================================================================================
Securities and Exchange Commission
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT
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Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2003 Commission File No. 000-1170902
FLORIDA COMMUNITY BANKS INC.
(Exact Name of Registrant As Specified In Its Charter)
Florida 35-2164765
- ------------------------ ----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1400 North 15th Street, Immokalee, Florida 34142-2202
- ------------------------------------------ -------------------
(Address of principal executive offices) (Including zip code)
(239) 657-3171
(Issuer's Telephone Number, Including Area Code)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.01 Par Value
(Title of Class)
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. ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2):
Yes X No
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The issuer's revenues for its most recent fiscal year were $36,247,917.
There is no established trading market for the registrant's capital stock. The
aggregate market value of the stock held by non-affiliates of the registrant at
March 10, 2004, was $71,115,372 based on a per share price of $25.75, which is
the price of the last trade of which management is aware as of such date.
Although directors and executive officers of the registrant were assumed to be
"affiliates" of the registrant for purposes of this calculation, the
classification is not to be interpreted as an admission of such status.
At March 10, 2004, there were 3,766,384 shares of the registrant's Common Stock
outstanding.
Documents Incorporated by Reference
Portions of the registrant's definitive Proxy Statement for the 2003 Annual
Meeting of Shareholders are incorporated by reference into Part III of this
report.
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FLORIDA COMMUNITY BANKS INC.
2003 Form 10-K Annual Report
TABLE OF CONTENTS
Item Number Page or
in Form 10-K Description Location
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PART I
Item 1. Business................................................................... 3
Item 2. Properties................................................................. 8
Item 3. Legal Proceedings.......................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders........................ 8
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters........................................................ 9
Item 6. Selected Financial Data.................................................... 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................ 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................. 11
Item 8. Financial Statements and Supplementary Data................................ 31
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................... 70
Item 9A. Controls and Procedures.................................................... 70
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.......................... 71
Item 11. Executive Compensation..................................................... 71
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 71
Item 13. Certain Relationships and Related Transactions............................. 71
Item 14. Principal Accountant Fees and Service...................................... 71
PART IV
Item 15. Exhibits and Reports on Form 8-K........................................... 72
Signatures
Certification of Periodic Financial Reports
PART I
--------
ITEM 1. BUSINESS
General
Florida Community Banks, Inc. ("FCBI" or the "Company") is a bank holding
company, which owns all of the common stock of Florida Community Bank ("Bank" or
"FCB") and a special purpose business trust organized to issue Trust Preferred
Securities. The special purpose business trust is not consolidated in the
financial statements that are included elsewhere herein. FCBI is a Florida
corporation registered with the Board of Governors of the Federal Reserve System
as a bank holding company under the Bank Holding Company Act of 1956, as
amended. Through its subsidiary Bank, FCBI is engaged in the commercial banking
business in southwestern Florida with offices in Collier, Lee, Hendry, Glades
and Charlotte counties. At December 31, 2003, FCBI had total assets of
approximately $526 million, total deposits of approximately $424 million and
stockholders' equity of approximately $42 million.
Florida Community Bank is a Florida-chartered commercial bank, which
commenced operations in Everglades City, Florida on May 19, 1923, under the name
"Bank of the Everglades." The Bank changed its place of business from Everglades
City, Florida to Immokalee, Florida in September 1962. FCB changed its name from
Bank of the Everglades to "First Bank of Immokalee" in July 1967 and then to
"Florida Community Bank" in July 1996 as part of its merger with Tri-County Bank
of Lehigh Acres. The Bank is subject to regulation by the Florida Department of
Financial Services ("Department") and the Federal Deposit Insurance Corporation
("FDIC"). The Bank's main office is located at 1400 North 15th Street,
Immokalee, Florida and its telephone number is (239) 657-3171. In addition to
the main banking office in Immokalee, the Bank currently operates full-service
branches in the southwest Florida cities of Lehigh Acres, LaBelle, Naples
(Golden Gate area), Port Charlotte, Punta Gorda, Cape Coral and Ft. Myers.
The Company employs approximately 150 persons and it believes that its
relationship with these employees is good.
The Bank is engaged primarily in soliciting deposits from the general
public and investing such deposits, together with other funds, in commercial
loans, consumer loans, agricultural loans, and real estate loans. To a lesser
extent, the Bank invests its funds in securities issued or guaranteed by
agencies of the United States Government and municipalities.
The Bank operates as a locally operated institution aimed at providing
prompt, efficient and personalized service to individuals, small and
medium-sized businesses, professionals and other local organizations. The Bank's
primary service area encompasses Charlotte, Lee, Collier, Glades and Hendry
Counties (the "PSA"). The Bank's principal markets within the PSA are:
(i) commercial and small business lending and deposit services;
(ii) residential real estate mortgage and retail lending and deposit
services; and
(iii) commercial and residential real estate development lending.
The principal sources of funds for the Bank's loans and other investments
are demand, time, savings and other deposits, amortization and prepayment of
loans, sales to other lenders or institutions of loans or participations in
loans, principal payments or maturities of investment securities, and
borrowings. The principal sources of income for the Bank are interest and fees
collected on loans, including fees received for servicing loans sold to other
lenders or institutions, and to a lesser extent, interest and dividends
collected on other investments. The principal expenses of the Bank are interest
paid on savings and other deposits, interest paid on other borrowings by the
Bank, employee compensation, office expenses and other overhead and operational
expenses.
The Bank offers several deposit accounts, including demand deposit
accounts, negotiable order of withdrawal accounts ("NOW" and "Super-NOW"
accounts), money market accounts, certificates of deposit and various retirement
accounts. In addition, the Bank belongs to an electronic banking network so that
its customers
3
may use the automated teller machines (the "ATMs") of other financial
institutions and operates drive-in teller services and 24-hour depository
vaults.
The Bank offers the following loan services:
(a) consumer loans, automobile loans, real estate equity lines of credit,
education loans and real estate loans secured by single-family
residences;
(b) commercial and business loans for small to medium-sized companies,
including Small Business Administration and other
government-guaranteed financing;
(c) individual and builder short-term residential construction financing;
(d) home improvement loans; and
(e) commercial and residential real estate development loans.
The Bank provides a full range of competitive banking services and
emphasizes the manner in which the services are delivered. Management focuses
its efforts on filling the void created by the decreasing number of
locally-owned community banks due to acquisitions by large regional holding
companies, which it believes has negatively impacted the personal nature of the
delivery, quality and availability of banking services available in the PSA and
surrounding areas.
Primary Service Area
The PSA enjoys an abundant work force, attractive business climate and a
good relationship between the private and public sectors.
In general, commercial real estate in the PSA consists of small shopping
centers and office buildings. The type of residential real estate within the PSA
varies, with a number of condominiums, townhouses, apartments and single-family
housing developments dispersed throughout the PSA.
Competition
The business of banking is highly competitive. The Bank competes with other
banks, savings and loan associations and credit unions within the PSA. The Bank
believes that its operation as a locally owned and controlled bank with a broad
base of ownership in the PSA enhances its ability to compete with those
non-local financial institutions now operating in its market, but no assurances
can be given in this regard.
The Bank's competitive strategy with respect to the financial institutions
described above consists of:
o reviewing and acting upon loan requests quickly with a locally-based
loan committee,
o maintaining flexible but prudent lending policies,
o personalizing service by establishing long-term banking relationships
with its customers; and
o maintaining an appropriate ratio of employees to customers to enhance
the level of service.
Facilities
The Bank's main office in Immokalee, Florida was purchased in 1962. At
December 31, 2003, the Bank operated eight branch offices, with a ninth office
under construction. The Lehigh Acres branch was acquired in 1996 as a result of
the acquisition of Tri-County Bank of Lehigh Acres. The Golden Gate branch
operates in a facility leased in 1997, on a month-to-month basis, with
adjustments made annually to the lease cost based on the Consumer Price Index.
The LaBelle branch was acquired as a result of the acquisition of Hendry County
Bank by merger in 1998. The land for the Port Charlotte branch was purchased in
1998 and the branch opened in 1999 after construction was completed. The
facility for the Ft. Myers branch is leased for 15 years (with renewal options
after that period) and opened in 2000. The Bank owns the Punta Gorda branch and
the underlying land is subject to a 99-year lease, which commenced in 2000. Land
for a second Cape Coral branch was purchased in 2003 and is under construction.
All of the branch facilities are in good condition.
4
Regulation
The Bank is subject to comprehensive regulation, examination and
supervision by the Department and the FDIC, and is subject to other laws and
regulations applicable to banks. Such regulations include limitations on loans
to a single borrower and to the Bank's directors, officers and employees;
restrictions on the opening and closing of branch offices; the maintenance of
required capital and liquidity ratios; the granting of credit under equal and
fair conditions; disclosure of the costs and terms of such credit; and
restrictions as to permissible investments. The Bank is examined periodically by
both the Department and the FDIC and submits periodic reports regarding its
financial condition and other matters to each of them. Both the Department and
the FDIC have a broad range of powers to enforce regulations under their
respective jurisdictions, and to take discretionary actions determined to be for
the protection of the safety and soundness of the Bank, including the
institution of cease and desist orders and the removal of directors and
officers.
FDIC Regulations. The Bank's deposit accounts are insured by the Bank
Insurance Fund of the FDIC up to a maximum of $100,000 per insured depositor.
The FDIC issues regulations, conducts periodic examinations, requires the filing
of reports and generally supervises the operations of its insured banks. The
approval of the FDIC is required prior to a merger or consolidation or the
establishment or relocation of an office facility. This supervision and
regulation is intended primarily for the protection of depositors and not of
stockholders.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") substantially revised the depository institution regulatory and
funding provisions of the Federal Deposit Insurance Act. Among other things,
FDICIA requires the federal banking regulators to take prompt corrective action
in respect to depository institutions that do not meet minimum requirements.
FDICIA established five capital tiers: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." A depository institution is well capitalized if
it significantly exceeds the minimum level required by regulation for each
relevant capital measure, adequately capitalized if it meets each such measure,
undercapitalized if it fails to meet any such measure, significantly
undercapitalized it is significantly below any such measure and critically
undercapitalized if it fails to meet any critical capital level set forth in the
regulations. The critically undercapitalized level occurs where tangible equity
is less than 2% of total tangible assets or less than 65% of the minimum
leverage ratio prescribed by regulation (except to the extent that 2% would be
higher than such 65% level). A depository institution may be deemed to be in a
capitalization category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) if the depository institution
would thereafter be undercapitalized. In addition, undercapitalized depository
institutions are subject to growth limitations and are required to submit
capital restoration plans to the FDIC. The federal banking agencies may not
accept a capital plan without determining, among other things, that the plan is
based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. If a depository fails to submit an acceptable
plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of the receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to the
appointment of a receiver or conservator.
FDICIA provides authority for special assessments against insured deposits
and for the development of a general risk-based insurance assessment system. The
risk-based insurance assessment system would be used to calculate a depository
institution's semi-annual deposit insurance assessment based on the probability
(as defined in the FDICIA) that the BIF will incur a loss with respect to the
institution. In accordance with FDICIA, the FDIC implemented a transitional
risk-based insurance premium system and increased deposit insurance premiums for
commercial banks to an average of 25.4 basis points.
FDICIA also contains various provisions related to an institution's
interest rate risk. Under certain circumstances, an institution may be required
to provide additional capital or maintain higher capital levels to address
interest rate risks.
5
In addition, the FDIC has adopted a minimum leverage ratio of 4%. The
minimum leverage ratio is the ratio of common equity, retained earnings and
certain amounts of perpetual preferred stock (after subtracting goodwill and
after making certain other adjustments) to the total assets of the institution.
Generally, banking organizations are expected to operate well above the minimum
required capital level of 4% unless they meet certain specified criteria,
including that they have the highest regulatory ratings. Most banking
organizations are required to maintain a leverage ratio of 4% plus an additional
cushion of 1% to 2%. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions are expected to maintain
strong capital positions substantially above the minimum supervisory levels
without significant reliance upon intangible assets.
Dividend Restrictions. In addition to dividend restrictions placed on the
Bank by the FDIC based on the Bank's minimum capital requirements, the Florida
Financial Institutions Code prohibits the declaration of dividends in certain
circumstances. Section 658.37 (Florida Statutes), prohibits the declaration of
any dividend until a bank has charged off bad debts, depreciation and other
worthless assets, and has made provision for reasonably-anticipated future
losses on loans and other assets. Such dividends are limited to the aggregate of
the net profits of the dividend period, combined with a bank's retained net
profits for the preceding two years. A bank may declare a dividend from retained
net profits that accrued prior to the preceding two years with the approval of
the Department. However, a bank will be required, prior to the declaration of a
dividend on its common stock, to carry 20% of its net profits for such preceding
period to its surplus fund, until the surplus fund equals at least the amount of
the bank's common and preferred stock then issued and outstanding. In no event
may a bank declare a dividend at any time in which its net income from the
current year, combined with its retained net income from the preceding two years
is a loss or which would cause the capital accounts of the bank to fall below
the minimum amount required by law, regulation, order or any written agreement
with the Department or other state or federal regulatory agency.
Riegle-Neal Interstate Banking and Branching Efficiency Act. The
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 provides
that as of June 1, 1997, adequately capitalized and managed banks will be able
to engage in interstate branching by merging banks in different states,
including Florida, which did not opt out of the application of this provision.
If a state did not opt out, banks will be required to comply with the host
state's regulations with respect to branching across state lines.
Gramm-Leach-Bliley Act. On November 12, 1999, President Clinton signed into
law the Gramm-Leach-Bliley Act which reforms and modernizes certain areas of
financial services regulation. The law permits the creation of new financial
services holding companies that can offer a full range of financial products
under a regulatory structure based on the principle of functional regulation.
The legislation eliminates the legal barriers to affiliations among banks and
securities firms, insurance companies, and other financial services companies.
The law also provides financial organizations with the opportunity to structure
these new financial affiliations through a holding company structure or a
financial subsidiary. The new law reserves the role of the Federal Reserve Board
as the supervisor for bank holding companies. At the same time, the law provides
a system of functional regulation, which is designed to utilize the various
existing federal and state regulatory bodies.
The law also includes a minimum federal standard of financial privacy.
Financial institutions are required to have written privacy policies that must
be disclosed to customers. The disclosure of a financial institution's privacy
policy must take place at the time a customer relationship is established and
not less than annually during the continuation of the relationship. The act also
provides for the functional regulation of bank securities activities. The law
repeals the exemption that banks were afforded from the definition of "broker,"
and replaces it with a set of limited exemptions that allow the continuation of
some historical broker activities performed by banks. In addition, the act
amends the securities laws to include banks within the general definition of
dealer. Regarding new bank products, the law provides a procedure for handling
products sold by banks that have securities elements.
In the area of CRA activities, the law generally requires that financial
institutions address the credit needs of low-to-moderate income individuals and
neighborhoods in the communities in which they operate. Bank regulators are
required to take the CRA ratings of a bank or of the bank subsidiaries of a
holding company into account when acting upon certain branch and bank merger and
acquisition applications filed by the institution. Under the law, financial
holding companies and banks that desire to engage in new financial activities
are required to have satisfactory or better CRA ratings when they commence the
new activity.
Most of the provisions of the law took effect on March 11, 2000, with other
provisions being phased in over a one to two year period thereafter. It is
anticipated that the effects of the law, while providing additional flexibility
to bank holding companies and banks, may result in additional affiliations of
different financial services
6
providers, as well as increased competition, resulting in lower prices, more
convenience, and greater financial products and services available to consumers.
USA Patriot Act. On October 26, 2001, President Bush signed into law the
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (the "USA Patriot Act"), which is
designed to deny terrorists and others the ability to obtain access to the
United States financial system. Title III of the USA Patriot Act is the
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. Among its provisions, the USA Patriot Act mandates or will require
financial institutions to implement additional policies and procedures with
respect to, or additional measures, including additional due diligence and
recordkeeping, designed to address, any or all of the following matters, among
others: money laundering; suspicious activities and currency transaction
reporting; and currency crimes. The U.S. Department of the Treasury in
consultation with the Federal Reserve Board and other federal financial
institution regulators has promulgated rules and regulations implementing the
USA Patriot Act which (i) prohibits U.S. correspondent accounts with foreign
banks that have no physical presence in any jurisdiction; (ii) require financial
institutions to maintain certain records for correspondent accounts of foreign
banks; (iii) require financial institutions to produce certain records relating
to anti-money laundering compliance upon request of the appropriate federal
banking agency; (iv) require due diligence with respect to private banking and
correspondent banking accounts; (v) facilitate information sharing between the
government and financial institutions; and (vi) require financial institutions
to have in place a money laundering program. In addition, an implementing
regulation under the USA Patriot Act regarding verification of customer
identification by financial institutions has been proposed, although such
regulation has not yet been finalized. The Company has implemented, and will
continue to implement, the provisions of the USA Patriot Act as such provisions
become effective. The Company currently maintains and will continue to maintain
policies and procedures to comply with the USA Patriot Act requirements. At this
time, the Company does not expect that the USA Patriot Act will have a
significant impact on the financial position of the Company.
Federal Reserve System. FCBI is a bank holding company subject to the
supervision and regulations of the Board of Governors of the Federal Reserve
System ("Federal Reserve"). As such, the Company is required to file periodic
reports and such other information as the Federal Reserve may deem necessary.
The Federal Reserve also conducts examinations of the Company. The Federal
Reserve maintains the position that the Company should serve as a source of
financial and managerial strength for the Bank and may not conduct its
operations in an unsound manner.
Corporate Governance. The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley
Act"), which became law on July 30, 2002, and added new legal requirements for
public companies affecting corporate governance, accounting and corporate
reporting.
The Sarbanes-Oxley Act provides for, among other things:
|X| a prohibition on personal loans made or arranged by the issuer to its
directors and executive officers (except for loans made by a bank
subject to Regulation O);
|X| independence requirements for audit committee members;
|X| independence requirements for company auditors;
|X| certification of financial statements on Forms 10-K and 10-Q, reports
by the chief executive officer and chief financial officer;
|X| the forfeiture by the chief executive officer and the chief financial
officer of bonuses or other incentive-based compensation and profits
from the sale of an issuer's securities by such officers in the twelve
month period following the initial publication of any financial
statements that later require restatement due to corporate misconduct;
|X| disclosure of off-balance sheet transactions;
|X| two-business day filing requirements for insiders filing Form 4s;
|X| disclosure of a code of ethic for financial officers and filing a Form
8-K for a change in or waiver of such code;
7
|X| the reporting of securities violations "up the ladder" by both
in-house and outside attorneys;
|X| restrictions on the use of non-GAAP financial measures in the press
release and SEC filings;
|X| the formation of a public accounting oversight board; and
|X| various increase criminal penalties for violations of securities laws.
The Sarbanes-Oxley Act contains provisions, which became effective upon
enactment on July 30, 2002 and provisions that became effective over varying
periods. The SEC has been delegated the task of enacting rules to implement
various provisions. In addition, each of the national stock exchanges has
adopted new corporate governance rules, including rules strengthening director
independence requirements for boards, the adoption of corporate governance codes
and charters for the nominating, corporate governance and audit committees.
Recent Regulatory Developments
Possible authority for financial holding companies to engage in real estate
brokerage and property management services remained under consideration by the
federal banking regulators at the end of 2003. However, renewal of a statutory
moratorium on implementation of regulation granting such authority passed one
house in Congress and was pending in the other house at the end of the year. It
is not possible at present to assess the likelihood of ultimate adoption of
final regulations.
Changes in the federal deposit insurance program were recommended during
2003 by the FDIC and in the federal budget. A deposit insurance reform bill that
would, among other things, merge the BIF and the SAIF, increase the index
deposit insurance coverage, give the FDIC flexibility in setting premium
assessments, and replace a fixed deposit reserve ratio with a reserve range, was
passed by the House of Representatives in April 2003, but no action on the
subject was taken by the Senate during the remainder of the year. It is not
possible to predict if deposit insurance reform legislation will be enacted, or
if enacted, what its effect will be on our banking subsidiary.
Federal banking regulators continued their preparations for the expected
issuance in mid-2004 by the Basel Committee on Banking Supervision of final
"Basel II" regulatory capital guidelines, would mandate changes for large banks
in the way in which their risk-based capital requirements are calculated. The
guidelines are widely believed likely to permit significant reductions in the
levels of required capital for such banks. It is uncertain at the present time
if our banking subsidiary or the Holding Company will be either required to or
permitted to make changes in the regulatory capital structure in accordance with
Basel II guidelines.
The foregoing is necessarily a general description of certain provisions of
federal and state law and does not purport to be complete. Proposals to change
the laws and regulations governing the banking industry are frequently
introduced in Congress, in the state legislatures and before the various bank
regulatory agencies. The likelihood and timing of any such changes and the
impact such changes might have on the Company cannot be determined at this time.
ITEM 2. PROPERTIES
For the description of the property of the Company, see "ITEM I -
DESCRIPTION OF BUSINESS - Facilities."
ITEM 3. LEGAL PROCEEDINGS
There are no material proceedings to which the Company is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2003.
8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
There is no established trading market for the Company's Common Stock, $.01
par value (the "Common Stock"), which has been traded inactively in private
transactions. Therefore, no reliable information is available as to trades of
the Common Stock or as to the prices at which Common Stock has traded.
In December 2003, the Company issued 1.2 shares for 1.0 share stock split,
thereby increasing the number of shares outstanding from 3,123,316 to 3,747,641.
Management has reviewed the limited information available as to the ranges
at which the Common Stock has been sold and is aware of trades that occurred
during 2002 and 2003. To the best of management's knowledge, the last trade in
December was executed at a price of $24.75 per share. The per share price data
regarding the Common Stock is provided for information purposes only and should
not be viewed as indicative of the actual or market value of the Common Stock.
Estimated Price
Range Per Share
High Low
------------- --------------
2003 (Split Adjusted):
First Quarter................................................................. $ 21.46 $ 20.00
Second Quarter................................................................ 25.00 21.88
Third Quarter................................................................. 23.54 20.63
Fourth Quarter................................................................ 24.75 23.96
2002 (Split Adjusted):
First Quarter................................................................. $ 18.06 $ 17.36
Second Quarter................................................................ 18.58 18.06
Third Quarter................................................................. 19.44 18.06
Fourth Quarter................................................................ 20.00 19.44
As of March 10, 2004, there were 3,766,384 shares of Common Stock
outstanding held by approximately 900 shareholders of record.
The payment of future dividends will be at the sole discretion of the
Company's Board of Directors and will depend on, among other things, future
earnings, capital requirements, the general financial condition of the Company
and general business conditions. The Company paid a dividend of $.21 per share
(split-adjusted) in the fourth quarter of 2003 and a dividend of $.29 per share
(split-adjusted) in the second quarter of 2002.
Equity compensation plan
At their Annual Meeting, the Bank's shareholders adopted the 2002 Key Employee
Stock Compensation Program ("Employee Program"), which was assumed by FCBI upon
its acquisition of the Bank. The following table reflects the number of shares
to be issued upon the exercise of options granted under the Employee Program,
the weighted-average exercise price of all such options, and the total number of
shares of common stock reserved for the issuance upon the exercise of
authorized, but not-yet-granted options, as of December 31, 2003.
Number of Equity Securities
Number of Securities to be Weighted-average Remaining Available for
Issued Upon the Exercise Exercise Price of Future Issuance Under
Plan Category of Outstanding Options Outstanding Options Equity Compensation Plan
- ------------------------------------ ------------------------- ---------------------- ---------------------------
Equity Compensation Plans
Approved by Shareholders......... 87,440 $ 14.55 99,958
Equity Compensation Plans
Not Approved by Shareholders..... -- -- --
----------- ------------- -----------
Total............................ 87,440 $ 14.55 99,958
=========== ============= ===========
9
ITEM 6. SELECTED FINANCIAL DATA
The following table presents on a historical basis selected financial data
and ratios for the Company.
Years Ended December 31,
------------------------------------------------------------
2003 2002 2001 2000 1999
---------- --------- --------- ---------- ----------
(Dollars in thousands except per share data)
Earnings Summary:
Interest income................................... $ 33,520 $ 31,266 $ 27,903 $ 24,991 $ 18,160
Less interest expense............................. 10,081 11,787 12,018 10,276 6,231
Net interest income............................... 23,439 19,479 15,885 14,715 11,929
Provision for loan losses......................... 1,700 2,510 720 1,000 810
Net interest income after provision for
loan losses..................................... 21,739 16,969 15,165 13,715 11,119
Non-interest income............................... 2,729 2,320 1,699 1,804 1,424
Non-interest expense.............................. 10,980 9,020 8,226 7,553 6,811
Income before income taxes........................ 13,488 10,269 8,638 7,966 5,732
Applicable income taxes........................... 5,091 3,851 3,292 2,881 2,076
Net income........................................ 8,397 6,418 5,346 5,085 3,656
Per Common Share Data:
(Retroactively adjusted for effects of stock dividends
and stock splits)
Net income - basic ............................... $ 2.24 $ 1.71 $ 1.43 $ 1.36 $ 0.98
Net income - diluted.............................. 2.22 1.70 1.43 1.36 0.98
Cash dividends declared per common share.......... 0.21 0.29 0.58 0.53 0.46
Selected Average Balances:
Total assets...................................... $ 513,583 $ 446,318 $ 324,188 $ 263,289 $ 211,132
Total loans....................................... 425,278 370,062 255,294 206,333 154,771
Securities........................................ 32,618 41,106 40,418 39,676 34,727
Earning assets.................................... 486,643 426,374 307,524 247,238 193,220
Deposits.......................................... 411,084 366,632 271,431 216,348 184,127
Long-term borrowings.............................. 55,660 41,701 17,478 15,607 59
Shareholders' equity.............................. 38,867 32,025 28,009 24,724 22,134
Shares outstanding (split adjusted, in thousands). 3,748 3,748 3,748 3,748 3,748
Selected Period-End Balances:
Total assets...................................... $ 525,508 $ 521,758 $ 388,061 $ 296,452 $ 238,360
Total loans....................................... 437,593 416,414 318,666 227,155 181,764
Securities........................................ 38,938 36,524 35,001 42,270 38,757
Earning assets.................................... 491,153 498,509 364,012 273,356 220,587
Deposits.......................................... 423,284 423,935 317,861 249,059 204,018
Long-term borrowings.............................. 50,332 60,349 37,580 15,093 39
Shareholders' equity.............................. 42,086 34,464 29,139 25,970 22,873
Shares outstanding (split adjusted, in thousands). 3,748 3,748 3,748 3,748 3,748
Selected Ratios:
Return on average equity.......................... 21.60% 20.04% 19.09% 20.57% 16.52%
Return on average assets.......................... 1.63 1.44 1.65 1.93 1.73
Net interest margin............................... 4.82 4.57 5.17 5.95 6.19
Allowance for loan losses to loans................ 1.84 1.52 1.19 1.44 1.24
Net charge-offs to average loans.................. (0.01) 0.00 0.07 0.00 0.19
Average equity to average assets.................. 7.57 7.18 8.64 9.39 10.48
Cash Dividends Declared.............................. $ 781 $ 1,093 $ 2,178 $ 1,988 $ 1,725
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this discussion is to focus on significant changes in the
financial condition and results of operations of the Company and its
subsidiaries during the past three years. The discussion and analysis is
intended to supplement and highlight information contained in the accompanying
consolidated financial statements and the selected financial data presented
elsewhere in this report.
ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Forward-Looking Statements
This report, including Management's Discussion and Analysis of Financial
Condition and Results of Operations, and documents incorporated herein by
reference, may contain certain statements relating to the future results of the
Company based upon information currently available. These "forward-looking
statements" (as defined in Section 21E of The Securities and Exchange Act of
1934) are typically identified by words such as "believes", "expects",
"anticipates", "intends", "estimates", "projects", and similar expressions.
These forward-looking statements are based upon assumptions the Company believes
are reasonable and may relate to, among other things, the allowance for loan
loss adequacy, simulation of changes in interest rates and litigation results.
Such forward-looking statements are subject to risks and uncertainties, which
could cause the Company's actual results to differ materially from those
included in these statements. These risks and uncertainties include, but are not
limited to, the following: (1) changes in political and economic conditions; (2)
interest rate fluctuations; (3) competitive product and pricing pressures within
the Company's markets; (4) equity and fixed income market fluctuations; (5)
personal and corporate customers' bankruptcies; (6) inflation; (7) acquisitions
and integration of acquired businesses; (8) technological changes; (9) changes
in law; (10) changes in fiscal, monetary, regulatory and tax policies; (11)
monetary fluctuations; (12) success in gaining regulatory approvals when
required; and (13) other risks and uncertainties listed from time to time in the
Company's SEC reports and announcements.
General
The Company, through its subsidiary Bank, conducts a commercial banking
business, which consists of attracting deposits from the general public and
applying those funds to the origination of commercial, consumer and real estate
loans (including commercial loans collateralized by real estate). The Company's
profitability depends primarily on net interest income, which is the difference
between interest income generated from interest-earning assets (i.e., loans and
investments) less the interest expense incurred on interest-bearing liabilities
(i.e., customer deposits and borrowed funds). Net interest income is affected by
the relative amounts of interest-earning assets and interest-bearing
liabilities, and the interest rate paid and earned on these balances. Net
interest income is dependent upon the Company's interest rate spread, which is
the difference between the average yield earned on its interest-earning assets
and the average rate paid on its interest-bearing liabilities. When
interest-earning assets approximates or exceeds interest-bearing liabilities,
any positive interest rate spread will generate interest income. The interest
rate spread is impacted by interest rates, deposit flows and loan demand.
Additionally, and to a lesser extent, the Company's profitability is affected by
such factors as the level of non-interest income and expenses, the provision for
loan losses and the effective tax rate. Non-interest income consists primarily
of deposit account service charges and other customer service fees. Non-interest
expenses consist of compensation and benefits, occupancy-related expenses, and
other expenses.
Summary
Net income for 2003 was $8,396,549, a 30.8% increase over 2002 net income.
Net income for 2002 was $6,418,306, a 20.05% increase over 2001 net income. Net
income for 2001 was $5,346,217, a 5.1% increase over 2000 net income. Diluted
net income per common share for 2003 was $2.22 compared to $1.70 in 2002 and
$1.43 in 2001. Net income for 2000 was $5,085,061, a 39.1% increase from 1999
net income of $3,656,265.
The increases in net income from 2000 to 2001 and from 2001 to 2002 were
primarily attributable to increased volume of loans, with the resulting increase
in interest and fees. In 2001 and 2002, the volume increase in loans more than
offset the decrease in loan interest rates as discussed more fully below. The
increase from 2002 to 2003 was primarily attributable to an increase in the net
interest margin as deposit costs decreased more than loan yields decreased.
11
Earning Assets
During 2003, earning assets averaged $486 million, an increase of $61
million (13.8%) over 2002. During 2002, earning assets averaged $426 million, an
increase of $118 million (38.3%) over 2001. Average earning assets during 2001
totaled $308 million, an increase of $61 million (24.7%) over 2000.
The management of the Company considers many criteria in managing earning
assets, including creditworthiness, diversification, maturity, and interest rate
sensitivity. The following table sets forth the Company's interest-earning
assets by category at December 31, in each of the last three years.
December 31,
----------------------------------------
2003 2002 2001
----------- ----------- -----------
(In thousands)
Interest-bearing deposits with banks.................................... $ 857 $ 12,668 $ 10,345
Securities.............................................................. 38,938 36,524 35,001
Federal funds sold...................................................... 13,765 32,902 --
Loans:
Real estate.......................................................... 381,709 361,420 272,310
Commercial and other................................................. 55,884 54,994 46,356
----------- ----------- -----------
Total loans........................................................ 437,593 416,414 318,666
----------- ----------- -----------
Interest-earning assets ................................................ $ 491,153 $ 498,508 $ 364,012
=========== =========== ===========
Loan Portfolio
Loan and deposit growth is emphasized in each market the Company operates.
The Company has been successful in competing for loans against other larger
institutions due primarily to a lending strategy that includes direct
involvement by local management. Different customers require different solutions
to their financial needs and appreciate local banking officers that understand
the local environment and can provide for their business requirements.
Average loans increased $55 million (14.9%) in 2003 compared to 2002. The
increase in loans was a result of successful marketing efforts to originate real
estate construction loans and other real estate loans. Loan growth for 2003 was
funded primarily by issuance of brokered certificates of deposit.
Average loans increased $115 million (45.3%) in 2002 compared to 2001. The
increase in loans was a result of successful marketing efforts to originate real
estate construction loans and other real estate loans. Loan growth for 2002 was
funded primarily by issuance of brokered certificates of deposit and Federal
Home Loan Bank of Atlanta advances.
Average loans increased $49 million (23.7%) in 2001 compared to 2000. The
increase in loans was a result of population growth, branch openings, and strong
loan demand. Loan growth for 2001 was funded primarily with customer deposits
and Federal Home Loan Bank of Atlanta advances.
The following table sets forth the balances in certain categories of loans
at December 31 for each of the five years ending December 31, 2003.
[The remainder of this page intentionally left blank.]
12
Loan Portfolio
December 31,
2003 2002 2001 2000 1999
------------------ ----------------- ----------------- ----------------- -----------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(Dollars in Thousands)
Commercial, financial
and agricultural. $ 45,274 10.31% $ 42,876 10.27% $ 38,007 11.92% $37,628 16.56% $ 32,718 17.98%
Real estate -
construction..... 172,890 39.37 140,723 33.70 93,049 29.17 73,665 32.42 48,442 26.63
Real estate -
mortgage 208,819 47.55 220,697 52.84 179,261 56.20 110,409 48.60 95,257 52.35
Consumer........... 10,440 2.38 12,089 2.89 8,481 2.66 5,267 2.32 5,221 2.87
Other.............. 1,712 0.39 1,226 0.30 157 0.05 221 0.10 303 0.17
-------- -------- -------- ------- -------- ------- ------- ------- -------- -------
439,135 100.00% 417,611 100.00% 318,955 100.00% 227,190 100.00% 181,941 100.00%
======== ======= ======= ======= =======
Unearned income.... (1,542) (1,197) (289) (35) (177)
Allowance for loan
losses........... (8,067) (6,319) (3,803) (3,267) (2,261)
-------- -------- -------- ------- --------
Net loans.......... $429,526 $410,095 $314,863 $223,888 $179,503
======== ======== ======== ======== ========
The following table sets forth maturities of the loan portfolio and the
sensitivity to interest rate changes of the Company's loan portfolio (in
thousands):
Selected Loan Maturity and Interest Rate Sensitivity
Rate Structure for Loans
Maturity Maturing Over One Year
--------------------------------------------------- -----------------------------
Over One
One Year Over Predetermined Floating or
Year or Through Five Interest Adjustable
Less Five Years Years Total Rate Rate
----------- ----------- ----------- ----------- ------------- --------------
(Amounts in thousands)
Commercial, financial
and agricultural............ $ 22,472 $ 22,273 $ 529 $ 45,274 $ 20,734 $ 2,068
Real estate - construction..... 73,105 71,409 28,376 172,890 23,466 76,319
----------- ----------- ----------- ----------- ------------- --------------
Total....................... $ 95,577 $ 93,682 $ 28,905 $ 218,164 $ 44,200 $ 78,387
=========== =========== =========== =========== ============= ==============
For the purposes of this schedule, loans that have reached the fixed
contractual floor rate are treated as having a pre-determined interest rate.
Securities Portfolio
The securities portfolio increased by $2.4 million or 6.6% from 2002 to
2003. The balance in the securities portfolio increased by $1.5 million or 4.4%
from 2001 to 2002. The balance in the securities portfolio was relatively flat
for the past three years as funds were allocated primarily to the loan portfolio
throughout that period.
The Company maintains an investment strategy of seeking portfolio yields
within acceptable risk levels, as well as providing liquidity through borrowings
secured by that portfolio. On a daily basis, funds available for short-term
investment are determined. Funds available for long-term investment are
projected based upon anticipated loan and deposit growth, liquidity needs,
pledging requirements, maturities of securities, and other factors. The Company
holds two classifications of securities: "Held-to-Maturity" and
"Available-for-Sale." The Available-for-Sale
13
securities are carried at estimated fair market value and are equity securities
at year-end 2003, 2002 and 2001. Held-to-Maturity securities are carried at
amortized cost and represent the largest portion of the total securities
portfolio. At December 31, 2003, 2002 and 2001 there were no material unrealized
gains (losses) in the Available-for-Sale portfolio. At December 31, 2003, 2002
and 2001, net unrealized gains (losses) in the Held-to-Maturity portfolio
amounted to ($456,579), $780,513 and $249,651, respectively.
The following table presents the carrying amounts of the securities
portfolio at December 31, in each of the last three years.
Securities Portfolio
December 31,
----------------------------------------------
2003 2002 2001
------------- ------------- --------------
(In thousands)
Held-to-Maturity:
U.S. government and agencies................................. $ 1,768 $ 3,000 $ 16,098
State and municipal.......................................... -- -- 110
Mortgage-backed securities................................... 33,985 30,339 16,833
------------- ------------- --------------
Total Held-to-Maturity..................................... 35,753 33,339 33,041
------------- ------------- --------------
Available-for-Sale:
Equity securities............................................ 3,185 3,185 1,960
------------- ------------- --------------
Total Available-for-Sale................................... 3,185 3,185 1,960
------------- ------------- --------------
Total Securities................................................ $ 38,938 $ 36,524 $ 35,001
============= ============= ==============
The following table indicates the respective maturities and weighted
average yields of securities (dollars in thousands):
Security Portfolio Maturity Schedule
December 31, 2003
------------------------------
Weighted
Average
Amount Yield
------------- ---------
U.S. Treasury and other U.S. Government agencies:
Maturing within one year....................................................... $ -- 0.00%
Maturing after one year within five years...................................... 1,768 1.75
Maturing after five within ten years........................................... -- 0.00
Maturing after ten years....................................................... -- 0.00
Mortgage-backed securities........................................................ 33,985 3.77
Equity securities................................................................. 3,185 3.22
-------------
Total.......................................................................... $ 38,938 3.54%
=============
There were no securities held by the Company of which the aggregate value
at December 31, 2003, 2002 and 2001 exceeded ten percent of shareholders' equity
at that date. (Securities, which are payable from, and secured by the same
source of revenue or taxing authority, are considered to be securities of a
single issuer. Securities of the U.S. Government and U.S. Government agencies
and corporations are not included.)
14
Deposits and Borrowed Funds
Average deposits increased $44 million (12.1%) in 2003 compared to 2002.
Average deposits increased $95 million (35.1%) in 2002 compared to 2001. The
largest area of growth in 2003 was in average money market, savings, and
non-interest bearing demand deposits, which increased $29.7 million in total.
From 2001 to 2002, the greatest increase was in time deposits.
Average deposits rose $55 million or 25.5% in 2001 compared to 2000. Total
deposits increased $69 million or 27.5% from year-end 2000 to 2001. The largest
area of growth in 2001 was in certificates of deposit, which increased $32
million. From 2000 to 2001, interest-bearing transaction deposits increased $5.1
million or 25.5%, savings deposits increased $18 million or 34.5%, other time
deposits of less than $100,000 increased $13 million or 17.2%, and time deposits
of $100,000 or more increased $19 million or 34.2%. From year-end 2000 to
year-end 2001, total non-interest bearing deposits increased $14 million or
29.4%.
The following table sets forth the Company's deposit structure at December
31 in each of the last three years.
December 31,
----------------------------------------------
2003 2002 2001
------------- ------------- --------------
(In thousands)
Noninterest-bearing deposits:
Individuals partnerships and corporations.................... $ 72,498 $ 49,970 $ 43,736
U.S. Government and states and political subdivisions........ 3,201 2,311 2,408
Certified and official checks................................ 2,598 2,197 14,017
------------- ------------- --------------
Total non-interest-bearing deposits........................ 78,297 54,478 60,161
------------- ------------- --------------
Interest-bearing deposits:
Interest - bearing demand accounts........................... 29,885 24,774 24,959
Savings accounts............................................. 103,060 92,109 69,963
Certificates of deposit, less than $100,000.................. 69,096 111,774 86,992
Certificates of deposit, more than $100,000.................. 142,946 140,800 75,786
------------- ------------- --------------
Total interest-bearing deposits............................ 344,987 369,457 257,700
------------- ------------- --------------
Total deposits............................................. $ 423,284 $ 423,935 $ 317,861
============= ============= ==============
The following table presents a breakdown by category of the average amount
of deposits and the weighted average rate paid on deposits for the periods
indicated:
Years Ended December 31,
-----------------------------------------------------------------------
2003 2002 2001
---------------------- ---------------------- -----------------------
Amount Rate Amount Rate Amount Rate
---------- ---------- ---------- --------- --------- ----------
(Dollars in thousands)
Non interest-bearing deposits............ $ 64,306 0.00% $ 53,376 0.00% $ 43,735 0.00%
Savings deposits......................... 105,121 1.29 86,383 1.99 66,586 3.14
Time deposits............................ 214,268 3.02 203,413 3.99 138,773 6.05
Interest-bearing demand deposits......... 27,389 0.38 23,460 0.90 22,337 1.92
---------- ---------- ---------
Total deposits......................... $ 411,084 1.93 $ 366,632 2.74 $ 271,431 4.02
========== ========== =========
15
At December 31, 2003, time deposits of $100,000 or greater aggregated
approximately $142.9 million. The following table indicates, as of December 31,
2003, 2002 and 2001 the dollar amount of $100,000 or more time deposits by the
time remaining until maturity (in thousands):
Maturities of Large Time Deposits
(In thousands)
2003 2002 2001
------------- ------------- --------------
Three months or less............................................ $ 33,888 $ 49,384 $ 27,855
Over three through six months................................... 9,440 7,461 3,301
Over six through twelve months.................................. 58,378 40,581 27,476
Over twelve months.............................................. 41,240 43,374 17,154
------------- ------------- --------------
Total...................................................... $ 142,946 $ 140,800 $ 75,786
============= ============= ==============
At December 31, 2003 and 2002, respectively, borrowed funds consisted
primarily of long-term debt. The Bank had $41,500,000 in available lines to
purchase federal funds, on an unsecured basis, from other financial
institutions. At December 31, 2003, the Bank had $7,000,000 advanced under one
of those lines and, at December 31, 2001, the Bank had $1,086,000 advanced
against these lines. There were no advances against these lines at the end of
2002. At December 31, 2003 and 2002 the Company also had credit available of
approximately $79 million with the Federal Home Loan Bank of Atlanta. Of the
credit available, $46,000,000 (of which $6,000,000 was a letter of credit used
to secure public funds) and $50,000,000 had been utilized at December 31, 2003
and 2002, respectively. The line is secured by residential and commercial real
estate loans and investment securities at December 31, 2003.
The following table sets forth the expected debt service for the next five
years based on interest rates and repayment provisions as of December 31, 2003.
Maturities of Long-term Debt
(In thousands)
2004 2005 2006 2007 2008
--------- --------- -------- -------- -----------
Interest on indebtedness......................... $ 1,831 $ 1,448 $ 1,160 $ 1,160 $ 1,160
Repayment of principal........................... 5,019 15,003 -- -- --
--------- --------- -------- ---------- -----------
$ 6,850 $ 16,451 $ 1,160 $ 1,160 $ 1,160
========= ========= ======== ========== ===========
Capital Resources
Shareholders' equity increased $7.6 million to $42.1 million as of December
31, 2003, and increased $5.3 million to $34.5 million as of December 31, 2002.
Shareholders' equity increased $3.2 million $29.1 to million as of December 31,
2001. The increase in shareholders' equity for 2003, 2002 and 2001 was
attributable to net income less dividends declared.
On June 21, 2002, FCBI Capital Trust I ("FCBI Trust"), a Delaware statutory
trust established by the Company, received $10,000,000 in proceeds in exchange
for $10,000,000 principal amount of FCBI Trust's floating rate cumulative trust
preferred securities (the "preferred securities") in a trust preferred private
placement. The proceeds of that transaction were then used by FCBI Trust to
purchase an equal amount of floating-rate subordinated debentures (the
"subordinated debentures") of the Company. The Company has fully and
unconditionally guaranteed all obligations of FCBI Trust on a subordinated basis
with respect to the preferred securities. The Company does not consolidate the
FCBI Trust preferred securities and accounts for the debentures issues to FCBI
16
Trust as debt. Subject to certain limitations, the preferred securities qualify
as Tier 1 capital, although the Federal Reserve regulators are re-considering
this treatment, as a result of recent accounting rules changes, discussed more
fully elsewhere herein. The sole asset of FCBI Trust is the subordinated
debentures issued by the Company. Both the preferred securities of FCBI Trust
and the subordinated debentures of the Company each have approximately 30-year
lives. However, both the Company and FCBI Trust have a call option after five
years, subject to regulatory capital requirements.
A strong capital position, which is vital to the continued profitability of
the Company, also promotes depositor and investor confidence and provides a
solid foundation for the future growth of the organization. The objective of
management is to maintain a level of capitalization that is sufficient to take
advantage of profitable growth opportunities while meeting regulatory
requirements. This is achieved by improving profitability through effectively
allocating resources to more profitable businesses, improving asset quality,
strengthening service quality, and streamlining costs. The primary measures used
by management to monitor the results of these efforts are the ratios of return
on average assets, return on average common equity and average equity to average
assets.
The table below summarizes these and other key ratios for the Company for
each of the last three years.
Return on Equity and Assets
2003 2002 2001
----------- ----------- -----------
Return on average assets........................................... 1.63% 1.44% 1.65%
Return on average common equity.................................... 21.60 20.04 19.09
Dividend payout ratio.............................................. 9.30 17.03 40.74
Average common shareholders' equity to average
assets ratio.................................................... 7.57 7.18 8.64
In addition, bank holding companies are required to maintain capital to
support, on a risk-adjusted basis, certain off-balance sheet activities such as
loan commitments. The Federal Reserve has adopted capital guidelines governing
the activities of bank holding companies. These guidelines require the
maintenance of an amount of capital based on risk-adjusted assets so that
categories of assets with potentially higher credit risk will require more
capital backing than assets with lower risk.
The capital guidelines classify capital into two tiers, referred to as Tier
I and Tier II. Under risk-based capital requirements, Total Capital consists of
Tier I Capital, which is generally common shareholders' equity less goodwill,
and Tier II Capital, which is primarily a portion of the allowance for loan
losses and certain qualifying debt instruments. In determining risk-based
capital requirements, assets are assigned risk-weights of 0% to 100%, depending
primarily on the regulatory assigned levels of credit risk associated with such
assets. Off-balance sheet items are considered in the calculation of
risk-adjusted assets through conversion factors established by the regulators.
The framework for calculating risk-based capital requires banks and bank holding
companies to meet the regulatory minimums of 4% Tier I and 8% total risk-based
capital. In 1990 regulators added a leverage computation to the capital
requirements, comparing Tier I Capital to total average assets less goodwill.
Banks have similar capital requirements.
During 2001, the Bank issued $5,000,000 in subordinated debt to qualify as
Tier II Capital. Portions of this debt qualify according to maturity as
allowable Tier II Capital. In 2001, the Bank had $4,400,000 as qualifying Tier
II Capital. There were no similar transactions during 2000. The Bank repaid the
subordinated debt from the proceeds of the Trust Preferred securities, issued by
the Company and injected into the Bank as Tier I capital.
17
The table below illustrates the Company's regulatory capital ratios under
federal guidelines at December 31, 2003, 2002 and 2001:
Capital Adequacy Ratios
Statutory Years ended December 31,
----------------------------------------
Minimum 2003 2002 2001
------------ ----------- ----------- -----------
(Amounts in thousands)
Tier I Capital........................................... $ 52,086 $ 44,464 $ 29,139
Tier II Capital.......................................... 6,136 5,856 8,203
----------- ----------- -----------
Total Qualifying Capital................................. $ 58,222 $ 50,320 $ 37,342
=========== =========== ===========
Risk Adjusted Total Assets (including
off-balance-sheet exposures)............................. $ 488,931 $ 468,050 $ 350,629
=========== =========== ===========
Adjusted quarterly average assets........................ $ 508,561 $ 485,977 $ 351,496
=========== =========== ===========
Tier I Capital Ratio..................................... 4.00% 10.65% 9.50% 8.31%
Total Capital Ratio...................................... 8.00 11.91 10.75 10.65
Leverage Ratio........................................... 4.00 10.24 9.15 8.29
Information on the Bank capital ratios appears in Note 11 to the
consolidated financial statements contained elsewhere herein.
On December 31, 2003 the Company and the Bank exceeded the regulatory
minimums and qualified as well capitalized institutions under the regulations.
Liquidity Management
Liquidity is the ability of a company to convert assets into cash without
significant loss and to raise funds by increasing liabilities. Liquidity
management involves having the ability to meet the day-to-day cash flow
requirements of its customers, whether they are depositors wishing to withdraw
funds or borrowers requiring funds to meet their credit needs.
The primary function of asset/liability management is not only to assure
adequate liquidity in order for the Bank to meet the needs of its customer base,
but to maintain an appropriate balance between interest-sensitive assets and
interest-sensitive liabilities so that the Bank can remain profitable in varying
interest rate environments. Both assets and liabilities are considered sources
of liquidity funding and both are, therefore, monitored on a daily basis.
The asset portion of the balance sheet provides liquidity primarily through
loan repayments and maturities of or pledge of securities. Additional sources of
liquidity are investments in federal funds sold and prepayments from the
mortgage-backed securities in the securities portfolio.
The liability portion of the balance sheet provides liquidity through
various interest bearing and noninterest-bearing deposit accounts. The Bank had
$34,500,000 and $22,250,000 of federal funds available at December 31, 2003 and
2002, respectively. The Bank also had available as a source of financing, a line
of credit with the Federal Home Loan Bank of Atlanta of which $32,700,000 and
$28,000,000 was available and unused at December 31, 2003 and 2002,
respectively, subject to the availability of assets to pledge to secure such
borrowings.
18
Interest Rate Sensitivity Management
Interest rate sensitivity is a function of the re-pricing characteristics
of the Company's portfolio of assets and liabilities. These re-pricing
characteristics are the time frames within which the interest-bearing assets and
liabilities are subject to change in interest rates either at replacement or
maturity during the life of the instruments. Sensitivity is measured as the
difference between the volume of assets and liabilities in the Bank's current
portfolio that are subject to re-pricing in future time periods. The differences
are known as interest sensitivity gaps and are usually calculated separately for
segments of time ranging from zero to thirty days, thirty-one to ninety days,
ninety-one days to one year, one to five years, over five years and on a
cumulative basis.
The following table shows interest sensitivity gaps for different intervals
as of December 31, 2003.
Interest Rate Sensitivity Analysis
(In thousands)
0-30 31-90 90-365 1-5 Over 5
Days Days Days Years Years Total
----------- ----------- ----------- ----------- ----------- -----------
Interest-earning assets (1)
Loans............................ $ 41,783 $ 41,145 $ 104,609 $ 174,351 $ 65,978 $ 427,866
Securities and federal funds sold 13,765 850 1,787 19,272 17,029 52,703
Interest-bearing deposits in banks 857 -- -- -- -- 857
----------- ----------- ----------- ----------- ----------- -----------
56,405 41,995 106,396 193,623 83,007 481,426
----------- ----------- ----------- ----------- ----------- -----------
Interest-bearing liabilities (2)
Demand deposits (3).............. 9,962 9,962 9,962 -- -- 29,885
Savings deposits (3)............. 34,353 34,353 34,353 -- -- 103,060
Time deposits.................... 17,391 31,524 96,560 66,567 -- 212,042
Long-term borrowings............. -- -- 5,019 15,003 30,310 50,332
----------- ----------- ----------- ----------- ----------- -----------
61,706 75,839 145,894 81,570 30,310 395,319
----------- ----------- ----------- ----------- ----------- -----------
Interest sensitivity gap............ $ (5,301) $ (33,844) $ (39,498) $ 112,053 $ 52,697 $ 86,107
=========== =========== =========== =========== =========== ===========
Cumulative interest sensitivity gap. $ (5,301) $ (39,145) $ (78,643) $ 33,410 $ 86,107
=========== =========== =========== =========== ===========
Ratio of interest-earning assets to
Interest-bearing liabilities... 0.91 0.55 0.73 2.37 2.74
Cumulative ratio.................... 0.91 0.72 0.72 1.09 1.22
Ratio of cumulative gap to total
interest-earning assets.......... (0.011) (0.081) (0.163) 0.069 0.179
(1) Excludes non-accrual loans. Securities maturities are based on projected
re-payments at current interest rate levels.
(2) Excludes matured certificates, which have not been redeemed by the customer
and on which no interest is accruing.
(3) Interests bearing demand and savings deposits are assumed to be subject to
movement into other deposit instruments in equal amounts during the 0-30
day period, the 31-90 day period, and the 91-365 day period.
The above table indicates that in a rising interest rate environment, the
Company's earnings may be negatively affected in the short-term, (0-365 days)
due to earning assets re-pricing slower than interest-bearing liabilities. As
seen in the preceding table, for the first 30 days of re-pricing opportunity
there is an excess of earning assets over interest-bearing liabilities of
approximately $5.6 million. For the first 365 days, interest-bearing liabilities
exceed earning assets by approximately $79 million. Changes in the mix of
earning assets or supporting liabilities can either increase or decrease the net
interest margin without affecting interest rate sensitivity. In addition, the
interest rate spread and the level of interest-bearing assets and liabilities
may change, thus impacting net interest income. It should be noted that a
matched interest-sensitive position by itself does not ensure maximum net
interest income.
Management continually evaluates the condition of the economy, the pattern
of market interest rates, and other economic data to determine the types of
investments that should be made and at what maturities. Using this
19
analysis, management from time to time assumes calculated interest sensitivity
gap positions to maximize net interest income based upon anticipated movements
in the general level of interest rates.
Results of Operations
Net Interest Income
Net interest income is the principal component of a financial institution's
income stream and represents the spread between interest and fee income
generated from earning assets and the interest expense paid on deposits and
borrowings. The following discussion is on a fully taxable equivalent basis.
Net interest income increased approximately $3.9 million (20.3%) to $23.4
million in 2003 compared to 2002. Net interest income increased $3.6 million
(22.6%) to $19.5 million from 2001 to 2002. The increase each year in the net
interest income is primarily due to increased volume in average loans
outstanding during the periods.
Interest income was $33.5 million in 2003, which represented an increase of
$2.2 million (7.2%) over 2002. Interest income produced by the loan portfolio
increased $3.0 million (10.6%) in 2003 from 2002. A significant factor in the
higher interest income from loans in 2003 was the effect of contractual limits
on the lowest level to which variable rate loans could decline ("floors"). While
floors on interest rates in loan contracts have been beneficial in the current
low-rate environment, it is likely that future increases in interest rates,
should that occur, will not increase the rates on "floored" loans as rapidly as
interest expense will increase. Thus, net interest income will be negatively
impacted. At December 31, 2003, management estimated that approximately $119
million of the $285 million in variable rate loans have reached the floor rate.
Interest income on securities decreased $858 thousand (39.2%) from 2002 to 2003.
The decrease in securities income from 2002 to 2003 is due the combined effects
of lower rates earned and lower average balances invested.
Interest income was $31.3 million in 2002, which represented an increase of
12.1% over 2001. Interest income produced by the loan portfolio increased $3.9
million (15.7%) in 2002 compared to 2001. The increase in loan interest
reflected the offsetting effects of a lower average rate earned on a greater
average investment in loans. Interest income on securities decreased $299
thousand (12.0%) in 2002 compared to 2001. The decrease in securities interest
from 2001 to 2002 reflected an increase in the average volume more than offset
by the decline in yield. The call of higher rate U.S. Government Agency
securities contributed to the lower yields.
Interest income was $27.9 million in 2001, which represented an increase
$2.9 million (11.6%) over 2000. Interest income produced by the loan portfolio
increased $2.4 (10.8%) in 2001 compared to 2000. The increase in loan interest
reflected the offsetting effects of a lower average rate earned on a greater
average investment in loans. Interest income on securities increased $37
thousand (1.5%) in 2001 compared to 2000. The minor increase in securities
income from 2000 to 2001 reflected a stable average investment in securities
during 2001 and 2000.
Interest income other than loans and securities increased by $57 thousand
in 2003 and decreased by $258 thousand from 2001 to 2002. During 2001, the Bank
maintained a slightly larger investment in federal funds sold (averaging $10.7
million) compared to 2000 while rates declined significantly (about 2.8%),
resulting in the decreased income. In 2003, the average amount invested in fed
funds sold cause the increase in interest income.
Interest income other than loans and securities increased by $436 thousand
from 2000 to 2001. During 2001, the Company maintained a larger investment in
federal funds sold (averaging $11 million) compared to 2000, resulting in the
increased income. Interest income other than loans and securities decreased by
$106 thousand from 1999 to 2000. The decrease is due primarily to the decline in
the average federal funds sold balance.
Total interest expense decreased by $1.7 million (14.5%) in 2003 compared
to 2002 and decreased by $231 thousand (1.9%) in 2002 compared to 2001. The
decrease in interest expense in 2003 was caused by lower time deposit rates. The
interest expense decrease from 2001 to 2002 is primarily due to the volume
increase in time deposit accounts and FHLB advances more than offset by a
decline in the average rate paid on both. (See the
20
"Rate/Volume Analysis" following this section.) Interest expense on time deposit
accounts decreased $1,641 thousand although the average volume increased by
$10.9 million. The significant rate decline was cause by a shift from locally
generated time deposits to brokered time deposits and the general decline in
rates during 2002.
Total interest expense increased by $1.7 million (17.0%) in 2001 compared
to 2000. The interest expense increase from 2000 to 2001 is primarily due to the
volume increase in time deposit accounts, partially offset by a 38 basis point
decline in the average rate paid on total interest-bearing liabilities. Interest
expense on time deposit accounts increased $2.2 million (36.7%) from 2000 to
2001 as the Bank relied on that source of funds to make loans.
The trend in net interest income is commonly evaluated by measuring the
average yield on earning assets, the average cost of funds, and the net interest
margin. The Company's average yield on earning assets (total interest income
divided by average interest earning assets) decreased in 2003 to 6.89% compared
to 7.33% in 2002. The drop in Prime rate caused most of the decline during 2002,
which carried over into 2003 at the same time the Bank had over $100 million in
loans tied to that index. In line with the national interest rate markets, the
Bank's average cost of funds (total interest expense divided by average interest
bearing liabilities) declined from 3.30% in 2002 to 2.49% in 2003. The Bank's
net interest margin (net interest income divided by average interest earning
assets) increased in 2003 to 4.82% compared to 4.57%, in 2002. The decline was
caused by the Bank's asset sensitive position during a period of dropping
interest rates in 2002 and the re-pricing of longer-term interest bearing
liabilities (primarily certificates of deposit) in 2003 as discussed more fully
in the section titled "Interest Rate Sensitivity Management" elsewhere in this
report.
The net interest margin decreased 60 basis points in 2002 from 5.17% in
2001 to 4.57%, reflecting a major decline in the average Prime rate for the
year. The decline in rate was driven by national economic factors and was offset
by rapid loan growth resulting in higher interest income on loans in 2002. That
loan growth required a significant increase in brokered certificate of deposit
utilization to keep rates as low as possible. Raising funds in the local
southwest Florida market would have cost more due to competing financial
institutions also offering higher than national rates.
The Bank's average yield on earning assets (total interest income divided
by average interest earning assets) decreased in 2001 to 9.08% compared to
10.12% in 2000. The drop in Prime rate caused most of the decline during 2001 at
the same time the Bank had over $100 million in loans tied to that index. In
line with the national interest rate markets, the Bank's average cost of funds
(total interest expense divided by average interest bearing liabilities)
declined from 5.21% in 2000 to 4.83% in 2001. The Bank's net interest margin
(net interest income divided by average interest earning assets) declined in
2001 to 5.17% in 2001 compared to 5.96% in 2000. The decline was caused by the
Bank's asset sensitive position during a period of dropping interest rates.
[The remainder of this page intentionally left blank]
21
The tables that follow show, for the periods indicated, the daily average
balances outstanding for the major categories of interest-bearing assets and
interest-bearing liabilities, and the average interest rate earned or paid
thereon. Such yields are calculated by dividing income or expense by the average
balance of the corresponding assets or liabilities. Also shown are the changes
in income attributable to changes in volume and changes in rate.
Average Balances, Interest Income/Expense and Yields/Rates
Taxable Equivalent Basis
Years Ended December 31,
------------------------------------------------------------------------------------------------------
2003 2002 2001
--------------------------------- --------------------------------- -------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
Balance Expense Rates Balance Expense Rates Balance Expense Rates
------- ---------- ---------- ------- ---------- ---------- ------- ---------- --------
(Dollars in thousands)
Assets:
Earning assets:
Loans, net of
unearned income(1)$425,278 $ 31,874 7.49% $370,062 $ 28,824 7.79% $255,294 $ 24,908 9.76%
Securities:
Taxable............ 32,618 1,331 4.08 41,024 2,185 5.32 40,093 2,459 6.13
Tax-exempt......... -- -- 0.00 82 5 7.32 325 29 8.31
------- ---------- ------- ---------- ------- ----------
Total securities. 32,618 1,331 4.08 41,106 2,190 5.33 40,418 2,488 6.15
Interest-bearing deposits
in other banks..... 7,301 80 1.10 3,483 78 2.24 1,137 55 4.84
Federal funds sold... 21,446 237 1.11 11,723 182 1.55 10,675 463 4.34
------- ---------- ------- ---------- ------- ----------
Total interest-
earning assets(2)486,643 33,522 6.89 426,374 31,274 7.34 307,524 27,914 9.08
Non-interest earning assets:
Cash and due from
banks............. 19,688 10,689 8,756
Accrued interest and
other assets..... 14,373 13,995 11,449
Allowance for
loan losses...... (7,121) (4,740) (3,541)
------- ------- -------
Total assets..... $513,583 $446,318 $324,188
======== ======== ========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Demand deposits.... $ 27,389 104 0.38% 23,460 210 0.90% $ 22,337 429 1.92
Savings deposits... 105,121 1,353 1.29 86,383 1,714 1.98 66,586 2,088 3.14
Time deposits...... 214,268 6,467 3.02 203,413 8,108 3.99 138,773 8,392 6.05
------- ---------- -------- ---------- -------- ----------
Total deposits... 346,778 7,924 2.29 313,256 10,032 3.20 227,696 10,909 4.79
Long-term borrowings 55,660 2,131 3.83 41,701 1,699 4.07 17,478 1,004 5.74
Short-term borrowings 2,239 26 1.16 2,759 56 2.03 3,773 105 2.78
------- ---------- -------- ---------- -------- ----------
Total interest-
bearing
liabilities... 404,677 10,081 2.49 357,716 11,787 3.30 248,947 12,018 4.83
------- ---------- -------- ---------- -------- ----------
Non interest-bearing liabilities:
Demand deposits.... 64,306 53,376 43,735
Accrued interest and
other liabilities 5,733 3,201 3,497
Shareholders' equity 38,867 32,025 28,009
------- -------- --------
Total liabilities and
shareholders'
equity........ $513,583 $446,318 $324,188
======== ======== ========
Net interest income/net
interest spread..... 23,441 4.40% 19,487 4.04% 15,896 4.25%
========= ========== ========= ========== =======
Net yield on earning assets 4.82% 4.57% 5.17%
========== ========== =======
Taxable equivalent adjustment:
Securities......... -- 1 9
Loans.............. 2 6 2
--------- --------- ----------
Total taxable
equivalent adjustment 2 7 11
--------- --------- ----------
Net interest income.. $ 23,439 $ 19,480 $ 15,885
========= ========= ==========
(1) Average loans include nonaccrual loans. All loans and deposits are domestic.
(2) Tax equivalent adjustments have been based on an assumed tax rate of 34 percent, and do not give effect to the disallowance
for federal income tax purpose of interest expense related to certain tax-exempt earning assets.
22
Rate/Volume Variance Analysis
Taxable Equivalent Basis
Average Volume Change in Volume Average Rate
------------------------------- -------------------- ------------------------------
2003 2002 2001 2003-2002 2002-2001 2003 2002 2001
--------- --------- --------- --------- --------- -------- -------- --------
(Dollars in thousands)
Earning assets:
Loans, net of unearned
income (1)........... $ 425,278 $ 370,062 $ 255,294 $ 55,216 $ 117,768 7.49% 7.79% 9.76%
Securities:
Taxable................. 32,618 41,024 40,093 (8,406) 931 4.08 5.32 6.13
Tax exempt.............. -- 82 325 (82) (243) 0.00 6.10 8.92
--------- --------- --------- --------- ---------
Total securities...... 32,618 41,106 40,418 (8,488) 688 4.08 5.33 6.16
--------- --------- --------- --------- ---------
Interest-bearing deposits
with other banks........ 7,301 3,483 1,137 3,818 2,346 1.10 2.24 4.84
Federal funds sold......... 21,446 11,723 10,675 9,723 1,048 1.11 1.55 4.34
--------- --------- --------- --------- ---------
Total earning assets.. $ 486,643 $ 426,374 $ 307,524 $ 60,269 $ 118,850 6.89 7.33 9.08
========= ========= ========= ========= =========
Interest-bearing liabilities:
Deposits:..................
Demand deposits......... $ 27,389 $ 23,460 $ 22,337 $ 3,929 $ 1,123 0.38 0.90 1.92
Savings................. 105,121 86,383 66,586 18,738 19,797 1.29 1.98 3.14
Time certificates....... 214,268 203,413 138,773 10,855 64,640 3.02 3.99 6.05
--------- --------- --------- --------- ---------
Total deposits........ 346,778 313,256 227,696 33,522 85,560 2.29 3.20 4.79
Long-term borrowings....... 55,660 41,401 17,478 14,269 23,923 3.83 4.10 5.74
Other borrowings........... 2,239 2,759 3,773 (520) (1,014) 1.16 2.03 2.78
--------- --------- --------- --------- ---------
Total interest-bearing
liabilities......... $ 404,677 $ 357,416 $ 248,947 $ 47,261$ 108,469 2.49 3.30 4.83
========= ========= ========= ========= ==========
Net interest income/net interest spread 4.40 4.04 4.25
Net yield on earning assets 4.82 4.57 5.17
Net cost of funds.......... 2.07 2.76 3.91
Variance Attributed to
-----------------------------------------------
Interest
Income/Expense Variance 2003 2002
------------------------ -------------------- ----------------------- ----------------------
2003 2002 2001 2003-2002 2002-2001 Volume Rate Mix Volume Rate Mix
------ ------ ------- --------- --------- ------- ------- ----- ------- ------ -----
(Dollars in thousands)
Earning assets:
Loans, net of
unearned income....... $31,873 $28,824 $24,908 $ 3,055 $ 3,910 $ 4,300 $(1,083) $(162) $11,197 $(5,027)$(2,260)
Securities:
Taxable.............. 1,332 2,184 2,459 (853) (274) (448) (509) 105 57 (325) (7)
Tax exempt........... -- 5 29 (5) (24) (5) (5) 5 (22) (9) 7
------ ------ ------- --------- --------- ------- ------ ----- ------- ------ -----
Total securities... 1,332 2,189 2,488 (858) (298) (453) (514) 110 35 (334) --
------ ------ ------- --------- --------- ------- ------ ----- ------- ------ -----
Interest-bearing deposits
with other banks..... 80 78 55 3 22 86 (40) (44) 113 (30) (60)
Federal funds sold...... 237 182 463 55 (281) 151 (52) (44) 45 (297) (29)
------ ------ ------- --------- --------- ------- ------ ------ ------- ------ -----
Total earning assets 33,522 31,276 27,914 2,249 3,358 4,084 (1,689) (140) 11,390 (5,688) (2,349)
------ ------- ------- --------- ------- ------- ------- ------ ------- ------ -----
Interest-bearing liabilities:
Deposits:
Demand............... 104 210 429 (108) (219) 35 (121) (20) 22 (229) (12)
Savings.............. 1,353 1,714 2,088 (381) (373) 372 (602) (131) 621 (766) (228)
Time certificates.... 6,467 8,108 8,392 (1,641) (285) 433 (1,969) (105) 3,909 (2,861) (1,332)
------ ------ ------- --------- --------- ------- ------ ------ ------- ------ -----
Total deposits..... 7,924 10,032 10,909 (2,108) (877) 840 (2,692) (256) 4,552 (3,857) (1,572)
------ ------ ------- --------- --------- ------- ------- ------ ------- ------ -----
Long-term borrowings.... 2,131 1,699 1,004 432 695 585 (114) (39) 1,374 (287) (392)
Short-term borrowings... 26 56 105 (30) (49) (11) (24) 5 (28) (28) 7
------ ------ ------- --------- --------- ------- ------- ------ ----- ------ -----
Total interest-
bearing
liabilities.... 10,081 11,787 12,018 (1,706) (231) 1,414 (2,830) (290) 5,898 (4,172) (1,957)
------ ------- ------- --------- --------- ------- ------- ------ ----- ----- -----
Net interest income/net
interest spread...... $23,441 $19,480 $15,896 $ 3,955 $ 3,589 $ 2,670 $ 1,141 $ 150 $5,492 $(1,516) $ (392)
====== ====== ====== ========= ========= ======= ======= ====== ====== ===== =====
23
Allowance for Loan Losses
Each of the Bank's loans is assigned to a lending officer responsible for
the ongoing review and administration of that loan. Lending officers make the
initial identification of loans, which present some difficulty in collection or
where there is an indication that the probability of loss exists. Lending
officers are responsible for the collection effort on a delinquent loan. Senior
management is informed of the status of delinquent and problem loans on a
monthly basis. In addition to the lending officers, there is an independent loan
review officer responsible for reviewing the credit ratings on loans and
administering the loans.
Senior management makes recommendations monthly to the Board of Directors
as to charge-offs. Senior management reviews the allowance for possible loan
losses on a monthly basis. The Bank's policy is to discontinue interest accrual
when payment of principal and interest is 90 days or more in arrears unless the
value of the collateral exceeds the principal plus accrued interest.
The allowance for possible loan losses represents management's assessment
of the risks associated with extending credit and its evaluation of the quality
of the loan portfolio. Management analyzes the loan portfolio to determine the
adequacy of the allowance for possible loan losses and the appropriate
provisions required to maintain a level considered adequate to absorb
anticipated loan losses. In assessing the adequacy of the allowance, management
reviews the size, quality and risk of loans in the portfolio. Management also
considers such factors as loan loss experience, the amount of past due and
nonperforming loans, specific known risk, the status and amount of nonperforming
assets, underlying collateral values securing loans, current and anticipated
economic conditions and other factors which affect the allowance for potential
credit losses. Although recent historical loan losses have been minimal, there
was a significant increase in non-performing loans at December 31, 2003 causing
management to increase the allowance during 2003. Due to the level of collateral
securing most of the non-performing loans, management believes that the reserve
is adequate despite the fact that the level of the allowance to non-performing
loans is far lower than peer financial institutions.
While it is the Bank's policy to charge off in the current period the loans
in which a loss is considered probable, there are additional risks of future
losses, which cannot be quantified precisely or attributed to particular loans
or classes of loans. Because these risks include the future state of the
economy, management's judgment as to the adequacy of the allowance is
necessarily approximate and imprecise.
Management believes that $8,066,817 on December 31, 2003, and $6,319,298 on
December 31, 2002, in the allowance for loan losses were adequate to absorb
known risks in the portfolio. No assurance can be given, however, that adverse
economic circumstances will not result in increased losses in the loan
portfolio, and require greater provisions for possible loan losses in the
future.
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24
The following table sets forth certain information with respect to the
Bank's loans, net of unearned income, and the allowance for loan losses for the
five years ended December 31, 2003.
Summary of Loan Loss Experience
2003 2002 2001 2000 1999
--------- --------- -------- -------- ---------
(Dollars in thousands)
Allowance for loan losses at beginning of year..... $ 6,319 $ 3,803 $ 3,267 $ 2,261 $ 1,750
Loans charged off:
Commercial, financial and agricultural........... 139 161 162 50 166
Real estate - mortgage........................... 10 -- 185 8 479
Consumer......................................... 74 46 43 52 38
--------- --------- -------- -------- ---------
Total loans charged off........................ 223 207 390 110 683
--------- --------- -------- -------- ---------
Recoveries on loans previously charged off:
Commercial, financial and agricultural........... 245 193 47 33 7
Real estate - mortgage........................... 2 3 131 72 340
Consumer......................................... 23 17 28 11 37
--------- --------- -------- -------- ---------
Total recoveries............................... 271 213 206 116 384
--------- --------- -------- -------- ---------
Net loans charged off (recovered).................. (48) (6) 184 (6) 299
Provision for loan losses.......................... 1,700 2,510 720 1,000 810
--------- --------- -------- -------- ---------
Allowance for loan losses at end of period......... $ 8,067 $ 6,319 $ 3,803 $ 3,267 $ 2,261
========= ========= ======== ======== =========
Loans, net of unearned income, at end of period.... $ 437,593 $ 416,414 $318,666 $227,155 $ 181,764
Average loans, net of unearned income,
outstanding for the period....................... 425,278 370,062 255,294 206,333 154,771
Ratio of net charge-offs to net average loans...... (0.01)% (0.00)% 0.07% (0.00)% 0.19%
In evaluating the allowance, management also considers the historical loan
loss experience of the Bank, the amount of past due and nonperforming loans,
current and anticipated economic conditions, lender requirements and other
appropriate information. From 1999 through 2002, management allocated the
allowance for loan losses to specific loan categories based on an average of
historical losses and the volume of each loan category. In 2003, as presented
below, management allocated the allowance for loan losses based on the level of
non-performing loans in each category. The change in method was due to the
minimal historical loan losses on which to base the allocation.
[The remainder of this page intentionally left blank]
25
Management allocated the allowance for loan losses to specific loan
categories as follows:
Allocation of Allowance for Loan Losses
December 31,
------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------------- ------------------- -------------------- ------------------- -------------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
--------- ------- --------- -------- --------- --------- --------- -------- --------- --------
(Dollars in Thousands)
Domestic loans:
Commercial, financial
and agricultural $ 22 10.31% $ 2,494 10.27% $ 1,566 11.92% $ 544 16.56% $ 410 17.98%
Real estate - mortgage 8,039 86.92 3,357 86.54 2,021 85.37 2,647 81.02 1,786 78.98
Consumer.......... 6 2.77 468 3.19 216 2.71 76 2.42 65 3.04
--------- ------- --------- -------- --------- --------- --------- -------- --------- --------
$ 8,067 100.00% 6,319 100.00% $ 3,803 100.00% $ 3,267 100.00% $ 2,261 100.00%
========= ======= ========= ======== ========= ========= ========= ======== ========= ========
Nonperforming Assets
Nonperforming assets include nonperforming loans and foreclosed real estate
held for sale. Nonperforming loans include loans classified as non-accrual or
renegotiated. The Bank's policy is to place a loan on non-accrual status when it
is contractually past due 90 days or more as to payment of principal or interest
unless the collateral value is greater than both the principal due and the
accrued interest. At the time a loan is placed on non-accrual status, interest
previously accrued but not collected is reversed and charged against current
earnings. Recognition of any interest while on non-accrual is accounted for on
the cash basis when actually received.
The Bank had nonperforming assets at December 31, 2003, 2002, 2001, 2000,
and 1999 of approximately $22,269,000, $7,698,000, $2,367,000, $1,548,000, and
$3,076,000, respectively.
The following table presents information concerning outstanding balances of
nonperforming assets at December 31, 2003, 2002, 2001, 2000, and 1999.
Nonperforming Assets
December 31,
--------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
(Amounts in thousands, except ratios)
Nonaccruing loans........................... $ 9,727 $ 5,036 $ 1,333 $ 1,352 $ 945
Accruing loans 90 days or more past due..... 6,420 2,662 984 2 1,313
Restructured loans.......................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total nonperforming loans.............. 16,147 7,698 2,317 1,354 2,258
Nonaccruing securities...................... -- -- -- -- --
Other real estate........................... 6,122 -- 50 194 818
----------- ----------- ----------- ----------- -----------
Total.................................. $ 22,269 $ 7,698 $ 2,367 $ 1,548 $ 3,076
=========== =========== =========== =========== ===========
Ratios:
Loan loss allowance to total
nonperforming assets................... 0.362 0.821 1.607 2.110 0.735
=========== =========== =========== ============ ===========
Total nonperforming loans to total loans
(net of unearned interest)............. 0.051 0.018 0.007 0.007 0.017
=========== =========== =========== ============ ===========
Total nonperforming assets to
total assets........................... 0.042 0.015 0.006 0.005 0.013
=========== =========== =========== ============ ===========
26
There has been no significant impact on the Company's consolidated
financial statements as a result of the provisions of Statement of Financial
Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan,
or Statement of Financial Accounting Standards No. 118, Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures.
Noninterest Income
Noninterest income consists of revenues generated from a broad range of
financial services and activities including fee-based services and profits and
commissions earned through credit life insurance sales and other activities. In
addition, gains or losses realized from the sale of investment portfolio
securities are included in noninterest income. Total noninterest income
increased by $408 thousand (17.6%) for the year ended December 31, 2003 compared
to 2002 due to higher secondary market fees and service charges on deposit
accounts. Total noninterest income increased by $621 thousand (36.6%) for the
year ended December 31, 2002 compared to 2001. The increase was due to higher
service charges on deposit accounts (increased $507 thousand) and gains on sale
of available-for-sale securities (increased $36 thousand). Total noninterest
income decreased by $105 thousand or 5.8% for the year ended December 31, 2001
compared to 2000. The decline was due primarily to a decrease of $256 thousand
in insurance proceeds (a non-recurring event) offset by increased fess on
customer accounts. Total noninterest income increased by $380 thousand or 26.7%
for the year ended December 31, 2000 as compared to 1999 caused in large part by
the insurance proceeds noted above.
The table below sets forth the Bank's noninterest income for the periods
indicated.
2002/2003 2001/2002
Years Ended December 31, Percent Percent
--------------------------------------------
2003 2002 2001 Change Change
------------ ------------ ------------- ----------- -----------
(Dollars in thousands)
Service charges on deposits........ $ 1,228 $ 1,268 $ 1,112 (3.2)% 14.0%
Service charges secondary market... 555 304 -- 82.6 100.0
Exchange fees...................... 416 390 304 6.7 28.3
Securities gains................... -- 36 -- (100.0) 100.0
Income/Gains on other real estate.. 69 13 19 430.8 (31.6)
Safe deposit box rental............ 66 67 67 (1.5) --
Other.............................. 394 242 197 62.8 22.8
------------ ------------ -------------
$ 2,728 $ 2,320 $ 1,699 17.6 36.6
============ ============ =============
Noninterest Expenses
From 2002 to 2003, noninterest expense increased $2.0 million (21.7%).
Salaries and employee benefits in 2003 increased $1.4 million (26.2%) from 2002
to a total of $7.0 million. The increase in was due to added staff for a new
branch and increased secondary market loan brokerage operations.
From 2001 to 2002, noninterest expense increased $795 thousand (9.7%).
Salaries and employee benefits in 2002 increased $320 thousand (6.1%) from 2001
to a total of $5.6 million. The increase in 2002 reflected the effect of adding
staff for new branches and higher employee benefits costs.
From 2000 to 2001, noninterest expense increased $672 thousand (8.9%).
Salaries and employee benefits in 2001 increased $468 thousand (9.8%) from 2000
to a total of $5.2 million for 2001. The increase in 2001 reflected the staffing
required to open two branches and additional support personnel for loans and
deposits. From 1999 to 2000, noninterest expense increased $742 thousand
(10.9%). Salaries and employee benefits in 2000 increased $671 (16.4%) from 1999
to a total of $4.8 million at year-end 2000. These increases also can be
attributed to the overall growth and expansion of the Bank in 2000 and 1999.
27
Occupancy and equipment expense decreased $132 thousand (7.9%) from 2002 to
2003, increased $304 thousand (22.3%) from 2001 to 2002 and increased $252
thousand (22.7%) from 2000 to 2001. During 2003 occupancy expenses decreased
primarily to lower maintenance contract costs. The occupancy and equipment
expense increases in 2002 and 2001were a result of the additional property and
equipment added as a result of new branch locations and the associated
depreciation expense.
The significant increase in other expenses was due to $349 thousand in
other real estate write-offs and expanses in 2003 compared to no such costs in
2002.
The table below sets forth the Bank's noninterest expenses for the periods
indicated.
2002/2003 2001/2002
Years Ended December 31, Percent Percent
--------------------------------------------
2003 2002 2001 Change Change
------------ ------------ ------------- ------------- --------------
(Dollars in thousands)
Salaries and employee benefits..... $ 7,008 $ 5,552 $ 5,232 26.2% 6.1%
Occupancy and equipment expense.... 1,532 1,689 1,361 (9.3) 24.1
Professional fees.................. 263 210 191 25.2 9.9
Advertising........................ 218 135 130 61.5 3.8
Telephone.......................... 175 136 122 28.7 11.5
Software maintenance............... 164 70 120 134.3 (41.7)
Regulatory fees and assessments.... 154 139 106 10.8 31.1
Supplies........................... 152 182 135 (16.5) 34.8
ATM expense........................ 137 124 124 10.5 --
Postage............................ 136 137 99 -- 38.4
Taxes and licenses................. 95 103 107 (7.8) (3.7)
Director and committee fees........ 67 67 67 -- --
Other.............................. 879 476 431 84.7 10.2
------------ ------------ -------------
Total........................... $ 10,980 $ 9,020 $ 8,225 21.7 9.7
============ ============ =============
Income Taxes
Income tax expense increased $1.2 million (32.2%) to $5.1 million for the
year ended December 31, 2003, increased $559 thousand (17.0%) to $3.9 million
for the year ended December 31, 2002, and increased $411 thousand (14.3%) to
$3.3 million for the year ended December 31, 2001. The effective tax rate as a
percentage of pretax income was 37.7% in 2003, 37.5% in 2002, and 38.1% in 2001.
The statutory federal rate was 34 percent during 2003, 2002, and 2001. There is
no current or pending tax legislation of which management is aware that if
passed would have any material effect on the financial statements. For further
information concerning the provision for income taxes, refer to Note 14, Income
Taxes, of the "Notes to Financial Statements."
Impact of Inflation and Changing Prices
A bank's asset and liability structure is substantially different from that
of an industrial company in that virtually all assets and liabilities of a bank
are monetary in nature. Management believes the impact of inflation on its
financial results depends upon the Company's ability to react to changes in
interest rates and by such reaction to reduce the inflationary impact on
performance. Interest rates do not necessarily move in the same direction, or at
the same magnitude, as the prices of other goods and services. As discussed
previously, management seeks to manage the relationship between
interest-sensitive assets and liabilities in order to protect against wide
interest rate fluctuations, including those resulting from inflation.
Market Risk
Market risk is the risk arising from adverse changes in the fair value of
financial instruments due to a change in interest rates, exchange rates and
equity prices. The Company's primary risk is interest rate risk.
28
The primary objective of Asset/Liability Management of the Company is to
manage interest rate risk and achieve reasonable stability in net interest
income throughout interest rate cycles. This is achieved by maintaining the
proper balance of rate sensitive earning assets and rate sensitive liabilities.
The relationship of rate sensitive earning assets to rate sensitive liabilities
is the principal factor in projecting the effect that fluctuating interest rates
will have on future net interest income. Rate sensitive earning assets and
interest-bearing liabilities are those that can be re-priced to current market
rates within a relatively short time period. Management monitors the rate
sensitivity of earning assets and interest-bearing liabilities over the entire
life of these instruments, but places particular emphasis on the first year and
through three years.
The Company has not experienced a high level of volatility in net interest
income primarily because of the relatively large base of core deposits that do
not re-price on a contractual basis. These deposit products include regular
savings, interest-bearing transaction accounts and money market savings
accounts. Balances for these accounts are reported based on historical
re-pricing experienced at each bank. However, the rates paid are typically not
directly related to market interest rates, since management has some discretion
in adjusting these rates as market rates change.
The Company uses additional tools to monitor and manage interest rate
sensitivity. One of the primary tools is simulation analysis. Simulation
analysis is the primary method of estimating earnings at risk and capital at
risk under varying interest rate conditions. Simulation analysis is used to test
the sensitivity of the Company's net interest income and shareholders' equity to
both the level of interest rates and the slope of the yield curve. Simulation
analysis accounts for the expected timing and magnitude of assets and liability
cash flows, as well as the expected timing and magnitude of deposits that do not
re-price on a contractual basis. In addition, simulation analysis includes
adjustments for the lag between movements in market interest rates on loans and
interest-bearing deposits. These adjustments are made to reflect more accurately
possible future cash flows, re-pricing behavior and ultimately net interest
income. The estimated impact on the Company's net interest income before
provision for loan loss sensitivity over a one-year time horizon is shown below.
Such analysis assumes a sustained parallel shift in interest rates and the
Company's estimate of how interest-bearing transaction accounts will re-price in
each scenario. Actual results will differ from simulated results due to timing,
magnitude and frequency of interest rate changes and changes in market
conditions and management's strategies, among other factors.
Percentage Increase
(Decrease) in Interest
Income/Expense Given
Interest Rate Shifts ----------------------------------
Down 200 Up 200
Basis Points Basis Points
-------------- --------------
For the Twelve Months After December 31, 2003
Projected change in:
Interest income.......................................................... (4.64)% 4.12%
Interest expense......................................................... (13.87) (15.34)
Net interest income...................................................... (1.64) 0.05
Other Accounting Issues
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires liability treatment for certain financial instruments which had
previously been recognized as equity. The provisions of this statement are
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise are effective at the beginning of the first interim period
beginning after June 15, 2003. It is to be implemented by reporting the
cumulative effect of a change in accounting principle for financial instruments
created before May 15, 2003, and still existing at the beginning of the interim
period of adoption. Restatement is not permitted. The adoption of the provisions
of this statement did not have a material effect on the Company's operating
results or financial position.
29
In December 2003, the FASB revised previously issued SFAS No. 132,
Employers' Disclosures about Pensions and Other Postretirement. This statement
revises employers' disclosures about pension plans and other postretirement
benefit plans. It does not change the measurement or recognition of those plans
required by FASB Statements No. 87, Employers' Accounting for Pensions, No. 88,
Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits, and No 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions. This statement retains the
disclosure requirements contained in FASB Statement No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits, which it replaces.
It requires additional disclosures to those in the original Statement 132 about
the assets, obligations, cash flows, and net periodic benefit cost of defined
benefit pension plans and other defined benefit postretirement plans. The
required information should be provided separately for pension plans and for
other postretirement benefit plans. The provisions of this statement are
effective for financial statements with fiscal years ending after December 15,
3003. The interim-period disclosures required by this statement are effective
for interim periods beginning after December 15, 2003. The adoption of the
provisions of this revised statement did not have a material effect on the
Company's operating results or financial position.
In December 2003, the FASB revised previously issued FIN 46, Consolidation
of Variable Interest Entities, which clarifies the application of Accounting
Research Bulletin ("ARB") 51, Consolidated Financial Statements, to certain
entities (called variable interest entities) in which equity investors do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The reporting and
disclosure requirements of this Interpretation are effective for all financial
statements of public companies for the first period ending after December 15,
2003 and for all other types of entities for periods ending after March 15,
2004. The adoption of this interpretation did not have a material impact on the
Company's consolidated financial statements.
[The remainder of this page intentionally left blank]
30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Regulation S-X
and by Item 302 of Regulation S-K are set forth in the pages listed below.
FLORIDA COMMUNITY BANKS INC. AND SUBSIDIARY
Consolidated Financial Statements
Page(s)
Independent Auditors' Report .............................................................................. 32
Consolidated Statements of Financial Condition as of December 31, 2003 and 2002............................ 33
Consolidated Statements of Income for the Years Ended December 31, 2003, 2002 and 2001..................... 34
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2003, 2002 and 2001....... 35
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001................. 36
Notes to Consolidated Financial Statements................................................................. 38
Quarterly Results (Unaudited).............................................................................. 69
31
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Florida Community Banks, Inc. and Subsidiary
Immokalee, Florida
We have audited the accompanying consolidated statements of financial condition
of Florida Community Banks, Inc. (a Florida corporation) and subsidiary as of
December 31, 2003 and 2002, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2003. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Florida Community
Banks, Inc. and subsidiary as of December 31, 2003 and 2002, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.
Birmingham, Alabama
January 30, 2004
Schauer Taylor Cox Vise Morgan & Fowler, P.C.
32
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2003 and 2002
2003 2002
------------------ ------------------
Assets
Cash and due from banks............................................. $ 15,897,716 $ 13,264,464
Federal funds sold.................................................. 13,765,000 32,902,000
Interest-bearing demand deposits with banks......................... 857,133 12,668,201
------------------ ------------------
Cash and Cash Equivalents....................................... 30,519,849 58,834,665
Securities available-for-sale....................................... 3,184,977 3,184,977
Securities held-to-maturity, fair value of $35,296,326 in
2003 and $34,120,018 in 2002...................................... 35,752,905 33,339,505
Loans, net of unearned income....................................... 437,592,827 416,414,676
Allowance for loan losses........................................... (8,066,817) (6,319,298)
------------------ ------------------
Net Loans....................................................... 429,526,010 410,095,378
Premises and equipment, net......................................... 12,767,507 10,109,252
Accrued interest.................................................... 2,709,102 2,904,150
Foreclosed real estate.............................................. 6,121,833 --
Deferred taxes, net................................................. 3,162,883 1,960,513
Other assets........................................................ 1,762,640 1,329,363
------------------ ------------------
Total Assets.................................................... $ 525,507,706 $ 521,757,803
================== ==================
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest-bearing............................................... $ 78,296,949 $ 54,478,258
Interest-bearing.................................................. 344,987,453 369,456,264
------------------ ------------------
Total Deposits.................................................. 423,284,402 423,934,522
Short-term borrowings............................................... 7,500,000 --
FHLB advances....................................................... 40,000,000 50,000,000
Notes payable....................................................... 21,698 39,415
Subordinated debentures............................................. 10,310,000 10,310,000
Deferred compensation............................................... 372,870 424,745
Accrued interest.................................................... 858,783 1,866,824
Other liabilities................................................... 1,074,184 718,497
------------------ ------------------
Total Liabilities............................................... 483,421,937 487,294,003
Shareholders' Equity
Common stock - par value $0.01 per share, 10,000,000 shares authorized,
3,747,641 shares issued and
outstanding....................................................... 37,476 37,476
Paid-in capital..................................................... 16,680,061 16,673,812
Retained earnings................................................... 25,368,232 17,752,512
------------------ ------------------
Total Shareholders' Equity...................................... 42,085,769 34,463,800
------------------ ------------------
Total Liabilities and Shareholders' Equity...................... $ 525,507,706 $ 521,757,803
================== ==================
See notes to consolidated financial statements
33
FLORIDA COMMUNITY BANKS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2003, 2002 and 2001
2003 2002 2001
------------------ ------------------ ------------------
Interest Income
Interest and fees on loans..................... $ 31,871,196 $ 28,817,765 $ 24,907,498
Interest and dividends on securities:
Taxable securities........................... 1,331,446 2,184,654 2,458,634
Tax-exempt securities........................ -- 3,855 18,895
Interest on federal funds sold................. 237,388 181,906 462,658
Interest on deposits in banks.................. 79,717 78,130 55,200
------------------ ------------------ ------------------
Total Interest Income...................... 33,519,747 31,266,310 27,902,885
------------------ ------------------ ------------------
Interest Expense
Interest on deposits........................... 7,923,935 10,032,397 10,909,392
Interest on FHLB advances...................... 1,604,325 1,300,372 999,021
Interest on short-term borrowings.............. 25,547 55,987 105,235
Interest on notes payable...................... 2,254 91,759 4,642
Interest on subordinated debentures............ 524,680 306,715 --
------------------ ------------------ ------------------
Total Interest Expense..................... 10,080,741 11,787,230 12,018,290
------------------ ------------------ ------------------
Net interest income............................... 23,439,006 19,479,080 15,884,595
Provision for loan losses......................... 1,700,000 2,510,000 720,000
------------------ ------------------ ------------------
Net Interest Income After Provision
For Loan Losses................................ 21,739,006 16,969,080 15,164,595
Noninterest Income
Customer service fees.......................... 1,920,209 1,571,937 1,065,183
Income and gain on sale from other real
estate owned................................. 154,373 13,489 --
Investment security gains...................... -- 36,083 --
Other operating income......................... 653,588 698,607 633,455
------------------ ------------------ ------------------
Total Noninterest Income................... 2,728,170 2,320,116 1,698,638
------------------ ------------------ ------------------
Noninterest Expenses
Salaries and employee benefits................. 7,007,575 5,551,509 5,232,453
Occupancy and equipment expense................ 1,532,288 1,664,552 1,360,901
Expenses, write-down, and loss on sale
from other real estate owned................. 349,052 -- 10,312
Other operating expenses....................... 2,091,035 1,804,007 1,621,816
------------------ ------------------ ------------------
Total Noninterest Expenses................. 10,979,950 9,020,068 8,225,482
------------------ ------------------ ------------------
Income before income taxes........................ 13,487,226 10,269,128 8,637,751
Income tax expense................................ 5,090,677 3,850,822 3,291,534
------------------ ------------------ ------------------
Net Income........................................ $ 8,396,549 $ 6,418,306 $ 5,346,217
================== ================== ==================
Earnings Per Common Share
Basic.......................................... $ 2.24 $ 1.71 $ 1.43
Diluted........................................ 2.22 1.70 1.43
Cash Dividends Declared Per
Common Share................................... 0.21 0.29 0.58
Weighted Average Shares Outstanding
Basic.......................................... 3,747,641 3,747,641 3,747,641
Diluted........................................ 3,776,511 3,768,188 3,751,155
See notes to consolidated financial statements
34
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 2003, 2002 and 2001
Common Paid-in Retained
Stock Capital Earnings Total
---------------- ---------------- ----------------- -----------------
Balance at
December 31, 2000................ $ 37,476 $ 16,673,812 $ 9,258,796 $ 25,970,084
Net income - 2001................... -- -- 5,346,217 5,346,217
-----------------
Comprehensive income................ -- -- -- 5,346,217
-----------------
Cash dividends - Common
$0.58 per share.................. -- -- (2,177,646) (2,177,646)
---------------- ---------------- ----------------- -----------------
Balance at
December 31, 2001................ 37,476 16,673,812 12,427,367 29,138,655
Net income - 2002................... -- -- 6,418,306 6,418,306
-----------------
Comprehensive income................ -- -- -- 6,418,306
-----------------
Cash dividends - Common
$0.29 per share.................. -- -- (1,093,161) (1,093,161)
---------------- ---------------- ----------------- -----------------
Balance at
December 31, 2002................ 37,476 16,673,812 17,752,512 34,463,800
Net income - 2003................... -- -- 8,396,549 8,396,549
-----------------
Comprehensive income................ -- -- -- 8,396,549
-----------------
Issuance of stock options........... -- 6,249 -- 6,249
Cash dividends - Common
$0.21 per share.................. -- -- (780,829) (780,829)
---------------- ---------------- ----------------- -----------------
Balance at
December 31, 2003................ $ 37,476 $ 16,680,061 $ 25,368,232 $ 42,085,769
================ ================ ================= =================
See notes to consolidated financial statements
35
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2003, 2002 and 2001
2003 2002 2001
------------------ ------------------ ------------------
Operating Activities
Net income..................................... $ 8,396,549 $ 6,418,306 $ 5,346,217
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses.................. 1,700,000 2,510,000 720,000
Depreciation, amortization,
and accretion, net....................... 917,628 752,624 544,881
Deferred tax benefit....................... (1,202,370) (849,154) (250,859)
Realized investment securities gains....... -- (36,083) --
(Gain) loss on disposition of
other real estate........................ -- (13,489) 10,312
(Increase) decrease in accrued
interest receivable...................... 195,047 (215,985) 728,824
(Decrease) increase in accrued
interest payable......................... (1,008,041) 178,011 349,659
Other, net................................. 40,660 (45,523) (844,277)
------------------ ------------------ ------------------
Net Cash Provided By
Operating Activities..................... 9,039,473 8,698,707 6,604,757
------------------ ------------------ ------------------
Investing Activities
Purchases of securities available-for-sale..... (500,000) (1,251,919) (650,000)
Purchases of investment securities
held-to-maturity............................. (29,251,273) (21,968,075) (28,310,329)
Proceeds from maturities, calls
and pay-downs of investment
securities held-to-maturity.................. 26,647,486 21,624,634 36,239,078
Proceeds from sale of securities
available-for-sale........................... 500,000 63,500 --
Purchases of interest-bearing time
deposits with other banks.................... -- -- (2,500,000)
Proceeds from maturity of interest-
bearing deposits with other banks............ -- 2,500,000 --
Net increase in loans to customers............. (27,502,464) (97,754,367) (92,039,273)
Purchase of premises and equipment............. (3,345,158) (2,919,987) (2,386,873)
Proceeds from disposition of
premises and equipment....................... 21,842 62,119 1,829,724
Proceeds from disposition of foreclosed
real estate.................................. -- 75,000 478,666
------------------ ------------------ ------------------
Net Cash Used In
Investing Activities..................... (33,429,567) (99,569,095) (87,339,007)
------------------ ------------------ ------------------
(Continued on following page)
See notes to consolidated financial statements
36
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended December 31, 2003, 2002 and 2001
2003 2002 2001
------------------ ------------------ ------------------
Financing Activities
Net increase in demand deposits, NOW
accounts, and savings accounts............... $ 39,881,549 $ 16,278,817 $ 36,416,227
Net (decrease) increase in certificates
of deposit................................... (40,531,669) 89,794,365 32,114,632
Net increase (decrease) in short-term
borrowings................................... 7,500,000 (1,086,000) (1,914,000)
Issuance of long-term debt..................... -- 25,055,696 17,500,000
Repayments of long-term debt................... (10,000,000) (7,593,792) (12,818)
Issuance of subordinated capital note.......... -- -- 5,000,000
Repayment of subordinated capital note......... -- (5,000,000) --
Issuance of subordinated debentures............ -- 10,310,000 --
Compensation associated with the
issuance of options, net of tax.............. 6,227 -- --
Cash dividends................................. (780,829) (1,093,161) (2,177,646)
------------------ ------------------ ------------------
Net Cash (Used In) Provided By
Financing Activities.................... (3,924,722) 126,665,925 86,926,395
------------------ ------------------ ------------------
Net (Decrease) Increase in Cash and
Cash Equivalents............................... (28,314,816) 35,795,537 6,192,145
Cash and Cash Equivalents
at Beginning of Year........................... 58,834,665 23,039,128 16,846,983
------------------ ------------------ ------------------
Cash and Cash Equivalents
at End of Year................................. $ 30,519,849 $ 58,834,665 $ 23,039,128
================== ================== ==================
See notes to consolidated financial statements
37
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 1 - Summary of Significant Accounting Policies
Florida Community Banks, Inc. ("FCBI") (a Florida corporation) and its wholly
owned subsidiary, Florida Community Bank (the "Bank") (a Florida corporation)
collectively referred to herein as the "Company," is headquartered in Immokalee,
Florida. The Bank's main office also is in Immokalee, Florida with seven
additional branch locations in Southwest Florida. The Bank provides a full range
of banking services to individual and corporate customers in Charlotte, Collier,
Glades, Hendry and Lee counties and the surrounding areas.
The accounting and reporting policies of the Company conform to accounting
principles generally accepted in the United States of America and to general
practice within the banking industry. The following summarizes the most
significant of these policies.
Business Combination
Florida Community Banks, Inc. was incorporated on February 20, 2002. FCBI had no
assets, liabilities, revenues or operations until April 15, 2002, when FCBI
acquired 100% of the outstanding shares of Florida Community Bank common stock
pursuant to a Plan of Reorganization and Share Exchange by exchanging one common
share of FCBI for one common share of the Bank. The combination has been
accounted for as a statutory pooling of interest between affiliates, and,
accordingly, all periods presented reflect FCBI and the Bank on a combined
basis. Since April 15, 2002, FCBI's predominate activity has been acting as a
one-bank holding company for the Bank. The Bank has continued to conduct its
activities in substantially the same manner as it had before the acquisition.
Basis of Consolidation
The consolidated financial statements include the accounts of Florida Community
Banks, Inc., and the Bank. All significant inter-company balances and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. In connection with the determination
of the estimated losses on loans, management obtains independent appraisals for
significant collateral. While management uses available information to recognize
losses on loans, further reductions in the carrying amounts of loans may be
necessary based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the estimated losses on loans. Such agencies may require the Bank to recognize
38
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 1 - Summary of Significant Accounting Policies - Continued
additional losses based on their judgments about information available to them
at the time of their examination. Because of these factors, it is reasonably
possible that the estimated losses on loans may change materially in the near
term. However, the amount of the change that is reasonably possible cannot be
estimated.
Securities
Securities are classified as either held-to-maturity, available-for-sale, or
trading.
Securities held-to-maturity are those securities for which management has the
ability and intent to hold on a long-term basis or until maturity. These
securities are carried at amortized cost, adjusted for amortization of premiums,
and accretion of discount to the earlier of the maturity or call date.
Securities available-for-sale represent those securities intended to be held for
an indefinite period of time, including securities that management intends to
use as part of its asset/liability strategy, or that may be sold in response to
changes in interest rates, changes in prepayment risk, the need to increase
regulatory capital, or other similar factors. Securities available-for-sale are
recorded at market value with unrealized gains and losses net of any tax effect,
added or deducted directly from shareholders' equity.
Securities carried in trading accounts are carried at market value with
unrealized gains and losses reflected in income.
Realized and unrealized gains and losses are based on the specific
identification method.
Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary result in write-downs
of the individual securities to their fair value. The related write-downs are
included in earnings as realized losses.
The Company has no trading securities.
Loans
Loans are stated at unpaid principal balances, less the allowance for loan
losses, unearned discounts and net deferred loan fees.
Unearned discounts on installment loans are recognized as income over the term
of the loans using a method that approximates the interest method.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method or the straight-line method.
39
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 1 - Summary of Significant Accounting Policies - Continued
Allowance for Possible Loan Losses
A loan is considered impaired, based on current information and events, if it is
probable that the Bank will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Uncollateralized loans are measured for impairment based on the
present value of expected future cash flows discounted at the historical
effective interest rate, while all collateral-dependent loans are measured for
impairment based on the fair value of the collateral. Smaller balance
homogeneous loans, which consist of residential mortgages and consumer loans,
are evaluated collectively and reserves are established based on historical loss
experience.
The allowance for loan losses is established through charges to earnings in the
form of a provision for loan losses. Increases and decreases in the allowance
due to changes in the measurement of the impaired loans are considered in the
provision for loan losses. Loans continue to be classified as impaired unless
they are brought fully current and the collection of scheduled interest and
principal is considered probable. When a loan or portion of a loan is determined
to be uncollectible, the portion deemed uncollectible is charged against the
allowance and subsequent recoveries, if any, are credited to the allowance.
Management's periodic evaluation of the adequacy of the allowance is based on
the Bank's past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrowers' ability to repay, estimated
value of any underlying collateral, and an analysis of current economic
conditions. While management believes that it has established the allowance in
accordance with generally accepted accounting principles and has taken into
account the views of banking regulators and the current economic environment,
there can be no assurance that in the future the Bank's regulators or its
economic environment will not require further increases in the allowance.
Income Recognition on Impaired and Non-accrual Loans
Loans, including impaired loans, are generally classified as non-accrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days, unless such loans are well collateralized and in the process
of collection. If a loan or a portion of a loan is classified as doubtful or is
partially charged off, the loan is generally classified as non-accrual. Loans
that are on a current payment status or past due less than 90 days may also be
classified as non-accrual if repayment in full of principal and/or interest is
in doubt.
Loans may be returned to accrual status when all principal and interest amounts
contractually due are reasonably assured of repayment within an acceptable
period of time, and there is a sustained period of repayment performance by the
borrower, in accordance with the contractual terms of interest and principal.
40
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 1 - Summary of Significant Accounting Policies - Continued
While a loan is classified as non-accrual and the future collectability of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding, except in the case of
loans with scheduled amortizations where the payment is generally applied to the
oldest payment due. When the future collectability of the recorded loan balance
is expected, interest income may be recognized on a cash basis. In the case
where a non-accrual loan has been partially charged off, recognition of interest
on a cash basis is limited to that which would have been recognized on the
recorded loan balance at the contractual interest rate. Receipts in excess of
that amount are recorded as recoveries to the allowance for loan losses until
prior charge offs have been fully recovered. Interest income recognized on a
cash basis was immaterial for the years ended December 31, 2003, 2002 and 2001.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Expenditures for additions and major improvements that significantly extend the
useful lives of the assets are capitalized. Expenditures for repairs and
maintenance are charged to expense as incurred. The carrying values of assets
traded in are used to adjust the carrying values of the new assets acquired by
trade. Assets that are disposed of are removed from the accounts and the
resulting gains or losses are recorded in operations.
Depreciation is provided generally by accelerated and straight-line methods
based on the estimated useful lives of the respective assets.
Foreclosed Real Estate
Foreclosed real estate includes both formally foreclosed property and
in-substance foreclosed property. In-substance foreclosed properties are those
properties for which the institution has taken physical possession, regardless
of whether formal foreclosure proceedings have taken place.
At the time of foreclosure, foreclosed real estate is recorded at the lower of
the carrying amount or fair value less cost to sell, which becomes the
property's new basis. Any write-downs based on the asset's fair value at date of
acquisition are charged to the allowance for loan losses. After foreclosure,
these assets are carried at the lower of their new cost basis or fair value less
cost to sell. Costs incurred in maintaining foreclosed real estate and
subsequent adjustments to the carrying amount of the property are included in
income (loss) on foreclosed real estate.
Advertising Costs
The Company's policy is to expense advertising costs as incurred. Advertising
expense for the years ended December 31, 2003, 2002 and 2001 amounted to
approximately $218,000, $135,000 and $130,000, respectively.
41
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 1 - Summary of Significant Accounting Policies - Continued
Income Taxes
Income taxes are provided for the tax effects of the transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of the allowance for loan
losses, accumulated depreciation, and accrued employee benefits for financial
and income tax reporting. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred tax assets and liabilities are reflected at income tax rates applicable
to the period in which the deferred tax assets or liabilities are expected to be
realized or settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income taxes.
Stock-Based Compensation
At December 31, 2003, the Company had a stock-based employee compensation plan,
which is more fully described in Note 12. Prior to 2003, the Company accounted
for this plan under the recognition and measurement provisions of APB No. 25,
Accounting for Stock Issued to Employees, and the related Interpretations.
Accordingly, no stock-based compensation cost was included in net earnings for
the years ended December 31, 2002 and 2001, as all options granted under this
plan had an exercise price equal to the market value of the underlying common
stock on the date of grant. Effective January 1, 2003, the Company adopted the
fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, as provided by SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. SFAS No. 148 allows for a prospective
method of adoption of SFAS 123, whereas, the Company can prospectively account
for the current expense of options granted during 2003 and thereafter. Results
of prior years have not been restated. The following table illustrates the
effects on net income and earnings per share if the fair value based method had
been applied to all outstanding awards in each period.
Years Ended December 31,
--------------------------------------------------------------
2003 2002 2001
------------------ ------------------ ------------------
Net Income, as reported........................ $ 8,396,549 $ 6,418,306 $ 5,346,217
Add: Stock-based compensation expense
included in net income, net of related
taxes........................................ 6,227 -- --
Deduct: Total stock-based employee
compensation expense determined under
the fair value method for all awards,
net of related taxes......................... (21,053) (41,145) (8,564)
------------------ ------------------ ------------------
Pro Forma Net Income........................... $ 8,381,723 $ 6,377,161 $ 5,337,653
================== ================== ===================
42
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 1 - Summary of Significant Accounting Policies - Continued
Years Ended December 31,
--------------------------------------------------------------
2003 2002 2001
------------------ ------------------ ------------------
Basic Earnings per Common Share
As reported.................................. $ 2.24 $ 1.71 $ 1.43
Pro Forma.................................... 2.24 1.70 1.42
Diluted Earnings per Common Share
As reported.................................. 2.22 1.70 1.43
Pro Forma.................................... 2.22 1.69 1.42
Weighted Average Fair Value of Options
Granted during the year...................... 1.09 -- 1.74
Assumptions:
Average Risk Free Interest Rate.............. 3.310% -- 4.070%
Average Expected Volatility.................. 0.066% -- 0.085%
Expected Dividend Yield...................... 3.173% -- 2.600%
Expected Life................................ 6.6 years -- 5.0 years
The effects of applying SFAS No. 123 as amended by SFAS No. 148 for providing
proforma disclosures are not likely to be representative of the effects on
reporting earnings for future years, nor are the dividend estimates
representative of commitments on the part of the Company's Board.
Retirement Plan
During 2003 the Company had a defined contribution Pension Plan, which was
terminated as of December 31, 2003. The Company also has a Profit-Sharing Plan
covering all eligible employees that was amended as of December 31, 2003 to
allow employee elective contributions under Internal Revenue Code section 401K.
The Company also adopted an Employee Stock Ownership Plan ("ESOP"), which also
allows elective employee contributions. Employer contributions to the plans are
included in salaries and employee benefits expense. Pension Plan contributions
were required at 10 percent of total eligible employee compensation.
Profit-Sharing and ESOP contributions are determined by the board of directors.
The Company also has deferred compensation plans with certain executive officers
and directors. The Company contributes amounts to the pension fund sufficient to
satisfy funding requirements of the Employee Retirement Income Security Act.
Off-Balance Sheet Financial Instruments
In the ordinary course of business the Company has entered into off-balance
sheet financial instruments consisting of commitments to extend credit,
commercial letters of credit and standby letters of credit. Such financial
instruments are recorded in the financial statements when funded.
43
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 1 - Summary of Significant Accounting Policies - Continued
The Bank has available as a source of financing a line of credit with the
Federal Home Loan Bank of Atlanta that is limited to 15% of assets
(approximately $78,700,000 at December 31, 2003), of which $32,700,000 was
available and unused. The ability to utilize the remaining line is dependent on
the amount of eligible collateral that is available to pledge to the Federal
Home Loan Bank.
The Bank also has available as a source of short-term financing the purchase of
federal funds from other commercial banks and commercial lines of credit. At
December 31, 2003 the total amount available for short-term financing was
$34,500,000.
The Company also has available a $5,000,000 line of credit with the Bankers
Bank. This line is secured by 51% of the bank's common stock and is due on
demand by the lender. At December 31, 2003 $4,750,000 was available for
additional funding.
Segment Information
All of the Company's offices offer similar products and services, are located in
the same geographic region, and serve the same customer segments of the market.
As a result, management considers all units as one operating segment and
therefore feels that the basic consolidated financial statements and related
footnotes provide details related to segment reporting.
Reclassifications
Certain amounts in 2002 and 2001 have been reclassified to conform with the 2003
presentation.
Recently Issued Accounting Standards
In January 2003, the Auditing Standards Board issued Statement on Auditing
Standards ("SAS") No. 101, Auditing Fair Value Measurements and Disclosures.
This statement establishes standards on auditing the measurement and disclosure
of assets, liabilities, and specific components of equity presented or disclosed
at fair value in financial statements. This SAS is effective for audits of
financial statements for periods beginning on or after June 15, 2003. The
adoption of SAS No. 101 did not have a material impact on the Company's
consolidated financial statements.
In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities. The provisions
of this statement are effective for contracts entered into or modified after
June 20, 2003, and hedging relationships designated after June 30, 2003, and
generally require that contracts with comparable characteristics be accounted
for similarly. Except for the provisions related to FASB Statement 133,
Accounting for Derivative Instruments and Hedging activities, all provisions of
this statement should be applied prospectively. The provisions of the statement
related to Statement 133 Implementation Issues that have been effective for
fiscal quarters that begin prior to June 15, 2003, should continue to be applied
in accordance with their respective effective dates. The adoption of the
provisions of this statement did not have a material effect on the Company's
operating results or financial position.
44
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 1 - Summary of Significant Accounting Policies - Continued
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires liability treatment for certain financial instruments which had
previously been recognized as equity. The provisions of this statement are
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise are effective at the beginning of the first interim period
beginning after June 15, 2003. It is to be implemented by reporting the
cumulative effect of a change in accounting principle for financial instruments
created before May 15, 2003, and still existing at the beginning of the interim
period of adoption. Restatement is not permitted. The adoption of the provisions
of this statement did not have a material effect on the Company's operating
results or financial position.
In December 2003, the FASB revised previously issued SFAS No. 132, Employers'
Disclosures about Pensions and Other Postretirement. This statement revises
employers' disclosures about pension plans and other postretirement benefit
plans. It does not change the measurement or recognition of those plans required
by FASB Statements No. 87, Employers' Accounting for Pensions, No. 88,
Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits, and No 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions. This statement retains the
disclosure requirements contained in FASB Statement No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits, which it replaces.
It requires additional disclosures to those in the original Statement 132 about
the assets, obligations, cash flows, and net periodic benefit cost of defined
benefit pension plans and other defined benefit postretirement plans. The
required information should be provided separately for pension plans and for
other postretirement benefit plans. The provisions of this statement are
effective for financial statements with fiscal years ending after December 15,
3003. The interim-period disclosures required by this statement are effective
for interim periods beginning after December 15, 2003. The adoption of the
provisions of this revised statement did not have a material effect on the
Company's operating results or financial position.
In December 2003, the FASB revised previously issued FIN 46, Consolidation of
Variable Interest Entities, which clarifies the application of Accounting
Research Bulletin ("ARB") 51, Consolidated Financial Statements, to certain
entities (called variable interest entities) in which equity investors do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The reporting and
disclosure requirements of this Interpretation are effective for all financial
statements of public companies for the first period ending after December 15,
2003 and for all other types of entities for periods ending after March 15,
2004. The adoption of this interpretation did not have a material impact on the
Company's consolidated financial statements.
45
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 1 - Summary of Significant Accounting Policies - Continued
Earnings Per Common Share
Basic earnings per common share are computed by dividing earnings available to
stockholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflect per share amounts that would have
resulted if dilutive potential common stock had been converted to common stock,
as prescribed by SFAS No. 128, Earnings per Share. All per share amounts
included in these consolidated financial statements have been retroactively
adjusted to reflect the effects of the 1.2 for 1.0 stock splits which occurred
during 2003, 2002 and 2001. The following reconciles the weighted average number
of shares outstanding:
2003 2002 2001
------------------ ------------------ ------------------
Weighted average of common
shares outstanding............................. 3,747,641 3,747,641 3,747,641
Effect of dilutive options........................ 28,870 20,547 3,514
------------------ ------------------ ------------------
Weighted average of common shares
outstanding effected for dilution.............. 3,776,511 3,768,188 3,751,155
================== ================== ==================
In June 2001, November 2002 and December 2003, the Company issued 1.2-for-1.0
stock splits. All per share amounts included in these consolidated financial
statements have been retroactively adjusted to give effect to these splits.
Comprehensive Income
Comprehensive income is generally defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners.
Comprehensive income is the total of net income and all other non-owner changes
in equity. Items that are to be recognized under accounting standards as
components of comprehensive income are displayed in statements of shareholders'
equity.
In the calculation of comprehensive income, certain reclassification adjustments
are made to avoid double counting items that are displayed as part of net income
for a period that also had been displayed as part of other comprehensive income
in that period or earlier periods. The Company has no such items to be
reclassified at December 31, 2003, 2002 and 2001.
46
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 1 - Summary of Significant Accounting Policies - Continued
Statements of Cash Flows
The Company includes cash, due from banks, and certain cash equivalents in
preparing the statements of cash flows. The following is supplemental disclosure
to the statements of cash flows for the three years ended December 31, 2003.
Years Ended December 31,
--------------------------------------------------------------
2003 2002 2001
------------------ ------------------ ------------------
Cash paid during the year for interest......... $ 11,088,782 $ 11,609,219 $ 11,668,631
Cash paid during the year for income
taxes, net................................... 6,550,908 4,772,000 4,596,457
Non-cash Disclosures:
Loans transferred to foreclosed
real estate during the year.................. 6,371,833 133,743 439,235
Proceeds from sale of foreclosed real
estate financed through loans................ -- 121,998 62,960
Note 2 - Restrictions on Cash and Due from Bank Accounts
The Bank is required by regulatory authorities to maintain average reserve
balances either in vault cash or on deposit with the Federal Reserve. The
average amount of those reserves required at December 31, 2003 and 2002, were
approximately $4,506,000 and $3,877,000, respectively.
Note 3 - Securities
The carrying amounts of securities as shown in the consolidated statements of
financial condition and their approximate fair values at December 31, 2003 and
2002 were as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- --------------- --------------- ----------------
Securities Available-for-Sale
December 31, 2003:
Equity Securities........................ $ 3,184,977 $ -- $ -- $ 3,184,977
=============== =============== =============== ================
December 31, 2002:
Equity Securities........................ $ 3,184,977 $ -- $ -- $ 3,184,977
=============== =============== =============== ================
47
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 3 - Securities - Continued
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- --------------- --------------- ----------------
Securities Held-to-Maturity
December 31, 2003:
U. S. Government and
agency securities...................... $ 1,768,406 $ 52,182 $ 438 $ 1,820,150
Mortgage-backed securities............... 33,984,499 140,176 648,499 33,476,176
--------------- ---------------- --------------- ----------------
$ 35,752,905 $ 192,358 $ 648,937 $ 35,296,326
=============== ================ =============== ================
December 31, 2002:
U. S. Government and
agency securities...................... $ 3,000,000 $ 16,980 $ -- $ 3,016,980
Mortgage-backed securities............... 30,339,505 765,309 1,776 31,103,038
--------------- ---------------- --------------- ----------------
$ 33,339,505 $ 782,289 $ 1,776 $ 34,120,018
=============== ================ =============== ================
The following table shows our investments' gross unrealized losses and fair
value, aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position, at December 31,
2003.
Less Than 12 Months 12 Months or More Total
--------------------------- -------------------------- ---------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Description of Securities Value Losses Value Losses Value Losses
- ----------------------------- ------------- ----------- ------------- ----------- ------------- -----------
U.S. Treasury obligations
and direct obligations
of U.S. government
agencies.................. $ 1,820,150 $ 438 $ -- $ -- $ 1,820,150 $ 438
Federal agency mortgage
backed securities......... 33,476,176 648,499 -- -- 33,476,176 648,499
Corporate bonds............ -- -- -- -- -- --
------------- ----------- ------------- ----------- ------------- -----------
Total Temporarily
Impaired Securities..... $ 33,296,326 $ 648,937 $ -- $ -- $ 35,296,326 $ 648,937
============= =========== ============= =========== ============= ===========
At December 31, 2003, the Company had 9 individual securities that were in an
unrealized loss position or impaired for the timeframes indicated above. All of
these investment positions' impairments are deemed not to be
other-than-temporary impairments. Substantially all of these positions are
backed by 1-4 family
48
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 3 - Securities - Continued
mortgages and the related securities have experiences volatility in their market
prices as a result of the fluctuating home mortgage interest rate environment
during 2003. The Company does not expect any other-than-temporary impairments to
develop related to the investment positions.
The contractual maturities of U.S. Government and agency securities
held-to-maturity and securities available-for-sale at December 31, 2003, are
shown below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
Securities Securities
Held-to-Maturity Available-for-Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------- --------------- --------------- ---------------
Due in one year or less..................... $ 2,636,958 $ 2,653,567 $ -- $ --
Due after one year through five years....... 19,272,146 19,318,494 -- --
Due after five years through ten years...... 13,843,801 13,324,265 -- --
Due after ten years......................... -- -- -- --
Equity securities........................... -- -- 3,184,977 3,184,977
--------------- --------------- --------------- ----------------
$ 35,752,905 $ 35,296,326 $ 3,184,977 $ 3,184,977
=============== ================ =============== ================
Gross realized gains and losses from the sale of securities for the years ended
December 31 are as follows:
2003 2002 2001
------------------ ------------------ ------------------
Realized gains.................................... $ -- $ 36,083 $ --
Realized losses................................... -- -- --
Dispositions through calls, maturities and pay-downs resulted in no net gain or
loss during 2003, 2002 and 2001.
Equity securities include restricted investments in The Bankers Bank,
Independent Bankers' Bank and Federal Home Loan Bank stock, which must be
maintained to secure the available lines of credit. The amount of investment in
these stocks amounted to $2,374,977 and $2,874,977 at December 31, 2003 and
2002, respectively. Additional equity securities at December 31, 2003 and 2002
consist of a $310,000 investment in the FCBI Capital Trust I (see Note 9) and at
December 31, 2003 a $500,000 investment in Capitol Securities Investors, LLC,
which amounts to a 20% ownership in this entity.
Investment securities pledged to secure public funds on deposit, FHLB advances
and for other purposes as required by law amounted to approximately $23,218,000
and $29,677,000 at December 31, 2003 and 2002, respectively.
49
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 4 - Loans
The Company grants loans to customers primarily in Charlotte, Collier, Glades,
Hendry and Lee Counties of Southwest Florida.
The major classifications of loans as of December 31, 2003 and 2002 are as
follows:
2003 2002
------------------ ------------------
Commercial, financial and agricultural................................. $ 45,274,352 $ 42,875,563
Real estate - construction............................................. 172,890,197 140,722,900
Real estate - mortgage................................................. 208,818,843 220,696,703
Consumer............................................................... 10,665,451 12,089,782
Other.................................................................. 1,486,507 1,226,777
------------------ ------------------
Total............................................................... 439,135,350 417,611,725
Unearned income........................................................ (1,542,523) (1,197,049)
Allowance for loan losses.............................................. (8,066,817) (6,319,298)
------------------ ------------------
Net loans.............................................................. $ 429,526,010 $ 410,095,378
================== ==================
Deposit overdrafts reclassified as loans and included in the other loan category
amounted to $225,303 and $474,064, at December 31, 2003 and 2002, respectively.
Loans the Company considered to be impaired (including non-accrual loans) at
December 31, 2003 and 2002 totaled approximately $9,727,000 and $5,035,000,
respectively. The impaired loans at December 31, 2003 and 2002 had related
allowances of $1,459,050 and $757,906, respectively. The average recorded
investment in impaired loans for the years ended December 31, 2003 and 2002 was
approximately $3,748,755 and $4,808,550, respectively. For the years ended
December 31, 2003 and 2002, the difference between gross interest income that
would have been recorded in such period if the non-accruing loans had been
current in accordance with their original terms and the amount of interest
income on those loans that was included in such period's net income was
approximately $450,861 and $350,302, respectively.
The Company has no commitments to lend additional funds to the borrowers of
non-accrual loans.
Net unamortized deferred loan fees and origination costs included in unearned
income amounted to $1,542,523 and $1,192,851, for the years ended as of December
31, 2003 and 2002.
Commercial and residential real estate loans pledged to secure Federal Home Loan
Bank advances and letters of credit amounted to approximately $33,225,000 and
$58,790,000 at December 31, 2003 and 2002, respectively (see Note 9). Commercial
and residential real estate loans pledged to secure the Federal Reserve Bank
line of credit amounted to approximately $5,856,910 and $-0- at December 31,
2003 and 2002, respectively.
50
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 5 - Allowance for Loan Losses
Changes in the allowance for loan losses for the years ended December 31, 2003,
2002 and 2001 were as follows:
2003 2002 2001
------------------ ------------------ ------------------
Balance at beginning of year................... $ 6,319,298 $ 3,802,836 $ 3,266,667
Charge-offs.................................... (222,911) (206,836) (389,627)
Recoveries..................................... 270,430 213,298 205,796
------------------ ------------------ ------------------
Net (charge-offs) recoveries................. 47,519 6,462 (183,831)
Provision for loan losses...................... 1,700,000 2,510,000 720,000
------------------ ------------------ ------------------
Balance at end of year......................... $ 8,066,817 $ 6,319,298 $ 3,802,836
================== ================== ==================
Note 6 - Premises and Equipment
Premises and equipment as of December 31, 2003 and 2002 is as follows:
2003 2002
------------------ ------------------
Land............................................................... $ 3,186,438 $ 1,322,827
Land improvements................................................... 388,324 311,725
Building............................................................ 10,107,444 8,420,405
Furniture and equipment............................................. 3,790,919 3,776,619
Automobiles......................................................... 319,228 286,038
Construction in progress............................................ 56,777 669,512
------------------ ------------------
17,849,130 14,787,126
Less allowance for depreciation..................................... 5,081,623 4,677,874
------------------ ------------------
$ 12,767,507 $ 10,109,252
================== ==================
The provision for depreciation charged to occupancy and equipment expense for
the years ended December 31, 2003, 2002 and 2001 was $669,386, $687,466 and
$555,439, respectively.
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51
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 7 - Deposits
The aggregate amounts of time deposits of $100,000 or more, including
certificates of deposit of $100,000 or more at December 31, 2003 and 2002 were
$142,946,476 and $140,799,724, respectively. Time deposits of less than $100,000
totaled $69,095,166 and $111,773,587 at December 31, 2003 and 2002,
respectively. Demand deposit overdrafts reclassified as loan balances as of
December 31, 2003 and 2002 amounted to $225,303 and $474,064, respectively.
The maturities of time certificates of deposit and other time deposits issued by
the Bank at December 31, 2003, are as follows:
Year Ending December 31,
2004...................................................................... $ 145,475,094
2005...................................................................... 52,000,928
2006...................................................................... 6,497,759
2007...................................................................... 3,728,763
2008...................................................................... 4,339,098
------------------
$ 212,041,642
==================
Note 8 - Short-term Borrowings
Short-term borrowings at December 31, 2003, consisted of federal funds purchased
of $7,000,000, $250,000 outstanding on a line of credit with an unaffiliated
financial institution, and $250,000 due for an equity investment in a limited
liability investment company. There were no short-term borrowings outstanding at
December 31, 2002.
[The remainder of this page intentionally left blank]
52
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 9 - Long-term Debt
At December 31, 2003 and 2002, the Company had long-term debt totaling
$50,331,698 and $60,349,415, respectively.
Long-term debt consists of the following at December 31:
2003 2002
------------------ ------------------
Long-term Federal Home Loan Bank advances, with varying maturities from
December 2004 through March 2010, the interest rates have a variable
base or are at a fixed rate between 1.38% to 6.37%, secured by real
estate mortgage loans and pledged securities.......................... $ 40,000,000 $ 50,000,000
Long-term subordinated debentures; interest rate prime plus 0.5%, the
debenture has a 30-year life with a call option of 5 years, subject to
regulatory approval................................................... 10,310,000 10,310,000
Notespayable to Ford Motor Credit, with interest rates varying from 0.90%
to 5.90%, interest and principal paid monthly over 3-year periods,
various maturities in 2005, secured by vehicles....................... 21,698 39,415
------------------ ------------------
$ 50,331,698 $ 60,349,415
================== ==================
In June 2002, the Company formed a wholly-owned Delaware statutory business
trust, FCBI Capital Trust I, which issued $10,000,000 of guaranteed preferred
securities representing undivided beneficial interests in the assets of the
trust ("Trust Preferred Securities"). The common securities of the trust are
owned by the Company. The proceeds from the issuance of the Trust Preferred
Securities ($10,000,000) and common securities ($310,000) were used by the trust
to purchase $10,310,000 of junior subordinated deferrable interest debentures of
the Company. The debentures, which bear interest at Prime rate plus 0.5%,
represent the sole asset of the trust. The Company has fully and unconditionally
guaranteed all obligations of the Trust on a subordinated basis with respect to
the Trust Preferred Securities. In accordance with the provisions of Financial
Interpretation No. 46, the Company accounts for the Trust Preferred Securities
as a long-term debt liability to the Trust in the amount of $10,310,000. Subject
to certain limitations, the Trust Preferred Securities qualify as Tier 1
capital.
53
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 9 - Long-term Debt - Continued
The Company has entered into an agreement, which fully and unconditionally
guarantees payment of accrued and unpaid distributions required to be paid on
the Trust Preferred Securities, with respect to any Trust Preferred Securities
called for redemption.
The Trust Preferred Securities mature in September 2032 and may be called by the
Company at any time after June 2007. Maturities of long-term debt following
December 31, 2003, are as follows:
Year Ending December 31,
2004......................................................................... $ 5,018,567
2005......................................................................... 15,003,131
2006......................................................................... --
2007......................................................................... --
2008......................................................................... --
Thereafter................................................................... 30,310,000
------------------
$ 50,331,698
==================
Note 10 - Shareholders' Equity
At December 31, 2003 and 2002, shareholders' equity of the Company consisted of
the following:
Common Stock: 10,000,000 shares authorized with a par value of $0.01 per share.
Voting rights equal to one vote per share.
Paid-in Capital: Represents the funds received in excess of par value upon the
issuance of stock, net of issuance costs and the related effects of the stock
dividends and stock splits.
Retained Earnings: Represents the accumulated net earnings of the Company as
reduced by dividends paid to shareholders and the effect of stock dividends
issued in previous periods.
Stock Splits: In June 2001, the Bank issued a 1.2 shares for 1.0 share stock
split, thereby increasing the number of shares outstanding to 2,602,764. In
conjunction with the split, the par value of the stock was reduced from $4.00
per share to $3.20 per share. In April 2002, each share of the Bank was
converted into one share of the Company's $0.01 par value common stock. In
December 2002, the Company issued a 1.2 for 1.0 common stock split resulting in
an increase in the number of outstanding shares to 3,123,316. In December 2003,
the Company issued a 1.2 for 1.0 common stock split resulting in an increase in
the number of outstanding shares to 3,747,641. All per share amounts included in
these consolidated financial statements have been adjusted to give retroactive
effect to the stock splits.
54
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 11 - Regulatory Capital Matters
The Company and the Bank are subject to various regulatory capital requirements
administered by the state and federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possible additional
discretionary actions by regulators, which if undertaken, could have a direct
material effect on the Company's consolidated financial statements. Under
regulatory capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and its subsidiary bank must meet specific
capital guidelines involving quantitative measures of the Company's and its
subsidiary bank's assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Bank's capital amounts and
classification under the prompt corrective guidelines are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of Total
capital and Tier I capital to risk-weighted assets (as defined in the
regulations), and Tier I capital to adjusted total assets (as defined).
Management believes, as of December 31, 2003, that the Company and the Bank meet
all capital adequacy requirements to which they are subject.
As of December 31, 2003, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To remain categorized as well
capitalized, the Bank will have to maintain minimum Total capital, Tier 1
capital, and Tier 1 leverage ratios as disclosed in the table below. There are
no changes in conditions or events since the most recent notification that
management believes have changed the Bank's prompt corrective action category.
The Company's and the Bank's actual capital amounts and ratios are also
presented in the table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ----------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
----------- -------- ----------- --------- ----------- ---------
(In thousands)
As of December 31, 2003:
Total Capital
Consolidated.............. $ 58,222 11.91% $ 39,114 8.00% $ 48,893 10.00%
Florida Community
Bank.................... 57,721 11.82 39,061 8.00 48,827 10.00
Tier 1 Capital
Consolidated.............. 52,086 10.65 19,557 4.00 29,336 6.00
Florida Community
Bank.................... 51,593 10.57 19,531 4.00 29,296 6.00
Tier 1 Leverage
Consolidated.............. 52,086 10.24 20,342 4.00 25,428 5.00
Florida Community
Bank.................... 51,593 10.14 20,342 4.00 25,428 5.00
55
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 11 - Regulatory Capital Matters - Continued
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ----------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
----------- -------- ----------- --------- ----------- ---------
(In thousands)
As of December 31, 2002:
Total Capital
Consolidated.............. $ 50,320 10.75% $ 37,444 8.00% $ 46,805 10.00%
Florida Community
Bank.................... 49,736 10.64 37,412 8.00 46,765 10.00
Tier 1 Capital
Consolidated.............. 44,464 9.50 18,722 4.00 28,083 6.00
Florida Community
Bank.................... 43,885 9.38 18,706 4.00 28,059 6.00
Tier 1 Leverage
Consolidated.............. 44,464 9.15 19,439 4.00 24,299 5.00
Florida Community
Bank.................... 43,885 9.04 19,420 4.00 24,275 5.00
Note 12 - Stock Option Plans
The Company adopted the 2002 Key Employee Stock Compensation Program under which
statutory and non-statutory stock options may be granted to certain key
employees to purchase up to 87,440 shares (as adjusted for stock splits) at
various prices from $12.50 to $24.00 per share. The options granted provide for
these key employees to purchase shares of the Company's $0.01 par value common
stock at no less than the market value at the dates of grant. The options
granted may be exercised within ten years from the dates of grant subject to
vesting requirements.
The following information relates to options outstanding under the plan at
December 31, 2003.
Weighted
Number of Average Number of
Options Expiration Contractual Options
Outstanding Date Life Exercisable
------------- ---------- ----------- -----------
10/25/01 Options with an Exercise
Price of $12.50...................................... 66,240 10/25/11 7.82 39,744
01/17/03 Options with an Exercise
Price of $16.67...................................... 7,200 01/17/13 9.05 --
12/22/03 Options with an Exercise
Price of $24.00...................................... 14,000 12/22/13 9.98 --
-------------- ----------
Total................................................ 87,440 8.27 39,744
============== ==========
56
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 12 - Stock Option Plans - Continued
The following table presents the activity in the plan for the years ended
December 31, 2003, 2002, and 2001:
2003 2002 2001
-------------------------- -------------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
------------- ------------ ----------- ------------- -------- -----------
Outstanding at January 1,........ 66,240 $ 12.50 66,240 $ 12.50 -- $ 0.00
Granted....................... 21,200 20.94 -- 0.00 66,240 12.50
Forfeited..................... -- 0.00 -- 0.00 -- 0.00
Expired....................... -- 0.00 -- 0.00 -- 0.00
------------- ----------- --------
Outstanding at December 31,...... 87,440 14.55 66,240 12.50 66,240 12.50
============= =========== ========
Exercisable at December 31,...... 39,744 12.50 22,080 12.50 -- 0.00
============= =========== ========
Note 13 - Other Operating Expenses
The major components of other operating expenses included in noninterest
expenses at December 31, 2003, 2002 and 2001 are as follows (in thousands):
2003 2002 2001
------------------ ------------------ ------------------
Professional fees.............................. $ 263 $ 210 $ 191
Promotions and public relations................ 218 135 130
Telephone...................................... 175 136 122
Software maintenance........................... 164 70 120
Examination and assessment..................... 154 139 106
Supplies....................................... 152 182 135
ATM expense.................................... 137 124 124
Postage........................................ 136 137 99
Courier........................................ 113 95 71
Taxes and licenses............................. 95 103 107
Bank charges................................... 74 95 135
Employee educational expenses.................. 68 41 40
Director's board and committee fees............ 67 67 67
Dues and subscriptions......................... 44 44 31
Other ......................................... 231 226 144
------------------ ------------------ ------------------
$ 2,091 $ 1,804 $ 1,622
================== ================== ==================
57
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 14 - Income Taxes
Federal and state income taxes receivable (payable) as of December 31, 2003 and
2002 included in other assets and other liabilities, respectively, were as
follows:
2003 2002
------------------ ------------------
Current
Federal............................................................. $ 300,272 $ 76,180
State............................................................... 26,754 13,006
The components of the deferred income tax asset included in other assets as of
December 31, 2003 and 2002 are as follows:
2003 2002
------------------ ------------------
Deferred tax asset:
Federal............................................................. $ 2,908,651 $ 1,773,225
State............................................................... 484,772 295,537
------------------ ------------------
Total deferred income tax asset................................... 3,393,423 2,068,762
------------------ ------------------
Deferred tax liability:
Federal............................................................. (197,587) (92,785)
State............................................................... (32,931) (15,464)
------------------ ------------------
Total deferred income tax liability............................... (230,518) (108,249)
------------------ ------------------
Net deferred tax asset................................................. $ 3,162,905 $ 1,960,513
================== ==================
The tax effects of each type of income and expense item that gave rise to
deferred taxes are:
2003 2002
------------------ ------------------
Depreciation........................................................ $ (230,518) $ (108,249)
Allowance for loan losses........................................... 2,560,873 1,906,373
Directors benefit plan.............................................. 132,005 141,163
Deferred loan fees.................................................. 592,723 --
Write-down of other real estate owned............................... 96,250 --
Officers benefit plan............................................... 11,550 21,226
Issuance of stock options........................................... 22 --
------------------ ------------------
Net deferred tax asset.............................................. $ 3,162,905 $ 1,960,513
================== ==================
58
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 14 - Income Taxes - Continued
The components of income tax expense for the years ended December 31, 2003, 2002
and 2001 were as follows:
2003 2002 2001
------------------ ------------------ ------------------
Current
Federal...................................... $ 4,962,156 $ 4,009,514 $ 3,031,351
State........................................ 865,210 690,462 511,042
Deferred
Federal...................................... (631,451) (723,827) (215,930)
State........................................ (105,238) (125,327) (34,929)
------------------ ------------------ ------------------
$ 5,090,677 $ 3,850,822 $ 3,291,534
================== ================== ==================
There were no material tax effects of securities transactions for the years
ended December 31, 2003, 2002 and 2001.
2003 2002 2001
----------------------- ----------------------- -----------------------
Federal income tax
at statutory rates................. $ 4,585,657 34.0% $ 3,491,504 34.0% $ 2,936,835 34.0%
Add (deduct)
State income tax, net of
federal tax benefit.............. 501,582 3.7 372,989 3.6 314,235 3.6
Other.............................. 3,438 0.0 (13,671) (0.1) 40,464 0.5
------------- -------- -------------- ------- ------------- --------
Totals................................ $ 5,090,677 37.7% $ 3,850,822 37.5% $ 3,291,534 38.1%
============= ======== ============== ======= ============= ========
59
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 15 - Benefit Plans
During 2003 the Company had three qualified employee benefit plans: 1) a Pension
Plan, 2) a Profit Sharing Plan, and an Employee Stock Ownership Plan ("ESOP").
The Plans cover substantially all employees, subject to similar eligibility
requirements. The Company contributed 10% of eligible compensation to the
Pension Plan annually. The Pension Plan was terminated as of December 31, 2003.
The Company's annual contribution to the Profit Sharing Plan is discretionary as
determined by the board of directors. For the years ended December 31, 2003,
2002 and 2001, the Company's contributions charged to operations amounted to
$433,523, $347,214 and $274,904 for the Pension Plan and $438,163, $362,215 and
$289,170 for the Profit Sharing Plan, respectively. Effective January 1, 2003,
the company adopted the ESOP. The company's annual contribution to the ESOP is
discretionary as determined by the board of directors. The Company's
contribution to the ESOP for 2003 was $438,163.
The Company also has a Director's Benefit Plan (the "Benefit Plan") covering
certain directors and a Salary Continuation Plan (the "Salary Plan") for a
former officer. These plans were obtained resulting from a business combination
that occurred in 1998.
The Benefit Plan provides for the payment of scheduled benefits to the
participants or their beneficiaries at age 65 or their normal retirement date,
whichever occurs later. If the participant dies prior to receiving 180 monthly
payments, the participant's beneficiary shall receive any remaining monthly
payments. Payment of benefits under the Benefit Plan requires that the
participant fulfill certain conditions related to age and length of service. The
Company is accruing the present value of the future benefits to be paid under
the Benefit Plan over the term of each participant's service period.
The Salary Plan provides for the payment of a retirement benefit of $30,000 per
year for a period of ten years. Payment of these benefits commenced on January
1, 1995, and continued throughout the current year according to the terms of the
Plan. The Company has accrued the present value of the future benefits to be
paid under the Salary Plan.
The Company has determined that the following disclosures are relevant to the
Benefit Plan and the Salary Plan, however, the plans are non-qualified and
unfunded. Payments to retired directors and officers are funded through
operations.
Net pension cost for the Director's Benefit Plan and the Salary Continuation
Plan for 2003, 2002 and 2001 included the following components:
2003 2002 2001
------------------ ------------------ ------------------
Service cost................................... $ 27,952 $ 23,171 $ 20,878
Interest cost.................................. 36,608 39,373 41,439
------------------ ------------------ ------------------
Net periodic pension cost.................... $ 64,560 $ 62,544 $ 62,317
================== ================== ==================
60
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 15 - Benefit Plans - Continued
The following table sets forth the accumulated benefit obligation of the
Director's Benefit Plan and the Salary Continuation Plan recognized in the
Company's statements of financial condition at December 31, 2003 and 2002.
2003 2002
------------------ ------------------
Present value of benefit obligation:
Vested.............................................................. $ 372,870 $ 424,746
Non-vested.......................................................... -- --
------------------ ------------------
Accumulated benefit obligation/pension liability....................... $ 372,870 $ 424,746
================== ==================
The weighted average discount rate used in determining present value of the
projected benefit obligation for the Director's Benefit Plan and Salary
Continuation Plan was nine percent.
Note 16 - Commitments and Contingencies
In the normal course of business, the Company offers a variety of financial
products to its customers to aid them in meeting their requirements for
liquidity, credit enhancement, and interest rate protection. Generally accepted
accounting principles recognize these transactions as contingent liabilities
and, accordingly, they are not reflected in the accompanying consolidated
financial statements.
Loan commitments are made to accommodate the financial needs of the Company's
customers. Standby letters of credit commit the Company to make payments on
behalf of customers when certain specified future events occur. Historically,
most loan commitments and standby letters of credit expire unused. The Company's
exposure to credit loss in the event of nonperformance by the counter-party to
the financial instrument for loan commitments and standby letters of credit is
represented by the contractual amount of those instruments. The Company uses the
same underwriting standards in making commitments and conditional obligations as
it does for on-balance sheet instruments. The amount of collateral obtained is
based on management's credit evaluation of the customer. Collateral held varies,
but may include accounts receivable, inventory, property, plant, and equipment,
and income-producing commercial properties. The Company records a liability for
the estimated fair value of standby letters of credit based on the fees charged
for these arrangements. At December 31, 2003 and 2002 these recorded liabilities
amounted to $46,152 and $49,142, respectively.
61
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 16 - Commitments and Contingencies - Continued
The total amounts of loan commitments and standby letters of credit are
summarized as follows at December 31:
Contract or
Notional Amount
2003 2002
------------------ ------------------
Loan commitments....................................................... $ 99,186,000 $ 94,694,000
Standby letters of credit.............................................. 3,810,000 5,852,000
------------------ ------------------
Total unfunded commitments.......................................... $ 102,996,000 $ 100,546,000
================== ==================
Management conducts regular reviews of these instruments on an individual
customer basis, and the results are considered in assessing the adequacy of the
Company's allowance for loan losses. The total reserve allocated for unfunded
commitments was approximately $185,000 and $374,000 at December 31, 2003 and
2002, respectively
Note 17 - Concentrations of Credit
Most of the Company's loans, commitments, and commercial and standby letters of
credit have been granted to customers in the Company's market area. Many such
customers are depositors of the Company. The concentrations of credit by type of
loan are set forth in note 4. The distribution of commitments to extend credit
related primarily to unused real estate draw lines. Commercial and standby
letters of credit were granted primarily to commercial borrowers.
The Company maintains its cash accounts at various commercial banks in the
United States. The balances in commercial banks are insured by the FDIC up to
$100,000. Total uninsured balances held at correspondent commercial banks
amounted to $9,518,961 and $5,967,875 at December 31, 2003 and 2002,
respectively.
Note 18 - Restrictions on Dividends
The Bank is subject to the dividend restrictions set forth by the State Banking
Department (Florida). Under such restrictions, the Bank may not, without the
prior approval of the State Banking Department, declare dividends in excess of
the sum of the current year's earnings plus the retained earnings from the prior
two years. For the year ending December 31, 2004, the Bank can declare
dividends, without prior regulatory approval, of approximately $12,941,000 plus
an additional amount equal to its net profits for 2004.
62
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 19 - Litigation
While the Company is party to various legal proceedings arising from the
ordinary course of business, management believes after consultation with legal
counsel that there are no proceedings threatened or pending against the Company
that will, individually or in the aggregate, have a material adverse effect on
the business or financial condition of the Company.
Note 20 - Leases
The Company leased facilities under non-cancelable operating leases during 2003,
2002 and 2001. The leases provided for renewal options and generally required
the Company to pay maintenance, insurance and property taxes. For the years
ended December 31, 2003, 2002 and 2001, rental expense for such leases was
$175,620, 182,870 and $160,342, respectively. The Company also entered into a
sale/leaseback transaction with a related party in January 2001 for a branch
facility, future minimum payments under this lease are included in the table
below (see also Note 21).
Future minimum lease payments under such non-cancelable operating leases at
December 31, 2003, are as follows:
Year Ending December 31,
2004....................................................................... $ 169,176
2005....................................................................... 169,401
2006....................................................................... 171,948
2007....................................................................... 175,954
2008....................................................................... 180,061
Thereafter................................................................. 2,346,362
------------------
Total minimum lease payments............................................................ $ 3,212,902
==================
Note 21 - Related Party Transactions
Loans: Certain directors, executive officers and principal shareholders,
including their immediate families and associates were loan customers of the
Company during 2003 and 2002. Such loans are made in the ordinary course of
business at normal credit terms, including interest rates and collateral and do
not represent more than a normal risk of collection. A summary of activity and
amounts outstanding are as follows:
2003 2002
------------------ ------------------
Balance at Beginning of Year........................................... $ 8,446,838 $ 9,525,429
New loans.............................................................. 4,363,704 7,166,439
Repayments............................................................. (6,556,044) (8,245,030)
------------------ ------------------
Balance at End of Year................................................. $ 6,254,498 $ 8,446,838
================== ==================
63
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 21 - Related Party Transactions - Continued
Deposits: Deposits held from related parties were $13,855,659 and $9,446,535 at
December 31, 2003 and 2002, respectively.
Other: On January 11, 2001, the board of directors of the Bank adopted a
resolution to sell the land and premises of the Cypress Lake Branch at fair
market value to a Bank Director and lease the property back at a fair rental.
The sales price of $1,855,000 is greater than the appraised value and is based
on the cost to the Bank of the land, building and closing costs. The agreement
specifies a 15-year net lease of $11,805 per month with annual increases of
2.5%.
Note 22 - Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Short-Term Investments: For those short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Securities: For securities available-for-sale and securities held-to-maturity,
fair values are based on quoted market prices or dealer quotes. For other
securities held as investments, fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
Loans: For certain homogeneous categories of loans, such as some residential
mortgage, credit card receivables, and other consumer loans, fair value is
estimated using the quoted market prices for securities backed by similar loans,
adjusted for differences in loan characteristics. The fair value of other types
of loans is estimated by discounting the future cash flows using the current
rates at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities.
Accrued Interest Receivable: The carrying amount of accrued interest receivable
approximates its fair value.
Deposits: The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
Accrued Interest Payable: The carrying amount of accrued interest payable
approximates its fair value.
Short-Term Borrowings: The carrying amounts of short-term borrowings approximate
their fair values.
Long-Term Debt: Rates currently available to the Company for debt with similar
terms and remaining maturities are used to estimate fair value of existing debt.
64
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 22 - Fair Value of Financial Instruments - Continued
Commitments to Extend Credit, Standby Letters of Credit, and Financial
Guarantees Written: The fair value of commitments, letters of credit, and
financial guarantees is estimated to be approximately the fees charged for these
arrangements.
The estimated fair values of the Company's financial instruments as of December
31, 2003 and 2002 are as follows:
2003 2002
--------------------------------- ---------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------- ---------------- --------------- ----------------
(in thousands) (in thousands)
Financial Assets
Cash and short-term investments.......... $ 30,520 $ 30,520 $ 58,835 $ 58,835
Securities............................... 38,938 38,481 36,524 37,305
Loans.................................... 437,593 441,604 416,415 418,079
Accrued interest receivable.............. 2,709 2,709 2,904 2,904
--------------- ---------------- --------------- ----------------
Total Financial Assets................. $ 509,760 $ 513,314 $ 514,678 $ 517,123
=============== ================ =============== ================
Financial Liabilities
Deposits................................. $ 423,284 $ 423,666 $ 423,935 $ 424,121
Short-term borrowings.................... 7,500 7,500 -- --
Long-term debt........................... 50,332 50,332 60,349 60,349
Accrued interest payable................. 859 859 1,867 1,867
--------------- ---------------- --------------- ----------------
Total Financial Liabilities............ $ 481,975 $ 482,357 $ 486,151 $ 486,337
=============== ================ =============== ================
Financial Instruments
Commitments to extend credit............. $ 99,186 $ 992 $ 94,694 $ 947
Standby letters of credit................ 3,810 46 5,852 49
--------------- ---------------- --------------- ----------------
Total Unrecognized Financial
Instruments.......................... $ 102,996 $ 1,038 $ 100,546 $ 996
=============== ================ =============== ================
65
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 23 - Condensed Parent Company Information
Statement of Financial Condition
2003 2002
------------------ ------------------
Assets
Cash and due from banks............................................. $ 291,212 $ 104,942
Federal funds sold.................................................. -- 100,000
Securities available-for-sale....................................... 810,000 310,000
Investment in subsidiaries (equity method) -
eliminated upon consolidation..................................... 51,592,894 44,195,191
Other assets........................................................ 226,996 63,667
------------------ ------------------
Total Assets.................................................... $ 52,921,102 $ 44,773,800
================== ==================
Liabilities and Shareholders' Equity
Liabilities
Guaranteed preferred beneficial interest in the Company's
subordinated debentures........................................... $ 10,310,000 $ 10,310,000
Other debt.......................................................... 500,000 --
Other liabilities................................................... 25,333 --
------------------ ------------------
Total Liabilities............................................... 10,835,333 10,310,000
Total Shareholders' Equity...................................... 42,085,769 34,463,800
------------------ ------------------
Total Liabilities and Shareholders' Equity...................... $ 52,921,102 $ 44,773,800
================== ==================
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66
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 23 - Condensed Parent Company Information - Continued
Statement of Income
2003 2002
------------------ ------------------
Income
From subsidiaries - eliminated upon consolidation
Dividends......................................................... $ 1,119,270 $ 1,405,510
Interest.......................................................... 333 1,261
------------------ ------------------
Total Income.................................................... 1,119,603 1,406,771
------------------ ------------------
Expenses
Salaries and employee benefits...................................... 18,353 14,706
Interest............................................................ 524,681 306,752
Other expenses...................................................... 133,407 58,329
------------------ ------------------
Total Expenses.................................................. 676,441 379,787
------------------ ------------------
Income before income taxes and equity in
undistributed earnings of subsidiaries.............................. 443,162 1,026,984
Income tax benefit..................................................... 245,684 144,786
------------------ ------------------
Income before equity in undistributed
earnings of subsidiaries............................................ 688,846 1,171,770
Equity in undistributed earnings of subsidiaries....................... 7,707,703 5,246,536
------------------ ------------------
Net Income...................................................... $ 8,396,549 $ 6,418,306
================== ==================
[The remainder of this page intentionally left blank.]
67
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 23 - Condensed Parent Company Information - Continued
Statement of Cash Flows
2003 2002
------------------ ------------------
Operating Activities
Net income.......................................................... $ 8,396,549 $ 6,418,306
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed income of subsidiaries.................... (7,707,703) (5,246,536)
Other............................................................. 172,026 (93,855)
------------------ ------------------
Net Cash Provided By Operating Activities....................... 860,872 1,077,915
------------------ ------------------
Investing Activities
Investment in equity securities........................................ (500,000) (310,000)
Investment in subsidiaries............................................. -- (9,500,000)
------------------ ------------------
Net Cash Used In Investing Activities........................... (500,000) (9,810,000)
------------------ ------------------
Financing Activities
Issuance of subordinated debentures, net of issuance costs.......... -- 10,030,188
Issuance of short-term borrowings................................... 500,000 --
Costs associated with the issuance of options....................... 6,227 --
Cash dividends...................................................... (780,829) (1,093,161)
------------------ ------------------
Net Cash Provided By (Used In) Financing Activities............. (274,602) 8,937,027
------------------ ------------------
Net Increase In Cash and Cash Equivalents.............................. 86,270 204,942
Cash and Cash Equivalents at Beginning of Year......................... 204,942 --
------------------ ------------------
Cash and Cash Equivalents at End of Year............................... $ 291,212 $ 204,942
================== ==================
Cash Paid During the Year For:
Interest............................................................ $ 524,681 $ 306,752
68
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 24 - Quarterly Results of Operations (Unaudited)
Selected quarterly results of operations for the four quarters ended December 31
are as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------------- ------------- ------------- ------------- ----------------
(In Thousands)
2003:
Total interest income.............. $ 8,304 $ 8,447 $ 8,502 $ 8,267 $ 33,520
Total interest expense............. 2,818 2,737 2,381 2,145 10,081
Provision for loan losses.......... 300 300 700 400 1,700
Net interest income after
provision for loan losses....... 5,186 5,410 5,421 5,722 21,739
Other noninterest income........... 626 666 663 773 2,728
Other noninterest expense.......... 2,557 2,647 2,934 2,842 10,980
Income tax expense................. 1,226 1,302 1,185 1,377 5,090
Net income......................... 2,029 2,127 1,965 2,276 8,397
Per common share
Basic earnings.................. 0.54 0.57 0.52 0.61 2.24
Diluted earnings................ 0.54 0.56 0.52 0.60 2.22
2002:
Total interest income.............. $ 7,004 $ 7,653 $ 8,228 $ 8,381 $ 31,266
Total interest expense............. 2,808 2,914 2,951 3,114 11,787
Provision for loan losses.......... 330 280 1,100 800 2,510
Net interest income after
provision for loan losses....... 3,866 4,459 4,177 4,467 16,969
Investment securities gains........ 36 -- -- -- 36
Other noninterest income........... 611 528 525 620 2,284
Other noninterest expense.......... 2,123 2,242 2,312 2,343 9,020
Income tax expense................. 898 1,024 902 1,027 3,851
Net income......................... 1,492 1,721 1,488 1,717 6,418
Per common share
Basic earnings.................. 0.40 0.46 0.40 0.45 1.71
Diluted earnings................ 0.40 0.46 0.40 0.44 1.70
2001:
Total interest income.............. $ 6,921 $ 7,449 $ 6,851 $ 6,682 $ 27,903
Total interest expense............. 3,181 3,085 2,931 2,821 12,018
Provision for loan losses.......... 150 150 150 270 720
Net interest income after
provision for loan losses....... 3,590 4,214 3,770 3,591 15,165
Other noninterest income........... 387 416 326 570 1,699
Other noninterest expense.......... 2,026 2,135 2,112 1,953 8,226
Income tax expense................. 724 933 798 837 3,292
Net income......................... 1,227 1,562 1,186 1,371 5,346
Per common share
Basic earnings.................. 0.33 0.42 0.32 0.36 1.43
Diluted earnings................ 0.33 0.42 0.32 0.36 1.43
69
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The Company has evaluated the effectiveness of its disclosure
controls and procedures pursuant to Securities Exchange Act Rule
13a-14. The evaluation was performed under the supervision and
with the participation of management, including the chief
executive officer and the chief financial officer, within 90 days
prior to the date of the filing of this annual report. Based on
this evaluation, the chief executive officer and chief financial
officer have concluded that the disclosure controls and
procedures are effective in ensuring that all material
information required to be disclosed in this annual report has
been communicated to them in a manner appropriate to allow timely
decisions regarding required disclosure.
(b) Changes in internal controls.
Subsequent to the date of their evaluation, there were no
significant changes in internal controls or other factors that
could significantly affect internal controls, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
[The remainder of this page intentionally left blank]
70
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information appearing under the headings "ELECTION OF DIRECTORS,"
"BOARD OF DIRECTORS" and "COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934" on pages 3 to 6 and 11 in the Proxy Statement (the "2003
Proxy Statement") relating to the annual meeting of shareholders of the Company,
scheduled to be held on April 22, 2004, is incorporated herein by reference. On
March 3, 2003, the Company adopted a Code of Ethic applicable to Chief Financial
Officer and its Chief Executive Officer.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the headings "EXECUTIVE COMPENSATION" and
"EMPLOYEE BENEFITS" on pages 6 to 10 of the 2003 Proxy Statement is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND Management
The information appearing under the heading "ELECTION OF DIRECTORS" on
pages 3 to 5 of the 2002 Proxy Statement and from Item 5 above is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the heading "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" on pages 10 to 11 of the 2003 Proxy Statement is
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
During 2003, the Company's independent public auditors were Schauer Taylor
Cox Vise, Morgan & Fowler, PC ("Schauer Taylor"). In 2002 and 2003, Schauer
Taylor billed the Company for the following fees.
Audit Fees The aggregate fees billed for professional services by Schauer
Taylor, in connection with the audit of the annual financial statements and
the reviews of the financial statements included in the Company's quarterly
filings with the Securities and Exchange Commission for the fiscal years
ended December 31, 2002, and December 31, 2003, were $68,695 and $75,200,
respectively.
Audit-Related Fees: In 2002 and 2003, Schauer Taylor also billed the
Company $48,160 and $50,500, respectively for fees reasonably related to
the performance of its audit and reviews of financial statements. Such fees
included reviews of filings with the Securities and Exchange Commission,
Information Systems examinations and Federal Home Loan Bank collateral
audits.
71
Tax Fees: In 2002 and 2003, Schauer Taylor also billed the Company $15,220
and $12,800, respectively for tax compliance and advice, including the
preparation of the Company's corporate tax returns, and quarterly tax
accruals.
All Other Fees. In addition to those fees described above, Schauer Taylor
also billed the Company $3,325 and $8,730 in 2002 and 2003, respectively.
Such fees were for assistance in filing reports with the Securities and
Exchange Commission.
In all instances, Schauer Taylor's performance of those services was
pre-approved by the Company's Audit Committee.
ITEM 15. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Exhibit Page
(a) Financial Statements, Financial Schedules and Exhibits.
3.1 Articles of Incorporation of FCBI (included as Exhibit 3.1 to FCBI's
Registration Statement on Form 8-A filed with the SEC on April 15,
2002 and incorporated herein by reference).
3.2 By-laws of FCBI (included as Exhibit 3.2 to FCBI's Registration
Statement on Form 8-A filed with the SEC on April 15, 2002 and
incorporated herein by reference).
4.1 Subordinated Promissory Note, dated December 24, 2001, between Florida
Community Bank and Independent Bankers Bank of Florida (included as
Exhibit 4.1 to the Bank's Form 10-KSB for the year ended December 31,
2001, and incorporated herein by reference).
4.2 Specimen Common Stock Certificate of FCBI (included as Exhibit 4.1 to
FCBI's Registration Statement on Form 8-A filed with the SEC on April
15, 2002 and incorporated herein by reference).
10.1 Employment agreement with Thomas S. Junker dated December 9, 1997
(included as Exhibit 10.1 to the Bank's Registration Statement on Form
10-SB-A for the year ended December 31, 1998 and incorporated herein
by reference).
10.2 2002 Key Employee Stock Compensation Program of FCBI (included as
Appendix D to the Bank's Definitive Schedule 14-A filed with the FDIC
on March 22, 2002 and incorporated herein by reference).
10.3 Amended and Restated Trust Agreement among Florida Community Banks,
Inc. as depositor, Wilmington Trust Company as property trustee,
Wilmington Trust Company, as Delaware trustee, and Stephen L. Price,
and Thomas V. Ogletree as administrators, dated as of June 21, 2002
(included as Exhibit 10.3 to the Company's Form 10-Q for the quarter
ended June 30, 2002, and incorporated herein by reference).
72
Exhibit No. Exhibit Page
10.4 Guarantee Agreement between Florida Community Banks, Inc. as
guarantor, and Wilmington Trust Company as guarantee trustee, dated as
of June 21, 2002 (included as Exhibit 10.4 to the Company's Form 10-Q
for the quarter ended June 30, 2002, and incorporated herein by
reference).
10.5 Junior Subordinated Indenture between Florida Community Banks, Inc.
(as Company) and Wilmington Trust Company (as trustee), dated as of
June 21, 2002 (included as Exhibit 10.5 to the Company's Form 10-Q for
the quarter ended June 30, 2002, and incorporated herein by
reference).
10.6 Term Loan Agreement between Florida Community Banks, Inc. and The
Bankers Bank, Atlanta, Georgia, dated June 13, 2002 (included as
Exhibit 10.6 to the Company's Form 10-Q for the quarter ended June 30,
2002, and incorporated herein by reference).
11 Statement re: computation of earnings per common share 74
12 Statement re: computation of ratios 74
14 Code of Ethics (included as Exhibit 99.1 to the Company's Form 8-K
filed on March 3, 2003, and incorporated herein by reference.)
21 Subsidiaries of the Registrant 75
24 Power of Attorney 80
31.1 Chief Executive Officer - Certification of principal executive officer
pursuant to the Exchange Act Rule 13(a) - 14(a) or 15(d) - 14(a). 76
31.1 Chief Financial Officer - Certification of principal financial officer
pursuant to the Exchange Act Rule 13(a) - 14(a) or 15(d) - 14(a). 77
32.1 Chief Executive Officer - Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 78
32.2 Chief Financial Officer - Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 78
(b) Reports on Form 8-K
On October 22, 2003, Florida Community Banks, Inc. filed a current
report on Form 8-K in which it furnished a press release announcing
its financial results for the nine-month period ended September 30,
2003, as well as a $.25 per share dividend payable November 17, 2003
and a 1.2 for 1 stock split on December 1, 2003 for all shareholders
of record on November 3, 2003, pursuant to Item 12 - Disclosure of
Results of Operations and Financial Condition in accordance with
Guidelines issued by the Securities and Exchange Commission in Release
33-8216. A copy of the press release, dated October 22, 2003, was
attached as an exhibit to the current report on Form 8-K.
73
EXHIBIT 11 - STATEMENTS RE: COMPUTATION OF PER SHARE EARNINGS
Florida Community Banks, Inc.
Computation of Net Income Per Common Share
The following tabulation presents the calculation of basic and diluted earnings
per common share for the years ended December 31, 2003, 2002 and 2001.
2003 2002 2001
---------------- --------------- ---------------
Basic Earnings Per Share:
Net income................................................ $ 8,396,549 $ 6,418,306 $ 5,346,217
================ =============== ===============
Earnings on common shares................................. $ 8,396,549 $ 6,418,306 $ 5,346,217
================ =============== ===============
Weighted average common shares outstanding - basic........ 3,747,641 3,747,641 3,747,641
================ =============== ===============
Weighted average common shares outstanding - diluted...... 3,776,511 3,768,188 3,751,155
================ =============== ===============
Basic earnings per common share........................... $ 2.24 $ 1.71 $ 1.43
=============== =============== ===============
Diluted earnings per common share......................... $ 2.22 $ 1.70 $ 1.43
=============== =============== ===============
Exhibit 12 - Statements Re: Computation of Ratios
Florida Community Banks, Inc.
Computation of Ratio of Earnings to Fixed Charges
Year Ended December 31,
-------------------------------------------------
2003 2002 2001
-------------- ------------- --------------
(Dollars in thousands)
Pretax income................................................. $ 13,487 $ 10,269 $ 8,638
Add fixed charges:
Interest on deposits....................................... 7,924 10,032 10,909
Interest on borrowings..................................... 1,604 1,300 999
Portion of rental expense representing interest expense.... 60 62 54
-------------- ------------- --------------
Total fixed charges...................................... 9,588 11,394 11,962
-------------- ------------- --------------
Income before fixed charges................................... $ 23,075 $ 21,663 $ 20,600
============== ============= ==============
Pretax income................................................. $ 13,487 $ 10,269 $ 8,638
Add fixed charges (excluding interest on deposits):
Interest on borrowings..................................... 1,604 1,300 999
Portion of rental expense representing interest expense.... 60 62 54
-------------- ------------- --------------
Total fixed charges...................................... 1,664 1,362 1,053
-------------- ------------- --------------
Income before fixed charges (excluding interest on
deposits).................................................. $ 15,151 $ 11,631 $ 9,691
============== ============= ==============
Ratio of Earnings to Fixed Charges
Including interest on deposits............................. 2.41 1.90 1.72
Excluding interest on deposits............................. 9.11 8.54 9.20
74
Exhibit 21 - SUBSIDIARIES OF THE REGISTRANT
Subsidiaries - Direct/Wholly-owned State of Incorporation
- ---------------------------------- ----------------------
Florida Community Bank Florida
FCBI Capital Trust I Delaware
75
EXIHIBIT 31.1
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER
I, Stephen L. Price, certify that:
1. I have reviewed this annual report on Form 10-K of Florida Community Banks,
Inc.
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant, as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
fourth quarter that has materially affected or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 22, 2004
By: /s/ Stephen L. Price
--------------------------------------------------------
Stephen L. Price, President, Chief Executive Officer and
Chairman of the Board of Directors
76
EXIHIBIT 31.2
CERTIFICATIONS OF CHIEF FINANCIAL OFFICER
I, Thomas V. Ogletree, certify that:
1. I have reviewed this annual report on Form 10-K of Florida Community Banks,
Inc.
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant, as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
fourth quarter that has materially affected or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 22, 2004
By: /s/ Thomas V. Ogletree
--------------------------------------------------------
Thomas V. Ogletree
Chief Financial Officer
77
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with Florida Community Banks, Inc.'s ("Company") Annual Report on
Form 10-K for the period ended December 31, 2003 ("Report"), each of the
undersigned certify that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: March 22, 2004 By: /s/ Stephen L. Price
-------------------------------------
Stephen L. Price
President and Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with Florida Community Banks, Inc.'s ("Company") Annual Report on
Form 10-K for the period ended December 31, 2003 ("Report"), each of the
undersigned certify that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: March 22, 2004 By: /s/ Thomas V. Ogletree
-------------------------------------
Thomas V. Ogletree
Chief Financial Officer
78
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FLORIDA COMMUNITY BANKS INC.
Date: March 22, 2004 By: /s/ Stephen L. Price
------------------------------------
Stephen L. Price
Chairman and Chief Executive Officer
Date: March 22, 2004 By: /s/ Thomas V. Ogletree
------------------------------------
Thomas V. Ogletree
Chief Financial Officer
79
Exhibit 24 - POWER OF ATTORNEY
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Stephen L. Price and Thomas V. Ogletree and each of
them, his true and lawful attorney-in-fact, as agent with full power of
substitution and re-substitution for him and in his name, place and stead, in
any and all capacity, to sign any or all amendments to this Form 10-K and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Federal Deposit Insurance Corporation, granting unto said
attorney-in-fact and agents in full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as they might or could be in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, and their substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in capacities and on the dates indicated.
Directors Date
- ---------------------------------------- --------------
/s/ Beauford E. Davidson March 22, 2004
- ----------------------------------------
Beauford E. Davidson
/s/ Patrick B. Langford March 22, 2004
- ----------------------------------------
Patrick B. Langford
/s/ Lewis J. Nobles, Jr. March 22, 2004
- ----------------------------------------
Lewis J. Nobles, Jr.
/s/ Jon R. Olliff March 22, 2004
- ----------------------------------------
Jon R. Olliff
/s/ James O'Quinn March 22, 2004
- ----------------------------------------
James O'Quinn
/s/ Stephen L. Price March 22, 2004
- ----------------------------------------
Stephen L. Price
/s/ Bernard T. Rasmussen March 22, 2004
- ----------------------------------------
Bernard T. Rasmussen
/s/ R. A. Roberts March 22, 2004
- ----------------------------------------
R. A. Roberts
/s/ Daniel G. Rosbough March 22, 2004
- ----------------------------------------
Daniel G. Rosbough
/s/ James E. Williams, Jr. March 22, 2004
- ----------------------------------------
James E. Williams, Jr.
80