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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 the Fiscal Year Ended December 31, 2001
______________________________
Commission File No. 0-24683
FLORIDA BANKS, INC.
A Florida corporation
(IRS Employer Identification No. 58-2364573)
5210 Belfort Road
Suite 310, Concourse II
Jacksonville, Florida 32256
(904) 332-7770
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
None
Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
The aggregate market value of the common stock of the registrant held by
nonaffiliates of the registrant (4,961,979 shares) on March 14, 2002 was
approximately $39,199,634 based on the closing price of the registrant's common
stock as reported on the NASDAQ National Market on March 14, 2002. For the
purposes of this response, officers, directors and holders of 5% or more of the
registrant's common stock are considered the affiliates of the registrant at
that date.
As of March 14, 2002, there were 5,694,531 shares of $.01 par value common stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the registrant's definitive proxy statement to be delivered to
shareholders in connection with the 2002 Annual Meeting of Shareholders
scheduled to be held on May 31, 2002 are incorporated by reference in response
to Part III of this Report.
PART I
Item 1. Business.
General
Florida Banks, Inc. (the "Company") was formed on October 15, 1997 to
create a statewide community banking system focusing on the largest and fastest
growing markets in Florida. The Company operates through its wholly owned
banking subsidiary, Florida Bank, N.A. (the "Bank"). The Company currently
operates community banking offices in the Tampa, Jacksonville, Alachua County
(Gainesville), Broward County (Ft. Lauderdale), Pinellas County (St Petersburg -
Clearwater) and Marion County (Ocala) markets. Future business plans include
entry into the markets of Orlando and the greater Palm Beach area (collectively,
the "Identified Markets"). As opportunities arise, the Company may also expand
into other Florida market areas with demographic characteristics similar to the
Identified Markets. Within each of the Identified Markets, the Company expects
to offer a broad range of traditional banking products and services, focusing
primarily on small and medium-sized businesses. See "--Strategy of the
Company--Market Expansion" and "--Products and Services."
The Company has a community banking approach that emphasizes responsive and
personalized service to its customers. Management's expansion strategy includes
attracting strong local management teams who have significant banking
experience, strong community contacts and strong business development potential
in the Identified Markets. Once local management teams are identified, the
Company intends to establish community banking offices in each of the remaining
Identified Markets. Each management team will operate one or more community
banking offices within its particular market area, will have a high degree of
local decision-making authority and will operate in a manner that provides
responsive, personalized services similar to an independent community bank. The
Company maintains centralized credit policies and procedures as well as
centralized back office functions from its operations center in Tampa to support
the community banking offices. Upon the Company's entry into a new market area,
it undertakes a marketing campaign utilizing an officer calling program and
community-based promotions. In addition, management is compensated based on
profitability, growth and loan production goals, and each market area is
supported by a local board of advisory directors, which is provided with
financial incentives to assist in the development of banking relationships
throughout the community. See "--Model `Local Community Bank.'"
Management of the Company believes that the significant consolidation in
the banking industry in Florida has disrupted customer relationships as the
larger regional financial institutions increasingly focus on larger corporate
customers, standardized loan and deposit products and other services. Generally,
these products and services are offered through less personalized delivery
systems which has created a need for higher quality services to small and
medium-sized businesses. In addition, consolidation of the Florida banking
market has dislocated experienced and talented management personnel due to the
elimination of redundant functions and the need to achieve cost savings. As a
result of these factors, management believes the Company has a unique
opportunity to attract and maintain its targeted banking customers and
experienced management personnel within the Identified Markets.
The community banking offices within each market area are supported by
centralized back office operations. From the Company's main offices located in
Jacksonville and its operations center in Tampa, the Company provides a variety
of support services to each of the community banking offices, including back
office operations, investment portfolio management, credit administration and
review, human resources, compliance, internal audit, administration, training
and strategic planning. Core processing, check clearing and other similar
functions are currently outsourced to major vendors. As a result, these
operating strategies enable the Company to achieve cost efficiencies and to
maintain consistency in policies and procedures and allow the local management
teams to concentrate on developing and enhancing customer relationships.
The Company expects to establish community banking offices in new market
areas, primarily by opening new branch offices of the Bank. Management will
also, however, evaluate opportunities for strategic acquisitions of financial
institutions in markets that are consistent with its business plan.
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Strategy of the Company
General
The Company's business strategy is to create a statewide community banking
system in Florida. The major elements of this strategy are to:
o Establish community banking offices in additional markets including the
remaining Identified Markets as soon as local management teams are
identified;
o Establish community banking offices with locally responsive management
teams emphasizing a high level of personalized customer service;
o Target small and medium-sized business customers that require the
attention and service that a community-oriented bank is well suited to
provide;
o Provide a broad array of traditional banking products and services;
o Provide non-traditional products and services through strategic
partnerships with third party vendors;
o Utilize technology to provide a higher level of customer service and
enhance deposit growth;
o Maintain centralized support functions, including back office
operations, credit policies and procedures, investment portfolio
management, administration, compliance, internal audit, human resources
and training, to maximize operating efficiencies and facilitate
responsiveness to customers; and
o Outsource core processing and back room operations to increase
efficiencies.
Model "Local Community Bank"
In order to achieve its expansion strategy, the Company intends to
establish community banking offices in the remaining Identified Markets by
opening new branch offices of the Bank. The Company may, however, accomplish its
expansion strategy by acquiring existing banks within an Identified Market if an
opportunity for such an acquisition becomes available. Although each community
banking office is legally a branch of the Bank, the Company's business strategy
envisions that community banking office(s) located within each market will
operate as if it were an independent community bank.
Prior to expanding into a new market area, management of the Company first
identifies an individual who will serve as the president of that particular
market area, as well as those individuals who will serve on the local board of
directors. The Company believes that a management team that is familiar with the
needs of its community can provide higher quality personalized service to their
customers. The local management teams have a significant amount of
decision-making authority and are accessible to their customers. As a result of
the consolidation trend in Florida, management of the Company believes there are
significant opportunities to attract experienced bank managers who would like to
join an institution promoting a community banking concept.
Within each market area, the community banking offices have a local board
of directors that are comprised of prominent members of the community, including
business leaders and professionals. It is anticipated that certain members of
the local boards may serve as members of the Board of Directors of the Bank and
of the Company. These directors act as representatives of the Bank within the
community and are expected to promote the business development of each community
banking office.
The Company encourages both the members of its local boards of directors as
well as its lending officers to be active in the civic, charitable and social
organizations located in the local communities. Many members of the local
management team hold leadership positions in a number of community
organizations, and will continue to volunteer for other positions in the future.
Upon the Company's entry into a new market area, it undertakes a marketing
campaign utilizing an officer calling program, and community-based promotions
and media advertising. A primary component of management compensation is based
3
on loan production goals. Such campaigns emphasize each community banking
office's local responsiveness, local management team and special focus on
personalized service.
The community banking office established in a market will typically have
the following banking personnel: a President, a Senior Lender, an Associate
Lending Officer, a Credit Analyst, a Branch/Operations Manager and an
appropriate number of financial service managers and tellers. The number of
financial service managers and tellers necessary will be dependent upon the
volume of business generated by that particular community banking office. Each
community banking office will also be staffed with enough administrative
assistants to assist the officers effectively in their duties and to enable them
to market products and services actively outside of the office.
The lending officers are primarily responsible for the sales and marketing
efforts of the community banking offices. Management emphasizes relationship
banking whereby each customer will be assigned to a specific officer, with other
local officers serving as backup or in supporting roles. Through its experience
in the Florida banking industry, management believes that the most frequent
customer complaints pertain to a lack of personalized service and turnover in
lending personnel, which limits the customer's ability to develop a relationship
with his or her lending officer. The Company has and will continue to hire an
appropriate number of lending officers necessary to facilitate the development
of strong customer relationships.
Management has and will continue to offer salaries to the lending officers
that are competitive with other financial institutions in each market area. The
salaries of the lending officers are comprised of base compensation plus an
incentive payment structure that is based upon the achievement of Bank income
and certain loan production goals. Those goals will be reevaluated on an annual
basis and paid annually as a percentage of base salary. Management of the
Company believes that such a compensation structure provides greater motivation
for participating officers.
The community banking offices are located in commercial areas in each
market where the local management team determines there is the greatest
potential to reach the maximum number of small and medium-sized businesses. It
is expected that these community banking offices will develop in the areas
surrounding office complexes and other commercial areas, but not necessarily in
a market's downtown area. Such determinations will depend upon the customer
demographics of a particular market area and the accessibility of a particular
location to its customers. Management of the Company expects to lease facilities
of approximately 4,000 to 7,000 square feet at market rates for each community
banking office. The Company currently leases its facilities in the Tampa,
Jacksonville, Ft. Lauderdale, St. Petersburg-Clearwater and Ocala/Marion County
markets. To better serve the Alachua County (Gainesville) market, the Company
has built and owns a free-standing office with traditional drive-in and lobby
banking facilities. The Company plans to lease facilities in the other
Identified Markets to avoid investing significant amounts of capital in property
and facilities.
Loan Production Offices
In order to achieve its expansion strategy in a timely manner, the Company
may establish loan production offices ("LPO") as a prelude to establishing full
service community banking offices in the remaining Identified Markets and other
locations. Loan production offices would provide the same lending products and
services to the local market as the community banking office with substantially
less overhead expense. These offices would typically be staffed with the
President, Senior Lender and one administrative assistant.
By opening loan production offices, the Company can begin to generate loans
during the period it is preparing to open, staff the banking office and reduce
the overall cost of expansion into a new market. The same philosophy of
marketing, growth, customer service and incentive based compensation would be
followed in a loan production office. These offices would also establish local
boards which would be responsible for promoting the growth of the office.
Market Expansion
The Company intends to expand into the largest and fastest growing
communities in Florida as well as other markets within the state which offer
strategic opportunities. In order to achieve its expansion strategy, the Company
intends to establish community banking offices through the de novo branching of
the Bank. The Company may, however, accomplish its expansion strategy by
acquiring existing banks if an opportunity for such an acquisition becomes
available. Once the Company has assembled a local management team and local
4
advisory board of directors for a particular market area, the Company intends to
establish a community banking office in that market either through the opening
of an LPO or a full service bank. The Company has established community banking
offices in the Tampa, Jacksonville, Alachua County (Gainesville), Broward County
(Ft. Lauderdale), Pinellas County (St. Petersburg - Clearwater) and Marion
County (Ocala) markets. The other markets into which the Company presently
intends to expand are Orlando and the greater Palm Beach area. Management has
identified these markets as providing the most favorable opportunities for
growth and intends to establish community banking offices within these markets
as soon as practicable. Management is also considering expansion into other
selected Florida metropolitan areas.
Customers
Management believes that the ongoing bank consolidation within Florida
provides a community-oriented bank significant opportunities to build a
successful, locally-oriented franchise. Management of the Company further
believes that many of the larger financial institutions do not emphasize a high
level of personalized service to the smaller commercial or individual retail
customers. The Company focuses its marketing efforts on attracting small and
medium-sized businesses which include: professionals, such as physicians and
attorneys, service companies, manufacturing companies and commercial real estate
developers. Because the Company focuses on small and medium-sized businesses,
the majority of its loan portfolio is in the commercial area with an emphasis
placed on commercial and industrial loans secured by real estate, accounts
receivable, inventory, property, plant and equipment. However, in an effort to
maintain a high level of credit quality, the Company attempts to ensure that the
commercial real estate loans are made to borrowers who occupy the real estate
securing the loans or where a creditworthy tenant is involved.
Although the Company has concentrated on lending to commercial businesses,
management has attracted and will continue to attract consumer business. Many of
its retail customers are the principals of the small and medium-sized businesses
for whom a community banking office provides banking services. Management
emphasizes "relationship banking" in order that each customer can identify and
establish a comfort level with the bank officers within a community banking
office. Management intends to further develop its retail business with
individuals who appreciate a higher level of personal service, contact with
their lending officer and responsive decision-making. It is expected that most
of the Company's business will be developed through its lending officers and
local advisory boards of directors and by pursuing an aggressive strategy of
making calls on customers throughout the market area.
Products and Services
The Company currently offers a broad array of traditional banking products
and services to its customers through the Bank. The Bank currently provides
products and services that are substantially similar to those set forth below.
For additional information with respect to the Bank's current operations, see
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Loans. The Bank offers a wide range of short to long-term commercial and
-----
consumer loans. As of December 31, 2001, the Bank has established an internal
limit for loans of up to $5.7 million to any one borrower.
Commercial. The Bank's commercial lending consists primarily of commercial
and industrial loans for the financing of accounts receivable, inventory,
property, plant and equipment, and other commercial assets. In making these
loans, the Bank manages its credit risk by actively monitoring such measures as
advance rate, cash flow, collateral value and other appropriate credit factors.
Commercial Real Estate. The Bank offers commercial real estate loans to
developers of both commercial and residential properties. In making these loans,
the Bank manages its credit risk by actively monitoring such measures as advance
rate, cash flow, collateral value and other appropriate credit factors. See
"--Operations of the Holding Company--Credit Administration."
5
Residential Mortgage. The Bank's real estate loans consist of residential
first and second mortgage loans, residential construction loans and home equity
lines of credit and term loans secured by first and second mortgages on the
residences of borrowers for home improvements, education and other personal
expenditures. The Bank makes mortgage loans with a variety of terms, including
fixed and floating to variable rates and a variety of maturities. These loans
are made consistent with the Bank's appraisal policy and real estate lending
policy which detail maximum loan-to-value ratios and maturities. Management
believes that these loan-to-value ratios are sufficient to compensate for
fluctuations in the real estate market to minimize the risk of loss. Mortgage
loans that do not conform to the Bank's asset/liability mix policies are sold in
the secondary markets.
Consumer Loans. The Bank's consumer loans consist primarily of installment
loans to individuals for personal, family and household purposes. In evaluating
these loans, the Bank requires its lending officers to review the borrower's
level and stability of income, past credit history and the impact of these
factors on the ability of the borrower to repay the loan in a timely manner. In
addition, the Bank requires that its banking officers maintain an appropriate
margin between the loan amount and collateral value. Many of the Bank's consumer
loans are made to the principals of the small and medium-sized businesses for
whom the community banking offices provide banking services.
Credit Card and Other Loans. The Bank has issued credit cards to certain of
its customers. In determining to whom it will issue credit cards, the Bank
evaluates the borrower's level and stability of income, past credit history and
other factors. Finally, the Bank makes additional loans which may not be
classified in one of the above categories. In making such loans, the Bank
attempts to ensure that the borrower meets its credit quality standards.
Deposits. The Bank offers a broad range of interest-bearing and
--------
non-interest-bearing deposit accounts, including commercial and retail checking
accounts, money market accounts, individual retirement accounts, regular and
premium rate interest-bearing savings accounts and certificates of deposit with
a range of maturity date options. The primary sources of deposits are small and
medium-sized businesses and individuals. In each market, senior management has
the authority to set rates within specified parameters in order to remain
competitive with other financial institutions located in the identified market.
In additional to deposits within the local markets, the Bank utilizes brokered
certificates of deposits to supplement its funding needs. Brokered CDs are sold
by various investment firms which are paid a fee by the Bank for placing the
deposit. Depending on current market conditions, the cost of brokered deposits
may be slightly lower than the cost of the same deposits in the local markets.
All deposits are insured by the FDIC up to the maximum amount permitted by law.
In addition, the Bank has implemented a service charge fee schedule, which is
competitive with other financial institutions in the community banking offices'
market areas, covering such matters as maintenance fees on checking accounts,
per item processing fees on checking accounts, returned check charges and other
similar fees.
Specialized Consumer Services. The Bank offers specialized products and
------------------------------
services to its customers, such as lock boxes, traveler's checks and safe
deposit services.
Courier Services. The Bank offers courier services to its customers.
-----------------
Courier services, which the Bank may either provide directly or through a third
party, permit the Bank to provide the convenience and personalized service its
customers require by scheduling pick-ups of deposits. The Bank currently offers
courier services only to its business customers. The Bank has received
regulatory approval for and is currently offering courier services in all of its
existing markets and expects to apply for approval in other market areas.
Telephone Banking. The Bank believes that there is a need within its market
-----------------
niche for consumer and commercial telephone banking. These services allow
customers to access detailed account information, via a toll free number 24
hours a day. Management believes that telephone banking services assist their
community banking offices in retaining customers and also encourages its
customers to maintain their total banking relationships with the community
banking offices. This service is provided through the Bank's third-party data
processor.
Internet Banking. In the fourth quarter of 1999, the Bank began offering
-----------------
its "DirectNet" Internet banking product. This service allows customers to
access detailed account information, execute transactions, download account
information, and pay bills electronically. Management believes that this service
is particularly attractive for its commercial customers since most transactions
can be handled over the Internet rather than over the phone or in person. In
addition, DirectNet offers the opportunity of opening deposit accounts both
within and outside of the local markets. The Bank intends to expand its Internet
6
banking services in the future to offer additional bank services as well as
non-traditional products and services. The DirectNet banking service is provided
by the Bank's third-party data processor.
ACH EFT Services. The Bank offers various Automated Clearing House and
----------------
Electronic Funds Transfer services to its commercial customers. These services
include payroll direct deposits, payroll tax payments, electronic payments and
other funds transfers. The services are customized to meet the needs of the
customer and offer an economical alternative to paper checks and drafts.
Stored Value Cards. The Bank offers stored value (prepaid debit) cards to
------------------
its commercial customers. These cards are issued primarily to facilitate
incentive payments, payroll disbursements, customer loyalty programs, and as
gift cards. The Bank derives income from use of the prepaid funds and fee income
from issuing and servicing the cards.
Automatic Teller Machines ("ATMs"). Presently, management does not expect
----------------------------------
to establish an ATM network although certain banking offices may provide one or
more ATMs in the local market. As an alternative, management has made other
financial institutions' ATMs available to its customers and offers customers up
to ten free ATM transactions per month.
Other Products and Services. The Bank intends to evaluate other services
----------------------------
such as trust services, brokerage and investment services, insurance, and other
permissible activities. Management expects to introduce these services in the
future as they become economically viable.
Operations of the Holding Company
From its main offices in Jacksonville and its operations center in Tampa,
the Company provides a variety of support services for each of the community
banking offices. These services include back office operations, investment
portfolio management, credit administration and review, human resources,
compliance, internal audit, administration, training and strategic planning.
The Company uses the Bank's facilities for its data processing, operational
and back office support activities. The community banking offices utilize the
operational support provided by the Bank to perform account processing, loan
accounting, loan support, network administration and other functions. The Bank
has developed extensive procedures for many aspects of its operations, including
operating procedure manuals and audit and compliance procedures. Management
believes that the Bank's existing operations and support management are capable
of providing continuing operational support for all of the community banking
offices.
Outsourcing. Management of the Company believes that by outsourcing certain
-----------
functions of its back room operations, it can realize greater efficiencies and
economies of scale. In addition, various products and services, especially
technology-related services, can be offered through third-party vendors at a
substantially lower cost than the costs of developing these products internally.
The Bank is currently utilizing Metavante, (formerly M&I Data Services, Inc.) to
provide its core data processing and certain customer products. The Company and
the Bank also utilize a qualified consulting firm to perform most internal audit
tasks.
Credit Administration. The Company oversees all credit operations while
----------------------
still granting local authority to each community banking office. The Company's
Chief Credit Officer is primarily responsible for maintaining a quality loan
portfolio and developing a strong credit culture throughout the entire
organization. The Chief Credit Officer is also responsible for developing and
updating the credit policy and procedures for the organization. In addition, he
works closely with each lending officer at the community banking offices to
ensure that the business being solicited is of the quality and structure that
fits the Company's desired risk profile. Credit quality is controlled through
uniform compliance to credit policy. The Company's risk-decision process is
actively managed in a disciplined fashion to maintain an acceptable risk profile
characterized by soundness, diversity, quality, prudence, balance and
accountability.
The Company's credit approval process consists of specific authorities
granted to the lending officers. Loans exceeding a particular lending officer's
level of authority are reviewed and considered for approval by the next level of
authority. The Chief Credit Officer has ultimate credit decision-making
7
authority, subject to review by the Chief Executive Officer and the Board of
Directors. Risk management requires active involvement with the Company's
customers and active management of the Company's portfolio. The Chief Credit
Officer reviews the Company's credit policy with the local management teams at
least annually but will review it more frequently if necessary. The results of
these reviews are then presented to the Board of Directors. The purpose of these
reviews is to attempt to ensure that the credit policy remains compatible with
the short and long-term business strategies of the Company. The Chief Credit
Officer will also generally require all individuals charged with risk management
to reaffirm their familiarity with the credit policy annually.
Asset/Liability Management
The objective of the Bank is to manage assets and liabilities to provide a
satisfactory level of consistent operating profitability within the framework of
established liquidity, loan, investment, borrowing and capital policies. The
Chief Financial Officer of the Company is primarily responsible for monitoring
policies and procedures that are designed to maintain an acceptable composition
of the asset/liability mix while adhering to prudent banking practices. The
overall philosophy of management is to support asset growth primarily through
growth of core deposits. Management intends to continue to invest the largest
portion of the Bank's earning assets in commercial, industrial and commercial
real estate loans.
The Bank's asset/liability mix is monitored on a daily basis, with monthly
reports presented to the Bank's Board of Directors. The objective of this policy
is to control interest-sensitive assets and liabilities so as to minimize the
impact of substantial movements in interest rates on the Bank's earnings. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations--Financial Condition--Interest Rate Sensitivity and Liquidity
Management."
Competition
Competition among financial institutions in Florida and the markets into
which the Company may expand is intense. The Company and the Bank compete with
other bank holding companies, state and national commercial banks, savings and
loan associations, consumer finance companies, credit unions, securities
brokerages, insurance companies, mortgage banking companies, money market mutual
funds, asset-based non-bank lenders and other financial institutions. Many of
these competitors have substantially greater resources and lending limits,
larger branch networks, and are able to offer a broader range of products and
services than the Company and the Bank.
Various legislative actions in recent years have led to increased
competition among financial institutions. As a result of such actions, most
barriers to entry to the Florida market by out-of-state financial institutions
have been eliminated. Recent legislative and regulatory changes and
technological advances have enabled customers to conduct banking activities
without regard to geographic barriers through computer and telephone-based
banking and similar services. With the enactment of the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 and other laws and regulations
affecting interstate bank expansion, financial institutions located outside of
the State of Florida may now more easily enter the markets currently and
proposed to be served by the Company and the Bank. In addition, the
Gramm-Leach-Bliley Act repeals certain sections of the Glass-Steagall Act and
amends sections of the Bank Holding Company Act. See "---Supervision and
Regulation". The future effect of these changes in regulations could be far
ranging in their impact on traditional banking activities. Mergers, partnerships
and acquisitions between banks and other financial and service companies could
dramatically affect competition within the Bank's markets.
There can be no assurance that the United States Congress, the Florida
Legislature or the applicable bank regulatory agencies will not enact
legislation or promulgate rules that may further increase competitive pressures
on the Company. The Company's failure to compete effectively for deposit, loan
and other banking customers in its market areas could have a material adverse
effect on the Company's business, future prospects, financial condition or
results of operations. See "--Strategy of the Company--Market Expansion."
Data Processing
The Bank currently has an agreement with Metavante (formerly M&I) to
provide its core processing and certain customer products. The Company believes
that Metavante will be able to provide state-of-the-art data processing and
customer service-related processing at a competitive price to support the
Company's future growth. The Company believes the Metavante contract to be
8
adequate for its business expansion plans. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Employees
The Company presently employs 12 persons on a full-time basis and 3 persons
on a part-time basis. The Company will hire additional persons as needed to
support its growth.
The Bank presently employs 108 persons on a full-time basis and 9 persons
on a part-time basis, including 45 officers. The Bank will hire additional
persons as needed, including additional tellers and financial service
representatives. Management believes the relations with employees are generally
satisfactory.
Supervision and Regulation
The Company and the Bank operate in a highly regulated environment, and
their business activities will be governed by statute, regulation, and
administrative policies. The business activities of the Company and the Bank are
closely supervised by a number of regulatory agencies, including the Federal
Reserve Board, the Office of the Comptroller of the Currency (the "OCC"), the
Florida Department of Banking and Finance (the "Florida Banking Department") (to
a limited extent) and the FDIC.
The Company is regulated by the Federal Reserve Board under the Federal
Bank Holding Company Act, which requires every bank holding company to obtain
the prior approval of the Federal Reserve Board before acquiring more than 5% of
the voting shares of any bank or all or substantially all of the assets of a
bank, and before merging or consolidating with another bank holding company. The
Federal Reserve Board (pursuant to regulation and published policy statements)
has maintained that a bank holding company must serve as a source of financial
strength to its subsidiary banks. In adhering to the Federal Reserve Board
policy, the Company may be required to provide financial support to a subsidiary
bank at a time when, absent such Federal Reserve Board policy, the Company may
not deem it advisable to provide such assistance.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994, the Company and any other bank holding company located in Florida is able
to acquire a bank located in any other state, and a bank holding company located
outside Florida can acquire any Florida-based bank, in either case subject to
certain other restrictions. In addition, adequately capitalized and managed bank
holding companies may consolidate their multi-state bank operations into a
single bank subsidiary and may branch interstate through acquisitions unless an
individual state has elected to prohibit out-of-state banks from operating
interstate branches within its territory. De novo branching by an out-of-state
bank is lawful only if it is expressly permitted by the laws of the host state.
Entry into Florida by out-of-state financial institutions is permitted only by
acquisition of existing banks. The authority of a bank to establish and operate
branches within a state remains subject to applicable state branching laws.
Until March 2000, a bank holding company was generally prohibited from
acquiring control of any company which was not a bank and from engaging in any
business other than the business of banking or managing and controlling banks.
In April 1997, the Federal Reserve Board revised and expanded the list of
permissible non-banking activities in which a bank holding company could engage,
however limitations continued to exist under certain laws and regulations. The
Gramm-Leach-Bliley Act repeals certain regulations pertaining to Bank Holding
Companies and eliminates many of the previous prohibitions. Specifically, Title
I of the Gramm-Leach-Bliley Act repeals sections 20 and 32 of the Glass-Steagall
Act (12 U.S.C. ss.ss. 377 and 78, respectively) and is intended to facilitate
affiliations among banks, securities firms, insurance firms, and other financial
companies. To further this goal, the Gramm-Leach-Bliley Act amends section 4 of
the Bank Holding Company Act (12 U.S.C.ss. 1843) ("BHC Act") to authorize bank
holding companies and foreign banks that qualify as "financial holding
companies" to engage in securities, insurance and other activities that are
financial in nature or incidental to a financial activity. The activities of
bank holding companies that are not financial holding companies would continue
to be limited to activities authorized currently under the BHC Act, such as
activities that the Federal Reserve Board previously has determined in
regulations and orders issued under section 4(c)(8) of the BHC Act to be closely
related to banking and permissible for bank holding companies.
The Gramm-Leach-Bliley Act defines a financial holding company as a bank
holding company that meets certain eligibility requirements. In order for a bank
holding company to become a financial holding company and be eligible to engage
9
in the new activities authorized under the Gramm-Leach-Bliley Act, the Act
requires that all depository institutions controlled by the bank holding company
be well capitalized and well managed.
To become a financial holding company, the Gramm-Leach-Bliley Act requires
a bank holding company to submit to the Federal Reserve Board a declaration that
the company elects to be a financial holding company and a certification that
all of the depository institutions controlled by the company are well
capitalized and well managed. The Act also provides that a Bank holding
company's election to become a financial holding company will not be effective
if the Board finds that, as of the date the company submits its election to the
Board, not all of the insured depository institutions controlled by the company
have achieved at least a "satisfactory" rating at the most recent examination of
the institution under the Community Reinvestment Act (12 U.S.C.ss. 2903 et seq.)
The Gramm-Leach-Bliley Act grants the Federal Reserve Board discretion to
impose limitations on the conduct or activities of any financial holding company
that controls a depository institution that does not remain both well
capitalized and well managed following the company's elections to be a financial
holding company.
New rules by the Federal Reserve Board and the Office of the Comptroller of
the Currency under the Gramm-Leach-Bliley Act could substantially affect the
Company's future business strategies, including its products and services. On
June 22, 2000, the Federal Reserve Bank of Atlanta approved the Company's
application to become a Financial Holding Company. The Company currently meets
the requirements of the rules, however, there can be no assurance that it will
continue to meet these requirements on an ongoing basis.
The State of Florida has adopted an interstate banking statute that allows
banks to branch interstate through mergers, consolidations and acquisitions.
Establishment of de novo bank branches in Florida by out-of-state financial
institutions is not permitted under Florida law.
The Company is also regulated by the Florida Banking Department under the
Florida Banking Code, which requires every bank holding company to obtain the
prior approval of the Florida Commissioner of Banking before acquiring more than
5% of the voting shares of any Florida bank or all or substantially all of the
assets of a Florida bank, or before merging or consolidating with any Florida
bank holding company. A bank holding company is generally prohibited from
acquiring ownership or control of 5% or more of the voting shares of any Florida
bank or Florida bank holding company unless the Florida bank or all Florida bank
subsidiaries of the bank holding company to be acquired have been in existence
and continuously operating, on the date of the acquisition, for a period of
three years or more. However, approval of the Florida Banking Department is not
required if the bank to be acquired or all bank subsidiaries of the Florida bank
holding company to be acquired are national banks.
The Bank is also subject to the Florida banking and usury laws restricting
the amount of interest which it may charge in making loans or other extensions
of credit. In addition, the Bank, as a subsidiary of the Company, is subject to
restrictions under federal law in dealing with the Company and other affiliates.
These restrictions apply to extensions of credit to an affiliate, investments in
the securities of an affiliate and the purchase of assets from an affiliate.
Loans and extensions of credit by national banks are subject to legal
lending limitations. Under federal law, a national bank may grant unsecured
loans and extensions of credit in an amount up to 15% of its unimpaired capital
and surplus to any person if the loans and extensions of credit are not fully
secured by collateral having a market value at least equal to their face amount.
A national bank may grant loans and extensions of credit to such person up to an
additional 10% of its unimpaired capital and surplus, provided that the
transactions are fully secured by readily marketable collateral having a market
value determined by reliable and continuously available price quotations, at
least equal to the amount of funds outstanding. This 10% limitation is separate
from, and in addition to, the 15% limitation for unsecured loans. Loans and
extensions of credit may exceed the general lending limit if they qualify under
one of several exceptions. Such exceptions include certain loans or extensions
of credit arising from the discount of commercial or business paper, the
purchase of bankers' acceptances, loans secured by documents of title, loans
secured by U.S. obligations and loans to or guaranteed by the federal
government. In addition, national banks with the highest supervisory ratings are
currently permitted to lend up to 25 percent of capital to single borrowers for
certain small business loans and for loans secured by a perfected first-lien
security interest in 1 to 4 family real estate, limited to 80% of the property's
appraised value.
10
Both the Company and the Bank are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the OCC. The Federal
Reserve Board and the OCC have issued risk-based capital guidelines for bank
holding companies and banks which make regulatory capital requirements more
sensitive to differences in risk profiles of various banking organizations. The
capital adequacy guidelines issued by the Federal Reserve Board are applied to
bank holding companies on a consolidated basis with the banks owned by the
holding company. The OCC's risk capital guidelines apply directly to national
banks regardless of whether they are a subsidiary of a bank holding company.
Both agencies' requirements (which are substantially similar) provide that
banking organizations must have capital equivalent to at least 8% of
risk-weighted assets. The risk weights assigned to assets are based primarily on
credit risks. Depending upon the risk of a particular asset, it is assigned to a
risk category. For example, securities with an unconditional guarantee by the
United States government are assigned to the lowest risk category, while a risk
weight of 50% is assigned to loans secured by owner-occupied one to four family
residential mortgages, provided that certain conditions are met. The aggregate
amount of assets assigned to each risk category is multiplied by the risk weight
assigned to that category to determine the weighted values, which are added
together to determine total risk-weighted assets. Both the Federal Reserve Board
and the OCC have also implemented new minimum capital leverage ratios to be used
in tandem with the risk-based guidelines in assessing the overall capital
adequacy of banks and bank holding companies. Under these rules, banking
institutions are required to maintain a ratio of at least 3% "Tier 1" capital to
total weighted risk assets (net of goodwill). Tier 1 capital includes common
shareholders equity, non-cumulative perpetual preferred stock and related
surplus, and minority interests in the equity accounts of consolidated
subsidiaries. Tier 2 capital includes Tier 1 capital plus certain categories of
subordinated debt and intermediate-term preferred stock not included in Tier 1
capital, together with a portion of the Bank's allowance for loan losses, not to
exceed 1.25% of gross risk-weighted assets.
12
Both the risk-based capital guidelines and the leverage ratio are minimum
requirements, applicable only to top-rated banking institutions. Institutions
operating at or near these levels are expected to have well-diversified risks,
excellent control systems high asset quality, high liquidity, good earnings and
in general, must be considered strong banking organizations, rated composite 1
under the CAMELS rating system for banks. Institutions with lower ratings and
institutions with high levels of risk or experiencing or anticipating
significant growth would be expected to maintain ratios 100 to 200 basis points
above the stated minimums.
The OCC's guidelines provide that intangible assets are generally deducted
from Tier 1 capital in calculating a bank's risk-based capital ratio. However,
certain intangible assets which meet specified criteria ("qualifying
intangibles") are retained as a part of Tier 1 capital. The OCC has modified the
list of qualifying intangibles, currently including only purchased credit card
relationships and mortgage and non-mortgage servicing assets. The OCC's
guidelines formerly provided that the amount of such qualifying intangibles that
may be included in Tier 1 capital was strictly limited to a maximum of 50% of
total Tier 1 capital. The OCC has amended its guidelines to increase the
limitation on such qualifying intangibles from 50% to 100% of Tier 1 capital, of
which no more than 25% may consist of purchased credit card relationships and
non-mortgage servicing assets.
In addition, the OCC has adopted rules which clarify treatment of asset
sales with recourse not reported on a bank's balance sheet. Among assets
affected are mortgages sold with recourse under Fannie Mae, Freddie Mac and
Farmer Mac programs. The rules clarify that even though those transactions are
treated as asset sales for bank Call Report purposes, those assets will still be
subject to a capital charge under the risk-based capital guidelines.
The risk-based capital guidelines of the OCC, the Federal Reserve Board and
the FDIC explicitly include provisions to limit a bank's exposure to declines in
the economic value of its capital due to changes in interest rates to ensure
that the guidelines take adequate account of interest rate risk. Interest rate
risk is the adverse effect that changes in market interest rates may have on a
bank's financial condition and is inherent to the business of banking. The
exposure of a bank's economic value generally represents the change in the
present value of its assets, less the change in the value of its liabilities,
plus the change in the value of its interest rate off-balance sheet contracts.
Concurrently, the agencies issued a joint policy statement to bankers, effective
June 26, 1996, to provide guidance on sound practices for managing interest rate
risk. In the policy statement, the agencies emphasize the necessity of adequate
oversight by a bank's board of directors and senior management and of a
comprehensive risk management process. The policy statement also describes the
critical factors affecting the agencies' evaluations of a bank's interest rate
risk when making a determination of capital adequacy. The agencies' risk
assessment approach used to evaluate a bank's capital adequacy for interest rate
risk relies on a combination of quantitative and qualitative factors. Banks that
are found to have high levels of exposure and/or weak management practices will
be directed by the agencies to take corrective action.
11
The Comptroller, the Federal Reserve Board and the FDIC recently added a
provision to the risk-based capital guidelines that supplements and modifies the
usual risk-based capital calculations to ensure that institutions with
significant exposure to market risk maintain adequate capital to support that
exposure. Market risk is the potential loss to an institution resulting from
changes in market prices. The modifications are intended to address two types of
market risk: general market risk, which includes changes in general interest
rates, equity prices, exchange rates, or commodity prices, and specific market
risk, which includes particular risks faced by the individual institution, such
as event and default risks. The provision defines a new category of capital,
Tier 3, which includes certain types of subordinated debt. The provision
automatically applies only to those institutions whose trading activity, on a
worldwide consolidated basis, equals either (i) 10% or more of total assets or
(ii) $1 billion or more, although the agencies may apply the provision's
requirements to any institution for which application of the new standard is
deemed necessary or appropriate for safe banking practices. For institutions to
which the modifications apply, Tier 3 capital may not be included in the
calculation rendering the 8% credit risk ratio; the sum of Tier 2 and Tier 3
capital may not exceed 100% of Tier 1 capital; and Tier 3 capital is used in
both the numerator and denominator of the normal risk-based capital ratio
calculation to account for the estimated maximum amount that the value of all
positions in the institution's trading account, as well as all foreign exchange
and commodity positions, could decline within certain parameters set forth in a
model defined by the statute. Furthermore, beginning no later than January 1,
1999, covered institutions must "backtest," comparing the actual net trading
profit or loss for each of its most recent 250 days against the corresponding
measures generated by the statutory model. Once per quarter, the institution
must identify the number of times the actual net trading loss exceeded the
corresponding measure and must then apply a statutory multiplication factor
based on that number for the next quarter's capital charge for market risk.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"), enacted on December 19, 1991, provides for a number of reforms
relating to the safety and soundness of the deposit insurance system,
supervision of domestic and foreign depository institutions and improvement of
accounting standards. One aspect of the FDICIA involves the development of a
regulatory monitoring system requiring prompt action on the part of banking
regulators with regard to certain classes of undercapitalized institutions.
While the FDICIA does not change any of the minimum capital requirements, it
directs each of the federal banking agencies to issue regulations putting the
monitoring plan into effect. The FDICIA creates five "capital categories" ("well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized") which are defined in the
FDICIA and which will be used to determine the severity of corrective action the
appropriate regulator may take in the event an institution reaches a given level
of undercapitalization. For example, an institution which becomes
"undercapitalized" must submit a capital restoration plan to the appropriate
regulator outlining the steps it will take to become adequately capitalized.
Upon approving the plan, the regulator will monitor the institution's
compliance. Before a capital restoration plan will be approved, any entity
controlling a bank (i.e., holding companies) must guarantee compliance with the
plan until the institution has been adequately capitalized for four consecutive
calendar quarters. The liability of the holding company is limited to the lesser
of five percent of the institution's total assets or the amount which is
necessary to bring the institution into compliance with all capital standards.
In addition, "undercapitalized" institutions will be restricted from paying
management fees, dividends and other capital distributions, will be subject to
certain asset growth restrictions and will be required to obtain prior approval
from the appropriate regulator to open new branches or expand into new lines of
business.
As an institution's capital levels decline, the extent of action to be
taken by the appropriate regulator increases, restricting the types of
transactions in which the institution may engage and ultimately providing for
the appointment of a receiver for certain institutions deemed to be critically
undercapitalized.
The FDICIA also provides that banks have to meet new safety and soundness
standards. In order to comply with the FDICIA, the Federal Reserve Board, the
OCC and the FDIC have adopted regulations defining operational and managerial
standards relating to internal controls, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits.
Both the capital standards and the safety and soundness standards which the
FDICIA seeks to implement are designed to bolster and protect the deposit
insurance fund.
12
In response to the directive issued under the FDICIA, the regulators have
established regulations which, among other things, prescribe the capital
thresholds for each of the five capital categories established by the FDICIA.
The following table reflects the capital thresholds:
Total Risk-Based Tier 1 Risk-Based Tier 1
Capital Ratio Capital Ratio Leverage Ratio
---------------- ----------------- --------------
Well Capitalized(1)...................... 10.0% 6.0% 5.0%
Adequately Capitalized(1)................ 8.0% 4.0% 4.0%(2)
Undercapitalized(3)...................... < 8.0% < 4.0% < 4.0%(4)
Significantly Undercapitalized(3)........ < 6.0% < 3.0% < 3.0%
Critically Undercapitalized.............. - - < 2.0%(5)
___________________________
(1) An institution must meet all three minimums.
(2) 3.0% for composite 1-rated institutions subject to appropriate federal
banking agency guidelines.
(3) An institution falls into this category if it is below the specified
capital level for any of the three capital measures.
(4) Less than 3.0% for composite 1-rated institutions, subject to appropriate
federal banking agency guidelines.
(5) Ratio of tangible equity to total assets.
As a national bank, the Bank is subject to examination and review by the
OCC. This examination is typically completed on-site at least every twelve
months and is subject to off-site review at call. The OCC, at will, can access
quarterly reports of condition, as well as such additional reports as may be
required by the national banking laws.
As a bank holding company, the Company is required to file with the Federal
Reserve Board an annual report of its operations at the end of each fiscal year
and such additional information as the Federal Reserve Board may require
pursuant to the Act. The Federal Reserve Board may also make examinations of the
Company and each of its subsidiaries.
The scope of regulation and permissible activities of the Company and the
Bank is subject to change by future federal and state legislation. In addition,
regulators sometimes require higher capital levels on a case-by-case basis based
on such factors as the risk characteristics or management of a particular
institution. The Company and the Bank are not aware of any attributes of their
operating plan that would cause regulators to impose higher requirements.
CERTAIN EVENTS THAT MAY AFFECT FUTURE RESULTS
Our business may be affected by a number of events, including the events
discussed below. You should consider the events described below, together with
all other information in this Annual Report on Form 10-K.
Expansion and Management of Growth
The Company intends to pursue an aggressive growth strategy for the
foreseeable future, and future results of operations will be affected by its
ability to, among other things, identify suitable markets and sites for new
community banking offices, build its customer base, attract qualified bank
management, negotiate agreements with acceptable terms in connection with the
acquisition of existing banks and maintain adequate working capital. Failure to
manage growth effectively or to attract and retain qualified personnel could
have a material adverse effect on the Company's business, future prospects,
financial condition or results of operations, and could adversely affect the
Company's ability to implement its business strategy successfully. There can
also be no assurance that the Company will be able to expand its market presence
in the Bank's existing markets or successfully enter new markets or that any
such expansion will not adversely affect the Company. In entering new markets,
the Company will encounter competitors with greater knowledge of such local
markets and greater financial and operational resources. In addition, although
the Company intends to expand primarily through selective new Bank branch
openings, the Company intends to regularly evaluate potential acquisition
transactions that would complement or expand the Company's business. In doing
so, the Company expects to compete with other potential bidders, many of which
have greater financial resources than the Company.
13
When entering new geographic markets, the Company will need to establish
relationships with additional well-trained local senior management and other
employees. In order to effect the Company's business strategy, the Company will
be substantially reliant upon local management, and accordingly, it will be
necessary for the Company to give significant local decision-making authority to
its senior officers and managers in any new bank office location. There can be
no assurance that the Company will be able to establish such local affiliations
and attract qualified management personnel. The process of opening new bank
locations and evaluating, negotiating and integrating acquisition transactions
may divert management time and resources. There can be no assurance that the
Company will be able to establish any future new branch office or acquire any
additional financial institutions. Moreover, there can be no assurance that the
Company will be able to integrate successfully or operate profitably any newly
established branch office or acquired financial institution. There can be no
assurance that the Company will not incur disruption and unexpected expenses in
integrating newly established operations. The Company's ability to manage growth
as it pursues its expansion strategy will also be dependent upon, among other
factors, its ability to (i) maintain appropriate policies, procedures and
systems to ensure that the Company's loan portfolio maintains an acceptable
level of credit risk and loss and (ii) manage the costs associated with
expanding its infrastructure, including systems, personnel and facilities. The
Company's inability to manage growth as it pursues its expansion strategy could
have a material adverse effect on the Company's business, future prospects,
financial condition or results of operations.
Intense Competition in the Market Areas of the Bank
Vigorous competition exists in all areas where the Bank presently engages
in business. The Bank faces intense competition in its market areas from major
banking and financial institutions, including many which have substantially
greater resources, name recognition and market presence than the Bank. Other
banks, many of which have higher legal lending limits, actively compete for
loans, deposits and other services which the Bank offers. Competitors of the
Bank include commercial banks, savings banks, savings and loan associations,
insurance companies, asset-based non-bank lenders, finance companies, credit
unions, mortgage companies and other financial institutions. Trends toward the
consolidation of the banking industry may make it more difficult for smaller
banks, such as the Bank, to compete with large national and regional banking
institutions. The Company's failure to compete effectively for deposit, loan and
other banking customers in its market areas could have a material adverse effect
on the Company's business, future prospects, financial condition or results of
operations.
Credit Risk
There are risks inherent in making any loan, including risks with respect
to the period of time over which the loan may be repaid, risks resulting from
changes in economic and industry conditions risks inherent in dealing with
individual borrowers and risks resulting from uncertainties as to the future
value of collateral. The risk of nonpayment of loans is inherent in commercial
banking. Moreover, the Bank expects to focus on loans to small and medium-sized
businesses, which may result in a large concentration by the Bank of loans to
such businesses. Management will attempt to minimize the Bank's credit exposure
by carefully monitoring the concentration of its loans within specific
industries and through prudent loan application approval procedures, but there
can be no assurance that such monitoring and procedures will reduce such lending
risks. Moreover, as the Company expands into new geographic markets, the
Company's credit administration and loan underwriting policies will be required
to adapt to the local lending and economic environments of these new markets.
There is no assurance that the Company's credit administration personnel,
policies and procedures will adequately adapt to such new geographic markets. At
December 31, 2001, real estate loans, which included construction and commercial
loans secured by real estate and residential mortgages, comprised 58.0% of the
Bank's total loan portfolio, net of deferred loan fees. The Bank presently
generates all of its real estate mortgage loans in Florida. Therefore,
conditions of the Florida real estate market could strongly influence the level
of the Bank's non-performing mortgage loans and the results of operations and
financial condition of the Company and the Bank. Real estate values and the
demand for mortgages and construction loans are affected by, among other things,
changes in general or local economic conditions, changes in governmental rules
or policies, and the availability of loans to potential purchasers. In addition,
Florida historically has been vulnerable to certain natural disaster risks, such
as floods, hurricanes and tornadoes, which are not typically covered by the
standard hazard insurance policies maintained by borrowers. Uninsured disasters
may adversely impact the ability of borrowers to repay loans made by the Bank.
The existence of adverse economic conditions, declines in real estate values or
the occurrence of such natural disasters in Florida could have a material
adverse effect on the Company's business, future prospects, financial condition
or results of operations. The failure by the Company to adapt its credit
policies and procedures on an adequate and timely basis to new markets or to
provide sufficient oversight to its lending activities could result in an
14
increase in nonperforming assets, thereby causing operating losses, impairing
liquidity and eroding capital, and could have a material adverse effect on the
Company's business, future prospects, financial condition or results of
operations.
Allowance for Loan Losses
Industry experience indicates that a portion of the loans of the Bank will
become delinquent and a portion of the loans will require partial or entire
charge off. Regardless of the underwriting criteria utilized by the Bank or its
predecessors, losses may be experienced as a result of various factors beyond
the Bank's control, including, among others, changes in market conditions
affecting the value of collateral and problems affecting the credit of the
borrower. Due to the concentration of loans in Florida, adverse economic
conditions in that area could result in a decrease in the value of a significant
portion of the Bank's collateral. Although management of the Bank believes that
the allowance for loan losses is currently adequate to absorb losses on any
existing loans that may become uncollectible, there can be no assurance that the
Bank will not experience significant losses in its loan portfolios which may
require significant additions to the loan loss allowance.
Effect of Interest Rates
The operations of the Bank, and of commercial banks in general, are
significantly influenced by general economic conditions, by the related monetary
and fiscal policies of the federal government and, in particular, the FDIC and
the FRB. Deposit flows and the cost of funds are influenced by interest rates of
competing investments and general market rates of interest. Lending activities
are affected by the demand for commercial and residential mortgage financing and
for other types of loans, which in turn is affected by the interest rates at
which such financing may be offered and by other factors affecting the supply of
office space and housing and the availability of funds.
At December 31, 2001, the Bank's liabilities which would reprice within the
next twelve months exceeded the assets (which would re-price during that time)
by approximately $7.2 million, or 1.5% of total earning assets. As a result of
this difference, an increase in market interest rates is likely to result in a
decrease in net interest income for the Bank because the level of interest paid
on interest-bearing liabilities is likely to increase more rapidly than the
level of interest earned on interest-earning assets over the coming year.
Increases in the level of interest rates may reduce loan demand, and thereby the
amount of loans that can be originated by the Bank and, similarly, the amount of
loan and commitment fees, as well as the value of the investment securities and
other interest-earning assets of the Bank. Moreover, volatility in interest
rates can result in disintermediation, which is the flow of funds away from
banks into direct investments, such as corporate securities and other investment
vehicles which, because of the absence of federal deposit insurance, generally
pay higher rates of return than bank deposits, or the transfer of funds within
the bank from a lower yielding savings accounts to higher yielding certificates
of deposit.
Unpredictable Economic Conditions
Commercial banks and other financial institutions are affected by economic
and political conditions, both domestic and international, and by governmental
monetary policies. Conditions such as inflation, recession, unemployment, high
interest rates, restricted money supply, scarce natural resources, international
disorders and other factors beyond the control of the Company and the Bank may
adversely affect their profitability. The Company's success will significantly
depend upon general economic conditions in Florida, the Bank's individual
markets, and the other market areas into which the Company may expand. A
prolonged economic dislocation or recession, whether in Florida generally or in
any or all of the Bank's markets, could cause the Company's non-performing
assets to increase, thereby causing operating losses, impaired liquidity and the
erosion of capital. Such an economic dislocation or recession could result from
a variety of causes, including natural disasters such as hurricanes, floods or
tornadoes, or a prolonged downturn in various industries upon which the
economies of Florida and/or particular markets of the Bank depend. Future
adverse changes in the Florida economy or the local economies of the Identified
Markets could have a material adverse effect on the Company's business, future
prospects, financial condition or results of operations.
15
Limitation on Dividends; Reliance on the Bank
The Company has never declared or issued a dividend on its common stock.
The Company has no current plans to distribute any cash dividends to its common
shareholders. Earnings of the Bank, if any, are expected to be retained by the
Bank to enhance its capital structure or distributed to the Company to pay its
operating costs. As the Company has no independent sources of revenue, the
Company's principal source of funds to pay dividends on the common stock and its
other securities, to service indebtedness and to fund operations will be cash
dividends and other payments that the Company receives from the Bank. The
payment of dividends by the Bank to the Company is subject to certain
restrictions imposed by federal banking laws, regulations and authorities.
Impact of Technological Advances; Upgrade to Company's Internal Systems
The banking industry is undergoing, and management believes will continue
to undergo, technological changes with frequent introductions of new
technology-driven products and services. In addition to improving customer
services, the effective use of technology increases efficiency and enables
financial institutions to reduce costs. The Company's future success will
depend, in part, on its ability to address the needs of its customers by using
technology to provide products and services that will satisfy customer demands
for convenience as well as to enhance efficiencies in the Company's operations.
Management believes that keeping pace with technological advances is important
for the Company, as long as its emphasis on personalized services is not
adversely impacted. Many of the Company's competitors will have substantially
greater resources than the Company to invest in technological and infrastructure
improvements. There can be no assurance that the Bank will be able to implement
new technology-driven products and services effectively or to market
successfully such products and services to its clients. Furthermore, the Company
and the Bank outsource many of their core technology-related systems. The Bank's
failure to acquire, implement or market new technology could have a material
adverse effect on the Company's business, future prospects, financial condition
or results of operations. The Company, therefore, is dependent upon these
outside vendors to provide many of its technology-related products and services.
Anti-takeover Provisions
The Company's Second Amended and Restated Articles of Incorporation (the
"Articles of Incorporation") contain provisions requiring supermajority
shareholder approval to effect certain extraordinary corporate transactions with
Interested Persons, which are defined in the Articles of Incorporation as those
persons who own greater than 5% or more of the shares of the Company's stock
entitled to vote in election of directors, unless that transaction is approved
by three quarters of the Company's Board of Directors. This approval is in
addition to any other required approval of the Board of Directors or
shareholders. In addition, the Articles of Incorporation provide for the Board
of Directors to be classified into three staggered classes, as nearly equal in
number as possible. Directors are elected to serve for three-year terms. The
Company's Amended and Restated By-Laws (the "By-Laws") also contain provisions
which (i) authorize the Board to determine the precise number of members of the
Board and authorize either the Board or the shareholders to fill vacancies on
the Board, (ii) authorize any action required or permitted to be taken by the
Company's shareholders to be effected by consent in writing; and (iii) establish
certain advance notice procedures for nomination of candidates for election as
directors and for shareholder proposals to be considered at an annual or special
meeting of shareholders. The issuance of preferred stock by the Company could
also have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring, a controlling interest in the
Company and could adversely affect the voting power or other rights of holders
of the common stock. These provisions may have the effect of impeding the
acquisition of control of the Company by means of a tender offer, a proxy fight,
open-market purchases or otherwise, without approval of such acquisition by the
Board of Directors. Certain of these provisions also make it more difficult to
remove the Company's current Board of Directors and management.
Future Capital Needs
The Board of Directors may determine from time to time a need to obtain
additional capital through the issuance of additional shares of common stock or
other securities. Such issuance may dilute the ownership interests in the
Company of the investors in the offering.
16
Government Regulation
The Company and the Bank operate in a highly regulated environment and are
subject to supervision and regulation by several governmental regulatory
agencies, including the Board of Governors of the Federal Reserve System, the
OCC, the Federal Deposit Insurance Corporation, the Florida Department of
Banking and Finance and the Securities and Exchange Commission (SEC). These
regulatory agencies, with the exception of the SEC, are generally intended to
provide protection for depositors and customers rather than for the benefit of
shareholders. The Company and the Bank are subject to future legislation and
government policy, including bank deregulation and interstate expansion, which
could materially adversely affect the banking industry as a whole, including the
operations of the Company and the Bank. The establishment of branches or the
acquisitions of banks in Identified Markets and other market areas is subject to
the prior receipt of certain regulatory approvals. Failure to obtain such
regulatory approvals could have a material adverse effect on the Company's
business, future prospects, financial condition or results of operations.
Dependence on Key Personnel
The success of the Bank depends to a significant extent upon the
performance of its respective Chairmen, President and Executive Vice Presidents,
the loss of any of whom could have a materially adverse effect on the Bank. The
Bank believes that its future success will depend in large part upon its ability
to retain such personnel. There can be no assurance that the Bank will be
successful in retaining such personnel.
Item 2. Properties.
- -------------------
The Company's occupies 5,113 sq. ft. of leased space for its main offices
located at 5210 Belfort Road, Suite 310, Concourse II, Jacksonville, Florida
32256. The Bank operates six banking offices and an operations center in the
following locations:
Florida Bank, N.A. - Alachua County (1)
600 N.W. 43rd Street, Suite A
Gainesville, Florida 32607
Facilities: Owned by the Bank - 7,581 sq. ft.
Florida Bank, N.A. - Jacksonville
5210 Belfort Road, Suite 140
Jacksonville, Florida 32256
Facilities: Leased 6001 sq. ft.
Florida Bank, N.A. - Tampa (2)
100 West Kennedy Boulevard
Tampa, Florida 33602
Facilities: Leased 12,573 sq. ft.
Florida Bank, N.A. - Broward County
600 North Pine Island Rd., Suite 350
Plantation, Florida 33324
Facilities: Leased 4,893 sq. ft.
Florida Bank, N.A. - Pinellas County
8250 Bryan Dairy Road
Suite 150
Largo, Florida 33777
Facilities: Leased 5,428 sq. ft.
17
Florida Bank, N.A. - Marion County
2437 SE 17th Street
Suite 101
Ocala, Florida 34471
Facilities: Leased 5,485 sq. ft.
Florida Bank, N.A. - Operations Center
6301 Benjamin Road
Suite 105
Tampa, Florida 33634
Facilities: Leased 5,056 sq. ft.
(1) The Alachua County Bank leased approximately 1,600 square feet of its
facility to a local health and fitness center until needed for future
expansion by the Bank.
(2) Approximately 5,546 sq. ft. of the Tampa Bank facility has been subleased
to a local law firm. The term of the sublease expires on June 30, 2003 in
conjunction with the expiration of Bank's lease.
Item 3. Legal Proceedings.
- ------- ------------------
On November 6, 2001, a company and its owners filed a suit in the Circuit
Court of Hillsborough County against the Company and two of its officers. The
plaintiffs sought damages, fees and expenses purported to have been caused by
the failure to consummate the Company's proposed acquisition of their business.
On February 4, 2002, the plaintiffs dismissed this action in exchange for a
payment of $35,000.
There are no material pending legal proceedings to which the Company or the
Bank is a party or of which any of their properties are subject, nor are there
material proceedings known to the Company or the Bank to be threatened or
pending by any governmental authority.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
No matter was submitted during the fourth quarter ended December 31, 2001
to a vote of security holders of the Company.
18
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
- ------- ----------------------------------------------------------------------
The Company's common stock is traded on the NASDAQ National Market under
the symbol "FLBK." The common stock began trading on the NASDAQ National Market
on July 30, 1998. The following table sets forth for the periods indicated the
quarterly high and low sale prices per share as reported by the NASDAQ National
Market. These quotations also reflect inter-dealer prices without retail
mark-ups, mark-downs, or commissions.
High Low
---- ---
Fiscal year ended December 31, 2000
First Quarter $7.500 $4.875
Second Quarter 6.000 4.875
Third Quarter 6.000 5.000
Fourth Quarter 6.938 5.063
Fiscal year ended December 31, 2001
First Quarter $7.188 $5.250
Second Quarter 6.500 5.290
Third Quarter 6.400 5.550
Fourth Quarter 6.250 5.510
As of February 13, 2002, there were approximately 168 holders of record of
the Common Stock. Management of the Company believes that there are in excess of
2,500 beneficial holders of its Common Stock.
The Company has never declared or paid any dividends on its common stock.
The Company currently anticipates that all of its earnings will be retained for
development of the Company's business, and does not anticipate paying any cash
dividends in the foreseeable future. Future cash dividends on common stock, if
any, will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, the Company's future earnings, operations,
capital requirements and surplus, general financial condition, contractual
restrictions, and such other factors as the Board of Directors may deem
relevant.
In September of 1999, the Company's Board of Directors authorized a stock
repurchase plan covering up to ten percent (10%) of the outstanding shares of
common stock (approximately 585,000 shares). The share repurchase plan
authorizes the purchase of common shares at any price below the then current
book value per share. As of March 14, 2002, the Company has repurchased 302,200
shares for a total cost of $1,866,197 or an average cost of $6.18 per share.
Pursuant to the stock repurchase plan, on December 10, 2001, the Company's Board
of Directors authorized a pre-programmed stock repurchase program pursuant to
the `safe harbor' guidelines of Rule 10b-18 of the Securities Exchange Act of
1934. This program provides for repurchase of up to 250,000 shares in the open
market when the trading price of the Company's common stock falls to $5.75 per
share or less. As of March 14, 2002, no shares had been repurchased under the
Rule 10b-18 program.
Item 6. Selected Financial Data.
- ------- ------------------------
SELECTED FINANCIAL DATA
The following tables set forth selected financial data of the Company for
the periods indicated. Florida Banks, Inc. was incorporated on October 15, 1997
for the purpose of becoming a bank holding company and acquiring First National
Bank of Tampa. On August 4, 1998, the Company completed its initial public
offering and its merger (the "Merger") with the Bank pursuant to which the Bank
was merged with and into Florida Bank No. 1, N.A., a wholly-owned subsidiary of
the Company, and renamed Florida Bank, N.A. Shareholders of the Bank received
19
1,375,000 shares of common stock of the Company valued at $13,750,000. The
Merger was considered a reverse acquisition for accounting purposes, with the
Bank identified as the accounting acquiror. The Merger has been accounted for as
a purchase, but no goodwill has been recorded in the Merger and the financial
statements of the Bank have become the historical financial statements of the
Company.
The number of shares of common stock, the par value of common stock and per
share amounts have been restated to reflect the shares exchanged in the Merger.
The selected financial data of the Company as of December 31, 2001, 2000,
1999, 1998 and 1997 and for each of the years then ended are derived from the
financial statements of the Company, which have been audited by Deloitte &
Touche LLP, independent auditors. These selected financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Company's financial statements and notes
thereto, and financial and other information included elsewhere herein.
Year Ended December 31,
------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
(Dollars in thousands except per share amounts)
Summary Income Statement:
Interest income $31,380 $ 23,766 $ 11,142 $ 5,413 $4,302
Interest expense 16,548 13,711 4,696 2,436 2,296
------ -------- --------- ------- ------
Net interest income 14,832 10,055 6,446 2,977 2,006
Provision for loan losses 1,889 1,912 1,610 629 60
------ -------- --------- ------- ------
Net interest income after
provision for loan losses 12,943 8,143 4,836 2,348 1,946
Noninterest income 2,048 1,011 583 613 504
Noninterest expense (1) 13,693 10,886 8,342 7,903 1,842
------ -------- --------- ------- ------
Income (loss) before provision for
income taxes 1,298 (1,732) (2,923) (4,943) 608
Provision (benefit) for income taxes (2) 490 (652) (1,076) (350) 232
------ -------- --------- ------- ------
Net income (loss) 808 (1,080) (1,847) (4,593) 376
------ -------- --------- ------- ------
Preferred stock dividends 250 - - - -
------ -------- --------- ------- ------
Net income (loss) applicable to common
shares $ 558 $ (1,080) $ (1,847) $(4,593) $ 376
====== ========== ========= ======= ======
Earnings (loss) per common share (3):
Basic $ 0.10 $ (0.19) $ (0.32) $ (1.46) $ 0.31
Diluted 0.10 (0.19) (0.32) (1.46) 0.29
- ----------
(1) Noninterest expense for the Company for 1998 includes a nonrecurring,
noncash charge of $3,939,000, relating to the February 3, 1998 sale of
Common Stock and Warrants included in the Units sold to accredited foreign
investors and the February 11, 1998 sale of 297,000 shares of common stock
to 14 officers, directors and consultants.
(2) The provision for income taxes for 1997 is comprised solely of deferred
income taxes. The benefit of the utilization of net operating loss
carryforwards for 1997 (periods subsequent to the effective date of the
Company's quasi-reorganization) have been reflected as increases to
additional paid-in capital.
(3) The earnings per common share amounts for 1997 have been restated to
reflect the shares exchanged in the Merger.
20
At December 31,
------------------------------------------------------------------
2001 2000 1999 1998 1997
------------- -------------------------- ------------ ------------
(Dollars in Thousands)
Summary Balance Sheet Data:
Investment securities $ 38,886 $ 36,756 $ 28,511 $ 22,242 $ 10,765
Loans, net of deferred loan fees 401,444 285,526 157,517 67,131 33,720
Earning assets 494,987 353,239 205,898 106,022 54,731
Total assets 522,323 372,797 218,163 113,566 60,396
Noninterest-bearing deposits 99,899 41,965 22,036 11,840 6,442
Total deposits 451,249 305,239 159,106 64,621 45,460
Other borrowed funds 14,210 26,035 18,279 5,718 8,317
Total shareholders' equity 46,142 38,556 39,235 42,588 6,314
Performance Ratios:
Net interest margin (1) 3.62 % 3.58 % 4.57 % 4.28 % 3.89 %
Efficiency ratio (2) 81.12 98.37 118.68 220.18 73.39
Return on average assets 0.13 (0.36) (1.07) (5.42) 0.70
Return on average equity 1.30 (2.83) (3.12) (16.54) 10.62
Asset Quality Ratios:
Allowance for loan losses to total loans 1.17 % 1.23 % 1.18 % 1.60 % 1.42 %
Non-performing loans to total loans (3) 0.36 1.44 1.46 2.80 -
Net charge-offs to average loans 0.21 0.12 0.80 0.09 0.03
Capital and Liquidity Ratios:
Total capital to risk-weighted assets 12.70 % 12.73 % 18.19 % 63.25 % 14.29 %
Tier 1 capital to risk-weighted assets 11.63 11.58 17.29 61.59 13.00
Tier 1 capital to average assets 10.64 10.28 20.01 36.44 7.42
Average loans to average deposits 99.03 94.90 101.53 81.04 75.77
Average equity to average total assets 9.96 12.80 34.30 32.80 6.54
- ------------
(1) Computed by dividing net interest income by average earning assets.
(2) Computed by dividing noninterest expense by the sum of net interest income
and noninterest income.
(3) The Bank had no non-performing loans at December 31, 1997.
21
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations.
--------------
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements appear in a
number of places in this Report and include statements regarding the intent,
belief or current expectations of the Company, its directors or its officers
with respect to, among other things: (i) potential acquisitions by the Company;
(ii) trends affecting the Company's financial condition or results of
operations; and (iii) the Company's business and growth strategies. Investors
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual results
may differ materially from those projected in the forward-looking statements as
a result of various factors. These factors include, but are not limited to the
following: (a) competitive pressure in the banking industry; (b) changes in the
interest rate environment; (c) the fact that general economic conditions may be
less favorable than the Company expects; and (d) changes in The Company's
regulatory environment. The accompanying information contained in this Report,
including, without limitation, the information set forth under the headings
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as in the Company's Securities Act filings,
identifies important additional factors that could adversely affect actual
results and performance. Prospective investors are urged to carefully consider
such factors.
All forward-looking statements attributable to the Company are expressly
qualified in their entirety by the foregoing cautionary statements.
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company (including the notes thereto)
contained elsewhere in this Report. The following discussion compares results of
operations for the years ended December 31, 2001, 2000 and 1999.
The Company
The Company was incorporated on October 15, 1997 to acquire or establish a
bank in Florida. Prior to the consummation of the merger with First National
Bank of Tampa (the "Merger"), the Company had no operating activities. The
Merger was consummated immediately prior to the closing of the Company's initial
public offering (the "Offering") on August 4, 1998. After the consummation of
the Merger, the Bank's shareholders owned greater than 50% of the outstanding
Common Stock of the Company, excluding the issuance of the shares in connection
with the Offering. Accordingly, the Merger was accounted for as if the Bank had
acquired the Company, the financial statements of the Bank have become the
historical financial statements of the Company and no goodwill was recorded as a
result of the Merger. In addition, the operating results of the Company incurred
prior to the Merger, which consisted of organizational and start-up costs, are
not included in the consolidated operating results.
The Company funded its start-up and organization costs through the sale of
units, consisting of Common Stock, Preferred Stock and warrants to purchase
shares of Common Stock. As the Company was not formed until 1997, the term
"Company" used throughout "Management's Discussion and Analysis of Financial
Condition and Results of Operations" refers to the Company and the Bank for the
periods ended December 31, 2001, 2000, 1999 and 1998, and for the Bank only for
the period ended December 31, 1997 and prior periods. Unless otherwise
indicated, the "Bank" refers to Florida Bank, N.A., formerly First National Bank
of Tampa.
Summary
The Company reported net income of $808,000 and net income applicable to
common shareholders of $558,000 for fiscal 2001, compared to a loss of $1.08
million in 2000. The Company had no preferred stock issued or outstanding prior
to 2001. The Company's net loss for fiscal 2000 decreased $767,000 to a loss of
$1.08 million or 49.6% from $1.8 million in 1999. Basic and diluted earnings
(loss) per common share were $.10, ($.19), and ($.32) for the years ended
December 31, 2001, 2000 and 1999. Diluted earnings per common share reflects the
dilutive effect of outstanding options.
22
The improvement in the Company's performance to net income in 2001,
compared to a net loss in 2000, was primarily attributable to an increase in net
interest income and an increase in noninterest income, partially offset by an
increase in noninterest expenses. Net interest income increased to $14.8 million
in 2001 from $10.0 million in 2000, an increase of 47.5%. The provision for loan
losses decreased by 1.2% to $1.89 million in 2001, from $1.91 million in 2000.
Noninterest income increased 102.5% to $2.05 million in 2001 from $1.01 million
in 2000. Noninterest expense increased to $13.7 million in 2001 from $10.9
million in 2000, an increase of 25.9%. The Company recorded a provision for
income taxes in 2001 of $489,000, compared to a benefit for income taxes of
($652,000) in 2000.
The decrease in net losses from 1999 to 2000 was primarily attributable to
an increase in net interest income and an increase in noninterest income,
partially offset by increases in the provision for loan losses and noninterest
expenses. Net interest income increased to $10.1 million in 2000 from $6.5
million in 1999, an increase of 56.0%. The provision for loan losses increased
by 18.8% to $1.9 million in 2000 from $1.6 million in 1999. Noninterest income
increased 73.6% to $1.01 million in 2000 from $543,000 in 1999. Noninterest
expense increased to $10.9 million in 2000 from $8.3 million in 1999, an
increase of 30.5%. The benefit for income taxes decreased to $652,000 in 2000
from $1.1 million in 1999, a decrease of 39.4%.
Total assets at December 31, 2001 were $522.3 million, an increase of
$149.5 million, or 40.11%, over the prior year. Total loans increased 40.6% to
$401.7 million at December 31, 2001, from $285.6 million at December 31, 2000.
Total deposits increased $146.0 million, or 47.8%, to $451.2 million at December
31, 2001 from $305.2 million at December 31, 2000. Shareholders' equity
increased to $46.1 million at December 31, 2001 from $38.6 million at December
31, 2000, an increase of 19.7%. These increases were primarily attributable to
the conversion of the Marion County office to a full service branch in its first
full year of operations, together with maturity of the Company's locations in
its other markets and continued successful implementation of its long-term
strategies, more fully discussed in Part 1, Item 1 above.
The earnings performance of the Company is reflected in the calculations of
net income (loss) as a percentage of average total assets ("Return on Average
Assets") and net income (loss) as a percentage of average shareholders' equity
("Return on Average Equity"). Return on Average Assets and Return on Average
Equity are computed using Net Income Applicable to Common Shares. During 2001,
the Return on Average Assets and Return on Average Equity were 0.13% and 1.30%
respectively, compared to (0.36%) and (2.83%), respectively, for 2000. The
Company's ratio of total equity to total assets decreased to 8.83% at December
31, 2001 from 10.3% at December 31, 2000, primarily as a result of growth from
branch operations.
Total assets at December 31, 2000 were $372.8 million, an increase of
$154.7 million, or 70.9%, over the prior year. Total loans increased 81.2% to
$285.6 million at December 31, 2000, from $157.6 million at December 31, 1999.
Total deposits increased $146.1 million, or 91.8%, to $305.2 million at December
31, 2000 from $159.1 million at December 31, 1999. Shareholders' equity
decreased to $38.6 million at December 31, 2000 from $39.2 million at December
31, 1999, a decrease of 1.7%. These increases and decrease were primarily
attributable to the opening of the Marion County branch and a full year of
start-up operations for the Pinellas and Broward County branches.
The earnings performance of the Company is reflected in the calculations of
net loss as a percentage of average total assets ("Return on Average Assets")
and net loss as a percentage of average shareholders' equity ("Return on Average
Equity"). During 2000, the Return on Average Assets and Return on Average Equity
were (0.36%) and (2.83%) respectively, compared to (1.07%) and (3.12%),
respectively, for 1999. The Company's ratio of total equity to total assets
decreased to 10.3% at December 31, 2000 from 18.0% at December 31, 1999,
primarily as a result of growth from the new branch operations.
Results of Operations
Net Interest Income
The following three tables set forth, for the periods indicated, certain
information related to the Company's average balance sheet, its yields on
average earning assets and its average rates on interest-bearing liabilities.
Such yields and rates are derived by dividing income or expense by the average
balance of the corresponding assets or liabilities. Average balances have been
derived from the daily balances throughout the periods indicated.
23
Year Ended
December 31, 2001 Income /
Average Balance Expense Yield / Cost
(Dollars in thousands)
ASSETS:
Total loans (1) $340,778 $27,692 8.13%
Investment securities (2) 39,297 2,653 6.75%
Federal funds sold & other investments 29,746 1,035 3.48%
------ -----
Total earning assets 409,821 31,380 7.66%
Cash and due from banks 12,598
Premises and equipment, net 3,355
Other assets, net 7,833
Allowance for loan losses (4,046)
------
Total Assets (3) $429,561
========
LIABILITIES:
Interest-bearing liabilities:
Interest-bearing transaction accounts $19,439 366 1.89%
Savings deposits 54,602 2,034 3.72%
Time deposits 223,905 12,548 5.60%
Repurchase agreements sold 33,568 1,205 3.59%
Other borrowed funds 7,585 395 5.21%
----- ---
Total interest bearing liabilities 339,099 16,548 4.87%
Demand deposits 44,038
Accrued interest and other liabilities 3,415
Shareholders' equity 43,009
------
Total liabilities and shareholders' $429,561
========
Net interest income $14,832
=======
Net interest spread 2.79%
Net interest margin 3.62%
Non-interest expense 13,693
Overhead ratio 3.19%
Non-interest income 2,048
Non-interest income ratio 0.48%
(1) - Average loans include nonaccrual loans. At December 31, 2001, $1.1
million of loans were accounted for on a non-accrual basis. All
loans and deposits are domestic.
(2) - Stated at amortized cost. Does not reflect unrealized gains or
losses. All securities are taxable. The Company has no trading
account securities
(3) - All yields are considered taxable equivalent because the Company
has no tax exempt assets.
24
Year Ended
December 31, 2000 Income /
Average Balance Expense Yield / Cost
(Dollars in thousands)
ASSETS:
Total loans (1) $224,317 $20,073 8.95%
Investment securities (2) 37,416 2,477 6.62%
Federal funds sold & other investments 19,084 1,216 5.53%
------ -----
Total earning assets 280,817 23,766 8.46%
Cash and due from banks 9,311
Premises and equipment, net 2,805
Other assets, net 5,675
Allowance for loan losses (2,676)
------
Total Assets (3) $295,932
========
LIABILITIES:
Interest-bearing liabilities:
Interest-bearing transaction accounts $11,641 219 1.58%
Savings deposits 38,101 2,092 5.49%
Time deposits 156,150 10,083 6.46%
Repurchase agreements sold 14,956 903 6.04%
Other borrowed funds 6,824 414 6.07%
----- ---
Total interest bearing liabilities 227,672 13,711 6.02%
Demand deposits 27,677
Accrued interest and other liabilities 2,343
Shareholders' equity 38,240
------
Total liabilities and shareholders'
equity $295,932
========
Net interest income $10,055
=======
Net interest spread 2.44%
Net interest margin 3.58%
Non-interest expense 10,856
Overhead ratio 3.67%
Non-interest income 1,011
Non-interest income ratio 0.34%
(1) - Average loans include nonaccrual loans. At December 31, 2000, $1.5 million
of loans were accounted for on a non-accrual basis. All
loans and deposits are domestic.
(2) - Stated at amortized cost. Does not reflect unrealized gains or losses.
All securities are taxable. The Company has no trading
account securities.
(3) - All yields are considered taxable equivalent because the Company has no
tax exempt assets.
25
Year
December 31, 1999 Income /
Average Balance Expense Yield / Cost
(Dollars in thousands)
ASSETS:
Total loans (1) $103,492 $9,034 8.77%
Investment securities (2) 26,670 1,518 5.69%
Federal funds sold & other investments 11,932 590 4.94%
------ ---
Total earning assets 142,094 11,142 7.87%
Cash and due from banks 5,448
Premises and equipment, net 1,428
Other assets, net 4,268
Allowance for loan losses (1,197)
------
Total Assets (3) $152,041
== ========
LIABILITIES:
Interest-bearing liabilities:
Interest-bearing transaction accounts $6,586 137 2.06%
Savings deposits 24,427 1,153 4.72%
Time deposits 49,888 2,764 5.54%
Repurchase agreements sold 12,510 554 4.42%
Other borrowed funds 1,657 88 5.43%
----- --
Total interest bearing liabilities 95,068 4,696 4.94%
Demand deposits 14,727
Accrued interest and other liabilities 888
Shareholders' equity 41,358
------
Total liabilities and shareholders'
equity $152,041
========
Net interest income