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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, 2004 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 _____
The issuer's revenues for its most recent fiscal year were $43,357,549.
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 4, 2005, was $122,548,167 based on a per share price of $27.00, 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 4, 2005, there were 4,538,821 shares of the registrant's Common Stock
outstanding.
This statement has not been reviewed, or confirmed for accuracy or relevance, by
the Federal Deposit Insurance Corporation.
Documents Incorporated by Reference
Portions of the registrant's definitive Proxy Statement for the 2004 Annual
Meeting of Shareholders are incorporated by reference into Part III of this
report.
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FLORIDA COMMUNITY BANKS, INC.
2004 Form 10-K Annual Report
TABLE OF CONTENTS
Item Number Page or
in Form 10-K Description Location
- ---------------- -------------------------------------------------------------------------- ---------
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................................ 32
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................... 74
Item 9A. Controls and Procedures.................................................... 74
Item 9B. Other Information.......................................................... 75
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.......................... 75
Item 11. Executive Compensation..................................................... 75
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 75
Item 13. Certain Relationships and Related Transactions............................. 75
Item 14. Principal Accountant Fees and Service...................................... 75
PART IV
Item 15. Exhibits and Financial Statements Schedules................................. 76
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, 2004, FCBI had total assets of
approximately $661 million, total deposits of approximately $521 million and
stockholders' equity of approximately $53 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 160 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, 2004, the Bank operated nine branch offices, with a tenth office
scheduled to open in January 2005. 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
the branch is scheduled to open in January 2005. 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 if 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 increased 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
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 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.
Available Information
The Company presently does not have a website.
Copies of the Annual Report on Form 10-K, quarterly reports on Form 10-Q
and current reports on Form 8-K are available at no charge. Those who would like
a copy should contact Guy W. Harris, Chief Financial Officer, Florida Community
Banks, Inc., 1400 North 15th Street, Immokalee, Florida 34142.
We currently file periodic reports with the Securities and Exchange
Commission (including Form 10-Ks, Form 10-Qs, Proxy Statements, etc.). We file
these periodic reports electronically via EDGAR and they can be reviewed at the
Securities and Exchange Commission's website: www.sec.gov.
ITEM 2. PROPERTIES
For the description of the property of the Company, see "ITEM I - 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 2004.
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 2004, the Company issued 1.2 shares for 1.0 share stock split,
thereby increasing the number of shares outstanding from 3,766,384 to 4,519,321.
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 2003 and 2004. To the best of management's knowledge, the last trade in
December was executed at a price of $25.75 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
2004 (Split Adjusted):
First Quarter................................................................. $ 25.00 $ 20.63
Second Quarter................................................................ 23.33 22.50
Third Quarter................................................................. 25.00 23.33
Fourth Quarter................................................................ 25.75 24.19
2003 (Split Adjusted):
First Quarter................................................................. $ 17.88 $ 16.67
Second Quarter................................................................ 20.83 18.23
Third Quarter................................................................. 19.62 17.19
Fourth Quarter................................................................ 20.63 19.97
As of March 4, 2005, there were 4,538,821 shares of Common Stock
outstanding held by approximately 928 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 dividends of $.21 per share
(split-adjusted) in the fourth and second quarters of 2004, $.18 per share
(split-adjusted) in the fourth quarter of 2003 and a dividend of $.24 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, 2004.
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......... 170,328 $ 16.34 54,551
Equity Compensation Plans
Not Approved by Shareholders..... -- -- --
----------- ------------- -----------
Total............................ 170,328 $ 16.34 54,551
=========== ============= ===========
9
ITEM 6. SELECTED FINANCIAL DATA
The following table presents on a historical basis selected financial data
and ratios for the Company. All averages are daily averages.
Years Ended December 31,
------------------------------------------------------------
2004 2003 2002 2001 2000
---------- --------- --------- ---------- ----------
(Dollars in thousands except per share data)
Earnings Summary:
Interest income................................... $ 39,584 $ 33,520 $ 31,266 $ 27,903 $ 24,991
Interest expense.................................. 9,200 10,081 11,787 12,018 10,276
Net interest income............................... 30,384 23,439 19,479 15,885 14,715
Provision for loan losses......................... 1,971 1,700 2,510 720 1,000
Net interest income after provision for loan losses 28,413 21,739 16,969 15,165 13,715
Non-interest income............................... 3,774 2,729 2,320 1,699 1,804
Non-interest expense.............................. 12,251 10,980 9,020 8,226 7,553
Income before income taxes........................ 19,936 13,488 10,269 8,638 7,966
Applicable income taxes........................... 7,694 5,091 3,851 3,292 2,881
Net income........................................ 12,242 8,397 6,418 5,346 5,085
Per Common Share Data:
(Retroactively adjusted for effects of stock dividends
and stock splits)
Net income - basic ............................... $ 2.71 $ 1.87 $ 1.43 $ 1.19 $ 1.13
Net income - diluted.............................. 2.68 1.85 1.42 1.19 1.13
Cash dividends declared per common share.......... 0.42 0.18 0.24 0.48 0.44
Selected Average Balances:
Total assets...................................... $ 588,771 $ 513,583 $ 446,318 $ 324,188 $ 263,289
Total loans....................................... 490,521 425,278 370,062 255,294 206,333
Securities........................................ 43,567 32,618 41,106 40,418 39,676
Earning assets.................................... 552,930 486,643 426,374 307,524 247,238
Deposits.......................................... 483,135 411,084 366,632 271,431 216,348
Long-term borrowings.............................. 50,762 55,660 41,701 17,478 15,607
Shareholders' equity.............................. 48,365 38,867 32,025 28,009 24,724
Shares outstanding (split adjusted, in thousands). 4,516 4,497 4,497 4,497 4,497
Selected Period-End Balances:
Total assets...................................... $ 660,864 $ 525,508 $ 521,758 $ 388,061 $ 296,452
Total loans....................................... 552,509 437,593 416,414 318,666 227,155
Securities........................................ 74,265 38,938 36,524 35,001 42,270
Earning assets.................................... 627,722 491,153 498,509 364,012 273,356
Deposits.......................................... 520,585 423,284 423,935 317,861 249,059
Long-term borrowings.............................. 70,310 50,332 60,349 37,580 15,093
Shareholders' equity.............................. 52,928 42,086 34,464 29,139 25,970
Shares outstanding (split adjusted, in thousands). 4,519 4,497 4,497 4,497 4,497
Selected Ratios:
Return on average equity.......................... 25.31% 21.60% 20.04% 19.09% 20.57%
Return on average assets.......................... 2.08 1.63 1.44 1.65 1.93
Net interest margin............................... 5.50 4.82 4.57 5.17 5.95
Allowance for loan losses to loans................ 1.77 1.84 1.52 1.19 1.44
Net charge-offs to average loans.................. 0.05 (0.01) 0.00 0.07 0.00
Average equity to average assets.................. 8.21 7.57 7.18 8.64 9.39
Cash Dividends Declared.............................. $ 1,883 $ 781 $ 1,093 $ 2,178 $ 1,988
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 2004 was $12,241,932, a 45.8% increase over 2003 net income.
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 20.1% increase over 2001 net income. Diluted
net income per common share for 2004 was $2.68 compared to $1.85 in 2003 and
$1.42 in 2002. Net income for 2001 was $5,346,217, a 5.1% increase from 2000 net
income of $5,085,061.
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 and from 2003 to 2004 was primarily
attributable to an increase in the net interest margin as deposit costs
decreased more than loan yields decreased.
11
Earning Assets
During 2004, earning assets averaged $553 million, an increase of $66
million (13.6%) over 2003. During 2003, earning assets averaged $487 million, an
increase of $60 million (14.1%) over 2002. During 2002, earning assets averaged
$426 million, an increase of $119 million (38.6%) over 2001.
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,
----------------------------------------
2004 2003 2002
----------- ----------- -----------
(In thousands)
Interest-bearing deposits with banks.................................... $ 948 $ 857 $ 12,668
Securities.............................................................. 74,265 38,938 36,524
Federal funds sold...................................................... -- 13,765 32,902
Loans:
Real estate.......................................................... 492,966 381,709 361,420
Commercial and other................................................. 59,543 55,884 54,994
----------- ----------- -----------
Total loans........................................................ 552,509 437,593 416,414
----------- ----------- -----------
Interest-earning assets ................................................ $ 627,722 $ 491,153 $ 498,508
=========== =========== ===========
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 $65 million (15.3%) in 2004 compared to 2003. 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 2004 was
funded primarily by issuance of brokered certificate of deposits, as well as by
the growth in the bank's core deposits (demand deposits, money market and
savings accounts).
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.
[The remainder of this page intentionally left blank.]
12
The following table sets forth the balances in certain categories of loans
at December 31 for each of the five years ending December 31, 2004.
Loan Portfolio
December 31,
2004 2003 2002 2001 2000
----------------- ----------------- ---------------- ---------------- -----------------
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. $ 51,378 9.26% $ 45,274 10.31% $ 42,876 10.27% $ 38,007 11.92% $ 37,628 16.56%
Real estate -
construction..... 270,016 48.69 172,890 39.37 140,723 33.70 93,049 29.17 73,665 32.42
Real estate -
mortgage 222,950 40.20 208,819 47.55 220,697 52.84 179,261 56.20 110,409 48.60
Consumer........... 8,086 1.46 10,665 2.43 12,089 2.89 8,481 2.66 5,267 2.32
Other.............. 2,181 0.39 1,487 0.34 1,226 0.30 157 0.05 221 0.10
-------- -------- -------- ------- -------- ------ ------- ------- -------- -------
554,611 100.00% 439,135 100.00% 417,611 100.00% 318,955 100.00% 227,190 100.00%
====== ====== ====== ======= =======
Unearned income.... (2,102) (1,542) (1,197) (289) (35)
Allowance for loan
losses........... (9,791) (8,067) (6,319) (3,803) (3,267)
-------- -------- -------- ------- --------
Net loans.......... $542,718 $429,526 $410,095 $314,863 $223,888
======== ======== ======== ======== ========
The following table shows the maturity distribution of selected loan
classifications at December 31, 2004, and an analysis of those loans maturing in
over one year:
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............ $ 22,280 $ 26,598 $ 2,500 $ 51,378 $ 19,348 $ 9,750
Real estate - construction..... 156,238 93,257 20,521 270,016 86,689 27,089
----------- ----------- ----------- ----------- ------------- --------------
Total....................... $ 178,518 $ 119,855 $ 23,021 $ 321,394 $ 106,037 $ 36,839
=========== =========== =========== =========== ============= ==============
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 $35 million or 90.7% from 2003 to
2004. 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 increase in the securities portfolio from 2003 to 2004
was largely as a result of a $30 million leverage transaction that was put
together to better utilize the banks excess capital. From 2001 through 2003 the
securities were relatively flat 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
13
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
securities are carried at estimated fair market value and are equity securities
at year-end 2004, 2003 and 2002. Held-to-Maturity securities are carried at
amortized cost and represent the largest portion of the total securities
portfolio. At December 31, 2004, 2003 and 2002 there were no material unrealized
gains (losses) in the Available-for-Sale portfolio. At December 31, 2004, 2003
and 2002, net unrealized gains (losses) in the Held-to-Maturity portfolio
amounted to ($338,296), ($456,579), and $780,513, 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,
----------------------------------------------
2004 2003 2002
------------- ------------- --------------
(In thousands)
Held-to-Maturity:
U.S. government and agencies................................. $ 1,997 $ 1,768 $ 3,000
Mortgage-backed securities................................... 67,333 33,985 30,339
------------- ------------- --------------
Total Held-to-Maturity..................................... 69,330 35,753 33,339
------------- ------------- --------------
Available-for-Sale:
Equity securities............................................ 4,935 3,185 3,185
------------- ------------- --------------
Total Available-for-Sale................................... 4,935 3,185 3,185
------------- ------------- --------------
Total Securities................................................ $ 74,265 $ 38,938 $ 36,524
============= ============= ==============
The following table indicates the respective maturities and weighted
average yields of securities (dollars in thousands):
Security Portfolio Maturity Schedule
Maturing
-------------------------------------------------------------------------------
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
----------------- -------------------- -------------------- -----------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------- ------- --------- ------- -------- ------- ------- -------
(Amounts in thousands, except percentages)
Securities Held-to-Maturity
U.S. Government agencies...... $ -- 0.00% $ 2,012 3.52% $ -- 0.00% $ -- 0.00%
Mortgage-backed securities.... -- 0.00 127 4.99 1,412 5.62 65,779 4.16
Equity securities............. -- 0.00 -- 0.00 -- 0.00 -- 0.00
Securities Available-for-Sale
U.S. Government agencies...... $ -- 0.00% $ -- 0.00% $ -- 0.00% $ -- 0.00%
Mortgage-backed securities.... -- 0.00 -- 0.00 -- 0.00 -- 0.00
Equity securities............. -- 0.00 -- 0.00 -- 0.00 4,935 3.68
-------- --------- --------- --------
Total Securities................. $ -- $ 2,139 3.61 $ 1,412 5.62 $ 70,714 4.11
======== ========= ========= ========
There were no securities held by the Company of which the aggregate value
at December 31, 2004, 2003 and 2002 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 $72 million (17.5%) in 2004 compared to 2003.
Average deposits increased $44 million (12.1%) in 2003 compared to 2002. Average
deposits increased $95 million (35.1%) in 2002 compared to 2001. In 2004, the
largest growth area was again in non-interest bearing demand deposits, money
market and savings deposits, which increased $45.7 million in total. 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, which increased $64.6 million.
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%.
The following table sets forth the Company's deposit structure at December
31 in each of the last three years.
December 31,
----------------------------------------------
2004 2003 2002
------------- ------------- --------------
(In thousands)
Noninterest-bearing deposits:
Individuals partnerships and corporations.................... $ 106,569 $ 72,498 $ 49,970
U.S. Government and states and political subdivisions........ 2,290 3,201 2,311
Certified and official checks................................ 4,358 2,598 2,197
------------- ------------- --------------
Total non-interest-bearing deposits........................ 113,217 78,297 54,478
------------- ------------- --------------
Interest-bearing deposits:
Interest - bearing demand accounts........................... 38,158 29,885 24,774
Savings accounts............................................. 120,171 103,060 92,109
Certificates of deposit, less than $100,000.................. 64,417 69,096 111,774
Certificates of deposit, more than $100,000.................. 184,622 142,946 140,800
------------- ------------- --------------
Total interest-bearing deposits............................ 407,368 344,987 369,457
------------- ------------- --------------
Total deposits............................................. $ 520,585 $ 423,284 $ 423,935
============= ============= ==============
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,
-----------------------------------------------------------------------
2004 2003 2002
---------------------- ---------------------- -----------------------
Amount Rate Amount Rate Amount Rate
---------- ---------- ---------- --------- --------- ----------
(Dollars in thousands)
Non interest-bearing deposits............ $ 94,085 0.00% $ 64,306 0.00% $ 53,376 0.00%
Interest-bearing demand deposits......... 33,216 0.30 27,389 0.38 23,460 0.90
Savings deposits......................... 121,024 1.00 105,121 1.29 86,383 1.98
Time deposits............................ 234,810 2.47 214,268 3.02 203,413 3.99
---------- ---------- ---------
Total deposits......................... $ 483,135 1.47 $ 411,084 1.93 $ 366,632 2.74
========== ========== =========
15
At December 31, 2004, time deposits of $100,000 or greater aggregated
approximately $184.6 million. The following table indicates, as of December 31,
2004, 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)
Three months or less.......................................................................... $ 30,320
Over three through six months................................................................. 2,185
Over six through twelve months................................................................ 54,964
Over twelve months............................................................................ 97,153
--------------
Total....................................................................................... $ 184,622
==============
At December 31, 2004 and 2003, respectively, borrowed funds consisted
primarily of long-term debt. The Bank had $54,000,000 in available lines to
purchase federal funds and the Company had $5,000,000 in available lines to
purchase federal funds, on an unsecured basis, from other financial
institutions. At December 31, 2004, the Bank had $3,851,000 advanced against
those lines and the Company had $100,000 advanced against those lines. 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,
2004 the Company also had credit available of approximately $99 million with the
Federal Home Loan Bank of Atlanta, of which approximately $39 million 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. At December 31, 2003 and 2002 the Company 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, 2004.
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, 2004.
Maturities of Long-term Debt
(In thousands)
2005 2006 2007 2008 2009
--------- --------- -------- -------- -----------
Interest on indebtedness......................... $ 2,471 $ 2,204 $ 2,204 $ 2,204 $ 2,194
Repayment of principal........................... 15,000 -- -- -- 5,000
--------- --------- -------- ---------- ----------
$ 17,471 $ 2,204 $ 2,204 $ 2,204 $ 7,194
========= ========= ======== ========== ===========
Capital Resources
Shareholders' equity increased $10.8 million to $52.9 million as of
December 31, 2004, 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 to $29.1 million as of December 31,
2001. The increase in shareholders' equity for 2004, 2003 and 2002 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
16
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 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
2004 2003 2002
------------- ------------- --------------
Return on average assets........................................... 2.08% 1.63% 1.44%
Return on average common equity.................................... 25.31 21.60 20.04
Dividend payout ratio.............................................. 15.38 9.30 17.03
Average common shareholders' equity to average
assets ratio.................................................... 8.21 7.57 7.18
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, 2004, 2003 and 2002:
Capital Adequacy Ratios
Statutory Years ended December 31,
----------------------------------------
Minimum 2004 2003 2002
------------ ----------- ----------- -----------
(Amounts in thousands)
Tier I Capital........................................... $ 62,928 $ 52,086 $ 44,464
Tier II Capital.......................................... 7,608 6,136 5,856
----------- ----------- -----------
Total Qualifying Capital................................. $ 70,536 $ 58,222 $ 50,320
=========== =========== ===========
Risk Adjusted Total Assets (including
off-balance-sheet exposures)............................. $ 606,473 $ 488,931 $ 468,050
=========== =========== ===========
Adjusted quarterly average assets........................ $ 620,487 $ 508,561 $ 485,977
=========== =========== ===========
Tier I Capital Ratio..................................... 4.00% 10.38% 10.65% 9.50%
Total Capital Ratio...................................... 8.00 11.63 11.91 10.75
Leverage Ratio........................................... 4.00 10.14 10.24 9.15
Information on the Bank capital ratios appears in Note 11 to the
consolidated financial statements contained elsewhere herein.
On December 31, 2004 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 non-interest-bearing deposit accounts. The Bank had
$50,150,000 and $34,500,000 of federal funds available at December 31, 2004 and
2003, respectively, and the Company had $4,900,000 of federal funds available at
December 31, 2004. The Bank also had available as a source of financing, a line
of credit with the Federal Home Loan Bank of Atlanta of which $39,000,000 and
$32,700,000 was available and unused at December 31, 2004 and 2003,
respectively, subject to the availability of assets to pledge to secure such
borrowings.
18
Contractual Obligations
The Company and the Bank have various contractual obligations that they
must fund as part of their normal operations. The following table shows
aggregate information about their contractual obligations, including interest,
and the periods in which payments are due. The amounts and time periods are
measured from December 31, 2004.
Payments due by period (in thousands)
-----------------------------------------------------------------------
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
-------------- ------------ -------------- -------------- --------------
Long-Term Debt........................ $ 99,900 $ 17,471 $ 4,407 $ 9,398 $ 68,624
Capital Lease Obligations............. -- -- -- -- --
Operating Lease Obligations........... 4,035 181 349 361 3,144
Time Deposits......................... 258,849 125,886 124,742 8,221 --
-------------- ------------ ------------- -------------- -------------
Total................................. $ 362,784 $ 143,538 $ 129,498 $ 17,980 $ 71,768
============== ============ ============= ============== =============
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, 2004.
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............................ $ 160,048 $ 24,460 $ 140,010 $ 197,885 $ 31,962 $ 554,365
Securities and federal funds sold 2,353 -- 279 34,529 37,104 74,265
Interest-bearing deposits in banks 948 -- -- -- -- 948
----------- ----------- ----------- ----------- ----------- -----------
163,349 24,460 140,289 232,414 69,066 629,578
----------- ----------- ----------- ----------- ----------- -----------
Interest-bearing liabilities (2)
Demand deposits (3).............. 12,719 12,719 12,720 -- -- 38,158
Savings deposits (3)............. 40,057 40,057 40,057 -- -- 120,171
Time deposits.................... 18,151 23,138 82,011 125,738 -- 249,038
Short-term borrowings............ 14,057 -- -- -- -- 14,057
Long-term borrowings............. 5,000 -- 10,000 5,000 50,310 70,310
----------- ------------ ----------- ---------- ----------- ----------
89,984 75,914 144,788 130,738 50,310 491,734
----------- ----------- ---------- ---------- ----------- ----------
Interest sensitivity gap............ $ 73,365 $ (51,454) $ (4,499) $ 101,676 $ 18,756 $ 137,844
=========== =========== =========== =========== ============ ===========
Cumulative interest sensitivity gap. $ 73,365 $ 21,911 $ 17,412 $ 119,088 $ 137,844
=========== =========== =========== =========== ===========
Ratio of interest-earning assets to
Interest-bearing liabilities... 1.82 0.32 0.97 1.78 1.37
Cumulative ratio.................... 1.82 1.13 1.06 1.27 1.28
Ratio of cumulative gap to total
interest-earning assets.......... 0.12 0.03 0.03 0.19 0.22
(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.
19
The above table indicates that in a rising interest rate environment, the
Company's earnings may be positively affected in the short-term, (0-365 days)
due to earning assets re-pricing faster 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 $73.4 million. For the first 365 days, interest earning assets
exceed interest-bearing liabilities by approximately $17.4 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 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 $6.9 million (29.6%) to $30.4
million in 2004 compared to 2003. Net interest income increased approximately
$3.9 million (20.3%) to $23.4 million in 2003 compared to 2002, and 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 $39.6 million in 2004, which represented an increase of
$6.1 million (18.1%) over 2003. 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 2004 and 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, 2004, management
estimated that approximately $191 million of the $354 million in variable rate
loans were at their floor rate. Interest income on securities increased $291
thousand (21.9%) from 2003 to 2004. The increase in income was due to an
increase in the securities purchased, which was partially offset by lower
yields. Interest income on securities decreased $859 thousand (39.2%) from 2002
to 2003. The decrease in securities income from 2002 to 2003 was 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 resulted from a decline in yield caused by replacing higher
rate U.S. Government Agency securities that were called during the year.
Interest income other than loans and securities, decreased by $95 thousand
in 2004, increased by $57 thousand in 2003 and decreased by $258 thousand in
2002. In 2004, the average amount invested in fed funds sold declined, which
caused the decline in interest income. In 2003 the opposite was true and there
was an increase in fed
20
funds sold, which caused the increase in interest income. The decrease in 2002
was primarily due to the decline in rates.
Total interest expense decreased by $881 thousand (8.7%) in 2004 compared
to 2003, 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 2004 was caused by lower deposit rates in general; a
carryover from 2003's low rates. The decrease in interest expense in 2003 was
caused by lower time deposit rates. The interest expense decrease from 2001 to
2002 was primarily due to a decline in the rates, which more than offset the
increase in the volume of the time deposit accounts and FHLB advances. (See the
"Rate/Volume Analysis" following this section.) Interest expense on time deposit
accounts decreased $1.6 million even though 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.
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) increased in 2004 to 7.16% compared
to 6.89% in 2003, 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 and to 2.08% in 2004.
The Bank's net interest margin (net interest income divided by average interest
earning assets) increased in 2004 to 5.50% compared to 4.82% in 2003 and 4.57%
in 2002. The increase was caused by the Bank's ability to utilize rate floors
(discussed above) when rates were declining and lowering its cost of funds by
increasing its non-interest demand deposits. The Bank also benefited in 2003
when interest rates were dropping and the longer-term interest bearing
liabilities (primarily certificates of deposit) were re-pricing at the lower
rates (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 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,
----------------------------------------------------------------------------------------------------------
2004 2003 2002
--------------------------------- ----------------------------------- ---------------------------------
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) $490,521 $37,743 7.69% $ 425,278 $ 31,874 7.49% 370,062 $ 28,824 7.79%
Securities:
Taxable............ 43,567 1,622 3.72 32,618 1,331 4.08 41,024 2,185 5.32
Tax-exempt......... -- -- 0.00 -- -- 0.00 82 5 7.32
---------- --------- ----------- ----------- ----------- ----------
Total securities. 43,567 1,622 3.72 32,618 1,331 4.08 41,106 2,191 5.33
Interest-bearing
deposits in other
banks......... 1,758 25 1.42 7,301 80 1.10 3,483 78 2.24
Federal funds sold... 17,084 197 1.15 21,446 237 1.11 11,723 182 1.55
---------- --------- ---------- ----------- ----------- ---------- ----------- ---------- ---------
Total interest-
earning assets(2) 552,930 39,587 7.16 486,643 33,522 6.89 426,374 31,274 7.34
Non-interest earning assets:
Cash and
due from banks 18,795 19,688 10,689
Accrued interest and
other assets..... 25,785 14,373 13,995
Allowance for
loan losses (8,739) (7,121) (4,740)
---------- ------------ -----------
Total Assets..... $ 588,771 $ 513,583 $ 446,318
========== ============ ===========
Liabilities and
Shareholders' Equity:
Interest-bearing liabilities:
Demand deposits.... $ 33,216 $ 101 0.30% $ 27,389 104 0.38% 23,460 210 0.90%
Savings deposits... 121,024 1,213 1.00 105,121 1,353 1.29 86,383 1,714 1.98
Time deposits...... 234,810 5,796 2.47 214,268 6,467 3.02 203,413 8,108 3.99
------- --------- ------------ ---------- ----------- ----------
Total deposits... 389,050 7,110 1.83 346,778 7,924 2.29 313,256 10,032 3.20
Long-term borrowings 50,762 2,034 4.01 55,660 2,131 3.83 41,701 1,699 4.07
Short-term borrowings 3,083 56 1.82 2,239 26 1.16 2,759 56 2.03
------- --------- ------------ ---------- ----------- ----------
Total interest-
bearing
liabilities 442,895 9,200 2.08 404,677 10,081 2.49 357,716 11,787 3.30
-------- --------- ------------ ----------- ----------- --------
Non interest-bearing
liabilities:
Demand deposits.... 94,085 64,306 53,376
Accrued interest and
other liabilities 3,426 5,733 3,201
Shareholders' equity 48,365 38,867 32,025
------- ----------- ----------
Total Liabilities
and Shareholders'
Equity......... $588,771 $ 513,583 $ 446,318
======== =========== ==========
Net Interest Income/Net
Interest Spread.... 30,387 5.08% 23,441 4.40% 19,487 4.04%
======== ========= =======
Net yield on earning assets 5.50% 4.82% 4.57%
======== ========= =======
Taxable Equivalent
adjustment:
Securities......... -- -- 1
Loans.............. 3 2 6
-------- -------- --------
Total taxable
equivalent
adjustment..... 3 2 7
------- -------- --------
Net interest income.. $30,384 $ 23,439 $ 19,480
======= ======== ========
(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.
The following tables set forth, for the years ended December 31, 2004, 2003
and 2002, a summary of the changes in interest income and interest expense
resulting from changes in interest rates and in changes in the volume of earning
assets and interest-bearing liabilities, segregated by category. The change due
to volume is calculated by multiplying the change in volume by the prior year's
rate. The change due to rate is calculated by multiplying the change in rate by
the prior year's volume. The change attributable to both volume and rate is
calculated by multiplying the change in volume by the change in rate. Figures
are presented on a taxable equivalent basis.
22
Rate/Volume Variance Analysis
Taxable Equivalent Basis
Average Volume Change in Volume Average Rate
------------------------------- ----------------------- ---------------------------
2004 2003 2002 2004-2003 2003-2002 2004 2003 2002
--------- --------- --------- ----------- ---------- ------ ------ ------
(Dollars in thousands)
Earning assets:
Loans, net of unearned
income (1) $ 490,521 $ 425,278 $ 370,062 $ 65,243 $ 55,216 7.69% 7.49% 7.79%
Securities
Taxable................. 43,567 32,618 41,024 10,949 (8,406) 3.72 4.08 5.32
Tax exempt.............. -- -- 82 -- (82) 0.00 0.00 6.10
--------- --------- --------- ----------- ----------
Total Securities...... 43,567 32,618 41,106 10,949 (8,488) 3.72 4.08 5.33
--------- --------- --------- ----------- ----------
Interest-bearing deposits
with other banks........ 1,758 7,301 3,483 ( 5,543) 3,818 1.42 1.10 2.24
Federal funds sold......... 17,084 21,446 11,723 (4,362) 9,723 1.15 1.11 1.55
--------- --------- --------- ----------- ----------
Total Earning Assets.. $ 552,930 $ 486,643 $ 426,374 $ 68,287 $ 60,269 7.16 6.89 7.33
========= ========= ========= =========== ==========
Interest-Bearing Liabilities
Deposits:
Demand deposits......... $ 33,216 $ 27,389 $ 23,460 $ 5,827 $ 3,929 0.30 0.38 0.90
Savings................. 121,024 105,121 86,383 15,903 18,738 1.00 1.29 1.98
Time certificates....... 234,810 214,268 203,413 20,542 10,855 2.47 3.02 3.99
--------- --------- --------- ----------- ----------
Total Deposits........ 389,050 346,778 313,256 42,272 33,522 1.83 2.29 3.20
Long-term borrowings....... 50,762 55,660 41,401 (4,898) 14,269 4.01 3.83 4.10
Other borrowings........... 3,083 2,239 2,759 844 (520) 1.82 1.16 2.03
--------- --------- --------- ----------- ----------
Total Interest-Bearing
Liabilities......... $ 442,895 $ 404,677 $ 357,416 $ 38,218 $ 47,261 2.08 2.49 3.30
========= ========= ========= =========== =========
Net interest income/net interest spread 5.08 4.40 4.04
Net yield on earning assets 5.50 4.82 4.57
Net cost of funds.......... 1.66 2.07 2.76
Variance Attributed to
Interest
Income/Expense Variance 2004 2003
------------------------ -------------------- ----------------------- -----------------------
2004 2003 2002 2004-2003 2003-2002 Volume Rate Mix Volume Rate Mix
------ ------ ------- ---------- --------- --------- ------ ----- --------- ------ ------
(Dollars in thousands)
Earning assets:
Loans, net of
unearned income....... $37,743 $31,873 $28,824 $ 5,870 $ 3,055 $ 4,888 $ 869 $ 113 $ 4,300 $(1,083) $(162)
Securities:
Taxable.............. 1,622 1,332 2,184 290 (853) 476 (205) 19 (448) (509) 105
Tax exempt........... -- -- 5 -- (5) -- -- -- (5) (5) 5
------ ------ ------- ---------- --------- -------- ----- ----- --------- ------ -----
Total securities... 1,622 1,332 2,189 290 (858) 476 205 19 (453) (514) 110
------ ------ ------- ---------- --------- -------- ----- ----- --------- ------ -----
Interest-bearing deposits
with other banks..... 25 80 78 (55) 3 (61) 24 (18) 86 (40) (44)
Federal funds sold...... 197 237 182 (40) 55 (48) 9 (1) 151 (52) (44)
------ ------ ------- ---------- --------- -------- ----- ----- --------- ------- ------
Total earning assets 39,587 33,522 31,276 6,065 2,249 5,255 697 113 4,084 (1,689) (140)
------ ------ ------- ---------- --------- -------- ----- ----- --------- ------- ------
Interest-bearing liabilities:
Deposits:
Demand............... 101 104 210 (3) (108) 22 (21) (4) 35 (121) (20)
Savings.............. 1,213 1,353 1,714 (140) (381) 205 (302) (43) 372 (602) (131)
Time certificates.... 5,796 6,467 8,108 (671) (1,641) 620 (1,182) (109) 433 (1,969) (105)
Total deposits..... 7,110 7,924 10,032 (814) (2,108) 847 (1,505) (156) 840 (2,692) (256)
Long-term borrowings.... 2,034 2,131 1,699 (97) 432 (188) 98 (7) 585 (114) (39)
Short-term borrowings... 56 26 56 30 (30) 10 15 5 (11) (24) 5
------ ------ ------- --------- --------- ------- ------ ----- -------- ------- ------
Total interest-
bearing liabilities 9,200 10,081 11,787 (881) (1,706) 669 (1,392) (158) 1,414 (2,830) (290)
------ ------ ------- --------- --------- ------- ------ ----- ------- ------ ------
Net interest income/net
interest spread...... $30,387 $23,441 $19,480 $ 6,946 $ 3,955 $ 4,586 $2,089 $ 271 $ 2,670 $ 1,141 $ 150
======= ======= ======= ========= ========= ======= ====== ===== ======= ======= ======
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 2004.
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 $9,791,269 on December 31, 2004, and $8,066,817 on
December 31, 2003, 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.
[The remainder of this page intentionally left blank]
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, 2004.
Summary of Loan Loss Experience
2004 2003 2002 2001 2000
--------- --------- -------- -------- ---------
(Dollars in thousands)
Allowance for loan losses at beginning of year..... $ 8,067 $ 6,319 $ 3,803 $ 3,267 $ 2,261
Loans charged off:
Commercial, financial and agricultural........... 209 139 161 162 50
Real estate - mortgage........................... 85 10 -- 185 8
Consumer......................................... 161 74 46 43 52
--------- --------- -------- -------- ---------
Total loans charged off........................ 455 223 207 390 110
--------- --------- -------- -------- ---------
Recoveries on loans previously charged off:
Commercial, financial and agricultural........... 143 245 193 47 33
Real estate - mortgage........................... 30 2 3 131 72
Consumer......................................... 35 23 17 28 11
--------- --------- -------- -------- ---------
Total recoveries............................... 208 271 213 206 116
--------- --------- -------- -------- ---------
Net loans charged off (recovered).................. 247 (48) (6) 184 (6)
Provision for loan losses.......................... 1,971 1,700 2,510 720 1,000
--------- --------- -------- -------- ---------
Allowance for loan losses at end of period......... $ 9,791 $ 8,067 $ 6,319 $ 3,803 $ 3,267
========= ========= ======== ======== =========
Loans, net of unearned income, at end of period.... $ 552,509 $ 437,593 $416,414 $318,666 $ 227,155
Average loans, net of unearned income,
outstanding for the period....................... 490,521 425,278 370,062 255,294 206,333
Ratio of net charge-offs to net average loans...... 0.05% (0.01)% (0.00)% 0.07% (0.00)%
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 2000 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 began to allocate 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.
Management allocated the allowance for loan losses to specific loan
categories as follows:
Allocation of Allowance for Loan Losses
December 31,
--------------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
------------------ ---------------- --------------------- ------------------- --------------------
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 toTotal
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
--------- ---------- --------- ------- ---------- --------- ------- --------- -------- ----------
(Dollars in Thousands)
Domestic loans:
Commercial, financial
and agricultural $ 271 9.26% $ 22 10.31% $ 2,494 10.27% $1,566 11.92% $ 544 16.56%
Real estate - mortgage
and construction.. 9,512 88.89 8,039 86.92 3,357 86.54 2,021 85.37 2,647 81.02
Consumer.......... 8 1.85 6 2.77 468 3.19 216 2.71 76 2.42
--------- --------- ------- ------- --------- ------- ------- -------- ------- -------
$ 9,791 100.00% $ 8,067 100.00% 6,319 100.00% $3,803 100.00% $ 3,267 100.00%
========= ========= ======= ======= =========== ======= ======= ======== ======== =======
25
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, 2004, 2003, 2002, 2001,
and 2000 of approximately $10,012,000, $22,269,000, $7,698,000, $2,367,000, and
$1,548,000, respectively.
The following table presents information concerning outstanding balances of
nonperforming assets at December 31, 2004, 2003, 2002, 2001, and 2000.
Nonperforming Assets
December 31,
--------------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- -----------
(Amounts in thousands, except ratios)
Nonaccruing loans........................... $ 247 $ 9,727 $ 5,036 $ 1,333 $ 1,352
Accruing loans 90 days or more past due..... -- 6,420 2,662 984 2
Restructured loans.......................... 7,562 -- -- -- --
----------- ----------- ------------ ----------- -----------
Total nonperforming loans.............. 7,809 16,147 7,698 2,317 1,354
Nonaccruing securities...................... -- -- -- -- --
Other real estate........................... 2,203 6,122 -- 50 194
----------- ----------- ----------- ----------- -----------
Total.................................. $ 10,012 $ 22,269 $ 7,698 $ 2,367 $ 1,548
=========== =========== =========== =========== ===========
Ratios:
Loan loss allowance to total
nonperforming assets................... 0.978 0.362 0.821 1.607 2.110
=========== =========== =========== ============ ===========
Total nonperforming loans to total loans
(net of unearned interest)............. 0.014 0.036 0.018 0.007 0.007
=========== =========== =========== ============ ===========
Total nonperforming assets to total assets 0.015 0.042 0.015 0.006 0.005
=========== =========== ============ ============ ===========
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 $1.05 million (38.3%) for the year ended December 31, 2004,
compared to 2003 due primarily to the gain on the sale of other real estate
owned of $520 thousand and a gain from the sale of the old drive-thru building
in LaBelle of $415 thousand. 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).
26
The table below sets forth the Company's noninterest income for the periods
indicated.
2003/2004 2002/2003
Years Ended December 31, Percent Percent
--------------------------------------------
2004 2003 2002 Change Change
------------ ------------ ------------- ------------- --------------
(Dollars in thousands)
Service charges on deposits........ $ 1,350 $ 1,228 $ 1,268 9.9% (3.2)%
Service charges secondary market... 534 555 304 (3.7) 82.6
Exchange fees...................... 554 416 390 33.2 6.7
Securities gains................... -- -- 36 0.0 (100.0)
Income/gains on other real estate.. 589 69 13 753.6 430.8
Gain on sale of fixed assets....... 415 -- -- 100.0 0.0
Safe deposit box rental............ 66 66 67 0.0 (1.5)
Other.............................. 266 394 242 (32.5) 62.8
------------ ------------ -------------
$ 3,774 $ 2,728 $ 2,320 38.3 17.6
============ ============ =============
Noninterest Expenses
From 2003 to 2004, noninterest expense increased $1.3 million (11.6%).
Salaries and employee benefits in 2004 increased $721 thousand (10.3%) from 2003
to a total of $7.7 million. The increase was due to the normal increases from
year to year for salaries, benefits and insurance costs.
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.
Occupancy and equipment expense increased $198 thousand (12.9%) from 2003
to 2004, decreased $133 thousand (7.9%) from 2002 to 2003, increased $304
thousand (22.3%) from 2001 to 2002. During 2004 occupancy expenses increased
primarily due to the expense of additional equipment added during 2003 and 2004
(increased depreciation and maintenance), increased building repairs due to the
hurricanes in 2004 and higher property taxes in general. During 2003 occupancy
expenses decreased primarily due 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. Other real estate write-offs and expenses were $479 thousand in 2004.
[The remainder of this page intentionally left blank]
27
The table below sets forth the Company's noninterest expenses for the
periods indicated.
2003/2004 2002/2003
Years Ended December 31, Percent Percent
--------------------------------------------
2004 2003 2002 Change Change
------------ ------------ ------------- ------------- --------------
(Dollars in thousands)
Salaries and employee benefits..... $ 7,729 $ 7,008 $ 5,552 10.3% 26.2%
Occupancy and equipment expense.... 1,730 1,532 1,689 12.9 (9.3)
Professional fees.................. 249 263 210 (5.3) 25.2
Advertising........................ 226 218 135 3.7 61.5
Telephone.......................... 188 175 136 7.4 28.7
Software maintenance............... 138 164 70 (15.9) 134.3
Regulatory fees and assessments.... 176 154 139 14.3 10.8
Supplies........................... 171 152 182 12.5 (16.5)
ATM expense........................ 147 137 124 7.3 10.5
Postage............................ 123 136 137 (9.5) 0.0
Taxes and licenses................. 85 95 103 (10.5) (7.8)
Director and committee fees........ 67 67 67 0.0 0.0
Other.............................. 1,222 879 476 39.0 84.7
------------ ------------ -------------
Total........................... $ 12,251 $ 10,980 $ 9,020 11.6 21.7
============ ============ =============
Income Taxes
Income tax expense increased $2.6 million (51.1%) to $7.7 million for the
year ended December 31, 2004, increased $1.2 million (32.2%) to $5.1 million for
the year ended December 31, 2003 and increased $559 thousand (17.0%) to $3.9
million for the year ended December 31, 2002. The effective tax rate as a
percentage of pretax income was 38.6% in 2004, 37.7% in 2003, 37.5% in 2002. The
statutory federal rate was 34 percent during 2004, 2003 and 2002. 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.
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.
28
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, 2004
Projected change in:
Interest income.......................................................... (6.35)% 5.45%
Interest expense......................................................... (9.45) 10.63
Net interest income...................................................... (5.42) 3.89
Other Accounting Issues
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 FASB issued 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.
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,
29
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,
2003. 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, ("FIN 46R") 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.
In December 2003, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
(SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a
Transfer, which addresses the accounting for differences between contractual
cash flows and expected cash flows for loans acquired in a transfer when those
differences are attributable at least in part to a decline in credit quality.
The scope of SOP 03-3 includes loans where there is evidence of deterioration in
credit quality since origination, and includes loans acquired individually, in
pools or as part of a business combination. Under SOP 03-3, the difference
between expected cash flows and the purchase price is accreted as an adjustment
to yield over the life. The Company does not expect the application of SOP 03-03
to have a material impact on our consolidated financial position or results of
operations.
In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on
the remaining portions of EITF 03-01, The Meaning of Other-Than-Temporary
Impairment and It's Application to Certain Investments, effective for the first
fiscal year or interim period beginning after June 15, 2004. EITF 03-01 provides
guidance for determining when an investment is considered impaired, whether
impairment is other-than-temporary, and measurement of an impairment loss. An
investment is considered impaired if the fair value of the investment is less
than its cost. Generally, an impairment is considered other-than-temporary
unless: (1) the investor has the ability and intent to hold an investment for a
reasonable period of time sufficient for an anticipated recovery of fair value
up to (or beyond) the cost of the investment, and (2) evidence indicating that
the cost of the investment is recoverable within a reasonable period of time
outweighs evidence to the contrary. If impairment is determined to be
other-than-temporary, then an impairment loss should be recognized equal to the
difference between the investment's cost and its fair value. Certain disclosure
requirements of EITF 03-01 were adopted in 2003 and the Company began presenting
the new disclosure requirements in its consolidated financial statements for the
year ended December 31, 2003. The recognition and measurement provisions were
initially effective for other-than-temporary impairment evaluations in reporting
periods beginning after June 15, 2004. However in September 2004, the effective
date of these provisions was delayed until the finalization of an FASB Staff
Position to provide additional implementation guidance. Due to the recognition
and measurement provisions being suspended and the final rule delayed, the
Company is not able to determine whether the adoption of these new provisions
will have a material impact on its consolidated financial position or results of
operations.
30
In March 2004, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 105, Application of Accounting Principles to Loan
Commitments. SAB 105 requires that the fair value measurement of mortgage loan
commitments, which are derivatives, exclude any expected future cash flows
related to the customer relationship or servicing rights. The guidance in SAB
105 must be applied to mortgage loan commitments entered into after March 31,
2004. The impact on the Company is not material given the declines in mortgage
banking volume, but could be in the future. The impact is primarily the timing
of when gains should be recognized in the financial statements.
In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 123 (revised 2004) entitled Share-Based Payment ("SFAS No. 123R")
that will require compensation costs related to share-based payment transactions
to be recognized in the financial statements. This Statement eliminates the
alternative to use Opinion 25's intrinsic value method of accounting that was
provided in Statement 123 as originally issued. Under Opinion 25, issuing stock
options to employees generally resulted in recognition of no compensation cost.
This statement requires entities to recognize the cost of employee services
received in exchange for awards of equity instruments based on the grant-date
fair value of those awards (with limited exceptions). Recognition of that
compensation cost helps users of financial statements to better understand the
economic transactions affecting an entity and to make better resource allocation
decisions. The Company is currently evaluating the provisions of SFAS No. 123R
and will adopt it on July 1, 2005.
31
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)
------
Report of Independent Registered Public Accounting Firm.................................................... 33
Consolidated Statements of Financial Condition as of December 31, 2004 and 2003............................ 35
Consolidated Statements of Income for the Years Ended December 31, 2004, 2003 and 2002..................... 36
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2004, 2003 and 2002....... 37
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002................. 38
Notes to Consolidated Financial Statements................................................................. 40
Quarterly Results (Unaudited).............................................................................. 73
32
Letterhead omitted
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Florida Community Banks, Inc. and subsidiary:
We have audited the accompanying consolidated statements of financial
condition of Florida Community Banks, Inc. and subsidiary (the "Company") as of
December 31, 2004 and 2003, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2004. We also have audited management's assessment,
included in the accompanying "Management Report on Internal Control Over
Financial Reporting," that the Company maintained effective internal control
over financial reporting as of December 31, 2004, based on criteria established
in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). The Company's management is
responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on these consolidated financial
statements, an opinion on management's assessment, and an opinion on the
effectiveness of the Company's internal control over financial reporting based
on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of the consolidated financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting,
evaluating management's assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed
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. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
33
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Florida
Community Banks, Inc. and subsidiary as of December 31, 2004 and 2003, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2004 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, management's assessment that Florida Community Banks, Inc. and
subsidiary maintained effective internal control over financial reporting as of
December 31, 2004 is fairly stated, in all material respects, based on the
criteria established in Internal Control - Integrated Framework issued by COSO.
Furthermore, in our opinion, Florida Community Banks, Inc. and subsidiary
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2004, based on criteria established in Internal
Control - Integrated Framework issued by COSO.
/s/ Schauer Taylor Cox Vise & Morgan, P.C.
Birmingham, Alabama
March 15, 2005
34
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2004 AND 2003
2004 2003
------------------ ------------------
Assets
Cash and due from banks............................................. $ 18,665,823 $ 15,897,716
Interest-bearing demand deposits with banks......................... 948,255 857,133
Federal funds sold.................................................. -- 13,765,000
------------------- ------------------
Cash and Cash Equivalents....................................... 19,614,078 30,519,849
Securities available-for-sale....................................... 4,935,077 3,184,977
Securities held-to-maturity, fair value of $68,991,864 in
2004 and $35,296,326 in 2003...................................... 69,330,160 35,752,905
Loans, net of unearned income....................................... 552,509,155 437,592,827
Allowance for loan losses........................................... (9,791,269) (8,066,817)
------------------ ------------------
Net Loans....................................................... 542,717,886 429,526,010
Premises and equipment, net......................................... 13,345,071 12,767,507
Accrued interest.................................................... 3,289,678 2,709,102
Foreclosed real estate.............................................. 2,203,435 6,121,833
Deferred taxes, net................................................. 4,313,485 3,162,883
Other assets........................................................ 1,115,434 1,762,640
------------------ ------------------
Total Assets.................................................... $ 660,864,304 $ 525,507,706
================== ==================
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing............................................... $ 113,217,461 $ 78,296,949
Interest-bearing.................................................. 407,367,970 344,987,453
------------------ ------------------
Total Deposits.................................................. 520,585,431 423,284,402
Short-term borrowings............................................... 14,057,000 7,500,000
Accrued interest.................................................... 1,407,563 858,783
Deferred compensation............................................... 313,622 372,870
Notes payable....................................................... -- 21,698
FHLB advances....................................................... 60,000,000 40,000,000
Subordinated debentures............................................. 10,310,000 10,310,000
Other liabilities................................................... 1,262,989 1,074,184
------------------ ------------------
Total Liabilities............................................... 607,936,605 483,421,937
Shareholders' Equity
Common stock - par value $0.01 per share, 10,000,000 shares authorized,
4,519,321 shares issued and outstanding at December 31, 2004 and 4,497,169
issued and outstanding at December 31, 2003....................... 45,193 44,971
Paid-in capital..................................................... 17,155,534 16,672,566
Retained earnings................................................... 35,726,972 25,368,232
------------------ ------------------
Total Shareholders' Equity...................................... 52,927,699 42,085,769
------------------ ------------------
Total Liabilities and Shareholders' Equity...................... $ 660,864,304 $ 525,507,706
================== ==================
See notes to consolidated financial statements
35
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2004, 2003 and 2002
2004 2003 2002
------------------ ------------------ ------------------
Interest Income
Interest and fees on loans..................... $ 37,739,970 $ 31,871,196 $ 28,817,765
Interest and dividends on securities:
Taxable securities........................... 1,622,283 1,331,446 2,184,654
Tax-exempt securities........................ -- -- 3,855
Interest on federal funds sold................. 197,144 237,388 181,906
Interest on deposits in banks.................. 24,378 79,717 78,130
------------------ ------------------ ------------------
Total Interest Income...................... 39,583,775 33,519,747 31,266,310
------------------ ------------------ ------------------
Interest Expense
Interest on deposits........................... 7,109,471 7,923,935 10,032,397
Interest on FHLB advances...................... 1,503,145 1,604,325 1,300,372
Interest on short-term borrowings.............. 56,072 25,547 55,987
Interest on notes payable...................... -- 2,254 91,759
Interest on subordinated debentures............ 530,931 524,680 306,715
------------------ ------------------ ------------------
Total Interest Expense..................... 9,199,619 10,080,741 11,787,230
------------------ ------------------ ------------------
Net interest income............................... 30,384,156 23,439,006 19,479,080
Provision for loan losses......................... 1,970,768 1,700,000 2,510,000
------------------ ------------------ ------------------
Net Interest Income After Provision
For Loan Losses................................ 28,413,388 21,739,006 16,969,080
Noninterest Income
Customer service fees.......................... 1,884,149 1,920,209 1,571,937
Income and gain on sale from other real
estate owned................................. 588,982 154,373 13,489
Investment security gains...................... -- -- 36,083
Other operating income......................... 1,300,643 653,588 698,607
------------------ ------------------ ------------------
Total Noninterest Income................... 3,773,774 2,728,170 2,320,116
------------------ ------------------ ------------------
Noninterest Expenses
Salaries and employee benefits................. 7,728,811 7,007,575 5,551,509
Occupancy and equipment expense................ 1,730,033 1,532,288 1,689,334
Expenses, write-down, and loss on sale
from other real estate owned................. 479,159 349,052 --
Other operating expenses....................... 2,313,330 2,091,035 1,779,225
------------------ ------------------ ------------------
Total Noninterest Expenses................. 12,251,333 10,979,950 9,020,068
------------------ ------------------ ------------------
Income before income taxes........................ 19,935,829 13,487,226 10,269,128
Income tax expense................................ 7,693,897 5,090,677 3,850,822
------------------ ------------------ ------------------
Net Income........................................ $ 12,241,932 $ 8,396,549 $ 6,418,306
================== ================== ==================
Earnings Per Common Share
Basic.......................................... $ 2.71 $ 1.87 $ 1.43
Diluted........................................ 2.68 1.85 1.42
Cash Dividends Declared Per
Common Share................................... 0.42 0.18 0.24
Weighted Average Shares Outstanding
Basic.......................................... 4,516,295 4,497,169 4,497,169
Diluted........................................ 4,564,882 4,531,813 4,521,826
See notes to consolidated financial statements
36
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 2004, 2003 and 2002
Common Paid-in Retained
Stock Capital Earnings Total
---------------- ---------------- ----------------- -----------------
Balance at
December 31, 2001................ $ 44,971 $ 16,666,317 $ 12,427,367 $ 29,138,655
Net income - 2002................... -- -- 6,418,306 6,418,306
----------------
Comprehensive income................ -- -- -- 6,418,306
----------------
Cash dividends - Common
$0.24 per share.................. -- -- (1,093,161) (1,093,161)
----------------- ----------------- ----------------- ----------------
Balance at
December 31, 2002................ 44,971 16,666,317 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
$0.18 per share.................. -- -- (780,829) (780,829)
----------------- ----------------- ----------------- ----------------
Balance at
December 31, 2003................ 44,971 16,672,566 25,368,232 42,085,769
Net income - 2004................... -- -- 12,241,932 12,241,932
----------------
Comprehensive income................ -- -- -- 12,241,932
----------------
Sale of common stock................ 222 464,980 -- 465,202
Issuance of stock options........... -- 17,988 -- 17,988
Cash dividends - Common
$0.42 per share.................. -- -- (1,883,192) (1,883,192)
----------------- ----------------- ----------------- ----------------
Balance at
December 31, 2004................ $ 45,193 $ 17,155,534 $ 35,726,972 $ 52,927,699
================ ================ ================= =================
See notes to consolidated financial statements
37
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2004, 2003 and 2002
2004 2003 2002
------------------ ------------------ ------------------
Operating Activities
Net income..................................... $ 12,241,932 $ 8,396,549 $ 6,418,306
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses.................. 1,970,768 1,700,000 2,510,000
Depreciation, amortization,
and accretion, net....................... 943,682 917,628 752,624
Deferred tax benefit....................... (1,150,602) (1,202,370) (849,154)
Realized investment securities gains....... -- -- (36,083)
Gain on disposition of other
real estate.............................. (579,244) -- (13,489)
Gain on disposition of
premises and equipment................... (414,508) -- --
(Increase) decrease in accrued
interest receivable...................... (580,576) 195,047 (215,985)
Increase (decrease) in accrued
interest payable......................... 548,780 (1,008,041) 178,011
Other, net................................. 829,720 40,660 (45,523)
------------------ ------------------ ------------------
Net Cash Provided By
Operating Activities..................... 13,809,952 9,039,473 8,698,707
------------------ ------------------ ------------------
Investing Activities
Purchases of securities available-for-sale..... (1,750,100) (500,000) (1,251,919)
Purchases of investment securities
held-to-maturity............................. (40,246,598) (29,251,273) (21,968,075)
Proceeds from sales, maturities, calls
and pay-downs of investment
securities held-to-maturity.................. 6,437,208 26,647,486 21,624,634
Proceeds from sale of securities
available-for-sale........................... -- 500,000 63,500
Proceeds from maturity of interest-
bearing deposits with other banks............ -- -- 2,500,000
Net increase in loans to customers............. (111,333,522) (27,502,464) (97,754,367)
Purchase of premises and equipment............. (1,593,109) (3,345,158) (2,919,987)
Proceeds from disposition of
premises and equipment....................... 718,505 21,842 62,119
Proceeds from disposition of
foreclosed real estate....................... 715,564 -- 75,000
------------------ ------------------ ------------------
Net Cash Used In
Investing Activities..................... (147,052,052) (33,429,567) (99,569,095)
------------------ ------------------ ------------------
(Continued on following page)
See notes to consolidated financial statements
38
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended December 31, 2004, 2003 and 2002
2004 2003 2002
------------------ ------------------ ------------------
Financing Activities
Net increase in demand deposits, NOW
accounts, and savings accounts............... $ 60,294,535 $ 39,881,549 $ 16,278,817
Net increase (decrease) in certificates
of deposit................................... 37,006,494 (40,531,669) 89,794,365
Net increase (decrease) in short-term
borrowings................................... 6,457,000 7,500,000 (1,086,000)
Issuance of long-term debt..................... 25,000,000 -- 25,055,696
Repayments of long-term debt................... (5,021,698) (10,000,000) (7,593,792)
Sale of common stock........................... 465,202 -- --
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.............. 17,988 6,227 --
Cash dividends................................. (1,883,192) (780,829) (1,093,161)
------------------ ------------------ ------------------
Net Cash Provided By (Used In)
Financing Activities.................... 122,336,329 (3,924,722) 126,665,925
------------------ ------------------ ------------------
Net (Decrease) Increase in Cash and
Cash Equivalents............................... (10,905,771) (28,314,816) 35,795,537
Cash and Cash Equivalents
at Beginning of Year........................... 30,519,849 58,834,665 23,039,128
------------------ ------------------ ------------------
Cash and Cash Equivalents
at End of Year................................. $ 19,614,078 $ 30,519,849 $ 58,834,665
================== ================== ==================
See notes to consolidated financial statements
39
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
73
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 is in Immokalee, Florida with nine
additional branch offices in Southwest Florida and a tenth office scheduled to
open in January 2006. 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 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
40
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies - Continued
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 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.
41
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
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.
42
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
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, 2004, 2003 and 2002.
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, 2004, 2003 and 2002
amounted to approximately $226,000, $218,000 and $135,000, respectively.
43
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
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, 2004, 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 year ended December 31, 2002, 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,
--------------------------------------------------------------
2004 2003 2002
------------------ ------------------ ------------------
Net Income, as reported........................ $ 12,241,932 $ 8,396,549 $ 6,418,306
Add: Stock-based compensation
expense included in net income, net
of related taxes............................. 19,597 6,227 --
Deduct: Total stock-based employee
compensation expense determined under
the fair value method for all awards,
net of related taxes......................... (33,638) (21,053) (41,145)
------------------ ------------------ ------------------
Pro Forma Net Income........................... $ 12,227,891 $ 8,381,723 $ 6,377,161
================== ================== ==================
44
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies - Continued
Years Ended December 31,
--------------------------------------------------------------
2004 2003 2002
------------------ ------------------ ------------------
Basic Earnings per Common Share
As reported.................................. $ 2.71 $ 1.87 $ 1.43
Pro Forma.................................... 2.71 1.86 1.42
Diluted Earnings per Common Share
As reported.................................. 2.68 1.85 1.42
Pro Forma.................................... 2.68 1.85 1.41
Weighted Average Fair Value of Options
Granted during the year...................... 2.58 1.09 --
Assumptions:
Average Risk Free Interest Rate.............. 3.97% 3.31% --
Average Expected Volatility.................. 11.10 6.60 --
Expected Dividend Yield...................... 3.75 3.17 --
Expected Life................................ 8.0 years 6.6 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 reported 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.
45
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
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 $98,900,000 at December 31, 2004), of which $38,900,000 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, 2004, the total amount available for short-term
financing was $50,150,000.
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, 2004, $4,900,000 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 2003 and 2002 have been reclassified to conform with the
2004 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 FASB issued 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.
46
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
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,
2003. 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, ("FIN 46R") 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.
In December 2003, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
(SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a
Transfer, which addresses the accounting for differences between contractual
cash flows and expected cash flows for loans acquired in a transfer when those
differences are attributable at least in part to a decline in credit quality.
The scope of SOP 03-3 includes loans where there is evidence
47
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies - Continued
of deterioration in credit quality since origination, and includes loans
acquired individually, in pools or as part of a business combination. Under SOP
03-3, the difference between expected cash flows and the purchase price is
accreted as an adjustment to yield over the life. The Company does not expect
the application of SOP 03-03 to have a material impact on our consolidated
financial position or results of operations.
In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on
the remaining portions of EITF 03-01, The Meaning of Other-Than-Temporary
Impairment and It's Application to Certain Investments, effective for the first
fiscal year or interim period beginning after June 15, 2004. EITF 03-01 provides
guidance for determining when an investment is considered impaired, whether
impairment is other-than-temporary, and measurement of an impairment loss. An
investment is considered impaired if the fair value of the investment is less
than its cost. Generally, an impairment is considered other-than-temporary
unless: (1) the investor has the ability and intent to hold an investment for a
reasonable period of time sufficient for an anticipated recovery of fair value
up to (or beyond) the cost of the investment, and (2) evidence indicating that
the cost of the investment is recoverable within a reasonable period of time
outweighs evidence to the contrary. If impairment is determined to be
other-than-temporary, then an impairment loss should be recognized equal to the
difference between the investment's cost and its fair value. Certain disclosure
requirements of EITF 03-01 were adopted in 2003 and the Company began presenting
the new disclosure requirements in its consolidated financial statements for the
year ended December 31, 2003. The recognition and measurement provisions were
initially effective for other-than-temporary impairment evaluations in reporting
periods beginning after June 15, 2004. However in September 2004, the effective
date of these provisions was delayed until the finalization of a FASB Staff
Position to provide additional implementation guidance. Due to the recognition
and measurement provisions being suspended and the final rule delayed, the
Company is not able to determine whether the adoption of these new provisions
will have a material impact on its consolidated financial position or results of
operations.
In March 2004, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 105, Application of Accounting Principles to Loan
Commitments. SAB 105 requires that the fair value measurement of mortgage loan
commitments, which are derivatives, exclude any expected future cash flows
related to the customer relationship or servicing rights. The guidance in SAB
105 must be applied to mortgage loan commitments entered into after March 31,
2004. The impact on the Company is not material given the declines in mortgage
banking volume, but could be in the future. The impact is primarily the timing
of when gains should be recognized in the financial statements.
In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 123 (revised 2004) entitled Share-Based Payment ("SFAS No. 123R")
that will require compensation costs related to share-based payment transactions
to be recognized in the financial statements. This Statement eliminates the
alternative to use Opinion 25's intrinsic value method of accounting that was
provided in Statement 123 as originally issued. Under Opinion 25, issuing stock
options to employees generally resulted in recognition of no compensation cost.
This statement requires entities to recognize the cost of employee
48
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies - Continued
services received in exchange for awards of equity instruments based on the
grant-date fair value of those awards (with limited exceptions). Recognition of
that compensation cost helps users of financial statements to better understand
the economic transactions affecting an entity and to make better resource
allocation decisions. The Company is currently evaluating the provisions of SFAS
No. 123R and will adopt it on July 1, 2005.
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 2004, 2003 and 2002. The following reconciles the weighted
average number of shares outstanding:
2004 2003 2002
------------------ ------------------ ------------------
Weighted average of common
shares outstanding............................. 4,516,295 4,497,169 4,497,169
Effect of dilutive options........................ 48,587 34,644 24,657
------------------ ------------------ ------------------
Weighted average of common shares
outstanding effected for dilution.............. 4,564,882 4,531,813 4,521,826
================== ================== ==================
In December 2002, December 2003, and December 2004, 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, 2004, 2003 and 2002.
49
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
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, 2004.
Years Ended December 31,
--------------------------------------------------------------
2004 2003 2002
------------------ ------------------ ------------------
Cash paid during the year for interest......... $ 8,650,839 $ 11,088,782 $ 11,609,219
Cash paid during the year for income
taxes, net................................... 8,159,604 6,550,908 4,772,000
Non-cash Disclosures:
Loans transferred to foreclosed
real estate during the year.................. 62,346 6,371,833 133,743
Proceeds from sale of foreclosed real
estate financed through loans................ 3,891,469 -- 121,998
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, 2004 and 2003, were
approximately $8,879,000 and $5,954,000, 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, 2004
and 2003 were as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- --------------- --------------- ----------------
Securities Available-for-Sale
December 31, 2004:
Equity securities........................ $ 4,935,077 $ -- $ -- $ 4,935,077
=============== =============== =============== ================
December 31, 2003:
Equity securities........................ $ 3,184,977 $ -- $ -- $ 3,184,977
=============== =============== =============== ================
50
Note 3 - Securities - Continued
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- --------------- --------------- ----------------
Securities Held-to-Maturity
December 31, 2004:
U. S. Government and
agency securities...................... $ 1,996,586 $ -- $ 9,186 $ 1,987,400
Mortgage-backed securities............... 67,333,574 96,466 425,576 67,004,464
--------------- ---------------- --------------- ----------------
$ 69,330,160 $ 96,466 $ 434,762 $ 68,991,864
=============== ================ =============== ================
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
=============== ================ =============== ================
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,
2004.
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. Government and
agency securities......... $ 1,987,400 $ 9,186 $ -- $ -- $ 1,987,400 $ 9,186
Mortgage-backed
securities................ 21,480,599 274,039 8,030,582 151,537 29,511,181 425,576
------------- ----------- ------------- ----------- ------------- -----------
Total Temporarily
Impaired Securities..... $ 23,467,999 $ 283,225 $ 8,030,582 $ 151,537 $ 31,498,581 $ 434,762
============= =========== ============= =========== ============= ===========
Management evaluates securities for other-than-temporary impairment at
least on a quarterly basis, and more frequently when economic or market concerns
warrant such evaluation. Consideration is given to (1) the length of time and
the extent to which the fair value has been less than cost, (2) the financial
condition and near-term prospects of the issuer, and (3) the intent and ability
of the Company to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value.
At December 31, 2004, the Company had 3 individual securities that were in
an unrealized loss position or impaired for the timeframe 12 months or more
indicated above. All of these investment positions'
51
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 3 - Securities - Continued
impairments are deemed not to be other-than-temporary impairments.
Substantially all of these positions are backed by 1-4 family mortgages and the
related securities have experienced volatility in their market prices as a
result of the fluctuating home mortgage interest rate environment during 2004.
The Company does not expect any other-than-temporary impairments to develop
related to the investment positions.
The contractual maturities of securities held-to-maturity and securities
available-for-sale at December 31, 2004, 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..................... $ -- $ -- $ -- $ --
Due after one year through five years....... 2,138,853 2,115,519 -- --
Due after five years through ten years...... 1,411,776 1,475,457 -- --
Due after ten years......................... 65,779,531 65,400,888 -- --
Equity securities........................... -- -- 4,935,077 4,935,077
---------------- ----------------- --------------- ----------------
$ 69,330,160 $ 68,991,864 $ 4,935,077 $ 4,935,077
=============== ================ =============== ================
Gross realized gains and losses from the sale of securities for the years ended
December 31 are as follows:
2004 2003 2002
------------------ ------------------ ------------------
Realized gains.................................... $ -- $ -- $ 36,083
Realized losses................................... -- -- --
Dispositions through calls, maturities and pay-downs resulted in no net
gain or loss during 2004, 2003 and 2002.
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 $4,125,077 and $2,374,977 at December 31, 2004 and
2003, respectively. Additional equity securities at December 31, 2004 and 2003
consist of a $310,000 investment in the FCBI Capital Trust I (see Note 9) and at
December 31, 2004 and 2003 a $500,000 investment in Capital 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
$52,912,000 and $23,218,000 at December 31, 2004 and 2003, respectively.
52
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
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, 2004 and 2003 are as
follows:
2004 2003
------------------ ------------------
Commercial, financial and agricultural................................. $ 51,378,263 $ 45,274,352
Real estate - construction............................................. 270,016,418 172,890,197
Real estate - mortgage................................................. 222,949,441 208,818,843
Consumer............................................................... 8,086,107 10,665,451
Other.................................................................. 2,180,902 1,486,507
------------------ ------------------
Total............................................................... 554,611,131 439,135,350
Unearned income........................................................ (2,101,976) (1,542,523)
Allowance for loan losses.............................................. (9,791,269) (8,066,817)
------------------ ------------------
Net loans.............................................................. $ 542,717,886 $ 429,526,010
================== ==================
Deposit overdrafts reclassified as loans and included in the other loan
category amounted to $382,482 and $225,303, at December 31, 2004 and 2003,
respectively.
Loans the Company considered to be impaired (including non-accrual loans)
at December 31, 2004 and 2003 totaled approximately $7,809,000 and $16,147,000,
respectively. The impaired loans at December 31, 2004 and 2003 had related
allowances of $1,171,334 and $2,422,050, respectively. The average recorded
investment in impaired loans for the years ended December 31, 2004 and 2003 was
approximately $9,600,345 and $3,748,755, respectively. For the years ended
December 31, 2004 and 2003, 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 $31,692 and $450,861, 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 $2,101,976 and $1,542,523, as of December 31, 2004
and 2003.
Commercial and residential real estate loans pledged to secure Federal Home
Loan Bank advances and letters of credit amounted to approximately $38,457,000
and $33,225,000 at December 31, 2004 and 2003, respectively (see Note 9).
Commercial and residential real estate loans pledged to secure the Federal
Reserve Bank line of credit amounted to approximately $14,685,000 and $5,856,910
at December 31, 2004 and 2003, respectively.
53
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 5 - Allowance for Loan Losses
Changes in the allowance for loan losses for the years ended December 31, 2004,
2003 and 2002 were as follows:
2004 2003 2002
------------------ ------------------ ------------------
Balance at beginning of year................... $ 8,066,817 $ 6,319,298 $ 3,802,836
Charge-offs.................................... (455,318) (222,911) (206,836)
Recoveries..................................... 209,002 270,430 213,298
------------------ ------------------ ------------------
Net (charge-offs) recoveries................. (246,316) 47,519 6,462
Provision for loan losses...................... 1,970,768 1,700,000 2,510,000
------------------ ------------------ ------------------
Balance at end of year......................... $ 9,791,269 $ 8,066,817 $ 6,319,298
================== ================== ==================
Note 6 - Premises and Equipment
Premises and equipment as of December 31, 2004 and 2003 is as follows:
2004 2003
------------------ ------------------
Land................................................................ $ 3,128,438 $ 3,186,438
Land improvements................................................... 409,011 388,324
Building............................................................ 9,974,358 10,107,444
Furniture and equipment............................................. 3,889,338 3,790,919
Automobiles......................................................... 352,194 319,228
Construction in progress............................................ 1,147,838 56,777
------------------ ------------------
18,901,177 17,849,130
Less allowance for depreciation..................................... (5,556,106) (5,081,623)
------------------ ------------------
$ 13,345,071 $ 12,767,507
================== ==================
The provision for depreciation charged to occupancy and equipment expense
for the years ended December 31, 2004, 2003 and 2002 was $711,547, $669,386 and
$687,466, respectively.
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54
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
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, 2004 and 2003 were
$184,621,865 and $142,946,476, respectively. Time deposits of less than $100,000
totaled $64,417,437 and $69,095,166 at December 31, 2004 and 2003, respectively.
Demand deposit overdrafts reclassified as loan balances as of December 31, 2004
and 2003 amounted to $382,482 and $225,303, respectively.
The maturities of time certificates of deposit and other time deposits
issued by the Bank at December 31, 2004, are as follows:
Year Ending December 31,
2005...................................................................... $ 123,301,052
2006...................................................................... 110,416,347
2007...................................................................... 7,485,022
2008...................................................................... 4,470,022
2009...................................................................... 3,366,859
------------------
$ 249,039,302
==================
Note 8 - Short-term Borrowings
Short-term borrowings at December 31, 2004 and 2003 consist of the following:
2004 2003
------------------ ------------------
Federal funds purchased................................................ $ 3,851,000 $ 7,000,000
Line of credit with an unaffiliated financial institution.............. 100,000 250,000
Balance due on investment in limited
liability investment company........................................ -- 250,000
Securities sold under agreements to repurchase......................... 10,106,000 --
------------------ -------------------
$ 14,057,000 $ 7,500,000
================== ==================
[The remainder of this page intentionally left blank]
55
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 8 - Short-term Borrowings - Continued
Securities sold under agreements to repurchase are reflected at the amount
of cash received in connection with the transaction. Information concerning
securities sold under agreements to repurchase is summarized as follows:
2004 2003
------------------ ------------------
Average balance during the year........................................ $ 246,191 $ --
Average interest rate during the year.................................. 2.44% --
Maximum month-end balance during the year.............................. $ 10,106,000 $ --
U.S. Agency, municipal and mortgage-backed securities underlying the agreements
at year end:
Carrying value......................................................... $ 10,302,842 $ --
Estimated fair value................................................... 10,303,069 --
Note 9 - Long-term Debt
At December 31, 2004 and 2003, the Company had long-term debt totaling
$70,310,000 and $50,331,698, respectively.
Long-term debt consists of the following at December 31:
2004 2003
------------------ ------------------
Long-term Federal Home Loan Bank advances, with varying maturities from
April 2005 through December 2014, the interest rates have a variable
base or are at a fixed rate between 2.61% to 6.37%, secured by real
estate mortgage loans and pledged securities............................... $ 60,000,000 $ 40,000,000
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
Notes payable 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 2003,
secured by vehicles......................................................... -- 21,698
------------------- ------------------
$ 70,310,000 $ 50,331,698
=================== ===================
56
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 9 - Long-term Debt - Continued
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. 46R, 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.
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, 2004, are as follows:
Year Ending December 31,
2005......................................................................... $ 15,000,000
2006......................................................................... --
2007......................................................................... --
2008......................................................................... --
2009......................................................................... 5,000,000
Thereafter................................................................... 50,310,000
------------------
$ 70,310,000
==================
Note 10 - Shareholders' Equity
At December 31, 2004 and 2003, 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.
57
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 10 - Shareholders' Equity - Continued
Stock Splits: 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. In December 2004, the Company issued a 1.2 for
1.0 common stock split resulting in an increase in the number of outstanding
shares to 4,519,321. All per share amounts included in these consolidated
financial statements have been adjusted to give retroactive effect to the stock
splits.
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, 2004, that the Company and the Bank meet
all capital adequacy requirements to which they are subject.
As of December 31, 2004, 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 remainder of this page intentionally left blank]
58
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 11 - Regulatory Capital Matters - Continued
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, 2004:
Total Capital
Consolidated.............. $ 70,536 11.63% $ 48,518 8.00% N/A N/A
Florida Community
Bank.................... 69,844 11.53 48,477 8.00 $ 60,597 10.00%
Tier 1 Capital
Consolidated.............. 62,928 10.38 24,259 4.00 N/A N/A
Florida Community
Bank.................... 62,242 10.27 24,239 4.00 36,358 6.00
Tier 1 Leverage
Consolidated.............. 62,928 10.14 24,819 4.00 N/A N/A
Florida Community
Bank.................... 62,242 10.05 24,774 4.00 30,968 5.00
As of December 31, 2003:
Total Capital
Consolidated.............. $ 58,222 11.91% $ 39,114 8.00% N/A N/A
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 N/A N/A
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 N/A N/A
Florida Community
Bank.................... 51,593 10.14 20,342 4.00 25,428 5.00
59
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
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 170,328 shares (as adjusted for stock splits) at
various prices from $10.42 to $22.92 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, 2004.
Weighted
Number of Average Number of
Options Expiration Contractual Options
Outstanding Date Life Exercisable
-------------- ---------- ----------- ------------
10/25/01 Options with an Exercise
Price of $10.42...................................... 79,488 10/25/11 6.81 63,590
01/17/03 Options with an Exercise
Price of $13.89...................................... 8,640 01/17/13 8.04 3,456
12/22/03 Options with an Exercise
Price of $20.00...................................... 16,800 12/22/13 8.97 6,720
09/16/04 Options with an Exercise
Price of $22.92...................................... 65,400 09/16/14 9.71 --
-------------- ------------
Total................................................ 170,328 8.20 73,766
============== ===========
The following table presents the activity in the plan for the years ended
December 31, 2004, 2003 and 2002:
2004 2003 2002
-------------------------- -------------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------- ------------ ----------- ------------- -------- -----------
Outstanding at January 1,........ 104,928 $ 12.24 79,488 $ 10.42 -- $ 0.00
Granted....................... 65,400 22.92 25,440 17.92 79,488 10.42
Exercised..................... -- 0.00 -- 0.00 -- 0.00
Forfeited..................... -- 0.00 -- 0.00 -- 0.00
Expired....................... -- 0.00 -- 0.00 -- 0.00
-------------- ----------- --------
Outstanding at December 31,...... 170,328 16.34 104,928 12.24 79,488 10.42
------------- ----------- --------
Exercisable at December 31,...... 73,766 11.45 47,693 10.42 26,496 10.42
============= =========== ========
Weighted average fair value
of options granted............ $ 2.58 $ 0.92 $ --
============ ============= ==========
60
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 13 - Other Operating Expenses
The major components of other operating expenses included in noninterest
expenses at December 31, 2004, 2003 and 2002 are as follows (in thousands):
2004 2003 2002
------------------ ------------------ ------------------
Professional fees.............................. $ 249 $ 263 $ 210
Promotions and public relations................ 226 218 135
Telephone...................................... 188 175 136
Examination and assessment..................... 176 154 139
Supplies....................................... 171 152 182
ATM expense.................................... 147 137 124
Software maintenance........................... 138 164 70
Courier........................................ 127 113 95
Postage........................................ 123 136 137
Bank charges................................... 91 74 95
Taxes and licenses............................. 85 95 103
Employee educational expenses.................. 70 68 41
Director's board and committee fees............ 67 67 67
Dues and subscriptions......................... 48 44 44
Other.......................................... 407 231 201
------------------ ------------------ ------------------
$ 2,313 $ 2,091 $ 1,779
================== ================== ==================
Note 14 - Income Taxes
Federal and state income taxes receivable (payable) as of December 31, 2004 and
2003 included in other assets and other liabilities, respectively, were as
follows:
2004 2003
------------------ ------------------
Current
Federal............................................................. $ (42,924) $ 300,272
State............................................................... (25,381) 26,754
61
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 14 - Income Taxes - Continued
The components of the deferred income tax asset included in other assets as of
December 31, 2004 and 2003 are as follows:
2004 2003
------------------ ------------------
Deferred tax asset:
Federal............................................................. $ 3,969,027 $ 2,908,651
State............................................................... 661,505 484,772
------------------ ------------------
Total deferred income tax asset................................... 4,630,532 3,393,423
------------------ ------------------
Deferred tax liability:
Federal............................................................. (271,755) (197,587)
State............................................................... (45,292) (32,931)
------------------ ------------------
Total deferred income tax liability............................... (317,047) (230,518)
------------------ ------------------
Net deferred tax asset................................................. $ 4,313,485 $ 3,162,905
================== ==================
The tax effects of each type of income and expense item that gave rise to
deferred taxes are:
2004 2003
------------------ ------------------
Depreciation........................................................ $ (317,047) $ (230,518)
Allowance for loan losses........................................... 3,497,212 2,560,873
Directors benefit plan.............................................. 120,744 132,005
Deferred loan fees.................................................. 808,526 592,723
Write-down of other real estate owned............................... 204,050 96,250
Officers benefit plan............................................... -- 11,550
Issuance of stock options........................................... -- 22
------------------ ------------------
Net deferred tax asset.............................................. $ 4,313,485 $ 3,162,905
================== ==================
The components of income tax expense for the years ended December 31, 2004, 2003
and 2002 were as follows:
2004 2003 2002
------------------ ------------------ ------------------
Current
Federal...................................... $ 7,615,497 $ 4,962,156 $ 4,009,514
State........................................ 1,232,895 865,210 690,462
Deferred
Federal...................................... (989,535) (631,451) (723,827)
State........................................ (164,960) (105,238) (125,327)
------------------ ------------------ ------------------
$ 7,693,897 $ 5,090,677 $ 3,850,822
================== ================== ==================
62
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 14 - Income Taxes - Continued
There were no material tax effects of securities transactions for the years
ended December 31, 2004, 2003 and 2002.
The principal reasons for the difference in the effective tax rate and the
federal statutory rate are as follows for the years ended December 31, 2004,
2003 and 2002.
2004 2003 2002
----------------------- ----------------------- -----------------------
Federal income tax
at statutory rates................. $ 6,778,182 34.0% $ 4,585,657 34.0% $ 3,491,504 34.0%
Add (deduct)
State income tax, net of
federal tax benefit.............. 704,837 3.5 501,582 3.7 372,989 3.6
Other.............................. 210,878 1.1 3,438 0.0 (13,671) (0.1)
------------- -------- -------------- ------- ------------- --------
Totals................................ $ 7,693,897 38.6% $ 5,090,677 37.7% $ 3,850,822 37.5%
============= ======== ============== ======= ============= ========
Note 15 - Benefit Plans
During the years ended December 31, 2004, 2003 and 2002, the Company had
three qualified employee benefit plans: 1) a Pension Plan, 2) a Profit Sharing
Plan and 3) 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 for the
year ended 2002. The Pension Plan was terminated as of December 31, 2003. The
Company's contribution to the plan for the year ended December 31, 2002, was
$347,214. 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, 2004, 2003 and 2002, the Company's contributions charged to
operations for the Profit Sharing Plan amounted to $506,733, $438,163 and
$362,215, 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 2004 and 2003
was $575,626 and $433,523, respectively.
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.
63
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 15 - Benefit Plans - Continued
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 2004, 2003 and 2002 included the following components:
2004 2003 2002
------------------ ------------------ ------------------
Service cost................................... $ 29,369 $ 27,952 $ 23,171
Interest cost.................................. 29,233 36,608 39,373
------------------ ------------------ ------------------
Net periodic pension cost.................... $ 58,602 $ 64,560 $ 62,544
================== ================== ==================
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, 2004 and 2003.
2004 2003
------------------ ------------------
Present value of benefit obligation:
Vested.............................................................. $ 313,622 $ 372,870
Non-vested.......................................................... -- --
------------------ ------------------
Accumulated benefit obligation/pension liability....................... $ 313,622 $ 372,870
================== ==================
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.
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64
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
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, 2004 and 2003 these recorded liabilities amounted to $40,712 and
$46,152, respectively.
The total amounts of loan commitments and standby letters of credit are
summarized as follows at December 31:
Contract or
Notional Amount
2004 2003
------------------ ------------------
Loan commitments....................................................... $ 133,865,000 $ 99,186,000
Standby letters of credit.............................................. 3,715,000 3,810,000
------------------ ------------------
Total unfunded commitments.......................................... $ 137,580,000 $ 102,996,000
================== ==================
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 $386,000 and $185,000 at December 31, 2004 and
2003, respectively
65
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
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 $1,720,085 and $7,431,961 at December 31, 2004 and 2003,
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, 2005, the Bank can declare
dividends, without prior regulatory approval, of approximately $17,974,000 plus
an additional amount equal to its net profits for 2005.
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.
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66
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 20 - Leases
The Company leased facilities under non-cancelable operating leases during
2004, 2003 and 2002. The leases provided for renewal options and generally
required the Company to pay maintenance, insurance, and property taxes. For the
years ended December 31, 2004, 2003 and 2002, rental expense for such leases was
$177,520, $175,620 and $182,870, 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, 2004, are as follows:
Year Ending December 31,
2005....................................................................... $ 180,537
2006....................................................................... 175,086
2007....................................................................... 174,413
2008....................................................................... 178,520
2009....................................................................... 182,730
Thereafter................................................................. 3,144,004
------------------
Total minimum lease payments............................................................ $ 4,035,290
==================
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 2004 and 2003. 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:
2004 2003
------------------ ------------------
Balance at Beginning of Year........................................... $ 6,254,498 $ 8,446,838
New loans.............................................................. 4,402,105 4,363,704
Repayments............................................................. (2,524,236) (6,556,044)
------------------ ------------------
Balance at End of Year................................................. $ 8,132,367 $ 6,254,498
================== ==================
Deposits: Deposits held from related parties were $14,428,433 and $13,855,659 at
December 31, 2004 and 2003, 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%.
67
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
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.
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.
68
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 22 - Fair Value of Financial Instruments - Continued
The estimated fair values of the Company's financial instruments as of December
31, 2004 and 2003 are as follows:
2004 2003
--------------------------------- ---------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------- ---------------- --------------- ----------------
(in thousands) (in thousands)
Financial Assets
Cash and short-term investments.......... $ 19,614 $ 19,614 $ 30,520 $ 30,520
Securities............................... 74,265 73,927 38,938 38,481
Loans.................................... 552,509 552,948 437,593 441,604
Accrued interest receivable.............. 3,290 3,290 2,709 2,709
--------------- ---------------- --------------- ----------------
Total Financial Assets................. $ 649,678 $ 649,779 $ 509,760 $ 513,314
=============== ================ =============== ================
Financial Liabilities
Deposits................................. $ 520,585 $ 521,618 $ 423,284 $ 423,666
Short-term borrowings.................... 14,057 14,057 7,500 7,500
Long-term debt........................... 70,310 70,310 50,332 50,332
Accrued interest payable................. 1,408 1,408 859 859
--------------- ---------------- --------------- ----------------
Total Financial Liabilities............ $ 606,360 $ 607,393 $ 481,975 $ 482,357
=============== ================ =============== ================
Financial Instruments
Commitments to extend credit............. $ 133,865 $ 1,339 $ 99,186 $ 992
Standby letters of credit................ 3,715 41 3,810 46
--------------- ---------------- --------------- ----------------
Total Unrecognized Financial
Instruments.......................... $ 137,580 $ 1,380 $ 102,996 $ 1,038
=============== ================ =============== ================
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69
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 23 - Condensed Parent Company Information
Statements of Financial Condition
2004 2003
------------------ ------------------
Assets
Cash and due from banks............................................. $ 400,493 $ 291,212
Securities available-for-sale....................................... 810,000 810,000
Investment in subsidiaries (equity method) -
eliminated upon consolidation..................................... 62,242,329 51,592,894
Other assets........................................................ 156,422 226,996
------------------ ------------------
Total Assets...................................................... $ 63,609,244 $ 52,921,102
================== ==================
Liabilities and Shareholders' Equity
Liabilities
Subordinated debentures............................................. $ 10,310,000 $ 10,310,000
Other debt.......................................................... 100,000 500,000
Other liabilities................................................... 271,545 25,333
------------------ ------------------
Total Liabilities................................................. 10,681,545 10,835,333
Total Shareholders' Equity........................................ 52,927,699 42,085,769
------------------ ------------------
Total Liabilities and Shareholders' Equity........................ $ 63,609,244 52,921,102
================== ==================
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70
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 23 - Condensed Parent Company Information - Continued
Statements of Income
2004 2003
------------------ ------------------
Income
Dividends from subsidiaries - eliminated upon consolidation......... $ 2,030,304 $ 1,119,270
Interest and other.................................................. 34,319 333
------------------ ------------------
Total Income...................................................... 2,064,623 1,119,603
------------------ ------------------
Expenses
Salaries and employee benefits...................................... 94,476 18,353
Interest............................................................ 531,660 524,681
Other expenses...................................................... 120,933 133,407
------------------ ------------------
Total Expenses.................................................... 747,069 676,441
------------------ ------------------
Income before income taxes and equity in
undistributed earnings of subsidiary................................ 1,317,554 443,162
Income tax benefit..................................................... 274,943 245,684
------------------ ------------------
Income before equity in undistributed
earnings of subsidiary.............................................. 1,592,497 688,846
Equity in undistributed earnings of subsidiary......................... 10,649,435 7,707,703
------------------ ------------------
Net Income........................................................ $ 12,241,932 $ 8,396,549
================== ==================
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71
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 23 - Condensed Parent Company Information - Continued
Statements of Cash Flows
2004 2003
------------------ ------------------
Operating Activities
Net income.......................................................... $ 12,241,932 $ 8,396,549
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed income of subsidiary...................... (10,649,435) (7,707,703)
Other............................................................. 316,786 172,026
------------------ ------------------
Net Cash Provided By Operating Activities....................... 1,909,283 860,872
------------------ ------------------
Investing Activities
Investment in equity securities........................................ -- (500,000)
------------------ ------------------
Net Cash Used In Investing Activities........................... -- (500,000)
------------------ ------------------
Financing Activities
Sale of common stock................................................ 465,202 --
Repayment of short-term debt........................................ (400,000) --
Issuance of short-term borrowings................................... -- 500,000
Costs associated with the issuance of options....................... 17,988 6,227
Cash dividends...................................................... (1,883,192) (780,829)
------------------ ------------------
Net Cash Used In Financing Activities............................. (1,800,002) (274,602)
------------------ ------------------
Net Increase In Cash and Cash Equivalents.............................. 109,281 86,270
Cash and Cash Equivalents at Beginning of Year......................... 291,212 204,942
------------------ ------------------
Cash and Cash Equivalents at End of Year............................... $ 400,493 $ 291,212
================== ==================
Cash Paid During the Year For:
Interest............................................................ $ 531,660 $ 524,681
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72
FLORIDA COMMUNITY BANKS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
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)
2004:
Total interest income.............. $ 9,058 $ 9,596 $ 10,141 $ 10,789 $ 39,584
Total interest expense............. 2,172 2,245 2,283 2,500 9,200
Provision for loan losses.......... 300 200 750 721 1,971
Net interest income after
provision for loan losses....... 6,586 7,151 7,108 7,568 28,413
Other noninterest income........... 727 1,118 659 1,270 3,774
Other noninterest expense.......... 2,848 3,028 2,962 3,413 12,251
Income tax expense................. 1,680 1,975 1,805 2,234 7,694
Net income......................... 2,785 3,266 3,000 3,191 12,242
Per common share
Basic earnings.................. 0.62 0.73 0.66 0.70 2.71
Diluted earnings................ 0.61 0.72 0.66 0.69 2.68
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.................. 0.45 0.48 0.43 0.51 1.87
Diluted earnings................ 0.45 0.47 0.43 0.50 1.85
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.................. 0.33 0.38 0.33 0.39 1.43
Diluted earnings................ 0.33 0.38 0.33 0.38 1.42
73
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Management of the Company, with the participation and under the
supervision of the Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company's
disclosure controls and procedures (as defined in Exchange Act
Rule 13a-15(e)) as of the end of the period covered by this annual
report. Based on this evaluation the Chief Executive Officer and
Chief Financial Officer have concluded that the Company's
disclosure controls and procedures are effective as of the end of
the period covered by this annual report to provide reasonable
assurance that material information required to be disclosed by
the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified by the Securities and Exchange
Commission's rules and forms. A controls system, no matter how
well designed and operated, cannot provide absolute assurance that
the objectives of the controls are met, and no evaluation of
controls can provide absolute assurance that all controls and
instances of fraud, if any, within a company have been detected.
Management Report On Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rule
13a-15(f) or 15d-15(f) promulgated under the Securities Exchange
Act of 1934 as a process designed by, or under the supervision of,
the Company's principal executive and principal financial officers
and effected by the Company's board of directors, management and
other personnel, 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 and includes those
policies and procedures that:
o Pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
o Provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles,
and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management
and directors of the Company; and
o Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of
the Company's assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
The Company's management assessed the effectiveness of the
Company's internal control over financial reporting as of December
31, 2004. In making this assessment, the Company's management used
the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO") in Internal
Control-Integrated Framework.
Based on our assessment, management believes that, as of December
31, 2004, the Company's internal control over financial reporting
is effective based on those criteria.
74
The Company's independent auditors have issued an audit report on
our assessment of the Company's internal control over financial
reporting. This report appears in Part II, Item 8 of this report.
There was no change in the Company's internal control over
financial reporting that occurred during the Company's most
recently completed fiscal quarter that materially affected, or is
reasonably likely to materially affect, the Company's internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION
The Company did not fail to file any Form 8-K to disclose any
information required to be disclosed therein during the fourth
quarter of 2004.
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 14 in the Proxy Statement (the "2005
Proxy Statement") relating to the annual meeting of shareholders of the Company,
scheduled to be held on April 21, 2005, 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 7 to 13 of the 2005 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 2005 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 13 to 14 of the 2005 Proxy Statement is
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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, 2004 and 2003, were $64,501 and $75,200, respectively.
Audit-Related Fees: In 2004 and 2003, Schauer Taylor also billed the
Company $92,997 and $59,230, respectively, for fees reasonably related to the
performance of its audit and reviews of financial statements. Such fees included
travel and miscellaneous related fees.
Tax Fees: In 2004 and 2003, Schauer Taylor also billed the Company $11,550
and $12,800, respectively, for tax compliance and advice, including the
preparation of the Company's corporate tax returns.
In all instances, Schauer Taylor's performance of those services was
pre-approved by the Company's Audit Committee.
75
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(a) 1. Financial Statements.
The following consolidated financial statements are located in
Item 8 of this Report:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition as of December
31, 2004 and 2003 Consolidated Statements of Income for the
Years Ended December 31, 2004, 2003 and 2002 Consolidated
Statements of Shareholders' Equity for the Years Ended
December 31, 2004, 2003 and 2002 Consolidated Statements of
Cash Flows for the Years Ended December 31, 2004, 2003 and
2002 Notes to Consolidated Financial Statements Quarterly
Results (Unaudited)
2. Financial Statement Schedules.
Schedules to the consolidated financial statements are
omitted, as the required information is not applicable.
3. Exhibits.
The following exhibits are filed or incorporated by reference
as part of this Report:
Exhibit No. Exhibit Page
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). *
76
Exhibit No. Exhibit Page
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).
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).
10.7 Employee Stock Ownership Plan (included as Exhibit 10.5 to
the Company's Form S-8 filed May 6, 2004,and incorporated herein by reference).
11 Statement re: computation of per share earnings 80
12 Statement re: computation of ratios 80
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 81
24 Power of Attorney 85
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). 82
31.2 Chief Financial Officer - Certification of principal financial
officer pursuant to the Exchange Act Rule 13(a) - 14(a) or 15(d) - 14(a). 83
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 84
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 84
* The referenced exhibit is a compensatory contract, plan or arrangement.
77
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 15, 2005 By: /s/ Stephen L. Price
--------------------------------------------
Stephen L. Price
Chairman and Chief Executive Officer
Date: March 15, 2005 By: /s/ Guy W. Harris
--------------------------------------------
Guy W. Harris
Chief Financial Officer
78
EXHIBIT INDEX
The following exhibits are filed as part of this report (in addition to
those exhibits listed in Item 15 which are filed as a part of this report and
incorporated by reference):
Exhibit Number Description of Exhibit
11 Statement re: Computation of Per Share Earnings
12 Statement re: Computation of Ratios
21 Subsidiaries of the Registrant
31.1 Certification of President and Chief Executive Officer Pursuant to Section 302
of Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of
Sarbanes-Oxley Act of 2002.
32.1 Certification of President and Chief Executive Officer Pursuant to Section 906
of Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of
Sarbanes-Oxley Act of 2002.
79
EXHIBIT 11 - STATEMENT 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, 2004, 2003 and 2002.
2004 2003 2002
---------------- --------------- ---------------
Basic Earnings Per Share:
Net income................................................ $ 12,241,932 $ 8,396,549 $ 6,418,306
================ =============== ===============
Earnings on common shares................................. $ 12,241,932 $ 8,396,549 $ 6,418,306
================ =============== ===============
Weighted average common shares outstanding - basic........ 4,516,295 4,497,169 4,497,169
================ =============== ===============
Weighted average common shares outstanding - diluted...... 4,564,882 4,531,813 4,521,826
================ =============== ===============
Basic earnings per common share........................... $ 2.71 $ 1.87 $ 1.43
=============== =============== ===============
Diluted earnings per common share......................... $ 2.68 $ 1.85 $ 1.42
=============== =============== ===============
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIOS
Florida Community Banks, Inc.
Computation of Ratio of Earnings to Fixed Charges
Year Ended December 31,
-------------------------------------------------
2004 2003 2002
-------------- ------------- --------------
(Dollars in thousands)
Pretax income................................................. $ 19,936 $ 13,487 $ 10,269
Add fixed charges:
Interest on deposits....................................... 7,109 7,924 10,032
Interest on borrowings..................................... 2,090 2,157 1,755
Portion of rental expense representing interest expense.... 59 60 62
-------------- ------------- --------------
Total fixed charges...................................... 9,258 10,141 11,849
-------------- ------------- --------------
Income before fixed charges................................... $ 29,194 $ 23,628 $ 22,118
============== ============= ==============
Pretax income................................................. $ 19,935 $ 13,487 $ 10,269
Add fixed charges (excluding interest on deposits):
Interest on borrowings..................................... 2,090 2,157 1,755
Portion of rental expense representing interest expense.... 59 60 62
-------------- ------------- --------------
Total fixed charges...................................... 2,149 2,217 1,817
-------------- ------------- --------------
Income before fixed charges (excluding interest on
deposits).................................................. $ 22,084 $ 15,704 $ 12,086
============== ============= ==============
Ratio of Earnings to Fixed Charges
Including interest on deposits............................. 3.17 2.33 1.87
Excluding interest on deposits............................. 10.28 7.08 6.65
80
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
Subsidiaries - Direct/Wholly-owned State of Incorporation
Florida Community Bank Florida
FCBI Capital Trust I Delaware
81
EXIHIBIT 31.1
CERTIFICATION 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; and
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 15, 2005 By: /s/ Stephen L. Price
-------------------------------------------------------
Stephen L. Price, President, Chief Executive Officer
and Chairman of the Board of Directors
82
EXIHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Guy W. Harris, 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; and
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 15, 2005 By: /s/ Guy W. Harris
-----------------------------------------------------
Guy W. Harris
Chief Financial Officer
83
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, 2004 ("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 15, 2005 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, 2004 ("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 15, 2005 By: /s/ Guy W. Harris
-------------------------------------------
Guy W. Harris
Chief Financial Officer
84
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 Guy W. Harris 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 15, 2005
- ----------------------------------------
Beauford E. Davidson
/s/ Patrick B. Langford March 15, 2005
- ----------------------------------------
Patrick B. Langford
/s/ Lewis J. Nobles, Jr. March 15, 2005
- ----------------------------------------
Lewis J. Nobles, Jr.
/s/ Jon R. Olliff March 15, 2005
- ----------------------------------------
Jon R. Olliff
/s/ James O'Quinn March 15, 2005
- ----------------------------------------
James O'Quinn
/s/ Stephen L. Price March 15, 2005
- ----------------------------------------
Stephen L. Price
/s/ Bernard T. Rasmussen March 15, 2005
- ----------------------------------------
Bernard T. Rasmussen
/s/ Daniel G. Rosbough March 15, 2005
- ----------------------------------------
Daniel G. Rosbough
/s/ James E. Williams, Jr. March 15, 2005
- ----------------------------------------
James E. Williams, Jr.
85