position. From 1989 to May 1995, Mr. Ball served in the position of
Senior Vice President and Cashier. From 1980 to April 1989, Mr. Ball was an
Assistant Vice President and Branch Manager for First Union National Bank of
Florida. Mr. Ball attended King College and received a B.A. degree in Business
and Economics. He is a graduate of the School of Banking at the University of
Florida. Mr. Ball has over 21 years of banking experience.
Page 27
<PAGE> 29
DONALD WEAVER, 55, joined the Company and Bank in November 1995. He was hired
as Senior Vice President of Commercial Loans of the Bank. In May 1997, he was
promoted to Executive Vice President and Director of Commercial Loans and was
elected to the position of Secretary to the Company. He has 35 years in
commercial banking, all within the Hillsborough County area. He came to our
Bank from Peoples Bank of Lakeland where he served as Vice President and
Commercial Loan Manager since 1990. He attended Hillsborough Community College
and has attended a number of banking schools. He has been a resident of the
Brandon area for over 24 years.
Set forth below are the names and ages of the other principal officers of the
Company's subsidiary bank, giving their principal occupation and business
experience of each such principal officer during the past six years. All of
such information has been furnished by each such person.
GLENN J. CHASTEEN, 46, is currently serving as Senior Vice President-Consumer
Loans. He has been the Bank=s installment lender since June 1989. From
January 1987 to October 1988, Mr. Chasteen served as Senior Vice President of
San Antonio Citizens Federal Credit Union. From February 1980 to January 1987,
Mr. Chasteen served as Vice President-Consumer Lending with Sun Bank of Tampa
Bay (formerly known as Brandon State Bank).
ROBERT N. MORRIS, 71, has served as Senior Vice President-Agriculture Loans of
the Bank since April 1991. Mr. Morris serves in this position on a part-time
basis. From June 1985 to December 1990, Mr. Morris was employed as Vice
President-Agriculture Loans of Barnett Bank. Mr. Morris has over 30 years of
banking experience.
ROY SCHRETT, 60, has served as Senior Vice President-Commercial Loans since his
employment April 1997. Mr. Schrett was with South Hillsborough Community Bank,
a local independent bank, serving in the capacity of Senior Vice President and
Senior Lending Officer. Prior employment has been with Southtrust Bank of West
Florida, Nazareth National Bank, and Marine Midland Bank, N.A. Mr. Schrett has
over 39 years of banking experience. Mr. Schrett graduated Summa Cum Laude,
B.A. degree from Allentown College of St. Frances de Sales, University of
Buffalo, A.A.S. degree, Graduate Lending School, University of Oklahoma and
has taken several banking courses.
CAROL TODD JOHNSON, 66, has served as Vice President and Business Development
Officer of the Bank since June 1991. Mrs. Johnson serves in this position on a
part-time basis and was promoted in 1995 to Vice President-Business
Development. From 1972 to May 1991, Mrs. Johnson was Vice President of
Business and Community Development Officer at the Brandon office of Barnett
Bank.
ITEM 11. MANAGEMENT COMPENSATION AND TRANSACTIONS
The information required by Item 11 pertaining to management compensation and
transactions with management of the Company is incorporated herein by reference
to the sections entitled "Executive Compensation and Other Information" and
"Certain Transactions" in the Company's definitive proxy statement for its 1998
Annual Meeting of Shareholders, which will be filed with the Federal Deposit
Insurance Corporation within 120 days of the end of the Company's fiscal year
ended December 31, 1997.
Page 28
<PAGE> 30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The only class of voting securities of the Company is its Common Stock, 299,115
shares of which were outstanding as of December 31, 1997. To the best
knowledge of the Company, other than Messrs, Carlton, Holmberg and Amerson
(whose shareholdings are listed in "Security Ownership of Management" below),
there are no other persons who own beneficially more than five percent (5%) of
the Company's Common Stock.
SECURITY OWNERSHIP OF MANAGEMENT
The information set forth below as to the beneficial ownership of shares of
Common Stock of the Company by each director of the Company, and by all
directors and principal officers of the Company as a group, as of December 31,
1997 has been furnished by the respective persons.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF BENEFICIAL OF BENEFICIAL
OWNER OWNERSHIP PERCENT OF CLASS
- ------------------------------------------- --------------------- ------------------
<S> <C> <C>
LeVaughn Amerson 25,400 (1) 8.49
Jerry L. Ball 250 (1) .08
C. Dennis Carlton 20,625 (2) 6.89
H. Leroy English 4,122 (1) 1.38
Gregory L. Henderson 10,500 (3) 3.51
Douglas A. Holmberg 29,107 (4) 9.73
Charles E. Jennings, Jr. 9,466 (5) 3.16
J. E. "Bob" McLean, III 12,470 (6) 4.17
J. "Bill" Noriega, Jr. 7,526 (7) 2.52
All directors and principal 119,466 39.93
officers as a group (11 persons)
</TABLE>
(1) All of these shares are owned as joint tenant with this individual's
spouse.
(2) Includes 20,475 shares which Mr. Carlton owns individually and 50 shares
each owned by Mr. Carlton=s trust for his three children (a total of 150
shares) of which Mr. Carlton is sole trustee.
(3) Includes 10,000 shares which Dr. Henderson owns as joint tenant with his
wife and 125 shares each owned by a trust set up for Dr. Henderson's
four children (a total of 500 shares).
(4) Includes 29,007 shares which Mr. Holmberg owns individually. Also
includes 100 shares which is owned by Mr. Holberg's wife, as to which
shares Mr. Holmberg disclaims beneficial ownership.
(5) Includes 5,000 shares held in C. E. Jennings, Jr. Harbor Trust IRA, of
which Mr. Jennings is sole beneficiary; 4,166 shares which Mr. Jennings
owns individually and 200 shares which Mr. Jennings owns as joint tenant
with his wife. Also includes 100 shares which Mr. Jennings' wife owns,
as to which shares Mr. Jennings disclaims beneficial ownership.
Page 29
<PAGE> 31
(6) Includes 10,200 shares which Mr. McLean owns as joint tenant with his
wife and daughter and 1,170 shares owned by Mr. McLean in trust for his
grandchildren for which Mr. McLean is sole trustee. Also includes 1,100
shares owned by Mr. McLean's daughter, son-in-law and wife as to which
these 1,100 shares Mr. McLean disclaims beneficial ownership.
(7) Includes 7,226 shares which Mr. Noriega owns individually and 100 shares
each owned joint with three of Mr. Noriega's children (a total of 300
shares).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain officers, directors, security holders with more than five percent
ownership, and corporations and individuals related to such persons have
indebtedness in the form of loans. These loans to such persons are made in the
ordinary course of business. The loans are made on substantially the same
terms, including interest rates 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, nor do they present other unfavorable
features.
- -------------------------------------------------------------------------------
PART IV
- -------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS:
(1) Independent Auditors' Report F1
(2) Consolidated Balance Sheets as of December 31, 1997
and 1996 F2
(3) Consolidated Statements of Income for Each of the
Three Years in the Period Ended December 31, 1997 F3
(4) Consolidated Statements of Changes in Stockholders'
Equity for Each of the Three Years in the Period
Ended December 31, 1997 F4
(5) Consolidated Statements of Cash Flows for Each of
the Three Years in the Period Ended December 31, 1997 F5
(6) Notes to Consolidated Financial Statements F6 - F19
Page 30
<PAGE> 32
(2) FINANCIAL STATEMENT SCHEDULES:
The following financial statement schedules have been omitted since
the required information is not applicable or has been included in
the Notes to Consolidated Financial Statements:
Schedule I - U. S. Treasury Securities, Obligations of Other
U. S. Government Agencies and Corporations, Obligations of
States and Political Subdivisions, and Other Bonds, Notes
and Debentures
Schedule IV - Company Premises and Equipment
Schedule V - Investment In, Income From Dividends, And
Equity In Earnings Or Losses Of Subsidiaries And Associated
Companies
Schedule VI - Allowance For Possible Loan Losses
The following financial statement schedules are attached to this
10-K in response to Item 14:
Report of Independent Auditors on Supplementary Schedules
Schedule II - Loans to Officers, Directors, Principal
Security Holders, and any Associates of the Foregoing Persons
Schedule III - Loans and Lease Financing Receivables
(Remainder of this page intentionally left blank)
Page 31
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
Valrico Bancorp, Inc. and Subsidiary
Valrico, Florida
We have audited the accompanying consolidated balance sheets of
Valrico Bancorp, Inc. and subsidiary as of December 31, 1997 and
December 31, 1996, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Valrico Bancorp, Inc. and subsidiary at December 31, 1997 and
December 31, 1996, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
REX MEIGHEN & COMPANY
Certified Public Accountants
Tampa, Florida
January 12, 1998
F1
<PAGE> 34
VALRICO BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1996
--------------- --------------
ASSETS
<S> <C> <C>
Cash and non interest bearing deposits $3,516,862 $3,677,677
Federal funds sold - 358,000
Securities available-for-sale 5,511,678 7,159,983
Securities to be held-to-maturity (approximate fair value of
$2,504,515 for 1997; $3,265,417 for 1996) 2,430,484 3,240,390
Loans 47,872,883 37,897,300
Facilities 2,852,443 1,014,945
Accrued interest receivable 468,465 416,178
Other assets 1,149,279 1,154,347
----------- -----------
Total assets $63,802,094 $54,918,820
=========== ===========
LIABILITIES
Deposits:
Demand deposits $9,210,202 $8,557,352
NOW accounts 10,108,131 8,749,942
Money market accounts 3,632,693 3,392,591
Savings accounts 7,267,013 6,053,476
Time, $100,000 and over 6,303,932 4,455,087
Other time deposits 18,524,636 17,667,352
----------- -----------
Total deposits 55,046,607 48,875,800
Federal funds purchased 1,872,000 1,100,000
Securities sold under agreements to repurchase 499,582 487,882
Accounts payable and accrued liabilities 474,615 556,134
Advances under line-of-credit 399,950 -
Note payables 1,272,191 -
----------- -----------
Total liabilities 59,564,945 51,019,816
----------- -----------
Commitments and contingencies (Notes O and P)
STOCKHOLDERS' EQUITY
Common stock, no par value, authorized 1,000,000
shares, issued and outstanding 299,115 shares for 1997;
296,845 shares for 1996 299,115 296,845
Capital surplus 2,431,145 2,354,193
Retained earnings 1,515,796 1,269,111
Net unrealized holding losses on securities (8,907) (21,145)
----------- -----------
Total stockholders' equity 4,237,149 3,899,004
----------- -----------
Total liabilities and stockholders' equity $63,802,094 $54,918,820
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements
F2
<PAGE> 35
VALRICO BANCORP, INC. AND DUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $3,989,971 $3,454,488 $3,100,765
Interest on investment securities:
U. S. Treasury 73,250 58,219 21,252
U. S. Government agencies and corporations 452,010 466,197 495,754
Other 89,252 65,921 18,877
Income on Federal funds sold 106,840 161,743 130,852
----------- ----------- -----------
Total interest income 4,711,323 4,206,568 3,767,500
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits 1,659,414 1,514,224 1,402,678
Interest on short-term borrowings 127,095 30,232 10,558
Interest on long-term debt 101,417 - -
----------- ----------- -----------
Total interest expense 1,887,926 1,544,456 1,413,236
----------- ----------- -----------
Net interest income 2,823,397 2,662,112 2,354,264
PROVISION FOR LOAN LOSSES 300,000 181,444 97,500
----------- ----------- -----------
Net interest income after provision
for loan losses 2,523,397 2,480,668 2,256,764
----------- ----------- -----------
OTHER INCOME
Service charges on deposit accounts 428,698 350,745 302,155
Miscellaneous income 86,663 80,250 81,036
----------- ----------- -----------
Total other income 515,361 430,995 383,191
----------- ----------- -----------
OTHER EXPENSES
Salaries and employee benefits 1,304,265 1,159,949 948,977
Occupancy expense 243,388 391,068 362,754
Equipment expense 270,367 263,318 250,931
Stationery, printing and supplies 95,485 87,709 63,713
Miscellaneous expenses 700,450 505,764 529,210
----------- ----------- -----------
Total other expenses 2,613,955 2,407,808 2,155,585
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 424,803 503,855 484,370
INCOME TAXES 100,991 155,864 115,577
----------- ----------- -----------
NET INCOME $323,812 $347,991 $368,793
============ =========== ===========
PER SHARE INFORMATION
Average shares outstanding 297,026 297,545 302,071
------------ ----------- -----------
Basic EPS $ 1.09 $ 1.17 $ 1.22
============ ============ ===========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements
F3
<PAGE> 36
VALRICO BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
NET UNREALIZED TOTAL
COMMON CAPITAL RETAINED HOLDING LOSSES STOCKHOLDERS'
STOCK SURPLUS EARNINGS ON SECURITIES EQUITY
-------------- -------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 302,779 $ 2,301,511 $ 727,321 $ (93,223) $ 3,238,388
Net income - - 368,793 - 368,793
Cash dividends - - (30,278) - (30,278)
Net change in net
unrealized holding - - - 57,598 57,598
losses on securities
Stock redemption (3,500) (35,525) - - (39,025)
Transfer - 57,174 (57,174) - -
--------- ---------- ---------- --------- ----------
Balance, December 31, 1995 299,279 2,323,160 1,008,662 (35,625) 3,595,476
Net income - - 347,991 - 347,991
Cash dividends - - (29,685) - (29,685)
Net change in net
unrealized holding
losses on securities - - - 14,480 14,480
Stock redemption (2,434) (18,498) (8,326) - (29,258)
Transfer - 49,531 (49,531) - -
--------- ---------- ---------- --------- ----------
Balance, December 31, 1996 296,845 2,354,193 1,269,111 (21,145) 3,899,004
Net income 323,812 323,812
Cash dividends - - (29,685) - (29,685)
Net change in net
unrealized holding
losses on securities - - - 12,238 12,238
Stock issuance 2,370 30,810 - - 33,180
Stock redemption (100) (1,300) - - (1,400)
Transfer - 47,442 (47,442) - -
--------- ---------- ---------- --------- ----------
Balance, December 31, 1997 $299,115 $2,431,145 $1,515,796 $ (8,907) $4,237,149
========= ========== ========== ========= ==========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements
F4
<PAGE> 37
VALRICO BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
------------- -------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 323,812 $ 347,991 $ 368,793
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 300,000 181,444 97,500
Depreciation and amortization 247,821 226,168 231,118
Net amortization (accretion) of investment
security premiums and discounts (12,799) 35,324 24,155
Loss (gain) on sale of assets (336) 54,437 -
Deferred income taxes (4,289) (17,332) (48,885)
(Increase) decrease in assets:
Accrued interest receivable (52,287) (40,690) (39,802)
Other assets (634) (132,074) 13,784
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (81,520) (277,261) 225,069
----------- ----------- -----------
Net cash provided by operating activities 719,768 378,007 871,732
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available-for-sale:
Purchase of securities (501,100) (3,322,279) (892,100)
Proceeds from maturities of securities 911,512 1,274,383 607,992
Proceeds from sale of securities 1,252,969 - -
Securities to be held to maturity:
Purchase of securities - (1,005,945) (275,000)
Proceeds from maturities of securities 820,203 666,640 1,804,731
Decrease (increase) in Federal funds sold 358,000 2,965,000 (3,182,000)
Net increase in loans (10,275,583) (5,045,090) (4,349,577)
Purchase of facilities (2,075,327) (82,789) (345,609)
Proceeds from sale of other real estate - 281,219 -
----------- ----------- -----------
Net cash used in investing activities (9,509,326) (4,268,861) (6,631,563)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 6,170,807 4,102,178 5,981,232
Increase in Federal funds purchased 772,000 1,100,000 -
Net increase in securities sold under
agreements to repurchase 11,700 98,241 235,541
Proceeds from issuance of long-term debt 1,712,950 - -
Principal payments on long-term debt (40,809) - -
Proceeds from issuance of common stock 33,180 - -
Cash dividends paid (29,685) (29,685) (30,278)
Redemption of common stock (1,400) (29,258) (39,025)
----------- ----------- -----------
Net cash provided by financing activities 8,628,743 5,241,476 6,147,470
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (160,815) 1,350,622 387,639
CASH, BEGINNING OF YEAR 3,677,677 2,327,055 1,939,416
----------- ----------- -----------
CASH, END OF YEAR $ 3,516,862 $ 3,677,677 $ 2,327,055
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 1,857,465 $ 1,820,149 $1,205,181
Cash paid during the year for income taxes $ 174,203 $ 245,547 $ 138,842
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements
F5
<PAGE> 38
VALRICO BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
General:
The consolidated financial statements include the accounts and transactions
of Valrico Bancorp, Inc. (Company) and its wholly-owned subsidiary, Valrico
State Bank (Bank). All significant intercompany accounts and transactions
have been eliminated in consolidation.
The Bank provides a wide range of banking services to individual and
corporate customers primarily in Hillsborough County, Florida.
The Company and the Bank are subject to regulations issued by certain
regulatory agencies and undergo periodic examinations by those agencies.
Basis of Financial Statement Presentation:
The accounting and reporting policies of the Company conform with generally
accepted accounting principles and with general practices within the banking
industry. In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the balance sheet and revenues
and expenses for the period. Actual results could differ significantly
from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the
valuation of foreclosed assets. Additionally, management has made extensive
estimates in determining fair values of financial instruments.
Management believes that the allowance for losses on loans is adequate.
While management uses available information to recognize losses on loans,
including independent appraisals for significant properties, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the allowance for losses
on loans. Such agencies may require the Company to recognize additions to
the allowance based on their judgments about information available to them
at the time of their examination.
Investments:
Statement of Financial Accounting Standards No. 115 ("FAS 115"), Accounting
for Certain Investments in Debt and Equity Securities, sets the standard for
classification of and accounting for investments in equity securities that
have readily determinable fair values, and all investments in debt
securities which are to be classified as held-to-maturity securities,
available-for-sale securities, or trading securities.
Debt securities that an enterprise has the positive intent and ability to
hold to maturity are classified as held-to- maturity securities and reported
at amortized cost. Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are classified
as trading securities and reported at fair value, with unrealized gains and
losses included in earnings. Debt and equity securities not classified as
either held-to-maturity securities or trading securities are classified as
available-for-sale securities and reported at fair value, with unrealized
gains and losses excluded from earnings and reported as a separate
component of stockholders' equity.
The Bank classifies its investments at the purchase date in accordance with
the above-described guidelines. Premiums or discounts on securities at the
date of purchase are being amortized or accreted, respectively, over the
estimated life of the security using a method which approximates the level
yield method. Gains and losses realized on the disposition of securities
are based on the specific identification method and are reflected in
other income.
- --------------------------------------------------------------------------------
F6
<PAGE> 39
VALRICO BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (CONTINUED)
Loans:
Loans receivable are stated at unpaid principal balance, less the allowance
for loan losses and net deferred loan origination fees and costs.
Interest on loans is accounted for on the accrual basis. Generally, the
Company's policy is to discontinue the accrual of interest on loans
delinquent over ninety days unless fully secured and in the process of
collection. The accrued and unpaid interest is reversed from current income
and thereafter interest is recognized only to the extent payments are
received. A non-accrual loan may be restored to accrual basis when interest
and principal payments are current and prospects for future recovery are no
longer in doubt.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114 ("FAS 114"), Accounting by Creditors
for Impairment of a Loan, which sets the standard for recognition of loan
impairment and the measurement methods for certain impaired loans and loans
whose terms are modified in troubled debt restructurings.
Under FAS 114, a loan is impaired when it is probable that a creditor will
be unable to collect the full amount of principal and interest due according
to the contractual terms of the loan agreement. When a loan is impaired, a
creditor has a choice of ways to measure the impairment. The measurement of
impairment may be based on (1) the present value of the expected future cash
flows of the impaired loan discounted at the loan's original effective
interest rate, (2) the observable market price of the impaired loan, or (3)
the fair value of the collateral of a collateral-dependent loan. Creditors
may select the measurement method on a loan-by-loan basis, except that
collateral- dependent loans for which foreclosure is probable must be
measured at the fair value of the collateral. A creditor in a troubled debt
restructuring involving a restructured loan should measure impairment by
discounting the total expected future cash flows at the loan's original
effective rate of interest.
The Company adopted FAS 114 during 1995. The adoption of FAS 114 did not
significantly effect the Company's financial statements.
Facilities:
Facilities are stated at cost, less accumulated depreciation and
amortization. Charges to income for depreciation and amortization are
computed on the straight-line method over the assets' estimated useful
lives.
When properties are sold or otherwise disposed of, the gain or loss
resulting from the disposition is credited or charged to income.
Expenditures for maintenance and repairs are charged against income and
renewals and betterments are capitalized.
Allowance for Loan Losses:
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged-off against the allowance when
management believes that the collectibility of principal is unlikely.
Recoveries of amounts previously charged-off are credited to the allowance.
The allowance for loan losses is based on management's evaluation of various
factors including prevailing and anticipated economic conditions,
diversification and size of the loan portfolio, current financial status and
credit standing of the borrower, the status and level of nonperforming
assets, past and expected loan loss experience, adequacy of collateral,
specific impaired loans and economic conditions. Allowances for impaired
loans are generally determined based on collateral values or the present
value of estimated cash flows.
- --------------------------------------------------------------------------------
F7
<PAGE> 40
VALRICO BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (CONTINUED)
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 and
standby letters of credit. Such financial instruments are recorded in the
financial statements when they become payable.
Income Taxes:
The Bank accounts for income taxes under the asset and liability method as
prescribed in FAS No. 109, Accounting for Income Taxes. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the year in
which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Earnings:
Basic EPS is computed by dividing net income by the weighted average shares
of common stock outstanding during the year.
Statement of Cash Flows:
For purposes of reporting cash flows, cash includes cash on hand and amounts
on deposit in non-interest bearing accounts with other commercial banks.
Reclassification of Accounts:
Certain items in the consolidated financial statements for prior years have
been reclassified to conform to classifications used in the current year.
NOTE B - INVESTMENT SECURITIES
The amortized cost and estimated fair value of investments in debt securities
at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Securities available-for-sale:
U. S. Treasury $ 753,063 $ 5,571 $ - $ 758,634
U. S. Government agencies 924,300 7,603 1,623 930,280
Mortgage-backed securities 3,295,644 19,142 29,814 3,284,972
Other 533,641 4,150 - 537,792
---------- ------- ------- ----------
$5,506,648 $36,466 $31,437 $5,511,678
========== ======= ======= ==========
Securities to be held-to-maturity:
Mortgage-backed securities $1,147,657 $43,240 $ 279 $1,190,618
Other 1,282,827 32,339 1,269 1,313,897
---------- ------- ------- ----------
$2,430,484 $75,579 $ 1,548 $2,504,515
========== ======= ======= ==========
</TABLE>
- --------------------------------------------------------------------------------
F8
<PAGE> 41
VALRICO BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
NOTE B - INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated fair value of investments in debt securities
at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Securities available-for-sale:
U. S. Treasury $1,260,346 $ 11,157 $ - $1,271,503
U. S. Government agencies 2,002,281 11,939 7,940 2,006,280
Mortgage-backed securities 3,505,924 15,424 38,684 3,482,664
Other 400,412 - 876 399,536
---------- ------- ------- ----------
$7,168,963 $38,520 $47,500 $7,159,983
========== ======= ======= ==========
Securities to be held-to-maturity:
Mortgage-backed securities $1,958,698 $49,019 $3,024 $2,004,693
Other 1,281,692 9,865 30,833 1,260,724
---------- ------- ------- ----------
$3,240,390 $58,884 $33,857 $3,265,417
========== ======= ======= ==========
</TABLE>
The fair value of securities fluctuates during the investment period. No
provision for loss has been made in connection with the decline of fair value
below book value, because the securities are purchased for investment purposes
and the decline is not deemed to be other than temporary. The estimated fair
value of securities is determined on the basis of market quotations.
Securities with amortized cost of approximately $919,000 and $1,031,000, and
market values of approximately $931,000 and $1,035,000 were pledged to secure
repurchase agreements, Federal funds purchased and deposit accounts at December
31, 1997 and December 31, 1996, respectively.
There were no security sales during 1995 and 1996. During 1997, the Company
had a $336 gain on the sale-of-securities for $1,252,969.
At December 31, 1995, securities with an amortized cost of approximately
$1,646,000 were transferred to available-for-sale from held-to-maturity due to
a one-time opportunity to reassess security classifications in accordance with
guidelines issued by the FASB. These securities had a net unrealized loss of
$20,000 at December 31, 1997.
The cost and estimated fair value of debt securities at December 31, 1997, by
contractual maturities, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES TO BE
SECURITIES 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 $ 247,626 $ 250,427 $ - $ -
Due from one to five years 1,185,884 1,191,372 410,614 413,376
Due from five to ten years 1,701,290 1,696,531 460,723 469,835
Due after ten years 2,371,849 2,373,348 1,559,147 1,621,304
Other - - - -
---------- ---------- ---------- ----------
$5,506,649 $5,511,678 $2,430,484 $2,504,515
========== ========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
F9
<PAGE> 42
VALRICO BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
NOTE C - LOANS
The loan portfolio is classified as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Commercial and agricultural $35,857,887 $27,490,296
Real estate 5,226,595 4,368,098
Installment and other loans 7,406,185 6,575,783
----------- -----------
Total loans 48,490,667 38,434,177
Less, unearned income (41,437) (36,373)
Less, allowance for loan losses (576,347) (500,504)
----------- -----------
$47,872,883 $37,897,300
=========== ===========
</TABLE>
The following is a summary of the transactions in the allowance for loan
losses:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995
--------------- -------------- ---------------
<S> <C> <C> <C>
Balance, beginning of year $500,504 $491,563 $397,281
Provision charged to operating expenses 300,000 181,444 97,500
Loans charged-off (262,719) (204,366) (6,687)
Recoveries 38,562 31,863 3,469
-------- -------- --------
$576,347 $500,504 $491,563
======== ======== ========
</TABLE>
Loans on which interest was not being accrued totaled $49,000 and $153,277 at
December 31, 1997 and December 31, 1996, respectively. Had interest been
accrued on these non-accrual loans at originally contracted rates, interest
income (before income taxes) would have been increased by approximately $2,229
for 1997 and $4,770 for 1996.
A loan is considered impaired when it is probable that the Bank will be unable
to collect all amounts due according to the contractual terms of the agreement.
At December 31, 1997 and December 31, 1996, the Bank has classified loans in
the amount of $336,362 and $96,959 as impaired loans, respectively. The
allowance for loan losses includes amounts applicable to impaired loans. These
allowances are not significant to the Bank's financial statements.
NOTE D - FACILITIES
Facilities are summarized as follows:
<TABLE>
<CAPTION>
ACCUMULATED ESTIMATED
DEPRECIATION & NET BOOK USEFUL
COST AMORTIZATION VALUE LIVES
--------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Land $ 741,905 $ - $ 741,905
Building 1,539,582 182,030 1,357,552 39 1/2 years
Leasehold improvements 350,485 55,714 294,771 3 - 15 years
Furniture, fixtures and equipment 1,442,159 983,944 458,215 2 - 15 years
---------- ---------- ----------
$4,074,131 $1,221,688 $2,852,443
========== ========== ==========
</TABLE>
F10
<PAGE> 43
VALRICO BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
NOTE D - FACILITIES (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATED ESTIMATED
DEPRECIATION & NET BOOK USEFUL
COST AMORTIZATION VALUE LIVES
---------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Land $ 179,860 $ - $ 179,860
Buildings 189,664 15,180 174,484
Leasehold improvements 332,158 151,788 180,370 3 - 15 years
Furniture, fixtures and equipment 1,317,528 837,297 480,231 2 - 15 years
------------ ------------- ------------
$ 2,019,210 $ 1,004,265 $ 1,014,945
============ ============= ============
</TABLE>
Other expenses for the years ended December 31, 1997, 1996 and 1995, include
depreciation and amortization of facilities of $237,829, $226,168, and
$231,118, respectively.
NOTE E - TIME DEPOSITS
Time deposits at December 31, 1997 totaled $24,828,568. Maturities (in
thousands) of such deposits are as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,:
1998 $ 1,120
1999 $ 15,419
2000 $ 6,344
2001 $ 1,416
2002 $ 529
</TABLE>
NOTE F - LINE-OF-CREDIT
During 1997, the Company entered into an open end loan agreement with
Independent Banker's Bank of Florida which provides for maximum borrowings of
$500,000 at the prime interest rate. The Bank security for the loan agreement
consists of the Bank's common stock and a security interest in other Company
assets.
At December 31, 1997, the outstanding balance was $399,950. Interest expense
for the year ended December 31, 1997 was $31,162.
NOTE G - LONG-TERM DEBT
During 1997, the Company entered into a long-term note payable for the purchase
of its main office. At December 31, 1997, long-term debt consists of the
following:
<TABLE>
<S> <C>
Note payable to Independent Banker's Bank of Florida,
principal and interest of $12,930 payable monthly at
8.5% for the first year and adjustable each year based
on the U.S. Treasury Note three-year index; due on
January 14, 2012. Secured by real estate $ 1,272,191
Less: current portion 48,987
-------------
Long-term debt $ 1,223,204
=============
</TABLE>
- --------------------------------------------------------------------------------
F11
<PAGE> 44
VALRICO BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
NOTE G - LONG-TERM DEBT (CONTINUED)
Estimated maturities on long-term debt are as follows:
<TABLE>
<S> <C>
1998 $ 48,987
1999 53,316
2000 57,741
2001 63,133
2002 68,713
Thereafter 980,301
-------------
$ 1,272,191
=============
</TABLE>
Interest expense for the year ended December 31, 1997 was $101,417.
NOTE H - STOCK OPTION PLAN
Stockholders of the Company have approved a stock option plan. Under the
provisions of the plan, 60,555 shares have been reserved to grant to directors,
officers and other key personnel of the Bank.
Under this plan, the option price shall not be less than the greater of the
fair market value or par value of the Bank's common stock at the time the
options are granted. The period during which these options are exercisable is
fixed by the Board of Directors at the time of the grant.
Although the Board of Directors has approved the issuance of options on 59,870
shares of common stock, none had been granted at December 31, 1997.
NOTE I - EMPLOYEE BENEFIT PLANS
The Bank has an Employee stock ownership plan containing Internal Revenue Code
Section 401(k) Provisions. The plan became effective January 1, 1997 and is
for the benefit of employees who have completed 6 months of service and
attained age 18. The plan provides for three types of Company contributions:
(1) Basic contributions - discretionary contribution made for all
non-highly compensated participants in order to satisfy the
nondiscrimination requirements of the Internal Revenue Code.
(2) Matching contribution - the Bank matches 25% of salary reduction
contributions up to 6% of compensation.
(3) Optional contributions - additional discretionary contribution
made by the Bank allocated to the accounts of participants on the
basis of total relative compensation.
The Bank contributed $5,598 in 1997 to the plan.
- --------------------------------------------------------------------------------
F12
<PAGE> 45
VALRICO BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
NOTE J - REGULATORY CAPITAL MATTERS
The Federal Reserve Board and other bank regulatory agencies have adopted
risk-based capital guidelines for banks and bank holding companies. The main
objectives of the risk-based capital framework are to provide a more consistent
system for comparing capital positions of banking organizations and to take
into account the different risks among banking organizations' assets,
liabilities and off-balance sheet items. Bank regulatory agencies have
supplemented the risk-based capital standard with a leverage ratio for Tier I
capital to total reported assets.
Failure to meet the capital adequacy guidelines and the framework for prompt
corrective actions could initiate actions by the regulatory agencies which
could have a material effect on the financial statements.
As of December 31, 1997, the most recent notification from the FDIC, the Bank
was categorized as adequatley capitalized under the regulatory framework for
prompt corrective action. To remain categorized as well capitalized, it will
have to maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as disclosed in the table below. There are no conditions or
events since the most recent notification that management believes have changed
the prompt corrective action category.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
----------------- -------------------- ---------------------
AMOUNT RATIO >AMOUNT >RATIO >AMOUNT >RATIO
- - - -
------ ------- ----------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total Risk-Based Capital
(to Risk-Weighted Assets) $ 4,764 9.60% $ 3,970 8.00% $ 4,963 10.00%
Tier I Capital
(to Risk-Weighted Assets) $ 4,188 8.44% $ 1,985 4.00% $ 2,978 6.00%
Tier I Capital
(to Adjusted Total Assets) $ 4,188 6.62% $ 2,530 4.00% $ 3,163 5.00%
As of December 31, 1996:
Total Risk-Based Capital
(to Risk-Weighted Assets) $ 4,369 10.78% $ 3,241 8.00% $ 4,051 10.00%
Tier I Capital
(to Risk-Weighted Assets) $ 3,868 9.55% $ 1,620 4.00% $ 2,431 6.00%
Tier I Capital
(to Adjusted Total Assets) $ 3,868 7.17% $ 2,159 4.00% $ 2,698 5.00%
</TABLE>
NOTE K - OPERATING LEASES
The Bank's home office is located on property previously leased from a director
of the Bank. The lease, which expired March 30, 1996, provided for annual base
rentals of $165,000, with annual rent adjustments based on the Consumer Price
Index. The annual rental was increased from $196,518 to $204,378 effective
April 1, 1995. The Bank continued to occupy the space on a month-to-month
rental basis. On January 14, 1997, the premises were purchased by Valrico
Bancorp, Inc. for approximately $1,683,000. The Bank also leases two branch
locations. One branch is leased from a director of the Bank. This lease
expires March 31, 2000, and provided for annual rentals of $42,000. The Bank
has the option to renew the lease for three additional three year terms at
rentals to be negotiated at the time of the renewal. The second branch is
located in Wal-Mart. This lease provides for a monthly rental of $2,083 for
five years. The Bank has the option to renew the lease for 2 additional 5 year
terms with rentals of $31,250 and $39,062 respectively. Rental expense under
said leases was $64,163, $246,378, and $244,413 for each of the years ended
December 31, 1997, 1996 and 1995, respectively.
- --------------------------------------------------------------------------------
F13
<PAGE> 46
VALRICO BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
NOTE K - OPERATING LEASES (CONTINUED)
These loans are accounted for as operating leases.
The future minimum rental commitment for said leases are as follows:
<TABLE>
<S> <C>
1998 $ 67,000
1999 $ 67,000
2000 $ 67,000
2001 $ 67,000
2002 $ 67,000
</TABLE>
NOTE L - RETIREMENT PLAN
The Bank entered into deferred compensation agreements with certain executive
officers. The agreements provide for a flat annual retirement benefit at the
time the employee participates in the agreement. The benefit may be increased
by a cost of living adjustment annually and is to be paid for 15 years.
Provisions under these agreements for 1997, 1996, and 1995 were $7,326,
$30,485, and $19,416, respectively.
NOTE M - NON INTEREST OPERATING EXPENSES
Other expenses for 1997, 1996 and 1995, were as follows:
<TABLE>
1997 1996 1995
---------------- ---------------- ---------------
<S> <C> <C> <C>
Advertising and public relations $ 96,740 $ 48,141 $ 46,297
Professional fees 94,372 38,380 35,389
Postage 52,693 48,193 47,250
Taxes 103,863 84,657 89,505
Insurance 63,152 48,114 111,003
Telephone 37,664 30,393 19,012
Other miscellaneous expenses 251,966 207,886 180,754
--------------- -------------- --------------
$ 700,450 $ 505,764 $ 529,210
=============== ============== ==============
</TABLE>
NOTE N - INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995
-------------- -------------- ---------------
<S> <C> <C> <C>
Current income taxes
Federal $ 86,563 $ 163,440 $ 147,564
State 12,926 9,756 16,898
------------- ------------- --------------
Total current income taxes 99,489 173,196 164,462
Deferred income taxes (credit) 1,502 (17,332) (48,885)
------------- ------------- --------------
Income tax provision $ 100,991 $ 155,864 $ 115,577
============= ============= ==============
</TABLE>
- --------------------------------------------------------------------------------
F14
<PAGE> 47
VALRICO BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
NOTE N - INCOME TAXES (CONTINUED)
A reconciliation of the income tax computed at the Federal statutory rate of
34% and the income tax provision shown on the statement of income follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
----------- --------------- -------------
<S> <C> <C> <C>
Tax computed at statutory rate $ 144,433 $ 171,311 $ 164,686
Increase (decrease) resulting from:
Valuation allowance - - (31,000)
Tax exempt income (30,571) (16,664) (20,376)
State income tax, net of Federal tax benefit 12,234 10,123 9,814
Other (25,105) (8,906) (7,547)
------------ -------------- -----------
Income tax provision $ 100,991 $ 155,864 $ 115,577
============ ============== ===========
</TABLE>
The components of the deferred income tax asset included in other assets are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
---------- -----------
<S> <C> <C>
Deferred tax liability:
Federal $ (60,019) $ (72,585)
State (10,273) (7,742)
---------- ----------
(70,292) (80,327)
---------- ----------
Deferred tax asset:
Federal 142,950 166,915
State 24,470 19,011
---------- ----------
167,420 185,926
---------- ----------
Net deferred tax asset $ 97,128 $ 105,599
========== ==========
</TABLE>
The tax effects of each type of significant item that gave rise to deferred
taxes are:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1997 1996
-------------- ---------------
<S> <C> <C>
Net unrealized holding losses on securities $ (6,078) $ 8,578
Depreciation (21,430) (16,872)
Cash to accrual adjustment (42,785) (59,273)
Allowance for loan losses 160,557 144,472
Deferred compensation 6,864 28,694
---------- ------------
Net deferred tax asset $ 97,128 $ 105,599
========== ============
</TABLE>
- --------------------------------------------------------------------------------
F15
<PAGE> 48
VALRICO BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
NOTE O - COMMITMENTS AND CONTINGENCIES
The financial statements do not reflect various commitments and contingent
liabilities which arise in the normal course of business and which involve
elements of credit risk, interest rate risk and liquidity risk. These
commitments and contingent liabilities are commitments to extend credit and
standby letters of credit. A summary of these commitments and contingent
liabilities follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Commitments to extend credit $ 5,892,892 $ 4,313,035
Standby letters of credit $ 313,706 $ 330,550
</TABLE>
The Bank uses the same credit policies in making commitments to extend credit
and in issuing standby letters of credit as it does for extensions of credit
shown on the balance sheets.
The Bank is party to litigation, outstanding commitments and other contingent
liabilities arising in the normal course of business. In the opinion of
management, the resolution of such matters will not have a material effect on
the financial statements.
The Bank has a $118,000 unused line-of-credit with Independent Bankers Bank of
Florida and a $2,000,000 unused line-of-credit with Federal Home Loan Bank for
the purchase of Federal funds.
NOTE P - CONCENTRATIONS OF CREDIT
Substantially all of the Bank's loans, commitments and standby letters of
credit have been granted to customers in Hillsborough County, Florida. The
concentrations of credit by type of loan are set forth in Note C. The
distribution of commitments to extend credit approximates the distribution of
loans outstanding. Standby letters of credit were granted primarily to
commercial borrowers.
At December 31, 1997, the Bank had $180,000 in excess of FDIC deposit insurance
in non-interest bearing accounts with other financial institutions.
NOTE Q - RELATED PARTIES
Certain officers, directors, employees of the Bank and certain corporations and
individuals related to such persons have deposits and indebtedness, in the form
of loans, as customers. The total of such deposits at December 31, 1997 was
$4,341,000. Total loans to such persons and their affiliates amounted to
$2,390,983 and $2,825,914 at December 31, 1997 and 1996, respectively. During
1997, originations of related party loans totaled $1,500,289 and payments on
related party loans totaled $1,935,220.
NOTE R - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and Short-term Investments:
For those short-term instruments, the carrying amount is a reasonable
estimate of fair value.
- --------------------------------------------------------------------------------
F16
<PAGE> 49
VALRICO BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
NOTE R - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Investment Securities:
For securities held as investments, fair value equals quoted market
price, if available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
Loans Receivable:
For loans subject to repricing and loans intended for sale within six
months, fair value is estimated at the carrying amount plus accrued
interest.
The fair value of other types of loans is estimated by discounting the
future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities.
Deposit Liabilities:
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date.
The fair value of long-term fixed maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar
remaining maturities.
Short-term Debt:
For short-term debt, including accounts and demand notes payable, the
carrying amount is a reasonable estimate of fair value.
The estimated fair values of the Bank's financial instruments at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------------- --------------
<S> <C> <C>
FINANCIAL ASSETS
Cash and short-term investments $ 3,516,862 $ 3,516,862
Investment securities 7,942,162 8,016,192
Loans 47,872,883 48,095,000
------------ -----------
$ 59,331,907 $59,628,054
============ ===========
FINANCIAL LIABILITIES
Deposits $ 55,046,607 $55,147,000
Short-term borrowings 2,771,532 2,772,000
------------ -----------
$ 57,818,139 $57,919,000
============ ===========
</TABLE>
- --------------------------------------------------------------------------------
F17
<PAGE> 50
VALRICO BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
NOTE S - PARENT COMPANY FINANCIAL INFORMATION
Presented below are condensed financial statements for Valrico Bancorp, Inc.
(parent only):
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS AS OF DECEMBER 31: 1997 1996
----------- ------------
<S> <C> <C>
ASSETS
Cash $ 41,009 $ 4,207
Investment in subsidiary bank, net 4,162,003 3,847,703
Facilities 1,677,666 -
Other assets 29,812 47,094
----------- -----------
Total assets $ 5,910,490 $ 3,899,004
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued liabilities $ 1,200 $ -
Line-of-credit 399,950 -
Note payable 1,272,191 -
----------- -----------
Total liabilities 1,673,341 -
Stockholders' equity 4,237,149 3,899,004
----------- -----------
Total liabilities and stockholders= equity $ 5,910,490 $ 3,899,004
=========== ===========
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31: 1997 1996
----------- -----------
<S> <C> <C>
Equity in net income of subsidiary bank:
Distributed $ 29,685 $ 59,684
Undistributed 302,062 298,199
Rent income 187,000
Other income 208 -
Interest expense (132,579)
Other expenses (62,564) (9,892)
----------- -----------
Net Income 323,812 347,991
STOCKHOLDERS' EQUITY
Beginning of year 3,899,004 3,595,476
Dividends paid (29,685) (29,685)
Stock issuance 33,180
Stock redemption (1,400) (29,258)
Net change in unrealized holding losses
on securities in subsidiary bank 12,238 14,480
----------- -----------
End of year $ 4,237,149 $ 3,899,004
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
F18
<PAGE> 51
VALRICO BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
NOTE S - PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31: 1997 1996
---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $323,812 $347,991
Adjustment to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings (loss) of subsidiary (302,062) (298,199)
Deferred income taxes 5,790 (5,638)
Depreciation 26,469
Amortization 9,991 9,952
Increase in liabilities:
Accounts payable and accrued liabilities 1,200
Other - (1,500)
------------- -------------
Net cash provided by operating activities 65,200 52,606
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 33,180 -
Redemption of common stock (1,400) (29,258)
Cash dividend on common stock (29,685) (29,685)
Proceeds from issuance of long-term debt 1,313,000 -
Principal payments on long-term debt (40,809) -
Net increase in short-term borrowings 399,950 -
------------- -------------
Net cash used in financing activities 1,674,236 (58,943)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of facilities (1,702,634) -
------------- -------------
Net cash used in investing activities (1,702,634) -
------------- -------------
NET INCREASE (DECREASE) IN CASH 36,802 (6,337)
CASH AT BEGINNING OF YEAR 4,207 10,544
------------- -------------
CASH AT END OF YEAR $41,009 $4,207
============= =============
</TABLE>
- --------------------------------------------------------------------------------
F19
<PAGE> 52
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Stockholders
of Valrico Bancorp, Inc. and Subsidiary
The audit referred to in our opinion dated January 12, 1998, on the financial
statements of Valrico Bancorp, Inc. and subsidiary as of December 31, 1997 and
December 31, 1996, and for each of the three years in the period ended December
31, 1997, including examination of the related supplemental financial schedules
II and III, which, when considered in relation to the basic financial
statements, presents fairly in all material respects, the information shown
therein.
Rex Meighen & Company
Certified Public Accountants
Tampa, Florida
January 12, 1998
Page 32
<PAGE> 53
SCHEDULE II
LOANS TO OFFICERS, DIRECTORS, PRINCIPAL SECURITY
HOLDERS, AND ANY ASSOCIATES OF THE FOREGOING PERSONS
Year ended December 31, 1997
<TABLE>
<CAPTION>
BALANCE REDUCTIONS BALANCE
BEGINNING ---------------------------------- END OF
NAME OF OF PERIOD AMOUNTS AMOUNTS PERIOD
BORROWER 1-01-97 ADDITIONS COLLECTED CHARGED OFF 12-31-97
- -------- ---------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
LeVaughn Amerson (1) $ 0 $ 220,118 $ 159,256 $ 0 $ 60,862
C. Dennis Carlton 154,000 0 154,000 0 0
C. Dennis Carlton (2) 35,990 0 2,469 0 33,521
C. Dennis Carlton 50,000 0 50,000 0 0
Carlton & Carlton (3) 11,332 0 5,013 0 6,319
Carlton, Sr. (4) 110,871 0 7,390 0 103,481
Carlton & Carlton (5) 0 24,565 5,635 0 18,930
Carlton & Carlton (6) 0 22,976 1,174 0 21,802
Holmberg Farms (7) 0 200,000 0 0 200,000
Holmberg Farms (8) 0 1,698 0 0 1,698
5 Directors & Officers 2,463,721 1,030,932 1,550,283 0 1,944,370
------------ ------------- ------------ ------------- ------------
Totals $ 2,825,914 $ 1,500,289 $ 1,935,220 $ 0 $ 2,390,983
============ ============= =========== ============= ============
</TABLE>
NOTES
<TABLE>
<CAPTION>
(1) LEVAUGHN AMERSON (2) C.DENNIS CARLTON
- -------------------- --------------------
<S> <C> <C> <C>
Original date: February 20, 1992 Original date: June 28, 1995
Maturity: February 21, 1999 Maturity: June 18, 1999
Rate: Prime plus .5 Rate: 9.5%
Terms: Quarterly interest Terms: Principal & Interest
Monthly.
Collateral: Unsecured Collateral: First Mortgage
<CAPTION>
(3) CARLTON & CARLTON (4) C. DENNIS CARLTON
- --------------------- ---------------------
<S> <C> <C> <C>
Original date: January 31, 1996 Original date: October 4, 1991
Maturity: February 5, 1999 Maturity: October 4, 2001
Rate: 8% Rate: Prime plus 1
Terms: Principal & Interest Terms: Principal & Interest
monthly semi-annually
Collateral: Automobile Collateral: First Mortgage
</TABLE>
Page 33
<PAGE> 54
<TABLE>
<CAPTION>
(5) CARLTON & CARLTON (6) CARLTON & CARLTON
- --------------------- ---------------------
<S> <C> <C> <C>
Original date: March 14, 1997 Original date: July 25, 1997
Maturity: March 15, 2000 Maturity: August 5, 2002
Rate: 8% Rate: 8.9%
Terms: Principal & Interest Terms: Principal & Interest
monthly monthly
Collateral: Automobile Collateral: Automobile
(7) HOLMBERG FARMS (8) HOLMBERG FARMS
- ------------------ ------------------
Original date: October 14, 1997 Original date: December 30, 1997
Maturity: July 15, 1998 Maturity: December 29, 1998
Rate: Prime plus 1 Rate: Prime plus 1
Terms: Interest monthly Terms: Interest monthly
Collateral: Unsecured Collateral: Agriculture equipment
</TABLE>
(Remainder of this page intentionally left blank)
Page 34
<PAGE> 55
SCHEDULE II
LOANS TO OFFICERS, DIRECTORS, PRINCIPAL SECURITY
HOLDERS, AND ANY ASSOCIATES OF THE FOREGOING PERSONS
Year ended December 31, 1996
<TABLE>
<CAPTION>
BALANCE REDUCTIONS BALANCE
BEGINNING --------------------------------- END OF
NAME OF OF PERIOD AMOUNTS AMOUNTS PERIOD
BORROWER 1-01-96 ADDITIONS COLLECTED CHARGED OFF 12-31-96
- -------- ------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. E. McLean & Sons $ 219,952 $ 0 $ 10,000 $ 0 $ 209,952
J. E. McLean & Sons 34,995 0 5,000 0 29,995
J. E. McLean & Sons 25,000 0 0 0 25,000
J. E. McLean & Sons 20,525 0 20,525 0 0
J. E. McLean & Sons 25,000 0 25,000 0 0
J. E. McLean & Sons 0 25,000 0 0 25,000
J. E. McLean & Sons 0 29,000 0 0 29,000
C. Dennis Carlton 165,000 0 11,000 0 154,000
C. Dennis Carlton 37,718 0 1,728 0 35,990
C. Dennis Carlton 0 50,000 0 0 50,000
C. Dennis Carlton 0 15,103 3,771 0 11,332
R. F. Kustom Homes 42,700 0 42,700 0 0
R. F. Kustom Homes 56,800 0 56,800 0 0
R. F. Kustom Homes 43,624 0 43,624 0 0
R. F. Kustom Homes 2,298 114,902 117,200 0 0
Holmberg Farms 193,000 57,000 250,000 0 0
5 Directors & Officers 1,144,038 1,418,023 306,416 0 2,255,645
------------- -------------- ------------- -------------- -------------
Totals $ 2,010,650 $ 1,709,028 $ 893,764 $ 0 $ 2,825,914
============= ============== ============= ============== =============
</TABLE>
Page 35
<PAGE> 56
SCHEDULE II
LOANS TO OFFICERS, DIRECTORS, PRINCIPAL SECURITY
HOLDERS, AND ANY ASSOCIATES OF THE FOREGOING PERSONS
Year ended December 31, 1995
<TABLE>
<CAPTION>
BALANCE REDUCTIONS BALANCE
BEGINNING ----------------------------- END OF
NAME OF OF PERIOD AMOUNTS AMOUNTS PERIOD
BORROWER 1-01-95 ADDITIONS COLLECTED CHARGED OFF 12-31-95
- -------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
J. E. McLean & Sons $ 229,952 $ 0 $ 10,000 $ 0 $ 219,952
J. E. McLean & Sons 39,995 0 5,000 0 34,995
J. E. McLean & Sons 25,000 0 0 0 25,000
J. E. McLean & Sons 0 25,000 4,475 0 20,525
J. E. McLean & Sons 0 25,000 0 0 25,000
C. Dennis Carlton 0 25,000 25,000 0 0
C. Dennis Carlton 176,000 0 11,000 0 165,000
C. Dennis Carlton 0 38,576 858 0 37,718
C. Dennis Carlton 0 42,700 0 0 42,700
C. Dennis Carlton 0 56,800 0 0 56,800
R. F. Kustom Homes 0 43,624 0 0 43,624
R. F. Kustom Homes 0 2,298 0 0 2,298
R. F. Kustom Homes 0 59,400 59,400 0 0
R. F. Kustom Homes 0 31,983 31,983 0 0
R. F. Kustom Homes 0 43,916 43,916 0 0
R. F. Kustom Homes 0 56,440 56,440 0 0
R. F. Kustom Homes 0 75,000 75,000 0 0
R. F. Kustom Homes 0 96,103 96,103 0 0
R. F. Kustom Homes 0 47,500 47,500 0 0
Holmberg Farms 0 193,000 0 0 193,000
6 Directors & Officers 1,291,453 304,403 451,818 0 1,144,038
------------ ------------- ------------ ------------- ------------
Totals $ 1,762,400 $ 1,166,743 $ 918,493 $ 0 $ 2,010,650
============ ============= ============ ============= ============
</TABLE>
Page 36
<PAGE> 57
SCHEDULE III
LOANS AND LEASE FINANCING RECEIVABLES
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
1. Loans secured by real estate:
a. Construction and land development $ 4,352 $ 1,324 $ 317
b. Secured by farmland (including farm residential and other
improvements) 3,505 3,361 3,784
c. Secured by 1 - 4 family residential properties:
(1) Revolving, open-end loans secured by 1 - 4 family residential
properties and extended under lines of credit 0 0 0
(2) All other loans secured by 1-4 family residential properties:
(a) Secured by first liens 7,119 5,741 4,549
(b) Secured by junior liens 699 744 1,069
d. Secured by multifamily (5 or more) residential properties 851 821 823
e. Secured by non-farm nonresidential properties 13,507 12,710 11,445
2. Loans to depository institutions 0 3 0
3. Loans to finance agricultural production and other loans to farmers 7,300 3,108 2,959
4. Commercial and industrial loans 6,136 5,828 4,356
5. Acceptance of other banks 0 0 0
6. Loans to individuals for household, family, and other personal expenditures
(i.e., consumer loans) (includes purchase paper):
a. Credit cards and related plans (includes check credit and other revolving
credit plans) 375 221 291
b. Other (includes single payment, installment, and all student loans) 4,485 4,471 3,992
7. Obligations (other than securities and leases) of states and political subdivisions
in the U. S. (includes non-rated industrial development obligations:
a. Taxable obligations 0 0 0
b. Tax-exempt obligations 0 0 0
8. All other loans (exclude consumer loans) 161 102 124
9. Lease financing receivables (net of unearned income) 0 0 0
10. LESS: Any unearned income on loans reflected in items 1 - 8 above (41) (36) (26)
-------- --------- ---------
11. Total loans and leases, net of unearned income (sum of items 1 through 9
minus item 10) $ 48,449 $ 38,398 $ 33,683
======== ========= =========
</TABLE>
Page 37
<PAGE> 58
SCHEDULE IV
BANK PREMISES AND EQUIPMENT
PLEASE REFERENCE NOTES TO FINANCIAL STATEMENTS
NOTE D - FACILITIES
Page 38
<PAGE> 59
SCHEDULE V
INVESTMENT IN, INCOME FROM DIVIDENDS, AND EQUITY IN
EARNINGS OR LOSSES, OF SUBSIDIARIES AND ASSOCIATED COMPANIES
NOT APPLICABLE
Page 39
<PAGE> 60
SCHEDULE VI
ALLOWANCE FOR POSSIBLE LOAN LOSSES
PLEASE REFERENCE NOTES TO FINANCIAL STATEMENTS
NOTE C - LOANS
Page 40
<PAGE> 61
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31, 1997.
EXHIBITS
(3)(i) Articles of Incorporation of the Company (a)
(3)(ii) Bylaws of the Company (a)
(10)(a) Lease - Valrico State Bank - Jim Redman Parkway Office
(b) Lease - Valrico State Bank - Brandon Office (b)
(c) Valrico State Bank Stock Option Plan (b)
(21) Valrico State Bank (b)
(a) Incorporated by reference to the Company's Registration Statement
#33-90524 on Form S-4 for the registrant.
(b) Incorporated by reference to the Company's December 31, 1995 Form
10-K.
Page 41
<PAGE> 62
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on March 27, 1997.
By: /s/ Bob McLean By: /s/ Jerry L. Ball
---------------------------- ---------------------------------------
Bob McLean, President & CEO Jerry L. Ball, Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant on March 27, 1997.
Signatures Titles
- ---------- ------
/s/ J. E. "Bob" McLean, III President and Chief Executive Officer
- ----------------------------------
J. E. "Bob" McLean, III
/s/ Jerry L. Ball Executive Vice President and Director
- ----------------------------------
Jerry L. Ball
/s/ C. Dennis Carlton Director
- ----------------------------------
C. Dennis Carlton
/s/ H. Leroy English Director
- ----------------------------------
H. Leroy English
/s/ Gregory L. Henderson Director
- ----------------------------------
Gregory L. Henderson
/s/ Douglas A. Holmberg Director
- ----------------------------------
Douglas A. Holmberg
/s/ Charles E. Jennings, Jr. Director
- ----------------------------------
Charles E. Jennings, Jr.
/s/ J. "Bill" Noriega, Jr. Director
- ----------------------------------
J. "Bill" Noriega, Jr.
/s/ LeVaughn Amerson Director
- ----------------------------------
LeVaughn Amerson
Page 42
<PAGE> 63
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ---------- -----------
(3)(i) Articles of Incorporation of the Company (a)
(3)(ii) Bylaws of the Company (a)
(10)(a) Lease - Valrico State Bank - Jim Redman Parkway Office
(b) Lease - Valrico State Bank - Brandon Office (b)
(c) Valrico State Bank Stock Option Plan (b)
(21) Valrico State Bank (b)
(27) Financial Data Schedule
(a) Incorporated by reference to the Company's Registration Statement
#33-90524 on Form S-4 for the registrant.
(b) Incorporated by reference to the Company's December 31, 1995 Form
10-K.
<PAGE> 1
EXHIBIT 10(A)
WAL*MART LEASE AGREEMENT
THIS LEASE is entered into as of the 23 day of December, 1996, by and
between Landlord and Tenant as hereinafter defined.
WHEREAS, in consideration of the obligation of Tenant to pay Rent as
herein provided and in consideration of the Standard Terms and Conditions set
forth herein, Landlord hereby demises and leases to Tenant, and Tenant hereby
takes from Landlord, the Demised Premises, TO HAVE AND TO HOLD said Demised
Premises for the Lease Term specified below, and upon the terms and conditions
set forth in this Lease.
BASIC PROVISIONS
1. Landlord: WAL-MART STORES, INC., 701 SOUTH WALTON BOULEVARD, BENTONVILLE,
AR 72716
2. Tenant: VALRICO STATE BANK, 1815 EAST STATE ROAD 60, VALRICO, FLORIDA
33594
3. Tenant's Trade Name(s): VALRICO STATE BANK
4. "Demised Premises": The space occupied by Tenant's Financial Service
Facility ("FSF") in WAL-MART NO. 547 in the City of PLANT CITY, FLORIDA
(the "Store").
5. Targeted Commencement Date: MARCH 26, 1997
6. Lease Term: Commencing on the Commencement Date as defined in Section 1.3
below, and continuing until 12:00 Midnight local time on the fifth
anniversary of the Commencement Date (the "Termination Date").
7. Rent: Payable as specified in Article III:
<TABLE>
Annually Monthly
---------- ---------
<S> <C> <C>
Initial Term $25,000.00 $2,083.33
First Renewal Term $31,250.00 $2,604.17
Second Renewal Term $39,062.50 $3,255.17
</TABLE>
8. Prepaid Rent: $2,083.33 being Rent for the last month of the Lease Term,
due within thirty (30) days after the Commencement Date.
9. Key Money: A one-time nonrefundable fee of $50,000.00 for the right to
operate an FSF in the Store. Payment is to be made within thirty (30) days
after the Commencement Date.
10. Landlord's Construction Payment: A one-time payment of $10,000.00 for
Landlord's work related to the design, construction and finishing of the
Demised Premises. Payment is to be made within thirty (30) days after the
Commencement Date.
11. Special Utility Charge: $1,500 per term, if Landlord permits Tenant to
have an illuminated exterior sign, payable in advance within thirty (30)
days after the Commencement Date of the initial term, and upon
commencement of any renewal term.
EXECUTED AS OF THE DATE HEREIN ABOVE STATED.
LANDLORD: WAL-MART STORES, INC. TENANT: VALRICO STATE BANK
By: \s\ Anthony L. Fuller By: \s\ Larry R. Tracy
--------------------------------- ---------------------------------
ANTHONY L. FULLER
VICE PRESIDENT President and CEO
WALMART REALTY COMPANY ---------------------------------
Title:
(C) 1996, International Banking Technologies. All rights reserved.
"International Banking Technologies" is Registered in U.S. Patent and Trademark
Office.
<PAGE> 2
ADDENDUM
TO
WAL-MART LEASE AGREEMENT ("LEASE")
TENANT: Valrico State Bank
STORE: Wal-Mart #547, Plant City, Florida
The provisions of the Lease are modified as follows:
SECTION 18.5. ADDITIONAL LANGUAGE:
If on account of any breach or default by Landlord in its obligations
hereunder, Tenant shall employ an attorney to present, enforce or defend any of
Tenant's rights or remedies hereunder, Landlord agrees to pay any reasonable
attorney's fees incurred by Tenant in such connection.
ARTICLE XIX, LANDLORD'S CONTRACTUAL SECURITY INTEREST. Deleted.
EXHIBIT B-1 (INSURANCE PRODUCTS). Add the following insurance products:
MORTGAGE INSURANCE
(C) 1996, International Banking Technologies. All rights reserved.
"International Banking Technologies" is Registered in U.S. Patent and Trademark
Office.
<PAGE> 3
STANDARD TERMS AND CONDITIONS FOR WAL*MART LEASE AGREEMENT
ARTICLE I. GENERAL PROVISIONS
1.1 Quiet Possession: Landlord further agrees that if Tenant shall
perform all of the covenants and agreements herein required to be performed by
Tenant, Tenant shall, subject to the terms of this Lease, at all times during
the continuance of this Lease have peaceful and quiet possession of the Demised
Premises.
1.2 Renewal Terms: Provided Tenant has conducted its business in an
efficient, high-class and reputable manner and is not in default hereunder,
Tenant shall have the option(s) to extend the term of this Lease for up to two
(2) consecutive terms of Five (5) years each by giving Landlord written notice
of its exercise of the respective option at least one hundred eighty (180) days
prior to the expiration of the original Lease Term or the expiration of the
then existing term. References to the "Lease Term" shall refer to the original
term and any extensions or renewals thereof.
1.3 Commencement Date: The latest to occur of (i) the ninetieth
(90th) day after Tenant's receipt of all necessary regulatory approvals; (ii)
the ninetieth (90th) day after the date on which Landlord tenders possession of
the Demised Premises to Tenant for completion of Tenant's work; and (iii) the
date on which the Store opens for business. Landlord and Tenant agree to
execute and deliver a "Commencement Agreement," in the form attached hereto as
Exhibit "A" within thirty (30) days after the FSF opens for business.
Notwithstanding the foregoing, the Commencement Date shall be no earlier than
the Targeted Commencement Date set forth in Section 5 of the Basic Provision,
unless Tenant actually opens for business in the Demised Premises before the
Targeted Commencement Date.
1.4 Permitted Use: A banking facility staffed with one or more bank
employees whose functions include, without limitation, opening new deposit
accounts, accepting loan applications, closing loans, and performing customary
teller transactions, such as cashing checks and taking deposits. An FSF may be
equipped with an ATM, vault, safe deposit boxes, a night depository, and one or
more self-service or interactive banking terminals. Tenant shall have the
exclusive right to operate an FSF within the Store and may also offer, on a
non-exclusive basis, such ancillary products and services as may be permitted
by applicable law and regulations; provided, however, that Tenant shall not
offer insurance, investment products and travel agency services, except for the
insurance and investment products and services listed on Exhibit "B," without
Landlord's prior written consent, which consent shall not be unreasonably
withheld. Tenant may not trade merchandise that conflicts with Landlord's
merchandise without Landlord's written approval.
1.5 Automated Teller Machine ("ATM"):
(a) Tenant shall have the exclusive right to operate one ATM within the
Store, and a first refusal right to operate additional ATMs within the Store.
Any additional ATMs shall be subject to the terms of this Lease and to the
following additional conditions: (i) Tenant shall pay ATM rental of $500 per
month for each additional ATM; (ii) the location(s) of additional ATM(s) will
be as determined by Landlord; and (iii) all additional ATM(s) must be
front-loading ATMs.
(b) Tenant shall not charge a Terminal Usage Fee or other fee for use of
Tenant's ATMs in the Store, other than normal and customary interchange fees
and fees customarily assessed by Tenant to its account holders (none of which
shall be considered "Terminal Usage Fees" for the purposes of this Agreement)
without Landlord's prior written consent. Landlord's consent to Tenant's
imposition of Terminal Usage Fees shall not be unreasonably withheld, and shall
be based upon Landlord's analysis of Terminal Usage Fees charged by ATMs
operated by Tenant and other ATM operators within the Store's market area,
including freestanding ATMs, parking lot ATMs, ATMs in retail locations
operated by Landlord, and retail locations operated by Landlord's competitors,
it being Landlord's intention to ensure that Landlord's "everyday low prices"
philosophy applies to charges imposed on customers of Tenant's ATMs.
(C) 1996, International Banking Technologies. All rights reserved.
"International Banking Technologies" is Registered in U.S. Patent and Trademark
Office.
S-1
<PAGE> 4
(c) In the event Tenant is permitted to charge Terminal Usage Fees, and
elects to do so, Tenant shall pay Landlord an ATM transaction fee (the "ATM
Transaction Fee"), in addition to any other ATM fees payable hereunder, equal
to fifty percent (50%) of the Terminal Usage Fees received by Tenant by reason
of transactions conducted at Tenant's ATM(s) in the Store. ATM Transaction
Fees shall be paid monthly in arrears, commencing on the fifteenth (15th) day
of the month after the month in which the ATM commences operation. Tenant
shall keep and maintain full and accurate records of Terminal Usage Fees
charged to customers of Tenant's ATM(s). Landlord shall have the right during
Tenant's business hours and upon reasonable notice to Tenant to inspect, copy
and audit such records, and Tenant will produce the same on Landlord's request.
If any such inspection and audit discloses a liability for ATM Transaction
Fees in excess of ATM Transaction Fees theretofore paid by Tenant, Tenant shall
promptly, upon demand, pay to Landlord such liability. If the audit discloses
that Tenant's statements underreported ATM Transaction Fees by more than two
percent (2%), then Tenant shall, in addition, pay the reasonable cost of
Landlord's audit.
ARTICLE II. ACCEPTANCE OF DEMISED PREMISES; REMODELING
2.1 Acceptance of Demised Premises: By opening for business in the
Demised Premises, Tenant shall be deemed to have accepted the same "as is" and
to have acknowledged that the same comply fully with Landlord's covenants and
obligations hereunder.
2.2 Possession: If this Lease is executed before the Demised Premises
becomes vacant, or if any present tenant or occupant of the Demised Premises
holds over, and Landlord cannot acquire possession of the Demised Premises
prior to the Targeted Commencement Date, Landlord shall not be deemed to be in
default hereunder, and Tenant agrees to accept possession of the Demised
Premises at such time as Landlord is able to tender the same. Landlord hereby
waives the payment of Rent covering any period prior to tender of possession of
the Demised Premises to Tenant hereunder. If Landlord, in Landlord's sole
discretion, determines that it will be unable to acquire possession of the
Demised Premises within a reasonable time after the Targeted Commencement Date
by reasonable commercial efforts, short of litigation, Landlord shall have the
right to terminate this Agreement by written notice to Tenant, whereupon
neither party shall have any further rights, duties or obligations hereunder.
2.3 Construction of Store: If this Lease is executed before Landlord has
commenced construction of the Store and Landlord does not tender possession of
the Demised Premises to Tenant for completion of Tenant's work by the Targeted
Commencement Date, as above defined, Landlord shall not be deemed to be in
default hereunder, and Tenant agrees to accept possession of the Demised
Premises at such time as Landlord tenders the same. Notwithstanding the
foregoing, if Landlord, in Landlord's sole discretion (i) determines it will be
unable to deliver possession of the Demised Premises to Tenant within a
reasonable time after the Targeted Commencement Date, by reason of construction
or regulatory delays or otherwise, or (ii) elects not to construct the Store,
Landlord shall have the right to terminate this Agreement by written notice to
Tenant, whereupon neither party shall have any further rights, duties or
obligations hereunder.
2.4 Store Renovation: Tenant recognizes that Landlord may, from time to
time, wish to remodel, rearrange or enlarge the Store to accommodate changes in
retailing patterns. If the remodeling/rearranging/enlargement involves
relocation of the Demised Premises, Landlord shall pay the actual costs of such
relocation, but no more than $100,000.00 if the remodeling occurs during the
first year of the lease term; no more than $80,000.00 if within the second year
of the lease term; no more than $60,000.00 if within the third year of the
lease term; no more than $40,000.00 if within the fourth year of the lease
term; no more than $20,000.00 if within the fifth year of the lease term; and
nothing thereafter. Tenant shall pay all costs that Landlord has not agreed to
pay. In no event will Landlord be responsible for "loss of business," "lack of
trade," or any other claim resulting out of such renovation. Notwithstanding
any remodeling of the Store, the Demised Premises shall always be comparable in
configuration and overall size to the original Demised Premises, and shall be
located at the front of the Store, convenient to checkout stands and plainly
visible to customers. Landlord agrees that Tenant may temporarily close the
Demised Premises if Tenant reasonably determines that its ability to operate is
materially impaired due to work associated with Store construction, remodeling,
moving or enlargement. Rent shall be abated during periods in which the
Demised Premises is closed by reason of work associated with Store
construction, remodeling, moving or enlargement.
ARTICLE III. RENT
3.1 Address for Payment of Rent: Rent shall be payable to Landlord in
care of:
Wal-Mart Stores, Inc.
P.O. Box 500620
St. Louis, MO 63150-0620
(C) 1996, International Banking Technologies. All rights reserved.
"International Banking Technologies" is Registered in U.S. Patent and Trademark
Office.
S-2
<PAGE> 5
3.2 Time of Payment of Rent: Tenant shall pay Rent to Landlord in monthly
installments. The first such monthly installment shall be due and payable on
or before the earlier of (i) the date on which Tenant first opens for business
in the Demised Premises and (ii) the Commencement Date, and subsequent
installments shall be due and payable on or before the first day of each
succeeding calendar month during the Lease Term. Rent shall be prorated on a
daily basis for any partial month in the Lease Term that results from the Lease
Term beginning on a day other than the first day of a calendar month or ending
on a day other than the last day of a calendar month.
3.3 Electronic Payment: It is understood that the Rent, Key Money,
Landlord's Construction Payment and all other payments hereunder are payable at
the times stated herein without offset or deduction of any nature. If
requested by Landlord, all payments shall be made electronically by Fedwire or
through an Automated Clearing House (ACH). In the event any payment is not
received within ten (10) days of the due date, it is agreed that the amount
thus due shall bear interest at the rate of one and one-half percent (1 1/2 %)
per month, such interest to accrue continuously on any unpaid balance due to
Landlord by Tenant during the period commencing with the due date and
terminating with the date on which Tenant makes full payment of all amounts
owing to Landlord at the time of said payment. Any such interest shall be
payable as additional Rent hereunder and shall be payable immediately on
demand.
3.4 Quarterly Payment of Rent at Landlord's Option: If Tenant fails in
two (2) consecutive months to make payments of Rent within ten (10) days after
due, Landlord, in order to reduce its administrative costs, may require by
giving written notice to Tenant (and in addition to any interest accruing
pursuant to Section 3.3 above, as well as any other rights and remedies
accruing pursuant to Article XVIII or Article XIX, or any other term, provision
or covenant of this Lease), that Rent is to be paid quarterly in advance
instead of monthly.
ARTICLE IV. REPORTS AND RECORDS
4.1 Loans and Deposits: Promptly following the end of each calendar
quarter during the term of the Lease, Tenant shall deliver to Landlord
information concerning loans and deposits for the Demised Premises in the form
attached as Exhibit "C" or in such other form as may be mutually acceptable to
Landlord and Tenant. Landlord acknowledges that such reports contain sensitive
and confidential information and shall use reasonable business efforts to
maintain the confidentiality of the information contained therein, both during
and after the expiration of the Lease Term.
ARTICLE V. COMMON AREAS
5.1 Common Areas: The term "Common Area" is defined for all purposes of
this Lease as that part of the Store as well as certain adjoining property
owned or leased by Landlord and intended for the common use of all tenants,
including among other facilities (as such may be applicable), parking area,
private streets and alleys, landscaping, curbs, loading area, floors, doors,
side walks, food court, malls and promenades (enclosed or otherwise), lighting
facilities, drinking fountains, meeting rooms, public toilets and the like but
excluding space in buildings (now or hereafter existing) designed for rental or
commercial purposes, as the same may exist from time to time, and further
excluding streets and alleys maintained by a public authority. Landlord
reserves the right to change from time to time the dimensions and locations of
the Common Area. Tenant, and its employees and customers, and when duly
authorized pursuant to the provisions of this Lease, its subtenants, licensees
and concessionaires, shall have the nonexclusive right to use the Common Area
as constituted from time to time, such use to be in common with Landlord, other
tenants of the Store and other persons permitted by Landlord to use the same,
and subject to such reasonable rules and regulations governing use as Landlord
may from time to time prescribe, including the designation of specific areas in
which automobiles owned by Tenant, its employees, subtenants, licensees and
concessionaires shall be parked. Landlord may temporarily close any part of
the Common Area for such periods of time as may be necessary to make repairs or
alterations to prevent the public from obtaining prescriptive rights. Landlord
shall be responsible for the operation, management, and maintenance of the
Common Area, the manner of maintenance and the expenditures therefor to be in
the sole discretion of Landlord.
ARTICLE VI. USE AND CARE OF DEMISED PREMISES
6.1 Operation: The Demised Premises may be used only for the purpose or
purposes specified in Section 1.4, and for no other purposes without the prior
written consent of Landlord. Tenant shall not at any time leave the Demised
Premises vacant, but shall in good faith continuously throughout the Lease Term
operate an FSF in the Demised Premises. Tenant shall operate its business in an
efficient, high class and reputable manner, and shall, except during reasonable
periods for repairing, cleaning, and decorating, keep the Demised Premises open
to the public for business with adequate personnel in attendance, for a minimum
of fifty (50) hours a week allocated over six (6) days,
(C) 1996, International Banking Technologies. All rights reserved.
"International Banking Technologies" is Registered in U.S. Patent and Trademark
Office.
S-3
<PAGE> 6
two (2) of which shall be Friday and Saturday; provided, however, that such
minimum hours of operation shall be shortened for any week during which a bank
holiday occurs. In addition, Tenant agrees to provide a level and quality of
services to its customers in the Store that equals or exceeds Landlord's
standards for the level and quality of services Landlord provides to its
customers in the Store, and will conduct its banking business at the FSF in
conjunction with and abiding by Landlord's philosophies, culture and standards,
subject to sound banking practices and applicable banking laws, rules and
regulations.
6.2 Customer Service Telephone: Tenant shall provide, at its sole
expense, a customer service "Hot Line" notice including the Tenant's local or
other toll free number at the Demised Premises. The notice shall be in a
conspicuous location in full view of all customers at all times the Store is
open for business. Letters and numbers are to be a minimum of four inches (4")
in scale with a background color which highlights the color of the characters.
6.3 Increased Risk: Tenant shall not, without Landlord's prior written
consent, keep anything within the Demised Premises or use the Demised Premises
for any purpose which increases the insurance premium cost or invalidates any
insurance policy carried on the Demised Premises or the Store or the Common
Area. All property kept, stored or maintained within the Demised Premises by
Tenant shall be at Tenant's sole risk.
6.4 Care of Demised Premises: Tenant shall take good care of the Demised
Premises and keep the same free from waste at all times. Tenant shall keep the
Demised Premises neat, clean and free from dirt or rubbish at all times.
Receiving and delivery of goods and merchandise and removal of garbage and
trash from the Demised Premises shall be made only in the manner and areas
prescribed by Landlord. Tenant shall not operate an incinerator or burn trash
or garbage within the Store or Common Area. Tenant shall not permit any
objectionable or unpleasant odors to emanate from Demised Premises; nor place
or permit any radio, television, loudspeaker or amplifier on the roof or
outside the Demised Premises or where the same can be seen or heard from
outside the building; nor place any antenna, awning or other projection on the
exterior of the Demised Premises; nor take any other action which would
constitute a nuisance or would disturb or endanger other tenants of the Store
or unreasonably interfere with their use of their respective premises; nor do
anything which would tend to injure the reputation of the Store.
6.5 Display Windows: Tenant shall maintain all display windows in a
neat, attractive condition and shall keep all display windows lighted during all
business hours as defined above.
6.6 Permits: Tenant shall procure at its sole expense any permits and
licenses required for the transaction of business in the Demised Premises and
shall otherwise comply with all applicable laws, ordinances, and governmental
regulations.
6.7 Tenant's Employees:
(a) All persons employed by Tenant in or about, or in connection with,
the operation of the FSF shall be Tenant's employees for all purposes under this
Agreement. Tenant's employees and agents and employees of companies which
service the FSF who are not Tenant employees or agents shall be granted access
to the Store for the purpose of servicing, maintaining, and otherwise
performing services in connection with the FSF. Landlord agrees to cooperate
with Tenant in providing access to the Demised Premises during periods of time
the Store may not be open for business.
(b) Employees of Tenant, while working at the FSF, shall be permitted to
park their automobiles in spaces designated by Landlord for parking by Landlord
employees. Tenant shall furnish to Landlord upon request a complete list of
license numbers of all automobiles operated by Tenant, its employees,
subtenants, licensees or concessionaires, and Tenant agrees that if any
automobile or other vehicles owned by Tenant or any of its employees,
subtenants, licensees or concessionaires shall be parked in any part of the
Common Area other than the specified areas designated for employee parking
while performing services at the Demised Premises, Tenant shall pay to Landlord
as additional Rent upon demand an amount equal to the daily rate or charge for
such parking as may be reasonably established by Landlord from time to time for
each day, or part thereof, such automobile or other vehicle is so parked.
Landlord may from time to time substitute for any parking area other areas
reasonably accessible to Tenant, which areas may be elevated, surface or
underground.
6.8 Advertising and Promotion:
(a) Tenant may advertise the existence and location of the FSF by media
as per manner approved by Landlord at the on-site operations level, which
approval will not be unreasonably withheld or delayed. Aside from notices of
the existence and location of the FSF, neither Landlord nor Tenant will use the
other's name, trademark,
(C) 1996, International Banking Technologies. All rights reserved.
"International Banking Technologies" is Registered in U.S. Patent and Trademark
Office.
S-4
<PAGE> 7
servicemark, or logo in any advertising, marketing, or solicitation materials
without the other's consent. In no event will either party advertise or
otherwise represent that it has any relationship with the other other
than the relationship of landlord and tenant arising out of Tenant's occupying
space in the Store.
(b) Subject to Landlord's approval on the on-site operations level, which
will not be unreasonably withheld or delayed, Tenant may promote its products
and services outside the FSF within the Store itself; provided, however, such
products and services shall be those offered at the FSF and shall not compete
with the grocery products or services offered by Landlord.
(c) Subject to Landlord approval on the on-site operations level, which
will not be unreasonably withheld or delayed, Tenant shall have access to the
intercommunication system ("intercom") within the Store to promote the
products and services offered at the FSF. The use of the intercom shall be
coordinated and approved between the Store Manager and the FSF Manager.
(d) All promotions conducted by Tenant in the Store shall be conducted in
a professional manner by trained employees of Tenant or an Affiliate (as
defined in Section 16.2, below) working at the FSF.
(e) Landlord, as approved at the on-site operations level, shall permit
Tenant to place signs identifying its operations inside the Store at locations
to be agreed upon by the parties. Tenant will submit to Landlord for its
approval, which will not be unreasonably withheld or delayed, a signage package
detailing the appearance and size of all signs to be installed.
6.9 Trade Name: Tenant hereby acknowledges that Tenant's business
reputation, intended use of the Demised Premises and ability to generate
patronage to the Demised Premises and the Store were all relied upon by
Landlord and served as significant and material inducements contributing to
Landlord's decision to execute this Lease with Tenant. Tenant hereby covenants
and agrees: (i) to operate in the Demised Premises only under the trade name(s)
set forth in the Basic Provisions, and under no other name or trade name
whatsoever without Landlord's prior written consent, provided (A) such consent
by Landlord shall not be unreasonably withheld and (B) if Tenant is acquired
by, or acquires, whether by merger or other means, a bank or bank holding
company having assets equal to fifty percent (50%) or more of the assets of
Tenant, Tenant may, upon prior notice to Landlord, adopt the name or trade name
used by such other bank or bank holding company in its banking business,
provided in either case such name is not obscene and does not contain the name
of any of Landlord's competitors.
ARTICLE VII. MAINTENANCE AND REPAIR OF DEMISED PREMISES
7.1 Landlord's Responsibility: Landlord shall keep the foundation, the
exterior walls, heating, air conditioning and roof (except plate glass;
windows, doors, door closure devices and other exterior openings; window and
door frames, molding, locks and hardware; special storefronts; lighting,
plumbing and other electrical, mechanical and electromotive installations,
equipment and fixtures; signs, placards, decorations or advertising media of
any type; and interior painting or other treatment of exterior walls) of the
Demised Premises in good repair. Landlord, however, shall not be required to
make any repairs occasioned by the act or negligence of Tenant or Tenant's
agents, employees, subtenants, licensees and concessionaires; and the
provisions of the previous sentence are expressly recognized to be subject to
the provisions of Article XIV (Casualty) and Article XV (Condemnation) of this
Lease. In the event that the Demised Premises should become in need of repairs
required to be made by Landlord hereunder, Tenant shall give prompt written
notice thereof to Landlord, and Landlord shall not be responsible in any way
for failure to make any such repairs until a reasonable time shall have elapsed
after receipt by Landlord of such written notice.
7.2 Tenant's Responsibility: Tenant shall keep the Demised Premises in
good, clean and habitable condition and shall at its sole cost and expense keep
the Demised Premises free of insects, rodents, vermin and other pests and make
all needed repairs and replacements, including replacement of cracked or broken
glass, except for repairs and replacements required to be made by Landlord
under the provisions of Section 7.1, Article XIV (Casualty) and Article XV
(Condemnation). Without limiting the coverage of the previous sentence, it is
understood that Tenant's responsibilities therein include the repair and
replacement of all of Tenant's lighting, plumbing and other electrical,
mechanical and electromotive installation, equipment and fixtures and also
include all utility repairs in ducts, conduits, pipes, wiring, and any sewer
located in, under or above the Demised Premises and serving the Demised
Premises. If any repairs required to be made by Tenant hereunder are not made
within ten (10) days after written notice delivered to Tenant by Landlord,
Landlord may at its option make such repairs without liability to Tenant for
any loss or damage which may result to its stock or business by reason of such
repairs; and Tenant shall pay to Landlord upon demand, as additional Rent
hereunder, the cost of such repairs plus ten percent (10%) thereof as an
administrative fee to Landlord plus interest at the rate of one and one-half
percent (1 1/2%) per month, such interest to accrue continuously from the date
of payment by Landlord until repayment by Tenant. At the expiration of this
Lease, Tenant shall surrender the
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Demised Premises in good condition, excepting reasonable wear and tear and
losses required to be restored by Landlord in Section 7.1, Article XIV and
Article XV of this Lease.
ARTICLE VIII. ALTERATIONS
8.1 Improvements by Tenant: Tenant shall not make any alterations,
additions or improvements (collectively, "Improvements") to the Demised
Premises without the prior written consent of Landlord, which consent will not
be unreasonably withheld or delayed, except for the installation of unattached,
movable trade fixtures ("Fixtures") which may be installed without drilling,
cutting or otherwise defacing the Demised Premises.
8.2 Removal of Improvements and Fixtures: At any time during the Lease
Term, or upon expiration of the Lease Term, Tenant shall have the right to
remove the FSF and all other Improvements and Fixtures which Tenant makes or
installs upon the Demised Premises, provided Tenant completes such removal
within thirty (30) days of termination of the Lease. All Improvements and
Fixtures which may be made or installed upon the Demised Premises
that are not removed by Tenant within thirty (30) days of termination of this
Lease shall remain upon and be surrendered with the Demised Premises and become
the property of Landlord at the termination of this Lease, unless Landlord
requests their removal in which event Tenant shall remove the same and restore
the Demised Premises to their original condition, subject to reasonable wear
and tear, at Tenant's expense. Tenant shall repair any damage to the Store
caused by removal of Tenant's Improvements and Fixtures.
8.3 All construction work done by Tenant within the Demised Premises shall
be performed in a good and workmanlike manner, in compliance with all
governmental requirements, and in such manner as to cause a minimum of
interference with other construction in progress and with the transaction of
business in the Store. Tenant agrees to indemnify Landlord and hold Landlord
harmless against any loss, liability or damage resulting from such work and
Tenant shall, if requested by Landlord, furnish a bond or other security
satisfactory to Landlord against any such loss, liability or damage.
ARTICLE IX. LANDLORD'S RIGHT OF ACCESS: USE OF ROOF
9.1 Landlord's Right of Access: Landlord shall have the right to enter
upon the Demised Premises at any time upon reasonable notice to Tenant (except
for emergencies) and subject to Tenant's security requirements, for the purpose
of inspecting the same or of making repairs, alterations or additions to
adjacent premises, or of showing the Demised Premises to prospective
purchasers, lessees or lenders. Landlord shall endeavor to minimize
interference with Tenant's business.
9.2 "For Rent" Signs: Tenant will permit Landlord to place and maintain
"For Rent" or "For Lease" signs on the Demised Premises during the last ninety
(90) days of the Lease Term, it being understood that such signs shall in no
way affect Tenant's obligations pursuant to any provision of this Lease.
9.3 Use of Roof: Use of the roof above the Demised Premises is reserved
to Landlord.
ARTICLE X. SIGNS: STOREFRONTS
10.1 Signs; Storefronts: Tenant shall not, without Landlord's prior
written consent: (a) make any changes to the storefront or (b) install any
exterior lighting, decorations, paintings, awnings, canopies or the like or (c)
erect or install any signs, window or door lettering placards, decorations or
advertising media of any type which can be viewed from the exterior of the
Demised Premises. All signs, lettering, placards, decorations and advertising
media shall conform in all respects to the sign criteria established by
Landlord from time to time in the exercise of its sole discretion, and shall be
subject to the prior written approval of Landlord as to construction, method of
attachment, size, shape, height, lighting, color and general appearance,
pursuant to the procedures outlined on Exhibit "D," attached hereto. All signs
shall be kept in good condition and in proper operating order at all times at
Tenant's expense. Subject to the foregoing restrictions, Tenant agrees to
install and maintain a first-class sign on the front of the Demised Premises
during the Lease Term.
ARTICLE XI. UTILITIES
11.1 Utility Charge: Landlord shall pay all charges for electricity,
water, gas, and sewerage service furnished to the Demised Premises. Tenant
shall pay for telephone service and other utility services, including the
Special Utility Charge set forth in the Basic Provisions.
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11.2 Interruption of Utilities: Landlord shall not be liable for any
interruption whatsoever in utility services not furnished by Landlord nor for
interruptions in utility services furnished by Landlord which are due to fire,
accident, strike, acts of God or other causes beyond the control of Landlord or
in order to make alterations, repairs or improvements. Landlord shall provide
reasonable heating, cooling and lighting to the building in which the Demised
Premises are located and the Common Areas at all times during which the Store
is open for business.
ARTICLE XII. INDEMNITY AND PUBLIC LIABILITY INSURANCE
12.1 Injury and Damage: Landlord shall not be liable to Tenant or to
Tenant's employees, agents, or visitors, or to any other person whomsoever, for
any injury to person or damage to property on or about the Demised Premises or
the Common Area caused by the negligence or misconduct of Tenant, its
employees, subtenants, licensees or concessionaires, or of any other person
entering the Store under express or implied invitation of Tenant, or arising
out of the use of the Demised Premises by Tenant and the conduct of its
business therein, or arising out of any breach or default by Tenant in the
performance of its obligations hereunder; and Tenant hereby agrees to defend,
indemnify and hold Landlord harmless from any loss, expense, including
reasonable attorney expenses, or claims arising out of such damage or injury.
12.2 Liability Insurance: Tenant shall procure and maintain throughout
the Lease Term a policy or policies of insurance, at its sole cost and expense,
insuring both Landlord and Tenant against all claims, demands or actions
arising out of or in connection with Tenant's use or occupancy of the Demised
Premises, the limits of such policy or policies to be in an amount not less
than $1,000,000.00 in respect of injuries to or death of any one person, and in
an amount not less than $5,000,000.00 in respect of any one accident or
disaster, and in an amount not less than $1,000,000.00 in respect of property
damaged or destroyed, and to be written by insurance companies satisfactory to
Landlord. Tenant shall obtain a written obligation on the part of each
insurance company to notify Landlord at least ten (10) days prior to
cancellation of such insurance. Such policies or duly executed certificates of
insurance and renewals thereof as required shall be delivered to Landlord at
least thirty (30) days prior to cancellation or the expiration of the
respective policy terms of such insurance. If Tenant should fail to comply with
the foregoing requirements relating to insurance, Landlord may obtain such
insurance and Tenant shall pay to Landlord on demand as additional Rent
hereunder the premium cost thereof plus ten percent (10%) as an administrative
fee to Landlord plus interest at the rate of one and one-half percent (1 1/2%)
per month from the date of payment by Landlord until repaid by Tenant.
12.3 Workers' Compensation Insurance: Tenant agrees to maintain and keep
in force, during the Lease Term, all workers' compensation insurance required
under applicable Workers' Compensation Acts.
ARTICLE XIII. NON-LIABILITY FOR CERTAIN DAMAGES
13.1 Defects, etc.:
(a) Landlord and Landlord's agents and employees shall not be liable to
Tenant for any injury to person or damage to property caused by the Demised
Premises becoming out of repair, or by defect or failure of any structural
element of the Demised Premises or of any equipment, pipes or wiring, or broken
glass installed by Tenant in the Demised Premises, or by the backing up of
drains constructed by Tenant, or by gas, water, steam, electricity or oil
leaking, escaping or flowing from equipment, pipes or wiring installed by
Tenant into the Demised Premises, nor shall Landlord be liable to Tenant for
any loss or damage that may be occasioned by or through the acts or omissions
of other tenants of the Store or of any other persons whomsoever, excepting
only duly authorized employees and agents of Landlord.
(b) Tenant and its agent and employees shall not be liable to Landlord for
any injury to person or damage to property caused by the Demised Premises or
other portions of the Store becoming out of repair or by defect or failure of
any structural element of the Demised Premises or of any equipment, pipes or
wiring, or broken glass, or by the backing up of drains, or by gas, water,
steam, electricity or oil leaking, escaping or flowing out of the Demised
Premises, nor shall Tenant be liable to Landlord for any losses or damage that
may be occasioned by or through the acts or omissions of other tenants of the
Store or of any other persons whomsoever, excepting only duly authorized
employees and agents of Tenant.
13.3 Mutual Waiver of Subrogation: Landlord and Tenant each hereby
release the other from any and all liability or responsibility to the other or
to any other party claiming through or under them by way of subrogation or
otherwise, for any loss or damage to property caused by a casualty which is
customarily insured under standard fire and extended coverage insurance;
provided, however, that this mutual waiver shall be applicable only with
respect to a loss or damage occurring during the time when standard fire and
extended coverage insurance policies contain a clause or
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endorsement to the effect that any such release shall not adversely affect or
impair the policy or the right of the insured party to receive proceeds
under the policy.
ARTICLE XIV. CASUALTY
14.1 Notice to Landlord: Tenant shall give prompt written notice to
Landlord of any damage caused to the Demised Premises by fire or other
casualty.
14.2 Landlord's Repair of Casualty Damage: In the event that the Store
shall be damaged or destroyed by fire or other casualty, then Landlord may
elect either to terminate this Lease or to proceed to rebuild and repair the
Store. Landlord shall give written notice to Tenant of such election within
sixty (60) days after the occurrence of such casualty, and if Landlord elects
to rebuild and repair, shall proceed to do so with reasonable diligence and at
its sole cost and expense. As it relates to the Demised Premises, Landlord's
work under this Article XIV shall be limited to restoring the Demised Premises
to substantially the condition in which the same existed prior to such
casualty, exclusive of any alterations, additions, improvements, fixtures and
equipment installed by Tenant.
14.3 Tenant's Repair of Casualty Damage: Tenant agrees that promptly
after completion of such work by Landlord, Tenant will proceed with reasonable
diligence and at Tenant's sole cost and expense to restore, repair and replace
all alterations, additions, improvements, fixtures, signs and equipment
installed by Tenant.
14.4 Operation of FSF After Casualty: Tenant agrees that during any
period of reconstruction or repair of the Demised Premises, it will continue
the operation of its business within the Demised Premises to the extent
practicable. During the period from the occurrence of the casualty until
Tenant's repairs are completed, the Rent shall be reduced to such extent as may
be fair and reasonable under the circumstances.
14.5 Property Insurance: Tenant will secure at Tenant's sole cost
Property Insurance Coverage normally covered in a Fire and Extended Coverage
Policy for Tenant's Fixtures and Improvements.
ARTICLE XV. CONDEMNATION
15.1 Condemnation: If such portion of the Store (including the Common
Area) shall be taken for any public or quasi-public use under any governmental
law, ordinance or regulation or by right of Eminent Domain or by private
exercise in lieu thereof that, in the sole opinion of Landlord, the continued
operation of the Store is undesirable, Landlord may elect to terminate this
Lease, such termination to be effective as of the date Landlord ceases to
operate the Store. All compensation awarded for any taking (or the proceeds of
private sale in lieu thereof) of the Demised Premises or Common Area shall be
the property of Landlord, and Tenant hereby assigns its interest in any such
award to Landlord; provided, however, Landlord shall have no interest in any
award made to Tenant for Tenant's moving and relocation expenses or for the
loss of Tenant's fixtures and other tangible personal property if a separate
award for such items is made to Tenant.
ARTICLE XVI. ASSIGNMENT AND SUBLETTING
16.1 Landlord's Consent: Tenant shall not, without the prior written
consent of Landlord (i) assign, mortgage, pledge, hypothecate, encumber, or
permit any lien to attach to, or otherwise transfer, this Lease or any interest
hereunder, (ii) permit any assignment or other such foregoing transfer of this
Lease or any interest hereunder by operation of law, (iii) sublet the Demised
Premises or any part thereof, or (iv) permit the use of the Demised Premises by
any persons other than Tenant, its employees and its invitees (each of the
foregoing actions for which Landlord's consent is required is hereinafter
sometimes referred to as a "Transfer" and any person to whom any Transfer is
made or sought to be made is hereinafter sometimes referred to as a
"Transferee"). If Tenant shall desire Landlord's consent to any Transfer,
Tenant shall notify Landlord in writing, which notice shall include: (a) the
proposed effective date (which shall not be less than forty-five (45) days nor
more than one hundred eighty (180) days after the Tenant's notice), (b) all of
the terms of the proposed Transfer and the consideration therefor, the name and
address of the proposed Transferee, and a copy of all documentation pertaining
to the proposed Transfer, and (c) current audited financial statements of the
proposed Transferee, and any other information necessary to enable Landlord to
determine the financial responsibility, character, and reputation of the
proposed Transferee, and (d) such other information as Landlord may reasonably
require. Landlord's consent to any Transfer shall not be unreasonably
withheld, but any Transfer made without Landlord's prior written consent shall,
at Landlord's option, be null, void, and of no effect, and any acceptance of
Rent by Landlord from any purported Transferee shall not be deemed a consent to
a Transfer or a waiver of any of Landlord's rights or remedies hereunder.
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16.2 Permitted Transfers: "Transferee" as used herein shall not include a
subsidiary, affiliate, division or corporation controlled by, controlling or
under common control with Tenant (each of which shall be an "Affiliate" for
purposes of the Lease), provided that the Affiliate is a federal or
state-chartered financial institution whose deposits are insured by the Federal
Deposit Insurance Corporation, and that the Affiliate will continue to operate
a full-service FSF in the Demised Premises. Landlord shall be deemed to
consent to a Transfer to such an Affiliate and no prior consent shall be
required thereto, provided that Tenant shall give prior written notice thereof
to Landlord for informational purposes only. Moreover, a merger or
consolidation in which Tenant is the surviving entity or in which the
shareholders of Tenant maintain control of the surviving entity shall not be
deemed a Transfer.
16.3 Corporate Consolidation: For purposes of this Lease, the term
"Transfer" shall also include the dissolution or the merger or consolidation of
Tenant (other than with an Affiliate), or within a twelve (12) month period:
(i) the sale or other transfer of more than an aggregate of fifty percent (50%)
of the voting shares of Tenant (other than, in the case of a closely held
corporation, to immediate family members by reason of gift or death), or (ii)
the sale, mortgage, hypothecation or pledge of more than an aggregate of fifty
percent (50%) of the value of the unencumbered assets (as of the date hereof)
of Tenant.
16.4 Transfer Premium: If Landlord consents to a Transfer, and as a
condition thereto which the parties hereby agree is reasonable, Tenant shall
pay Landlord fifty percent (50%) of any Transfer Premium received by Tenant in
connection with such Transfer. "Transfer Premium" shall mean all Rent,
additional Rent or other consideration payable by such Transferee in any
monthly period in excess of the Rent payable by Tenant under this Lease (on a
monthly basis during the Term). If part of the consideration for such Transfer
shall be payable other than in cash, Landlord's share of such non-cash
consideration shall be in such form as is reasonably satisfactory to Landlord.
Such percentage of the Transfer Premium shall be paid promptly by Tenant upon
Tenant's receipt from time to time of periodic payments from such Transferee or
at such other time as Tenant shall realize a Transfer Premium. In lieu of
accepting such percentage of the Transfer Premium, Landlord may elect in
writing within ninety (90) days after Tenant's notice, to increase the Rent
hereunder during the Term of the Transfer by an amount equal to Landlord's
share of the monthly amount of such Transfer Premium. The provisions of this
Subparagraph 16.4 shall not apply to a Transfer to an Affiliate and shall not
apply to payments made by a Transferee for (i) Tenant's customer deposits,
loans and related assets; or (ii) the FSF or Tenant's furniture, fixtures and
equipment contained therein.
16.5 Effect of Landlord Consent: If Landlord consents or is deemed to
consent to a Transfer: (a) the terms and conditions of this Lease, including
among other things, Tenant's (which term, for purposes hereof, shall mean the
transferring Tenant and any predecessor) liability for the Demised Premises
(including, without limitation, Rent and other sums due with respect thereto),
shall in no way be deemed to have been waived or modified so that
notwithstanding such Transfer, the Tenant, its predecessors and the Transferee
shall be jointly and severally liable with respect to the Demised Premises, (b)
such consent shall not be deemed consent to any further Transfer by either
Tenant or a Transferee, (c) as a condition thereto Tenant shall first deliver
to Landlord an original executed copy of all documentation pertaining to the
Transfer, including but not limited to an assumption agreement by the
Transferee, in form reasonably acceptable to Landlord, and (d) Tenant shall
furnish upon Landlord's request a complete statement, certified by an
independent certified public accountant, or Tenant's chief financial officer,
setting forth in detail the computation of any Transfer Premium Tenant has
derived and shall derive from such Transfer. Landlord or its authorized
representatives shall have the right at all reasonable times to audit the
books, records and papers of Tenant relating to any Transfer Premium, and shall
have the right to make copies thereof. If the Transfer Premium respecting any
Transfer shall be found understated, Tenant shall within thirty (30) days after
demand pay the deficiency, and Landlord's costs of such audit, and if
understated by more than five percent (5%), Landlord shall have the right to
cancel this Lease upon thirty (30) days notice. Any sublease hereunder shall
be subordinate and subject to the provisions of this Lease, and if this Lease
shall be terminated during the term of any sublease, Landlord shall have the
right to (i) treat such sublease as canceled and repossess the Demised Premises
by any lawful means or (ii) require that such subtenant attorn to and recognize
Landlord as its landlord under such sublease.
16.6 Landlord's Lease (if any): If this Lease is in fact a sublease,
Tenant accepts this Lease subject to all of the terms and conditions of the
underlying Lease under which Landlord holds the Store as lessee. Tenant
covenants that it will do no act or thing which would constitute a violation by
Landlord of his obligation under such underlying Lease; provided, however, that
Tenant's agreement in this regard is premised on Landlord's assurances to the
effect that the terms of this Lease do not violate such underlying Lease.
16.7 Transfer by Landlord: In the event of the Transfer by Landlord of
its interest in this Lease to a Transferee expressly assuming Landlord's
obligation under this Lease, Landlord shall thereby be released from any
further obligations hereunder, and Tenant agrees to look solely to such
Transferee of Landlord for performance of such obligations. Any security given
by Tenant to secure performance of Tenant's obligations hereunder may be
assigned
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and transferred by Landlord to such Transferee, and Landlord shall thereby
be discharged of any further obligation relating thereto.
ARTICLE XVII. TAXES
17.1 Tenant's Responsibility for Taxes: Tenant shall be liable for all
taxes levied against personal property and trade fixtures placed by Tenant in
the Demised Premises. If any such taxes are levied against Landlord or
Landlord's property, and if Landlord elects to pay the same or if the assessed
value of Landlord's property is increased by inclusion of personal property and
trade fixtures placed by Tenant in the Demised Premises, and Landlord elects to
pay the taxes based on such increase, Tenant shall pay to Landlord upon demand
that part of such taxes for which Tenant is primarily liable hereunder.
17.2 Landlord's Responsibility for Taxes: Except as provided in Section
17.1, Landlord shall pay or cause to be paid all general real estate taxes,
general and special assessments, parking surcharges and other governmental
charges (hereinafter collectively referred to as the "General Taxes") levied
against the Store and the Common Area for each real estate tax year.
17.3 Rent Taxes, etc.: If at any time during the Lease Term, a tax or
excise on rents or other tax however described (except any franchise, estate,
inheritance, capital stock, income or excess profits tax imposed upon Landlord)
is levied or assessed against Landlord by any lawful taxing authority on
account of Landlord's interest in this Lease or the Rent or other charges
reserved hereunder, as a substitute in whole or in part, or in addition to the
General Taxes described in Section 17.2 above, Tenant agrees to pay to Landlord
upon demand, and in addition to the Rent and other charges prescribed in this
Lease, the amount of such tax or excise. In the event any such tax or excise
is levied or assessed directly against Tenant, then Tenant shall be responsible
for and shall pay the same at such times and in such manner as the taxing
authority shall require.
ARTICLE XVIII. DEFAULT BY TENANT AND REMEDIES
18.1 Events of Default: The following shall be events of default by
Tenant under this Lease:
(a) Tenant shall fail to pay any installment of Rent or any other
regularly scheduled monetary obligations hereunder involving the payment of
money and such failure shall continue for a period of ten (10) days after
written notice to Tenant (or if notice of non-payment shall have been given to
Tenant within the same calendar year, such failure shall continue, whether or
not Landlord gives Tenant notice, for a period of ten (10) days).
(b) Tenant shall fail to comply with any term, provision or covenant of
this Lease other than as described in subsection (a) above and shall not cure
such failure within thirty (30) days after written notice thereof to Tenant,
or, as to matters which cannot be remedied within thirty (30) days if Tenant
fails to commence efforts to remedy such default within such thirty (30) day
period and thereafter diligently prosecute such efforts so that such default is
cured within a reasonable time.
(c) Tenant or any guarantor of Tenant's obligations under this Lease shall
become insolvent, or shall make a transfer in fraud of creditors, or shall make
an assignment for the benefit of creditors.
(d) Tenant or any guarantor of Tenant's obligations under this Lease shall
file a petition under any section or chapter of the National Bankruptcy Act, as
amended, or under any similar law or statute of the United States or any State
thereof; or Tenant or any guarantor of Tenant's obligations under this Lease
shall be adjudged bankrupt or insolvent in proceedings filed against Tenant or
any guarantor of Tenant's obligations under this Lease thereunder.
(e) A receiver or trustee shall be appointed for the Demised Premises or
for all or substantially all of the assets of Tenant or any guarantor of
Tenant's obligations under this Lease.
(f) Tenant shall desert or vacate or shall commence to desert or vacate
the Demised Premises or any substantial portion of the Demised Premises prior
to termination of this Lease.
(g) Tenant shall do or permit to be done anything which creates a lien
upon the Demised Premises.
18.2 Landlord's Remedies: Upon the occurrence of any such events of
default, Landlord shall have the option to pursue either of the following
alternative remedies:
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(a) Without any notice or demand whatsoever, Landlord may take any one or
more of the actions permissible at law to insure performance by Tenant of
Tenant's covenants and obligations under this Lease. In this regard, it is
agreed that if Tenant deserts or vacates the Demised Premises, Landlord may
enter upon and take possession of the Demised Premises in order to protect them
from deterioration and continue to demand from Tenant the monthly rentals and
other charges provided in this Lease, without any obligation to relet; but that
if Landlord does, at its sole discretion, elect to relet the Demised Premises,
such action by Landlord shall not be deemed as an acceptance of Tenant's
surrender of the Demised Premises unless Landlord expressly notifies Tenant of
such acceptance in writing pursuant to Subsection (b) of Section 18.2 Tenant
hereby acknowledges that Landlord shall otherwise be reletting as Tenant's
agent and Tenant furthermore hereby agrees to pay to Landlord on demand any
deficiency that may arise between the monthly rentals and other charges
provided in this Lease and that actually collected by Landlord. It is further
agreed in this regard that in the event of any default described in Subsection
(b) of Section 18.1, Landlord shall have the right to enter upon the Demised
Premises without being liable for prosecution of any claim for damages
therefor, and do whatever Tenant is obligated to do under the terms of this
Lease; and Tenant agrees to reimburse Landlord on demand for any expenses which
Landlord may incur in thus effecting compliance with Tenant's obligations under
this Lease; and Tenant further agrees that Landlord shall not be liable for any
damages resulting to Tenant from such action.
(b) Landlord may terminate this Lease by written notice to Tenant, in
which event Tenant shall immediately surrender the Demised Premises to
Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any
other remedy which Landlord may have for possession or arrearages in Rent
(including any interest which may have accrued pursuant to Article III of this
Lease), enter upon and take possession of the Demised Premises and expel or
remove Tenant and any other person who may be occupying said premises or any
part thereof, without being liable for prosecution or any claim for damages
therefor. Landlord agrees to provide ten (10) days written notice and Tenant
has ten (10) days to correct, modify and make whole any obligation. Tenant
hereby waives any statutory requirement of prior written notice for filing
eviction or damage suits for nonpayment of Rent. In addition, Tenant agrees to
pay to Landlord on demand the amount of all loss and damage which Landlord may
suffer by reason of any termination effected pursuant to this Subsection
18.2(b), said loss and damage to be determined by either of the following
alternative measures of damage.
(c) Until Landlord is able, through reasonable efforts, the nature of
which efforts shall be at the sole discretion of Landlord, to relet the Demised
Premises, Tenant shall pay to Landlord on or before the first day of each
calendar month, the Rent and other charges provided in this Lease. After the
Demised Premises have been relet by Landlord, Tenant shall pay to Landlord on
the twentieth day of each calendar month the difference between the Rent
and other charges provided in this Lease for the preceding calendar month and
that actually collected by Landlord for such month. If it is necessary for
Landlord to bring suit in order to collect a deficiency, Landlord shall have a
right to allow such deficiencies to accumulate and to bring an action on
several or all of the accrued deficiencies at one time. Any such suit shall
not prejudice in any way the right of Landlord to bring a similar action for
any subsequent deficiency or deficiencies. Any amount collected by Landlord
from subsequent tenants for any calendar month, in excess of the Rent and other
charges provided in this Lease, shall be credited to Tenant in reduction of
Tenant's liability for any calendar month for which the amount collected by
Landlord will be less than the Rent and other charges provided in this Lease;
but Tenant shall have no right to such excess other than the above described
credit.
(d) When Landlord desires, Landlord may demand a final settlement. Upon
demand for a final settlement, Landlord shall have a right to, and Tenant
hereby agrees to pay, the difference between the total of all Rent and other
charges provided in this Lease for the remainder of the term and the reasonable
rental value of the Demised Premises for such period, such difference to be
discounted to present value at the rate of eight percent (8%) per annum).
(e) If Landlord elects to compute damages in the manner prescribed by
Subsection (c) above, this election shall in no way prejudice Landlord's right
at any time thereafter to demand a final settlement in accordance with
Subsection (d) above. Pursuit of any of the above remedies shall not preclude
pursuit of any other remedies prescribed in other sections of this Lease and
any other remedies provided by law. Forbearance by Landlord to enforce one or
more of the remedies herein provided upon an event of default shall not be
deemed or construed to constitute a waiver of such default.
18.3 Landlord's Expenses: It is further agreed that, in addition to
payments required pursuant to Subsections 18.2(a) and 18.2(b), Tenant shall
compensate Landlord for all expenses incurred by Landlord in repossession
(including among other expenses, any increase in Insurance Premiums caused by
the vacancy of the Demised Premises), all expenses incurred by Landlord in
reletting (including among other expenses, repairs, remodeling, replacements,
advertisements and brokerage fees), all concessions granted to a new tenant
upon reletting (including among other concessions, renewal options), all losses
incurred by Landlord as a direct or indirect result of
(C) 1996, International Banking Technologies. All rights reserved.
"International Banking Technologies" is Registered in U.S. Patent and Trademark
Office.
S-11
<PAGE> 14
Tenant's default (including among other losses, any adverse reaction by
Landlord's mortgagee or by other tenants or potential tenants of the Store),
and a reasonable allowance for Landlord's administrative efforts, salaries
and overhead attributable directly or indirectly to Tenant's default and
Landlord's pursuing the rights and remedies provided herein and under
applicable law. Notwithstanding the foregoing, Tenant shall not be obligated
to make payments by reason of a default in an amount exceeding the total Rent
in this Lease for the remainder of the Lease Term.
18.4 Injunction: Landlord may restrain or enjoin any breach or threatened
breach of any covenant, duty or obligation of Tenant herein contained without
the necessity of proving the inadequacy of any legal remedy or irreparable
harm. The remedies of Landlord hereunder shall be deemed cumulative and not
exclusive of each other.
18.5 Attorney's Fees: If on account of any breach or default by Tenant
in its obligations hereunder, Landlord shall employ an attorney to present,
enforce or defend any of Landlord's rights or remedies hereunder, Tenant agrees
to pay any reasonable attorney's fees incurred by Landlord in such connection.
18.6 Tenant's Insolvency: Notwithstanding any other provision of this
Lease, in the event the Tenant or its successors or assignee shall become
insolvent, bankrupt, or make an assignment for the benefit of creditors, or if
it or their interest hereunder shall be levied upon or sold under execution or
other legal process, or in the event the FSF to be operated on the Demised
Premises is closed, or is taken over by a bank supervisory authority, the
Landlord may terminate this Lease only with the concurrence of such bank
supervisory authority, and any such authority shall in any event have the
election to either continue or terminate this Lease, provided, that in the
event this Lease is terminated, the maximum claim of Landlord against such bank
supervisory authority for damages or indemnity for injury resulting from the
rejection or abandonment of the unexpired lease shall in no event be in an
amount exceeding the Rent reserved by this Lease, without acceleration, for the
year next succeeding the date of the surrender of the Demised Premises to the
Landlord, or the date of re-entry of the Landlord, whichever first occurs,
whether before or after the closing of the FSF, plus an amount equal to the
unpaid Rent accrued without acceleration up to such date. This paragraph shall
limit the liability of the FDIC but not affect Landlord's other rights or
remedies under law.
ARTICLE XIX. LANDLORD'S CONTRACTUAL SECURITY INTEREST
19.1 Landlord's Security Interest: In addition to the statutory
Landlord's Lien, Landlord shall have at all times a valid security interest to
secure payment of Rent and other sums of money becoming due hereunder from
Tenant and to secure payment of any damages or losses which Landlord may suffer
by reason of the breach by Tenant of any covenant, agreement or condition
contained herein, upon all goods, wares, equipment, fixtures, furniture,
improvements and other tangible personal property of Tenant presently, or which
may hereafter be, situated on the Demised Premises, and all proceeds therefrom,
and such property shall not be removed without the consent of Landlord
until all arrearages in Rent as well as any and all other sums of money then
due to Landlord or to become due to Landlord hereunder shall first have been
paid and discharged and all the covenants, agreements and conditions hereof
have been fully complied with and performed by Tenant. Upon the occurrence of
an event of default by Tenant, Landlord may, in addition to any other remedies
provided, enter upon the Demised Premises and take possession of any and all
goods, wares, equipment, fixtures, furniture, improvements and other tangible
personal property of Tenant situated on the Demised Premises, without liability
for trespass or conversion, and sell the same at public or private sale, with
or without having such property at the sale, after giving Tenant reasonable
notice of the time and place of any public sale or of the time after which any
private sale is to be made, at which sale Landlord or its assigns may purchase
unless otherwise prohibited by law. Unless otherwise provided by law, and
without intending to exclude any other manner of giving Tenant reasonable
notice, the requirement of reasonable notice shall be met if such notice is
given in the manner prescribed in this Lease at least seven (7) days before the
time of sale. Any sale made pursuant to the provision of this paragraph shall
be deemed to have been a public sale conducted in a commercially reasonable
manner if held in the above-described premises or where the property is located
after the time, and place and method of sale and a general description of the
types of property to be sold have been advertised in a daily newspaper
published in the county in which the property is located for five (5)
consecutive days before the date of the sale. The proceeds from any such
disposition, less any and all expenses connected with the taking of possession,
holding and selling of the property (including reasonable attorney's fees and
legal expenses), shall be applied as a credit against the indebtedness secured
by the security interest granted in this paragraph. Any surplus shall be paid
to Tenant or as otherwise required by law; Tenant shall pay any deficiencies
forthwith. Upon request by Landlord, Tenant agrees to execute and deliver to
Landlord a financing statement in form sufficient to perfect the security
interest of Landlord in the aforementioned property and proceeds thereof under
the provision of the Uniform Commercial Code (or corresponding state statute or
statutes) in force in the state in which the property is located, as well as
any other state the laws of which Landlord may at any time consider to be
applicable.
19.2 Subordination of Landlord's Security Interest: Notwithstanding
Section 19.1, (i) Landlord agrees that it will subordinate its security
interest and Landlord's Lien to the security interest of Tenant's supplier or
institutional
(C) 1996, International Banking Technologies. All rights reserved.
"International Banking Technologies" is Registered in U.S. Patent and Trademark
Office.
S-12
<PAGE> 15
financial source, provided that Landlord approves the transaction
as being reasonably necessary for Tenant's operations at the Demised Premises,
and further provided that the subordination must be limited to a specified
transaction and specified items of the fixtures, equipment or inventory
involved in the transaction. and (ii) Landlord agrees that its lien shall be
limited to Tenant's equipment, fixture, furniture, improvements and other
personal property of Tenant situated on the Demised Premises and shall not
apply to banking records, money, accounts, deposits or any property of Tenant's
customers.
ARTICLE XX. HOLDING OVER
20.1 Holdover Status: In the event Tenant remains in possession of the
Demised Premises after the expiration of this Lease and without the execution
of a new lease, it shall be deemed to be occupying the Demised Premises as a
tenant from month to month at a monthly rental rate equal to the current Rent
plus other charges herein provided plus fifty percent (50%) of such amount and
otherwise subject to all the conditions, provisions and obligations of this
Lease insofar as the same are applicable to a month to month tenancy.
Notwithstanding the foregoing, if Landlord and Tenant are engaged in good faith
negotiations to extend the term of the lease or to enter into a new lease,
Tenant shall be permitted to continue paying monthly rental at a rate equal to
the current Rent, without the fifty percent (50%) additional charge, while such
negotiations continue; provided, however, that in the event Landlord and Tenant
do not extend the term of this Lease or enter into a new Lease within three (3)
months after termination of this Lease, Landlord may, at any time, require
Tenant to commence paying Rent plus fifty percent (50%) of such amount as set
forth in this Section 20.1.
ARTICLE XXI. SUBORDINATION AND ATTORNMENT
21.1 Mortgages, etc.: Tenant accepts this Lease subject and subordinate
to any mortgage, deed of trust or other lien presently existing or hereafter
placed upon the Demised Premises or the Store and Common Area as a whole and to
any renewals and extensions thereof. Tenant agrees that any such mortgagee
shall have the right at any time to subordinate such mortgage, deed of trust or
other lien to this Lease; provided, however, notwithstanding that this Lease
may be (or made to be) superior to mortgage, deed of trust or other lien, the
provisions of mortgage, deed of trust or other lien relative to the rights of
the mortgagee with respect to proceeds arising from an eminent domain taking
(including a voluntary conveyance by Landlord) and/or arising from insurance
payable by reason of damage to or destruction of the Demised Premises shall be
prior and superior to any contrary provisions contained in this instrument with
respect to the payment or usage thereof. Landlord is hereby irrevocably vested
with full power and authority to subordinate this Lease to any mortgage, deed
of trust or other lien hereafter placed upon the Demised Premises or the Store
and Common Area as a whole, and Tenant agrees upon demand to execute such
further instruments subordinating this Lease as Landlord may request; provided,
however, that upon Tenant's written request and notice to Landlord, Landlord
shall use good faith efforts to obtain from any such mortgagee a written
agreement that the rights of Tenant shall remain in full force and effect
during the Lease Term as long as Tenant shall continue to recognize and perform
all of the covenants and conditions of this Lease.
21.2 Notice to Mortgagee: At any time when the holder of an outstanding
mortgage, deed of trust or other lien covering Landlord's interest in the
Demised Premises has given Tenant written notice of its interest in this Lease,
Tenant may not exercise any remedies for default by Landlord hereunder unless
and until the holder of the indebtedness secured by such mortgage, deed of
trust or other lien shall have received written notice of such default and a
reasonable time for curing such default shall thereafter have elapsed.
21.3 Estoppel Certificates: Tenant agrees that it will from time to time
upon request by Landlord execute and deliver to Landlord a written statement
addressed to Landlord (or to a party designated by Landlord), which statement
shall identify Tenant and this Lease, shall certify that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as so modified), shall confirm that
Landlord is not in default as to any obligations of Landlord under this Lease
(or if Landlord is in default, specifying any default), shall confirm Tenant's
agreements contained above in this Article XXI, shall confirm the Commencement
and Termination Dates of this Lease, and shall contain such other information
or confirmations as Landlord may reasonably require. Landlord is hereby
irrevocably appointed and authorized as the agent and attorney-in-fact of
Tenant to execute and deliver any such written statement on Tenant's behalf if
Tenant fails to do so within seven (7) days after the delivery of a written
request from Landlord to Tenant. Landlord may treat such failure as an event
of default.
21.4 Attornment: Tenant shall attorn to and be bound to any of Landlord's
Successors under all the terms, covenants and conditions of this Lease for the
balance of any remaining Lease Term.
(C) 1996, International Banking Technologies. All rights reserved.
"International Banking Technologies" is Registered in U.S. Patent and Trademark
Office.
S-13
<PAGE> 16
ARTICLE XXII. NOTICES & CORRESPONDENCE
22.1 Notices: Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered when actually received or rejected by
the designated addressee and shall be given by United States certified mail
return receipt requested, postage prepaid or by recognized national courier
(such as Federal Express), addressed to the parties hereto at the respective
addresses set forth above, or such other addresses as may be specified by
written notice.
ARTICLE XXIII. REGULATIONS
23.1 Compliance With Regulations: Landlord and Tenant acknowledge that
there are in effect, and may hereafter be enacted or put into effect, federal,
state, county and municipal laws, orders, rules, directives and regulations
(collectively referred to hereinafter as the "Regulations"), relating to or
affecting the Demised Premises or the Store and Common Area, and concerning the
impact on the environment of construction, land use, maintenance and operation
of structures, and conduct of business. Subject to the express rights granted
to Tenant under the terms of this Lease, Tenant will not cause, or permit to be
caused, any act or practice, by negligence, omission, or otherwise, that would
adversely affect the environment, or do anything to permit anything to be done
that would violate any Regulations. Moreover, Tenant shall have no claim
against Landlord by reason of any changes Landlord may make in the Store,
Common Area or the Demised Premises which may be required to comply with such
Regulations.
23.2 Applications: Tenant shall file applications with the appropriate
regulatory authorities for authority to establish a branch office in the
Demised Premises and shall keep Landlord advised of the processing of the
applications. The obligations of the Tenant under this Lease are subject to
the condition precedent that the Tenant shall receive authority to establish a
branch office to the Demised Premises. In the event such authority is not
received on or before the Targeted Commencement Date, either Landlord or Tenant
shall have the right, upon notice to the other, to terminate this Lease. In
such event, neither party hereto shall have any further rights, duties or
obligations hereunder.
ARTICLE XXIV. MISCELLANEOUS
24.1 No Partnership: Nothing herein contained shall be deemed or
construed by the parties hereto, nor by any third party, as creating the
relationship of principal and agent or of partnership or of joint venture
between the parties hereto, it being understood and agreed that neither the
method of computation of Rent, nor any other provision contained herein, nor
any acts of the parties hereto, shall be deemed to create any relationship
between the parties hereto other than the relationship of Landlord and Tenant.
24.2 No Offset: Tenant shall not for any reason withhold or reduce
Tenant's required payments of Rent and other charges provided in this Lease, it
being agreed that the obligations of Landlord hereunder are independent of
Tenant's obligations except as may be otherwise expressly provided. In this
regard it is specifically understood and agreed that in the event Landlord
commences any proceedings against Tenant for nonpayment of Rent or any other
sum due and payable by Tenant hereunder, Tenant will not interpose any
counterclaim or other claim against Landlord of whatever nature or description
in any such proceedings (other than a compulsory counterclaim under Rule 13(a)
of the Federal Rules of Civil Procedure, or any analogous rule in a state court
proceeding); and in the event that Tenant interposes any such counterclaim or
other claim against Landlord in such proceedings, Landlord and Tenant stipulate
and agree that, in addition to any other lawful remedy of Landlord, upon motion
of Landlord, such counterclaim or other claim asserted by Tenant shall be
severed from the proceedings instituted by Landlord. Landlord may proceed to
final judgment separately and apart from and without consolidation with or
reference to the status of such counterclaim or any other claim asserted by
Tenant.
24.3 Landlord's Liability: The liability of Landlord to Tenant for any
default by Landlord under the terms of this Lease shall be limited to the
greater of (i) two million dollars ($2,000,000.00) or (ii) the proceeds of sale
on execution of the interest of Landlord in the Store. Landlord shall remain
personally liable to account to Tenant for any security deposited hereunder.
This clause shall not be deemed to limit or deny any remedies which Tenant may
have in the event of default by Landlord hereunder, which do not involve the
personal liability of Landlord.
24.4 Consents: Any clause referring to Landlord approval refers to
written consent. Except as may be otherwise herein provided, in all
circumstances under this Lease where prior consent or permission of one party
("First Party"), whether it be Landlord or Tenant, is required before the other
party ("Second Party") is authorized to take any particular type of action, the
matter of whether to grant such consent or permission shall be within the sole
and exclusive judgment and discretion of the First Party; and it shall not
constitute any nature of breach by the First Party hereunder or
(C) 1996, International Banking Technologies. All rights reserved.
"International Banking Technologies" is Registered in U.S. Patent and Trademark
Office.
S-14
<PAGE> 17
any defense to the performance of any covenant, duty or obligation of the
Second Party hereunder that the First Party delayed or withheld the granting
of such consent or permission, whether or not the delay or withholding of such
consent or permission was, in the opinion of the Second Party, prudent or
reasonable or based on good cause.
24.5 Waivers: One or more waivers of any covenant, term, or condition of
this Lease by either party shall not be construed as a waiver of a subsequent
breach of the same covenant, term or condition. The consent or approval by
either party to or of any act by the other party requiring such consent or
approval shall not be deemed to waive or render unnecessary consent to or
approval of any subsequent similar act.
24.6 Force Majeure: Whenever a period of time is herein prescribed for an
action to be taken, the party required to take such action (other than payment
of money) shall not be liable or responsible for, and there shall be excluded
from the computation of any such period of time, any delays due to strikes,
riots, acts of God, shortages of labor or materials, war, governmental laws,
regulations or restrictions or any other causes of any kind whatsoever which
are beyond the reasonable control of such party.
24.7 Governing Law: The laws of the state in which the Demised Premises
are located shall govern the interpretation, validity, performance and
enforcement of this Lease. If any provision of this Lease should be held to be
invalid or unenforceable, the validity and enforceability of the remaining
provisions of this Lease shall not be affected thereby. Venue for any action
under this Lease shall be the county in which the Store is located.
24.8 Captions: The captions used herein are for convenience only and do
not limit or amplify the provisions hereof.
24.9 Number; Gender: Whenever here the singular number is used, the same
shall include the plural, and words of any gender shall include each other
gender.
24.10 Successors: The terms, provisions and covenants contained in this
Lease shall apply to, inure to the benefit of and be binding upon the parties
hereto and their respective heirs, successors in interest and legal
representatives except as otherwise herein expressly provided.
24.11 Entire Agreement: This Lease contains the entire agreement between
the parties, and no agreement shall be effective to change, modify or terminate
this Lease in whole or in part unless such is in writing and duly signed by the
party against whom enforcement of such change, modification or termination is
sought. Landlord and Tenant hereby acknowledge that they are not relying on any
representation or promise of the other, except as may be expressly set forth in
this Lease. Oral agreements in conflict with any of the terms of this Lease
shall be without force and effect.
24.12 Exhibits: This Lease consists of twenty-four (24) Articles and
Exhibits A through D (any space left blank will be deemed to have been
completed with the word "none"). In the event any provision of an Exhibit or
other attached page shall be inconsistent with a provision in the body of the
Lease, the provision as set forth in the Exhibit shall be deemed to control.
All Exhibits referred to herein, whether or not physically attached to this
Lease, shall be deemed incorporated herein by reference.
24.13 Store Closing: Notwithstanding anything herein to the contrary,
Tenant agrees to the cancellation of this Lease and agrees to vacate the
Demised Premises on the date Landlord ceases doing business in the Store unless
a longer period is required by federal or state law, or unless this Lease is
transferred by Landlord, as contemplated by Article XVI above. Landlord agrees
to give Tenant as much notice as is practicable under the circumstances of
Landlord's decision to cease doing business in the Shopping Center.
(C) 1996, International Banking Technologies. All rights reserved.
"International Banking Technologies" is Registered in U.S. Patent and Trademark
Office.
S-15
<PAGE> 18
EXHIBIT A
COMMENCEMENT AGREEMENT
Re: Store Lease Agreement dated December 23, 1996 between Wal*Mart Stores,
Inc. ("Landlord") and the undersigned financial institution ("Tenant")
concerning Wal*Mart Supercenter No. #547, 2602 Jim Redman Parkway, Plant City,
FL (the "Store").
Landlord and Tenant confirm the following information with respect to the
Store (capitalized terms not otherwise defined in this Agreement shall have the
meaning given to them in the Store Lease Agreement), as of December 23, 1996.
1. The Store Lease Agreement is in full force and effect and has not been
modified, superseded or changed, except as follows:
2. Tenant accepted the Demised Premises and opened its Financial Service
Facility on June 23,1997.
3. The initial Lease Term commenced on June 23, 1997 and will expire on
June 22, 2002. The first Renewal Term (if any) will commence on June 23, 2002
and will expire on June 22, 2007. The second Renewal Term (if any) will
commence on June 23, 2007 and will expire on June 22, 2012.
4. Tenant's obligation to make payments of Rent commenced on June 23,
1997. Tenant's $50,000 Key Money payment and one time 10,000 Landlord's Work
payment is due on or before July 23, 1997.
5. LANDLORD REQUESTS THAT TENANT'S ACCOUNTING DEPARTMENT ESTABLISH
AUTOMATIC PAYMENTS TO ENSURE RENT IS RECEIVED BY THE FIRST OF EACH MONTH.
PLEASE REFERENCE UNIT # WMF547 ON CHECK. LANDLORD WILL NOT ISSUE INVOICES FOR
RENT. RENT AND OTHER PAYMENTS SHOULD BE SENT TO: WAL*MART STORES, INC., P.O.
BOX 500620, ST. LOUIS, MO 63150-0620.
PAYMENT SUMMARY
<TABLE>
<CAPTION>
DESCRIPTION INITIAL PAYMENT DUE MONTHLY RENT PAYMENT DUE
FOR INITIAL TERM
EFFECTIVE JULY 1997
<S> <C> <C>
$ 10,000
----------
50,000
----------
555.56 $2083.33
----------
Landlord's Work 2,083.33
Key Money ----------
Prorated Rent Payment $62,638.89
Prepaid Final Rent Payment ==========
TOTAL AMOUNT DUE
</TABLE>
EXECUTED BY LANDLORD AND TENANT AS OF THE DATE SET FORTH ABOVE:
WAL-MART STORES, INC. TENANT
By: By: \s\ Jerry L. Ball
------------------------------ ------------------------------
Title: Title: President and CEO
--------------------------- --------------------------
MONTHLY RENTAL PAYMENTS ARE DUE THE 1ST OF EACH MONTH.
LATE PAYMENT CHARGES WILL BE IN ACCORDANCE WITH LEASE.
(C) 1996, International Banking Technologies. All rights reserved.
"International Banking Technologies" is Registered in U.S. Patent and Trademark
Office.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000942789
<NAME> VALRICO BANCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,517
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,512
<INVESTMENTS-CARRYING> 2,430
<INVESTMENTS-MARKET> 2,504
<LOANS> 48,490
<ALLOWANCE> 576
<TOTAL-ASSETS> 63,802
<DEPOSITS> 55,047
<SHORT-TERM> 2,846
<LIABILITIES-OTHER> 400
<LONG-TERM> 1,272
0
0
<COMMON> 299
<OTHER-SE> 3,938
<TOTAL-LIABILITIES-AND-EQUITY> 63,802
<INTEREST-LOAN> 3,990
<INTEREST-INVEST> 615
<INTEREST-OTHER> 107
<INTEREST-TOTAL> 4,711
<INTEREST-DEPOSIT> 1,659
<INTEREST-EXPENSE> 229
<INTEREST-INCOME-NET> 2,823
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,614
<INCOME-PRETAX> 425
<INCOME-PRE-EXTRAORDINARY> 425
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 324
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.09
<YIELD-ACTUAL> 5.14
<LOANS-NON> 49
<LOANS-PAST> 116
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 336
<ALLOWANCE-OPEN> 501
<CHARGE-OFFS> 263
<RECOVERIES> 39
<ALLOWANCE-CLOSE> 576
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
