SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended
December 31, 2009
Commission File Number 000-50091
BANK OF FLORIDA CORPORATION
A Florida
Corporation
IRS Employer Identification No. 59-3535315
1185 Immokalee Road
Naples, Florida 34110
(239) 254-2100
Securities
Registered Pursuant to Section 12(b) of the Securities Exchange
Act of 1934: NONE
Securities Registered Pursuant to Section 12(g) of the Securities Exchange
Act of 1934: Common Stock, $0.01 par value
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
¨
No
x
Indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15(D) of the Exchange Act. Yes
¨
No
x
Note Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the
Exchange Act.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web
site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files).
¨
Yes
¨
No
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 (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
¨
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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¨
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Accelerated filer
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x
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Non-accelerated filer
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¨
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Smaller Reporting Company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
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No
x
The aggregate market value of the Registrants common stock held by
non-affiliates of the Registrant, based upon the closing price of $1.16, as quoted on the Global Market, on February 26, 2010 was approximately $13,110,000. For the purposes of this response, directors and officers of the Registrant are
considered the affiliates of the Registrant at that date.
The number of shares outstanding of the Registrants common
stock, as of February 26, 2010: 12,957,898 shares of $.01 par value common stock.
Portions of the Proxy Statement of the
Registrant for the Annual Meeting of Shareholders to be held in April 2010 are incorporated by reference into Part III of this report.
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
Table of Contents
PART I
ITEM 1.
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DESCRIPTION OF BUSINESS
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in
this Annual Report on Form 10-K contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which statements generally can be identified by the use of forward-looking terminology, such
as may, will, expect, estimate, anticipate, believe, target, plan, project, or continue or the negatives thereof or other
variations thereon or similar terminology, and are made on the basis of managements plans and current analyses of Bank of Florida Corporation, its business and the industry as a whole. These forward-looking statements are subject to risks and
uncertainties, including, but not limited to, economic conditions, competition, interest rate sensitivity and exposure to regulatory and legislative changes. The above factors, in some cases, have affected, and in the future could affect Bank of
Florida Corporations financial performance. It is possible that our actual results could differ, possibly materially, from those expressed or implied in such forward-looking statements.
We caution our readers that the assumptions which form the basis for forward-looking statements, with respect to or that may impact earnings
in future periods, including those factors listed above, are beyond our ability to control or estimate precisely. While Bank of Florida Corporation periodically reassesses material trends and uncertainties affecting our results of operations and
financial condition, the Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
BACKGROUND AND PRIOR OPERATING HISTORY
Bank of Florida Corporation was incorporated in Florida in September 1998 to serve as a holding company for Bank of Florida Southwest.
On August 24, 1999, Bank of Florida Southwest commenced operations in Naples, Florida. On July 16, 2002, Bank of Florida Southeast opened for business in Ft. Lauderdale, Florida and on November 5, 2004, Bank of
Florida Tampa Bay opened for business in Tampa, Florida. Bank of Florida Trust Company (the Trust Company) was approved to engage in fiduciary services and estate planning consultation on August 23, 2000. (Bank of Florida
Southwest, Bank of Florida Southeast and Bank of Florida Tampa Bay are collectively referred to in this report as the Banks and Bank of Florida Corporation and its subsidiaries are collectively referred to in this
report as the Company).
The Banks offer a complete range of interest bearing and non-interest bearing accounts,
including commercial and retail checking accounts, money market accounts, individual retirement accounts, regular interest bearing statement savings accounts, and certificates of deposit. Lending products include commercial loans, real estate loans,
home equity loans and consumer/installment loans. In addition, they provide such consumer services as U.S. Savings Bonds, travelers checks, cashiers checks, safe deposit boxes, bank-by-mail services, direct deposit, on-line banking, and
automatic teller services. Specialized services to commercial customers include cash management, expanded on-line banking, remote deposit capture, lock box, and door-to-door banking. The Trust Company offers non-proprietary, third-party investment
consulting services and access to an extensive, nationwide network of independent money managers.
The holding company
structure provides flexibility for expansion of our banking business through possible acquisitions of other financial institutions and provision of additional banking-related services, which the traditional commercial bank may not provide under
present laws. For example, banking regulations require that banks maintain a minimum ratio of capital to assets. In the event that Bank of Florida Southwest, Bank of Florida Southeast or Bank of Florida Tampa Bays growth
is such that this minimum ratio is not maintained, we may borrow funds, subject to the capital adequacy guidelines of the Federal Reserve Board, and contribute them to the capital of the Banks, and otherwise raise capital in a manner that is
unavailable to the Banks under existing banking regulations. In addition, the Banks may participate loans with each other such that the excess of an individual Banks loan limit may be shared with another Bank, resulting in greater retention
within the holding company of the customer relationship, given acceptable credit risk and industry concentration.
The Trust
Company offers and provides its customers wealth management services, including fiduciary services, as a trustee, personal representative, administrator, guardian, custodian of funds, asset manager (with and without discretion) and investment
advisor. It provides all of the Banks with these services, generally having a representative situated in the markets that the Company serves with a link to the centralized administrative and support services in the Trust Companys home office
location in Naples, Florida.
1
The Company is suffering from the extraordinary effects of what may ultimately be the worst
economic downturn since the Great Depression. The effects of the current environment are being felt across many industries, with financial services and residential real estate being particularly hard hit. The Company has seen a rapid and precipitous
decline in the value of the collateral securing our loan portfolio. Thus, we are experiencing significant loan quality issues. The net loss of $147.6 million recorded by the Company in 2009 was primarily the result of significant increases in
the provision for credit losses, the recognition of goodwill impairment and the establishment of a valuation reserve against the Companys deferred tax asset. The impact of the current financial crisis in the United States and abroad is having
far-reaching consequences and it is difficult to say at this point when the economy will begin to recover. As a result, we cannot assure you that we will be able to resume profitable operations in the near future, or at all.
We have determined that significant additional sources of capital will be required for us to continue operations through 2010 and beyond.
The Companys Board of Directors has formed a Strategic Planning Committee. The Committee has hired an investment banking firm to seek all strategic alternatives to enhance the stability of the Company including a capital investment, sale,
strategic merger or some form of restructuring. There can be no assurance that the Company will succeed in this endeavor and be able to comply with the new regulatory requirements. In addition, a transaction, which would likely involve equity
financing, would result in substantial dilution to our current stockholders and could adversely affect the price of our common stock. If the Company does not comply with the new capital requirements contained in the Order, the regulators may take
additional enforcement action against the holding company and the Bank.
It remains to be seen if those efforts will be
successful, either on a short-term or long-term basis. In addition, it is unclear at this point what impact, if any, the interest rate restrictions included in the Order will have on the Companys continued ability to maintain adequate
liquidity. As a result of our financial condition, our regulators are continually monitoring our liquidity and capital adequacy. Based on their assessment of our ability to continue to operate in a safe and sound manner, our regulators may take
other and further actions, including placing the Bank into conservatorship or receivership, to protect the interests of depositors insured by the Federal Deposit Insurance Corporation.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and the discharge of liabilities in the normal course of business for the foreseeable future, and do not include any adjustments to reflect the possible future effects on the recoverability or classification of assets, and the amounts or
classification of liabilities that may result from the outcome of any regulatory action, which would affect our ability to continue as a going concern.
MARKET AREA AND COMPETITION
The primary
market areas of the Company are Collier and southern Lee Counties on the southwest coast of Florida (served by Bank of Florida Southwest), Broward, Palm Beach, and parts of Miami-Dade Counties on the southeast coast of Florida (served by Bank
of Florida Southeast) and Hillsborough and Pinellas Counties on the west central coast of Florida (served by Bank of Florida Tampa Bay).
Bank of Florida Southwest has three locations in Naples (Collier County), one in Bonita Springs (southern Lee County) and one in Fort Myers (Lee County). Bank of Florida Southeast is
headquartered in downtown Fort Lauderdale (Broward County) with an additional branch location in Ft. Lauderdale (Broward County), one in Boca Raton (Palm Beach County), one in Aventura (Miami-Dade County) and two locations in Coral Gables
(Miami-Dade). Bank of Florida Tampa Bay has one location in the Harbor Island area of Tampa (Hillsborough County) and one location in Clearwater (Pinellas County).
The Trust Company maintains its headquarters in Naples and has offices at all of the affiliate bank locations. In addition to independent investment consulting and wealth management expertise, the Trust
Company offers trust and estate planning, full trust powers, custodial services, and private family office fiduciary and advisory services.
The deposit information by market is obtained using the Federal Deposit Insurance Corporation (FDIC) Summary of Deposits report which is published annually. This report contains deposit data
for branches and offices of all FDIC-insured institutions. The FDIC collects deposit balances for commercial and savings banks as of June 30 of each year, and the Office of Thrift Supervision (OTS) collects the same data for savings
institutions.
Collier and Lee Counties have approximately $23.8 billion in deposits as of June 30,
2009. Collier County is the 10
th
largest deposit market in
the State of Florida, with 2.92% of all deposits statewide, while Lee County is the 9
th
largest with a 3.02% statewide market share. Bank of Florida Southwest had 3.50% and 1.11% of all deposits in the Naples and Marco Island metropolitan statistical area and the Cape Coral and Fort
Myers metropolitan statistical area, respectively, as of June 30, 2009.
2
With deposits of $153.0 billion as of June 30, 2009, the Miami-Dade/Broward/Palm Beach
County markets are much larger than the Collier/Lee County market. Miami-Dade, Palm Beach and Broward Counties are the number one, two and three deposit markets in the State of Florida, respectively, and combined account for 38.15% of Floridas
deposits. Bank of Florida Southeast had 0.25% of all deposits in the Miami, Ft. Lauderdale and Miami Beach metropolitan statistical area as of June 30, 2009.
Hillsborough and Pinellas Counties have approximately $49.0 billion in total deposits as of June 30, 2009. Pinellas
County is the 5
th
largest deposit market in the State of
Florida, with 6.94% of all deposits statewide, while Hillsborough County is the 7
th
largest with a 5.29% statewide market share. Bank of Florida Tampa Bay had 0.42% of all deposits in the Tampa, St Petersburg, and Clearwater metropolitan statistical area as of June 30, 2009.
The demographics of Miami-Dade, Broward and Palm Beach Counties, Collier and Lee Counties, and Hillsborough and Pinellas
Counties support our plans to grow assets and deposits with limited, highly selective, full-service locations. The banking locations that we have targeted have been among the fastest growing deposit markets in the state.
We face substantial competition in all phases of operations from a variety of different competitors, including: (i) large national and
super-regional financial institutions that have well-established branches and significant market share in the communities we serve; (ii) finance companies, investment banking and brokerage firms, and insurance companies that offer bank-like
products; (iii) credit unions, which can offer highly competitive rates on loans and deposits as they receive tax advantages not available to commercial banks; (iv) other community banks, including start-up banks, that can compete with us
for customers who desire a high degree of personal service; (v) technology-based financial institutions, including large national and super-regional banks offering on-line deposit, bill payment, and mortgage loan application services; and
(vi) both local and out-of-state trust companies and trust service offices.
Many existing community banks with which we
compete directly, as well as several new community bank start-ups, have marketing strategies similar to ours. These community banks may open new branches in the communities we serve and compete directly for customers who want the level of service
offered by community banks. In addition, these banks compete directly for the same management personnel in Florida.
Various
legislative actions in recent years have led to increased competition among financial institutions. With the enactment of laws and regulations affecting interstate bank expansion, it is easier for financial institutions located outside of the State
of Florida to enter the Florida market, including our targeted markets. In addition, recent legislative and regulatory changes and technological advances have enabled customers to conduct banking activities without regard to geographic barriers,
through computer and telephone-based banking and similar services. There can be no assurance that the United States Congress, the Florida Legislature, or the applicable bank regulatory agencies will not enact legislation or promulgate rules that may
further increase competitive pressures on us.
3
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS
EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL
The following is a presentation of the average consolidated balance
sheets of the Company for the five years ended December 31, 2009. This presentation includes all major categories of interest-earning assets and interest-bearing liabilities (in thousands):
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YEAR ENDED DECEMBER 31,
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2009
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2008
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2007
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2006
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2005
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ASSETS
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Cash and due from banks
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$
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21,076
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$
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13,480
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$
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17,488
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$
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20,319
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$
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16,621
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Federal funds sold
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10,782
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9,187
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8,144
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31,263
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45,849
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Investment securities & interest earning deposits
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137,780
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91,696
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49,490
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35,684
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18,934
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Loans
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1,138,584
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1,180,447
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1,028,971
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627,440
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400,897
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Total interest-earning assets
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1,287,146
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1,281,330
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1,086,605
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694,387
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465,680
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Other assets
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221,209
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133,148
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79,101
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17,884
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15,201
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Total assets
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$
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1,529,431
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$
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1,427,958
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$
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1,183,194
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$
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732,590
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$
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497,502
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LIABILITIES AND STOCKHOLDERS EQUITY
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Savings deposits
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$
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6,177
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$
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6,228
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$
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7,625
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$
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3,961
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$
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5,185
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Time deposits
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689,431
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547,730
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367,992
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227,944
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168,065
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Other interest bearing deposits
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388,054
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388,142
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398,432
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270,424
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183,835
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Other borrowings
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170,522
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179,801
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120,331
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34,578
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6,594
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Total interest bearing liabilities
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1,254,184
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1,121,901
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894,380
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536,907
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363,679
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Non-interest bearing deposits
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107,164
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104,224
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103,149
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90,345
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74,847
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Other liabilities
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4,800
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4,344
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7,247
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2,614
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7,523
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Total liabilities
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1,366,148
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1,230,469
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1,004,776
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629,866
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446,049
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Stockholders equity
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163,283
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197,489
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178,418
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102,724
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51,453
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Total liabilities and stockholders equity
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$
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1,529,431
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$
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1,427,958
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$
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1,183,194
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$
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732,590
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$
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497,502
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RETURN ON EQUITY AND
ASSETS
Returns on average consolidated assets and average consolidated equity for the three years ended
December 31, 2009 were as follows:
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2009
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2008
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2007
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Return on average assets
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(9.70
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)%
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(0.93
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)%
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0.23
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%
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Return on average common stockholders equity
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(91.61
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)%
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(6.70
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)%
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1.54
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%
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Average equity to average assets ratio
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10.73
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%
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13.86
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%
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15.08
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%
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Dividend payout ratio
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0.00
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%
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0.00
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%
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0.00
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%
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4
CAPITAL LEVELS
As of December 31, 2009, Bank of Florida Southwest was critically undercapitalized, Bank of Florida Southeast
was undercapitalized and Bank of Florida Tampa Bay was significantly undercapitalized, pursuant to FDIC definitions. Until the Banks become well capitalized again, they will be prohibited from accepting,
renewing or rolling over brokered deposits, including all CDARs (retail and wholesale). In addition, the Banks may not offer an interest rate on our deposits that is 75 basis points higher than the prevailing effective rates on insured deposits of
comparable amounts and maturities in the Banks normal market area or the national rates released by the FDIC periodically. The regulatory capital ratios for our subsidiary banks as of December 31, 2009, were:
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Banks
minimum
well
capitalized
capital ratios
for regulatory
purposes
1
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Banks
minimum
adequately
capitalized
capital ratios
for regulatory
purposes
1
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Banks
minimum
under
capitalized
capital ratios
for regulatory
purposes
1
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Specific
minimum
capital ratios
required by
Corrective
Resolutions
as of
December 31,
2009
1
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Bank of
Florida
Southwest
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Bank of
Florida
Southeast
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Bank of
Florida
Tampa Bay
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Bank of
Florida
Corporation
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Tier 1 leverage capital ratio
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5.00
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%
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4.00
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%
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3.00
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%
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8.00
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%
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1.24
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%
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3.44
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%
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2.66
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%
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2.41
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%
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Tier 1 risk-based capital ratio
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6.00
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%
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8.00
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%
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3.00
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%
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6.00
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%
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1.49
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%
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4.39
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%
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3.09
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%
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2.94
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%
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Total risk-based capital ratio
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10.00
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%
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8.00
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%
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6.00
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%
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11.00
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%
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2.99
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%
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6.47
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%
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4.37
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%
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5.33
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%
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Tangible common equity ratio
2
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N/A
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N/A
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N/A
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N/A
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1.24
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%
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3.44
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%
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2.66
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%
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2.41
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%
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1.
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The Bank-specific minimums are not applicable to the Company.
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2.
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A bank is considered critically undercapitalized when it has a tangible common equity ratio of less than 2.00%.
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LENDING ACTIVITIES
The Company engages in a large complement of lending activities, including commercial, consumer, installment, and real estate loans. Certain aspects of our lending activities are affected by resolutions
adopted by the Banks Boards of Directors, which are described under
Supervision and Regulation
. The majority of the Companys lending activities are conducted principally with customers located in the Naples, Ft. Myers,
Ft. Lauderdale, Miami-Dade, Palm Beach and Tampa, Florida areas. Construction loans are comprised of commercial real estate, multifamily and residential one to four family loans. Commercial and industrial loans are primarily extended to small and
mid-sized corporate borrowers in service and manufacturing related industries. Collateral held varies but may include compensating balances, accounts receivable, inventory, property, plant and equipment and income producing commercial properties.
Although the Banks loan portfolio is diversified, a significant portion of its loans are collateralized by real estate. Therefore, the Banks are susceptible to economic downturns and natural disasters.
Commercial lending is directed principally towards businesses whose demands for funds fall within the Banks legal lending limits and
who are potential deposit customers. For presentation purposes, the commercial lending category includes loans made to individual, partnership or corporate borrowers, and obtained for a variety of business purposes. Particular emphasis is placed on
loans to small and medium-sized businesses. Real estate loans consist of residential and commercial first mortgage loans, second mortgage financing and construction loans. Lines of credit include home equity, commercial, and consumer lines of
credit. Consumer loans consist primarily of installment loans to individuals for personal, family and household purposes.
5
The following table presents various categories of loans contained in the Companys
loan portfolio and the total amount of all loans as of the dates indicated (in thousands).
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|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31,
|
|
TYPE OF LOAN
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Loans held for sale One-to-four family residential
|
|
$
|
|
|
|
$
|
|
|
|
$
|
417
|
|
|
$
|
1,103
|
|
|
$
|
1,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
167,015
|
|
|
$
|
163,143
|
|
|
$
|
139,986
|
|
|
$
|
93,298
|
|
|
$
|
64,805
|
|
Commercial real estate
|
|
|
625,703
|
|
|
|
576,486
|
|
|
|
417,982
|
|
|
|
241,931
|
|
|
|
180,039
|
|
Land and construction
|
|
|
216,565
|
|
|
|
318,607
|
|
|
|
397,299
|
|
|
|
303,950
|
|
|
|
141,534
|
|
Multifamily
|
|
|
35,522
|
|
|
|
42,539
|
|
|
|
31,195
|
|
|
|
26,530
|
|
|
|
25,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
1,044,805
|
|
|
|
1,100,775
|
|
|
|
986,462
|
|
|
|
665,709
|
|
|
|
411,633
|
|
Commercial and industrial loans
|
|
|
112,385
|
|
|
|
118,883
|
|
|
|
93,648
|
|
|
|
66,087
|
|
|
|
36,834
|
|
Lines of credit
|
|
|
45,247
|
|
|
|
44,681
|
|
|
|
43,416
|
|
|
|
39,127
|
|
|
|
26,393
|
|
Consumer loans
|
|
|
11,925
|
|
|
|
12,646
|
|
|
|
22,519
|
|
|
|
12,835
|
|
|
|
11,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans held for investment
|
|
|
1,214,362
|
|
|
|
1,276,985
|
|
|
|
1,146,045
|
|
|
|
783,758
|
|
|
|
486,251
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(42,063
|
)
|
|
|
(29,533
|
)
|
|
|
(14,431
|
)
|
|
|
(7,833
|
)
|
|
|
(4,603
|
)
|
Deferred loan fees, net
|
|
|
(1,329
|
)
|
|
|
(1,674
|
)
|
|
|
(1,700
|
)
|
|
|
(1,251
|
)
|
|
|
(852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans held for investment
|
|
$
|
1,170,970
|
|
|
$
|
1,245,778
|
|
|
$
|
1,129,914
|
|
|
$
|
774,674
|
|
|
$
|
480,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Banks have correspondent relationships with several banks, as well as with each other, whereby they can
engage in the sale and purchase of loan participations. Participations purchased, if any, are entered into using the same underwriting criteria that would be applied if we had originated the loan. This includes credit and collateral analyses and
maintenance of complete credit files on each participation purchased that is consistent with the credit files that we maintain on our customers.
The Company does not presently have, nor intends to implement, a rollover policy with respect to its loan portfolio. At December 31, 2009, approximately 86.0% of the Companys loan portfolio is
concentrated in real estate loans. All loans are recorded according to original terms, and demand loans, overdrafts and loans having no stated repayment terms or maturity are reported as due in one year or less.
The following is an analysis of maturities of loans as of December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
TYPE OF LOAN
|
|
DUE IN
1 YEAR OR LESS
|
|
DUE IN
1 TO 5 YEARS
|
|
DUE AFTER
5 YEARS
|
|
TOTAL
|
Residential one-to-four family
|
|
$
|
29,966
|
|
$
|
23,031
|
|
$
|
114,018
|
|
$
|
167,015
|
Commercial real estate
|
|
|
131,260
|
|
|
179,524
|
|
|
314,919
|
|
|
625,703
|
Land and construction
|
|
|
137,089
|
|
|
61,643
|
|
|
17,833
|
|
|
216,565
|
Multifamily
|
|
|
12,746
|
|
|
21,677
|
|
|
1,099
|
|
|
35,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
311,061
|
|
|
285,875
|
|
|
447,869
|
|
|
1,044,805
|
Commercial and industrial
|
|
|
59,964
|
|
|
28,748
|
|
|
23,673
|
|
|
112,385
|
Lines of Credit
|
|
|
2,898
|
|
|
1,357
|
|
|
40,992
|
|
|
45,247
|
Consumer loans
|
|
|
5,630
|
|
|
4,083
|
|
|
2,212
|
|
|
11,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans held for investment and sale
|
|
$
|
379,553
|
|
$
|
320,063
|
|
$
|
514,746
|
|
$
|
1,214,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TYPE OF LOAN
|
|
DUE IN
1 YEAR OR LESS
|
|
DUE IN
1 TO 5 YEARS
|
|
DUE AFTER
5 YEARS
|
|
TOTAL
|
Fixed rate loans
|
|
$
|
162,408
|
|
$
|
189,326
|
|
$
|
92,473
|
|
$
|
444,206
|
Variable rate loans
|
|
|
217,145
|
|
|
130,737
|
|
|
422,273
|
|
|
770,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans held for investment and sale
|
|
$
|
379,553
|
|
$
|
320,063
|
|
$
|
514,746
|
|
$
|
1,214,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
Management has established a policy to discontinue accruing interest (non-accrual status) on
a loan after it has become 90 days delinquent as to payment of principal or interest unless the loan is considered to be well collateralized and is actively in the process of collection. In addition, a loan will be placed on non-accrual status
before it becomes 90 days delinquent if management believes that the borrowers financial condition is such that collection of interest or principal is doubtful. Interest previously accrued but uncollected on such loans is reversed and charged
against current income when the receivable is determined to be uncollectible. Interest income on non-accrual loans is recognized only as received.
Information pertaining to our collateral dependent and nonaccrual loans can be found in
Note 7 Loans of the Notes to Consolidated Financial Statements
.
The Company had non-accrual loans totaling $164,474,000 and $71,853,000 at December 31, 2009 and 2008, respectively. At
December 31, 2009, there was $7,300 in loans that were contractually past due 90 days or more as to principal or interest payments and still accruing interest. At December 31, 2008, there were no loans that were contractually past due 90
days or more as to principal or interest payments and still accruing. The Company had $90,592,000 and $19,372,000 loans that would be defined as troubled debt restructuring at December 31, 2009 and December 31, 2008, respectively.
SUMMARY OF LOAN LOSS EXPERIENCE
The allowance for loan losses is established and maintained at levels deemed adequate to cover losses inherent in the portfolio as of the
balance sheet date. This estimate is based upon managements evaluation of the risks in the loan portfolio and changes in the nature and volume of loan activity. Estimates for loan losses are derived by analyzing historical loss experience,
current trends in delinquencies and charge-offs, historical peer bank experience, changes in the size and composition of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying
collateral, and prevailing economic conditions. The allowance for loan losses is comprised of: (1) a component for individual loan impairment, and (2) a measure of collective loan impairment. This evaluation is inherently subjective, as it
requires estimates that are susceptible to significant revision as more information becomes available.
Although the allowance
for loan losses was determined by category of loans, the entire allowance is available to absorb losses from any category. The allowance for loan losses was allocated by category for each of the years indicated as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
AMOUNT
|
|
% LOANS
IN EACH
CATEGORY
|
|
|
AMOUNT
|
|
% LOANS
IN EACH
CATEGORY
|
|
|
AMOUNT
|
|
% LOANS
IN EACH
CATEGORY
|
|
|
AMOUNT
|
|
% LOANS
IN EACH
CATEGORY
|
|
|
AMOUNT
|
|
% LOANS
IN EACH
CATEGORY
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential one-to-four family
|
|
$
|
6,850
|
|
13.8
|
%
|
|
$
|
3,730
|
|
12.8
|
%
|
|
$
|
906
|
|
12.2
|
%
|
|
$
|
424
|
|
12.0
|
%
|
|
$
|
286
|
|
13.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
13,292
|
|
51.5
|
%
|
|
|
7,291
|
|
45.1
|
%
|
|
|
3,831
|
|
36.5
|
%
|
|
|
2,080
|
|
30.8
|
%
|
|
|
1,516
|
|
36.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Land and construction
|
|
|
16,546
|
|
17.8
|
%
|
|
|
13,054
|
|
24.9
|
%
|
|
|
6,940
|
|
34.7
|
%
|
|
|
3,648
|
|
38.8
|
%
|
|
|
1,675
|
|
29.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
892
|
|
2.9
|
%
|
|
|
2,193
|
|
3.3
|
%
|
|
|
349
|
|
2.7
|
%
|
|
|
266
|
|
3.4
|
%
|
|
|
248
|
|
5.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
37,580
|
|
86.0
|
%
|
|
|
26,268
|
|
86.1
|
%
|
|
|
12,026
|
|
86.1
|
%
|
|
|
6,418
|
|
85.0
|
%
|
|
|
3,725
|
|
84.7
|
%
|
Commercial and industrial
|
|
|
2,080
|
|
9.3
|
%
|
|
|
2,374
|
|
9.3
|
%
|
|
|
1,562
|
|
8.2
|
%
|
|
|
872
|
|
8.4
|
%
|
|
|
480
|
|
7.6
|
%
|
Lines of credit
|
|
|
2,201
|
|
3.7
|
%
|
|
|
689
|
|
3.5
|
%
|
|
|
509
|
|
3.8
|
%
|
|
|
364
|
|
5.0
|
%
|
|
|
241
|
|
5.4
|
%
|
Consumer
|
|
|
202
|
|
1.0
|
%
|
|
|
202
|
|
1.1
|
%
|
|
|
334
|
|
1.9
|
%
|
|
|
179
|
|
1.6
|
%
|
|
|
157
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
42,063
|
|
100.0
|
%
|
|
$
|
29,533
|
|
100.0
|
%
|
|
$
|
14,431
|
|
100.0
|
%
|
|
$
|
7,833
|
|
100.0
|
%
|
|
$
|
4,603
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
An analysis of the Companys allowance for loan losses and loan loss experience
(charge-offs) is furnished in the following table for the most recent five years ended December 31, as indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Loan
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Balance at beginning of year
|
|
$
|
29,533
|
|
|
$
|
14,431
|
|
|
$
|
7,833
|
|
|
$
|
4,603
|
|
|
$
|
2,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
(477
|
)
|
|
|
(35
|
)
|
|
|
(117
|
)
|
|
|
(99
|
)
|
|
|
(47
|
)
|
Commercial and industrial
|
|
|
(2,927
|
)
|
|
|
(317
|
)
|
|
|
(287
|
)
|
|
|
(100
|
)
|
|
|
(77
|
)
|
Real estate loans (including lines of credit)
|
|
|
(57,930
|
)
|
|
|
(8,945
|
)
|
|
|
(34
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
77
|
|
|
|
2
|
|
|
|
37
|
|
|
|
3
|
|
|
|
7
|
|
Commercial and industrial
|
|
|
93
|
|
|
|
47
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Real estate loans (including lines of credit)
|
|
|
24
|
|
|
|
23
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(61,140
|
)
|
|
|
(9,225
|
)
|
|
|
(401
|
)
|
|
|
(192
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
Reserves related to acquisitions
|
|
|
|
|
|
|
|
|
|
|
2,745
|
|
|
|
586
|
|
|
|
|
|
Provision for loan losses charged to operations
|
|
|
73,670
|
|
|
|
24,327
|
|
|
|
4,254
|
|
|
|
2,836
|
|
|
|
1,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
42,063
|
|
|
$
|
29,533
|
|
|
$
|
14,431
|
|
|
$
|
7,833
|
|
|
$
|
4,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs during the year to average loans outstanding during the year
|
|
|
5.37
|
%
|
|
|
0.78
|
%
|
|
|
0.04
|
%
|
|
|
0.03
|
%
|
|
|
0.03
|
%
|
Allowance for loan losses to total loans
|
|
|
3.47
|
%
|
|
|
2.32
|
%
|
|
|
1.26
|
%
|
|
|
1.00
|
%
|
|
|
0.94
|
%
|
Allowance for loan losses to non-performing loans
|
|
|
25.57
|
%
|
|
|
41.10
|
%
|
|
|
101.69
|
%
|
|
|
1160.26
|
%
|
|
|
1435.40
|
%
|
Nonperforming loans to total loans
|
|
|
13.56
|
%
|
|
|
5.63
|
%
|
|
|
1.24
|
%
|
|
|
0.09
|
%
|
|
|
0.07
|
%
|
Nonperforming assets to total assets
|
|
|
12.75
|
%
|
|
|
4.95
|
%
|
|
|
1.19
|
%
|
|
|
0.08
|
%
|
|
|
0.06
|
%
|
INVESTMENT ACTIVITIES
The Company invests primarily in obligations of the United States or obligations guaranteed as to principal and interest by the United States
and other taxable securities. The Banks enter into Federal Funds transactions with their principal correspondent banks, and primarily act as net sellers of such funds. The sale of Federal Funds amounts to short-term loans from the Banks to other
banks.
The Companys investment activities are governed internally by a written, board-approved policy. The investment
policy is carried out by the Corporate Asset/Liability Management Committee (ALCO), which meets regularly to review the economic environment and establish investment strategies. The ALCO has much broader responsibilities, which are
discussed further in
Managements Discussion and Analysis of Financial Condition and Results of Operations
under the captions
Capital Resources and Liquidity
and
Interest Sensitivity
.
For further detailed information as to the amortized cost, fair value, respective maturities and weighted average yields of
the Companys investments, please see
Note 6-Securities of the Notes to Consolidated Financial Statements
.
SOURCES OF FUNDS
The Companys
primary funding source for lending, investments and other general business purposes is deposits. The Company offers a wide range of interest bearing and non-interest bearing accounts, including commercial and retail checking accounts, negotiable
order of withdrawal (NOW) accounts, money market accounts with limited transactions, individual retirement accounts, regular interest-bearing statement savings accounts, certificates of deposit with a range of maturity date options, and
accessibility to a customers deposit relationship through on-line banking. Certain aspects of our deposit gathering activities, including the use of brokered deposits, are affected by the Resolutions described under
Supervision and
Regulation
. Commercial customers additionally have cash management, expanded on-line banking, lock box, remote deposit capture and door-to-door banking depositor services. The sources of deposits are residents, businesses and employees of
businesses within the Banks market areas, obtained through the personal solicitation of the Banks officers and directors, direct mail solicitation and limited advertisements published in the local media. The Banks pay competitive
interest rates on time, money market and savings deposits. In addition, the Banks have implemented a service charge fee schedule competitive with other financial institutions in the Companys market areas, covering such matters as maintenance
fees on checking accounts, per item processing fees on checking accounts, returned check charges, and other similar charges.
8
In addition to deposits, another principal source of funds is loan repayments. The
Companys banking subsidiaries are members of the Federal Home Loan Bank (FHLB). At this time, however, the Company does not have any further borrowing capacity. Bank of Florida-Southwest and Bank of Florida Southeast issued
subordinated debt during 2005 and repurchase agreements in 2008 to assist in their capital funding needs.
See Note-10 Deposits, Note 11-Subordinated Debt and Other Borrowings and Note 12-Federal Home Loan Bank
Advances of the Notes to Consolidated Financial Statements for further information.
The following
table presents, for the three years ended December 31, 2009, the average amount of and average rate paid on each of the following funding categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FUNDING CATEGORY
|
|
AVERAGE AMOUNT
(IN
THOUSANDS)
|
|
AVERAGE RATE PAID
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Non-interest-bearing demand deposits
|
|
$
|
107,164
|
|
$
|
104,224
|
|
$
|
103,149
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
|
6,177
|
|
|
6,228
|
|
|
7,625
|
|
0.34
|
%
|
|
0.55
|
%
|
|
0.64
|
%
|
Time deposits
|
|
|
689,431
|
|
|
547,730
|
|
|
367,992
|
|
3.33
|
%
|
|
4.21
|
%
|
|
5.06
|
%
|
Other interest-bearing deposits
|
|
|
388,054
|
|
|
388,142
|
|
|
398,432
|
|
1.50
|
%
|
|
2.70
|
%
|
|
3.98
|
%
|
Other borrowings
|
|
|
170,522
|
|
|
179,801
|
|
|
120,331
|
|
3.53
|
%
|
|
3.87
|
%
|
|
5.33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Funding
|
|
$
|
1,361,348
|
|
|
1,226,125
|
|
$
|
997,529
|
|
2.56
|
%
|
|
3.31
|
%
|
|
4.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CORRESPONDENT BANKING
Correspondent banking involves the provision of services by one bank to another bank that cannot provide that service for itself from an
economic or practical standpoint. The Banks purchase correspondent services offered by larger banks, including check collections, purchase of Federal Funds, security safekeeping, investment services, coin and currency supplies, liquidity loan
participations and sales of loans to or participations with correspondent banks.
The Banks are involved in loan
participations to correspondent banks as well as each other with respect to loans that exceed the individual Banks respective lending limits. Management of the Banks has established primary correspondent relationships with the Independent
Bankers Bank of Florida, Pacific Coast Bankers Bank, and Federal Reserve Bank of Atlanta. At December 31, 2009, available lines of credit with correspondent banks amounted to $98,449,000.
EMPLOYEES
At December 31, 2009, the Company employed 218 full-time-equivalent employees, none of whom were represented by a union or collective bargaining agreement. The Company will hire additional persons as
needed on a full-time and part-time basis, including additional tellers and customer service representatives, to support its growth objectives.
ACCOUNTING STANDARDS UPDATES
In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2009-01 (ASU 2009-01),
Topic 105 Generally Accepted Accounting Principles amendments based on
Statement of Financial Accounting Standards No. 168 The FASB Accounting Standards Codification
TM
and the Hierarchy of Generally Accepted Accounting Principles
. ASU 2009-01 amends the FASB Accounting Standards Codification for the issuance
of FASB Statement No. 168 (SFAS 168),
The FASB Accounting Standards Codification
TM
and the Hierarchy of Generally Accepted Accounting Principles
. ASU 2009-1 includes SFAS 168 in its entirety, including the accounting
standards update instructions contained in Appendix B of the Statement. The FASB Accounting Standards Codification
TM
(Codification) became the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the
Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. This Statement is effective for
financial statements issued for interim and annual periods ending after September 15, 2009.
9
In August 2009, the FASB issued Accounting Standards Update No. 2009-04 (ASU
2009-04),
Accounting for Redeemable Equity Instruments Amendment to Section 480-10-S99
. ASU 2009-04 represents an update to Section 480-10-S99,
Distinguishing Liabilities from Equity
, per Emerging Issues Task
Force (EITF) Topic D-98,
Classification and Measurement of Redeemable Securities
. ASU 2009-04 did not have a material effect on the Companys consolidated financial condition or results of operations.
In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (ASU 2009-05),
Fair Value Measurements and
Disclosures (Topic 820) Measuring Liabilities at Fair Value
. ASU 2009-05 applies to all entities that measure liabilities at fair value within the scope of ASC Topic 820. ASU 2009-05 provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques:
1.) A valuation technique that uses:
|
a.
|
The quoted price of the identical liability when traded as an asset.
|
|
b.
|
Quoted prices for similar liabilities or similar liabilities when traded as assets.
|
2.) Another valuation technique that is consistent with the principles of ASC Topic 820. Two examples would be an income
approach, such as a technique that is based on the amount at the measurement date that the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability.
The amendments in ASU 2009-5 also clarify that when estimating the fair value of a liability, a reporting entity is not required to include
a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. It also clarifies that both a quoted price in an active market for the identical liability at the measurement date
and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. The guidance provided in ASU 2009-5 is effective for
the first reporting period beginning after issuance. The adoption of ASU 2009-5 will not have a material effect on the Companys consolidated financial condition or results of operations.
In September 2009, the FASB issued Accounting Standards Update No. 2009-06 (ASU 2009-06),
Income Taxes (Topic 740)
Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities
. ASU 2009-06 provides additional implementation guidance on accounting for uncertainty in income taxes by addressing
1.) whether income taxes paid by an entity are attributable to the entity or its owners, 2.) what constitutes a tax position for a pass-through entity or a tax-exempt not-for-profit entity, and 3.) how accounting for uncertainty in income taxes
should be applied when a group of related entities comprise both taxable and nontaxable entities. ASU 2009-06 also eliminates certain disclosure requirements for nonpublic entities. The guidance and disclosure amendments are effective for interim
and annual periods ending after September 15, 2009. The adoption of this guidance had no impact on the Companys consolidated financial condition or results of operations.
In December 2009, the FASB issued Accounting Standards Update No. 2009-16 (ASU 2009-16),
Transfers and Servicing.
ASU 2009-16 provides amendments to Subtopic 860-10 as a result of FASB Statement No. 166,
Accounting for Transfers of Financial Assets.
The adoption of this guidance did not have a material effect on the Companys consolidated
financial condition or results of operations.
In December 2009, the FASB issued Accounting Standards Update No. 2009-17
(ASU 2009-17),
Consolidations (Topic 810) Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.
ASU 2009-17 provides amendments to Subtopic 810-10 as a result of FASB Statement
No. 167,
Amendments to FASB Interpretation No. 46(R).
The adoption of this guidance did not have a material effect on the Companys consolidated financial condition or results of operations.
In January 2010, the FASB issued Accounting Standards Update No. 2010-01 (ASU 2010-01),
Equity (Topic 505)
Accounting for Distributions to Shareholders with Components of Stock and Cash.
ASU 2010-01 clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the
total amount of cash that all shareholders can elect to receive in aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (
Equity and Earnings Per
Share
). These distributions should be accounted for and included in EPS calculations. The amendments in ASU 2010-01 also provide technical correction to the Accounting Standards Codification. The amendments in this Update are effective for
interim and annual periods after December 15, 2009, and should be applied on a retrospective basis. The adoption of this guidance did not have a material effect on the Companys consolidated financial condition or results of operations.
10
In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU
2010-06),
Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures about Fair Value Measurements.
ASU 2010-06 provides amendments to Subtopic 820-10 that require the following new disclosures:
|
1.
|
Transfers in and out of Level 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value
measurements and describe the reasons for the transfers.
|
|
2.
|
Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (level 3), a reporting entity
should present separately information about purchases, sales, issuances, and settlements on a gross basis rather than as a net number.
|
This Update provides amendments to Subtopic 820-10 that clarify existing disclosures as follows:
|
1.
|
Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets or liabilities. A class is often a subset of
assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities.
|
|
2.
|
Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value
for both recurring and nonrecurring fair value measurements. These disclosures are required for fair value measurements that fall in either Level 2 or Level 3.
|
The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the rollforward activity in Level 3 fair value measurements. Those disclosures are effective for fiscal periods beginning after
December 15, 2010 and for interim periods within those fiscal years. The adoption of this guidance did not have a material effect on the Companys consolidated financial condition or results of operations.
In February 2010, the FASB issued Accounting Standards Update No. 2010-08 (ASU 2010-08),
Technical Corrections to
Various Topics.
ASU 2010-08 eliminates inconsistencies and outdated provisions and provides the needed clarifications in US generally accepted accounting principles (GAAP). While none of the provisions in this Update fundamentally change
US GAAP, certain clarifications made to the guidance on embedded derivatives and hedging may cause a change in the application of the Subtopic and special transition provisions are provided for accounting changes related to that Subtopic. The
amendments in this Update are effective for the first reporting period beginning after issuance except for certain amendments made to Topic 815 and the nullification of paragraph 852-740-45-2. The amendments related to the nullification of paragraph
852-740-45-2 should be applied to reorganizations for which the date of reorganization is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. With respect to paragraphs 815-15-25-26,
815-15-25-42 and 815-15-55-13, the amendments in this Update are effective for fiscal years beginning after December 15, 2009. The adoption of this guidance will not have a material effect on the Companys consolidated financial condition
or results of operations.
MONETARY POLICIES
The results of operations of the Company are affected by credit policies of monetary authorities, particularly the Board of Governors of the
Federal Reserve System (Federal Reserve). The instruments of monetary policy employed by the Federal Reserve include open market operations in U.S. government securities, changes in the discount rate on member bank borrowings, changes in
reserve requirements against member bank deposits, and limitations on interest rates which member banks may pay on time and savings deposits. In view of changing conditions in the national economy and in the money markets, as well as the effect of
action by monetary and fiscal authorities, including the Federal Reserve Board, no accurate prediction can be made as to possible future changes in interest rates, deposit levels, loan demand or the business and earnings of the Company.
11
SUPERVISION AND REGULATION
Board Resolutions
. In October 2009, the Board of Directors of BOFL adopted Resolutions (Board Resolutions) proposed by the
Federal Reserve Bank of Atlanta (Reserve Bank) with the goal of addressing and improving certain matters. With respect to each Board Resolution, BOFL has taken the following actions.
|
|
|
Resolution
|
|
Status
|
BOFL will not incur debt, including debt associated with trust preferred securities, without the prior written approval of the Reserve Bank. This restriction also includes any
action, such as refinancing, that would cause a change in debt instruments or change in any of the terms of the existing debt instrument, i.e., interest rate, maturity date, amortization schedule, etc.
|
|
BOFL has no outstanding debt and has not sought to incur any since the Board adopted the Board Resolutions.
|
|
|
BOFL will not declare or pay dividends (common or preferred) to its shareholders without the prior written approval of the Reserve Bank.
|
|
Following adoption of the Board Resolutions, BOFL suspended payment of dividends on its Series B Preferred Stock and has not paid or sought to pay any other
dividends.
|
|
|
BOFL will not reduce its capital position by purchasing or redeeming treasury stock without prior written approval of the Reserve Bank; provided, however, that BOFL shall be
permitted to redeem up to 172 shares of its Series B Preferred Stock for no more than $4,300,000, upon selling newly issued securities for an aggregate offering price of not less than $30,000,000.
|
|
BOFL has not so reduced its capital position, nor sought to.
|
|
|
BOFL will not make any payment representing a reduction in its capital, except for the payment of normal and routine operating expenses, without the prior written approval of the
Reserve Bank.
|
|
BOFL has made no such payments, nor sought to.
|
|
|
BOFL will within 30 days after each quarter end provide the Reserve Bank with a parent company only balance sheet, parent company only income statement and parent company only
report of changes in stockholders equity.
|
|
BOFL is in compliance with this Resolution.
|
|
|
BOFL will within 30 days after each quarter end provide the Reserve Bank with a written confirmation of compliance with this Resolution.
|
|
BOFL is in compliance with this Resolution.
|
Corrective Resolutions.
In August 2009, the Boards of Directors of each of the Bank adopted Resolutions (Corrective Resolutions) proposed by the Florida Office of Financial Regulation following issuance of a Report of
Examination (Report) with the goal of addressing and improving certain matters at each Bank. With respect to each set of Corrective Resolutions, each Bank has taken the following actions.
Bank of Florida Southwest
|
|
|
Resolution
|
|
Status
|
On or before August 30, 2009, the Bank will prepare and submit a written capital plan (Capital Plan) to the OFR and the FDIC (Supervisory Authorities)
for: (i) achieving by December 31, 2009, and thereafter maintaining, a Tier 1 Leverage Capital Ratio of at least 8%; (ii) achieving by December 31, 2009, and thereafter maintaining, a Total Risk Based Capital Ratio of at least
11%; (iii) achieving by June 30, 2010, and thereafter maintaining, a Total Risk Based Capital Ratio of at least 12%. The Capital Plan shall also address and consider: (a) the Banks capital requirements for the remainder of the
2009 and for 2010; (b) the volume of the Banks adversely classified assets; (c) the Banks ability to absorb unexpected losses in excess of the Banks allowance of loan and lease losses (ALLL);
(d) anticipated growth in the Banks assets in 2009 and 2010; (e) the risk profile of the Banks asset and liability structure; and (f) source and timing of additional funds to fulfill the Banks future capital and ALLL
needs.
|
|
The Board has adopted the Capital Plan and the Bank has submitted the Capital Plan to the Supervisory Authorities.
|
12
|
|
|
Management is to work with BOFLs management to ensure that the Bank remains at all times well capitalized. Management is to report to the Board at each monthly
meeting the progress of BOFLs capital raising efforts with private equity investors and the alternate capital raising efforts directed at shareholders and institutional investors, either of which would be completed prior to year
end.
|
|
At December 31, 2009, the Bank was considered critically undercapitalized. BOFL continues to work on capital raising initiatives and management has been reporting
to the Board on a monthly basis with respect to such efforts.
|
|
|
Achieve by December 31, 2009, and thereafter maintaining, a Tier 1 Leverage Capital Ratio of at least 8%. In the event that the ratio falls below the minimums prescribed by the
Capital Plan, the Supervisory Authorities shall be notified within 10 days and capital shall be increased in an amount sufficient to achieve the ratio prior to the next quarter end.
|
|
At December 31, 2009, the Banks Tier 1 Leverage Capital Ratio was 1.24%. The Bank has notified the Supervisory Authorities and BOFL continues to work on capital raising
initiatives.
|
|
|
Achieve by December 31, 2009, and thereafter maintaining, a Total Risk Based Capital Ratio of at least 11%. Achieve by June 30, 2010, and thereafter maintaining, a Total
Risk Based Capital Ratio of at least 12%. In the event that the ratio falls below the minimums prescribed by the Capital Plan, the Supervisory Authorities shall be notified within 10 days and capital shall be increased in an amount sufficient to
achieve the ratio prior to the next quarter end.
|
|
At December 31, 2009, the Banks Total Risk Based Capital Ratio was 2.99%. The Bank has notified the Supervisory Authorities and BOFL continues to work on capital raising
initiatives.
|
|
|
On or before August 30, 2009, the Bank will prepare and submit a written risk reduction plan (Risk Reduction Plan). The Risk Reduction Plan shall include the
following schedule showing a reduction in the aggregate balance of assets classified Substandard, Doubtful or Loss in the Report: (a) By December 31, 2009 to not more than 160 percent of Tier 1 Capital
plus the ALLL as determined as of that date; (b) By March 31, 2010 to not more than 140 percent of Tier 1 Capital plus the ALLL as determined as of that date; (c) By June 30, 2010 to not more than 120 percent of Tier 1 Capital
plus the ALLL as determined as that date; (d) By September 30, 2010 to not more than 100 percent of Tier 1 Capital plus the ALLL as determined as of that date; and (e) By December 30, 2010 to not more than 80 percent of Tier 1
Capital plus the ALLL as determined as of that date. The Risk Reduction Plan may include a provision for increasing Tier 1 Capital when necessary to achieve the prescribed ratios.
|
|
The Board has adopted the Risk Reduction Plan and the Bank has submitted it to the Supervisory authorities. At December 31, 2009, the Banks aggregate balance of assets
classified Substandard, Doubtful or Loss in the Report was 376% of Tier 1 Capital plus the ALL.
|
|
|
While these Resolutions are in effect, the Bank will not extend, directly or indirectly, any additional credit to or for the benefit of any borrower whose loans are adversely
classified Substandard by either of the Supervisory Authorities without prior approval of the Board, or its designated Committee. The Board or its designated Committee will not approve the proposed extension without first making
affirmative determinations that: (a) The extension of credit is necessary to protect the Banks interests; and (b) All necessary loan documentation has been obtained by the Bank, including current financial and cash flow information,
and satisfactory appraisal, title and lien documents. The Boards affirmative determination shall be recorded in the minutes of the Board meeting at which the decision was made with a copy retained in the borrowers credit file.
Furthermore, any exceptions to the Banks Loan Policy will be fully disclosed, discussed, approved and duly noted in the Minutes of the Board or its designated committee as appropriate.
|
|
The Bank is in compliance with this Resolution.
|
|
|
Within 60 days of the effective date of this Resolution, management shall submit to the Board a written plan to systematically reduce the Banks concentration in high-risk
(Group 1) Commercial Real Estate Loans (CRE Plan).
|
|
The Board has adopted the CRE Plan and the Bank has submitted it to the Supervisory Authorities.
|
|
|
Within 30 days of the effective date of this Resolution, management shall submit to the Board an amended Liquidity Policy which addresses and takes in to consideration the
Banks liquidity objectives and current risk profile, including a reduction in the Net Non-Core Funding Dependence ratio to 40
|
|
The Board has amended the Liquidity Policy and the Bank has submitted it to the Supervisory Authorities. At
|
13
|
|
|
percent or less by December 31, 2010, with ongoing efforts to further reduce the Banks dependence. Following the Boards approval, the amended Liquidity Policy shall
be submitted to the Supervisory Authorities.
|
|
December 31, 2009, the Banks Net Non-Core Funding Dependence Ratio was 41.94%.
|
|
|
Within 90 days, management shall prepare and submit to the Board a strategic business plan (Strategic Plan) and a comprehensive annual budget and earnings forecast
(Budget) for the remainder of 2009 and for 2010. The Bank is to submit to the Supervisory Authorities the Board approved Strategic Plan and Budget for review and comment. The Bank is to update the Strategic Plan and Budget each year and
keep the Board updated on the Banks progress thereunder.
|
|
The Board has adopted the Strategic Plan and Budget and the Bank has submitted them to the Supervisory Authorities. The Bank is in the process of completing its 2010 Budget and has
kept the Board updated on the Banks progress.
|
|
|
Within 60 days, the Bank shall amend its written policies and procedures to address examination report comments and recommendations regarding the use of interest
reserves.
|
|
The Board has amended the Banks interest rate reserve policies.
|
|
|
Within 30 days, the Board will establish for the Bank a sound ALLL methodology and submit the revised ALLL methodology to the Supervisory Authorities for review and comment. The
Board shall review the adequacy of the ALLL each quarter.
|
|
The Board has amended the Banks ALLL methodology and reviews the ALLLs adequacy on a quarterly basis.
|
|
|
As long as these Resolutions are in effect, the Bank shall notify the Supervisory Authorities in writing when it proposes to add any individual to the Board or employ any individual
as an executive officer
|
|
The Bank is in compliance with this Resolution.
|
|
|
The Bank shall provide monthly status reports to the Supervisory Authorities.
|
|
The Bank is in compliance with this Resolution.
|
Bank of Florida Southeast
|
|
|
Resolution
|
|
Status
|
On or before August 30, 2009, the Bank will prepare and submit a Capital Plan to the Supervisory Authorities for: (i) achieving by December 31, 2009, and thereafter
maintaining, a Tier 1 Leverage Capital Ratio of at least 8%; (ii) achieving by December 31, 2009, and thereafter maintaining, a Total Risk Based Capital Ratio of at least 11%; (iii) achieving by June 30, 2010, and thereafter
maintaining, a Total Risk Based Capital Ratio of at least 12%. The Capital Plan shall also address and consider: (a) the Banks capital requirements for the remainder of the 2009 and for 2010; (b) the volume of the Banks
adversely classified assets; (c) the Banks ability to absorb unexpected losses in excess of the Banks ALLL; (d) anticipated growth in the Banks assets in 2009 and 2010; (e) the risk profile of the Banks asset
and liability structure; and (f) source and timing of additional funds to fulfill the Banks future capital and ALLL needs.
|
|
The Board has adopted the Capital Plan and the Bank has submitted the Capital Plan to the Supervisory Authorities.
|
|
|
Management is to work with BOFLs management to ensure that the Bank remains at all times well capitalized. Management is to report to the Board at each monthly
meeting the progress of BOFLs capital raising efforts with private equity investors and the alternate capital raising efforts directed at shareholders and institutional investors, either of which would be completed prior to year
end.
|
|
At December 31, 2009, the Bank was considered undercapitalized. BOFL continues to work on capital raising initiatives and management has been reporting to the Board on a
monthly basis with respect to such efforts.
|
|
|
Achieve by December 31, 2009, and thereafter maintaining, a Tier 1 Leverage Capital Ratio of at least 8%. In the event that the ratio falls below the minimums prescribed by the
Capital Plan, the Supervisory Authorities shall be notified within 10 days and capital shall be increased in an amount sufficient to achieve the ratio prior to the next quarter end.
|
|
At December 31, 2009, the Banks Tier 1 Leverage Capital Ratio was 3.44%. The Bank has notified the Supervisory Authorities and BOFL continues to work on capital raising
initiatives.
|
14
|
|
|
Achieve by December 31, 2009, and thereafter maintaining, a Total Risk Based Capital Ratio of at least 11%. Achieve by June 30, 2010, and thereafter maintaining, a Total
Risk Based Capital Ratio of at least 12%. In the event that the ratio falls below the minimums prescribed by the Capital Plan, the Supervisory Authorities shall be notified within 10 days and capital shall be increased in an amount sufficient to
achieve the ratio prior to the next quarter end.
|
|
At December 31, 2009, the Banks Total Risk Based Capital Ratio was 6.47%. The Bank has notified the Supervisory Authorities and BOFL continues to work on capital raising
initiatives.
|
|
|
On or before August 30, 2009, the Bank will prepare and submit a Risk Reduction Plan. The Risk Reduction Plan shall include the following schedule showing a reduction in the
aggregate balance of assets classified Substandard, Doubtful or Loss in the Report: (a) By December 31, 2009 to not more than 110 percent of Tier 1 Capital plus the ALLL as determined as of that date;
(b) By March 31, 2010 to not more than 100 percent of Tier 1 Capital plus the ALLL as determined as of that date; (c) By June 30, 2010 to not more than 90 percent of Tier 1 Capital plus the ALLL as determined as that date;
(d) By September 30, 2010 to not more than 80 percent of Tier 1 Capital plus the ALLL as determined as of that date; and (e) By December 30, 2010 to not more than 70 percent of Tier 1 Capital plus the ALLL as determined as of
that date. The Risk Reduction Plan may include a provision for increasing Tier 1 Capital when necessary to achieve the prescribed ratios.
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The Board has adopted the Risk Reduction Plan and the Bank has submitted it to the Supervisory authorities. At December 31, 2009, the Banks aggregate balance of assets
classified Substandard, Doubtful or Loss in the Report was 239% of Tier 1 Capital plus the ALL.
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While these Resolutions are in effect, the Bank will not extend, directly or indirectly, any additional credit to or for the benefit of any borrower whose loans are adversely
classified Substandard by either of the Supervisory Authorities without prior approval of the Board, or its designated Committee. The Board or its designated Committee will not approve the proposed extension without first making
affirmative determinations that: (a) The extension of credit is necessary to protect the Banks interests; and (b) All necessary loan documentation has been obtained by the Bank, including current financial and cash flow information,
and satisfactory appraisal, title and lien documents. The Boards affirmative determination shall be recorded in the minutes of the Board meeting at which the decision was made with a copy retained in the borrowers credit file.
Furthermore, any exceptions to the Banks Loan Policy will be fully disclosed, discussed, approved and duly noted in the Minutes of the Board or its designated committee as appropriate.
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The Bank is in compliance with this Resolution.
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Within 60 days of the effective date of this Resolution, management shall submit to the Board a CRE Plan to systematically reduce the Banks concentration in high-risk (Group
1) Commercial Real Estate Loans.
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The Board has adopted the CRE Plan and the Bank has submitted it to the Supervisory Authorities.
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Within 30 days of the effective date of this Resolution, management shall submit to the Board an amended Liquidity Policy which addresses and takes in to consideration the
Banks liquidity objectives and current risk profile, including a reduction in the Net Non-Core Funding Dependence ratio to 40 percent or less by December 31, 2010, with ongoing efforts to further reduce the Banks dependence.
Following the Boards approval, the amended Liquidity Policy shall be submitted to the Supervisory Authorities.
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The Board has amended the Liquidity Policy and the Bank has submitted it to the Supervisory Authorities. At December 31, 2009, the Banks Net Non-Core Funding Dependence Ratio
was 39.10%.
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Within 90 days, management shall prepare and submit to the Board a Strategic Plan and a Budget for the remainder of 2009 and for 2010. The Bank is to submit to the Supervisory
Authorities the Board approved Strategic Plan and Budget for review and comment. The Bank is to update the Strategic Plan and Budget each year and keep the Board updated on the Banks progress thereunder.
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The Board has adopted the Strategic Plan and Budget and the Bank has submitted them to the Supervisory Authorities. The Bank is in the process of completing its 2010 Budget and has
kept the Board updated on the Banks progress.
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Within 60 days, the Bank shall amend its written policies and procedures to address examination report comments and recommendations regarding the use of interest
reserves.
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The Board has amended the Banks interest rate reserve policies.
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Within 30 days, the Board will establish for the Bank a sound ALLL methodology and submit the revised ALLL methodology to the Supervisory Authorities for review and comment. The
Board shall review the adequacy of the ALLL each quarter.
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The Board has amended the Banks ALLL methodology and reviews the ALLLs adequacy on a quarterly basis.
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As long as these Resolutions are in effect, the Bank shall notify the Supervisory Authorities in writing when it proposes to add any individual to the Board or employ any individual
as an executive officer
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The Bank is in compliance with this Resolution.
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The Bank shall provide monthly status reports to the Supervisory Authorities.
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The Bank is in compliance with this Resolution.
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Bank of Florida Tampa Bay
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Resolution
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Status
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On or before August 30, 2009, the Bank will prepare and submit a Capital Plan to the Supervisory Authorities for: (i) achieving by December 31, 2009, and thereafter
maintaining, a Tier 1 Leverage Capital Ratio of at least 8%; (ii) achieving by December 31, 2009, and thereafter maintaining, a Total Risk Based Capital Ratio of at least 11%; (iii) achieving by June 30, 2010, and thereafter
maintaining, a Total Risk Based Capital Ratio of at least 12%. The Capital Plan shall also address and consider: (a) the Banks capital requirements for the remainder of the 2009 and for 2010; (b) the volume of the Banks
adversely classified assets; (c) the Banks ability to absorb unexpected losses in excess of the Banks ALLL; (d) anticipated growth in the Banks assets in 2009 and 2010; (e) the risk profile of the Banks asset
and liability structure; and (f) source and timing of additional funds to fulfill the Banks future capital and ALLL needs.
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The Board has adopted the Capital Plan and the Bank has submitted the Capital Plan to the Supervisory Authorities.
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Management is to work with BOFLs management to ensure that the Bank remains at all times well capitalized. Management is to report to the Board at each monthly
meeting the progress of BOFLs capital raising efforts with private equity investors and the alternate capital raising efforts directed at shareholders and institutional investors, either of which would be completed prior to year
end.
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At December 31, 2009, the Bank was considered significantly undercapitalized. BOFL continues to work on capital raising initiatives and management has been reporting to
the Board on a monthly basis with respect to such efforts.
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Achieve by December 31, 2009, and thereafter maintaining, a Tier 1 Leverage Capital Ratio of at least 8%. In the event that the ratio falls below the minimums prescribed by the
Capital Plan, the Supervisory Authorities shall be notified within 10 days and capital shall be increased in an amount sufficient to achieve the ratio prior to the next quarter end.
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At December 31, 2009, the Banks Tier 1 Leverage Capital Ratio was 2.66%. The Bank has notified the Supervisory Authorities and BOFL continues to work on capital raising
initiatives.
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Achieve by December 31, 2009, and thereafter maintaining, a Total Risk Based Capital Ratio of at least 11%. Achieve by June 30, 2010, and thereafter maintaining, a Total
Risk Based Capital Ratio of at least 12%. In the event that the ratio falls below the minimums prescribed by the Capital Plan, the Supervisory Authorities shall be notified within 10 days and capital shall be increased in an amount sufficient to
achieve the ratio prior to the next quarter end.
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At December 31, 2009, the Banks Total Risk Based Capital Ratio was 4.37%. The Bank has notified the Supervisory Authorities and BOFL continues to work on capital raising
initiatives.
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On or before August 30, 2009, the Bank will prepare and submit a Risk Reduction Plan. The Risk Reduction Plan shall include the following schedule showing a reduction in the
aggregate balance of assets classified Substandard, Doubtful or Loss in the Report: (a) By December 31, 2009 to not more than 120 percent of Tier 1 Capital plus the ALLL as determined as of that date;
(b) By March 31, 2010 to not more than 110 percent of Tier 1 Capital plus the ALLL as determined as of that date; (c) By June 30, 2010 to not more than 95 percent of Tier 1 Capital plus the ALLL as determined as
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The Board has adopted the Risk Reduction Plan and the Bank has submitted it to the Supervisory authorities. At December 31, 2009, the Banks aggregate balance of assets
classified Substandard, Doubtful or Loss in the
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that date; (d) By September 30, 2010 to not more than 85 percent of Tier 1 Capital plus the ALLL as determined as of that date; and (e) By December 30, 2010 to not
more than 70 percent of Tier 1 Capital plus the ALLL as determined as of that date. The Risk Reduction Plan may include a provision for increasing Tier 1 Capital when necessary to achieve the prescribed ratios.
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Report was 33.0% of Tier 1 Capital plus the ALL.
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While these Resolutions are in effect, the Bank will not extend, directly or indirectly, any additional credit to or for the benefit of any borrower whose loans are adversely
classified Substandard by either of the Supervisory Authorities without prior approval of the Board, or its designated Committee. The Board or its designated Committee will not approve the proposed extension without first making
affirmative determinations that: (a) The extension of credit is necessary to protect the Banks interests; and (b) All necessary loan documentation has been obtained by the Bank, including current financial and cash flow information,
and satisfactory appraisal, title and lien documents. The Boards affirmative determination shall be recorded in the minutes of the Board meeting at which the decision was made with a copy retained in the borrowers credit file.
Furthermore, any exceptions to the Banks Loan Policy will be fully disclosed, discussed, approved and duly noted in the Minutes of the Board or its designated committee as appropriate.
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The Bank is in compliance with this Resolution.
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Within 60 days of the effective date of this Resolution, management shall submit to the Board a CRE Plan to systematically reduce the Banks concentration in high-risk (Group
1) Commercial Real Estate Loans.
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The Board has adopted the CRE Plan and the Bank has submitted it to the Supervisory Authorities.
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Within 30 days of the effective date of this Resolution, management shall submit to the Board an amended Liquidity Policy which addresses and takes in to consideration the
Banks liquidity objectives and current risk profile, including a reduction in the Net Non-Core Funding Dependence ratio to 40 percent or less by December 31, 2010, with ongoing efforts to further reduce the Banks dependence.
Following the Boards approval, the amended Liquidity Policy shall be submitted to the Supervisory Authorities.
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The Board has amended the Liquidity Policy and the Bank has submitted it to the Supervisory Authorities. At December 31, 2009, the Banks Net Non-Core Funding Dependence Ratio
was 25.93%.
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Within 90 days, management shall prepare and submit to the Board a Strategic Plan and a Budget for the remainder of 2009 and for 2010. The Bank is to submit to the Supervisory
Authorities the Board approved Strategic Plan and Budget for review and comment. The Bank is to update the Strategic Plan and Budget each year and keep the Board updated on the Banks progress thereunder.
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The Board has adopted the Strategic Plan and Budget and the Bank has submitted them to the Supervisory Authorities. The Bank is in the process of completing its 2010 Budget and has
kept the Board updated on the Banks progress.
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Within 60 days, the Bank shall amend its written policies and procedures to address examination report comments and recommendations regarding the use of interest
reserves.
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The Board has amended the Banks interest rate reserve policies.
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Within 30 days, the Board will establish for the Bank a sound ALLL methodology and submit the revised ALLL methodology to the Supervisory Authorities for review and comment. The
Board shall review the adequacy of the ALLL each quarter.
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The Board has amended the Banks ALLL methodology and reviews the ALLLs adequacy on a quarterly basis.
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As long as these Resolutions are in effect, the Bank shall notify the Supervisory Authorities in writing when it proposes to add any individual to the Board or employ any individual
as an executive officer
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The Bank is in compliance with this Resolution.
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The Bank shall provide monthly status reports to the Supervisory Authorities.
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The Bank is in compliance with this Resolution.
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Anticipated FDIC Actions.
Based upon the financial condition of the Banks, and subsequent correspondence and discussions with the FDIC, the FDIC has informed us that: (1) each of the Banks must notify the FDIC and the OFR before
adding or replacing a member of their respective Boards of Directors or employing any person (including any existing employee) as a senior executive officer, and (2) the Banks may not, except under certain
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circumstances, enter into any agreements to make severance or indemnification payments or make any such payments to institution-affiliated parties. In addition, based on the Banks financial
condition, we understand that the FDIC plans to pursue and implement formal enforcement actions with respect to the Banks in the form of consent orders (FDIC Orders). We currently expect the FDIC Orders will focus on the areas addressed
by our Corrective Resolutions: to raise and maintain certain capital ratios, to improve asset quality, to reduce non-core funding dependence, and to reduce our commercial real estate loan concentrations, although the scope and terms of any FDIC
Orders or any other action that the FDIC may take is unknown. The Banks must also obtain prior approval from the FDIC before engaging in any transactions that would materially change the composition of their balance sheets. Such transactions include
any transaction or transactions that would increase a Banks total assets by 5% or more, or that would significantly change the Banks funding resources. In addition, the Banks cannot pay dividends to the Company without prior FDIC
approval.
General
. Banks and their holding companies, and their affiliates, are extensively regulated under both
federal and state law. The following is a brief summary of certain statutes, rules, and regulations affecting the Company, the Banks and the Trust Company. This summary is qualified in its entirety by reference to the particular statutory and
regulatory provisions referred to below and is not intended to be an exhaustive description of the statutes or regulations applicable to the business of the Company, the Banks or the Trust Company. Any change in the applicable law or regulation may
have a material effect on the business and prospects of the Company, the Banks and the Trust Company. Supervision, regulation, and examination of banks by regulatory agencies are intended primarily for the protection of depositors, rather than
shareholders.
Bank Holding Company Regulation
. The Company is a bank holding company and a member of the Federal
Reserve System under the Bank Holding Company (BHC) Act of 1956. As such, the Company is subject to the supervision, examination and reporting requirements of the BHC Act and the regulations of the Federal Reserve. The Company is
required to furnish to the Federal Reserve an annual report of its operations at the end of each fiscal year, and such additional information as the Federal Reserve may require pursuant to the BHC Act. The BHC Act requires that a bank holding
company obtain the prior approval of the Federal Reserve before: (i) acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank; (ii) taking any action that causes a bank to become a subsidiary of
the bank holding company; (iii) merging or consolidating with any other bank holding company; or (iv) acquiring most other operating subsidiaries.
The BHC Act further provides that the Federal Reserve may not approve any transaction that would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt
to monopolize the business of banking in any section of the United States, or the effect of which may be to lessen competition or to tend to create a monopoly in any section of the country, or that in any other manner would be in restraint of trade,
unless the anti-competitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve is also required to consider the financial and
managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. Consideration of financial resources generally focuses on capital adequacy and consideration of
convenience and needs issues, including the partys performance under the Community Reinvestment Act of 1977 (the CRA) and anti-money laundering laws, which are both discussed below.
Community Reinvestment Act
. Banks are subject to the provisions of the Community Reinvestment Act (CRA). Under the
terms of the Community Reinvestment Act, the appropriate federal bank regulatory agency is required, in connection with its examination of a bank, to assess such banks record in meeting the credit needs of the community served by that bank,
including low- and moderate-income neighborhoods. The regulatory agencys assessment of the banks record is made available to the public. Further, such assessment is required of any bank which has applied to: (i) charter a national
bank; (ii) obtain deposit insurance coverage for a newly chartered institution; (iii) establish a new branch office that will accept deposits; (iv) relocate an office; or (v) merge or consolidate with, or acquire the assets or
assume the liabilities of, a federally regulated financial institution. In the case of a bank holding company applying for approval to acquire a bank or other bank holding company, the Federal Reserve will assess the record of each subsidiary bank
of the applicant BHC, and such records may be the basis for denying the application.
Gramm-Leach-Bliley Act
. This
act 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 as a financial subsidiary of a national bank. The law reserves the role of the Federal Reserve as the supervisor for bank holding companies. At the same time, the law also provides a system of functional regulation which is designed to
utilize the various existing federal and state regulatory bodies. The law also sets up a process for coordination between the Federal Reserve and the Secretary of the Treasury regarding the approval of new financial activities for both bank holding
companies and national bank financial subsidiaries.
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The law also mandates 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 institutions 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 allows the continuation of some historical 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. 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.
Sarbanes-Oxley Act.
The purpose of the Sarbanes-Oxley Act is to protect
investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.
The Sarbanes-Oxley Act amends the Securities Exchange Act of 1934 to prohibit a registered public accounting firm from performing specified nonaudit services contemporaneously with a mandatory
audit. The Sarbanes-Oxley Act also vests the audit committee of an issuer with responsibility for the appointment, compensation, and oversight of any registered public accounting firm employed to perform audit services. It requires each
committee member to be a member of the board of directors of the issuer, and to be otherwise independent. The Sarbanes-Oxley Act further requires the chief executive officer and chief financial officer of an issuer to make certain
certifications as to each annual or quarterly report.
In addition, the Sarbanes-Oxley Act requires officers to forfeit
certain bonuses and profits under certain circumstances. Specifically, if an issuer is required to prepare an accounting restatement due to the material noncompliance of the issuer as a result of misconduct with any financial reporting
requirement under the securities laws, the chief executive officer and chief financial officer of the issuer shall be required to reimburse the issuer for: (1) any bonus or other incentive-based or equity-based compensation received by that
person from the issuer during the 12-month period following the first public issuance or filing with the Securities and Exchange Commission (SEC) of the financial document embodying such financial reporting requirement; and (2) any
profits realized from the sale of securities of the issuer during that 12-month period.
The Sarbanes-Oxley Act also instructs
the SEC to require by rule:
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disclosure of all material off-balance sheet transactions and relationships that may have a material effect upon the financial status of an issuer; and
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the presentation of pro-forma financial information in a manner that is not misleading, and which is reconcilable with the financial condition of the
issuer under generally accepted accounting principles.
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The Sarbanes-Oxley Act also prohibits insider
transactions in the companys stock held within its pension plans during lock out periods, and any profits on such insider transactions are to be disgorged. In addition, there is a prohibition of company loans to its executives, except in
certain circumstances. The SEC also requires the company to issue a code of ethics for senior financial officers of the company. Further, the Sarbanes-Oxley Act adds a criminal penalty of fines and imprisonment of up to 10 years for
securities fraud.
Regulation W.
Regulation W comprehensively implements Sections 23A and 23B of the Federal Reserve
Act. Sections 23A and 23B and Regulation W restrict loans by a depository institution to its affiliates, asset purchases by depository institutions from its affiliates, and other transactions between a depository institution and its
affiliates. Regulation W unifies in one public document, the Federal Reserves interpretations of sections 23A and 23B.
Bank Regulation
. Bank of Florida Southwest, Bank of Florida Southeast and Bank of Florida Tampa Bay are state chartered banks, subject to the supervision and regulation of the Florida Department of Financial
Services (the Department) and the Federal Deposit Insurance Corporation (FDIC). The FDIC serves as the primary federal regulator and the administrator of the fund that insures the deposits of the Banks. The Banks are subject
to comprehensive regulation, examination and supervision by the Department and the FDIC and are subject to other laws and regulations applicable to banks. Among the statutes and regulations to which the Banks are subject are limitations on loans to
a single borrower and to their 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
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under equal and fair conditions; and the disclosure of the costs and terms of such credit. The Banks are examined periodically by the FDIC and the Department, to which the Banks submit periodic
reports regarding their financial condition and other matters. The FDIC and the Department have a broad range of powers to enforce regulations under their jurisdiction, and to take discretionary actions determined to be for the protection, safety
and soundness of banks, including the institution of cease and desist orders and the removal of directors and officers. The FDIC and the Department also have the authority to approve or disapprove mergers, consolidations, and similar corporate
actions.
Our subsidiary banks are also subject to cross-guarantee provisions under federal law that provide if
one FDIC-insured depository institution of a multi-bank holding company fails or requires FDIC assistance, the FDIC may assess a commonly controlled depository institution for the estimated losses suffered by the FDIC. Such liability
could have a material adverse effect on the financial condition of any assessed bank and the holding company. While the FDICs claim is junior to the claims of depositors, holders of secured liabilities, general creditors and subordinated
creditors, it is superior to the claims of shareholders and affiliates.
Under federal law, federally insured banks are
subject, with certain exceptions, to certain restrictions on any extension of credit to their parent holding companies or other affiliates, on investment in the stock or other securities of affiliates, and on the taking of such stock or securities
as collateral from any borrower. In addition, banks are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or the providing of any property or service.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) contains capital standards for bank holding
companies and banks and civil and criminal enforcement provisions. FIRREA also provides that a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection
with (i) the default of a commonly controlled FDIC insured depository institution, or (ii) any assistance provided by the FDIC to a commonly controlled FDIC insured institution in danger of default.
The FDIC Improvement Act of 1991 (FDICIA) enacted a number of provisions addressing the safety and soundness of deposit
insurance funds, supervision, accounting, prompt regulatory action, and also implemented other regulatory improvements. The cost for conducting an examination of an institution may be assessed to that institution, with special consideration given to
affiliates and any penalties imposed for failure to provide information requested. FDICIA also re-codified then current law restricting extensions of credit to insiders under the Federal Reserve Act.
USA Patriot Act.
The terrorist attacks in September 2001, have impacted the financial services industry and led to federal
legislation that attempts to address certain issues involving financial institutions. 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 (USA Patriot Act).
Part of the USA Patriot Act is the International Money
Laundering Abatement and Financial Anti-Terrorism Act of 2001 (IMLA). IMLA authorizes the Secretary of the Treasury, in consultation with the heads of other government agencies, to adopt special measures applicable to banks, bank
holding companies, and other financial institutions. These measures may include enhanced recordkeeping and reporting requirements for certain financial transactions that are of primary money laundering concern, due diligence requirements
concerning the beneficial ownership of certain types of accounts, and restrictions or prohibitions on certain types of accounts with foreign financial institutions.
Among its other provisions, IMLA requires each financial institution to: (i) establish an anti-money laundering program; (ii) establish due diligence policies, procedures and controls with
respect to its private banking accounts and correspondent banking accounts involving foreign individuals and certain foreign banks; and (iii) avoid establishing, maintaining, administering, or managing correspondent accounts in the United
States for, or on behalf of, a foreign bank that does not have a physical presence in any country. In addition, IMLA contains a provision encouraging cooperation among financial institutions, regulatory authorities and law enforcement
authorities with respect to individuals, entities and organizations engaged in, or reasonably suspected of engaging in, terrorist acts or money laundering activities. IMLA expands the circumstances under which funds in a bank account may be
forfeited and requires covered financial institutions to respond under certain circumstances to requests for information from federal banking agencies within 120 hours. IMLA also amends the BHC Act and the Bank Merger Act to require the federal
banking agencies to consider the effectiveness of a financial institutions anti-money laundering activities when reviewing an application under these acts. Over the past few years, enforcement, and compliance monitoring, of anti-money
laundering laws has dramatically increased. Because of this, the Company and the Banks have increased the attention and resources they dedicate to IMLA compliance, including the retention of specialized IMLA officers, dedicated solely to IMLA
compliance.
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Transactions with Affiliates
. In addition to the limitations imposed by
Regulation W, there are various legal restrictions on the extent to which the Banks may engage in loan transactions with the Company and its subsidiaries and other affiliates. Subject to certain limited exceptions, the Banks may not extend credit to
the Company or any one of the Banks affiliates in excess of ten percent of the Banks capital stock and surplus, or to all affiliates, in the aggregate, in excess of twenty percent of the Banks capital stock and surplus. All
extensions of credit by the Banks to an affiliate must be fully collateralized by high quality collateral.
Transactions
involving extensions of credit to the Banks affiliates are subject to further limitations. These additional limitations are also applicable to: (1) transactions involving the purchase of assets or securities from affiliates;
(2) extensions of credit and other transactions by the Banks to or with third persons where there is a benefit to an affiliate; (3) contracts in which the Banks provide services to an affiliate; and (4) transactions in which an
affiliate receives a brokerage commission in a transaction involving the Banks. All such transactions must be on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the Banks as
those prevailing at the time for comparable transactions with or involving other nonaffiliated companies.
Dividends
. The Companys ability to pay cash dividends will depend almost entirely upon the amount of dividends that the Banks are permitted to pay by statutes or regulations. Additionally, the Florida Business
Corporation Act provides that the Company may only pay dividends if the dividend payment would not render it insolvent, or unable to meet its obligations as they come due.
All of the Banks and the Trust Company are Florida state-chartered institutions. The Department limits the Banks ability to pay
dividends. As state-chartered institutions, the Banks and the Trust Company are subject to regulatory restrictions on the payment of dividends, including a prohibition of payment of dividends from their capital under certain circumstances without
the prior approval of the Department. Except with the prior approval of the Department, all dividends of any Florida bank or trust company must be paid out of retained net profits from the current period and the previous two years, after deducting
expenses, including losses and bad debts. In addition, state-chartered banks and trust companies in Florida are required to transfer at least 20% of their net income to surplus until their surplus equals the amount of paid-in capital.
The Company does not anticipate that the subsidiary banks will pay dividends in the foreseeable future in so that they can maintain their
well capitalized status and retain any earnings to support their growth.
Capital Requirements
. The federal bank
regulatory authorities have adopted risk-based capital guidelines for banks and bank holding companies that are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies.
The resulting capital ratios represent qualifying capital as a percentage of total risk-weighted assets and off-balance sheet items. The guidelines are minimums, and the federal regulators have noted that banks and bank holding companies
contemplating significant expansion programs should not allow expansion to diminish their capital ratios and should maintain all ratios well in excess of the minimums. The current guidelines require all bank holding companies and federally-regulated
banks to maintain a minimum risk-based total capital ratio equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1 capital includes common stockholders equity, qualifying perpetual preferred stock, and minority interests in equity
accounts of consolidated subsidiaries, but excludes goodwill and most other intangibles and excludes the allowance for loan and lease losses. Tier 2 capital includes the excess of any preferred stock not included in Tier 1 capital, mandatory
convertible securities, hybrid capital instruments, subordinated debt and intermediate term-preferred stock, and general reserves for loan and lease losses up to 1.25% of risk-weighted assets.
FDICIA contains prompt corrective action provisions pursuant to which banks are to be classified into one of five categories
based upon capital adequacy, ranging from well capitalized to critically undercapitalized and which require (subject to certain exceptions) the appropriate federal banking agency to take prompt corrective action with respect
to an institution which becomes significantly undercapitalized or critically undercapitalized.
In
general, the regulations define the five capital categories as follows: (i) an institution is well capitalized if it has a total risk-based capital ratio of 10% or greater, has a Tier 1 risk-based capital ratio of 6% or greater, has
a leverage ratio of 5% or greater and is not subject to any written capital order or directive to meet and maintain a specific capital level for any capital measures; (ii) an institution is adequately capitalized if it has a total
risk-based capital ratio of 8% or greater, has a Tier 1 risk-based capital ratio of 4% or greater, and has a leverage ratio of 4% or greater; (iii) an institution is undercapitalized if it has a total risk-based capital ratio of
less than 8%, has a Tier 1 risk-based capital ratio that is less than 4% or has a leverage ratio that is less than 4%; (iv) an institution is significantly undercapitalized if it has a total risk-based capital ratio that is less
than 6%, a Tier 1 risk-based capital ratio that is less than 3% or a leverage ratio that is less than 3%; and (v) an institution is critically undercapitalized if its tangible equity is equal to or less than 2% of its
total assets. The FDIC also, after an opportunity for a hearing, has authority to downgrade an institution from well capitalized to adequately capitalized or to subject an adequately capitalized or
undercapitalized institution to the supervisory actions applicable to the next lower category, for supervisory concerns.
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The degree of regulatory scrutiny of a financial institution will increase, and the
permissible activities of the institution will decrease, as it moves downward through the capital categories. Institutions that fall into one of the three undercapitalized categories may be required to: (i) submit a capital restoration plan;
(ii) raise additional capital; (iii) restrict their growth and other activities; (iv) improve their management; (v) eliminate management fees; or (vi) divest themselves of all or part of their operations. Bank holding
companies controlling financial institutions can be called upon to boost the institutions capital and to partially guarantee the institutions performance under their capital restoration plans. These capital guidelines can affect the
Company in several ways.
Enforcement Powers
. Congress has provided the federal bank regulatory agencies with an
array of powers to enforce laws, rules, regulations and orders. Among other things, the agencies may require that institutions cease and desist from certain activities, may preclude persons from participating in the affairs of insured depository
institutions, may suspend or remove deposit insurance, and may impose civil money penalties against institution-affiliated parties for certain violations.
Maximum Legal Interest Rates
. Like the laws of many states, Florida law contains provisions on interest rates that may be charged by banks and other lenders on certain types of loans. Numerous
exceptions exist to the general interest limitations imposed by Florida law. The relative importance of these interest limitation laws to the financial operations of the Banks will vary from time to time, depending on a number of factors, including
conditions in the money markets, the costs and availability of funds, and prevailing interest rates.
Bank
Branching
. Banks in Florida are permitted to branch statewide. A State banks expansion is subject to the Department and FDIC approval. Any such approval would take into consideration several factors, including the banks level of
capital, the prospects and economics of the proposed branch office, and other conditions deemed relevant for purposes of determining whether approval should be granted to open a branch office. For information regarding legislation on interstate
branching in Florida, see Interstate Banking below.
Change of Control
. Federal law restricts the
amount of voting stock of a bank holding company and a bank that a person may acquire without the prior approval of banking regulators. The overall effect of such laws is to make it more difficult to acquire a bank holding company and a bank by
tender offer or similar means than it might be to acquire control of another type of corporation. Consequently, shareholders of the Company may be less likely to benefit from the rapid increases in stock prices that may result from tender offers or
similar efforts to acquire control of other companies. Under the Change in Bank Control Act and the regulations thereunder, a person or group must give advance notice to the Federal Reserve before acquiring control of any bank holding company. Upon
receipt of such notice, the Federal Reserve may approve or disapprove the acquisition. The Change in Bank Control Act creates a rebuttable presumption of control if a member or group acquires a certain percentage or more of a bank holding
companys or banks voting stock, or if one or more other control factors set forth in the Change in Bank Control Act are present.
Interstate Banking
. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 provides for nationwide interstate banking and branching. Under this law, interstate acquisitions of
banks or bank holding companies in any state by bank holding companies in any other state are permissible subject to certain limitations. Florida also has a law that allows out-of-state bank holding companies (located in states that allow Florida
bank holding companies to acquire banks and bank holding companies in that state) to acquire Florida banks and Florida bank holding companies. The law essentially provides for out-of-state entry by acquisition only (and not by interstate
branching) and requires the acquired Florida bank to have been in existence for at least three years. Interstate branching and consolidation of existing bank subsidiaries in different states are permissible. A Florida bank may also establish,
maintain, and operate one or more branches in a state other than Florida pursuant to an interstate merger transaction in which the Florida bank is the resulting bank.
Effect of Governmental Policies
. The earnings and businesses of the Company and the Banks are affected by the policies of various regulatory authorities of the United States, especially the
Federal Reserve. The Federal Reserve, among other things, regulates the supply of credit and deals with general economic conditions within the United States. The instruments of monetary policy employed by the Federal Reserve for those purposes
influence in various ways the overall level of investments, loans, other extensions of credit, and deposits, and the interest rates paid on liabilities and received on assets.
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Risks
Related to the Conduct of Our Business
Our regulatory capital levels have declined and may continue to do so.
At December 31, 2009, our consolidated Tier 1 leverage capital ratio was 2.41%, our consolidated total risk
based capital ratio was 5.33% and our consolidated Tier 1 risk based capital ratio was 2.94%. These ratios have caused the Company to be considered under capitalized. In addition, each of our subsidiary banks is considered to be
under capitalized as of December 31, 2009. Continued losses will cause these capital ratios to fall further. Lower capital ratios will impair our ability to compete for loans and deposits, due to regulatory restrictions and public
perception.
We are required to maintain capital to meet regulatory requirements, and if we fail to maintain sufficient capital, our
financial condition, liquidity and results of operations, as well as our ability to maintain regulatory compliance, would be adversely affected.
Our subsidiary banks and the trust company must meet regulatory capital requirements and maintain sufficient liquidity. Our ability to achieve these goals depends on conditions in the capital markets,
economic conditions and a number of other factors, including investor perceptions regarding the banking industry and market conditions, and governmental activities, many of which are outside our control, and on our financial condition and
performance. Accordingly, we cannot assure you that we will be able to raise additional capital if needed or on terms acceptable to us. If we fail to satisfy these capital ratios and other regulatory requirements, our financial condition, liquidity
and results of operations would be materially and adversely affected.
The board of directors of each of our subsidiary banks
has adopted Corrective Resolutions, which commit the respective subsidiary banks to remain well capitalized at all times and to reach by December 31, 2009 (and thereafter maintain), a Tier 1 leverage capital ratio of at least 8% and
a total risk-based capital ratio of at least 11% and to reach, by June 30, 2010 (and thereafter maintain), a total risk-based capital ratio of at least 12%. As December 31, 2009, however, each of our subsidiary banks was
undercapitalized. As of that date Bank of Florida Southwest had a Tier 1 leverage capital ratio of 1.24% and a total risk based capital ratio of 2.99%; Bank of Florida Southeast had a Tier 1 leverage capital ratio of 3.44%
and a total risk based capital ratio of 6.47%; and Bank of Florida Tampa Bay had a Tier 1 leverage capital ratio of 2.66% and a total risk based capital ratio of 4.37%. Any further enforcement action taken by our regulators, whether pursuant
to the pending FDIC Order or otherwise, could require our subsidiary banks and/or the Company to maintain higher levels of capital.
Our failure to meet our regulatory capital requirements could result in further formal enforcement actions against us or our subsidiary banks and could further affect customer confidence, our ability to grow, our costs of funds and FDIC
insurance costs, our ability to pay dividends, our ability to make acquisitions, and our business, results of operations and financial condition.
The real estate market could cause further increases in delinquencies and non-performing assets, including loan charge-offs.
Declines in the housing and commercial real estate markets over the past two years have negatively affected credit performance of many financial institutions loans, including ours. Many lenders have
reduced and, in some cases, ceased providing funding to borrowers, including other financial institutions engaged in financing real estate. This market turmoil and tightening of credit has led to an increased level of commercial and consumer
delinquencies, reduced confidence in the financial sector, and increased volatility in the financial markets all of which have adversely affected our business, financial condition and results of operations.
A significant portion of our loan portfolio consists of mortgages secured by real estate located in Collier and Lee Counties of Florida. We
also have been generating a significant amount of real estate-secured loans in Broward, Palm Beach, Miami-Dade, Pinellas, and Hillsborough Counties. Real estate values and real estate markets are generally affected by, among other things, changes in
national, regional or local economic conditions; fluctuations in interest rates and the availability of loans to potential purchasers; changes in the tax laws and other governmental statutes, regulations and policies; and acts of nature. Over the
past two years, real estate prices in each of our markets have significantly declined. This has affected our borrowers ability, especially in the case of land, construction and development loans to sell properties to realize sufficient
proceeds to repay our loans. If real estate prices continue to decline in any of these markets, the value of the real estate collateral securing our loans could be further reduced. This could increase the number of problem loans and the value of our
other real estate owned and adversely affect our financial performance and condition.
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As of December 31, 2009, our residential real estate secured loans, including lines of
credit secured by real estate, and commercial real estate secured loans comprised 20.9% and 68.8% of our loan portfolio, respectively. Continuation of the downturn could further depress our earnings and our financial condition because:
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an increasing number of borrowers may not be able to or may choose not to repay their loans;
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the value of the collateral securing our loans to borrowers may decline further;
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the quality of our loan portfolio may decline further; and/or
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customers may not want or need our products and services.
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Any of these could cause further increases in delinquencies and non-performing assets or require us to charge off a higher percentage of our
loans and/or increase substantially our provision for loan losses, any of which could result in future losses and reductions in our capital.
We have incurred cumulative losses since we commenced operations and expect to incur losses in the future.
Since commencing operations on August 24, 1999, we have incurred an accumulated deficit of approximately $162.6 million through December 31, 2009. This deficit is due to the goodwill impairment charge, substantial increase in
provision for loan losses, the costs of establishing our business strategy, which included establishing our subsidiaries and infrastructure, especially before 2008, and loan losses and the continuing expansion of banking activities in our markets.
We expect to incur losses through 2010. We cannot provide any assurances that we will not incur additional losses, especially
in light of economic conditions that continue to adversely affect our borrowers and our local markets. Further losses in 2010 could require us to access additional capital, which may or may not be available. Losses subsequent to December 31,
2009, will reduce our capital and may require us to write down or write off our deferred tax assets.
There are substantial doubts as to
our ability to continue as a going concern and it is possible that our subsidiary banks may fail and be placed into receivership with the FDIC.
In its report dated March 5, 2010, our independent registered public accounting firm stated that our net losses raise substantial doubts about our ability to continue as a going concern. In that
firms opinion, our ability to continue as a going concern is in doubt as a result of the continued deterioration of our loan portfolio and is subject to our ability to service our existing loans in a manner that will return the Company to
profitability or to identify and consummate a strategic transaction, including the potential sale of the Company. If we are not able to successfully accomplish such actions, it is possible that our subsidiary banks may fail and be placed into
receivership with the FDIC.
Our Board of Directors is actively considering strategic alternatives, including a capital
infusion. We can give no assurance that we will identify an alternative that allows our stockholders to realize an increase in the value of the Companys stock. We also can give no assurance that a transaction or other strategic alternative,
once identified, evaluated and consummated, will provide greater value to our stockholders than that reflected in the current stock price. In addition, a transaction, which would likely involve equity financing, would result in substantial dilution
to our current stockholders and could adversely affect the price of our common stock. If we are unable to return to profitability and if we are unable to identify and execute a viable strategic alternative, we may be unable to continue as a going
concern.
Although the proceeds from this offering are expected to provide sufficient capital to support our continued
operation as a going concern, such capital may prove to be insufficient due to continued degradation of the loan portfolio or other losses.
We expect further formal regulatory enforcement actions that could have a material adverse effect on our business, operations, financial condition, results of operations or the value of our common stock.
In August 2009, the board of directors of each of our subsidiary banks adopted Corrective Resolutions proposed by the OFR pursuant to which
we agreed, among other things, to increase capital levels, decrease commercial real estate loan concentration, improve asset quality by reducing classified assets, and take steps to increase earnings and decrease reliance on brokered deposits and
non-core deposits In addition, at the request of the Federal Reserve, our board of directors adopted the Board Resolutions, which prohibit us from incurring debt or reducing our capital through dividends, stock repurchases or other non-routine
expenditures (other than redemption of our Series B Preferred Stock in certain offerings) without prior Federal Reserve approval.
We expect the FDIC to pursue formal enforcement actions through the FDIC Orders. We currently expect the FDIC Orders will focus on matters contained in the current Corrective Resolutions, such as requirements for our
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subsidiary banks to raise and maintain certain capital ratios; to increase earnings; and to reduce classified assets, non-core funding and commercial real estate loan concentrations. However,
there can be no assurance as to the scope or terms of any particular FDIC Order. The FDIC Orders could require more capital than may be available to our subsidiary banks from proceeds of this offering. Other regulatory authorities could take
enforcement actions against the Company or the subsidiary banks.
If we are unable to comply with the Corrective Resolutions
by raising enough capital, improving our asset quality and commercial real estate loan concentration, reducing core funding usage and increasing earnings, or fail to comply with the Board Resolutions, pending or any other subsequent enforcement
actions against us or our subsidiary banks, we could become subject to additional, heightened enforcement actions and orders. The terms of any such enforcement action could have material adverse effects on our business, operations, financial
condition, results of operations and the value of our common stock.
Liquidity risks could affect operations and jeopardize our
financial condition.
Liquidity is essential to our business. An inability to raise funds through deposits,
borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity. Our funding sources include federal funds purchased, brokered and other non-core deposits, and short- and long-term debt. As a result of being
less than adequately-capitalized as of December 31, 2009, we are not able to accept, renew or rollover brokered deposits (including deposits through the CDARs program). We also are limited in the rates we may pay on any deposits. The FDIC also
has restricted us from significantly changing our funding sources by increasing brokered deposits or other potentially volatile funding sources.
Our subsidiary banks are also members of the Federal Home Loan Bank of Atlanta, or FHLB, and the Reserve Bank, where we can obtain advances collateralized with eligible assets. We also
maintain a portfolio of securities that can be used as a secondary source of liquidity. Our access to funding sources, including our ability to acquire additional non-core deposits, the issuance and sale of debt securities, and the issuance and sale
of additional preferred or common securities in public or private transactions, may not be available to us when needed as a result of regulatory actions or otherwise, or on reasonably acceptable terms or conditions.
Since late 2007, and particularly during the second half of 2008 and through 2009, the financial services industry and the credit markets
generally have been materially and adversely affected by reduced availability of liquidity. The liquidity issues have been particularly acute for regional and community banks, as many larger correspondent lenders have significantly curtailed their
lending to regional and community banks due to the increased levels of losses that they have suffered on such loans. In addition, many of the larger correspondent lenders have reduced or even eliminated Federal Funds lines for their correspondent
customers. Furthermore, regional and community banks generally have less access to the capital markets than do the national and super-regional banks because of their smaller size and limited analyst coverage.
Our liquidity, on a parent-only basis, is adversely affected by our current inability to receive dividends from our subsidiary banks. In
addition, the Board Resolutions prohibit us from incurring debt at the holding company level, including debt associated with trust preferred securities, without prior approval from the Reserve Bank. Our liquidity, on a consolidated basis, is also
adversely affected by our subsidiary banks restricted access to additional non-core deposits pursuant to regulatory restrictions. Bank of Florida-Southwest and Bank of Florida-Southeast are required to reduce their respective net non-core
funding dependence ratios to 40% by December 31, 2010 while Bank of Florida-Tampa Bay is required to reduce the dependence ratio to 35% by December 31, 2010. At December 31, 2009, the net non-core funding dependence ratios for Bank of
Florida-Southwest, Bank of Florida-Southeast and Bank of Florida-Tampa Bay were 41.94%, 39.10% and 25.93%, respectively. There is no guarantee that our subsidiary banks will be able to achieve such ratios timely, or that we will be able to meet our
liquidity needs. Our financial flexibility could be severely constrained if we are unable to renew our wholesale funding or if adequate funding is not available in the future at acceptable rates of interest. We may not have sufficient liquidity to
continue to fund new loan originations, and we may need to liquidate loans or other assets unexpectedly in order to repay obligations as they mature.
Non-performing assets take significant time to resolve and adversely affect our results of operations and financial condition.
At December 31, 2009, our non-performing loans were $164.5 million, or 13.56% of our loan portfolio, and our non-performing assets (which include non-performing loans) were $178.8 million, or
12.75% of total assets. In addition, we had approximately $63.8 million in accruing loans that were 30 to 89 days delinquent at December 31, 2009.
Our non-performing assets adversely affect our net income in various ways. Until economic and market conditions improve, we expect to continue to incur additional losses relating to an increase in
non-performing loans. We do not record interest income on non-accrual loans or other real estate owned, thereby adversely affecting our
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income, and increasing our loan administration costs. We do incur the costs of funding problem assets and other real estate owned, however. When we take collateral in foreclosures and similar
proceedings, we are required to mark the collateral to its then fair value less expected selling costs, which, when compared to the principal amount of the loan, may result in a loss. These non-performing loans and other real estate owned also
increase our risk profile and the capital our regulators believe is appropriate in light of such risks. Pursuant to the Corrective Resolutions, our subsidiary banks have resolved to reduce classified assets according to a bank-specific schedule, and
the pending FDIC Orders, could impose additional requirements. There can be no assurance that: (i) we will be able to reduce our non-performing assets timely; (ii) that we will not experience further increases in non-performing loans in
the future; or (iii) we can reduce our non-performing assets consistent with the Corrective Resolutions or the FDIC Orders. Any of these actions may result in additional future credit losses and additional regulatory enforcement actions.
Losses from loan defaults may exceed the allowance we establish for that purpose, which will have an adverse effect on our business.
We maintain an ALLL to provide for anticipated losses inherent in our loan portfolio. The ALLL reflects
managements estimates and judgments of probable losses in the loan portfolio at the relevant balance sheet date. We evaluate the collectability of our loan portfolio and provide an ALLL that we believe is adequate based upon various factors
including, but not limited to: the risk characteristics of various classifications of loans; previous loan loss experience; specific loans that have loss potential; delinquency trends; the estimated fair market value of the collateral; current
economic conditions; the views of our regulators; and geographic and other loan concentrations, including commercial real estate concentrations.
We cannot be certain that our ALLL will be adequate over time to cover credit losses in our portfolio because of unanticipated adverse changes in the economy, market conditions or events adversely
affecting specific customers, industries or markets, or borrower behaviors towards repaying their loans. The credit quality of our borrowers and the value of the collateral we hold for loans have deteriorated as a result of the economic downturn in
our markets. If the credit quality of our customer base or their debt service behavior materially decreases further, if the risk profile of a market, industry or group of customers declines further or weaknesses in the real estate markets and other
markets and the economy persist or worsen, or if our ALLL is not adequate, our business, financial condition, including our liquidity and capital, and results of operations could be materially adversely affected.
As a result of the Corrective Resolutions, our subsidiary banks have amended their ALLL methodology and submitted the revised methodology to
the OFR and the FDIC for review and comment. Our subsidiary banks also agreed to review the adequacy of the ALLL prior to the end of each calendar quarter. There is no assurance that we will not be required by our regulators to take additional
provisions for loan losses in the future to further supplement the ALLL, or make other changes to our ALLL methodology or our loan impairment recognition practices, particularly if market or economic conditions worsen beyond those that we currently
expect. Additions to our ALLL will reduce our earnings or increase loan losses and adversely affect our business, financial condition and results of operations.
Our exposure to credit and regulatory risk is increased by our commercial real estate and commercial and industrial lending.
Commercial real estate and commercial and industrial lending historically have had higher credit risk than single-family residential
lending. Such loans typically involve larger loan balances to a single borrower or related borrowers. At December 31, 2009, commercial real estate loans (including loans secured by mortgages on multifamily properties) increased to $661.2
million, and commercial and industrial loans increased to $112.4 million.
At December 31, 2009, non-performing
commercial real estate (including construction and land development loans and multi-family residential loans) and commercial and industrial loans totaled $136.6 million and represented 11.2% of total loans compared to a balance of $52.6 million at
December 31, 2008, which represented 4.1% of total loans.
Commercial real estate loans can be affected by adverse
conditions in local real estate markets and the economy, generally because commercial real estate borrowers ability to repay their loans depends on successful development and the sale or leasing of their properties, or any other factors. These
loans also involve greater risk because they generally are not fully amortizing over the loan period, but have a balloon payment due at maturity. A borrowers ability to make a balloon payment typically will depend on being able to either
refinance the loan or timely sell the underlying property.
A commercial business loan is typically based on the
borrowers ability to repay the loan from the cash flows of the business. Such loans may involve risk because the availability of funds to repay each loan depends substantially on the success of the business itself. In addition, the collateral
securing the loans may depreciate over
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time, be difficult to appraise and liquidate, or fluctuate in value based on the success of the business. Because commercial real estate, commercial business and construction loans are vulnerable
to downturns in the business cycle, further economic weakness could cause more of those loans to become non-performing. The underwriting, review and monitoring performed by our officers and directors cannot eliminate all of the risks related to
these loans.
Pursuant to the Corrective Resolutions, the board of directors of each of our subsidiary banks adopted a plan to
systematically reduce the amount of concentration of high-risk commercial real estate loans and has submitted such plans to the OFR. Each plan includes quarterly targets of high-risk commercial real estate loans as a percentage of capital or
adjusted capital to implement such reduction before December 31, 2010. The plans also include procedures for monitoring compliance with the submitted plan and require our subsidiary banks to submit monthly reports to the OFR demonstrating
progress.
Real estate construction, land acquisition and development loans are based upon estimates of costs and values associated with
the completed project. These estimates may be inaccurate, and we may be exposed to significant losses on loans for these projects.
At December 31, 2009, we had a balance of $216.6 million or approximately 17.8% of our total loan portfolio in construction, land acquisition and development loans. Such loans involve additional
risks because funds are advanced upon the security of the project, which is of uncertain value prior to its completion, and costs may exceed realizable values, especially in declining real estate markets. Because of the uncertainties inherent in
estimating construction costs and the realizable market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and
the related loan-to-value ratio. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the
property, rather than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the value of the completed project proves to be overstated or market values or rental or occupancy rates decline, we may have
inadequate security for the repayment of the loan upon completion of construction of the project. If we are forced to foreclose on a project prior to or at completion due to a default, there can be no assurance that we will be able to recover all of
the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs. In addition, we may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period
of time while we attempt to dispose of it. We may use a loan-funded interest reserve upon origination of construction, land acquisition and development loans based on the feasibility of the project, the creditworthiness of the borrower and
guarantors, and the protection provided by the real estate and other collateral which allows our subsidiary banks to periodically advance loan funds to pay interest charges on the outstanding balance of the loan. However, such practice must comply
with relevant FDIC policies and guidance.
We are exposed to environmental liabilities with respect to properties we operate to which we
take possession.
When we foreclose on commercial or industrial property or one deemed to operate
collateral, we may become exposed to potential liability under applicable environmental laws. If hazardous substances are discovered on such property, we may be liable to governmental agencies or third parties for the costs of remediating the
hazard, as well as for personal injury and property damage. Many environmental laws can impose liability regardless of whether we knew of, or were responsible for, the contamination. If we ever become subject to significant environmental
liabilities, our financial condition, results of operations and cash flows could be materially and adversely affected.
Credit risk
cannot be eliminated.
There are risks in making any loan, including risks inherent in dealing with individual
borrowers, risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and cash flows available to service debt and risks resulting from economic and market conditions. For real estate loans, there are risks that the
appraisal we obtain from a third-party appraiser of the value of properties proves to be overstated or market values or rental occupancy rates decline, which may result in inadequate security for the repayment of the loan. We attempt to reduce our
credit risk through loan application approval procedures, monitoring the concentration of loans within specific industries and geographic location, the review and monitoring of our third-party appraisers and periodic independent reviews of
outstanding loans by our loan review and audit departments as well as external auditors. While these procedures should reduce our risks, such risks can never be eliminated.
We are in default under two of our existing repurchase agreements, and our counterparty may exercise its rights under the agreements, which could materially and adversely affect our financial
position, liquidity and earnings.
Two of our subsidiary banks are parties to similar master repurchase agreements and
confirmations, or Repos, with Citigroup Global Markets, Inc., or Citi. Pursuant to the Repos, each such subsidiary bank sold Citi
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$10.0 million of securities, subject to their obligation to repurchase such securities at a specific price in 2013. The Repos provide that if either of our subsidiary banks fails to remain
well capitalized for regulatory purposes, an event of default will be deemed to have occurred under each of the Repos. We notified Citi that an event of default has occurred and is continuing under each of the Repos, and Citi has
reserved all its rights upon an event of default under each Repo.
If Citi exercises its remedies under the Repos, then:
(i) our subsidiary Banks would be obligated to immediately repurchase all securities sold to Citi under the Repos; (ii) all income paid after the declaration on the securities sold would be retained by Citi and applied to the aggregate
unpaid repurchase prices and any other amounts owing by our subsidiary banks; and (iii) our subsidiary banks would have to immediately deliver to Citi any purchased securities subject to the Repos then in their possession or control. We have
been informed that Citi would also charge our subsidiary banks an approximately $1.5 million of total penalty for early termination of these Repos. If Citi exercises its right to declare an event of default and exercises its remedies under the
Repos, then our financial position, liquidity and earnings may be materially and adversely affected.
Changes in interest rates could
continue to have significant adverse effects on our financial condition and results of operations.
Our profitability
depends upon net interest income, which is the difference between interest earned on assets, such as the loans and investments in our portfolio, and interest expense on interest-bearing liabilities, such as deposits and borrowings. Net interest
income will be adversely affected if market interest rates change such that the interest we pay on deposits and borrowings increases faster than the interest we earn on loans and investments. Market interest rates can change as a result of a number
of unpredictable factors, including general economic conditions (domestic and foreign) and fiscal and monetary policies. These factors can be influenced, in turn, by events beyond our control, including inflation, recession, unemployment, changes in
the money supply and domestic and international developments. Our net interest income is also adversely affected by our levels of non-performing assets which, while those do not generate increased income, require funding from interest-bearing
deposits and other liabilities.
Interest rates are particularly sensitive to policy decisions of the Federal Reserve. From
June 2004 to mid-2006, the Federal Reserve raised the Federal Funds rate from 1.0% to 5.25%. Beginning in September 2007, the Federal Reserve decreased the Federal Funds rates by 100 basis points to 4.25% at December 31, 2007, and has since
reduced the target Federal Funds rate to a range between zero and 25 basis points. Decreases in interest rates generally increase the market values of fixed-rate, interest-bearing investments and loans held, and increase the values of loan sales and
mortgage loan activities. However, the production of mortgages and other loans and the value of collateral securing our loans are dependent on demand within the markets we serve, as well as interest rates. The levels of sales, as well as the values
of real estate in our markets, have declined. Declining interest rates reflect efforts by the Federal Reserve to stimulate the economy, but may not be effective, and thus may negatively affect our results of operations and financial condition,
liquidity and earnings.
Because we typically rely on short-term deposits to fund long-term loans and other investments,
changes in the yield curve or in the maturity profile of our assets and liabilities can also adversely affect our business. When differences between short- and long-term interest rates shrink or disappear, the spread between rates paid on deposits
and received on loans could narrow significantly, decreasing our net interest income. Our net interest income may also be reduced if more interest-earning assets than interest-bearing liabilities reprice or mature during a time when interest rates
are declining or if more interest-bearing liabilities than interest-earning assets reprice or mature during a time when interest rates are rising.
We are also exposed to market risk due to the volatility of interest rates. Market risk is the adverse effect on the value of a financial instrument from a change in interest rates or the implied
volatility of or expected changes in interest rates. We manage market risk by establishing and monitoring limits on the types and degree of risk undertaken. Additionally, a substantial and sustained increase in interest rates could harm our ability
to originate loans because refinancing an existing loan or taking out a subordinate mortgage would be less attractive, and qualifying for a loan may be more difficult. An increase in interest rates may also affect our customers ability to make
payments on their existing loans, which could in turn increase loan losses. In addition, higher interest rates could also increase our costs of deposits and borrowed funds.
The need to account for assets at market prices may adversely affect our results of operations.
We report certain assets, including available-for-sale and trading securities and assets, at their fair values. Generally, assets required to be carried at fair value are valued based on quoted market
prices or on valuation models that use market data inputs. Because we carry these assets on our books at their fair values, we may incur losses even if the assets in question present minimal credit risk. Given the continued disruption in the capital
markets, we may be required to recognize other than temporary impairments in future periods with respect to
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securities in our portfolio. The amount and timing of any impairment recognized will depend on the severity and duration of the decline in fair value of the securities and our estimation of the
anticipated recovery period. Other than temporary impairments may adversely affect our results of operations, including our financial condition and capital.
Our cost of funds may increase as a result of general economic conditions, interest rates and competitive pressures. We have become subject to restrictions on the amount of interest that we can pay
our customers, which could cause our deposits to decrease. Because we depend on deposits as a source of liquidity, a decrease in deposits would adversely affect our ability to continue as a going concern.
We have traditionally obtained funds principally through local deposits and we have a base of lower cost transaction deposits. Generally, we
believe local deposits are a more stable source of funds than brokered deposits or other borrowings because local accounts typically reflect a mix of transaction and time deposits, whereas brokered deposits typically are higher cost time deposits.
Our costs of funds and our profitability and liquidity are likely to be adversely affected, if and to the extent we have to rely upon higher cost borrowings from other institutional lenders or brokers to fund loan demand or liquidity needs, and
changes in our deposit mix and growth could adversely affect our profitability and the ability to expand our loan portfolio. As of December 31, 2009, brokered deposits accounted for approximately $153.7 million, or approximately 12.9%, of our
total consolidated deposits. Our subsidiary banks, following the filing of their December 31, 2009 call reports, are not be able to accept, renew or roll over brokered deposits, including CDARs, or pay interest rates more than 75 basis
points above prevailing market rates in our local markets or national rates released by the FDIC Our subsidiary banks stopped accepting new brokered deposits and are limiting their renewal and roll over activities to reciprocal CDARs deposits as of
October 29, 2009. As a result, it is possible that we could experience a decrease in new deposits, and our existing customers may transfer their deposits to other institutions that are able to offer a higher interest rate, which could have a
material adverse effect on our ability to continue as a going concern.
Current levels of market volatility have been significant, and
negative conditions and new developments in the financial services industry and the credit markets have and may continue to adversely affect our operations, financial performance and stock price.
The capital and credit markets have been experiencing volatility and disruption for more than a year. The markets have placed downward
pressure on stock prices and the availability of capital, credit and liquidity has been adversely affected for many issuers, in some cases, without regard to those issuers underlying financial condition or performance. If current levels of
market disruption and volatility continue or worsen, we may experience adverse effects, which may be material, on our ability to maintain or access capital and credit, and on our business, financial condition (including liquidity) and results of
operations.
Uncertainty about the economy and its direction with the expectation for little or no economic growth as well as
high unemployment during the next 12-18 months has adversely affected the financial markets. Loan portfolio performances have deteriorated at many financial institutions, including ours, resulting from, among other factors, a weak economy and a
decline in the value of the collateral supporting loans. The competition for deposits has increased significantly due to liquidity concerns. Stock prices of bank holding companies, like ours, have been negatively affected by the recent and current
conditions in the financial markets, as has our ability, if needed, to raise capital, compared to prior years.
Recent legislation and
government actions in response to market and economic conditions may significantly affect our operations, financial condition, and earnings.
In response to this financial crisis affecting the banking system and financial markets, the United States Congress enacted the Emergency Economic Stabilization Act of 2008 and the American Recovery and
Reinvestment Act of 2009. Under these and other laws and government actions:
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the U.S. Department of the Treasury, or Treasury, has provided capital to financial institutions and adopted programs to facilitate and
finance the purchase of problem assets and finance asset-backed securities via the Troubled Assets Relief Program, or TARP;
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the FDIC has temporarily increased the limits on federal deposit insurance and has also provided temporary liquidity guarantee, or TLG, of
all FDIC-insured institutions and their affiliates debt, as well as deposits in noninterest-bearing transaction deposit accounts; and
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the federal government has undertaken various forms of economic stimulus, including assistance to homeowners in restructuring mortgage payments on
qualifying loans.
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TARP and the TLG are winding down, and the effects of this wind-down cannot be predicted.
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In addition, the federal government is considering various proposals for a comprehensive
overhauling reform of the financial services industry and markets and coordinating reforms with other countries. There can be no assurance that these various initiatives or any other future legislative or regulatory initiatives will be successful at
improving economic conditions globally, nationally or in our markets, or that the measures adopted will not have adverse consequences.
Changes in business and economic conditions, in particular those in the Florida markets in which we operate, could continue to lead to lower revenue, lower asset quality and lower earnings.
Unlike larger national or regional banks that are more geographically diversified, our business and earnings are closely tied to economic
conditions in Southwest and Southeast Florida and Tampa Bay, Florida. These local economies are heavily affected by population inflows, real estate, tourism and other service-based industries. Factors that could affect these local economies include
declines in local population growth and tourism, higher energy costs, higher unemployment rates, reduced consumer or corporate spending, natural disasters or adverse weather, and the recent significant deterioration in general economic conditions.
The current economic recession has been exacerbated by the declines in valuations of commercial and residential real estate in our markets after years of growth. Unemployment has also been significant, with an unemployment rate of approximately
11.8% for all of Florida, as of December 31, 2009. A sustained economic downturn could further adversely affect the quality of our assets, credit losses, and the demand for our products and services, which could lead to lower revenue and lower
earnings.
The Florida economy remains weaker than in recent years. We believe population growth has stabilized for the State
of Florida, but at a lower level than recent years. Visitor arrivals remained lower than in previous years and unemployment levels increased with similar trends expected for 2010. We continually monitor changes in the economy, including population
growth, levels of visitor arrivals and spending, changes in housing prices, and unemployment rates. These trends have contributed to an increase in our non-performing loans and reduced asset quality. If market conditions remain at current levels or
deteriorate, they may lead to additional valuation adjustments on our loan portfolios and real estate owned as we continue to reassess the market value of our collateral supporting loans, the losses associated with loans, and the net realizable
value of other real estate owned.
The costs of FDIC insurance and the TLG guarantees have increased and are expected to continue to
adversely affect our results of operations.
FDIC insurance expense has increased substantially, from $748,900 in 2008
to $2.4 million in 2009, which includes a special assessment. We expect to pay significantly higher FDIC premiums in the future, especially until our regulatory capital and risk profile improve. Bank failures have significantly depleted the
FDICs Deposit Insurance Fund and reduced its ratio of reserves to insured deposits. The FDIC has adopted a revised risk-based deposit insurance assessment schedule which raised deposit insurance premiums, and the FDIC has also implemented a
special assessment on all depository institutions. Additional special assessments may be imposed by the FDIC for future periods. We participate in the FDICs Temporary Liquidity Guarantee Program, or TLG, for noninterest-bearing transaction
deposit accounts guarantee program and debt guarantee program. Banks that participate in the TLGs noninterest-bearing transaction account guarantee pay the FDIC a fee for such guarantee. These actions have significantly increased our
noninterest expense in 2009 and are expected to increase our costs for the foreseeable future. The FDIC has recently proposed actions requiring all FDIC-insured institutions to prepay their estimated quarterly risk-based assessments for the fourth
quarter of 2009 and for all of 2010, 2011 and 2012, to be collected on December 30, 2009, which is expected to further increase our noninterest expense in 2009, unless an exemption is granted by the FDIC. Our subsidiary banks insurance
premiums will also increase as a result of becoming less than well capitalized. TLGs noninterest-bearing transaction account guarantee program is expiring on December 31, 2009 but will be automatically extended to
June 30, 2010 unless we opt out from the extended period of the program. Institutions that participate in the extended program are required to pay 15 to 25 basis points annualized fee in accordance with its risk category rating assigned by the
FDIC. Our management is still assessing whether we will participate in the extended program.
The Corrective Resolutions and
the pending FDIC Orders applicable to us will require a deposit funding subject to higher FDIC insurance costs.
We operate in an
environment highly regulated by federal and state government; changes in federal and state banking laws and regulations could have a negative impact on our business.
As a bank holding company, we are regulated primarily by the Federal Reserve. Our subsidiary banks are regulated primarily by the OFR and
the FDIC. Federal and various state laws and regulations govern numerous aspects of our subsidiary banks operations, including:
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capital adequacy, funding sources and financial condition;
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permissible types and amounts of extensions of credit and investments;
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permissible non-banking activities; and
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restrictions on dividend payments.
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Federal and state regulatory agencies have extensive discretion and power to prevent or remedy unsafe or unsound practices or violations of law by banks and bank holding companies. We also undergo
periodic examinations by one or more bank regulatory agencies. The outcome of each examination depends in part on banking regulators judgments, based on information available to them at the time of the examination, and may be beyond our
control. In addition, the laws and regulations applicable to the banking industry could change at any time, and we cannot predict the effects of these changes on our business and profitability. Existing, pending and other regulatory enforcement
actions upon the Company and our subsidiary banks could also adversely affect our business, results of operations, liquidity, financial condition and capital needs. Our costs of compliance could adversely affect our ability to operate profitably.
We are subject to various reporting requirements that increase compliance costs, and failure to comply timely could adversely affect
our reputation and the value of our securities.
We are required to comply with various corporate governance and
financial reporting requirements under the Sarbanes-Oxley Act of 2002, as well as rules and regulations adopted by the Securities and Exchange Commission, the Public Company Accounting Oversight Board and Nasdaq. In particular, we are required to
include management and independent auditor reports on internal controls as part of our Annual Report on Form 10-K pursuant to Section 404 of the Sarbanes-Oxley Act. We expect to continue to spend significant amounts of time and money on
compliance with these rules. In addition, pursuant to the Corrective Resolutions adopted by our subsidiary banks and the Board Resolutions adopted by our board of directors, we are required to prepare and submit various reports to our regulators,
and the pending FDIC Orders may impose further reporting obligations. Compliance with various regulatory reporting requires significant commitments of time from management and our directors, which reduces the time available for the performance of
their other responsibilities. Our failure to track and comply with the various rules may materially adversely affect our reputation, ability to obtain the necessary certifications to financial statements, lead to additional regulatory enforcement
actions, and could adversely affect the value of our securities.
Our trust company subsidiary may be adversely affected by changes in
economic and market conditions.
Our trust company subsidiary may be negatively impacted by changes in general
economic conditions and conditions in the financial and securities markets, including the values of assets under administration and management for its clients. Our management contracts generally provide for fees payable for services based on the
market value of assets under administration. Accordingly, decreases in securities prices will have an adverse effect on our results of operations from this business. In addition, decreases in the value of our customers trust accounts, such as
accompanied the significant decline in the financial and securities markets since the second half of 2008, can cause us to lose trust customers, including those who are also wealth management customers. These events could reduce our non-interest
income from our trust company and adversely affect our results of operations and financial condition.
Our subsidiary banks face strong
competition in their market areas that may limit their asset growth and profitability.
Our primary market areas are
the urban areas in Southwest and Southeast Florida and in the Tampa Bay area of Florida. The banking and trust businesses in these markets are extremely competitive, which may limit our markets growth and profitability. Each of our subsidiaries
competes for loans and deposits with other national, regional and local banks, savings institutions, trust companies and non-bank financial institutions located or doing business within their market area, many of which are significantly larger
institutions. Non-bank competitors include mortgage bankers and brokers, finance companies, credit unions, securities firms, money market funds, life insurance companies and the mutual funds industry. Many of our competitors are well-established,
and substantially larger financial institutions with greater financial and personnel resources. While we believe we can and do successfully compete with these other financial institutions in our primary markets, we may face a competitive
disadvantage as a result of our smaller size, lack of geographic diversification and inability to spread our marketing costs across a broader market. In addition, our ability to compete may be further restricted by the Corrective Resolutions, the
Board Resolutions, the expected FDIC Orders, various regulatory rules and restrictions as a result of our subsidiary banks current capital levels and any other regulatory restrictions or actions.
The soundness of other financial institutions could adversely affect us.
Our ability to engage in routine funding and other transactions could be adversely affected by the actions and commercial soundness of other
financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. Defaults by, or even rumors or questions about, one or more financial institutions, or the financial
services industry generally, may lead to market-wide liquidity problems and losses of depositor, creditor and counterparty confidence and could lead to losses or defaults by us or by other institutions.
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Our ability to attract and retain management and key personnel may affect future growth and earnings
and may be adversely affected by compensation and employment restrictions to which we may be subject.
Our success is
largely dependent on the personal contacts of our officers and employees in our market areas. If we lose key employees, temporarily or permanently, our business could be hurt. We could be particularly hurt if our key employees leave to work for our
competitors. Our future success depends on the continued contributions of our existing senior management personnel, including, but not limited to, our Chief Executive Officer and President Michael L. McMullan and the Chief Executive Officers and
Presidents of our subsidiaries. Both the Company and our subsidiary banks are currently required to obtain regulatory approval to add new executive officers or directors or to enter into any agreement to provide indemnification or severance
payments. The personal and financial disclosures required by the regulators of prospective executives and directors are detailed and invasive. For this reason, we may not be able to attract qualified candidates who are willing to provide the
necessary disclosures. The Federal Reserve and the FDIC have indicated they are considering policies to change financial institutions compensation to avoid promoting undue risk taking. The terms of these policies are unknown, and the timing and
effects of any such policies on us are unknown, also.
Technological changes affect our business, and we may have fewer resources than
many competitors to invest in technological improvements.
The financial services industry is undergoing rapid
technological changes, and new technology-driven products and services are frequently being introduced. In addition to serving clients better, the effective use of technology may increase efficiency and may enable financial institutions to reduce
costs. Our future success will depend, in part, upon our ability to use technology to provide products and services that provide convenience to customers and create additional efficiencies in operations. We may need to make significant additional
capital investments in technology in the future, and we may not be able to effectively implement new technology-driven products and services. Many competitors have substantially greater resources to invest in technological improvements.
Adverse events and severe weather conditions could negatively affect our local economies or disrupt our operations, which would have an adverse
effect on our business or results of operations.
The Florida economy relies heavily on tourism and seasonal
residents. An act of war and acts of terrorism or other conflicts involving national security could affect general economic conditions in Florida, which would also negatively affect the businesses and customers in our markets which rely on tourism
and seasonal residents. Our market areas are also susceptible to hurricanes and tropical storms and related flooding and wind damage. Such weather events can disrupt operations, result in damage to properties and negatively affect the local
economies in the markets where they operate. We cannot predict whether or to what extent damage that may be caused by future hurricanes will affect our operations or the economies in our current market areas, but such weather events could result in
a decline in loan originations, a decline in the value or destruction of properties securing our loans and an increase in delinquencies, foreclosures or loan losses. Our business or results of operations may be adversely affected by these and other
negative effects of future hurricanes or tropical storms, including flooding and wind damage. Many of our customers have incurred significantly higher property and casualty insurance premiums on their properties located in our markets, which may
adversely affect real estate sales and values in our markets.
Risks Related to Our Common Stock.
Our stock price can be volatile.
Our stock price can fluctuate widely in response to a variety of factors including: variations in our quarterly operating results; changes in the perception of our credit facility; changes in market
valuations of companies in the financial services industry; fluctuations in stock market prices and volumes; issuances of shares of common stock or other securities in the future; the addition or departure of key personnel; seasonal fluctuations;
changes in financial estimates or recommendations by securities analysts regarding us or shares of our common stock; and announcements by us or our competitors of new services or technology, acquisitions, or joint ventures.
Although publicly traded, our common stock has traded in limited volumes which may adversely affect the liquidity of our stock and the volatility of
our share price.
Although our common stock is listed for trading on the Nasdaq Global Market, the average daily
trading volume of our common stock in 2009 was 47,423 shares, which could affect the liquidity of our shares of common stock, and could increase the volatility. The market price of our common stock may fluctuate in the future, and these fluctuations
may be unrelated to our performance. General market price declines or overall market volatility in the
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future could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices. The market price of shares of our common stock will
fluctuate and may not be lower or higher than the price at which you purchase them at any time.
We have not paid dividends in the past
and we are restricted in our ability to pay dividends to our shareholders.
We have not paid any cash dividends on our
common stock to date and do not intend to pay cash dividends on our common stock in the foreseeable future. We intend to retain all earnings to increase and maintain our subsidiary banks capital levels and to finance operations and the growth
of our business. Therefore, any gains from your investment in our common stock must come from an increase in its market price.
In addition, as a bank holding company, our ability to declare and pay dividends is subject to the guidelines of the Federal Reserve regarding capital adequacy and dividends. The Federal Reserve Board guidelines generally require us to
review the effects of the payment of cash dividends in light of our earnings, capital adequacy and financial condition. See Dividend Information.
We adopted Board Resolutions on October 19, 2009, pursuant to which we generally must seek the approval of the Federal Reserve at least 30 days before declaring or paying dividends on any shares
of our capital stock, including accrued dividends on our outstanding Series B Preferred Stock. In addition, we are not able to redeem or repurchase any shares of our capital stock, or otherwise reduce our capital position (except for the redemption
of outstanding shares of our Series B Preferred Stock in connection with one or more public offerings of securities with an aggregate offering price of no less than $30 million and payment of normal and routine operating expenses), without the
Federal Reserves consent.
We are a holding company with no independent sources of revenue and would likely rely upon
cash dividends and other payments from our subsidiaries to fund any cash dividends we decided to pay to our shareholders. Our ability to pay dividends is limited by regulatory restrictions and the need to maintain sufficient consolidated capital.
The ability of our subsidiary banks and our trust company subsidiary to pay dividends to us is limited by their obligations to maintain sufficient capital and liquidity and by other general restrictions on dividends that are applicable to them,
including the requirement under Florida law that they may not pay dividends if their net income from the current year combined with retained net income from the preceding two years is a loss or which would cause the capital accounts of the bank or
trust company to fall below the minimum amount required by law, regulation, order, or any written agreement with the OFR or another federal regulatory agency. Our subsidiary banks are required to achieve and maintain regulatory capitals pursuant to
the Corrective Resolutions have had substantial losses and are prohibited to pay any cash dividend to us without FDICs prior approval. Our losses including the total impairment of goodwill in 2009 will further decrease funds available for
dividends from our banking subsidiaries.
Future sales of our common stock or other securities will dilute the ownership interests of
our existing shareholders and could depress the market price of our common stock.
We may need to issue additional
common stock in the near future to fund future growth and meet our capital needs and regulatory requirements. We can issue common stock without shareholder approval, up to the number of authorized shares set forth in our Amended and Restated
Articles of Incorporation, as amended (the Articles of Incorporation). Our Board of Directors may determine from time to time a need to obtain additional capital through the issuance of additional shares of common stock or other
securities including securities convertible into or exchangeable for shares of our common stock, subject to limitations imposed by Nasdaq and the Federal Reserve. There can be no assurance that such shares can be issued at prices or on terms better
than or equal to the terms obtained by our current shareholders. The issuance of any additional shares of common stock or convertible or exchangeable securities by us in the future may result in a reduction of the book value or market price, if any,
of the then-outstanding common stock. Issuance of additional shares of common stock or convertible or exchangeable securities will reduce the proportionate ownership and voting power of our existing shareholders.
In addition, sales of a substantial number of shares of our common stock or convertible or exchangeable securities in the public market by
our shareholders, or the perception that such sales are likely to occur, could cause the market price of our common stock to decline. We cannot predict the effect, if any, that future sales of our common stock in the market, or availability of
shares of our common stock for sale in the market, will have on the market price of our common stock. We therefore can give no assurance sales of substantial amounts of our common stock in the market, or the potential for large amounts of sales in
the market, would not cause the price of our common stock to decline or impair our ability to raise capital through sales of our common stock.
We cannot guarantee whether such financing will be available to us on acceptable terms or at all. If we are unable to obtain future financing, we may not have the capital and financial resources we
require for our business or that are necessary to meet regulatory requirements.
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Shares of our preferred stock may be issued in the future which could materially adversely affect the
rights of the holders of our common stock.
We have the authority under our Articles of Incorporation to issue
additional series of preferred stock and to determine the designations, preferences, rights and qualifications or restrictions of those shares without any further vote or action of our shareholders. The rights of the holders of our common stock will
be subject to, and may be materially adversely affected by, the rights of the holders of any preferred stock that may be issued by us in the future. We presently have 172 shares outstanding of Series B Preferred Stock, which, pursuant to its terms,
will be redeemed or converted into common stock following certain offerings of our common stock.
Offerings of debt, which could be
senior to our common stock upon liquidation, or preferred equity securities, which may be senior to our common stock for purposes of dividend distributions or upon liquidation, may adversely affect the market price of our common stock.
We may attempt to increase our capital resources or, if the Companys or our subsidiary banks capital
ratios fall below regulatory requirements, we could be forced to raise additional capital through other securities offerings, including trust preferred securities, senior or subordinated notes and preferred stock. Holders of our debt securities and
other lenders, as well as holders of our preferred securities generally will be entitled to receive distributions of our available assets prior to distributions to the holders of our common stock upon our bankruptcy, dissolution or liquidation.
Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common stock, or both. Holders of our common stock are not entitled to preemptive rights or other protections against dilution.
The outstanding shares of our Series B Preferred Stock will be converted or redeemed following any offering of our common stock, which
may dilute our existing shareholders in the case of conversion and reduce our capital in the case of redemption. In addition, our ability to pay accrued dividends on those shares is restricted.
In the event that a holder of shares of Series B Preferred Stock elects not to convert some or all of such shares into shares of our
common stock, we will be obligated to redeem the unconverted shares for $25,000 per share. The maximum amount of cash that we could be required to pay for the redemption of all 172 outstanding shares of our Series B Preferred Stock is
$4.3 million. We have received indications from our executive officers and directors, that they, in the aggregate, intend to convert 80 shares of Series B Preferred Stock into shares of our common stock, leaving up to $2.3 million shares of
Series B Preferred Stock which may be either converted or redeemed. We can make no assurances, however, as to how many shares will be converted or redeemed. Any amounts expended on redemption of the Series B Preferred Stock will reduce our equity
capital, which we currently expect to be less than $2.3 million.
We have the obligation to pay accrued dividends on the
Series B Preferred Stock to the date set for conversion or redemption of the Series B Preferred Stock to the date set for conversion or redemption of the Series B Preferred Stock. We plan to request the Federal Reserve to allow us to make such
dividend payment with respect to any converted or redeemed shares of our Series B Preferred Stock. However, we can offer no assurance that our request will be granted and the timing of such Federal Reserve action.
Our Articles of Incorporation and Bylaws contain provisions that may discourage a takeover.
Generally, our Articles of Incorporation and Bylaws contain certain provisions designed to enhance the ability of the board of directors to
deal with attempts to acquire control of us. These provisions may be deemed to have an anti-takeover effect and may discourage takeover attempts that have not been approved by the board of directors (including takeovers that certain shareholders may
deem to be in their best interest). These provisions also could discourage or make more difficult a merger, tender offer or proxy contest, even though such transaction may be favorable to the interests of shareholders, and could potentially
adversely affect the market price of our common stock.
Risks Related to Our Growth Strategy
Our growth strategy may not be feasible or successful.
Our strategy through 2008 was to increase the size of our franchise through rapid growth and by aggressively pursuing business development opportunities. Our subsidiary banks are currently subject to
restrictions which prohibit them from engaging in any transactions that would materially change the composition of their balance sheets without obtaining the FDICs approval. Such transactions include any transaction or transactions that would
increase a subsidiary banks total assets by 5% or more or that would significantly change the subsidiary banks funding resources. Our current capital levels will also restrict our growth.
However, subject to regulatory restrictions on growth and adequate capital, when prudent opportunities present themselves, we intend to be
in a position to take advantage of the long-term opportunities that we anticipate
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in our markets and expand our businesses. We can provide no assurance when we will be able to implement this strategy or that we will be successful in increasing the volume of loans, deposits and
wealth management business cases at acceptable risk levels and upon acceptable terms and expanding our asset base while managing the costs and risks associated with this growth strategy. There can be no assurance that any further expansion will be
feasible, profitable or that we will be able to grow as fast, or sustain, our historical rate of growth, either internally or through other successful expansions of our markets and new business lines, or that we will be able to maintain capital
sufficient to support this growth.
Regulatory restrictions could severely limit future expansion plans.
Applications for the establishment of new branches and the acquisition of existing banks require prior state and federal bank regulatory
approvals. Further, we are subject to the review of the FDIC under the Statement of Policy on the Acquisition of Failed Insured Depository Institutions if we plan to acquire a failed depository institution, including being well capitalized.
Generally, banks subject to formal enforcement actions experience difficulties in obtaining regulatory approvals to add branches, or engage in business combinations.
Our Tampa Bay bank subsidiary is also subject to the Enhanced Supervisory Procedures for Newly Insured FDIC-Insured Institutions adopted on August 28, 2009, which extends the enhanced
supervision of this bank which was organized in 2004 through November 4, 2011, and requires, among other things, higher FDIC insurance assessments and prior FDIC approval of changes in the business plan, even if the Corrective Resolutions and
any pending FDIC Order were not present.
Our subsidiary banks ability to implement expansion plans is currently
restricted by their prohibitions from engaging in any transactions that would materially change the composition of their balance sheets without obtaining an approval from the FDIC. Such transactions include any transaction or transactions that would
increase a subsidiary banks total assets by 5% or more or that would significantly change the subsidiary banks funding resources.
Until we regain well capitalized status and have our regulatory enforcement actions lifted, our regulators prevent or significantly restrict expansion plans.
Future acquisitions and expansion activities may disrupt our business, dilute existing shareholders and adversely affect our operating results.
We may review potential acquisitions and expansion opportunities. To the extent that we are permitted to grow through
acquisitions and new branches, we cannot assure you that we will be able to adequately or profitably manage this growth. Acquiring other banks, branches or businesses, as well as other geographic and product expansion activities, involves various
risks including: risks of unknown or contingent liabilities; unanticipated costs and delays; risks that acquired new businesses do not perform consistent with our growth and profitability expectations; risks of entering new markets or product
areas where we have limited experience; risks that growth will strain our infrastructure, staff, internal controls and management, which may require additional personnel, time and expenditures; exposure to potential asset quality issues with
acquired institutions; difficulties, expenses and delays of integrating the operations and personnel of acquired financial institutions, and start-up delays and costs of other expansion activities; potential disruptions to our business; possible
loss of key employees and customers of acquired institutions; potential short-term decreases in profitability; and diversion of our managements time and attention from our existing operations and business.
We may encounter unexpected financial and operating problems due to our rapid growth.
Until the end of 2008, we grew rapidly. We seek to resume growth as soon as feasible to meet the opportunities we see in our current markets
and nearby markets. Growth, especially rapid growth, in the future may result in unexpected financial and operating problems, including problems in new additions to the loan portfolio due to the unseasoned nature of new credits. Acquisitions may add
additional pressures to internal controls and financial and operating systems. We may open additional branches in the future. A newly opened branch is typically expected to incur operating losses in its early periods of operations because of an
inability to generate sufficient net interest income to cover operating expenses. Those operating losses can be significant and can occur for longer periods than planned, depending on our ability to control operating expenses and generate net
interest income.
Attractive acquisition opportunities may not be available to us in the future.
While we seek continued organic growth, as our earnings and regulatory and capital positions improve, we may consider the acquisition of
other businesses. We expect that other banking and financial companies, many of which have significantly greater resources, will compete with us to acquire financial services businesses. This competition could increase prices for potential
acquisitions that we believe are attractive. Also, acquisitions are subject to various regulatory approvals. If we fail to receive the appropriate regulatory approvals, we will not be able to consummate an acquisition that we believe is in our best
interest. Among other things, our regulators
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consider our capital, liquidity, profitability, regulatory compliance and levels of goodwill and intangibles when considering acquisition and expansion proposals. Any acquisition could be
dilutive to our earnings and shareholders equity per share of our common stock.
Our past growth may not be indicative of our
future growth.
We may not resume our historical rate of growth or may not be able to grow our business at all. In
addition, our prior growth may distort some of our historical financial ratios and statistics. Various factors, such as economic conditions, regulatory and legislative limitations and competition, may also impede or prohibit our ability to expand
our market presence.
Our 401(k) Plan was not properly registered with the Securities and Exchange Commission and we may incur liability
to our employees who purchased our common stock in our 401(k) Plan.
In 2005, we added shares of our common stock as
an investment option to our 401(k) Plan. Therefore, the offer and sale of 401(k) Plan interests and underlying shares of common stock were required to be registered under the Securities Act of 1933, as amended, and certain disclosures were required
to be delivered to our 401(k) Plan participants. We discovered that we had inadvertently failed to file the required registration statement with the Securities and Exchange Commission or to deliver the required disclosures to our 401(k) Plan
participants. On October 30, 2009, we filed a registration statement covering the 401(k) Plan interests and the underlying shares of common stock.
Due to having not timely filed such a registration statement and not delivering the required disclosures, we may incur liability to the 401(k) Plan participants. As a result, we intend to make a
rescission offer to our current and former 401(k) Plan participants who purchased our common stock in the 401(k) Plan, pursuant to which we will pay for shares properly delivered for rescission, subject to the approval of the Federal Reserve as
required by our Board Resolutions. We will use our best efforts to commence the rescission offer by December 15, 2009. If this rescission offer is accepted by all eligible 401(k) Plan participants, we could be required to make aggregate
payments to those individuals of up to approximately $2.2 million plus statutory interest. Federal securities laws do not expressly provide that a rescission offer will terminate a purchasers right to rescind a sale of stock that was not
registered as required. If any or all of the offerees reject the rescission offer, we may continue to be liable under federal securities laws for up to the aggregate amount of approximately $2.2 million plus statutory interest. See
Item 5. Market for Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
for additional information.
Additionally, we may have been required to file Annual Reports on Form 11-K for the 401(k) Plan for 2005, 2006 and 2007. If we ultimately determine that such filings were required, we will use our best
efforts to file such reports. The failure to have filed such reports, if required, may subject us to additional liability.
ITEM 1B.
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UNRESOLVED STAFF COMMENTS
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None.
Bank of
Florida Corporations corporate headquarters and Bank of Florida - Southwests main offices are located at Bank of Florida Center, 1185 Immokalee Road, Naples, Collier County, Florida 34110. Bank of Florida Center is a three-story office
building which opened in August, 2002. Bank of Florida Southwest leases one-half of the first floor, consisting of 12,785 square feet, from Naples 9, LLC. The first floor houses a banking center with a board room, catering kitchen, conference
rooms, three (3) drive-through lanes, and ATM/night deposit access. Wealth management and trust offices, and a conference room are also located on the ground floor. Bank of Florida Southwest also leases 8,430 square feet on the second
floor, with offices and work areas for finance, credit administration, and risk management. Bank of Florida Corporation leases 9,698 square feet on the third floor, with offices for marketing, human resources, training and holding company executive
and administrative personnel. These leases expire in 2012 with options for two five-year renewals at then market rates. The monthly lease payment as of December 2009 was $99,400. With the acquisition of Old Florida Bank, Bank of Florida Corporation
acquired property located at 12298 Matterhorn Road, Ft Myers, Florida, which is now the location of the Companys Operations Center. The facility consists of 15,000 square feet of space and is owned by the corporation.
Bank of Florida Southwest operates a full-service branch office at 3401 Tamiami Trail North, Naples, Florida. This branch office,
which is owned by Bank of Florida - Southwest, is contained in a two-story office building located on approximately one acre of land. The bank also leased a facility in 2006 at 23471 Walden Center, Bonita Springs, Florida, which now serves as the
Banks third full-service branch office. The monthly lease
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payment for the Bonita Springs location as of December 31, 2009 was $18,700. In connection with the acquisition of Old Florida Bank in April 2007, Bank of Florida Southwest acquired a
two story building at 2325 Vanderbilt Beach Road, Naples, Florida which serves as the Banks fourth full-service branch. The first floor serves as a full-service branch office and the second floor with 4,100 square feet is sub-leased to a third
party. The lease was initially entered into on July 1, 2001 for 5 years and subsequently renewed for five years which extends the lease to June 2011. Additionally, Bank of Florida Southwest acquired property located at 63210 Daniels
Parkway, Fort Myers, Florida, which serves as the Banks fifth full-service branch. Bank of Florida Southwest leases a facility at 2301 Del Prado Blvd, Cape Coral, Florida in the Coralwood Shopping Center. This branch was closed in May
2007 and is no longer in use. This 2,688 square foot space is leased from GRE Coralwood, LP beginning May 18, 2005 for a term of 5 years. The monthly lease payment as of December 31, 2009 was $7,200. Bank of Florida Southwest also
acquired a parcel of vacant land located on Santa Barbara Boulevard in Cape Coral, Florida.
Bank of
Florida Southeast operates in approximately 20,790 square feet of Suite 1700 and 3000 square feet of Suite 100 of the 200 La Olas Circle office building located at 200 SW First Avenue, in downtown Fort Lauderdale, Florida. This space is
leased from 200 Brickell LTD. The space includes executive offices, wealth management offices, 3 conference rooms, board room, catering kitchen and full service branch facilities. The site does not have drive-through facilities, but does offer a
walk-up ATM facility. The lease is for 10 years with an option for one ten-year renewal at then market rates. The monthly lease payment as of December 2009 was $73,000. Bank of Florida Southeast also leases a full-service branch at 19058 NE
19
th
Ave. in Aventura, Florida. As of December 31,
2009 the monthly lease payment for the Aventura location was $9,700. Approximately 980 rentable square feet of this space is sub-leased to a third party. The lease commenced in October 2009 for a period of two years and terminates October 2011. In
June 2008, the Bank leased office space located at 2521 E. Commercial Boulevard in Fort Lauderdale, Florida. The new 2,400 square foot facility provides convenience and visibility with the addition of two (2) drive-through lanes, walk-up ATM
and expanded parking. The lease is for fifteen years with options for three five-year renewals at then market rates. The monthly lease payment as of December 2009 was $28,700.
Bank of Florida Southeast also has leased office space in Palm Beach County, located at 595 South Federal Highway, in Boca Raton,
Florida. The space consists of 6,460 square feet on the first floor, 2,500 square feet on the second floor, the garage, all common areas located on the property and the exclusive use of two (2) remote drive-through lanes, located on the west
side of 555 South Federal Highway. The lease is for fifteen years with options for two five-year renewals at then market rates. The monthly lease payment as of December 2009 was $45,300.
Bank of Florida Southeast operates a full service branch at 1493 Sunset Drive in South Miami, Florida. This facility was leased in
1998 for a ten year term with options for two five-year renewals at then market rates. The monthly lease payment as of December 2009 was $12,500. In July 2008, Bank of Florida Southeast opened a banking facility in downtown Coral Gables,
Florida. The nearly 4,700 square foot facility is located at 20 Giralda Avenue in the 55 Merrick Way Building. The facility is the third Miami-Dade County location and features a full-service banking facility, executive offices, wealth management
and trust offices, two (2) drive-through lanes, two (2) ATMs and designated client parking. The lease is for ten years with options for three five-year renewals at then market rates. The monthly lease payment as of December 2009 was
$22,400. A portion of the parking lot is sub-leased to a third party. This lease commenced in 2009 for seven months and subsequently terminates March 2010.
Bank of Florida Tampa Bay leases office space located in the Harbour Island area of downtown Tampa, Florida at 777 South Harbour Island Boulevard. The space consists of 2,718 square feet on
the ground floor which is operated as the main branch and banking facility. Additional space located on the ground floor serves as the executive, lending, operations and credit offices of the Bank. The monthly lease payment as of
December 31, 2009 was $19,000. Bank of Florida Tampa Bay opened a second banking center in 2007 located at 26417 U.S. Highway 19 North in Clearwater, Florida. The facility is a two story building with approximately 8,700 square feet of
space. The facility features a full-service branch, one (1) drive-through lane, one (1) drive-through ATM, a conference room, and designated client parking. The monthly lease payment as of December 31, 2009 was $30,400. The lease is
for 15 years with four additional five year renewal options.
Bank of Florida Trust Company maintains offices and personnel at
each of the Banks main offices, referred to as wealth management and trust offices above, and also meets with prospective clients at each of the Banks banking centers.
37
ITEM 3.
|
LEGAL PROCEEDINGS
|
From
time-to-time, we are involved in litigation arising in the ordinary course of our business. As of the date of the filing of this Form 10-K, we are of the opinion that the ultimate aggregate liability represented thereby, if any, will not have a
material adverse effect on our consolidated financial condition or results of operations.
ITEM 4.
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matter was submitted to a vote of the Companys shareholders during the quarter ended December 31, 2009.
38
PART II
ITEM 5.
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
The Companys Common Stock was held by approximately 1,983 holders registered or in street name as of February 3, 2010. The Company
is listed on the Nasdaq Global Market under the symbol BOFL. These over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission and may not necessarily reflect actual transactions.
The table below shows the high, low and closing bid prices on the NASDAQ National Market for the periods indicated.
|
|
|
|
|
|
|
|
|
|
Calendar Quarter Ended
|
|
High
|
|
Low
|
|
Closing
|
December 31, 2007
|
|
$
|
16.90
|
|
$
|
11.01
|
|
$
|
11.50
|
March 31, 2008
|
|
$
|
12.12
|
|
$
|
8.91
|
|
$
|
10.05
|
June 30, 2008
|
|
$
|
11.20
|
|
$
|
7.25
|
|
$
|
7.25
|
September 30, 2008
|
|
$
|
9.89
|
|
$
|
4.12
|
|
$
|
8.25
|
December 31, 2008
|
|
$
|
8.60
|
|
$
|
3.81
|
|
$
|
4.21
|
March 31, 2009
|
|
$
|
4.62
|
|
$
|
1.75
|
|
$
|
3.75
|
June 30, 2009
|
|
$
|
4.25
|
|
$
|
3.00
|
|
$
|
3.15
|
September 30, 2009
|
|
$
|
3.59
|
|
$
|
2.14
|
|
$
|
2.37
|
December 31, 2009
|
|
$
|
2.50
|
|
$
|
0.50
|
|
$
|
0.83
|
The following graph
compares Bank of Florida Corporations cumulative stockholder return on our common stock with: (i) SNL Financial LCs index for Florida Banks with $1 - $5 billion in assets; and (ii) the Russell Microcap Index, which is comprised
of 1,000 of the smallest securities in the Russell 2000 Index and the next 1,000 securities, which universe includes Bank of Florida. The graph assumes an initial investment of $100 on December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending
|
Index
|
|
12/31/04
|
|
12/31/05
|
|
12/31/06
|
|
12/31/07
|
|
12/31/08
|
|
12/31/09
|
Bank of Florida Corporation
|
|
100.00
|
|
140.91
|
|
127.19
|
|
71.38
|
|
26.13
|
|
5.15
|
Russell Microcap Index
|
|
100.00
|
|
102.57
|
|
119.53
|
|
109.97
|
|
65.60
|
|
84.76
|
Florida Banks $1-$5 Billion Assets
|
|
100.00
|
|
110.34
|
|
118.07
|
|
71.13
|
|
57.08
|
|
27.34
|
To date, Bank of
Florida Corporation has not paid any dividends on its common stock. There are no current plans to initiate payment of cash dividends, and future dividend policy will depend on the Banks earnings, capital requirements, financial condition, and
other factors. A description of the regulatory restrictions on Bank of Florida Corporations ability to pay dividends is contained under the heading
Dividends
in the section on
Supervision and Regulation
.
39
The following table sets forth information about the number of shares reserved for issuance
under the 1999 Stock Option Plan and the 2006 Stock Compensation Plan as of December 31, 2009.
|
|
|
|
|
|
|
|
Number of securities to be
issued upon exercise of outstanding options
|
|
Number of securities to
be issued
upon exercise
of outstanding options
|
|
Weighted average
exercise price
of
outstanding options
|
|
Number of securities
remaining
available
for future issuance
|
Plans approved by security holders
|
|
620,156
|
|
$
|
12.80
|
|
463,268
|
See
Note
18-Stock-Based Compensation
of the
Notes to Consolidated Financial Statements
for information on stock options and warrants outstanding.
Rescission Offer.
From March, 2005 through October 2009,
participants in our 401(k) Plan purchased shares of our common stock for an aggregate purchase price of approximately $2.2 million. These transactions were not exempt from the registration requirements of federal securities laws and we did not seek
to register those transactions under such laws. Accordingly, the shares of our common stock purchased in the 401(k) Plan were likely in violation of federal securities laws, and may be subject to rescission. In order to address this issue, we will
use our best efforts to make a rescission offer to the purchasers of those shares by December 15, 2009, subject to the approval of the Federal Reserve as required by our Board Resolutions. If our rescission offer is accepted by all offerees, we
could be required to make aggregate payments to those participants of up to approximately $2.2 million, including statutory interest. At this time we are not aware of any claims for rescission against us and we do not expect our aggregate exposure
under federal securities laws to exceed approximately $2.2 million.
Our making this rescission offer may not terminate a
purchasers right to rescind a sale of securities that was not properly registered or otherwise exempt from registration. Accordingly, should the rescission offer be rejected by any or all offerees, we may continue to be contingently liable
under federal law for the purchase price of these shares up to the aggregate amount of approximately $2.2 million, including statutory interest.
Additionally, we may have been required to file Annual Reports on Form 11-K for the 401(k) Plan for 2005, 2006 and 2007. If we ultimately determine that such filings were required, we will use our best
efforts to file such reports.
40
ITEM 6.
|
SELECTED CONSOLIDATED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(dollars in thousands, except per share data)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
71,463
|
|
|
$
|
83,327
|
|
|
$
|
84,155
|
|
|
$
|
52,330
|
|
|
$
|
28,491
|
|
Total interest expense
|
|
|
34,811
|
|
|
|
40,535
|
|
|
|
40,931
|
|
|
|
21,221
|
|
|
|
9,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income before provision for loan losses
|
|
|
36,652
|
|
|
|
42,792
|
|
|
|
43,224
|
|
|
|
31,109
|
|
|
|
19,143
|
|
Provision for loan losses
|
|
|
73,670
|
|
|
|
24,488
|
|
|
|
4,254
|
|
|
|
2,836
|
|
|
|
1,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
(37,018
|
)
|
|
|
18,304
|
|
|
|
38,970
|
|
|
|
28,273
|
|
|
|
17,240
|
|
Noninterest income
|
|
|
8,869
|
|
|
|
4,702
|
|
|
|
5,588
|
|
|
|
4,242
|
|
|
|
3,259
|
|
Noninterest expense
|
|
|
108,551
|
|
|
|
44,061
|
|
|
|
39,980
|
|
|
|
28,585
|
|
|
|
19,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before taxes (benefit)
|
|
|
(136,700
|
)
|
|
|
(21,055
|
)
|
|
|
4,578
|
|
|
|
3,930
|
|
|
|
1,155
|
|
Income taxes (benefit)
|
|
|
10,798
|
|
|
|
(7,833
|
)
|
|
|
1,835
|
|
|
|
1,611
|
|
|
|
(3,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(147,498
|
)
|
|
$
|
(13,222
|
)
|
|
$
|
2,743
|
|
|
$
|
2,319
|
|
|
$
|
4,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,402,343
|
|
|
$
|
1,549,013
|
|
|
$
|
1,310,488
|
|
|
$
|
883,102
|
|
|
$
|
569,782
|
|
Total cash and cash equivalents
|
|
|
68,667
|
|
|
|
47,938
|
|
|
|
17,388
|
|
|
|
27,744
|
|
|
|
50,117
|
|
Interest-earning assets
|
|
|
1,378,856
|
|
|
|
1,415,416
|
|
|
|
1,192,104
|
|
|
|
838,626
|
|
|
|
538,255
|
|
Investment securities
|
|
|
98,674
|
|
|
|
117,976
|
|
|
|
38,008
|
|
|
|
41,724
|
|
|
|
18,622
|
|
Loans, gross
|
|
|
1,213,033
|
|
|
|
1,275,311
|
|
|
|
1,144,762
|
|
|
|
783,610
|
|
|
|
486,722
|
|
Allowance for loan losses
|
|
|
42,063
|
|
|
|
29,533
|
|
|
|
14,431
|
|
|
|
7,833
|
|
|
|
4,603
|
|
Deposits
|
|
|
1,187,318
|
|
|
|
1,166,282
|
|
|
|
937,116
|
|
|
|
691,180
|
|
|
|
495,080
|
|
Other borrowings
|
|
|
167,138
|
|
|
|
188,474
|
|
|
|
171,090
|
|
|
|
53,500
|
|
|
|
14,000
|
|
Stockholders equity
|
|
|
43,836
|
|
|
|
189,979
|
|
|
|
198,931
|
|
|
|
135,505
|
|
|
|
59,061
|
|
|
|
|
|
|
|
Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) income per share
|
|
$
|
(11.54
|
)
|
|
$
|
(1.03
|
)
|
|
$
|
0.23
|
|
|
$
|
0.29
|
|
|
$
|
0.82
|
|
Diluted (loss) income per share
|
|
|
(11.54
|
)
|
|
|
(1.03
|
)
|
|
|
0.23
|
|
|
|
0.28
|
|
|
|
0.79
|
|
Book value per common share
|
|
|
3.07
|
|
|
|
14.87
|
|
|
|
15.57
|
|
|
|
14.15
|
|
|
|
9.94
|
|
Tangible book value per common share
|
|
|
2.88
|
|
|
|
9.79
|
|
|
|
10.43
|
|
|
|
12.71
|
|
|
|
9.78
|
|
Weighted average shares outstanding - basic
|
|
|
12,788,450
|
|
|
|
12,779,020
|
|
|
|
11,768,529
|
|
|
|
8,026,312
|
|
|
|
5,595,233
|
|
Weighted average shares outstanding - diluted
|
|
|
12,788,450
|
|
|
|
12,779,020
|
|
|
|
11,905,196
|
|
|
|
8,278,210
|
|
|
|
5,813,230
|
|
Total shares outstanding
|
|
|
12,968,898
|
|
|
|
12,779,020
|
|
|
|
12,779,020
|
|
|
|
9,575,153
|
|
|
|
5,943,783
|
|
|
|
|
|
|
|
Performance Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
(9.64
|
)%
|
|
|
(0.93
|
)%
|
|
|
0.23
|
%
|
|
|
0.32
|
%
|
|
|
0.98
|
%
|
Return on average common stockholders equity
|
|
|
(91.61
|
)
|
|
|
(6.70
|
)
|
|
|
1.54
|
|
|
|
2.26
|
|
|
|
9.79
|
|
Interest-rate spread during the period
|
|
|
2.77
|
|
|
|
2.89
|
|
|
|
3.17
|
|
|
|
3.59
|
|
|
|
3.55
|
|
Net interest margin
|
|
|
2.85
|
|
|
|
3.34
|
|
|
|
3.98
|
|
|
|
4.48
|
|
|
|
4.11
|
|
Efficiency ratio
1
|
|
|
262.99
|
|
|
|
92.83
|
|
|
|
81.91
|
|
|
|
80.86
|
|
|
|
86.35
|
|
|
|
|
|
|
|
Asset Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to period end loans
|
|
|
3.47
|
%
|
|
|
2.32
|
%
|
|
|
1.26
|
%
|
|
|
1.00
|
%
|
|
|
0.94
|
%
|
Net charge-offs to average loans
|
|
|
5.37
|
|
|
|
0.78
|
|
|
|
0.04
|
|
|
|
0.03
|
|
|
|
0.03
|
|
Nonperforming assets to period end total assets
|
|
|
12.75
|
|
|
|
4.95
|
|
|
|
1.19
|
|
|
|
0.08
|
|
|
|
0.06
|
|
|
|
|
|
|
|
Capital and Liquidity Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average equity to average assets
|
|
|
10.67
|
%
|
|
|
13.86
|
%
|
|
|
15.08
|
%
|
|
|
14.02
|
%
|
|
|
10.34
|
%
|
Leverage (4.00% required minimum)
|
|
|
2.41
|
|
|
|
7.86
|
|
|
|
10.24
|
|
|
|
13.95
|
|
|
|
10.28
|
|
|
|
|
|
|
|
Risk-based capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1
|
|
|
2.94
|
%
|
|
|
8.64
|
%
|
|
|
10.14
|
%
|
|
|
13.97
|
%
|
|
|
10.48
|
%
|
Total
|
|
|
5.33
|
|
|
|
11.12
|
|
|
|
12.57
|
|
|
|
16.19
|
|
|
|
13.37
|
|
Average loans to average deposits
|
|
|
95.61
|
|
|
|
112.82
|
|
|
|
117.31
|
|
|
|
105.87
|
|
|
|
92.81
|
|
|
|
|
|
|
|
Trust Assets Under Administration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets under administration
|
|
$
|
740,545
|
|
|
$
|
494,633
|
|
|
$
|
499,350
|
|
|
$
|
415,318
|
|
|
$
|
390,002
|
|
Trust fees
|
|
|
2,579
|
|
|
|
2,719
|
|
|
|
3,017
|
|
|
|
2,589
|
|
|
|
1,546
|
|
Trust fees as a % of average assets under administration
|
|
|
0.39
|
%
|
|
|
0.58
|
%
|
|
|
0.60
|
%
|
|
|
0.65
|
%
|
|
|
0.50
|
%
|
|
|
|
|
|
|
Reconciliation of Tangible Book Value per Common Share to Book Value per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible book value per common share
|
|
$
|
2.88
|
|
|
$
|
9.79
|
|
|
$
|
10.43
|
|
|
$
|
12.71
|
|
|
$
|
9.78
|
|
Effect of goodwill and other intangibles
|
|
|
0.19
|
|
|
|
5.08
|
|
|
|
5.14
|
|
|
|
1.44
|
|
|
|
0.16
|
|
Book value per common share
|
|
$
|
3.07
|
|
|
$
|
14.87
|
|
|
$
|
15.57
|
|
|
$
|
14.15
|
|
|
$
|
9.94
|
|
1
|
Efficiency ratio = Noninterest expense divided by the total of net interest income before provision for loan losses plus noninterest income (excluding
net securities gains and losses).
|
41
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
OVERVIEW
Bank of Florida Corporation is a multi-bank holding company with $1.4 billion in assets as of December 31, 2009 and was incorporated in Florida in September 1998. Our subsidiary Banks are separately chartered community banks with local
boards that provide full-service commercial banking in a private banking environment. Our Trust Company offers investment management, trust administration, estate planning, and financial planning services largely to the Banks commercial
borrowers and other high net worth individuals. The Companys overall focus is to develop a total financial services relationship with its client base, which is primarily businesses, professionals, and entrepreneurs with commercial real estate
borrowing needs. The Banks also provide technology-based cash management and other depository services. The holding company structure provides flexibility for expansion of the Companys banking business, including possible acquisitions of other
financial institutions, and provision of support and additional banking-related services to its subsidiary banks.
CRITICAL ACCOUNTING POLICIES
The Companys consolidated financial statements are prepared in
conformity with accounting principles generally accepted in the United States of America. The financial information contained within these statements is, to a significant extent, based on approximate measures of the financial effects of
transactions and events that have already occurred. Critical accounting policies are those that involve the most complex and subjective decisions and assessments, and have the greatest potential impact on the Companys stated results of
operations. Management has evaluated subsequent events for potential recognition or disclosure in the financial statements through March 5, 2010, the date upon which the Companys annual report on Form 10-K was filed with the
Securities and Exchange Commission. No subsequent events were identified that would have required a change to the financial statements or disclosure in the notes to the financial statements. The notes to the consolidated financial statements include
a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. Management believes that, of our significant accounting policies, the following involve a higher degree of judgment and
complexity. Our management has discussed these critical accounting assumptions and estimates with the Board of Directors Audit Committee.
Allowance for Loan Losses:
The allowance for loan losses is established as
losses are estimated to have occurred through a provision for loan losses charged to operations. Loan losses are charged against the allowance when management believes the collectability of a loan balance is unlikely. Subsequent
recoveries, if any, are credited to the allowance.
The allowance for loan losses is comprised of: (1) a component for
individual loan impairment, and (2) a measure of collective loan impairment. The allowance for loan losses is established and maintained at levels deemed adequate to cover losses inherent in the portfolio as of the balance sheet date. This
estimate is based upon managements evaluation of the risks in the loan portfolio and changes in the nature and volume of loan activity. Estimates for loan losses are derived by analyzing historical loss experience, current trends in
delinquencies and charge-offs, historical bank experience, changes in the size and composition of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral and
prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of
collecting scheduled principal and interest payments when due. Loans that
42
experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Larger impaired credits that are measured for impairment have been defined to include
loans classified as substandard and on nonaccrual or doubtful risk grades where the borrower relationship is greater than $500,000. For such loans that are considered impaired, an allowance is established when the discounted cash flows (or
collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.
Loans that
are not measured individually for impairment are measured collectively and include commercial real estate loans that are performing and large groups of smaller balance homogeneous loans evaluated based on historical loss experience adjusted for
qualitative factors.
Income Taxes:
Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the tax basis of assets and liabilities and their reported
amounts in the consolidated financial statements, as well as net operating loss carryforwards and tax credit carryforwards. Deferred tax assets and liabilities are included in the consolidated financial statements at currently enacted income tax
rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. In the event of changes in the tax laws, deferred tax assets and liabilities are adjusted in the period of the enactment of those
changes, with the cumulative effects included in the current years income tax provision. Net deferred tax assets, whose realization is dependent on taxable earnings of future years, are recognized when a more-likely-than-not criterion is met.
The Company records a valuation allowance for deferred tax balances when it is unlikely to generate sufficient income to support the deferred tax asset. The Company and its subsidiaries file consolidated tax returns.
Acquisitions:
The Company accounts for business combinations based on the purchase method of accounting. The purchase method of accounting requires us to fair value the tangible net assets and identifiable intangible assets acquired. The fair values are
based on available information and current economic conditions at the date of acquisition. Fair value may be obtained from independent appraisers, discounted cash flow present value techniques, management valuation models, quoted prices on national
markets or quoted market prices from brokers. These fair value estimates will affect future earnings through the disposition or amortization of the underlying assets and liabilities. While management believes the sources utilized to arrive at the
fair value estimates are reliable, different sources or methods could have yielded different fair value estimates. Such different value estimates could affect future earnings through different values being utilized for the disposition or
amortization of the underlying assets and liabilities acquired.
Year Ended December 31, 2009 Compared to
Year Ended December 31, 2008
FINANCIAL CONDITION
The Companys total assets were $1.4 billion at December 31, 2009, down
$146.7 million or 9.5% over the prior year-end. Total earning assets, which the Company defines as any asset that earns interest, declined $36.6 million or 2.6% to $1.4 billion. This compares with $223.3 million or 18.7% growth in 2008. Bank of
Florida Southwest declined $88.0 million in total assets, reaching $659.2 million, while Bank of Florida Southeast decreased $2.9 million, for a total of $535.7 million in assets. Bank of Florida-Tampa Bay, which has been open for
slightly over five years, declined $8.6 million for a total of $247.1 million in total assets.
43
Investment Securities and Overnight Investments
The composition of the investment securities portfolio reflects the Companys investment strategy of maintaining an appropriate level of
liquidity while providing a relatively stable source of revenue. The securities portfolio also provides a balance to interest rate risk in other categories of the balance sheet while providing a vehicle for the investment of available funds,
furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits.
Total investment
securities were $98.7 million at December 31, 2009, a decrease of $19.3 million or 16.4% from December 31, 2008. Securities available for sale totaled $98.1 million, a decrease of $16.5 million compared to those held at December 31,
2008. The Company does not currently engage in trading activities and, therefore, did not hold any securities classified as trading at December 31, 2009 or 2008.
Federal Funds sold was zero at December 31, 2009, a decrease of $313 thousand from December 31, 2008. This category of earning assets is normally used as a temporary investment vehicle to
support the Companys daily funding requirements and, as a result, fluctuates with loan demand.
Loan Portfolio
Total gross loans outstanding (excluding deferred fees) were $1.2 billion at December 31, 2009. Loans declined $62.6
million or 4.9% for the year. Bank of Florida Southwest accounted for $47.0 million (75.1%), Bank of Florida Southeast accounted for $9.6 million (15.3%) and Bank of Florida Tampa Bay accounted for the remaining $6.0
million (9.6%) of the decrease in loan balances.
Land and real estate construction loans decreased $102.0 million to
$216.6 million (17.8% of total loans) at December 31, 2009, while commercial loans secured by real estate increased $49.2 million to $625.7 million (51.5% of total loans). Making up the rest of the loan portfolio were multi-family and
residential loans at $202.5 million (16.7% of total loans), down $3.1 million from the end of 2008, followed by commercial business loans at $112.4 million (9.3% of total loans), consumer lines of credit at $45.2 million (3.7% of total loans) and
other consumer loans at $11.9 million (1.0% of total loans).
Asset Quality
The Banks loan portfolios are subject to periodic reviews by our internal loan review department, our external loan review consultant
and state and federal bank regulators. The Companys nonperforming loans (nonaccruals and 90+ days past due) totaled $164.5 million at December 31, 2009. Consequently, nonperformers as a percent of loans outstanding increased from 5.63% at
December 31, 2008, to 13.56% as of December 31, 2009. Thirty-to-ninety day delinquent loans were $63.8 million or 5.26% of loans outstanding at December 31, 2009. There were $61.1 million in net charge-offs during 2009, resulting in
net charge-offs to average loans of 5.37%. The increased level of nonperforming assets in 2009 is a result of a slowing economy and the devaluation of real estate
Real estate values in our markets deteriorated at an accelerated pace over recent quarters, resulting in increased credit losses. Our non-performing assets have increased since the beginning of the
economic downturn in 2007 as management continues to aggressively recognize impaired loans based on our ongoing process of identifying early signs of stress in our loan portfolio. Additionally, we continue to track every loan from pre-watch
identification through disposition, using our history of trend analysis by loan type, industry, market and vintage, which further supports progress in projecting impairment on a loan by loan basis. In the third quarter of 2009, we utilized a
third-party loan review firm to review 46% of our loans.
Our Special Assets Division, which was established in 2007 in
anticipation of elevated stress levels in the Florida economy, continues to monitor and aggressively manage our most problematic loans and other real estate owned. This division has grown to include five professionals with extensive experience in
managing non-performing loans. This division reports to our Senior Executive Vice President who has extensive experience in managing special assets divisions, as well as reporting to the Special Assets Committee, a subcommittee of our Board of
Directors, which meets monthly and oversees the management, marketing, and overall dissolution of these assets.
We had $90.6
million in loans that were defined as troubled debt restructuring as of December 31, 2009. Of those amounts, $48.9 million were accruing as they were performing in accordance with their restructured terms. The majority of the restructurings
involve extending the interest-only period, reducing the interest rate to give the borrower relief, or other modifications of terms that deviate from the original contract.
44
Deposits
Total deposits increased $21.0 million or 1.8% in 2009 to end the year at $1.2 billion. Deposit growth in the Bank of Florida
Southwest comprised $9.2 million of this increase, up 1.7% to $535.4 million in deposits at December 31, 2009, while deposits at Bank of Florida Southeast climbed $43.4 million or 10.7% to $448.7 million. Bank of Florida Tampa Bay
ended the year with $194.0 million in deposits, down $31.6 million or 14.0%.
Core deposits, which exclude wholesale brokered
CDs, wholesale CDAR deposits, and CDs with balances in excess of $100 thousand, increased $74.1 million or 10.4% from December 31, 2008, with the growth in CDs less than $100 thousand (up $202.1 million), NOW accounts (up $4.8 million), and
savings accounts (up $73 thousand) more than offsetting the decline in non interest bearing deposits (down $10.9 million), money market deposits (down $24.8 million) and retail CDARs (down $97.2 million). As of the end of 2009, these accounts
comprised 26.1%, 4.5%, 0.5% 8.8%, 24.6% and 1.7%, respectively, of total deposits. Non-core deposit accounts decreased $53.1 million or 11.7% during 2009 and accounted for 33.8% of total deposits.
The annualized average rate paid on total interest bearing deposits during 2009 was 2.66%, a decrease of 91 basis points compared to 2008.
This decrease resulted primarily from the lower interest rate environment under which we currently operate.
Due to the
Banks capital positions and the Resolutions described under
Supervision and Regulation,
we are presently prohibited from accepting, renewing or rolling over brokered depositis, including CDARs, and from paying interest
rates greater than 0.75% of the prevailing local rate or the national rates published by the FDIC.
Borrowings
While client deposits remain our primary source of funding for asset growth, management uses other borrowings as a funding
source for loan growth, regulatory capital needs, and as a tool to manage the Companys interest rate risk and margin. At December 31, 2009, borrowings totaled $167.1 million, a decrease of $21.3 million compared to December 31, 2008.
Total borrowings at December 31, 2009, consisted of $32.7 million of other borrowings, $16.0 million in subordinated debt and $118.5 million in Federal Home Loan Bank (FHLB) Advances compared to $20.0 million of other borrowings,
$16.0 million in subordinated debt and $152.5 million in FHLB Advances, respectively, at the end of 2008. The maturities of all borrowings range from March 2010 through July 2017.
See Note 11-Subordinated Debt and Other Borrowings and Note 12-Federal Home Loan Bank Advances of the Notes
to Consolidated Financial Statements for further information.
Stockholders equity
Total stockholders equity was $43.8 million at December 31, 2009, a $146.1 million or 76.9% decrease since December 31, 2008.
Book value per share was $3.07 at December 31, 2009 while the tangible book value per common share was $2.88. The Companys Tier 1 leverage ratio decreased 545 basis points to 2.41% at December 31, 2009 from 7.86% at December 31,
2008. The minimum Tier 1 leverage ratio for bank holding companies is 4.0%; however, regulators can require bank holding companies to satisfy higher capital requirements. At December 31, 2009, the Company was significantly undercapitalized.
Note 17 Stockholders Equity
provides additional information regarding the Companys capital position.
45
Aggregate Contractual Obligations
Contractual obligations for payments under long-term debt and lease obligations are shown as follows, stratified by remaining term to
contractual maturity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
1 Year
|
|
|
1 3
Years
|
|
|
3 5
Years
|
|
More than
5
Years
|
|
Total
|
|
Real estate operating leases
|
|
$
|
4,130
|
|
|
$
|
8,364
|
|
|
$
|
8,457
|
|
$
|
27,833
|
|
$
|
48,784
|
|
Subleased operating leases
|
|
|
(155
|
)
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
(305
|
)
|
Equipment operating leases
|
|
|
147
|
|
|
|
168
|
|
|
|
58
|
|
|
1
|
|
|
374
|
|
Certificates of Deposit
|
|
|
363,034
|
|
|
|
343,724
|
|
|
|
24,117
|
|
|
250
|
|
|
731,125
|
|
Subordinated Debt
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
|
13,000
|
|
|
16,000
|
|
Repurchase Agreements
|
|
|
12,681
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
32,681
|
|
Federal Home Loan Bank advances
|
|
|
25,000
|
|
|
|
47,257
|
|
|
|
36,200
|
|
|
10,000
|
|
|
118,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
404,837
|
|
|
$
|
402,363
|
|
|
$
|
88,832
|
|
$
|
51,084
|
|
$
|
947,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Further discussion of the nature of each obligation is included in
Note 10-Deposits,
Note 11-Subordinated Debt and Other Borrowings, Note 12-Federal Home Loan Bank Advances and Note 14-Commitments and Contingencies of the Notes to Consolidated Financial Statements.
Default Upon Senior Securities
Two of the Banks are parties to similar master repurchase agreements and confirmations, or Repos, with Citigroup Global Markets, Inc., or Citi. Pursuant to the Repos, each such
subsidiary bank sold Citi $10.0 million of securities, subject to their obligation to repurchase such securities at a specific price in 2013. The Repos provide that if either of our subsidiary Banks fails to remain well capitalized for
regulatory purposes, the Repos may be called. We notified Citi that an event of default has occurred and is continuing under each of the Repos, and Citi has reserved all its rights upon a default under each Repo.
If Citi exercises its remedies under the Repos, then: (i) our subsidiary Banks would be obligated to immediately repurchase all
securities sold to Citi under the Repos; (ii) all income paid after the declaration on the securities sold would be retained by Citi and applied to the aggregate unpaid repurchase prices and any other amounts owing by our subsidiary banks; and
(iii) our subsidiary banks would have to immediately deliver to Citi any purchased securities subject to the Repos then in their possession or control. We have been informed that Citi would also charge our subsidiary banks an approximately $1.5
million of total penalty for early termination of these Repos. If Citi exercises its right to declare an event of default and exercises its remedies under the Repos, then our financial position, liquidity and earnings may be materially and adversely
affected.
As part of Bank of Florida Corporations (the Company) continuing efforts to conserve capital, on
February 17, 2010, the Board of Directors of the Companys wholly-owned subsidiary, Bank of Florida Southeast adopted a resolution suspending interest and principal payments on its $6 million in subordinated debt.
On February 18, 2010, the Board of Directors of the Companys wholly-owned subsidiary, Bank of Florida Southwest adopted a
resolution suspending interest and principal payments on its $10 million in subordinated debt.
46
RESULTS OF OPERATIONS
The Companys net loss available to common shareholders for 2009 was $147.6 million or ($11.54) per diluted share, which included
$106,000 in preferred stock dividends. The Companys net loss available to common shareholders was $13.2 million or ($1.03) per diluted share, for 2008. Pretax net loss increased $115.6 million to $136.7 million. The primary factors explaining
the deterioration were the $62 million goodwill impairment, $49.2 million increase in provision for loan losses, a $38.8 million valuation allowance on the deferred tax asset and a $6.2 million or 13.0% decrease in top-line revenue mostly
attributable to the decline in interest rates. Top-line revenue is a non-GAAP measure which the Company defines as net interest income plus noninterest income, excluding net securities gains/losses. Management monitors top-line revenue as we believe
it is an indication of core earning capacity.
Net Interest Income
Net interest income decreased $6.1 million or 14.3% in 2009 to $36.7 million, primarily the result of the reduction in interest rates year
over year. Net interest spread, the difference between the yield on interest-earning assets and the rate paid on interest-bearing liabilities, was 2.77% on average in 2009, which was a decrease of 12 basis points when compared to 2008, while, the
net interest margin, which is net interest income divided by average interest-earning assets, averaged 2.85% in 2009, a 49 basis points decrease over 2008. The margin continues to be pressured in this low rate environment.
Interest income decreased $11.9 million or 14.2% to $71.5 million in 2009, the result of a 95 basis point decrease in the average yield
earned on interest earning assets. Total average interest-earning assets increased $5.8 million during the year and resulted in a $856 thousand decrease in interest income. The average yield on interest-earning assets, which was impacted by the
increase in nonaccrual loans, decreased to 5.55%, accounting for $10.8 million decline in interest income with the day count difference accounting for the remainder of the decrease. Approximately 63.4% of loans outstanding at December 31, 2009
are variable rate loans compared to 65.2% at December 31, 2008.
Interest expense totaled $34.8 million in 2009, a
decrease of $5.7 million or 14.1%. The overall cost of interest-bearing liabilities was 2.78% compared to 3.61% one year ago. Noninterest-bearing deposits averaged $107.2 million for 2009 compared to $104.2 million last year. Money market rates were
133 basis points lower on average, while the average cost of time deposits decreased 89 basis points. During the year ended December 31, 2009, the Company decreased its use of FHLB advances as an alternative funding source. The average
outstanding amount of FHLB advances for 2009 were $123.1 million at an average cost of 3.89% compared to $147.2 million at an average cost of 3.75% for 2008.
47
The following table represents, for the years indicated, certain information related to our
average balance sheet and average yields on assets and average costs of liabilities (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Average
Balance
|
|
Interest
and
Dividends
|
|
|
Average
Yield/Rate
|
|
|
Average
Balance
|
|
Interest
and
Dividends
|
|
|
Average
Yield/Rate
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
1
|
|
$
|
1,138,584
|
|
$
|
66,098
|
|
|
5.81
|
%
|
|
$
|
1,180,447
|
|
$
|
78,441
|
|
|
6.65
|
%
|
Interest earning deposits
|
|
|
17,076
|
|
|
47
|
|
|
0.28
|
%
|
|
|
560
|
|
|
15
|
|
|
2.68
|
%
|
Securities
2
|
|
|
120,704
|
|
|
5,302
|
|
|
4.39
|
%
|
|
|
91,136
|
|
|
4,716
|
|
|
5.17
|
%
|
Federal funds sold
|
|
|
10,782
|
|
|
16
|
|
|
0.15
|
%
|
|
|
9,187
|
|
|
155
|
|
|
1.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
1,287,146
|
|
|
71,463
|
|
|
5.55
|
%
|
|
|
1,281,330
|
|
|
83,327
|
|
|
6.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non interest-earning assets
|
|
|
242,285
|
|
|
|
|
|
|
|
|
|
146,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,529,431
|
|
|
|
|
|
|
|
|
$
|
1,427,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing checking
|
|
$
|
48,636
|
|
|
92
|
|
|
0.19
|
%
|
|
$
|
49,785
|
|
|
247
|
|
|
0.50
|
%
|
Money market accounts
|
|
|
339,418
|
|
|
5,735
|
|
|
1.69
|
%
|
|
|
338,357
|
|
|
10,215
|
|
|
3.02
|
%
|
Savings
|
|
|
6,177
|
|
|
21
|
|
|
0.34
|
%
|
|
|
6,228
|
|
|
34
|
|
|
0.55
|
%
|
Time deposits
|
|
|
689,431
|
|
|
22,941
|
|
|
3.33
|
%
|
|
|
547,730
|
|
|
23,076
|
|
|
4.21
|
%
|
Other borrowings
|
|
|
170,522
|
|
|
6,022
|
|
|
3.53
|
%
|
|
|
179,801
|
|
|
6,963
|
|
|
3.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
1,254,184
|
|
|
34,811
|
|
|
2.78
|
%
|
|
|
1,121,901
|
|
|
40,535
|
|
|
3.61
|
%
|
Non-interest bearing deposits
|
|
|
107,164
|
|
|
|
|
|
|
|
|
|
104,224
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
4,800
|
|
|
|
|
|
|
|
|
|
4,344
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
163,283
|
|
|
|
|
|
|
|
|
|
197,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Stockholders Equity
|
|
$
|
1,529,431
|
|
|
|
|
|
|
|
|
$
|
1,427,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
$
|
36,652
|
|
|
|
|
|
|
|
|
$
|
42,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate spread
|
|
|
|
|
|
|
|
|
2.77
|
%
|
|
|
|
|
|
|
|
|
2.89
|
%
|
Net interest margin
|
|
|
|
|
|
|
|
|
2.85
|
%
|
|
|
|
|
|
|
|
|
3.34
|
%
|
Ratio of average interest-bearing liabilities to average earning assets
|
|
|
|
|
|
97.5
|
%
|
|
|
|
|
|
|
|
|
87.6
|
%
|
|
|
|
INCREASE (DECREASE) DUE TO CHANGE IN (IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOLUME
|
|
|
RATE
|
|
|
DAYS
|
|
|
CHANGE
|
|
Increase (decrease) in interest income
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
1
|
|
$
|
(2,215
|
)
|
|
$
|
(9,913
|
)
|
|
$
|
(215
|
)
|
|
$
|
(12,343
|
)
|
Interest earning deposits
|
|
|
45
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
32
|
|
Securities
2
|
|
|
1,312
|
|
|
|
(713
|
)
|
|
|
(13
|
)
|
|
|
586
|
|
Federal funds sold
|
|
|
2
|
|
|
|
(141
|
)
|
|
|
|
|
|
|
(139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
(856
|
)
|
|
|
(10,780
|
)
|
|
|
(228
|
)
|
|
|
(11,864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in interest expense
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing checking and money market deposits
|
|
|
45
|
|
|
|
(4,651
|
)
|
|
|
(29
|
)
|
|
|
(4,635
|
)
|
Savings deposits
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
(13
|
)
|
Time deposits
|
|
|
4,778
|
|
|
|
(4,850
|
)
|
|
|
(63
|
)
|
|
|
(135
|
)
|
Other borrowings
|
|
|
(313
|
)
|
|
|
(609
|
)
|
|
|
(19
|
)
|
|
|
(941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
4,510
|
|
|
|
(10,123
|
)
|
|
|
(111
|
)
|
|
|
(5,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change in net interest income
|
|
$
|
(5,366
|
)
|
|
$
|
(657
|
)
|
|
$
|
(117
|
)
|
|
$
|
(6,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
For purposes of this analysis, non-accruing loans are not included in the average balances.
|
2
|
Tax-exempt income, to the extent included in the amounts above, is not reflected on a tax equivalent basis.
|
48
Noninterest Income
Noninterest income was $8.9 million, an increase of $4.2 million or 88.6% over 2008. Gains on sale of assets, which includes gains on sale of
securities, increased $3.6 million (up 5954.3%) as a result of more gains on sales of securities ($4.2 million) and fewer losses on fixed asset dispositions ($167,000), partially offset by losses on loan sales ($240,000) and losses on sale of other
real estate owned ($987,000) and lower secondary market fees ($45,000).
Trust fees declined $140,000 or 5.1% to $2.6 million
over 2008 primarily the result of the distressed equity market conditions that occurred during the first half of 2009. Over the past twelve months, assets under administration have increased $245.9 million, or 49.7%, to $740.5 million at
December 31, 2009.
Service charges and other income increased approximately $708,000, or 36.8%, over 2008, due to hedge
ineffectiveness and the termination of the derivative transaction ($480,000), greater service charge income ($360,000) due to the implementation of a more efficient process for commercial account analysis, partially offset by lower other income
($133,000).
Noninterest Expenses
Noninterest expenses rose $64.5 million or 146.4% over 2008. The majority of the increase is explained by the $62.0 million goodwill impairment charge that was recorded during the third quarter. Other
increases occurred in the areas of regulatory assessments ($1.6 million or 164.1% increase) driven by the increase in FDIC assessments, including a one-time special assessment of $712,000, professional fees ($1.2 million or 68.5% increase) and
shareholder relations expense ($221,000 or 132.2% increase) driven by the capital campaign, repossession expenses ($863,000 or 63.6% increase) related to the increase in foreclosed property, other losses ($547,000 or 390.2% increase), occupancy
($198,000 or 2.84% increase) and data processing ($238,000 or 10.3% increase). These increases in expense were partially offset by decreases in salaries and benefits ($1.4 million or 6.4% decrease), office supplies ($245,000 or 29.2% decrease) and
travel ($245,000 or 20.5% decrease).
Asset Quality and Provision for Loan Losses
Nonperforming loans (90+ days past due and non-accruals) totaled $164.5 million, or 13.56% of loans outstanding. The increase from prior year
was primarily caused by the downturn in the residential real estate market which negatively impacted the liquidity of a number of borrowers. The ratio of net charge-offs to average loans for 2009 grew 459 basis points to 5.37%. The Companys
asset quality can also be measured by the coverage of the loan loss allowance to nonperforming loans (.26 times). These measures are worse than the Companys historic norms.
The provision for loan losses increased $49.2 million or 200.8%, as a result of loan downgrades and an increased level of net charge-offs
due to the continued weakness in real estate values. The allowance for loan losses, which is established through a charge to provision for loan losses as losses are estimated, totaled $42.1 million or 3.47% of loans outstanding at December 31,
2009. In comparison, the allowance for loan losses totaled $29.5 million or 2.32% of loans outstanding at December 31, 2008. Actual loan losses are charged against the allowance when management believes the collectability of a loan balance is
unlikely. Subsequent recoveries, if any, are credited to the allowance. The Company recorded net charge-offs during 2009 of $61.1 million, compared to $9.2 million in 2008. The primary factor impacting the amount of these charge-offs is the
continued decline in property values across the Florida markets.
Income Taxes
Income tax expense for 2009 was $10.8 million, as compared with a benefit of $7.8 million for 2008, representing effective
tax rates of 7.9% and 37.2%, respectively. The effective tax rate was lower than the statutory tax rate in the current year primarily due to the goodwill impairment charge and the valuation allowance established on the deferred tax asset. Additional
information regarding income taxes can be found in
Note 9 Income Taxes of the Notes to Consolidated Financial Statements.
The effective tax rate for 2009 reflects the tax treatment of the $62.0 million goodwill impairment charge. Since the majority of the Companys goodwill originated from acquisitions that were treated
as tax-free exchanges, no goodwill was recognized for tax reporting purposes and therefore no tax deduction is allowed for the impairment charge. Likewise, no tax benefit is recognized in the financial statements relating to the $62.0 million
charge.
49
Quarterly Operating Results
The following table presents condensed information relating to quarterly periods in the years ended December 31, 2009 and 2008 (in
thousands, except per share data).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended:
|
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
June 30,
|
|
|
Mar. 31,
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
16,668
|
|
|
$
|
17,933
|
|
|
$
|
18,069
|
|
|
$
|
18,793
|
|
Total interest expense
|
|
|
8,600
|
|
|
|
8,379
|
|
|
|
8,634
|
|
|
|
9,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income before provision for loan losses
|
|
|
8,068
|
|
|
|
9,554
|
|
|
|
9,435
|
|
|
|
9,595
|
|
Provision for loan losses
|
|
|
31,494
|
|
|
|
25,719
|
|
|
|
9,764
|
|
|
|
6,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
(23,426
|
)
|
|
|
(16,165
|
)
|
|
|
(329
|
)
|
|
|
2,902
|
|
Non-interest income
|
|
|
3,443
|
|
|
|
1,595
|
|
|
|
2,676
|
|
|
|
1,155
|
|
Non-interest expense
|
|
|
11,802
|
|
|
|
73,014
|
|
|
|
12,704
|
|
|
|
11,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income before taxes
|
|
|
(31,785
|
)
|
|
|
(87,584
|
)
|
|
|
(10,357
|
)
|
|
|
(6,974
|
)
|
Income taxes (benefit)
|
|
|
26,760
|
|
|
|
(9,504
|
)
|
|
|
(3,857
|
)
|
|
|
(2,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(58,545
|
)
|
|
$
|
(78,080
|
)
|
|
$
|
(6,500
|
)
|
|
$
|
(4,373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) income per share
|
|
$
|
(4.58
|
)
|
|
$
|
(6.10
|
)
|
|
$
|
(0.51
|
)
|
|
$
|
(0.34
|
)
|
Diluted (loss) income per share
|
|
$
|
(4.58
|
)
|
|
$
|
(6.10
|
)
|
|
$
|
(0.51
|
)
|
|
$
|
(0.34
|
)
|
|
|
|
|
|
Weighted average shares - basic
|
|
|
12,800,398
|
|
|
|
12,795,054
|
|
|
|
12,779,020
|
|
|
|
12,779,020
|
|
Weighted average shares - diluted
|
|
|
12,800,398
|
|
|
|
12,795,054
|
|
|
|
12,779,020
|
|
|
|
12,779,020
|
|
|
|
|
|
|
Return on average assets
|
|
|
(15.35
|
)%
|
|
|
(20.63
|
)%
|
|
|
(1.71
|
)%
|
|
|
(1.15
|
)%
|
Return on average common equity
|
|
|
(237.05
|
)%
|
|
|
(180.22
|
)%
|
|
|
(14.19
|
)%
|
|
|
(9.23
|
)%
|
|
|
|
|
|
Net interest margin
|
|
|
2.48
|
%
|
|
|
3.02
|
%
|
|
|
2.97
|
%
|
|
|
2.93
|
%
|
Efficiency ratio
|
|
|
129.29
|
%
|
|
|
686.42
|
%
|
|
|
118.07
|
%
|
|
|
102.61
|
%
|
|
|
|
|
|
Total assets
|
|
$
|
1,402,343
|
|
|
$
|
1,488,008
|
|
|
$
|
1,528,879
|
|
|
$
|
1,570,255
|
|
Total shares outstanding
|
|
|
12,968,898
|
|
|
|
12,968,898
|
|
|
|
12,947,520
|
|
|
|
12,955,520
|
|
Book value per share
|
|
$
|
3.07
|
|
|
$
|
7.68
|
|
|
$
|
13.69
|
|
|
$
|
14.38
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
20,428
|
|
|
$
|
20,980
|
|
|
$
|
20,994
|
|
|
$
|
20,925
|
|
Total interest expense
|
|
|
10,639
|
|
|
|
10,059
|
|
|
|
9,647
|
|
|
|
10,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income before provision for loan losses
|
|
|
9,789
|
|
|
|
10,921
|
|
|
|
11,347
|
|
|
|
10,735
|
|
Provision for loan losses
|
|
|
16,026
|
|
|
|
6,190
|
|
|
|
1,585
|
|
|
|
687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
(6,237
|
)
|
|
|
4,731
|
|
|
|
9,762
|
|
|
|
10,048
|
|
Non-interest income
|
|
|
1,195
|
|
|
|
1,162
|
|
|
|
1,049
|
|
|
|
1,296
|
|
Non-interest expense
|
|
|
10,951
|
|
|
|
11,388
|
|
|
|
10,770
|
|
|
|
10,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes (benefit)
|
|
|
(15,993
|
)
|
|
|
(5,495
|
)
|
|
|
41
|
|
|
|
392
|
|
Income taxes (benefit)
|
|
|
(5,979
|
)
|
|
|
(2,050
|
)
|
|
|
37
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(10,014
|
)
|
|
$
|
(3,445
|
)
|
|
$
|
4
|
|
|
$
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) income per share
|
|
$
|
(0.78
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
0.00
|
|
|
$
|
0.02
|
|
Diluted (loss) income per share
|
|
$
|
(0.78
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
0.00
|
|
|
$
|
0.02
|
|
|
|
|
|
|
Weighted average shares - basic
|
|
|
12,779,020
|
|
|
|
12,779,020
|
|
|
|
12,779,020
|
|
|
|
12,779,020
|
|
Weighted average shares - diluted
|
|
|
12,779,020
|
|
|
|
12,779,020
|
|
|
|
12,779,020
|
|
|
|
12,779,376
|
|
|
|
|
|
|
Return on average assets
|
|
|
(2.65
|
)%
|
|
|
(0.95
|
)%
|
|
|
0.00
|
%
|
|
|
0.07
|
%
|
Return on average common equity
|
|
|
(20.89
|
)%
|
|
|
(6.96
|
)%
|
|
|
0.01
|
%
|
|
|
0.47
|
%
|
|
|
|
|
|
Net interest margin
|
|
|
2.89
|
%
|
|
|
3.33
|
%
|
|
|
3.58
|
%
|
|
|
3.62
|
%
|
Efficiency ratio
|
|
|
99.70
|
%
|
|
|
94.48
|
%
|
|
|
86.88
|
%
|
|
|
91.01
|
%
|
|
|
|
|
|
Total assets
|
|
$
|
1,549,013
|
|
|
$
|
1,545,054
|
|
|
$
|
1,414,689
|
|
|
$
|
1,404,034
|
|
Total shares outstanding
|
|
|
12,779,020
|
|
|
|
12,779,020
|
|
|
|
12,779,020
|
|
|
|
12,779,020
|
|
Book value per share
|
|
$
|
14.87
|
|
|
$
|
15.39
|
|
|
$
|
15.45
|
|
|
$
|
15.69
|
|
50
Year Ended December 31, 2008 Compared to
Year Ended December 31, 2007
RESULTS OF OPERATIONS
The Companys net loss for 2008 was $13.2 million or ($1.03) per diluted
share, $16.0 million less than 2007. Pretax net loss increased $25.6 million to $21.1 million. The primary factors explaining the deterioration were a $20.2 million increase in provision for loan losses in addition to a $1.3 million or 2.8% decrease
in top-line revenue mostly attributable to the decline in interest rates. Top-line revenue is a non-GAAP measure which the Company defines as net interest income plus noninterest income, excluding net securities gains/losses. Management monitors
top-line revenue as we believe it is an indication of core earning capacity.
Net Interest Income
Net interest income decreased $432 thousand or 1.0% in 2008 to $42.8 million, the result of a 400 basis point reduction in interest rates
during the year. Net interest spread, the difference between the yield on interest-earning assets and the rate paid on interest-bearing liabilities, was 2.89% on average in 2008, which was a decrease of 27 basis points when compared to 2007, while,
the net interest margin, which is net interest income divided by average interest-earning assets, averaged 3.34% in 2008, a 64 basis points decrease over 2007. The margin continues to be pressured in this declining rate environment.
Interest income decreased $828 thousand or 1.0% to $83.3 million in 2008, the result of a 124 basis point decrease in the average yield
earned on interest earning assets that was partially offset by continued loan growth. Total average interest-earning assets increased $194.7 million during the year resulting in a $12.1 million increase in interest income while the average yield on
interest-earning assets decreased to 6.50%, accounting for $13.1 million decline in interest income with the day count difference accounting for the remainder of the improvement. Approximately 65.2% of loans outstanding at December 31, 2008 are
variable rate loans compared to 73.9% at December 31, 2007.
Interest expense totaled $40.5 million in 2008, a decrease
of $396 thousand or 1.0%. The overall cost of interest-bearing liabilities was 3.61% compared to 4.58% one year ago. Noninterest-bearing deposits averaged $104.2 million for 2008 compared to $103.1 million last year. Money market rates were 143
basis points lower on average, while the average cost of certificates of deposit decreased 84 basis points. During the year ended December 31, 2008, the Company increased its use of FHLB advances as an alternative funding source. The average
outstanding amount of FHLB advances for 2008 were $147.2 million at an average cost of 3.75% compared to $104.8 million at an average cost of 5.02% for 2007.
51
The following table represents, for the years indicated, certain information related to our
average balance sheet and average yields on assets and average costs of liabilities (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Average
Balance
|
|
Interest
and
Dividends
|
|
|
Average
Yield/Rate
|
|
|
Average
Balance
|
|
Interest
and
Dividends
|
|
|
Average
Yield/Rate
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
1
|
|
$
|
1,180,447
|
|
$
|
78,441
|
|
|
6.65
|
%
|
|
$
|
1,028,971
|
|
$
|
81,145
|
|
|
7.89
|
%
|
Interest earning deposits
|
|
|
560
|
|
|
15
|
|
|
2.68
|
%
|
|
|
1,291
|
|
|
76
|
|
|
5.90
|
%
|
Securities
2
|
|
|
91,136
|
|
|
4,716
|
|
|
5.17
|
%
|
|
|
48,199
|
|
|
2,580
|
|
|
5.35
|
%
|
Federal funds sold
|
|
|
9,187
|
|
|
155
|
|
|
1.69
|
%
|
|
|
8,144
|
|
|
354
|
|
|
4.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
1,281,330
|
|
|
83,327
|
|
|
6.50
|
%
|
|
|
1,086,605
|
|
|
84,155
|
|
|
7.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non interest-earning assets
|
|
|
146,628
|
|
|
|
|
|
|
|
|
|
96,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,427,958
|
|
|
|
|
|
|
|
|
$
|
1,183,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing checking
|
|
$
|
49,785
|
|
|
247
|
|
|
0.50
|
%
|
|
$
|
57,058
|
|
|
684
|
|
|
1.20
|
%
|
Money market accounts
|
|
|
338,357
|
|
|
10,215
|
|
|
3.02
|
%
|
|
|
341,374
|
|
|
15,180
|
|
|
4.45
|
%
|
Savings
|
|
|
6,228
|
|
|
34
|
|
|
0.55
|
%
|
|
|
7,625
|
|
|
49
|
|
|
0.64
|
%
|
Time deposits
|
|
|
547,730
|
|
|
23,076
|
|
|
4.21
|
%
|
|
|
367,992
|
|
|
18,609
|
|
|
5.06
|
%
|
Other borrowings
|
|
|
179,801
|
|
|
6,963
|
|
|
3.87
|
%
|
|
|
120,331
|
|
|
6,409
|
|
|
5.33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
1,121,901
|
|
|
40,535
|
|
|
3.61
|
%
|
|
|
894,380
|
|
|
40,931
|
|
|
4.58
|
%
|
Non-interest bearing deposits
|
|
|
104,224
|
|
|
|
|
|
|
|
|
|
103,149
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
4,344
|
|
|
|
|
|
|
|
|
|
7,247
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
197,489
|
|
|
|
|
|
|
|
|
|
178,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Stockholders Equity
|
|
$
|
1,427,958
|
|
|
|
|
|
|
|
|
$
|
1,183,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
$
|
42,792
|
|
|
|
|
|
|
|
|
$
|
43,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate spread
|
|
|
|
|
|
|
|
|
2.89
|
%
|
|
|
|
|
|
|
|
|
3.16
|
%
|
Net interest margin
|
|
|
|
|
|
|
|
|
3.34
|
%
|
|
|
|
|
|
|
|
|
3.98
|
%
|
Ratio of average interest-bearing liabilities to average earning assets
|
|
|
|
|
|
87.6
|
%
|
|
|
|
|
|
|
|
|
82.3
|
%
|
|
|
|
INCREASE (DECREASE) DUE TO CHANGE IN (IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOLUME
|
|
|
RATE
|
|
|
DAYS
|
|
CHANGE
|
|
Increase (decrease) in interest income
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
1
|
|
$
|
9,844
|
|
|
$
|
(12,770
|
)
|
|
$
|
222
|
|
$
|
(2,704
|
)
|
Interest earning deposits
|
|
|
(19
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
(61
|
)
|
Securities
2
|
|
|
2,214
|
|
|
|
(85
|
)
|
|
|
7
|
|
|
2,136
|
|
Federal funds sold
|
|
|
17
|
|
|
|
(217
|
)
|
|
|
1
|
|
|
(199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
12,056
|
|
|
|
(13,114
|
)
|
|
|
230
|
|
|
(828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in interest expense
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing checking and money market deposits
|
|
|
(170
|
)
|
|
|
(5,275
|
)
|
|
|
43
|
|
|
(5,402
|
)
|
Savings deposits
|
|
|
(8
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
(15
|
)
|
Time deposits
|
|
|
7,521
|
|
|
|
(3,105
|
)
|
|
|
51
|
|
|
4,467
|
|
Other borrowings
|
|
|
2,215
|
|
|
|
(1,678
|
)
|
|
|
17
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
9,558
|
|
|
|
(10,065
|
)
|
|
|
111
|
|
|
(396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change in net interest income
|
|
$
|
2,498
|
|
|
$
|
(3,049
|
)
|
|
$
|
119
|
|
$
|
(432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
For purposes of this analysis, non-accruing loans are not included in the average balances.
|
2
|
Tax-exempt income,
to the extent included in the amounts above, is not reflected on a tax equivalent basis.
|
52
Noninterest Income
Noninterest income declined $886 thousand or 15.9% over 2007, primarily due to decreases in gains on sale of assets of $646,000 (down 91.5%)
and trust fees of $298,000 (down 9.9%). Service charges and other income rose approximately $58,000. The decrease in fee income earned by the Trust Company, which totaled $2.7 million in 2008, was primarily the result of contraction in the average
assets under administration during the year and the decline in market values.
Noninterest Expenses
Noninterest expenses rose $4.1 million or 10.2% over 2007. The increase is primarily comprised of higher occupancy and equipment related
expense ($2.2 million or 26.7%). Building lease costs rose due to additional space required for business expansion, and equipment rental, maintenance, and depreciation expense increased accordingly. Other increases occurred in the areas of
repossession expenses ($1.3 million or 2,770%) associated with other real estate owned, regulatory assessments ($438,000 or 77.2%) and professional fees ($274,000 or 17.8%).
Asset Quality and Provision for Loan Losses
Nonperforming loans (90+ days past due and non-accruals) totaled $71.9 million, or 5.63% of loans outstanding. The increase from prior year was primarily caused by the downturn in the residential real
estate market which negatively impacted the liquidity of a number of borrowers. The ratio of net charge-offs to average loans for 2008 grew seventy four basis points to 0.78%. The Companys asset quality can also be measured by the coverage of
the loan loss allowance to nonperforming loans (.41 times). These measures are worse than the Companys historic norm.
The provision for loan losses increased $20.2 million or 475.6%, as a result of loan downgrades and an increased level of net charge-offs due to the continued weakness in real estate values, and an 11.4% growth in loans. The allowance for
loan losses, which is established through a charge to provision for loan losses as losses are estimated, totaled $29.5 million or 2.32% of loans outstanding at December 31, 2008. In comparison, the allowance for loan losses totaled $14.4
million or 1.26% of loans outstanding at December 31, 2007. Actual loan losses are charged against the allowance when management believes the collectability of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the
allowance. The Company recorded net charge-offs during 2008 of $9.2 million, compared to $401,000 in 2007. The primary factor impacting the amount of these charge-offs is the continued decline in property values across the Southwest Florida markets.
53
ALLOWANCE FOR LOAN LOSSES
The Board of Directors of each Bank is responsible for overseeing the establishment of an appropriate level of the Allowance for Loan and
Lease Losses in compliance with generally accepted accounting principles. An evaluation of the level of allowance for loan losses is performed on a recurring basis, and at least quarterly.
Homogenous Loan Pools
The Banks established general reserve allocations as a percentage of loans for homogeneous pools of loans where each category demonstrates similar risk characteristics. The reserve metrics are monitored
and adjusted for adequacy on a quarterly basis. The following table sets forth, as of December 31, 2009, our reserves as a percentage of loans for each loan category:
|
|
|
|
|
|
|
|
|
|
Homogeneous Loan Pool
|
|
2009
BOF-Southwest
|
|
|
2009
BOF-Southeast
|
|
|
2009
BOF-Tampa Bay
|
|
Residential Land & Construction
|
|
7.05
|
%
|
|
5.10
|
%
|
|
26.20
|
%
|
Land & Construction
|
|
3.00
|
%
|
|
2.95
|
%
|
|
2.85
|
%
|
Home Equity Loans (Lines on 1-4 Family)
|
|
2.10
|
%
|
|
1.90
|
%
|
|
0.80
|
%
|
1-4 Family Non Revolving
|
|
1.75
|
%
|
|
1.60
|
%
|
|
0.75
|
%
|
Multifamily
|
|
0.65
|
%
|
|
0.55
|
%
|
|
0.55
|
%
|
Commercial Real Estate Owner Occupied
|
|
0.90
|
%
|
|
0.70
|
%
|
|
0.75
|
%
|
Commercial Real Estate Non-Owner Occupied
|
|
0.95
|
%
|
|
0.85
|
%
|
|
0.90
|
%
|
Commercial Non Real Estate Secured
|
|
3.25
|
%
|
|
1.05
|
%
|
|
0.95
|
%
|
Consumer and Other Loans
|
|
2.25
|
%
|
|
1.05
|
%
|
|
0.80
|
%
|
The general
reserve allocations result in reserves of $7.6 million for the Southwest market, $4.8 million for the Southeast market, and $2.0 million for the Tampa market to total approximately $14.4 million on a consolidated basis.
Management has derived loss rates to each loan category to determine the appropriate level of allocation for that loan segment based on a 3
year loan loss history. Qualitative and environmental factors are used to adjust the historical loss rates which range between 10 and 75 basis points and include the following:
|
|
|
Levels of and trends in delinquencies, non-accruals, and impaired loans;
|
|
|
|
Levels of and trends in charge-offs and recoveries;
|
|
|
|
Trends in volume and terms of loans;
|
|
|
|
Effects of changes in risk selection and underwriting standards, and other changes in lending policies, procedures, and practices;
|
|
|
|
Experience, ability, and depth of lending management, loan review, and other relevant staff;
|
|
|
|
National and local economic trends and conditions;
|
|
|
|
Industry conditions; and
|
|
|
|
Effects of changes in credit concentrations.
|
The factors are validated by the Banks history as well as economic reports and data. The trend of credit losses and delinquencies in the loan portfolio has increased dramatically since late 2008 and
has begun to shift from the residential sector to commercial real estate. As criticized loans migrate to a non-performing status, the specific loan is measured individually for impairment. If the loan reserve is determined to be other than
temporary, the loan is charged down to its fair market value. Management is of the opinion that the allowance for loan losses are well supported and appropriate based on the following economic factors.
Delinquency and Non-Accrual Loans
Historically the delinquency experience and non-accrual loans have been low in comparison to our UBPR peers. According to information available from the Federal Financial Institutions Examination
Councils (FFIEC) Uniform Bank Performance Report (UBPR) summarized below, since 2005 each affiliate Bank has generally experienced a below UBPR peer group net loss as a percentage of average total loans and leases. However, the recent economic
downturn within the Banks footprint has caused each Bank to exceed its peers for the first three quarters of 2009, and 2008 for all markets. Loans risk rated 6/Special Mention and above has increased $24.0
54
million from third quarter 2009 or 7.53%, however the delinquencies within the portfolio have remained stable in the fourth quarter from the prior quarter. The following chart shows the
delinquency experience, including nonaccruals, of the individual banks against the UBPR peer group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
BOFL - SW
|
|
|
UBPR PEER
|
|
|
BOFL - SE
|
|
|
UBPR PEER
|
|
|
BOFL - TB
|
|
|
UBPR PEER
|
|
Q309
|
|
18.44
|
%
|
|
4.58
|
%
|
|
15.21
|
%
|
|
4.58
|
%
|
|
16.38
|
%
|
|
5.37
|
%
|
2008
|
|
9.26
|
%
|
|
3.59
|
%
|
|
5.80
|
%
|
|
3.59
|
%
|
|
5.53
|
%
|
|
3.69
|
%
|
2007
|
|
2.67
|
%
|
|
2.22
|
%
|
|
0.31
|
%
|
|
2.22
|
%
|
|
0.20
|
%
|
|
1.53
|
%
|
2006
|
|
0.07
|
%
|
|
1.42
|
%
|
|
0.26
|
%
|
|
0.97
|
%
|
|
1.29
|
%
|
|
0.70
|
%
|
2005
|
|
0.22
|
%
|
|
1.28
|
%
|
|
0.00
|
%
|
|
0.60
|
%
|
|
0.00
|
%
|
|
0.24
|
%
|
Uniform
Bank Performance Report% Total P/D LN & LS including Nonaccrual
Changes in Charge-Offs and Recoveries
The historical loss experience for the Banks has been very minimal and below peers, prior to 2008. The recent economic
downturn within the Banks footprint has caused each Bank to exceed their peers in the first three quarters of 2009. Net charge-offs during the fourth quarter 2009 increased another $14.5 million to total $27.2 million, an increase from $12.7 million
in the third quarter. The increase in net charge-offs was primarily related to $11 million of valuation adjustments on several large commercial real estate projects as well as another $3 million related to the possession of foreclosed properties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
BOFL - SW
|
|
|
UBPR PEER
|
|
|
BOFL - SE
|
|
|
UBPR PEER
|
|
|
BOFL - TB
|
|
|
UBPR PEER
|
|
Q309
|
|
3.70
|
%
|
|
0.85
|
%
|
|
3.03
|
%
|
|
0.85
|
%
|
|
3.95
|
%
|
|
0.92
|
%
|
2008
|
|
1.32
|
%
|
|
0.51
|
%
|
|
0.30
|
%
|
|
0.51
|
%
|
|
0.15
|
%
|
|
0.48
|
%
|
2007
|
|
0.08
|
%
|
|
0.18
|
%
|
|
0.00
|
%
|
|
0.18
|
%
|
|
0.00
|
%
|
|
0.12
|
%
|
2006
|
|
0.05
|
%
|
|
0.11
|
%
|
|
0.08
|
%
|
|
0.14
|
%
|
|
0.00
|
%
|
|
0.04
|
%
|
Uniform
Bank Performance ReportNet Loss to Average Total LN & LS
Florida Outlook
The following table exemplifies the substantial increase in unemployment rates within the Banks footprint as of December 31, 2009
dating back to 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Group
|
|
4Q09
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
National
|
|
10.00
|
%
|
|
7.10
|
%
|
|
4.80
|
%
|
|
4.30
|
%
|
|
|
|
|
|
Florida
|
|
11.80
|
%
|
|
7.80
|
%
|
|
4.40
|
%
|
|
3.00
|
%
|
|
|
|
|
|
Collier County
|
|
11.90
|
%
|
|
8.10
|
%
|
|
4.70
|
%
|
|
2.50
|
%
|
|
|
|
|
|
Lee County
|
|
13.80
|
%
|
|
10.00
|
%
|
|
5.70
|
%
|
|
2.70
|
%
|
|
|
|
|
|
Broward County
|
|
10.00
|
%
|
|
6.80
|
%
|
|
4.00
|
%
|
|
2.70
|
%
|
|
|
|
|
|
Dade County
|
|
11.30
|
%
|
|
7.00
|
%
|
|
3.90
|
%
|
|
3.50
|
%
|
|
|
|
|
|
Palm Beach County
|
|
11.50
|
%
|
|
7.80
|
%
|
|
4.60
|
%
|
|
3.10
|
%
|
|
|
|
|
|
Hillsborough County
|
|
12.10
|
%
|
|
7.80
|
%
|
|
4.40
|
%
|
|
2.90
|
%
|
|
|
|
|
|
Pinellas County
|
|
11.90
|
%
|
|
8.00
|
%
|
|
4.40
|
%
|
|
2.80
|
%
|
As illustrated
in the table above both Lee and Collier County continue to experience one of the highest unemployment rates in the state, however it appears the other markets within the Banks footprint are not too far behind. The high unemployment rates are
due to the heavy reliance on real estate activity for employment and lack of industry as compared to Floridas larger markets.
The general investment outlook for Florida real estate, though still mixed, remained unchanged according to the University of Florida Bergstrom Center for Real Estate Studies. Expectations for single family residential absorption decreased
for the second consecutive quarter. While low prices and interest rates will continue to have a positive effect on absorption the continued negative trend in employment along with the nearing expiration of government incentives has curbed future
expectations. The expectation for prices declined slightly this quarter as many continue to believe that prices with increase slower than inflation. The investment outlook for single family development also declined for the second consecutive
quarter.
55
Industrial
The outlook for industrial occupancy is mixed this quarter with the expectations declining in Warehouse but increasing in Flex Space. In both
segments it is expected that there will be little to no change in occupancy. The outlook for investment in industrial remained slightly positive overall, however, the outlook in Warehouse declined from the previous quarter while the outlook improved
in Flex space for the third consecutive quarter. Cap rates for industrial properties continued to move upward, suggesting increased investor uncertainty and expectations for future cap rates increased in both segments.
Office
The outlook for office occupancy increased in Class A for the second consecutive quarter while the outlook for Class B space declined slightly. The outlook for office rental rates is mixed with an improving trend in Class B and a
negative move in Class A. In both property classes, however, it is expected for rates to lag inflation. The outlook for office investment remained mixed but improved slightly in both segments. Cap rates continued to creep upward for both segments at
or above 9%. The expectation for future cap rates remained stable expecting a slight increase.
Retail
Surprisingly, according to the University of Florida Bergstrom Center for Real Estate Studies the
expectations for occupancy increased for every sector but Strip Centers this quarter with the largest increase in Free Standing Retail, which indicates no change over the next quarter. The outlook for rental rate growth also improved in all but the
Strip Center segment, however all continue to expect stable rental rates. Actual cap rates declined slightly in Strip Survey of Emerging Market Conditions January 2010
©
2008-9 University of Florida Bergstrom Center for Real Estate Studies Centers and Free Standing Retail and increased in the remaining sectors. There was a dramatic
improvement in the expectation for future cap rates in Free Standing as more respondents now believe that future cap rates will remain unchanged. The investment outlook in Retail remains mixed for all segments.
Land Investment
The outlook for investment in land remains mixed and largely unchanged for every property type this quarter. Numerous factors continue to dampen expectations including the lack of financing for land as
well as a large spread in bid-ask prices as owners have chosen not to discount as deeply as the market believes is necessary. Additionally, it is expected that banks will continue to take a slow approach to recognizing and acting on distressed
properties.
The vacancy rate of commercial properties in the seven counties within the Banks footprint, have all
experienced increases in vacancy rates from approximately 7% to 9% in December 2008. In December 2009 vacancy rates declined from 9.90% in September 2009 to 9.10% for the Tampa market. In both the Southwest and Southeast footprints continue to
increase at 13.70% and 9.63% from 12.20% and 9.37% respectively from the prior quarter.
Recent Performance
Floridas economy has yet to transition from recession to recovery. Signs of improvement have been uneven, but there have
been some positive developments. Early-stage mortgage delinquencies are moderating, initial claims for unemployment insurance are subsiding, and consumer confidence is improving. Also, federal incentives have successfully invigorated home sales and
industrial production. A number of hurdles remain, as foreclosure sales continue to increase and the unemployment rate is a percentage point above the national average. The unemployment rate may be painting an optimistic picture, as the labor force
has been declining since late 2008.
The pace and extent of job losses have moderated significantly since the beginning of the
year. Nonetheless, businesses still lack the confidence to hire. The jobless rate will rise until initial claims moderate to a level consistent with labor market stability. A pace of 15,000 initial claims per week would be consistent with labor
market stability, while 10,000 per week would be consistent with sturdy employment growth.
Exports
Floridas exports are struggling even as the Latin American economy is attempting recovery. Exports decreased to
a five-year low in the third quarter of 2009. The decline in exports can be attributed to the states manufacturing specialization in pro-cyclical durable goods, including concrete and cement. Latin American demand for Floridas concrete
and cement has slowed even as the depreciating dollar has made the states manufactured goods and services more competitive. It will likely take a number of years for exports to fully recover, which will be a hindrance on industrial production.
56
Tourism
Tourism is expected to recover over the next year as the national labor market begins to improve. Due to the weak dollar, areas with
international appeal such as Orlando and Miami are fairing better than their domestically orientated counterparts, including Jacksonville and West Palm Beach. Those markets reliant on domestic tourism should improve over the next year as consumer
confidence rises, the national labor market stabilizes, and wage growth returns.
Stimulus
The federal stimulus will likely deliver its maximum boost next spring, helping the state emerge from recession. Whereas the stimulus is
working faster nationally, Florida is last with infrastructure projects underway. The lack of infrastructure projects is hurting construction employment, which resumed declining in the second half of the year. Nevertheless, the states large
project pipeline should assist in job creation for 2010. One upside risk is if the state wins federal funding to create a commuter rail service from Jacksonville to Miami. Florida would also benefit if it receives federal funding to aid in the
construction of a high-speed rail system linking Tampa to Orlando.
Recovery
Floridas recovery is expected to be lackluster because of its reliance on in-migration and its fractured housing market. Immigration
has an important affect on the Florida economy, as an average of 240,000 residents per year have relocated to the state since the beginning of the decade. However, net migration decreased 40% to 68,000 in 2008, the smallest in recent memory. The
decline in migration is mostly attributed to the severe housing correction. Falling housing prices and wealth nationally have delayed some individuals from retiring. Also, an increasing number of residents are migrating out of the state, because of
Floridas severe recession.
The delayed stabilization in house prices will also delay Floridas recovery by
undermining consumer confidence and household wealth. Florida home prices will not stabilize until after they do nationally. The state continues to lead the nation in foreclosure sales, which are expected to remain elevated in 2010 and will put
downward pressure on home prices.
Florida economy is expected to emerge from recession by the second quarter of 2010 as job
losses subside and consumer confidence improves. The unemployment rate is expected to peak near 13% in 2010, compared to 10.7% nationally. Furthermore, it is expected that the state will not recover the jobs lost during the recession until late 2012
or early 2013. In the long term, Floridas strong demographic and economic fundamentals will enable it to grow at a fast pace.
CAPITAL RESOURCES AND LIQUIDITY
Our consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to continue as a going concern is substantially dependent on the successful execution of the actions
referred to in
Note 19-Regulatory Matters of the Notes to Consolidated Financial Statements
. The uncertainty of successful execution of our plan, among other factors, raises substantial doubt as to our ability to
continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Federal Reserve Board and other federal bank regulatory agencies require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and
off-balance sheet exposures, adjusted for risk weights ranging from 0% to 100%. Under the risk-based standard, capital is classified into two tiers. Tier 1 capital consists of common stockholders equity, excluding the unrealized gain (loss) on
available-for-sale securities, minus certain intangible assets. Tier 2 capital consists of the general allowance for credit losses subject to certain limitations. An institutions qualifying capital base for purposes of its risk-based capital
ratio consists of the sum of its Tier 1 and Tier 2 capital. Bank holding companies and banks are also required to maintain capital at a minimum level based on total average assets as defined by a leverage ratio.
The federal bank regulators define five classifications for measuring capital levels, including well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered (national
market) deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required.
Bank of Florida Southwest was considered critically undercapitalized, Bank of FloridaSoutheast was considered undercapitalized and Bank of FloridaTampa Bay was considered significantly
undercapitalized as of December 31, 2009. The Companys Tier 1 Leverage ratio, Tier 1 risk-based capital ratio and Total risk-based capital ratio were 2.41%, 2.94% and 5.33%, respectively, as of December 31, 2009.
57
Liquidity management involves monitoring sources and uses of funds in order to meet
day-to-day cash flow requirements while maximizing profits. Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Asset
liquidity is provided by cash and assets which are readily marketable, which can be pledged, or which will mature in the near future.
In addition to deposits within its geographic market place, the sources of funds available to the Banks for lending and other business purposes include loan repayments, sales of loans and securities, borrowings from the Federal Home Loan
Bank (FHLB), other correspondent bank borrowings, national market funding sources, and contributions from the Holding Company. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are
influenced significantly by competition, general interest rates and money market conditions. Borrowings may be used on a short-term basis to compensate for reductions in other sources, such as deposits at less than projected levels and may be used
to fund the origination of mortgage loans designated to be sold in the secondary market.
The Companys ability to
satisfy demands for credit, deposit withdrawals and other corporate needs depends on its level of liquidity. The Company utilizes several means to manage its liquidity. One of the tools that the Company uses to measure liquidity is a comparison of
total liquid assets (cash, due from banks, federal funds sold, and other investments) to total deposits, calculating it on a daily basis and reviewing it quarterly with the subsidiary bank management and board of directors Asset/Liability Management
Committees (ALCO). As of December 31, 2009, consolidated Company liquid assets were $166.8 million or 14.0% of consolidated deposits. It is the policy of the Banks to manage the liquidity ratio above 3%. Traditionally, increases in deposits are
sufficient to provide adequate levels of liquidity; however, if needed, the Company has approved extensions of credit available from correspondent banks amounting to $98.4 million, sources for loan sales, and primarily short-term investments that
could be liquidated if necessary. In addition, the Companys banking subsidiaries are members of the Federal Home Loan Bank and do not have any further borrowing capacity at this time At December 31, 2009, the Company had $118.5 million in
outstanding borrowings from the FHLB of its present $118.5 million line, and there was $98.4 million in other available lines from correspondents.
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Market risk is the risk of loss due to adverse changes in market prices and interest rates. The Companys market risk arises primarily from interest-rate risk inherent in its lending and deposit
gathering activities. The measure of market risk associated with financial instruments is meaningful only when all related and offsetting on and off balance sheet transactions are aggregated, and the resulting net positions are identified.
The Company may enter into interest rate swaps which provide for the Company to receive payments at a fixed rate in exchange
for paying a floating rate on certain loans. Management believes that entering into the interest rate swaps may help manage the Companys exposure variabilities in cash flows due to changes in the level of interest rates. It is the
Companys objective to hedge the change in cash flows, and maintain coverage levels that are appropriate, given anticipated or existing interest rate levels and other market considerations, as well as the relationship of change in this asset to
other assets of the Company. To meet this objective, the Company may utilize interest rate swaps as an asset/liability management strategy. These interest rate swap agreements are contracts to make a series of floating rate payments in exchange for
receiving a series of fixed rate payments. Disclosures about derivative financial instruments can be found in
Note 13 Derivative Financial Instruments in the Notes to Consolidated Financial Statements.
Bank of Florida Corporations primary objective in managing interest-rate risk is to minimize the adverse impact of
changes in interest rates on the Companys net interest income and capital, while adjusting its asset-liability structure to obtain the maximum yield-cost spread on that structure. Disclosures about the fair value of financial instruments,
which reflects changes in market prices and rates, can be found in
Note 21 Fair Values of Financial Instruments and Fair Value Measurements in the Notes to Consolidated Financial Statements.
ASSET/LIABILITY MANAGEMENT
It is the objective of the Company to manage assets and liabilities to provide a satisfactory, consistent level of profitability within the framework of established cash, loan, investment, borrowing and
capital policies. Certain officers of the Banks are responsible for monitoring policies and procedures that are designed to ensure acceptable composition of the asset/liability mix, stability and leverage of all sources of funds while adhering to
prudent banking practices. It is the overall philosophy of management to support asset growth primarily through growth of core deposits, which exclude wholesale brokered CDs, wholesale CDAR deposits, and CDs with balances in excess of $100 thousand,
and include deposits made by individuals, partnerships and corporations. Management of the Company seeks to invest the largest portion of its assets in owner-occupied, commercial real estate, and commercial and industrial loans.
58
The asset/liability mix is monitored on a monthly basis and a monthly report reflecting
interest-sensitive assets and interest-sensitive liabilities is prepared and presented to the respective Banks Boards of Directors. The objective of this policy is to control interest-sensitive assets and liabilities to minimize the impact of
substantial movements in interest rates on the Banks earnings.
INTEREST SENSITIVITY
The objective of interest sensitivity management is to minimize the risk associated with the effect of interest rate changes on net interest
margins while maintaining net interest income at acceptable levels. Managing this risk involves monthly monitoring of the interest sensitive assets relative to interest sensitive liabilities over specific time intervals. All assets and liabilities
are evaluated as maturing at the earlier of re-pricing date or contractual maturity date. While liabilities without specific terms such as money market, NOW and savings accounts are generally considered core deposits for liquidity purposes, 84% are
deemed to re-price for purposes of interest rate sensitivity analysis within the first three months. Management subjectively sets rates on all accounts.
The principal measure of our exposure to interest rate risk is the difference between interest sensitive assets and liabilities for the periods being measured, commonly referred to as gap for
such period. A positive gap position represents a greater amount of interest sensitive assets re-pricing (or maturing). Thus, an increase in rates would positively impact net interest income, as the yield on interest-earning assets would increase
prior to the increase in the cost of interest bearing liabilities. Conversely, a negative gap position is indicative of a bank that has a greater amount of interest sensitive liabilities re-pricing (or maturing) than it does interest sensitive
assets, in a given time interval. In this instance, the impact on net interest income would be positive in a declining rate environment and negative if rates were rising. The impact on net interest income described above is general, as other factors
would additionally maximize or minimize the effect. For example, a change in the prime interest rate could effect an immediate change to rates on prime related assets, whereas a liability which re-prices according to changes in Treasury rates might
(1) lag in the timing of the change and (2) change rates in an amount less than the change in the prime interest rate. It is common to focus on the one year gap, which is the difference between the dollar amount of assets and the dollar
amount of liabilities maturing or repricing within the next twelve months.
The following is a consolidated maturity and
re-pricing analysis of rate sensitive assets and liabilities as of December 31, 2009 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-90
DAYS
|
|
|
91-365
DAYS
|
|
|
1 - 3
YEARS
|
|
|
OVER 3
YEARS
|
|
|
TOTAL
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Interest-bearing deposits
|
|
|
58,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,506
|
Investment securities
|
|
|
2,104
|
|
|
|
12,850
|
|
|
|
24,487
|
|
|
|
59,233
|
|
|
|
98,674
|
Restricted securities
|
|
|
8,543
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
8,643
|
Loans
|
|
|
375,860
|
|
|
|
140,395
|
|
|
|
290,927
|
|
|
|
405,851
|
|
|
|
1,213,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
445,013
|
|
|
|
153,245
|
|
|
|
315,414
|
|
|
|
465,184
|
|
|
|
1,378,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits
|
|
|
346,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
346,401
|
Savings
|
|
|
5,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,825
|
Certificates of Deposit
|
|
|
128,747
|
|
|
|
234,287
|
|
|
|
343,724
|
|
|
|
24,367
|
|
|
|
731,125
|
Other borrowings
|
|
|
53,681
|
|
|
|
|
|
|
|
47,257
|
|
|
|
66,200
|
|
|
|
167,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
534,654
|
|
|
|
234,287
|
|
|
|
390,981
|
|
|
|
90,567
|
|
|
|
1,250,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Sensitivity Gap (rate-sensitive assets less rate-sensitive liabilities)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest sensitivity gap
|
|
$
|
(89,641
|
)
|
|
$
|
(81,042
|
)
|
|
$
|
(75,567
|
)
|
|
$
|
374,617
|
|
|
$
|
128,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest sensitivity gap
|
|
|
(89,641
|
)
|
|
|
(170,683
|
)
|
|
|
(246,249
|
)
|
|
|
128,367
|
|
|
|
|
Interest sensitivity gap ratio as a percent of total assets
|
|
|
(6.39
|
)%
|
|
|
(5.78
|
)%
|
|
|
(5.39
|
)%
|
|
|
26.71
|
%
|
|
|
|
Cumulative interest sensitivity gap ratio as a percent of total assets
|
|
|
(6.39
|
)%
|
|
|
(12.17
|
)%
|
|
|
(17.56
|
)%
|
|
|
9.15
|
%
|
|
|
|
At December 31, 2009, the Company had $598.2 million in interest sensitive assets compared to
$768.9 million in interest sensitive liabilities that will mature or re-price within a year, resulting in a negative gap position of $170.7 million (or 12.17%, expressed as a percentage of total assets). Management believes that the current balance
sheet structure of interest sensitive assets and liabilities does not represent a material risk to earnings or liquidity in the event of a change in market rates.
59
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
Certain information required by this item is included in Item 6 of Part II of this report under the heading Selected Quarterly Financial Data and is incorporated by reference. All other
information required by this item is included in Item 15 of Part IV of this report and is incorporated into this item by reference.
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
Bank of Florida Corporation did not have any disagreements with accountants on accounting and financial disclosures during 2009, 2008, or
2007.
ITEM 9A.
|
CONTROLS AND PROCEDURES
|
(a) Evaluation of Disclosure Controls and Procedures
Bank of Florida Corporation maintains controls and
procedures designed to ensure that information required to be disclosed in the reports that Bank of Florida Corporation files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange Commission. Based upon managements evaluation of those controls and procedures performed within the 90 days preceding the filing of this Report, the Principal Executive
Officer and Principal Financial Officer of Bank of Florida Corporation concluded that, subject to the limitations noted below, Bank of Florida Corporations disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities
Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the U.S. Securities and Exchange Commissions rules and forms.
(b) Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Such internal controls over financial reporting were 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.
The Companys management assessed the effectiveness of the Companys internal control over financial reporting as of December 31, 2009. In making this assessment, the Company used the
criteria set forth in
Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based upon our evaluation under the framework in
Internal Control-Integrated Framework
, our management concluded that our internal control over financial reporting was effective as of
December 31, 2009. We have reviewed the results of managements assessment with our Audit Committee.
(c)
Changes in Internal Controls
Bank of Florida Corporation has made no significant changes in its internal controls over
financial reporting during the quarter ended December 31, 2009 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
(d) Limitations on the Effectiveness of Controls
Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls and internal controls will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of
fraud, if any, within Bank of Florida Corporation have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
60
The design of any system of controls also is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the
degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
ITEM 9B.
|
OTHER INFORMATION
|
The
Company did not fail to file any Form 8-K or to disclose any information required to be disclosed therein during the fourth quarter of 2009.
PART III
ITEM 10.
|
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
Information relating to the business experience and age of each director is set forth below. We have also included the same information for our non-director Executive Officers.
Directors
|
|
|
|
|
|
|
Directors
|
|
Age
|
|
Business Experience
|
|
Director
Since
|
|
|
|
|
Donald R. Barber
|
|
67
|
|
Mr. Barber has served as a director of Bank of Florida Southwest since 1998. Mr. Barber is the Vice Chairman of Boran Craig Barber Engel Construction Co., Inc., in Naples,
Florida. He is a graduate of the University of Florida and has served the construction industry in Naples for over 44 years. Mr. Barber has been twice recognized as Builder of the Year by the Collier Building Association, given the
Silver Beaver Award by the Boy Scouts of America, is a Laureate of Junior Achievements Business Leadership Hall of Fame, and currently Vice President of the Board of Trustees of North Naples United Methodist Church. He was a former
Chairman of the Education Foundation of Collier County and director of the Philharmonic Center for the Arts for 10 years. Mr. Barbers previous bank experience was as an advisory board member for NCNB National Bank and Southtrust Bank of SW
Florida (NCNB) and a director for Community National Bank in Lee and Collier counties. Mr. Barbers business experience, his years of banking experience both as an advisory board member of NCNB and as a Board member for the Company
and its subsidiary, combined with his extensive knowledge of and involvement in the Naples community led the Board to conclude that Mr. Barber would be valuable to Bank of Florida as a director and should serve as a director of the
Company.
|
|
2002
|
|
|
|
|
Joe B. Cox, Esq.
|
|
70
|
|
Mr. Cox is Vice-Chairman of Bank of Florida, Chairman of the Board of Bank of Florida Trust Company, and a director of Bank of Florida Southwest. He is the Senior Partner
and Attorney at Law at Cox & Nici, P.A., a law firm in Naples, Florida. Mr. Cox received a Juris Doctorate in Law from the University of Tulsa Law School. He received his LLM in Estate Planning from the University of Miami. Mr. Cox is Board
Certified by the Florida Bar in Estate Planning and Taxation. He is a Fellow of The American College of Trust & Estate Counsel. He is a member of the Collier County Bar Association, the Florida Bar Association,
|
|
1998
|
61
|
|
|
|
|
|
|
Directors
|
|
Age
|
|
Business Experience
|
|
Director
Since
|
|
|
|
|
|
|
|
|
and the American Bar Association. Mr. Coxs community activities include serving as Board Member of Naples Community Hospital Foundation, The Community School of Naples, and
Moffitt Cancer Research Center. Mr. Cox has previously served as President of the following organizations: Collier County Heart Association, Forum Club, YMCA of Collier County Endowment Board, and Greater Naples Civic Association. Mr. Cox is also a
Director and Chairman of the Audit Committee of the publicly traded Beasley Broadcast Group, Inc. Mr. Coxs professional legal experience, his years of banking experience through service on the Board of the Company and its subsidiaries,
combined with his leadership in the various community organizations led the Board to conclude that Mr. Cox would be valuable to the Bank of Florida as a director and should serve as a director of the Company. Both his additional experience as
Chairman of the Audit Committee of a public company and his objectivity as an independent director add particular strength to the Companys Board.
|
|
|
|
|
|
|
Bradford G. Douglas
|
|
53
|
|
Mr. Douglas has served as a director of Bank of Florida Tampa Bay since its inception in 2004. He has been engaged in the development, sale, financing, and leasing of
retail, office, warehouse, and multi-family products since 1980 and is currently a partner with Brightwork Real Estate. He has represented retail tenants, institutional owners, financial institutions, developers, and individuals in commercial
real estate development and investment brokerage transactions, as well as debt and equity placements. Since 1998, Mr. Douglas has co-founded two Florida based real estate development and acquisition companies with a diverse portfolio of retail,
industrial, and office properties throughout Florida and the United States. Mr. Douglas has previous experience with a regional mortgage firm and syndication group, as well as institutional disposition experience with a national brokerage firm. Mr.
Douglas holds a Bachelor of Science in Finance from Florida State University. Mr. Douglas finance background and experience, particularly as it relates to commercial real estate, and his years of service as a director to the Company and its
subsidiary led the Board to conclude that Mr. Douglas would be valuable to the Bank of Florida as a director and should serve as a director of the Company. He also adds objectivity to the Board as an independent director.
|
|
2008
|
|
|
|
|
John B. James
|
|
68
|
|
Mr. James became Senior Executive Vice President in the Special Assets Department in October 2006. From October 2006 until 2009, he also served as Chief Administrative Officer of
Bank of Florida. From November 2005 until October 2006, he served as Executive Vice President and Director of Corporate Risk Management. He is also a founding director of the Company, Bank of Florida - Southwest, and Bank of Florida Trust Company.
From October 2001 until November 2005, Mr. James was Chief Executive Officer and President of Bank of Florida - Southwest. Mr. James retired from NationsBank (now Bank of America) on December 31, 1997, after over 30 years in banking. Prior to his
retirement, Mr. James served as Executive Vice President of Corporate Banking for C&S Banks, headquartered in Atlanta, Georgia, President of the C&S Hillsborough County Bank, in Tampa, Florida, and was responsible for all banking activities
in Lee, Collier, and Charlotte Counties for C&S Banks, Southwest Florida. Mr. James has been involved in many civic activities, including Collier County Education Foundation Board, Junior
|
|
1998
|
62
|
|
|
|
|
|
|
Directors
|
|
Age
|
|
Business Experience
|
|
Director
Since
|
|
|
|
|
|
|
|
|
Achievement of Southwest Florida, and the Economic Development Council of Collier County, and has participated in the Leadership Lee and Leadership Southwest Florida Programs.
Following service in the United States Army, Mr. James received his Bachelor of Science degree in 1967 from Florida State University. Mr. James time of service in the Army formed the foundation for his leadership ability which he has applied
in the banking industry for more than thirty years at various banks including at Bank of Florida. He has also further developed his leadership qualities through civic activities and programs. Based upon these qualities and experience and his working
knowledge of the Company, the Board has concluded that Mr. James would be valuable to the Bank of Florida as a director and should serve as a director of the Company.
|
|
|
|
|
|
|
LaVonne Johnson
|
|
77
|
|
Ms. Johnson has been a director of the Company and Bank of Florida Southwest since their founding in 1998. Ms. Johnson is a retired planner and project director for
Allegheny County, Pennsylvania. She has also owned and operated clothing stores for career women in Pittsburgh, Pennsylvania. Ms. Johnson received a Bachelor of Arts degree from the University of Pittsburgh, and a Master of Public Administration
degree from the University of Pittsburgh Graduate School of Public and International Affairs. She recently received an Honorary Doctorate of Humane Letters from Gustavus Adolphus College in St. Peter, Minnesota. Ms. Johnson is active in her
community, serving on the Arts Advisory Committee of the City of Marco Island, and as a docent at the Art League of Marco Island, where she also serves on the Foundation Committee. She is also a member of the American Association of University
Women. Prior to moving to Florida, Ms. Johnson served on her Church Council, where she chaired its Education Committee and assisted with the establishment of a child care center. Ms. Johnson has also served on the Minnesota Board of Education and an
Advisory Board that mentored at risk children. Considering Ms. Johnsons extensive business background and the leadership that she has exhibited in the community as well as in the years of service she has provided as a director of the Bank of
Florida, the Board has concluded that Ms. Johnson would be valuable to the Bank of Florida as a director and should serve as a director of the Company. She also adds objectivity to the Board as an independent director.
|
|
1998
|
|
|
|
|
Edward Kaloust
|
|
68
|
|
Mr. Kaloust has been the Chairman of the Board of Bank of Florida Tampa Bay since 2004. He also serves as a director of Bank of Florida Trust Company. He is from Tampa,
Florida where he is an entrepreneur and investor, as well as the Chief Executive Officer and Founder of Medi-Weightloss Clinics
®
, which does business nationwide and is based in Tampa, Florida. Mr. Kaloust is a retired insurance executive, with 45 years of business experience in the insurance
industry. From 1969 to December 2003, he was the Managing Partner of New England Financials Florida operations. He is the only two-time Manager of the Year in that organizations history. Mr. Kaloust is a former director of Marblehead
Bank and Trust in Marblehead, Massachusetts, and is a graduate of American College in Bryn Mawr, Pennsylvania. The Board has concluded, based upon Mr. Kalousts 45 years of experience in securities and the insurance business, his success as an
entrepreneur and his experience as a director of Bank of Florida and Chair of its subsidiary in Tampa Bay, Mr. Kaloust would be valuable to the Bank of Florida as a director and should serve as a director of the Company. He also adds objectivity to
the Board as an independent director.
|
|
2004
|
63
|
|
|
|
|
|
|
Directors
|
|
Age
|
|
Business Experience
|
|
Director
Since
|
|
|
|
|
Michael L. McMullan
|
|
55
|
|
Mr. McMullan has served as a director and the Chief Executive Officer and President of the Company since its inception in 1998. From 1998 to 2001, he served as the Chief
Executive Officer of Bank of Florida Southwest and in the same capacity at Bank of Florida Southeast from its organizational phase until 2002. He was also a director of Liberty Share Draft & Check Printers until the company was
sold in 2005. Mr. McMullan has 35 years of banking experience, most of which has been as an executive officer or President. His banking experience in Florida began in 1990, when he became the Commercial Banking Executive for C&S Bank of
Floridas Jacksonville-area bank. He was transferred to Naples in 1991, where he was named Chief Operating Officer of C&S Bank of Floridas Collier County Bank. Subsequent to the merger with NCNB, he was named Senior Banking Executive
and Commercial Banking Manager of NationsBank, Collier County. In 1993, he accepted the position of Commercial Banking Executive for NationsBanks Broward County Division and subsequently managed the Broward County and Palm Beach divisions and
was the Florida Market Manager for NationsBanks Financial Strategies Group. His last position with NationsBank, now Bank of America, was that of Manager of the Economic Development Office for the State of Florida. He has served on the Board of
Directors of the United Way of Jackson, Mississippi and Broward County, Florida; the Boys and Girls Club of Broward County; and the Advisory Board of the Economic Development Councils in Collier County and Broward County. He has also served on the
Boards of the Broward Workshop and is currently in his second term as a director of the Florida Bankers Association. Mr. McMullan received a Bachelor of Business Studies from the Chair of Banking at the University of Mississippi in 1976, and in 1979
received a Master of Business Administration in Finance and Monetary Policy from Columbia University, New York. The Board has considered Mr. McMullans education, extensive banking experience, his leadership, including more than eleven years
leading Bank of Florida, and his involvement in and knowledge of the market area community, and has concluded that Mr. McMullan is valuable as a director and that he should serve as a director of the Company.
|
|
1998
|
|
|
|
|
Edward A. Morton
|
|
62
|
|
Mr. Morton was appointed as a director of the Company in 2008, and is the Chairman of the Board of Bank of Florida Southwest. He has been a Managing Director with Wasmer,
Schroeder & Company, Inc., an investment advisory and portfolio management firm in Naples, Florida, since January 2007. In September 2006, he retired as Chief Executive Officer of NCH Healthcare Systems, Inc., the owner of Naples Community
Hospital, after a 35 year career. He the Treasurer of Florida Gulf Coast University Finance Corporation, Chairman Emeritus of Florida Gulf Coast University Foundation, a Trustee of Moorings Park, Inc., a Trustee of Youth Development Foundation, and
the Chairman of the Leadership Collier Foundation. From 1969 to 1972, he served as a Captain in the United States Army and he received a Bachelor of Arts in Accounting from the University of Notre Dame in 1969, a Masters of Business Administration
from the University of Miami in 1982, and Masters of Science from Florida Gulf Coast University in 2009. Mr. Mortons educational background, his long service as the
|
|
2008
|
64
|
|
|
|
|
|
|
Directors
|
|
Age
|
|
Business Experience
|
|
Director
Since
|
|
|
|
|
|
|
|
|
Chief Executive Officer of a company owning a hospital in the Naples community, and his knowledge of and involvement in the community have led the Board to conclude that Mr.
Morton would be valuable to the Bank of Florida as a director and should serve as a director of the Company. He also adds objectivity to the Board as an independent director.
|
|
|
|
|
|
|
Michael T. Putziger, Esq.
|
|
64
|
|
Mr. Putziger is the Companys Chairman of the Board, and has been a director of Bank of Florida Southwest beginning in 1999. He is the Vice Chairman of the
WinnCompanies, a private real estate development company headquartered in Boston, Massachusetts, which develops mixed-use properties. Mr. Putziger is also of-counsel to the law firm of Murtha Cullina, LLP, Boston, Massachusetts. He served on the
Firms Board of Directors and its management committees for 30 years. Throughout his legal career, he has represented banks and bank holding companies in general corporate matters. Mr. Putziger served as Chairman of the Board of Directors of
First Community Bank, headquartered in Woodstock, Vermont, and now serves on the Board of Lake Sunapee Bank and its publicly held holding company, New Hampshire Thrift Bancshares, into which First Community Bank was merged. He serves as a director
of the publicly held Enterprise Bancorp and its subsidiary Enterprise Bank, both located in Lowell, Massachusetts. He also served as a Director of First Bank in Chelmsford, Massachusetts, Shawmut Arlington Trust Company in Lawrence, Massachusetts,
and The Hibernia Savings Bank and Emerald Isle Bancorp in Quincy, Massachusetts, as well as other financial institutions located in the Northeast. He received a Bachelor of Arts from Syracuse University and a Juris Doctor from Boston University. Mr.
Putzigers extensive background in the banking business, both as a director and as legal counsel, as well as his leadership he has exhibited on multiple bank boards provides to the Bank of Florida and have led the Board to conclude that he is
valuable as a director and should serve as a director of the Company. He also adds objectivity to the Board as an independent director and diversity in that he does not reside in the Companys market area.
|
|
2002
|
|
|
|
|
Ramon A. Rodriguez, CPA
|
|
64
|
|
Mr. Rodriguez is a founding director of Bank of Florida Southeast. Until March 2006, Mr. Rodriguez was Chief Executive Officer and President of Madsen Sapp Mena Rodriguez
& Co., a public accounting firm located in Fort Lauderdale, Florida, when it was acquired by Crowe Horwath, LLP. He serves on the Board of Directors of Republic Services, Inc., a solid waste company listed on the New York Stock Exchange and on
the Board of Directors of Alico, Inc. a land management public company traded on the Nasdaq. He received a Bachelors degree in Accounting in 1971 from Florida Atlantic University in Boca Raton, Florida. In 1983, he completed the Owners
and Presidents Management Program at Harvard Business School in Boston, Massachusetts. He is a former President of the Florida Institute of Certified Public Accountants and a former Chairman of the Florida Board of Accountancy. Mr. Rodriguez
is an active Board member of a number of civic organizations, including WPBT Channel 2, Holy Cross Hospital, and Broward Performing Arts Center. Mr. Rodriguez was previously a member of the Board of Directors of Barnett Bank of Broward County. The
Board has concluded that the education and experience of Mr. Rodriguez, his strong accounting background and the leadership he has shown on the boards of directors of Bank of Florida and other companies makes him valuable as a director and that he
should serve as a director of the Company.
|
|
2002
|
65
|
|
|
|
|
|
|
Directors
|
|
Age
|
|
Business Experience
|
|
Director
Since
|
|
|
|
|
Terry W. Stiles
|
|
62
|
|
Mr. Stiles is a founding director of Bank of Florida Southeast. Mr. Stiles is, and has been for 38 years, Chairman and Chief Executive Officer of Stiles Corporation, a
multi-million dollar, full-service real estate development, construction and management company headquartered in Fort Lauderdale, Florida, with 220 employees. He assumed leadership of the Fort Lauderdale-based company in 1971 and under his direction
Stiles Corporation has expanded from a primarily residential construction firm to a full-service commercial real estate development company with established regional offices in Fort Myers, Florida, Tampa, Florida, and Orlando, Florida. Mr. Stiles is
actively involved in his community. In 1999, the City of Fort Lauderdale elected him Citizen of the Year. He was designated 1995 Leader of the Year by Leadership Broward Foundation, and was selected by the United Way as a
community hero to carry the torch in the 1996 Olympic cross-country relay. Mr. Stiles has also received numerous awards and honors from his professional affiliation including the NAIOP (National Association of Industrial Office
Properties) National Developer of the Year in 2000. Mr. Stiles was the National President of NAIOP in 1997 and 1998. He is an active member of the Executive Committee of Broward Workshop and the Board of Directors of the Jack and Jill
Childrens Center. Mr. Stiles career as a successful businessman, his experience and knowledge in the real estate business, his well recognized involvement in his hometown Ft. Lauderdale community and his past leadership as a Director of
Bank of Florida have led the Board to conclude that he is valuable as a director and that he should serve as a director of the Company.
|
|
2004
|
Non-Director Executive
Officers
|
|
|
|
|
Officer
|
|
Age
|
|
Business Experience
|
|
|
|
John S. Chaperon
|
|
61
|
|
Mr. Chaperon has been the Executive Vice President and Director of Corporate Risk Management of Bank of Florida since September 2006. Mr. Chaperon was an Executive Vice President
and the Chief Credit Officer of Bank of Florida from July 2005 until April 2006. From November 2002 until April 2006, Mr. Chaperon served as an Executive Vice President and the Senior Lender of Bank of Florida Southeast. From April 2006 to
August 2006, Mr. Chaperon served as President of Bristol Bank, Coral Gables, Florida, which was merged with Bank of Florida Southeast in August 2006. He also served as President and Chief Executive Officer of Bank of Florida Southeast
from October 2007 to August 2008. Mr. Chaperon has more than 36 years of financial experience. Before joining Bank of Florida he served as Chief Executive Officer and President of Gateway American Bank and Union Bank of Florida.
|
|
|
|
Tracy L. Keegan
|
|
44
|
|
Ms. Keegan joined the Company as Executive Vice President and Chief Financial Officer on January 1, 2006 and now also serves as the Companys Chief Administrative Officer.
Prior to joining Bank of Florida, Ms. Keegan served as the Chief Financial Officer of The Bankers Bank (now Silverton Bank) in Atlanta, Georgia from December 2004 to November 2005. Before then, she was employed as Senior Vice President, Controller,
and Treasurer of The Prudential Banks in Atlanta, Georgia from November 1989 to October 2004. Ms. Keegan has more than 23 years of financial industry experience and is an active member of the American Institute of Certified Public Accountants and
Financial Managers Society.
|
66
|
|
|
|
|
Officer
|
|
Age
|
|
Business Experience
|
|
|
|
Roy N. Hellwege
|
|
52
|
|
Mr. Hellwege became Executive Vice President and Director of Banking Operations at Bank of Florida in December of 2007. He joined the Company in 2003 as the President of Bank of
Florida Tampa Bay. Prior to joining the Company, he served as Bay Area President for Gold Bank from 2002 to 2003 and as Chief Executive Officer and President of Colonial Bank for Tampa Bay from 1999 to 2002. Prior to those positions, Mr.
Hellwege had a 23 year career with SunTrust, culminating with serving as Regional President for the Tampa and St. Petersburg market.
|
|
|
|
Craig D. Sherman
|
|
52
|
|
Mr. Sherman is an Executive Vice President and the Chief Lending Officer of the Company. Since October 2008, he has also served in Bank of Floridas Special Assets
Department. Mr. Sherman has over 28 years of banking experience, all of which is in the Southwest Florida area. Prior to joining Bank of Florida Southwest in 1999, Mr. Sherman served as a Senior Vice President and as the Vice President and
Commercial Team Leader for SouthTrust in Naples, Florida. Mr. Sherman is a 1979 graduate of Florida State University with a Bachelor of Science degree in finance.
|
Audit Committee
The Board has a standing
Audit Committee
that is governed by the Fifth Amended and Restated Audit Committee Charter, which was included in the 2008 Proxy Statement as
Exhibit A
and is
available on Bank of Floridas website. Pursuant to this Charter, the Committee reviews the Companys auditing, accounting, financial reporting and internal control functions and policies, and selects our independent auditor and reviews
its services. The Board has determined that each member of the Audit Committee is independent. For further information regarding the Audit Committee, please see the next section entitled Report of the Audit Committee.
REPORT OF THE AUDIT COMMITTEE
In accordance with the Fifth Amended and Restated Charter adopted by the Board of Directors, the Audit Committee assists the Board of Directors in fulfilling its responsibility for oversight of the
quality and integrity of the accounting, auditing, and financial reporting practices of Bank of Florida. During 2009, the Audit Committee met 15 times and discussed the interim financial and other information contained in each quarterly earnings
announcement and periodic filings to the Securities and Exchange Commission with the Chief Executive Officer, Chief Financial Officer, and the independent registered public accounting firm prior to public release.
The Audit Committee has determined that
Joe B. Cox
and
Michael T.
Putziger
each have the requisite financial and auditing expertise to qualify as an audit committee financial expert as defined by the Securities and Exchange Commission Rules. Furthermore, Bank of Florida has determined
that each member of the Audit Committee is independent.
In discharging its oversight responsibility as to the audit
process, the Audit Committee obtained from the independent registered public accounting firm a formal written statement describing all relationships between the firm and Bank of Florida that might bear on the firms independence consistent with
applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountants communications with the audit committee concerning independence, and has discussed with the independent accountant the independent
accountants independence and satisfied itself as to the firms independence. The Audit Committee also discussed with management, the internal auditors and the independent registered public accounting firm, the quality and adequacy of the
Companys internal controls and the internal audit functions organization, responsibilities, budget, and staffing. The Audit Committee reviewed both with the independent registered public accounting firm and internal auditors, their audit
plans, audit scope and identification of audit risks.
The Audit Committee discussed and reviewed with the independent
registered public accounting firm all communications required by standards of the Public Company Accounting Oversight Board (United States), including the matters required to be discussed by PCAOB AU 380,
Communication with Audit Committees
,
and Rule 2-07,
Communication with Audit Committees
, of Regulation S-X, and, both with and without management present, discussed and reviewed the results of the independent registered public accounting firms examination of the financial
statements. The Audit Committee also discussed the results of the internal audit examinations.
67
The Audit Committee reviewed and discussed the audited consolidated financial statements of
Bank of Florida as of and for the fiscal year ended December 31, 2009, and managements assertion on the design and effectiveness of the Companys internal control over financial reporting as of December 31, 2009, with management
and the independent registered public accounting firm. Management has the responsibility for the preparation of the Companys consolidated financial statements and their assertion on the design and effectiveness of the Companys internal
control over financial reporting and the independent registered public accounting firm has the responsibility for the examination of those consolidated statements and assertions.
Based on the above-mentioned review and discussions with management and the independent registered public accounting firm, the Audit
Committee recommended to the Board that the Companys audited consolidated financial statements and report on managements assertion on the design and effectiveness of internal control over financial reporting be included in its Annual
Report on Form 10-K for the year ended December 31, 2009, for filing with the Securities and Exchange Commission.
The
foregoing report is submitted by the Audit Committee:
Joe B. Cox (Chairman), Bradford G. Douglas, Edward A. Morton,
and
Michael T. Putziger
.
Code of Ethics
Bank of Florida Corporation has adopted a Code of
Ethics applicable to its Senior Financial Officers. This code is posted on our website at
www.bankofflorida.com
and a copy will be provided free of charge, upon request to Arlette Yassa, Corporate Secretary, 110 E. Broward Boulevard, Suite
100, Ft. Lauderdale, Florida 33301, (954) 653-2000.
Compliance With Section 16(A) Of The Securities Exchange
Act Of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our officers, directors, and any
person who beneficially owns more than 10% of our common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Executive Officers, directors, and more than 10% shareholders are required by
regulation to furnish us with copies of all Section 16(a) forms which they file. During 2009, certain of our directors and Executive Officers who own our stock filed Form 3s or Form 4s with the Securities and Exchange Commission.
The information on these filings reflects the current ownership position of all such individuals. Based solely on the review of copies of the filings we have received, it is our belief that all such reports were timely filed during 2009 except for
Donald R. Barber (one transaction), LaVonne Johnson (two transactions) and Terry Stiles (two transactions) who each inadvertently filed one late Form 4 and Michael T. Putziger who inadvertently filed two late Form 4s regarding one transaction
each.
ITEM 11.
|
EXECUTIVE COMPENSATION
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Compensation Discussion and Analysis
The Compensation Committee
Bank of Floridas Board of Directors Compensation Committee (Committee) is composed solely of independent directors.
The Committee is responsible for overseeing the executive and Board compensation programs of the Company and its four subsidiaries. Specific duties and responsibilities are detailed in the Committees Third Amended and Restated Compensation
Committee Charter, which was included in the 2008 Proxy Statement as
Exhibit B
. The Committees responsibilities, as it pertains to executive and director compensation, include:
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Recommending to the Board the compensation of all the executive officers of Bank of Florida (collectively Executive Officers), as well as
the senior executives of the Companys subsidiaries;
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Ensuring that Bank of Florida develops, implements, and maintains executive reward systems that are contemporary, competitive, reasonable, and
motivating with respect to an Executive Officers performance and contribution to the Company;
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Performing an annual assessment of the Chief Executive Officers performance;
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Reviewing executive supplemental benefits, retirement benefits, and special compensation programs of the Company and, when necessary, recommending
changes to the Board;
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Establishing guidelines and approving participation in qualified and non-qualified plans;
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Reviewing and, when appropriate approving, the form and amount of all awards granted pursuant to Bank of Floridas stock compensation plans;
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Establishing, in consultation with Bank of Floridas Chief Executive Officer, a reasonable and competitive general compensation philosophy for the
Executive Officers;
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Reviewing and recommending to the Board the form and amount of compensation paid to the Companys outside directors;
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Implementing and evaluating perquisites, employment agreements and change in control agreements; and
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Ensuring that Bank of Florida has proper management succession.
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In 2009, the Committee met seven times. Meeting minutes and reports were kept and distributed to each member of the Committee, other
non-Executive Officer members of the Board who are not on the Committee, and the Secretary of the Company for record-keeping purposes.
Consultants
The Committee has the sole authority to retain and terminate a consulting firm in order to assist
in the evaluation of the compensation of the Chief Executive Officer and other Executive Officers. As part of the process of selecting compensation consultants, the Committee considered various firms practices and approaches to maintaining
independence.
The Committee utilized the services of The Delves Group, Chicago, Illinois, to provide advice regarding
Executive Officer and director compensation as disclosed herein. The Delves Group assisted the Committee in conducting an assessment of general market compensation practices and of the compensation levels of the Companys Executive Officers.
The Delves Group provided market survey information and analysis of industry trends utilizing compensation information of financial institutions with total assets from $1 billion to a total median asset size of $3.7 billion as support for its
recommendations to the Committee regarding base salary, bonuses, and short and long-term incentives in the current economy.
The information provided by The Delves Group is referred to in this assessment as the Markets or Market Data. Market Data was used to help establish and monitor total cash compensation levels recommended for the
Companys Executive Officers in 2009 and 2010. The review was based upon an assessment of conditions in our Markets, the Southeastern United States, as well as nationally.
More specifically, the Market Data compiled by The Delves Group and used by the Committee consisted of three general
larger groups, as well as a customized 2009 compensation peer group survey (the National/Florida Peer Group). An aging factor was applied to all of the data collected in the groups to update the data through December 1, 2009. The
first general group utilized was
The Delves Group 2009 National Bank Compensation Surveys
(which took into consideration market median and the 75
th
percentile data) consisting of community and super-community banks (mid-sized banks) and banks from the national
market with a total median asset size of $2.5 billion. The second general group was comprised of market median data taken from companies from the national market with assets between $1 billion and $2.9 billion, using the 75
th
percentile data. A third survey report, specific to the southeast
region of the country, was also considered. That survey included market 75
th
percentile data on financial institutions with a median asset size of $3.7 billion.
The National/Florida Peer Group (which is periodically reviewed and updated by the Committee) consists of financial service organizations such as commercial banks and savings and loan associations, against which the Committee believes the
Company competes for talent and which are similar in organizational size and operational structure. The National/Florida Peer Group was comprised of 14 financial institutions, whose total assets ranged from $1.4 billion to $2.7 billion, with a
median total asset size of $1.8 billion. The financial institutions included in the National/Florida Peer Group were:
The Bancorp, Inc., Capital City Bank Group, Inc., Cardinal Financial Corporation, Center Financial, Eagle Bancorp, Inc., FNB
United Corp., Mercantile Bank Corporation, Metro Bancorp, Inc., Seacoast Banking Corporation of Florida, Smithtown Bancorp, Inc., Southeastern Bank Financial Corporation, Temecula Valley Bancorp Inc., TIB Financial Corp.,
and
Virginia
Commerce Bancorp, Inc.
Of those,
Capital City Bank Group, Seacoast Banking Corp.,
and
TIB Financial Corp.,
are Florida-based companies.
Based upon the study, the Committee determined that base salaries, actual cash incentives and total cash compensation were, in the aggregate, aligned with the current market practices for financial
institutions of similar size. The Committee also determined that the base salary of most positions are aligned with or slightly above market consensus, that actual cash incentives for the management team lies below the market consensus, and that
total cash compensation was slightly above the market consensus, with each officer generally aligned with the market.
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Consideration of an upcoming years total compensation starts at the beginning of the
fourth quarter the previous fiscal year. Final decisions regarding 2009 bonuses were made at the Committees December 14, 2009, meeting after the Committee received the recommendations of The Delves Group at a Special Meeting on
December 1, 2009, and had time to carefully consider the recommendations as well as the condition of the Company and the effect of the economy on the Company. At the December 14, 2009, meeting, the Committee reviewed the prior years
performance and the status of prior awards of long-term incentive compensation in the context of the Companys performance, the goals previously set by the Committee for 2009, the current economic condition of the market area and the country,
and the continued widespread concern over executive compensation. The Committee also considered base salary levels for Executive Officers taking into consideration the current economic conditions and the Companys performance goals set for
2010.
In 2009, the Committee also made long-term incentive compensation awards and changes in compensation at other meetings
during the year, upon the occurrence of promotions or senior executive hires. With regard to stock options, the grant dates of the awards are typically the close of business 30 days after a promotion or hire date, or January 2 with regard to
existing employees. In 2009, the grant date of stock options for existing employees was January 2, 2009, with any salary adjustments for existing employees effective on January 2, 2009.
The Companys Chief Financial Officer and the Senior Vice President of Human Resources compile information for the Committees
consideration for purposes of evaluating existing and proposed compensation packages. The Companys Chief Executive Officer was also involved in making compensation recommendations for the other Executive Officers, which were then considered by
the Committee with the assistance of The Delves Group.
The Committee considered establishing a formal corporate housing
policy so that situations in which housing or reimbursement for housing would need to be provided would be handled in a consistent and efficient manner. The Committee reviewed recommendations from Corporate Counsel and The Delves Group and carefully
considered the alternatives before making its final recommendation to the Board to allow for six months of housing costs in the event of an Executive Officer being relocated. After the six month period, any housing benefits received by the Executive
Officer would be included in his or her W-2 as income.
In performance of their duties, The Delves Group interacted with the
Companys management and corporate counsel. The Delves Group also consulted with the Chairman of the Committee and attended most of the Committee meetings either in person or by telephonic conference.
Objectives and Philosophy
The executive compensation program for the Company is designed to: (i) attract and retain high quality Executive Officers that are critical to the long-term success of the Company; and (ii) make
a portion of each Executive Officers potential compensation contingent upon performance, so that he or she is rewarded for contributing towards Bank of Floridas achievement of its short-term business and long-term strategic goals. The
philosophy is to provide a sufficient base salary so that Executive Officers are not encouraged to take unnecessary and excessive risks that threaten the value of the Company in order to obtain performance based compensation. The Committee
determines target base and total cash compensation levels for each of the Companys Executive Officers based on several factors, including, but not limited to:
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The Executive Officers role and responsibilities;
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The significant business and regulatory challenges that the individual Executive Officer faced in 2009 and would be facing in 2010;
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The total compensation of Executive Officers who perform similar duties at other companies;
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The total compensation for the Executive Officer during the prior fiscal year;
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How the Executive Officer has contributed to Bank of Floridas performance during the prior year; and
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The role the Executive Officer would have in Bank of Floridas future success.
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Competition for Qualified Executives
Bank of Florida, national, regional, and local financial institutions, along with start-up financial institutions, all compete for a limited number of qualified executives located in our major Florida
Markets (defined as Lee, Collier, Broward, Miami-Dade, Palm Beach, Hillsborough, and Pinellas Counties). The Committees goal is to design a compensation program that will attract and retain Executive Officers by rewarding Executive
Officers for performance in relationship to the achievement of corporate and personal performance goals. Ideally, the Committee tries to target the Executive Officers compensation to generally fall near the market consensus for
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comparable positions reflected in relevant market data if target levels for the performance measures are achieved. Total cash compensation is comprised of the base salary and actual
annual cash incentives paid to the Executive Officers. In 2009, total cash compensation levels were above the market median, but below the 75
th
percentile, based on the individuals experience and the Companys specific needs.
The Committee found 2009 to be a difficult year to reconcile the evaluation of the Executive Officers with the evaluation of the
Companys performance and achievement of goals, because even though a tremendous amount of work was undertaken and shouldered by the Executive Officers for the Company to survive the economic downturn in markets served by the Companys
subsidiaries, the goals previously set by the Committee for 2009 had not been met. The Committee recognized that the unmet goals and the declined overall condition of the Company were not the result of poor management, but occurred in spite of
herculean efforts by the Executive Officers to place the Company in a position to both meet its goals and improve upon its financial condition. In light of all of these considerations, the Committee concluded that a slight increase in base salary
levels were appropriate for Chief Financial Officer Tracy L. Keegan and Executive Vice President of Banking Operations Roy N. Hellwege because of their expanded duties and responsibilities. However, in light of the Companys 2009 results of
operations and continued expectations for a slow economic recovery throughout 2010, the 2009 base salary for the Chief Executive Officer was not increased for 2010. The Committee also determined that no cash bonuses should be issued for the
Executive Officers.
All benefits provided to the Executive Officers are customary for senior executives of financial
institutions in our Markets. To date, annual cash incentives (i.e., cash bonuses) have been based on the Companys overall performance and the individual Executive Officers performance for that particular year, as determined (in
consultation with the Committee) by the Chief Executive Officer.
The Committee also considers limited benefits and other
compensation and amounts payable to Executive Officers. This other compensation includes retirement benefits and contingent benefits, which may be payable in a situation involving a change of control of the Company. The nature of this other
compensation is somewhat different, because it involves compensation that may be paid in the future depending upon the occurrence of certain circumstances.
Long-term compensation is intended to recognize over the long-term, services expected to be rendered to the Company, and to keep our overall compensation packages for executives comparable to that of our
competitors and similar financial institutions, so that the Company may attract and retain high quality Executive Officers. The Company has a Supplemental Executive Retirement Plan (SERP) for the Chief Executive Officer and in 2008
adopted a Deferred Plan, a similar type of plan for a limited number of key Executive Officers. The SERP liability is informally funded through Bank Owned Life Insurance (BOLI), an asset of the Company. The Deferred Plan was expected to
also be funded through an insurance product. In 2008 and 2009, the Company accrued for the funding of the Deferred Plan. As stated elsewhere herein, the Deferred Plan benefits do not begin to vest until the fifth year after the Executive Officers
entered into the Deferred Plan Agreement, the exception being in the event of a change in control.
In addition to the SERP,
the Company also maintains a 401(k) Plan. The Committee believes that these plans, in the aggregate, are necessary to effectively compete for, retain, motivate, and reward our executives.
As with other financial institutions, Bank of Florida provides various other benefits to its Executive Officers. Many of these, such as
health and disability insurance, are provided to most salaried employees on substantially the same basis. In many respects, these benefits have historically been driven by reference to the Companys past practices, as well as benefits being
provided by other competitors in our Markets. Bank of Florida also provides other limited perquisites (country club memberships, health club memberships, leased automobiles, and automobile allowances) to Executive Officers, depending upon their
positions within the Company.
In the event of a change of control, Executive Officers of financial institutions typically
endure a great deal of pressure, including uncertainty concerning their own employment future. Many of Bank of Floridas competitors have provided their executives with change in control or severance agreements and other benefits in the event
there are certain terminations of employment within a specified period following a change of control. Such contractual arrangements help assure that the executives will provide their full attention and commitment during the transaction negotiation
process. The Committee believes these types of agreements are important to the Company. Presently, Bank of Florida has one employment agreement which is with its Chief Executive Officer. Instead of employment agreements, the Company has provided
single and double trigger Change in Control Agreements to its other Executive Officers. See Change in Control and Other Employment Related Agreements. The Committee believes these agreements are necessary to be able to attract the
management talent necessary to enable the Company to reach its goals and fulfill its mission. The Employment Agreement and Change in Control Agreements have been suspended due to Bank of Floridas subsidiary banks being deemed to be in
troubled condition by banking regulatory authorities, but the agreements remain in place and may again become fully effective.
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These Change in Control Agreements and possible alternatives were reviewed by the Committee
during 2008 with consultation and advice from compensation consultants, corporate counsel and outside counsel, and were the subject of extensive discussion and consideration by the Committee.
Elements and Brief Description of Components of Compensation
The following table sets out the elements of our current compensation program for Named Executive Officers and briefly explains the purpose
of each element:
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Element of Our Compensation Program
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Brief Description
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How This Element Promotes
Our Objectives
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Annual Compensation:
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Salary
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Fixed annual compensation.
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Intended to be generally at or just over market median, to attract and retain high quality Executive Officers and reward performance and the meeting of goals, but to keep a
proportion of total compensation at risk.
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Annual Incentives
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Opportunity to earn performance-based compensation for achieving or exceeding pre-set financial and performance goals.
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Motivate and reward achievement of annual operating goals and other pre-set performance goals that enhance shareholder value.
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Long-term Compensation:
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Stock Options
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Stock options, generally granted on an annual basis with vesting terms.
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Highly leveraged risk and reward aligned with creation of shareholder value; vesting terms promote retention; necessary to effectively compete for, retain, motivate and reward
executives.
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Restricted Stock, Restricted Stock Units, and Stock Appreciation Rights
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Grants of stock, restricted stock units, and stock appreciation rights, subject to vesting terms.
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Unleveraged risk and reward aligned with creation of shareholder value; vesting terms promote retention; necessary to effectively compete for, retain, motivate and reward
executives.
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Retirement Savings and Pension:
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401(k) Plan
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Qualified 401(k) plan, including employer contributions, intended to encourage savings for retirement.
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Program available to all employees.
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Non-qualified Deferred Compensation Plan
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Deferral opportunities and employer contributions under a fixed formula provided to Executive Officers in excess of legal maximums under 401(k) plan.
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Competitive compensation intended to help retain certain Executive Officers.
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Disability Plan for Chief Executive Officer
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Provision for compensation in the event of permanent disability of the Chief Executive Officer.
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Competitive compensation intended to help retain the Chief Executive Officer.
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Severance Payments and Benefits:
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Severance Payments and Benefits in General
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Payments and benefits provided to Chief Executive Officer upon termination of employment and in specified circumstances.
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Competitive employment agreement terms intended to retain the Chief Executive Officer.
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Severance Payments and Benefits after a Change in Control
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Payments and benefits upon termination of an Executive Officers employment and in specified circumstances following a change in control.
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Intended to provide financial security to attract and retain Executive Officers, to keep their full attention and commitment under disruptive circumstances of a change in control
and to encourage management to identify, consider and pursue transactions that would benefit shareholders, but that might lead to termination of employment.
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Other Compensation Elements:
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Benefits
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Health, life and disability benefits.
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Standard benefits for all employees.
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Perquisites
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Personal benefits, such as automobile allowance.
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Intended to provide competitive compensation for certain Executive Officers.
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The elements of our compensation program are further described as follows:
Total Compensation Cash and Stock Incentives
Bank of Floridas total compensation consists of five
components:
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Cash performance-based annual incentive;
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Stock options and Restricted Stock;
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Deferred compensation (qualified and nonqualified); and
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Other benefits and perquisites as described herein.
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Base Salaries
When determining base salary, the Committee takes into
consideration a number of factors, including Market Data, prior salary, current job responsibilities and any changes in job responsibilities, achievement of specified Company goals, individual experience, demonstrated leadership, performance
potential, actual performance, and retention considerations. These factors are not weighted or ranked in any particular fashion.
The result of the 2009 Executive Compensation Analysis by The Delves Group concluded that Executive Officer salaries in general were slightly above market levels in the aggregate, relative to Bank of Floridas National/Florida Peer
Group and considering the market compensation surveys noted above. The base salary levels for 2010, in the aggregate, remain slightly above the market median, due to the base salaries of the Chief Executive Officer, Senior Executive Vice President,
and Chief Financial Officer being set at the higher end of the median range for 2009. The Committee recommended only two increases to base salaries for 2010, based upon new and evolving responsibilities and the need to retain and encourage the
individuals for the task that still lies ahead. For these reasons, the 2010 base salaries of only the Chief Financial Officer Tracy L. Keegan and Executive Vice President of Banking Operations Roy N. Hellwege were increased by $35,000 and $25,000,
respectively.
Annual Incentives
Annual cash incentives are awarded to our Executive Officers based upon their individual performance and the Companys performance, as a whole. Each individual Executive Officer has a target bonus
opportunity, which in 2009 was in a range of up to 50% of his or her base salary.
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In 2008, the Committee consulted with the Chief Executive Officer in establishing
performance goals recommendations for the Executive Officers. The primary performance measures for the Executive Officers were based on the Companys objectives and budget for 2009, which included organic growth. The Committee considered
several different matrices including credit quality, the regulatory environment, expense control, non-interest income, deposit growth, loan growth and net income, as well as other factors measurable for each Executive Officer. The subsidiary
Executive Officers were primarily measured on the performance of the respective subsidiaries, which took into account, meeting or exceeding plan performance goals, staff retention, and training.
The current recession, which began to take effect in early 2008, had a significant impact on the Companys 2009 results of operations,
driven primarily in part by the unprecedented deflation in real estate values throughout Florida. Like the stock prices of most financial institutions in the state and nationally, the price of Bank of Floridas common stock was significantly
impacted. The Committee believed that in view of the tremendous effort of the Executive Officers, the Companys performance and delay in raising capital did not reflect the work and time invested or the dedication and loyalty to the Company
exhibited by the Executive Officers. However, because of current economic conditions as described, the Committee concluded that no cash bonuses should be paid to the Executive Officers for 2009.
Long-Term Incentive Compensation
Bank of Florida has provided long-term incentive compensation to Executive Officers through the 2006 Stock Compensation Plan (the Plan), which is described in detail following this
Compensation Discussion and Analysis. The Committee believes stock-based compensation makes the financial interests of management more in line with the shareholders interest, since the ultimate value of stock-based compensation is directly
tied to the value of Bank of Floridas stock.
The Plan allows the Company to grant stock options, stock appreciation
rights, restricted stock, and restricted stock units. These types of awards measure financial performance over a longer period of time, compared to more conventional methods of compensation.
When granting awards, the Committee generally takes into account the following subjective and objective factors:
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each Executive Officers level of responsibility;
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each Executive Officers contributions to Bank of Florida in a given year;
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retention considerations; and
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the practices of other comparable companies in our Markets.
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Prior to making a grant, the Committee also considers the Companys current share price, the volatility of the share price, and
potential dilution. The Committee believes that using Bank of Floridas stock for a significant portion of these awards helps further align the interests of the Executive Officers with those of our shareholders, by providing the Executive
Officers with an additional equity stake in the Company.
The Company does not have a formal policy regarding the ownership of
Bank of Floridas stock by its Executive Officers. Executive Officers are, however, encouraged to maintain significant equity stakes in the Company. Also the Companys Insider Trading Policy discourages and places restrictions on the
ability of Executive Officers, employees and directors from the pledging of or hedging of their Bank of Florida stock.
Stock Compensation
At its March 9, 2009 meeting, the Committee approved restricted stock awards and
granted restricted stock for 176,500 shares to eleven Executive Officers as of March 16, 2009. The grants, which are divided into three categories, were initially considered by the Committee at its December 2008 meeting. The three categories
include restricted shares vesting in one year (31,500 shares), performance based restricted shares vesting over three years (63,000 shares) and restricted shares vesting over five years (82,000 shares). To receive any of the performance based
restricted shares, the Executive Officer must be employed with the Company at the conclusion of the vesting period and the Company must be profitable, on a consolidated basis, for at least four consecutive quarters during the three year vesting
period. The amounts of the grants were based in part upon each employees performance during 2008. The individual awards were determined through consultations with and recommendation of the Committees outside compensation consultant, also
taking into account what the Companys competitors were providing their executives in our Markets. No stock grants were awarded to any other Executive Officers.
The Committee considered the total recommended grant size as compared to outstanding shares, expected dilution and the expense attributable to the grant. With respect to the actual size of ranges of stock
compensation
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awards, the Committee used the Black-Scholes pricing model (a formula widely used to value exchange-traded options and to determine the present value of option awards). All of the stock option
grants in 2009 have had an exercise price equal to the closing price of Bank of Floridas common stock on the grant date. Recognizing the benefits to the Company of non-qualified stock option grants, the stock option grants in 2009 were
non-qualified.
Deferred Compensation Plan
The Company has a Deferred Compensation Plan (Deferred Plan) which was approved by the Board on October 20, 2008. The
Committee recommended the Deferred Plan to the Board after considering various deferred compensation proposals and alternatives during 2007 and 2008, in order to create a deferred compensation plan that was both cost effective to the Company and
which provided for retention incentives for certain Executive Officers who are considered to be essential to the Companys long-term objectives. The Committee ultimately decided to initially limit the number of eligible participants to three
key Executive Officers suggested by the Chief Executive Officer. Individual Deferred Compensation Agreements were subsequently entered into on December 23, 2008, with Chief Financial Officer Tracy L. Keegan; Executive Vice President/Director of
Banking Operations Roy N. Hellwege; and Executive Vice President/Director of Corporate Risk Management John S. Chaperon.
The
Deferred Plan provides for an Initial Vesting Period of five years of service following the effective date of the Executives Deferred Compensation Agreement (which in the case of the above named Executives was January 2, 2008)
at which time the Executive shall be 50% vested in his or her retirement benefit. For each year thereafter, Executives shall be vested an additional percentage (as set forth in the Executives Deferred Compensation Agreement) until he or she is
100% vested. If the Executive leaves the employment of the Company during the Initial Vesting Period, he or she is not entitled to any retirement benefit, unless there is a change in control of the Company, at which time the retirement benefit will
be 100% vested. The accrued benefits under the Deferred Plan for 2009 and 2008 were $150,000 and $151,000, respectively. In the future, the Company intends to fund the Deferred Plan with insurance product or annuities.
Other Benefits and Perquisites
Bank of Floridas Executive Officers receive other benefits that are also available to our other employees. For example, Executive Officers and other salaried employees are provided with health and
disability insurance, vacation pay, and sick pay. The Company currently leases the Chief Executive Officers automobile, Executive Vice President/Director of Corporate Risk Management is provided with an older company-owned vehicle, and car
allowances are provided to thirteen other Executive Officers in amounts that are within the commonly practiced expense range. Executive Officers are also provided with country club and/or health club memberships (depending upon their position) and
reimbursement of business development expenses. The Executive Officers are responsible for reimbursing the Company for any social expenses incurred, except to the extent that they are specifically, directly, and exclusively
made in connection with business development dinners and social events with directors, investment bankers, and potential bank customers. Recognizing shareholder concerns and given the current economic climate, the Committee reduced the number of
perquisites that had generally been provided to Executive Officers.
2009 Direct Compensation for Bank of Floridas
Chief Executive Officer
Michael L. McMullan is the Chief Executive Officer and President of Bank of Florida and is also a
member of the Board. The Company entered into an Amended and Restated Employment Agreement with Mr. McMullan, effective as of March 8, 2005 (the Employment Agreement). In 2009 Mr. McMullans annual base salary was
$375,000. Under the terms of his Employment Agreement, his salary is subject to annual review by the Committee and the Board of Directors. Mr. McMullans Employment Agreement also provides that he is eligible for an annual incentive bonus
of up to 50% of his base salary. While the Committee recognized Mr. McMullans continued service and leadership to the Company in 2008 and 2009, the Committee decided, in light of economic conditions and the Companys performance, not
to pay an annual incentive bonus to Mr. McMullan for 2009. His Employment Agreement provides for a three-year term, and is automatically renewed daily. The automatic daily renewals terminate each year and require the Committees action to
continue the daily renewals. The Committee is also required to semi-annually review Mr. McMullans performance to determine if the Employment Agreement renewals should continue. The Committee reviewed Mr. McMullans performance
and elected to extend the daily renewals in 2010.
The Employment Agreement provides that Mr. McMullans employment
may be terminated with or without cause, but that in the latter case, Mr. McMullan would be entitled to receive a severance payment equal to the amount due for the remainder of the term of his Employment Agreement, as well as being permitted to
participate in any employment benefit plans for the remaining term of his Employment Agreement, or until such time as he is able to participate in a comparable plan provided by another employer. In the event the remaining term
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of his Employment Agreement is less than six months, he will be entitled to six months base salary as severance to coincide with his covenant not to compete. If Mr. McMullan is terminated
for cause, he will not be entitled to any benefits or compensation, other than what has been accrued. Dismissal for cause can be appealed under certain circumstances, within a defined period. Upon receipt of the notice of the appeal, the Company
must submit the matter to arbitration. The decision of the arbitrator is binding on the parties and is non-appealable.
On
October 19, 2009, the Board of Directors entered into Board Resolutions recommended by the Federal Reserve Board of Atlanta (Board Resolutions), which suspended the change in control and termination for good reason provisions of
Mr. McMullans Employment Agreement because of the Bank of Floridas subsidiary banks being considered to be in troubled condition.
In the event Mr. McMullan should become permanently disabled, he will be entitled to receive $125,000 per year until the earlier of his being employed full-time by another employer, his attaining 75
years of age, or his death. The disability payment will be offset by any available disability insurance, Social Security Insurance, bank-owned life insurance, supplemental retirement plan payments, or any payments received from other similar
government or employer-sponsored plans or programs. The Employment Agreement has a non-compete and non-solicitation provision, whereby Mr. McMullan may not, without the Companys written consent, either directly or indirectly, serve as an
employee of any financial institution within Broward or Collier Counties, or solicit any Company customer or employee, for a period of six months after a termination of his employment.
Retirement Benefits
Retirement benefits are intended to recognize, over the long term, services rendered to the Company and to keep our overall pay packages for executives comparable to that of other companies in our Markets so that we can attract and retain
high quality Executive Officers. As previously discussed in this analysis, the Company maintains a SERP for the Chief Executive Officer, which is informally funded through BOLI, an asset of the Company. The SERP, was established in 2004 and as
amended in 2005, provided for cliff vesting, wherein at age 56 the Chief Executive Officer would be vested 70%, with full vesting at the age of 59. It further provided that in the event of a change in control of the Company or his death, the Chief
Executive Officers retirement benefits would become fully vested.
The Committee spent a great deal of time reviewing
the vesting and change in control aspects of the SERP during 2007 and 2008, specifically concerning protecting Bank of Florida and the Chief Executive Officer from any potential excise tax implications. The Committee worked in conjunction with its
compensation consultants and corporate counsel, as well as with counsel retained by Mr. McMullan to arrive at an effective and workable solution to the unintended potential tax consequences. The result of the Committees consultations and
consideration was an amendment to the SERP, which was approved by the Board of Directors and became effective on December 31, 2008. Pursuant to the revision, the SERP is 84% vested as of December 31, 2009, and will vest another 8% at the
end of 2010 and then another 8% at the end of 2011 so that the SERP will be fully vested at December 31, 2011.
The
amendment also addressed change in control issues and as amended, the SERP will not automatically become fully vested in the event of a change in control. Instead, prior to the closing date of any merger that will result in a change in control, CEO
McMullan will have the option to waive the acceleration of the change in control benefit under his Second Amendment to the SERP as amended, to avoid any potential excise tax implications under Section 280G of the Internal Revenue Code of 1986,
as amended (the Code), or choose to elect 100% vesting, as provided by First Amendment to Schedule B of the Second Amendment to the SERP.
Under the terms of the SERP, at retirement the Chief Executive Officer will be entitled to receive 60% of his base salary at the time of his retirement until age 85. In the event of his death, his wife
will be entitled to receive 80% of his benefit until her death. The Board Resolutions at Bank of Florida do not affect the accrued SERP benefits, however, should the subsidiary banks be placed into receivership, the accrued benefits under the SERP
would no longer be payable to Mr. McMullan.
Other Benefits to Executive Officers and Employees
The Company maintains a 401(k) Plan for its employees. The 401(k) Plan permits participants to defer additional portions of their salary for
retirement. The Company matches 50% of eligible participants deferrals, up to a total match of 4% of a participants salary. The Committee believes it is appropriate to maintain these additional contributory plans, with the matching
feature, to provide an additional incentive for the participants to also plan for their own retirement. In 2009, the Companys contribution to the 401(k) Plan was $308,000.
76
Change in Control and Other Employment-Related Agreements
Each of our Executive Officers has either an Employment Agreement or a Change in Control Agreement that will provide him or her payments upon
a change in control of the Company or upon a termination without cause. The Change in Control Agreements described below are currently ineffective and unenforceable so long as the Bank of Florida is operating under the Board Resolutions and the
subsidiary banks are considered to be in troubled condition.
Michael L. McMullans
Employment
Agreement provides that if he is terminated without cause, he will receive a severance payment equal to the amount due for the remainder of the term of the Employment Agreement, which was $375,000 on December 31, 2009. He is also to receive
life, health and disability coverage for one year after any such termination. In the event of a Change in Control, (regardless of whether his employment is terminated), CEO McMullan shall be entitled to 2.9 times his W-2 compensation averaged over
the five preceding years, but in no event shall that amount be more than $1.00 less than the Safe Harbor amount permitted under Section 280G of the Internal Revenue Code of 1986, as amended. In addition, CEO McMullan will have the option prior
to the closing of any merger resulting in a change in control of the Company, to waive the acceleration of the change in control benefit under his Second Amendment to the SERP as amended, to avoid any potential Section 280G excise tax
implications, or choose to elect 100% vesting, as provided by First Amendment to Schedule B of the Second Amendment to the SERP. The present estimated value of that benefit is $2,731,766. To receive these benefits, Mr. McMullan will be subject
to a six month non-compete agreement in Collier and Broward Counties, Florida and a twelve month non-solicitation agreement (covering employees and customers). In addition, Mr. McMullan will be bound by a confidentiality agreement and will be
obligated to provide post-termination cooperation in proceedings such as litigation or regulatory examinations. The Committee further amended Mr. McMullans Employment Agreement finding that the six month no-compete agreement was not
sufficient to protect an acquiring institution in the event of a change in control. To provide the necessary protection for an acquiring institution, Mr. McMullan shall be paid $585,000 in consideration of his agreement not to compete with the
Company, or an acquiring institution, for a period of two years after termination of his Employment Agreement.
Tracy L.
Keegans
Change in Control Agreement, which was effective on January 1, 2008, provides for a single trigger, in that if Ms. Keegans employment is terminated without cause and incident to a change in control or if
Ms. Keegan terminates her employment for any reason within six months of a change in control, she is to receive a lump sum payment equal to two-and-one-half times her highest base salary during the three years preceding the change in control.
On December 31, 2009, that amount would have been $525,000. In addition, Ms. Keegan would also receive life, health and disability coverage for six months in such instances. To receive these benefits, Ms. Keegan will be subject to a
six month non-compete agreement in every county in which the Company or a subsidiary has an office and a twelve month non-solicitation agreement (covering employees and customers).
John B. James
Change in Control Agreement, which was effective on January 1, 2009, provides for a single trigger, in that
if Mr. James employment is terminated without cause and incident to a change in control or if Mr. James terminates his employment for any reason within six months of a change in control, he is to receive a lump sum payment equal to
two times his highest base salary during the three years preceding the change in control. On December 31, 2009, that amount would have been $440,000. In addition, Mr. James would also receive life, health and disability coverage for six
months in such instances. To receive these benefits, Mr. James will be subject to a six month non-compete agreement in Collier and Lee Counties, Florida and a twelve month non-solicitation agreement (covering employees and customers).
Roy N. Hellweges
Change in Control Agreement, which was effective on January 1, 2009, provides for a single
trigger, in that if Mr. Hellweges employment is terminated without cause and incident to a change in control or if Mr. Hellwege terminates his employment for any reason within six months of a change in control, he is to receive a
lump sum payment equal to two-and-one-half times the five-year average of his W-2 compensation for the five year period preceding the change in control. On December 31, 2009, that amount would have been $502,978. In addition, Mr. Hellwege
would also receive life, health and disability coverage for six months in such instances. To receive these benefits, Mr. Hellwege will be subject to a six month non-compete agreement in Collier, Lee, Broward, Miami-Dade, Hillsborough and Palm
Beach Counties, Florida.
John S. Chaperons
Change in Control Agreement, which was effective on January 1,
2008, provides for a single trigger, in that if Mr. Chaperons employment is terminated without cause and incident to a change in control or if Mr. Chaperon terminates his employment for any reason within six months of a change in
control, he is to receive a lump sum payment equal to two-and-one-half times his highest base salary during the three years preceding the change in control. On December 31, 2009, that amount would have been $525,000. In addition,
Mr. Chaperon would also receive life, health and disability coverage for six months in such instances. To receive these benefits, Mr. Chaperon will be subject to a six month non-compete agreement in every county in which the Company or a
subsidiary has an office and a twelve month non-solicitation agreement (covering employees and customers).
77
Craig D. Shermans
Employment Agreement expired in September 2009, and the
Company had planned to enter into a Change in Control Agreement instead, however due to regulatory restrictions, the Company was not yet able to enter into the Change in Control Agreement as of this date.
In addition to the Employment Agreement and Change in Control Agreements described above, the Company also has six other Change in Control
Agreements with its Executive Officers. The other Change in Control Agreements provide for double triggers. The Executive Officers named in the compensation disclosures herein have been provided with single trigger Change in Control
Agreements, which provide the Executive Officers with severance benefits at the time the change in control is consummated. The six other unnamed Executive Officers have been provided with double trigger Change in Control Agreements, i.e., in that in
addition to a change in control of the Company, the executive must be terminated or not be offered a similar position with comparable compensation benefits, in order to receive any termination benefit. The distinction between single and
double trigger Change in Control Agreements was implemented by the Committee after lengthy consideration and consultation with its compensation consultants and the Board during 2007 and 2008.
Under either of the above scenarios, the amount of an individuals termination benefit ranges from 1.5 times to 2.5 times the
officers salary, depending upon the officers position within the Company. The benefits include a lump sum cash payment and continued health benefits for a limited period of time. In addition, individual stock option agreements provide
for full acceleration of all outstanding and unvested equity awards, in the event of a change in control. The Company believes these types of agreements are necessary in order to be able to attract and retain key executives.
Tax Aspects of Executive Compensation
Section 162(m) of the Code generally limits the corporate tax deduction for compensation paid to the Executive Officers that is not performance based to $1 million annually per Executive
Officer. The annual and long-term incentive plans are designed so that awards granted to the covered individuals meet Section 162(m) requirements for performance-based compensation, and thus, these awards should not be counted toward the $1
million limitation on tax deductions for an Executive Officers compensation in any fiscal year. The annual and long-term incentive plans give the Company flexibility to pay qualifying performance-based compensation and it is our intention to
structure compensation so that Section 162(m) does not adversely affect the Companys tax deduction. However, there may be instances in which we determine that we cannot structure compensation accordingly. In those instances, the Committee
may elect to structure elements of compensation (such as certain qualitative factors in annual bonuses) to accomplish business objectives that it believes are in the best interests of the Company and its shareholders, even though doing so may reduce
the amount of the Companys tax deduction for said compensation.
Other provisions of the Code also can affect the
decisions which the Committee makes. Under Section 280G of the Code, a 20% excise tax is imposed upon Executive Officers who receive excess payments upon a change in control of a public corporation to the extent the payments
received by them exceed an amount approximating three times their average annual compensation. The excise tax applies to all payments in excess of an amount equal to the base annual compensation, determined by a five year average. A company also
loses its tax deduction for excess payments. The Companys sole Employment Agreement and the Change in Control Agreements do not provide for gross ups so that the Executive Officer is responsible for any tax
consequences. Beginning in 2007, the Committee also considered the implications of the existing and proposed change to Section 409A of the Code. After multiple and lengthy consultations on the issue with corporate counsel, outside counsel and
compensation consultants during 2008, the Committee addressed those concerns primarily by amending the employment agreement with CEO McMullan concerning the vesting schedule of the SERP as addressed above and providing him with the option of vesting
the remainder of the SERP prior to the closing of a change in control event. The amendment also limited CEO McMullans compensation at a change in control so that it remains below the Safe Harbor amount permitted under Section 280G of the
Code.
Accounting for the long-term incentive compensation (e.g., expensing of stock options) is compliant with FASB 123R and
the Companys deferred compensation arrangement with its Chief Executive Officer is compliant with new Section 409A of the Code and the newly issued Treasury Regulations promulgated thereunder.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee serves with regard to compensation and personnel policies, programs and plans, including management development
and succession, and to approve employee compensation and benefit programs. A copy of the Third Amended and Restated Compensation Committee Charter was included in the 2008 Proxy Statement as
Exhibit B
and is available on Bank of
Floridas website. The Board has determined that each member of the Compensation Committee is independent. The members of the Compensation Committee are:
Michael T. Putziger, (Chairman), Joe B. Cox, LaVonne Johnson,
and
Edward Kaloust
. For further information regarding the Compensation Committee, please see the Compensation Committee
Report below.
78
COMPENSATION COMMITTEE REPORT
The duties and responsibilities of the Compensation Committee (Committee) of the Board of Directors are set forth in a written
charter (the Third Amended and Restated Compensation Committee Charter) adopted by the Board. The Charter was included with the 2009 Proxy Statement as
Exhibit B
and is posted on Bank of Floridas corporate website at
www.bankofflorida.com
. The Committee reviews and reassesses this Charter annually and recommends any changes to the Board for approval.
As part of the exercise of its duties, the Committee has reviewed and discussed the above Compensation Discussion and Analysis with management. Based upon that review and those discussions,
the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be incorporated by reference in the Companys Annual Report on Form 10-K and 2010 Proxy Statement.
The foregoing report is submitted by the 2010 Compensation Committee:
Michael T. Putziger, (Chairman), Joe B. Cox, LaVonne Johnson,
and
Edward Kaloust
.
Compensation Tables
The following tables provide detailed information regarding the compensation paid by the Company to its Chief Executive Officer, Chief
Financial Officer, and its three other most highly paid Executive Officers. These five officers are referred to as the Named Executive Officers in the following discussion.
Summary Compensation Table
The following Summary Compensation table and
footnotes provide general information concerning the total compensation paid to the Named Executive Officers. The figures in the Summary Compensation table may be substantially different than such tables in previous years, because of the way
compensation is now required to be reported under new SEC disclosure rules. These new rules apply not just to the figures for 2009, but apply to the previous reported years as well, so that the figures had to be recalculated taking into account
these new regulatory requirements. For example, Stock Option awards that may have been disclosed as the amount being expensed in each year, now must be disclosed in aggregate in the year granted, making compensation look greater for that year when
those options may not be vested for several years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
(1)
|
|
Stock
Awards
(2)
|
|
Option
Awards
|
|
All Other
Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
Michael L. McMullan
Chief Executive Officer/President
|
|
2009
2008
2007
|
|
$
$
$
|
375,000
375,000
307,000
|
|
$
|
138,150
|
|
$
|
210,000
|
|
$
|
174,570
|
|
$
$
$
|
29,062
36,250
39,001
|
(3
)
(4
)
(5
)
|
|
$
$
$
|
614,062
411,250
658,721
|
|
|
|
|
|
|
|
|
Tracy L. Keegan
Executive Vice President/
Chief Financial Officer
|
|
2009
2008
2007
|
|
$
$
$
|
210,000
210,000
180,000
|
|
$
|
63,000
|
|
$
|
101,250
|
|
$
|
32,586
|
|
$
$
$
|
21,353
21,596
27,989
|
(6
)
(7
)
(8
)
|
|
$
$
$
|
332,603
231,596
303,575
|
|
|
|
|
|
|
|
|
John B. James
Senior Executive Vice President/
Special Assets Department
|
|
2009
2008
2007
|
|
$
$
$
|
220,000
220,000
190,000
|
|
$
|
66,500
|
|
$
|
61,875
|
|
$
|
33,168
|
|
$
$
$
|
24,772
27,643
24,274
|
(9
)
(10
)
(11
)
|
|
$
$
$
|
306,647
247,643
313,942
|
|
|
|
|
|
|
|
|
Roy N. Hellwege
EVP/Chief Banking Officer
Former President of
Bank of Florida Tampa Bay
|
|
2009
2008
2007
|
|
$
$
$
|
210,000
210,000
185,000
|
|
$
|
50,000
|
|
$
|
58,125
|
|
$
|
33,168
|
|
$
$
$
|
20,445
28,170
21,962
|
(12
)
(13
)
(14
)
|
|
$
$
$
|
288,570
238,170
290,130
|
|
|
|
|
|
|
|
|
John S. Chaperon
Executive Vice President/
Director of Corporate Risk
Management President Bank of
Florida
Southeast
|
|
2009
2008
2007
|
|
$
$
$
|
210,000
210,000
185,000
|
|
$
|
55,000
|
|
$
|
58,125
|
|
$
|
33,168
|
|
$
$
$
|
25,812
22,178
15,922
|
(15
)
(16
)
(17
)
|
|
$
$
$
|
293,937
232,178
289,090
|
(1)
|
The bonus amounts reflected in this column were for performance in the year noted, to be paid in January of the following year.
|
79
(2)
|
Included in these restricted stock awards were three tranches of awards with different requirements all granted on March 16, 2009. The first set of awards require
the grantee to remain with the Company for 1 year or they are forfeited. The second set of awards are performance based and for them to vest, the Executive Officer must be employed with the Company at the conclusion of the vesting period and the
Company must be profitable, on a consolidated basis, for any four consecutive quarters during the three year vesting period. The values shown assume the performance by the recipients of all requirements. The third set of awards require the grantee
to remain with the Company for 5 years or they are forfeited. They were issued as set out in the following table by grant date fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Vesting
|
|
|
Name
|
|
1 Year
|
|
3 Year
Performance
Based
|
|
5 Year
|
|
Total
|
|
|
|
|
|
Michael L. McMullan
|
|
$
|
37,500
|
|
$
|
75,000
|
|
$
|
97,500
|
|
$
|
210,000
|
Tracy L. Keegan
|
|
$
|
18,750
|
|
$
|
37,500
|
|
$
|
45,000
|
|
$
|
101,250
|
John B. James
|
|
$
|
9,375
|
|
$
|
37,500
|
|
$
|
15,000
|
|
$
|
61,875
|
Roy N. Hellwege
|
|
$
|
9,375
|
|
$
|
18,750
|
|
$
|
30,000
|
|
$
|
58,125
|
John S. Chaperon
|
|
$
|
9,375
|
|
$
|
18,750
|
|
$
|
30,000
|
|
$
|
58,125
|
(3)
|
$13,217 in automobile expenses, $4,003 in club membership dues, $7,500 in 401(k) contributions and $4,342 in insurance premiums.
|
(4)
|
$11,789 in automobile expenses, $10,569 in club membership dues, $10,250 in 401(k) contributions and $3,642 in insurance premiums.
|
(5)
|
$15,188 in automobile expenses, $11,716 in club membership dues, $10,250 in 401(k) contributions and $1,847 in insurance premiums.
|
(6)
|
$7,800 in automobile expenses, $6,807 in club membership dues, $4,200 in 401(k) contributions, $2,030 in insurance premiums and $516 in awards.
|
(7)
|
$7,800 in automobile expenses, $5,521 in club membership dues, and $6,245 in 401(k) contributions and $2,030 in insurance premiums.
|
(8)
|
$7,800 in automobile expenses, $13,601 in club membership dues, $6,250 in 401(k) contributions and $338 in insurance premiums.
|
(9)
|
$7,800 in automobile expenses, $9,148 in club membership dues, $4,400 in 401(k) contributions and $3,424 in insurance premiums.
|
(10)
|
$7,800 in automobile expenses, $9,483 in club membership dues, and $6,993 in 401(k) contributions and $3,367 in insurance premiums.
|
(11)
|
$7,800 in automobile expenses, $8,797 in club membership dues, $7,118 in 401(k) contributions and $559 in insurance premiums.
|
(12)
|
$7,800 in automobile expenses, $8,021 in club membership dues, $2,100 in 401(k) contributions and $2,524 in insurance premiums.
|
(13)
|
$6,825 in automobile expenses, $8,621 in club membership dues, and $10,200 in 401(k) contributions and $2,524 in insurance premiums.
|
(14)
|
$6,000 in automobile expenses, $8,141 in club membership dues, $7,400 in 401(k) contributions and $421 in insurance premiums.
|
(15)
|
$6,392 in automobile expenses, $11,445 in club membership dues, $4,200 in 401(k) contributions and $3,775 in insurance premiums.
|
(16)
|
$713 in automobile expenses, $10,872 in club membership dues, $10,250 in 401(k) contributions and $343 in insurance premiums.
|
(17)
|
$1,270 in automobile expenses, $7,252 in club membership dues and $7,400 in 401(k) contributions.
|
80
2009 Outstanding Equity Awards at Fiscal Year-End
The following table discloses the stock options and non-performance based restricted stock owned by the Named Executive Officers at
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTION AWARDS
|
|
STOCK AWARDS
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
Excercisable
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
|
|
Option
Exercise
Price
|
|
Option
Expiration
Date
|
|
Number
of Shares
of Stock
That
Have Not
Vested
|
|
Market
Value of
Shares of
Stock
That
Have Not
Vested
|
|
|
|
|
|
|
|
Michael L. McMullan
|
|
2,500
30,000
10,000
10,000
25,000
9,000
|
|
6,000
|
|
$
$
$
$
$
$
|
10.00
10.00
11.29
16.02
23.10
20.50
|
|
05/17/2011
08/28/2012
10/21/2013
06/16/2015
12/14/2015
01/03/2017
|
|
36,000
|
|
$
|
135,000
|
|
|
|
|
|
|
|
Tracy L. Keegan
|
|
5,551
4,449
1,680
|
|
1,120
|
|
$
$
$
|
22.70
21.65
20.50
|
|
12/30/2015
06/8/2016
01/03/2017
|
|
17,000
|
|
$
|
63,750
|
|
|
|
|
|
|
|
John B. James
|
|
1,300
20,000
2,500
2,500
1,710
|
|
1,140
|
|
$
$
$
$
$
|
10.00
10.00
16.25
23.10
20.50
|
|
5/17/2011
8/28/2012
2/12/2014
12/14/2015
01/03/2017
|
|
6,500
|
|
$
|
24,375
|
|
|
|
|
|
|
|
Roy N. Hellwege
|
|
20,000
2,500
1,710
|
|
1,140
|
|
$
$
$
|
10.15
23.10
20.50
|
|
09/12/2013
12/14/2005
01/03/2017
|
|
10,500
|
|
$
|
39,375
|
|
|
|
|
|
|
|
John S. Chaperon
|
|
10,000
2,000
2,500
2,500
1,710
|
|
1,140
|
|
$
$
$
$
$
|
10.00
16.25
16.01
23.10
20.50
|
|
11/14/2012
02/12/2014
12/13/2014
12/14/2015
01/03/2017
|
|
10,500
|
|
$
|
39,375
|
2009
Option Exercises and Stock Vested
To supplement the preceding table, the following table provides information concerning
stock options that vested or were exercised by the Named Executive Officers during 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
Name
|
|
Number
of Shares
Acquired
on
Exercise
|
|
Value
Realized
on
Exercise
|
|
Number
of Shares
Acquired
on
Vesting
|
|
Value
Realized
on
Vesting
|
|
|
|
|
|
Michael L. McMullan
|
|
0
|
|
$
|
0
|
|
3,000
|
|
$
|
0
|
Tracy L. Keegan
|
|
0
|
|
|
0
|
|
560
|
|
|
0
|
John B. James
|
|
0
|
|
|
0
|
|
570
|
|
|
0
|
Roy N. Hellwege
|
|
0
|
|
|
0
|
|
570
|
|
|
0
|
John S. Chaperon
|
|
0
|
|
|
0
|
|
570
|
|
|
0
|
2009 Pension Benefits Table
The following table discloses the changes in value of the accumulated benefits and 2009 payments under pension benefit
plans maintained by Bank of Florida.
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Plan Name
|
|
Number of Years
of Credited Service
|
|
Present Value of
Accumulated Benefit
|
|
|
Payments During
Last Fiscal Year
|
|
|
|
|
|
Michael L. McMullan
|
|
SERP
|
|
Eight
|
|
$
|
2,294,683
|
*
|
|
$
|
0
|
Tracy L. Keegan
|
|
None
|
|
|
|
|
|
|
|
|
|
John B. James
|
|
None
|
|
|
|
|
|
|
|
|
|
Roy N. Hellwege
|
|
None
|
|
|
|
|
|
|
|
|
|
John S. Chaperon
|
|
None
|
|
|
|
|
|
|
|
|
|
*
|
The retirement benefit is 84% vested as of December 31, 2009, and will become 100% vested at December 31, 2011. In the event of death, the retirement benefit
will become 100% vested. In the event of a change in control, Mr. McMullan will have the option prior to the closing of any merger resulting in a change of control to waive the acceleration of the change in control benefit or to choose 100%
vesting. In the event that the Bank of Floridas subsidiary banks are placed into receivership, the accrued benefits under the SERP would no longer be payable to Mr. McMullan. Based on Mr. McMullans current base salary and an 8%
discount factor, the estimated present value is $2,731,766.
|
81
The following table discloses the non-qualified deferred compensation status of the Named
Executive Officers at December 31, 2009.
2009 Non-Qualified Deferred Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Executive
Contributions
in Last
Fiscal
Year
($)
|
|
Registrant
Contributions in
Last
Fiscal Year
($)
|
|
Aggregate
Earnings in Last
Fiscal
Year
($)
|
|
Aggregate
Withdrawals/
Distributions
($)
|
|
Aggregate
Balance at Last
Fiscal Year-End
(*)
($)
|
Tracy L. Keegan
|
|
$
|
0
|
|
$
|
19,444
|
|
|
|
$
|
0
|
|
$
|
45,339
|
Roy N. Hellwege
|
|
$
|
0
|
|
$
|
37,409
|
|
|
|
$
|
0
|
|
$
|
83,161
|
John S. Chaperon
|
|
$
|
0
|
|
$
|
73,939
|
|
|
|
$
|
0
|
|
$
|
153,293
|
(*)
|
The Deferred Compensation Plan provides for an Initial Vesting Period of five years of service following the effective date of the Agreements which in the
case of these Executive Officers was January 2, 2008.
|
Board Compensation
Bank of Florida has traditionally used a combination of cash and stock-based incentive compensation to attract and retain non-employee
qualified candidates to serve on the Board of the Company and its subsidiaries. Directors that are also employees of the Company do not receive any compensation for their services as directors. During 2009, the Compensation Committee reviewed the
Board compensation at the Company and its subsidiaries with The Delves Group, its compensation consultant, and determined that it was appropriate not to increase the cash fees (retainers, Chairmans fees, regular meeting and committee meeting
fees) paid to directors of the Company and its subsidiaries, but to reduce those fees. The Committee reached this conclusion in light of current economic conditions and despite the increased time and effort being required of the directors during the
economic malaise. In the second quarter of 2009, the Compensation Committee recommended to the Board of Directors that because of the Companys performance and the economic climate, in order to show director confidence in Bank of Florida and to
further align the directors interests with those of the shareholders, that directors fees for the Companys Board of Directors and for the directors of all four of Companys subsidiaries, should be comprised solely of stock
instead of cash and stock. The new approach of paying directors fees in stock was approved by the Board on June 15, 2009 and was applied beginning with the directors fees for the second quarter of 2009. The stock that was issued to pay the
directors fees for the second quarter were issued from the Companys 2006 Stock Compensation Plan.
After further
discussions about the continued struggling economy and the Companys performance through the first half of 2009, the Compensation Committee recommended, and the Board approved, reducing the directors fees by 50% and further amending the
director compensation approach by paying directors fees in stock options instead of stock. As further incentive and alignment with the interests of shareholders, the exercise price of the stock options was set at twice the closing price of the stock
on the day the stock options were granted. The stock options become immediately vested at the end of each quarter and expire if unexercised five years after they are granted. The table below provides information on the cash, stock and stock option
compensation earned by the Board of Directors of Bank of Florida during 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees Earned or
Paid in Cash ($)
|
|
Stock Awards
($)
1
|
|
Option Awards
($)
2
|
|
Total
($)
|
|
|
|
|
|
Donald R. Barber
|
|
$
|
6,550
|
|
$
|
4,475
|
|
$
|
903
|
|
$
|
11,928
|
Joe B. Cox
|
|
$
|
10,325
|
|
$
|
6,700
|
|
$
|
1,218
|
|
$
|
18,243
|
Bradford G. Douglas
|
|
$
|
3,600
|
|
$
|
4,775
|
|
$
|
949
|
|
$
|
9,324
|
John B. James
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
LaVonne Johnson
|
|
$
|
5,950
|
|
$
|
4,337
|
|
$
|
803
|
|
$
|
11,090
|
Edward Kaloust
|
|
$
|
7,250
|
|
$
|
5,937
|
|
$
|
1,067
|
|
$
|
14,254
|
Michael L. McMullan
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
Edward A. Morton
|
|
$
|
7,025
|
|
$
|
4,937
|
|
$
|
993
|
|
$
|
12,995
|
Pierce T. Neese
|
|
$
|
13,475
|
|
$
|
3,900
|
|
$
|
0
|
|
$
|
17,375
|
Michael T. Putziger
|
|
$
|
13,225
|
|
$
|
6,575
|
|
$
|
1,218
|
|
$
|
21,018
|
Ramon A. Rodriguez
|
|
$
|
6,725
|
|
$
|
4,525
|
|
$
|
940
|
|
$
|
12,190
|
Francis Rooney
|
|
$
|
7,312
|
|
$
|
0
|
|
$
|
0
|
|
$
|
7,312
|
Terry W. Stiles
|
|
$
|
5,975
|
|
$
|
2,825
|
|
$
|
727
|
|
$
|
9,527
|
82
1.
|
The amounts in this column represent the grant date fair value of the stock award granted on July 24, 2009, as compensation for director fees for the second
quarter of 2009. The total number of shares issued was 14,155 shares.
|
2.
|
The amounts in this column represent the grant date fair value of stock options granted on December 11, 2009, as compensation for director fees for the third
quarter of 2009. The total number of shares issuable under the stock options granted is 17,631 shares. Directors fees for the fourth quarter have not been paid or accrued.
|
Stock-Based Compensation
1999 Stock Option Plan
Bank of Florida currently has an equity compensation plan, the 1999 Stock Option Plan (1999 Plan), which
provided for the issuance of stock options to employees and directors of the Company who contributed significantly to the management or operation of our or our subsidiaries business as determined by the committee administering the 1999 Plan.
The 1999 Plan was approved by the shareholders at the 2000 Annual Meeting and the number of shares reserved under the 1999 Plan was subsequently increased at the 2003, 2004, and 2005 Annual Meetings. The 1999 Plan provided for the grant of options
to employees and directors of the Company and its subsidiaries at the discretion of the Board of Directors or a committee designated by the Board of Directors to administer the 1999 Plan. Stock options to acquire all of the shares reserved under the
1999 Plan have been granted.
2006 Stock Compensation Plan
The 2006 Stock Compensation Plan was adopted by the Companys Board of Directors on April 3, 2006, and approved by its shareholders
at the 2006 Annual Meeting of Shareholders. The Board of Directors believes that stock-based incentives are important factors in attracting, retaining, and rewarding employees and directors, and closely aligning their interests with those of the
shareholders. The following is a summary of the material terms of the 2006 Stock Compensation Plan. This summary is qualified in its entirety by the complete terms of the 2006 Stock Compensation Plan.
Grants.
The 2006 Stock Compensation Plan provides for grants of: options to purchase common stock; restricted shares of common
stock (which may be subject to both grant and forfeiture conditions) (Restricted Stock); Stock Units (which are a contractual right for a recipient to receive shares of Restricted Stock at a certain date or upon the occurrence of a
certain event); and stock appreciation rights (entitling the grantee to receive the difference in value between the underlying common stock on the date of exercise and the value of such stock on the date of grant) (SARs), which may be
either freestanding or granted in tandem with an option. Options to purchase common stock may be either incentive stock options (ISOs), which are intended to satisfy the requirements of Section 422 of the Internal Revenue Code of
1986, as amended (the Code), or non-qualified stock options (NQOs) which are not intended to satisfy the requirements of Section 422 of the Code.
Securities to be Reserved.
Under the 2006 Stock Compensation Plan, 12% of the Companys outstanding shares of our common
stock is reserved for issuance. This number covered was reduced by the 655,189 shares that were reserved under the 1999 Stock Option Plan on April 3, 2006. Upon any future issuance of additional common stock, 12% of such newly issued shares
will also be reserved for issuance under the 2006 Stock Compensation Plan, provided, however, no more than 3,000,000 shares will ever be reserved. Any shares subject to an option that remain unexercised after the cancellation, expiration, or
exchange of an option and any shares of Restricted Stock which are forfeited will again become available for use under the 2006 Stock Compensation Plan. Any shares which are surrendered for cash or common stock, or a combination thereof, and any
shares of common stock used to satisfy a withholding obligation shall not again become available for use under the 2006 Stock Compensation Plan.
Administration of Plan.
The 2006 Stock Compensation Plan is administered by Bank of Floridas Compensation Committee (Committee). The Committee has delegated authority to
grant options, SARs, and Restricted Stock. The composition of the Committee must be at least two directors, each of whom is a non-employee director under Rule 16b-3 of the Securities Exchange Act of 1934, and each of whom shall be or will be treated
as an outside director for purposes of Section 162(m) of the Code. Bank of Floridas Board has authorized the Committee to interpret the 2006 Stock Compensation Plan, to determine the total number of shares to be granted, and
to take such other action in the administration and operation of the 2006 Stock Compensation Plan as the Committee deems equitable under the circumstances. The Board of Directors, however, has reserved to itself the right to amend or terminate the
2006 Stock Compensation Plan. No amendment, however, may be effected without approval of the shareholders to the extent such approval is required under applicable law, Section 422 of the Code, Rule 16b-3, or any applicable stock exchange rule.
Furthermore, in no case can stock awards be repriced, either by cancellation and regrant or by lowering the exercise price of a previously granted award.
83
Eligibility.
Selected directors, Executive Officers, and employees are
eligible to participate in the 2006 Stock Compensation Plan. Executive Officers and employees are eligible for the grant of ISOs, NQOs, Restricted Stock, Restricted Stock Units, and SARs. However, directors are only eligible for the grant of NQOs,
SARs, and Restricted Stock. In addition, the Companys Chief Executive Officer has the discretion in any given year, to grant options to acquire up to 50,000 shares, primarily to new hires, subject to the availability of shares and ratification
by the Committee.
Terms of Options.
The 2006 Stock Compensation Plan authorizes the grant of ISOs or NQOs, both
of which are exercisable for shares of Bank of Florida common stock. Options may be granted for any reason, as the Committee deems appropriate under the circumstances. The price at which a stock option may be exercised for a share of common stock
may not be less than the fair market value of a share of common stock on the date the stock option is granted. The fair market value means the closing price per share as reported in a financial periodical on the date the option is
granted, or if no such closing price is available on such day, the closing price for the immediately preceding business day, or if no such prices are reported, a price determined by the Committee acting in good faith.
The period during which a stock option may be exercised shall be determined by the Committee at the time the option is granted and may not
extend more than 10 years from the date of grant. A stock option or portion thereof that is not exercised before expiration of the applicable option period shall terminate. An ISO option agreement may provide for the exercise of a stock option
within 90 days after the employment of an employee has terminated for any reason; except that the period may be extended to one year in the case of death or disability. An NQO option agreement may extend all such post-termination exercise periods
for directors or employees to up to one year. The 2006 Stock Compensation Plan shall expire, and no further grants shall be made, 10 years after its approval by the shareholders.
The aggregate fair market value of ISOs granted to an individual employee under the 2006 Stock Compensation Plan, which first becomes
exercisable in any calendar year, may not exceed $100,000 per year.
Stock Appreciation Rights.
Under the 2006
Stock Compensation Plan, stock appreciation rights may be granted as part of a stock option (a Related Option) with respect to all or a portion of the shares of common stock subject to the Related Option (a Tandem SAR) or may
be granted separately (a Freestanding SAR). Tandem SARs and Freestanding SARs are collectively referred to as SARs. The share value of a Freestanding SAR shall be set forth in the related SAR agreement, and may not be less
than the fair market value of a share of common stock on the date the SAR is granted. The share value of a Tandem SAR shall be determined by the exercise price of the Related Option, which also may not be less than the fair market value of a share
of common stock on the date of grant. The grant of SARs may be subject to such other terms as the Committee deems appropriate.
When a Freestanding SAR is exercised, the recipient receives a payment determined by calculating the difference between the share value at grant, as set forth in the SAR agreement, and the fair market value of a share of common stock on the
date of exercise. On the exercise of a Tandem SAR for a number of shares, the Related Option is deemed to be surrendered to the extent of the same number of shares and the payment is based on the increase in fair market value of common stock on the
exercise date over the value stated in the stock option agreement. Payment may be made in cash or stock, or a combination of cash and stock. The form and timing of payments shall be determined by the Committee. To date, no SARs have been granted.
Restricted Stock and Restricted Stock Units.
Shares of Restricted Stock may be granted to employees and
directors and may be subject to one or more contractual restrictions as established by the Committee at the time of grant and as set forth in the related Restricted Stock Agreement. The Agreement will set forth the conditions, if any, which will
need to be satisfied before the grant will be effective and the conditions, if any, under which the employees or directors interest in the Restricted Stock will be forfeited. As soon as practicable after a grant has become effective, the
shares will be registered to or for the benefit of the employee or director. The Restricted Stock Agreement will state whether the employee or director has the right to receive any cash dividends paid with respect to the shares of Restricted Stock.
If the employee or director has no right to receive cash dividends, the Agreement may give the employee or director the right to receive a cash payment in the future in lieu of the dividend payments, provided certain conditions are met. Dividends
declared on the shares of Restricted Stock after grant, but before the shares are forfeited or become non-forfeitable, are treated as part of the grant of the related Restricted Stock. An employee or director has the right to vote the shares of
Restricted Stock after grant until they are forfeited or become non-forfeitable.
Shares of Restricted Stock may vest in
installments or in total upon satisfaction of the stipulated conditions. If the restrictions are not satisfied, the shares are forfeited and again become available under the 2006 Stock Compensation Plan. To enforce the restrictions, all shares of
Restricted Stock will be held by the Company until the restrictions are satisfied. The exercise or surrender of any option granted under the 2006 Stock Compensation Plan
84
and the acceptance of a Restricted Stock grant shall constitute an employees or directors full and complete consent to whatever actions the Committee deems necessary to satisfy the
federal and state tax withholding requirements, if any, which the Committee in its discretion deems applicable to such exercise or surrender of such Restricted Stock. The Committee also can provide that an employee or director may elect to satisfy
federal and state tax withholding requirements through a reduction in the number of shares of Bank of Florida common stock actually transferred to the employee or director under the 2006 Stock Compensation Plan. Any such election and any such
reduction shall satisfy the conditions of the exemption under Rule 16b-3. Grants of Restricted Stock will be effective for periods as determined by the Committee, provided no Restricted Stock may be granted after the earlier of the tenth anniversary
of the 2006 Stock Compensation Plan being approved by the shareholders or the date on which all shares of common stock reserved under the 2006 Stock Compensation Plan have been issued or are unavailable for use, in which event the 2006 Stock
Compensation Plan also shall terminate on such date.
In the case of Restricted Stock grants, some of the grants vest with the
passage of time and others vest only upon the satisfaction of performance objectives. The Compensation Committee shall determine which type of restricted stock to grant and shall also determine the performance objectives to be used in connection
with performance based Restricted Stock awards and the extent to which such objectives have been met. Performance objectives may vary from participant to participant and between groups of participants and shall be based upon such performance factors
and criteria as the Committee, in its sole discretion, shall select among one or more of the following: stock price; earnings per share; return on equity; return on capital; net income; return on assets; or total return to shareholders. Shares of
Restricted Stock were granted for the first time on March 16, 2009, to certain Executive Officers based in part upon each Executive Officers performance in 2008, and 21,378 additional shares of Restricted Stock were issued on
July 24, 2009, in lieu of cash for and as compensation for directors fees for directors of the Company and its subsidiaries. See Summary Compensation Table and Board Compensation above.
Stock Units are not share awards, but rather represent a contractual right to receive shares at a specified future date, or upon the
occurrence of a future event. Like Restricted Stock, Stock Units are not sold or transferred until any predefined restrictions have lapsed. However, because the initial award is only a promise to award a share at a later date, Stock Units carry
neither voting nor dividend rights until they are exchanged into shares at the payment date. Holders of Stock Units are not shareholders (whereas holders of restricted shares are shareholders). However, the Company is allowed to pay dividend
equivalents to recipients during the period in which they are a Stock Unit holder. Any such dividend payment is subject to taxation. Recipients will generally recognize ordinary income in the amount of the fair market value of the Restricted Stock
at the time the actual stock is issued. To date, no Stock Units have been issued.
Certain Federal Income Tax
Consequences.
The following summary generally describes the current principal federal income tax consequences of certain events under the 2006 Stock Compensation Plan. The summary is general in nature and is not intended to cover all tax
consequences that may apply to a particular employee or director or to the Company. The provisions of the Code and regulations thereunder relating to these matters are complicated, they change often, and their impact in any one case may depend upon
the particular circumstances.
Options and Stock Appreciation Rights.
A grantee will not be subject to any
federal income tax upon the grant of a stock option or SAR pursuant to the 2006 Stock Compensation Plan.
A grantee will not
recognize income for federal income tax purposes (and the Company will not be entitled to any federal income tax deduction) as a result of the exercise of an ISO and the related transfer of shares to the employee. However, the excess of the fair
market value of the shares transferred upon the exercise of an ISO over the exercise price for such shares generally will constitute an item of alternative minimum tax adjustment to the employee for the year in which the option is exercised. Thus,
certain employees may have an increase in their federal income tax liability as a result of the exercise of an ISO under the alternative minimum tax rules of the Code.
If the shares transferred pursuant to the exercise of an ISO are disposed of within two years from the date the ISO is granted or within one year from the date the ISO is exercised (the ISO holding
periods), the employee will recognize ordinary income equal to the excess of the amount realized on the disposition over the price paid for the shares. In such case, the Company will be entitled to a tax deduction for the same amount.
If the shares transferred upon the exercise of an ISO are disposed of after the ISO holding periods have been satisfied, long
term capital gain or long term capital loss is realized on the disposition. The Company will not be entitled to a federal income tax deduction as a result of such a disposition.
Ordinary income will be recognized by the employee or director upon exercise of an NQO. Generally, the ordinary income realized is the
excess, if any, of the fair market value of the shares of common stock received upon the exercise of the NQO over the exercise price. An employee will also recognize ordinary income upon exercising a SAR equal to the total of any cash received and
the fair market value of any shares of common stock received.
85
Income tax withholding from the employee is required on the income recognized by the
employee upon exercise of an NQO or a SAR. The Company ordinarily will receive a deduction for federal income tax purposes equal to the ordinary income recognized by the employee upon exercise of an NQO or a SAR, subject to the restrictions on
deductibility described under
Performance-Based Compensation Section 162(m) Requirements
below or the ordinary income recognized by the employee on the disposition of common stock acquired pursuant to the
exercise of an ISO.
Restricted Stock and Stock Units
.
An employee or director will generally recognize ordinary
income in an amount equal to the fair market value of the shares subject to the Restricted Stock grant at the time of vesting. Dividends paid to an employee or director on shares of Restricted Stock are treated as ordinary income of the employee or
director in the year received. The Company will receive a deduction for federal income tax purposes equal to the ordinary income recognized by the employee, subject to the limitations on deductibility contained in Section 162(m) of the Code.
Employees and directors who receive Stock Units typically may defer income tax liability until the underlying shares of Restricted Stock are issued. Accordingly, the Company will not receive a deduction until that time.
Performance-Based Compensation Section 162(m) Requirements
.
The 2006 Stock Compensation Plan is intended to
preserve the Companys tax deduction for the occurrence of certain events by complying with the terms of Section 162(m) of the Code and the regulations thereunder.
Shares Reserved For Issuance.
The following table sets forth information about the number of shares reserved for issuance
under the 1999 Stock Option Plan and the 2006 Stock Compensation Plan as of December 31, 2009.
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of
Securities to
be Issued
Upon
Exercise
of
Outstanding
Options
|
|
Weighted
Average
Exercise
Price of
Outstanding
Options
|
|
Number of
Securities
Remaining
Available
for Future
Issuance
|
Plans approved by security holders
|
|
620,156
|
|
$
|
12.80
|
|
463,268
|
|
|
|
|
|
|
|
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
Beneficial Stock Ownership Of Directors And Executive Officers
The table and the footnotes below contain information regarding the beneficial ownership of our common stock of our directors, director
nominees and non-director executive officers as of March 1, 2010. The percentage held by each person reflects the number of shares that the person owns, plus the number of shares that the person has the right to acquire pursuant to stock
options or warrants that are presently exercisable or which become exercisable within the next 60 days.
|
|
|
|
|
|
|
|
|
Name
|
|
Number of
Shares Owned
(1)
|
|
|
Right
to Acquire
(2)
|
|
% of Beneficial
Ownership
(3)
|
|
Donald R. Barber
|
|
70,950
|
|
|
18,082
|
|
|
(4)
|
John S. Chaperon
|
|
20,577
|
|
|
20,570
|
|
|
(4)
|
Joe B. Cox
|
|
100,856
|
(5)
|
|
12,435
|
|
|
(4)
|
Bradford G. Douglas
|
|
70,924
|
|
|
4,778
|
|
|
(4)
|
Roy N. Hellwege
|
|
23,201
|
|
|
25,350
|
|
|
(4)
|
John B. James
|
|
76,891
|
(6)
|
|
32,030
|
|
|
(4)
|
LaVonne Johnson
|
|
388,655
|
(7)
|
|
29,875
|
|
3.22
|
%
|
Edward Kaloust
|
|
50,587
|
|
|
18,748
|
|
|
(4)
|
Tracy L. Keegan
|
|
31,519
|
|
|
13,520
|
|
|
(4)
|
Michael L. McMullan
|
|
88,112
|
(8)
|
|
95,380
|
|
1.40
|
%
|
Edward A. Morton
|
|
7,056
|
|
|
7,156
|
|
|
(4)
|
Pierce T. Neese*
|
|
165,673
|
|
|
0
|
|
1.28
|
%
|
Michael T. Putziger
|
|
371,095
|
(9
)
|
|
12,871
|
|
2.96
|
%
|
Ramon A. Rodriguez
|
|
41,791
|
(10
)
|
|
18,014
|
|
|
(4)
|
Francis Rooney**
|
|
936,394
|
(1
1
)
|
|
0
|
|
7.22
|
%
|
Craig D. Sherman
|
|
9,825
|
|
|
33,060
|
|
|
(4)
|
Terry W. Stiles
|
|
322,393
|
(12
)
|
|
8,783
|
|
2.55
|
%
|
|
|
|
|
|
|
|
|
|
All Directors, Nominees and Executive Officers as a Group (17 individuals)
|
|
2,772,639
|
|
|
319,559
|
|
23.27
|
%
|
|
|
|
|
|
|
|
|
|
86
(1)
|
Includes shares for which the named person:
|
|
|
|
has sole voting and investment power;
|
|
|
|
has shared voting and investment power with a spouse, or
|
|
|
|
holds in an IRA or other retirement plan program, unless otherwise indicated in these footnotes.
|
(2)
|
Includes shares that may be acquired by exercising stock options and/or warrants that are currently exercisable or which become exercisable within 60 days of the record
date.
|
(3)
|
The determination of beneficial ownership of our common stock is based upon Rule 13d-3 under the Securities Exchange Act of 1934, which provides that shares
will be deemed to be beneficially owned where a person has, either solely or in conjunction with others, the power to vote or to direct the voting of shares and/or the power to dispose, or to direct the disposition of shares.
|
(5)
|
Mr. Cox holds 33,670 of the shares in trust.
|
(6)
|
Includes 15,000 shares held in trust and another 200 shares held in UTMA by Mr. James.
|
(7)
|
Includes 38,418 shares Ms. Johnsons spouse holds in his IRA, 4,000 shares she holds as custodian and 25,551 held by the Johnson Foundation.
|
(8)
|
Includes 3,924 shares held by Mr. McMullans spouse.
|
(9)
|
Includes 129,600 shares that Mr. Putziger holds as a trustee and 3,500 shares held by Mr. Putzigers spouse.
|
(10)
|
Includes 1,500 shares held by Mr. Rodriguez spouse and 27,000 held by a business interest of his.
|
(11)
|
Includes 931,530 shares that are held by a controlled company of Mr. Rooneys.
|
(12)
|
Includes 158,953 Mr. Stiles holds as trustee, 20,940 held by a limited partnership controlled by Mr. Stiles and 3,000 shares held in trust for his children.
|
*
|
Resigned as a director on November 8, 2009.
|
**
|
Resigned as a director on June 18, 2009.
|
Stock Ownership Of Principal Shareholders
The following table contains
information regarding the only shareholder known to us to be the beneficial owner of 5% or more of the outstanding shares of Bank of Florida common stock as March 1, 2010.
|
|
|
|
|
|
|
Name and Address of Beneficial Owner
|
|
Number of
Shares
|
|
|
Percent of
Class
|
|
|
|
|
Rooney Holdings, Inc. 1400 Gulf Shore Blvd. North, Suite 184 Naples, Florida 34102
|
|
931,530
|
*
|
|
7.18
|
%
|
*
|
As disclosed in a Schedule 13G/A filed with the Securities and Exchange Commission on January 16, 2008.
|
Shares Reserved For Issuance
The following table sets forth information about the number of shares reserved for issuance under the 1999 Stock Option Plan and the 2006 Stock Compensation Plan as of December 31, 2009.
|
|
|
|
|
|
|
|
Number of securities to be issued upon exercise of outstanding options
|
|
Number of
securities
to be issued
upon
exercise
of
outstanding
options
|
|
Weighted
average
exercise
price of
outstanding
options
|
|
Number
of
securities
remaining
available
for future
issuance
|
|
|
|
|
Plans approved by security holders
|
|
620,156
|
|
$
|
12.80
|
|
463,268
|
87
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|
Review of Related Person Transactions
The Audit Committee reviews
any transactions with related persons in detail on a case-by-case basis, but has not adopted a written policy on the issue. The Committee reviews any such transactions where the amount involved exceeds $120,000 and a related person has a direct or
indirect material interest. Management of the Company determines whether a transaction meets the requirements of a related person transaction requiring review by the Audit Committee. Transactions that fall within this definition are referred to the
Committee for approval or other action. Based on its consideration of all of the relevant facts and circumstances, the Audit Committee decides whether or not to approve such a transaction and will approve only those transactions that are in the best
interests of the Company. If the Company becomes aware of an existing transaction with a related person which has not been approved, the matter will be referred to the Audit Committee who will evaluate all options available, including ratification,
revision or termination of such transaction. For purposes of this review, the term related person has the meaning ascribed to it in SEC Regulation S-K 404(a) Transactions with related persons, promoters and certain control
persons.
Transactions
Bank of Florida does not make loans to its directors or Executive Officers. The Companys subsidiary banks, however, make loans to our Executive Officers and directors in the ordinary course of
business in accordance with their standard loan approval criteria. All such loans are made on substantially the same terms, including interest rates and collateral, as loans made to unaffiliated parties. As of December 31, 2009, the aggregate
balance of all loans to the directors and Executive Officers of the Company and its subsidiaries was approximately $72.33 million, or 6.18% of our net loans.
In the ordinary course of business, we may use the products and services of companies, partnerships, or firms of which our directors are owners, directors, or officers.
The Company engaged Centuric, LLC of Ft. Lauderdale, Florida, to manage the Information Technology functions of the Company and the bank
subsidiaries. This service primarily includes the purchase of computer hardware and software, telephones, network management services, and disaster recovery. Ramon A. Rodriguez, a director of Bank of Florida, is a member of Centuric Group, LLC, the
parent company of Centuric, LLC, a consulting and outsourcing firm specializing in system integration, network management and security, disaster recovery and business contingency planning. The Company paid Centuric, LLC approximately $630,000 and
$1,112,000 in 2009 and 2008, respectively, of which $40,100 and $314,300, respectively, was for the purchase of computer equipment and software, including set-up fees.
In 2002, the Company entered into a lease with Citizens Reserve, LLC for a banking facility and office space located at 1185 Immokalee Road, Naples, Florida. The ownership interest in Citizens Reserve,
LLC included three directors of Bank of Florida, Donald R. Barber (8.33%), John B. James (5.56%), and LaVonne Johnson (25%). In May 2008, Citizens Reserve, LLC sold the building to Naples 9, LLC, an unrelated entity. Citizens Reserve, LLC was paid
$0 and $369,000 in 2009 and 2008, respectively.
Bank of Florida Southwest leases a banking facility in Bonita Springs,
Florida from Brooks Landing, LLC. Brooks Landing, LLC is owned in part by directors Donald R. Barber (9.38%), John B. James (6.25%), and LaVonne Johnson (25%). The total amount of lease payments paid during 2009 was approximately $224,000. The lease
will expire in 2023.
Bank of Florida Southeast engaged companies that had a relationship with
Director Terry W. Stiles, to build out the office facility in Downtown Ft. Lauderdale located at 200 SW 1
st
Avenue and the Coral Ridge branch office located at 2521 East Commercial Boulevard. Bank of Florida Southeast
paid the various companies $0 and $400,000 in 2009 and 2008, respectively, for their services.
Bank of Florida
Southeast also has a lease arrangement for the Coral Ridge branch office with 2521 Marathon, LLC, for which Mr. Stiles serves as the manager. The total of the lease payments paid during 2009 and 2008, for the Coral Ridge branch was
approximately $342,000 and $225,000, respectively. The services and lease were approved by the Board of Directors of Bank of Florida Southeast and Bank of Florida.
88
Bank of Florida Southeast also leases its downtown Ft. Lauderdale headquarters
facility from 200 Brickell Associates, Ltd., an entity in which Mr. Stiles is a partner. A total of $723,862 and $452,982 in lease payments was paid to 200 Brickell Associates, Ltd. during 2009 and 2008, respectively, for the leasing of that
banking facility.
Bank of Florida Tampa Bay sublets office space to Medi-Weight Loss Clinics
®
. Bank of Florida Tampa Bay received $5,600 and $123,600 in sublease income during 2009 and 2008,
respectively. Edward Kaloust, a director of Bank of Florida, is a managing member of Medi-Weight Loss Clinics
®
.
The sublease agreements with Medi-Weight Loss Clinics
®
terminated on January 31, 2009.
Director Independence
The Securities and Exchange Commission and the Financial Industry Regulatory Authority have regulations and listing requirements that govern the corporate practices of Nasdaq listed companies such as Bank
of Florida including defining whether a director is independent as defined by Nasdaq Marketplace Rule 4200(a)(15). An annual self-assessment of director independence is conducted by our Nominating and Corporate Governance Committee.
In determining whether a director is independent, our Board of Directors broadly considers relevant factors and
circumstances, including each directors personal independence and the manner in which each directors affiliations, both business and personal, might impair his or her independence. The Board of Directors considers any transactions and
relationships between the director (and any member of his or her immediate family or their affiliates) and Bank of Florida (and its subsidiaries and affiliates). Our Board of Directors also examines any transactions and relationships between
directors and their affiliates and members of our senior management team and any member of their immediate family or affiliates. Since banking is a significant portion of our business, our Board of Directors has determined that a directors
independence is not affected where there is a loan between a subsidiary bank and the director, and that loan is on market terms, is performing in accordance with its contractual terms and has not been adversely classified or specially mentioned by
any bank examiners.
The Board has determined that
Joe B. Cox, Bradford G. Douglas, LaVonne Johnson, Edward Kaloust, Edward
A. Morton
and
Michael T. Putziger
are independent. Although Director Johnson has an interest in a limited liability company that receives lease payments from Bank of FloridaSouthwest, she is not a managing member of the limited
liability company and her 25% ownership interest does not provide her with control of the limited liability company. Therefore, the Nominating and Corporate Governance Committee and the Board of Directors have concluded that Director Johnson is
independent.
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
Audit Fees.
The aggregate fees which will be billed for professional services by Porter Keadle Moore, LLP in connection with the audit of the annual financial statements and internal controls over
financial reporting for the fiscal year ended December 31, 2009 and the reviews of the financial statements included in the Companys 2009 quarterly filings with the Securities and Exchange Commission are $291,000. The aggregate fees which
were billed for professional services by Hacker Johnson & Smith P.A. in connection with the audit of the annual financial statements and internal controls over financial reporting for the fiscal years ended December 31, 2008 and 2007
and the reviews of the financial statements included in the Companys 2008 quarterly filings and the 2007 quarterly filings with the Securities and Exchange Commission were $252,000 and $246,000, respectively. Porter Keadle Moore, LLP billed
$27,000 in connection with the annual audit of the Companys 401K plan in 2009. Hacker, Johnson & Smith P.A. billed the Company $8,000 and $7,500 in connection with the annual audit of the Companys 401K plan in 2008 and 2007,
respectively.
Audit-Related and Other Fees:
In 2009, Porter Keadle Moore, LLP billed the Company $65,300 and Hacker,
Johnson & Smith billed the Company $100,000 in connection with registration statement and comfort letter procedures. In 2007, Hacker, Johnson & Smith P.A. billed Bank of Florida Corporation approximately $10,000 related to vendor
contracts in connection with the acquisition of Old Florida Bank Corporation.
Tax Fees
: The fees which will be
billed by Porter Keadle Moore, LLP for tax compliance and advice, including the preparation of Bank of Florida Corporations 2009 corporate consolidated tax returns and personal property tax returns are $24,000. The fees billed by Hacker,
Johnson & Smith P.A. for tax compliance and advice, including the preparation of Bank of Florida Corporations 2008 and 2007 corporate consolidated tax returns, including the final 2007 corporate tax return for Old Florida Bank, were
$23,000 per year.
89
In all instances, Porter Keadle Moore, LLPs and Hacker, Johnson & Smith P.A.
performance of those services was pre-approved by Bank of Florida Corporations Audit Committee.
ITEM 15.
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
The following documents are filed as part of this report at pages 92 through 145.
|
|
|
Consolidated Financial Statements of Bank of Florida Corporation (including all required schedules)
:
|
|
1.
|
Report of Independent Registered Public Accounting Firm;
|
|
2.
|
Consolidated Balance Sheets at December 31, 2009 and 2008;
|
|
3.
|
Consolidated Statements of Operations, Stockholders Equity, Comprehensive (Loss) Income, and Statements of Cash Flows for years ended December 31, 2009, 2008
and 2007.
|
|
4.
|
Notes to Consolidated Financial Statements
|
The following exhibits are filed with the Securities and Exchange Commission and are incorporated by reference into this Form 10-K. The exhibits which are denominated by an (a.) were previously filed as a
part of Form 10-K filed with the SEC on March 9, 2009. The exhibits which are denominated by a (b.) were previously filed as a part of Amendment No. 1 to Form SB-2, filed with the SEC on May 7, 1999. The exhibits which are denominated
by a (c.) were previously filed as a part of Form 10-KSB filed with the SEC on March 30, 2000. The exhibits which are denominated by a (d.) were previously filed as a part of Form S-4 filed with the SEC on October 3, 2006. The exhibits
which are denominated by a (e.) were previously filed as a part of Form 10-Q filed with the SEC on November 5, 2008. The exhibits which are denominated by a (f.) were previously filed as part of Form 10-QSB/A filed on September 10, 2002.
The exhibits which are denominated by a (g.) were previously filed as part of Form 8-K filed on July 2, 2009. The exhibits which are denominated by a (h.) were previously filed as part of Form 10-Q filed on November 9, 2007. The
exhibits which are denominated by a (i.) were previously filed as part of a Registration Statement on Form SB-2 filed with the SEC on September 24, 2004, File No. 333-116833. The exhibits that are denominated by a (j.) were previously
filed as part of Form 10-Q filed with the SEC on August 4, 2005. The exhibits that are denominated by a (k.) were previously filed as part of Form 10-Q filed with the SEC on November 3, 2005. The exhibits that are denominated by a (l.)
were previously filed as part of Form 10-K filed with the SEC on March 5, 2008. The exhibits that are denominated by a (m.) were previously filed as part of Schedule DEF 14A filed with the SEC on April 21, 2006. The exhibits that are
denominated by a (n.) were previously filed as part of Form 10-K filed with the SEC on March 8, 2007. The exhibits that are denominated by a (o.) were previously filed as part of Form 10-Q filed with the SEC on August 7, 2008. The exhibits
that are denominated by a (p.) were previously filed as part of Form S-8 filed with the Securities and Exchange Commission on October 30, 2009. The exhibits that are denominated by a (q) were previously filed as part of Form 8-K filed on
October 19, 2009. The exhibit numbers correspond to the exhibit numbers in the referenced document.
|
|
|
Exhibit
Number
|
|
Description of Exhibit
|
|
|
j.3.1
|
|
Amended and Restated Articles of Incorporation
|
|
|
o.3.2
|
|
Third Amended and Restated Bylaws dated April 24, 2008
|
|
|
n.3.3
|
|
Article of Amendment to Restated Articles of Incorporation dated December 20, 2006
|
|
|
g.3.4
|
|
Articles of Amendment to Articles of Incorporation dated June 26, 2009
|
|
|
q.3.5
|
|
Articles of Amendment to Restated Articles of Incorporation dated August 27, 2009
|
|
|
b.4.1
|
|
Specimen Common Stock Certificate
|
|
|
m.4.2
|
|
2006 Stock Compensation Plan
|
|
|
g.4.4
|
|
Specimen Series B Preferred Stock Certificate
|
|
|
g.4.7
|
|
Form of Warrant 2009 Offering
|
|
|
k.10.1
|
|
Amended and Restated Employment Agreement of Michael L. McMullan dated February 1, 2005
|
|
|
a.10.2
|
|
Change in Control Agreement of Roy N. Hellwege effective January 1, 2009
|
|
|
a.10.3
|
|
Change in Control Agreement of Charles K. Cross effective January 1, 2009
|
|
|
c.10.4
|
|
1999 Stock Option Plan
|
|
|
c.10.5
|
|
Form of Incentive Stock Option Agreement
|
90
|
|
|
Exhibit
Number
|
|
Description of Exhibit
|
|
|
a.10.7
|
|
Deferred Compensation Plan of Bank of Florida dated November 19, 2008
|
|
|
a.10.8
|
|
Change in Control Agreement of Julie W. Husler effective January 1, 2009
|
|
|
f.10.9
|
|
Lease between Citizens Reserve, LLC and Citizens National Bank of Southwest Florida
|
|
|
a.10.10
|
|
Change in Control Agreement of Christopher Willman effective January 1, 2009
|
|
|
a.10.11
|
|
Change in Control Agreement of John B. James effective January 1, 2009
|
|
|
l.10.12
|
|
Change in Control Agreement of John S. Chaperon dated January 1, 2008
|
|
|
e.10.13
|
|
Change in Control Agreement of John Klumpp dated August 1, 2008
|
|
|
e.10.14
|
|
Change in Control Agreement of Wayne Gilmore dated August 1, 2008
|
|
|
a.10.15
|
|
Change in Control Agreement of Roberto Pelaez effective January 1, 2009
|
|
|
e.10.16
|
|
Change in Control Agreement of Charles Tipton dated August 1, 2008
|
|
|
l.10.18
|
|
Change in Control Agreement of Tracy L. Keegan dated January 1, 2008
|
|
|
a.10.19
|
|
Amendment to Amended and Restated Employment Agreement of Michael L. McMullan dated December 15, 2008
|
|
|
a.10.20
|
|
Deferred Compensation Agreement of Tracy L. Keegan dated December 21, 2008
|
|
|
a.10.21
|
|
Deferred Compensation Agreement of John S. Chaperon dated December 21, 2008
|
|
|
a.10.22
|
|
Deferred Compensation Agreement of Roy N. Hellwege dated December 21, 2008
|
|
|
p.10.23
|
|
401(k) Plan
|
|
|
h.14.1
|
|
Code of Ethical Conduct (for Principal Executive and Financial Officer) approved on September 20, 2007
|
|
|
h.14.2
|
|
Code of Ethics approved on September 20, 2007
|
|
|
o.21.1
|
|
Subsidiaries of the Registrant
|
|
|
31.1
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Principal Executive Officer
|
|
|
31.2
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Principal Financial Officer
|
|
|
32.1
|
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Principal Executive Officer
|
|
|
32.2
|
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Principal Financial Officer
|
91
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Bank
of Florida Corporation
Naples, Florida
We have audited the accompanying consolidated balance sheet of Bank of Florida Corporation and subsidiaries (the Company) as of December 31, 2009, and the related consolidated statements of operations, comprehensive
income (loss), changes in stockholders equity, and cash flows for the year then ended. We have also audited the Companys internal controls over financial reporting as of December 31, 2009, based on the criteria established in
Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for these financial statements, for maintaining effective control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Managements Report on Internal Controls over Financial Reporting. Our responsibility is to express an
opinion on these financial statements and an opinion on the Companys internal control over financial reporting based on our audits.
We
conducted our audits in accordance with the auditing 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 financial statements includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our audit also included assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles. A companys 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 companys 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. 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.
Certified Public Accountants
Suite 1800
235 Peachtree Street NE
Atlanta, Georgia 30303
Phone 404-588-4200
Fax 404-588-4222
www.pkm.com
92
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Bank of Florida Corporation and subsidiaries as of December 31, 2009, and the results of their operations and their cash flows for the year ended December 31, 2009, in conformity with
accounting principles generally accepted in the United States of America. Also, in our opinion, Bank of Florida Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based
on criteria established in
Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
.
The accompanying financial statements have been prepared assuming the Bank of Florida Corporation will continue as a going concern. As discussed in Notes 2 and 19 to the financial statements, quantitative
measures established by regulation to ensure capital adequacy require the Banks to maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). At December 31, 2009, the Banks regulatory tangible capital, core capital, and risk-based capital are below the required levels. In addition, the Banks have suffered recurring operating losses. The
Banks have filed a capital plan with the FDIC and Florida Office of Financial Regulation outlining their plans for attaining the required levels of regulatory capital by December 31, 2009 and June 30, 2010. To date, notification from the
FDIC and Florida Office of Financial Regulation regarding acceptance or rejection of their capital plan has not been received. Failure to meet the capital requirements and interim capital targets included in the capital plan exposes the Banks to
regulatory sanctions that may include restrictions on operations and growth, mandatory asset dispositions, and seizure of the institution. These matters raise substantial doubt about the ability of Bank of Florida Corporation to continue as a going
concern. The ability of the Banks to continue as a going concern is dependent on many factors, one of which is regulatory action, including acceptance of its capital plan. Managements plans in regard to these matters are described in Notes 2
and 19. The accompanying financial statements do not include any adjustments that would be necessary should the Company be unable to continue as a going concern.
Atlanta, Georgia
March 5, 2010
Certified Public Accountants
Suite 1800
235 Peachtree Street NE
Atlanta, Georgia 30303
Phone 404-588-4200
Fax 404-588-4222
www.pkm.com
93
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Bank of
Florida Corporation
Naples, Florida:
We have audited the accompanying consolidated balance sheet of Bank of Florida Corporation and Subsidiaries (the Company) as of December 31, 2008, and the related consolidated statements
of operations, stockholders equity, comprehensive income and cash flows for each of the years in the two-year period ended December 31, 2008. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements 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 audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2008, and the results of its
operations and its cash flows for each of the years in the two-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.
HACKER, JOHNSON & SMITH PA
Fort Myers, Florida
March 4, 2009
94
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
(In thousands, except share and per
share data)
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
10,161
|
|
|
$
|
35,054
|
|
Interest-bearing deposits due from other banks
|
|
|
58,506
|
|
|
|
12,571
|
|
Federal funds sold
|
|
|
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
TOTAL CASH AND CASH EQUIVALENTS
|
|
|
68,667
|
|
|
|
47,938
|
|
|
|
|
Securities held to maturity
|
|
|
554
|
|
|
|
3,316
|
|
Securities available for sale
|
|
|
98,120
|
|
|
|
114,660
|
|
|
|
|
Loans
|
|
|
1,213,033
|
|
|
|
1,275,311
|
|
Less - Allowance for loan losses
|
|
|
42,063
|
|
|
|
29,533
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
1,170,970
|
|
|
|
1,245,778
|
|
|
|
|
Restricted securities, at cost
|
|
|
8,643
|
|
|
|
9,246
|
|
Premises and equipment, net
|
|
|
27,282
|
|
|
|
29,501
|
|
Accrued interest receivable
|
|
|
4,805
|
|
|
|
4,990
|
|
Cash surrender value of life insurance
|
|
|
3,679
|
|
|
|
3,526
|
|
Deferred tax asset, net
|
|
|
200
|
|
|
|
9,277
|
|
Goodwill
|
|
|
|
|
|
|
61,960
|
|
Other real estate owned
|
|
|
14,357
|
|
|
|
4,817
|
|
Other assets
|
|
|
5,066
|
|
|
|
14,004
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
1,402,343
|
|
|
$
|
1,549,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,187,318
|
|
|
$
|
1,166,282
|
|
Subordinated debt
|
|
|
16,000
|
|
|
|
16,000
|
|
Other borrowings
|
|
|
32,681
|
|
|
|
20,000
|
|
Federal Home Loan Bank advances
|
|
|
118,457
|
|
|
|
152,474
|
|
Accrued interest payable
|
|
|
2,045
|
|
|
|
2,286
|
|
Accrued expenses and other liabilities
|
|
|
2,006
|
|
|
|
1,992
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
1,358,507
|
|
|
|
1,359,034
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Notes 2, 14 and 20)
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Series A Preferred stock, par value $.01 per share, 50,000 shares designated, no shares issued or outstanding at
December 31, 2009 and 2008, respectively.
|
|
|
|
|
|
|
|
|
Series B Preferred stock, par value $.01 per share, 520 shares designated, 172 and 0 shares issued and outstanding at
December 31, 2009 and December 31, 2008, respectively
|
|
|
3,971
|
|
|
|
|
|
Undesignated Preferred stock, par value $.01 per share, 9,949,480 shares authorized, no shares issued and outstanding at
December 31, 2009 and 949,480 shares authorized, no shares issued and outstanding at December 31, 2008, respectively
|
|
|
|
|
|
|
|
|
Common stock, par value $.01 per share, 100,000,000 shares authorized, 12,968,898 shares issued and outstanding at
December 31, 2009 and 20,000,000 shares authorized, 12,779,020 shares issued and outstanding at December 31, 2008
|
|
|
130
|
|
|
|
128
|
|
Additional paid-in capital
|
|
|
201,173
|
|
|
|
199,862
|
|
Restricted stock, 168,500 shares
|
|
|
(436
|
)
|
|
|
|
|
Accumulated deficit
|
|
|
(162,634
|
)
|
|
|
(15,030
|
)
|
Accumulated other comprehensive income
|
|
|
1,632
|
|
|
|
5,019
|
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS EQUITY
|
|
|
43,836
|
|
|
|
189,979
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
1,402,343
|
|
|
$
|
1,549,013
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
95
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2009, 2008 and 2007
(In thousands, except
share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
66,098
|
|
|
$
|
78,441
|
|
|
$
|
81,145
|
Interest on securities and other
|
|
|
5,349
|
|
|
|
4,731
|
|
|
|
2,656
|
Interest on federal funds sold
|
|
|
16
|
|
|
|
155
|
|
|
|
354
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL INTEREST INCOME
|
|
|
71,463
|
|
|
|
83,327
|
|
|
|
84,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
28,789
|
|
|
|
33,572
|
|
|
|
34,522
|
Interest on subordinated debt
|
|
|
486
|
|
|
|
898
|
|
|
|
1,972
|
Interest on other borrowings
|
|
|
5,536
|
|
|
|
6,065
|
|
|
|
4,437
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL INTEREST EXPENSE
|
|
|
34,811
|
|
|
|
40,535
|
|
|
|
40,931
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES
|
|
|
36,652
|
|
|
|
42,792
|
|
|
|
43,224
|
PROVISION FOR LOAN LOSSES
|
|
|
73,670
|
|
|
|
24,488
|
|
|
|
4,254
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME (EXPENSE) AFTER PROVISION FOR LOAN LOSSES
|
|
|
(37,018
|
)
|
|
|
18,304
|
|
|
|
38,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and other income
|
|
|
2,631
|
|
|
|
1,923
|
|
|
|
1,865
|
Trust fees
|
|
|
2,579
|
|
|
|
2,719
|
|
|
|
3,017
|
Gain (loss) on sale of assets, net
|
|
|
(587
|
)
|
|
|
32
|
|
|
|
706
|
Gain on sale of investment securities, net
|
|
|
4,246
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NONINTEREST INCOME
|
|
|
8,869
|
|
|
|
4,702
|
|
|
|
5,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
20,032
|
|
|
|
21,411
|
|
|
|
21,356
|
Occupancy
|
|
|
7,171
|
|
|
|
6,973
|
|
|
|
5,691
|
Equipment, depreciation and maintenance
|
|
|
3,180
|
|
|
|
3,279
|
|
|
|
2,399
|
Data processing
|
|
|
2,553
|
|
|
|
2,315
|
|
|
|
2,501
|
Stationary, postage and office supplies
|
|
|
593
|
|
|
|
838
|
|
|
|
925
|
Professional fees
|
|
|
3,058
|
|
|
|
1,815
|
|
|
|
1,541
|
Advertising, marketing and public relations
|
|
|
500
|
|
|
|
716
|
|
|
|
856
|
Goodwill impairment
|
|
|
61,960
|
|
|
|
|
|
|
|
|
Other
|
|
|
9,504
|
|
|
|
6,714
|
|
|
|
4,711
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NONINTEREST EXPENSES
|
|
|
108,551
|
|
|
|
44,061
|
|
|
|
39,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) INCOME BEFORE INCOME TAXES (BENEFIT)
|
|
|
(136,700
|
)
|
|
|
(21,055
|
)
|
|
|
4,578
|
Income taxes (benefit)
|
|
|
10,798
|
|
|
|
(7,833
|
)
|
|
|
1,835
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME
|
|
|
(147,498
|
)
|
|
|
(13,222
|
)
|
|
|
2,743
|
|
|
|
|
Preferred stock dividends
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS
|
|
$
|
(147,604
|
)
|
|
$
|
(13,222
|
)
|
|
$
|
2,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME PER SHARE: BASIC
|
|
$
|
(11.54
|
)
|
|
$
|
(1.03
|
)
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME PER SHARE: DILUTED
|
|
$
|
(11.54
|
)
|
|
$
|
(1.03
|
)
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE SHARES OUTSTANDING: BASIC
|
|
|
12,788,450
|
|
|
|
12,779,020
|
|
|
|
11,768,529
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE SHARES OUTSTANDING: DILUTED
|
|
|
12,788,450
|
|
|
|
12,779,020
|
|
|
|
11,905,196
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements
96
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years Ended December 31, 2009, 2008 and 2007
(In thousands, except
share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Restricted
Stock
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Total
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
|
$
|
|
|
9,575,153
|
|
$
|
96
|
|
$
|
139,854
|
|
|
|
|
|
$
|
(4,551
|
)
|
|
$
|
106
|
|
|
$
|
135,505
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,743
|
|
|
|
|
|
|
|
2,743
|
|
Exercise of stock options, warrants and other
|
|
|
|
|
|
|
160,585
|
|
|
2
|
|
|
1,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,839
|
|
Paid-in-capital from stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350
|
|
Tax benefit from stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
397
|
|
Common stock issued in acquisition
|
|
|
|
|
|
|
3,043,282
|
|
|
30
|
|
|
57,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,168
|
|
Changes in fair value of interest rate swap, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
870
|
|
|
|
870
|
|
Changes in fair value on available-for-sale securities and, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
|
$
|
|
|
12,779,020
|
|
$
|
128
|
|
$
|
199,576
|
|
|
|
|
|
$
|
(1,808
|
)
|
|
$
|
1,035
|
|
|
$
|
198,931
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,222
|
)
|
|
|
|
|
|
|
(13,222
|
)
|
Paid-in-capital from stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
286
|
|
Changes in fair value of interest rate swap, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,312
|
|
|
|
2,312
|
|
Changes in fair value on available-for-sale securities and, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,672
|
|
|
|
1,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
|
$
|
|
|
12,779,020
|
|
$
|
128
|
|
$
|
199,862
|
|
|
|
|
|
$
|
(15,030
|
)
|
|
$
|
5,019
|
|
|
$
|
189,979
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(147,498
|
)
|
|
|
|
|
|
|
(147,498
|
)
|
Preferred stock issued
|
|
172
|
|
|
3,971
|
|
|
|
|
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,300
|
|
Common stock issued
|
|
|
|
|
|
|
189,878
|
|
|
2
|
|
|
704
|
|
|
(706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in-capital from stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
|
270
|
|
|
|
|
|
|
|
|
|
|
|
520
|
|
Tax benefit from stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
Dividends on Series B preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106
|
)
|
|
|
|
|
|
|
(106
|
)
|
Changes in fair value of interest rate swap, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,217
|
)
|
|
|
(1,217
|
)
|
Changes in fair value on available-for-sale securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,170
|
)
|
|
|
(2,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
172
|
|
$
|
3,971
|
|
12,968,898
|
|
$
|
130
|
|
$
|
201,173
|
|
$
|
(436
|
)
|
|
$
|
(162,634
|
)
|
|
$
|
1,632
|
|
|
$
|
43,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
97
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
Years ended December 31, 2009, 2008 and 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
Net (loss) income
|
|
$
|
(147,498
|
)
|
|
$
|
(13,222
|
)
|
|
$
|
2,743
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains arising during the year, net of income taxes of $281, $1,017 and $38 in 2009, 2008, and 2007,
respectively
|
|
|
466
|
|
|
|
1,690
|
|
|
|
59
|
|
|
|
|
Reclassification adjustment for gains realized in net loss:
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for gains realized in net loss, net of income taxes of ($1,588) and ($10) in 2009 and 2008,
respectively
|
|
|
(2,636
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
Unrealized gains (losses) on interest rate swap:
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the year, net of income taxes (benefit) of ($734), $1,393 and $523 in 2009, 2008
and 2007, respectively
|
|
|
(1,217
|
)
|
|
|
2,312
|
|
|
|
870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses)
|
|
|
(3,387
|
)
|
|
|
3,984
|
|
|
|
929
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
$
|
(150,885
|
)
|
|
$
|
(9,238
|
)
|
|
$
|
3,672
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
98
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2009, 2008 and 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(147,498
|
)
|
|
$
|
(13,222
|
)
|
|
$
|
2,743
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,084
|
|
|
|
3,096
|
|
|
|
2,161
|
|
Provision for loan losses
|
|
|
73,670
|
|
|
|
24,488
|
|
|
|
4,254
|
|
Accretion of deferred loan fees and costs, net
|
|
|
(327
|
)
|
|
|
(1,198
|
)
|
|
|
(1,276
|
)
|
Accretion of premiums and discounts on investments, net
|
|
|
165
|
|
|
|
(101
|
)
|
|
|
(79
|
)
|
Gain on sale of assets, net
|
|
|
(3,659
|
)
|
|
|
(60
|
)
|
|
|
(148
|
)
|
Loss on impairment of investments
|
|
|
238
|
|
|
|
|
|
|
|
|
|
Originations of loans held for sale
|
|
|
(14,981
|
)
|
|
|
(49,052
|
)
|
|
|
(75,625
|
)
|
Proceeds from sale of loans held for sale
|
|
|
14,782
|
|
|
|
67,296
|
|
|
|
76,459
|
|
Amortization of intangible assets
|
|
|
419
|
|
|
|
505
|
|
|
|
511
|
|
Decrease (increase) in accrued interest receivable
|
|
|
185
|
|
|
|
574
|
|
|
|
(113
|
)
|
Deferred income taxes (benefit)
|
|
|
11,118
|
|
|
|
(6,070
|
)
|
|
|
(647
|
)
|
Increase in cash surrender value of bank-owned life insurance
|
|
|
(153
|
)
|
|
|
(143
|
)
|
|
|
(134
|
)
|
Goodwill impairment
|
|
|
61,960
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in other assets
|
|
|
6,568
|
|
|
|
(3,036
|
)
|
|
|
(567
|
)
|
Stock compensation expense
|
|
|
520
|
|
|
|
286
|
|
|
|
350
|
|
Increase (decrease) in accrued interest payable
|
|
|
(241
|
)
|
|
|
525
|
|
|
|
292
|
|
Increase (decrease) in accrued expenses and other liabilities
|
|
|
14
|
|
|
|
622
|
|
|
|
(5,511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
5,864
|
|
|
|
24,510
|
|
|
|
2,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in loans held for investment
|
|
|
(18,078
|
)
|
|
|
(161,404
|
)
|
|
|
(150,541
|
)
|
Acquisition of net assets, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
12,022
|
|
Purchase of securities available for sale
|
|
|
(184,998
|
)
|
|
|
(93,623
|
)
|
|
|
(263
|
)
|
Purchase of restricted securities and bank-owned life insurance, net
|
|
|
(2,271
|
)
|
|
|
(27,135
|
)
|
|
|
(21,174
|
)
|
Proceeds from sale of restricted securities and bank-owned life insurance, net
|
|
|
3,050
|
|
|
|
27,006
|
|
|
|
15,907
|
|
Proceeds from the sale of securities available for sale and held to maturity
|
|
|
177,885
|
|
|
|
2,528
|
|
|
|
16,142
|
|
Proceeds from maturing securities and principal payments on available-for-sale securities
|
|
|
26,605
|
|
|
|
13,935
|
|
|
|
9,747
|
|
Proceeds from sale of other real estate owned
|
|
|
9,185
|
|
|
|
1,417
|
|
|
|
1,500
|
|
Purchase of premises and equipment, net
|
|
|
(435
|
)
|
|
|
(2,984
|
)
|
|
|
(8,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
10,943
|
|
|
|
(240,260
|
)
|
|
|
(125,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits
|
|
|
21,036
|
|
|
|
229,166
|
|
|
|
(2,775
|
)
|
Proceeds from other borrowings
|
|
|
546,699
|
|
|
|
20,000
|
|
|
|
|
|
Payment of other borrowings
|
|
|
(534,018
|
)
|
|
|
|
|
|
|
|
|
Payment of fed funds purchased
|
|
|
|
|
|
|
(250
|
)
|
|
|
|
|
Proceeds from FHLB Advances
|
|
|
61,778
|
|
|
|
874,200
|
|
|
|
740,199
|
|
Repayment of FHLB Advances
|
|
|
(95,795
|
)
|
|
|
(876,816
|
)
|
|
|
(627,659
|
)
|
Tax benefit from exercise of common stock options and warrants
|
|
|
28
|
|
|
|
|
|
|
|
397
|
|
Issuance of Series B preferred stock
|
|
|
4,300
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance or exercise of common stock
|
|
|
|
|
|
|
|
|
|
|
1,839
|
|
Dividends on preferred stock
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
3,922
|
|
|
|
246,300
|
|
|
|
112,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
20,729
|
|
|
|
30,550
|
|
|
|
(10,356
|
)
|
|
|
|
|
CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
47,938
|
|
|
|
17,388
|
|
|
|
27,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
68,667
|
|
|
$
|
47,938
|
|
|
$
|
17,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Contd)
Years ended December 31, 2009, 2008 and 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
2007
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for
-
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
35,052
|
|
|
$
|
40,010
|
|
$
|
40,142
|
|
|
|
|
|
|
|
|
|
|
|
Taxes
|
|
$
|
|
|
|
$
|
380
|
|
$
|
2,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash Transactions
:
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) on securities available for sale, net of taxes
|
|
$
|
(2,170
|
)
|
|
$
|
1,672
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) on interest rate swap, net of taxes
|
|
$
|
(1,217
|
)
|
|
$
|
2,312
|
|
$
|
870
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of loans to other real estate owned
|
|
$
|
19,543
|
|
|
$
|
6,055
|
|
$
|
2,850
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of loans to loans held for sale
|
|
$
|
|
|
|
$
|
17,742
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of other real estate owned to other assets
|
|
$
|
432
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of stock from securities held to maturity to restricted securities
|
|
$
|
176
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate financed
|
|
$
|
|
|
|
$
|
1,275
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Financial Institutions
:
|
|
|
|
|
|
|
|
|
|
|
Fair value of investment securities available for sale acquired
|
|
$
|
|
|
|
$
|
|
|
$
|
21,734
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of premises and equipment acquired
|
|
$
|
|
|
|
$
|
|
|
$
|
16,272
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of loans acquired, net
|
|
$
|
|
|
|
$
|
|
|
$
|
210,527
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangible
|
|
$
|
|
|
|
$
|
|
|
$
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
|
|
|
$
|
|
|
$
|
50,796
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of deferred tax assets acquired
|
|
$
|
|
|
|
$
|
|
|
$
|
2,001
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of other assets acquired
|
|
$
|
|
|
|
$
|
|
|
$
|
1,829
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of deposit liabilities assumed
|
|
$
|
|
|
|
$
|
|
|
$
|
248,711
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of FHLB advances and subordinated debentures assumed
|
|
$
|
|
|
|
$
|
|
|
$
|
5,300
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of accrued expenses and other liabilities assumed
|
|
$
|
|
|
|
$
|
|
|
$
|
4,906
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
|
|
$
|
|
|
|
$
|
|
|
$
|
57,168
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements
100
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 1ORGANIZATION
Organization:
The consolidated financial statements of Bank of Florida Corporation (the Company) include the accounts of the Company and its wholly-owned subsidiaries, Bank of Florida Southwest, Bank of Florida Southeast, and
Bank of Florida Tampa Bay (collectively, the Banks), and Bank of Florida Trust Company.
The assets under
administration by Bank of Florida Trust Company, as well as the obligations associated with those assets, are not included as part of the consolidated financial statements of the Company.
Nature of Operations:
The Companys primary source of income is from the Banks, which provide a full range of commercial and consumer banking services primarily within the Naples, Ft. Myers, Miami-Dade, Ft. Lauderdale,
Palm Beach and Tampa Bay areas of Florida. The Banks are subject to regulation of both the Florida Department of Financial Services and the Federal Deposit Insurance Corporation.
Bank of Florida Trust Company (the Trust Company) was incorporated under the laws of the State of Florida as a wholly-owned
subsidiary of Bank of Florida - Southwest. Bank of Florida Trust Company offers investment management, trust administration, estate planning, and financial planning services.
All significant intercompany balances and transactions have been eliminated. The Company operates as one reportable segment, Banking and
Related Services.
NOTE 2GOING CONCERN
As a result of the extraordinary effects of what may ultimately be the worst economic downturn since the Great Depression, the Companys capital and that of its Banks has been significantly depleted.
The net loss of $147.6 million recorded by the Company in 2009 was primarily the result of significant increases in the provision for credit losses, the recognition of goodwill impairment and the establishment of a valuation reserve against the
Companys deferred tax asset. The impact of the current financial crisis in the U.S. and abroad is having far-reaching consequences and it is difficult to say at this point when the economy will begin to recover. As a result, we cannot assure
you that we will be able to resume profitable operations in the near future, or at all.
We have determined that significant
additional sources of capital will be required for us to continue operations through 2010 and beyond. The Companys Board of Directors has formed a strategic planning committee. The Committee has hired an investment banking firm to seek all
strategic alternatives to enhance the stability of the Company including a capital investment, sale, strategic merger or some form of restructuring. There can be no assurance that the Company will succeed in this endeavor and be able to comply with
the new regulatory requirements. In addition, a transaction, which would likely involve equity financing, would result in substantial dilution to our current stockholders and could adversely affect the price of our common stock. If the Company does
not comply with established capital requirements, the regulators may take additional enforcement action against the holding company and the Bank.
It remains to be seen if those efforts will be successful, either on a short-term or long-term basis. As a result of our financial condition, our regulators are continually monitoring our liquidity and
capital adequacy. Based on their assessment of our ability to continue to operate in a safe and sound manner, our regulators may take other and further actions, including placing the Banks into conservatorship or receivership, to protect the
interests of depositors insured by the Federal Deposit Insurance Corporation.
101
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 2GOING CONCERN (Continued)
The accompanying consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future, and do not include any adjustments to reflect the possible future effects on the recoverability or
classification of assets, and the amounts or classification of liabilities that may result from the outcome of any regulatory action, which would affect our ability to continue as a going concern
.
Based upon the financial condition of the Banks, and subsequent correspondence and discussions with the FDIC, the FDIC has informed us that:
(1) each of the Banks must notify the FDIC and the Office of Financial Regulation (OFR) before adding or replacing a member of their respective Boards of Directors or employing any person (including any existing employee) as a
senior executive officer, and (2) the Banks may not, except under certain circumstances, enter into any agreements to make severance or indemnification payments or make any such payments to institution-affiliated parties. In addition, based on
the Banks financial condition, we understand that the FDIC plans to pursue and implement formal enforcement actions with respect to the Banks in the form of consent orders (FDIC Orders). We currently expect the FDIC Orders will
focus on the areas addressed by our Corrective Resolutions: to raise and maintain certain capital ratios, to improve asset quality, to reduce non-core funding dependence, and to reduce our commercial real estate loan concentrations, although the
scope and terms of any FDIC Orders or any other action that the FDIC may take is unknown. The Banks must also obtain prior approval from the FDIC before engaging in any transactions that would materially change the composition of their balance
sheets. Such transactions include any transaction or transactions that would increase a Banks total assets by 5% or more, or that would significantly change the Banks funding resources. In addition, the Banks cannot pay dividends to the
Company without prior FDIC approval.
Bank of Florida Corporation and its affiliates develop and update an annual capital plan
that supports current projections and the 3-5 year overall strategic plan. The Capital Plan is administered by the Board of Directors and is designed to meet current capital requirements and to anticipate future capital needs. The Capital Plan takes
into consideration the individual requirements of the affiliate subsidiaries, the capital position of the consolidated company, alternative sources of capital to meet these needs, and the attractiveness of the capital markets to meet these
requirements at particular points in time. We need approximately $50-55 million in capital to achieve adequately capitalized and $75-$80 million in capital to achieve well capitalized status.
The overall goal of the Capital Plan is to have strategies in place to support business growth and financial performance objectives
consistent with maintaining minimum regulatory capital ratios. The Companys short term capital plan is to raise enough capital to keep the Banks adequately capitalized during 2010, based on Tier 1 Leverage ratio requirements. Once this capital
is raised, it is the Companys intent to, once again, increase the authorized shares outstanding and to raise additional capital late 2010/early 2011. The Company has a registration statement covering 86,000,000 shares of common stock on file
with the Securities and Exchange Commission and is in the process of revising it to commence a public offering.
102
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 3SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates:
The accompanying consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. Management is required 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Changes in such estimates and assumptions might be required because of rapidly changing economic conditions, changing economic prospects of borrowers and other factors. Material estimates that are particularly susceptible to significant
changes in the near term are related to the determination of the allowance for loan losses, valuation allowances related to goodwill and the deferred tax asset. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Cash and cash equivalents include cash, demand balances due from banks, interest-bearing deposits due from other banks, and federal funds sold. These assets have original maturities of three months or
less.
Investment Securities:
The Company classifies its securities in one of two categories: held to maturity or available for sale. Held to maturity securities are those securities for which the Company has the ability and intent to
hold until maturity. All other securities are classified as available for sale.
Held to maturity securities are recorded at
cost and available for sale securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, on available for sale securities are excluded from net income and are reported in other comprehensive income as a
separate component of shareholders equity until realized. Transfers of securities between categories are recorded at fair value at the date of transfer. Unrealized holding gains or losses associated with transfers of securities from held to
maturity to available for sale are recorded as a separate component of shareholders equity. These unrealized holding gains or losses are amortized into income over the remaining life of the security as an adjustment to the yield in a manner
consistent with the amortization or accretion of the original purchase premium or discount on the associated security.
Management evaluates investment securities for other-than-temporary impairment on an annual basis. A decline in the market value of any investment below cost that is deemed other-than-temporary is charged to earnings for the decline in
value deemed to be credit related. The decline in value attributed to non-credit related factors is recognized in other comprehensive income and or new cost basis in the security is established. Premiums and discounts are amortized or accreted over
the life of the related security as an adjustment to the yield. Realized gains and losses for securities classified as available for sale and held to maturity are included in net income and derived using the specific identification method for
determining the cost of the securities sold.
Restricted securities, including Federal Home Loan Bank (FHLB)
stock, is included in other assets at carrying value, which approximates fair value, since there is no ready market for such investments.
103
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 3SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans:
Loans are stated at the principal amount outstanding, net of unearned income, any net deferred fees and costs on originated loans, and an
allowance for loan losses. Loan origination and commitment fees and certain direct costs associated with originating or acquiring loans are deferred and amortized as an adjustment to interest income using a method that approximates the interest
method, generally over the contractual life of the loan. Interest income on all loans is accrued based on the outstanding daily balances.
Management has established a policy to discontinue accruing interest (nonaccrual status) on a loan after it has become 90 days delinquent as to payment of principal or interest unless the loan is
considered to be well collateralized and the Company is actively in the process of collection. In addition, a loan will be placed on non-accrual status before it becomes 90 days delinquent if management believes that the borrowers financial
condition is such that collection of interest or principal is doubtful. Interest previously accrued but uncollected on such loans is reversed and charged against current income when the receivable is estimated to be uncollectible. Once a loan has
been placed on non-accrual status, it may be restored to an accrual status when none of its principal and interest is past due, a six month history of payment is established, or it otherwise becomes well secured and in the process of collection and
when prospects for future contractual payments are no longer in doubt.
Financial difficulties experienced by borrowers may
necessitate the restructuring of loans to borrowers who are unable to meet current or near term contractual loan agreements. These restructurings may involve extending payment schedules, reducing interest rates, reducing principal amounts or accrued
interest, granting of additional credit, or transferring property to the Company in full or partial satisfaction of the debt. These difficulties may also result in foreclosure with the Company becoming the owner and subsequent seller of the
property.
If the borrower has kept the loan current (where current means the payment status of the regularly scheduled
monthly or quarterly payment has not gone past due 30 days or more at the end of the month in the prior 6 months) and the loan has been formally restructured to reasonably ensure repayment and performance, according to its modified terms, the loan
need not be placed in nonaccrual status provided the restructuring is supported by a current, well-documented credit evaluation of the borrowers financial condition and prospectus for repayment under the revised terms or, if the borrower has
sustained payment performance similar to the restructured payment terms for a time period of 6 months prior, the loan may remain on accrual status. Otherwise a TDR loan should be placed on nonaccrual status.
104
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 3SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting for Certain Loans or Debt Securities Acquired in a Transfer:
The Company purchases loans with and without evidence of credit quality deteriorations since origination. The fair values for
these loans not deemed to have credit deterioration are valued based on market prices, where available, or discounted cash flows using market-based credit spreads of comparable debt instruments for comparable borrowers. Results of discounted cash
flow calculations may be adjusted, as appropriate, to reflect other market conditions or the perceived credit risk of the borrower.
Those loans with evidence of credit quality deterioration for which it is probable at purchase that the Company will be unable to collect all contractually required payments are recorded at the net recoverable amount including adjustments
for the differential in coupon. The portion associated with credit deterioration is a nonaccretable discount.
For loans where
credit deterioration is evident, the initial fair values for loans are determined by discounting both principal and interest cash flows expected to be collected using an observable discount rate for similar instruments with adjustments that
management believes a market participant would consider in determining fair value. The Company estimates the cash flows expected to be collected at acquisition using internal credit risk, interest rate and prepayment risk models that incorporate
managements best estimate of current key assumptions, such as default rates, loss severity and payment speeds.
Subsequent decreases to expected principal cash flows will result in a charge to provision for credit losses and a corresponding increase to allowance for loan and lease losses. Subsequent increases in expected principal cash flows will
result in recovery of any previously recorded allowance for loan losses, to the extent applicable, and a reclassification from nonaccretable differences to accretable yield for any remaining increase. All changes in expected interest cash flows will
result in reclassifications to/from nonaccretable differences.
105
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 3SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses:
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to
operations. Loan losses are charged against the allowance when management believes the collectability of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is comprised of: (1) a component for individual loan impairment, and (2) a measure of collective
loan impairment. The allowance for loan losses is established and maintained at levels deemed adequate to cover losses in the portfolio as of the balance sheet date. This estimate is based upon managements evaluation of the risks in the loan
portfolio and changes in the nature and volume of loan activity. Estimates for loan losses are derived by analyzing historical loss experience, current trends in delinquencies and charge-offs, changes in the size and composition of the loan
portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are
susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on
current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due in accordance with the contractual terms of the loan agreement. Factors considered by management
in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Larger impaired credits that are measured for impairment have been defined to include loans
classified as substandard and on nonaccrual or doubtful risk grades where the borrower relationship is greater than $500,000. For such loans that are considered impaired, an allowance is established when the discounted cash flows (or collateral
value or observable market price) of the impaired loan is lower than the carrying value of that loan. Collateral dependent loans are charged down to net realizable value.
Other Real Estate Owned:
Assets acquired through, or in lieu of,
loan foreclosure are held for sale and are initially recorded at the lower of the loan balance or fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically
performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are charged to operations.
Premises and Equipment:
Premises and equipment are stated at cost, less accumulated depreciation and amortization. Gains and losses on routine dispositions, if any, are reflected in current operations. Depreciation is computed
on the straight-line method over the estimated useful lives of the depreciable assets, ranging from three to thirty years. Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements,
whichever is less. The useful lives used in computing depreciation and amortizations are as follows:
|
|
|
Buildings and improvements
|
|
30 years
|
Furniture and equipment
|
|
3 - 7 years
|
Leasehold improvements
|
|
5 - 20 years
|
106
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 3SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation:
The Company recognizes compensation cost for all share-based payments based on the grant date fair value. The Company recognizes stock-based
compensation in salaries and employee benefits in the accompanying consolidated statements of operations on a straight-line basis over the vesting periods.
Income Taxes:
Provisions for income taxes are based on taxes
payable or refundable for the current year and deferred taxes on temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, as well as net operating loss carryforwards
and tax credit carryforwards. Deferred tax assets and liabilities are included in the consolidated financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to
be realized or settled. In the event of changes in the tax laws, deferred tax assets and liabilities are adjusted in the period of the enactment of those changes, with the cumulative effects included in the current years income tax provision.
The Company records a valuation reserve for deferred tax balances when it is unlikely to generate sufficient income to support the deferred tax asset. At December 31, 2009, the Company recorded a valuation allowance for the balance of the
recorded deferred tax asset net of those attributes associated with unrealized losses on available for sale securities. The Company and its subsidiaries file consolidated tax returns.
(Loss) Income Per Common and Common Equivalent Share:
Basic (loss) income per share represents net income divided by the weighted-average number of common shares outstanding during the
year. Dilutive income per share is computed based on the weighted-average number of common shares outstanding plus the effect of stock options and warrants outstanding computed using the treasury stock method.
Goodwill and Intangible Assets:
The Company tests goodwill for impairment annually. The test requires us to determine the fair value of our reporting unit and compare the reporting units fair value to its carrying value. The fair
value of the reporting unit is estimated using management valuation models. While management believes the sources utilized to arrive at the fair value estimates are reliable, different sources or methods could have yielded different fair value
estimates. These fair value estimates require a significant amount of judgment. Changes in managements valuation of its reporting unit may affect future operations through the recognition of a goodwill impairment charge. The Company recorded a
$62.0 million goodwill impairment charge to write off the entire amount of goodwill as of September 2009. No impairment charges were recognized as of December 31, 2008 or December 31, 2007.
The Company reviews core deposit and other intangible assets for possible impairment whenever events or changes in circumstances indicate
that carrying amounts may not be recoverable.
A summary of changes in goodwill for the years ended December 31, 2009,
2008 and 2007 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
Beginning Balance
|
|
$
|
61,960
|
|
|
$
|
62,202
|
|
|
$
|
11,325
|
Acquired Goodwill, net
|
|
|
|
|
|
|
|
|
|
|
50,796
|
Goodwill Impairment
|
|
|
(61,960
|
)
|
|
|
|
|
|
|
|
Adjustments to Goodwill
|
|
|
|
|
|
|
(242
|
)
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
|
|
|
$
|
61,960
|
|
|
$
|
62,202
|
|
|
|
|
|
|
|
|
|
|
|
|
107
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 3SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Acquisitions:
The Company accounts for business combinations using the purchase method of accounting. The purchase method of accounting requires us to fair
value the tangible net assets and identifiable intangible assets acquired. The fair values are based on available information and current economic conditions at the date of acquisition. Fair value may be obtained from independent appraisers,
discounted cash flow present value techniques, management valuation models, quoted prices on national markets or quoted market prices from brokers. These fair value estimates will affect future earnings through the disposition or amortization of the
underlying assets and liabilities. While management believes the sources utilized to arrive at the fair value estimates are reliable, different sources or methods could have yielded different fair value estimates. Such different value estimates
could affect future earnings through different values being utilized for the disposition or amortization of the underlying assets and liabilities acquired.
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, standby letters of credit and unfunded commitments under lines of credit. Such financial instruments are recorded in the
consolidated financial statements when they are funded.
Reclassifications:
Certain reclassifications have been made to prior period financial statements to conform to the 2009 financial statements presentation. These
reclassifications only changed the reporting categories but did not affect our results of operations or financial position.
Derivative Financial Instruments:
The Company accounts for its derivatives as either assets or
liabilities in the balance sheet and measures those instruments at fair value through adjustments to accumulated other comprehensive income and/or current earnings, as appropriate. On the date the Company enters into a derivative contract, the
Company designates the derivative instrument as either a fair value hedge, cash flow hedge or as a free-standing derivative instrument. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of
the hedged asset or liability or of an unrecognized firm commitment attributable to the hedged risk are recorded in current period operations. For a cash flow hedge, changes in the fair value of the derivative instrument, to the extent that it is
effective, are recorded in accumulated other comprehensive income and subsequently reclassified to operations in the same period(s) that the hedged transaction impacts operations. For free-standing derivative instruments, changes in fair values are
reported in current period operations.
Prior to entering a hedge transaction, the Company formally documents the relationship
between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as fair value or cash flow
hedges to specific assets and liabilities on the balance sheet or to specific forecasted transactions along with a formal assessment at both inception of the hedge and on an ongoing basis as to the effectiveness of the derivative instrument in
offsetting changes in fair values or cash flows of the hedged item. If it is determined that the derivative instrument is not highly effective as a hedge, hedge accounting is discontinued and the adjustment to fair value of the derivative instrument
is recorded in operations.
The Company will terminate derivative positions when conditions change and the position is no
longer necessary to manage the Companys overall sensitivity to changes in interest rates. The resulting gain or loss is recognized over the remaining life of the interest rate swap. Hedge ineffectiveness is generally measured as the amount by
which the cumulative change in the fair value of the hedging instrument exceeds the present value of the cumulative change in the hedged items expected cash flows. The effective portion of the gains or losses on cash flow hedges are reported
within accumulated other comprehensive income and are reclassified from accumulated other comprehensive income to current period earnings when the forecasted transaction affects earnings.
108
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 3SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value Measurements:
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
|
|
|
Level 1
|
|
Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an
active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets.
|
|
|
Level 2
|
|
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded
instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S.
Government and agency mortgage-backed debt securities, corporate debt securities, derivative contracts and residential mortgage loans held-for-sale.
|
|
|
Level 3
|
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities
include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or
estimation.
|
The fair value of the assets or liabilities is determined based on the assumptions that market
participants use in pricing the financial instrument. In developing those assumptions, the Company identified characteristics that distinguish market participants generally, and considered factors specific to (a) the asset type,
(b) the principal (or most advantageous) market for the asset group, and (c) market participants with whom the reporting entity would transact in that market.
109
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 3SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting Standards Updates:
In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
No. 2009-01 (ASU 2009-01),
Topic 105 Generally Accepted Accounting Principles amendments based on Statement of Financial Accounting Standards No. 168 The FASB Accounting Standards Codification
TM
and the Hierarchy of Generally Accepted Accounting
Principles
. ASU 2009-01 amends the FASB Accounting Standards Codification for the issuance of FASB Statement No. 168 (SFAS 168),
The FASB Accounting Standards
Codification
TM
and the Hierarchy of Generally Accepted
Accounting Principles
. ASU 2009-1 includes SFAS 168 in its entirety, including the accounting standards update instructions contained in Appendix B of the Statement. The FASB Accounting
Standards Codification
TM
(Codification)
became the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission
(SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting
standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. This Statement is effective for financial statements issued for interim and annual periods ending after
September 15, 2009.
In August 2009, the FASB issued Accounting Standards Update No. 2009-04
(ASU 2009-04),
Accounting for Redeemable Equity Instruments Amendment to Section 480-10-S99
. ASU 2009-04 represents an update to Section 480-10-S99,
Distinguishing Liabilities from Equity
, per Emerging
Issues Task Force (EITF) Topic D-98,
Classification and Measurement of Redeemable Securities
. ASU 2009-04 did not have a material effect on the Companys consolidated financial condition or results of operations.
In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (ASU 2009-05),
Fair Value Measurements and
Disclosures (Topic 820) Measuring Liabilities at Fair Value
. ASU 2009-05 applies to all entities that measure liabilities at fair value within the scope of ASC Topic 820. ASU 2009-05 provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques:
|
|
|
|
|
|
|
1.) A valuation technique that uses:
|
|
|
|
|
a. The quoted price of the identical liability when traded as an
asset.
|
|
|
|
|
b. Quoted prices for similar liabilities or similar liabilities when traded as
assets.
|
|
2.) Another valuation technique that is consistent with the principles of ASC Topic 820. Two examples would be an income approach, such as
a technique that is based on the amount at the measurement date that the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability.
|
The amendments in ASU 2009-5 also clarify that when estimating the fair value of a liability, a reporting entity is not required to include
a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. It also clarifies that both a quoted price in an active market for the identical liability at the measurement date
and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. The guidance provided in ASU 2009-5 is effective for
the first reporting period beginning after issuance. The adoption of ASU 2009-5 will not have a material effect on the Companys consolidated financial condition or results of operations.
110
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 3SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting Standards Updates (continued):
In September 2009, the FASB issued Accounting Standards Update No. 2009-06 (ASU 2009-06),
Income Taxes (Topic 740)
Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities
. ASU 2009-06 provides additional implementation guidance on accounting for uncertainty in income taxes by addressing 1.)
whether income taxes paid by an entity are attributable to the entity or its owners, 2.) what constitutes a tax position for a pass-through entity or a tax-exempt not-for-profit entity, and 3.) how accounting for uncertainty in income taxes should
be applied when a group of related entities comprise both taxable and nontaxable entities. ASU 2009-06 also eliminates certain disclosure requirements for nonpublic entities. The guidance and disclosure amendments are effective for interim and
annual periods ending after September 15, 2009. The adoption of this guidance had no impact on the Companys consolidated financial condition or results of operations.
In December 2009, the FASB issued Accounting Standards Update No. 2009-16 (ASU 2009-16),
Transfers and Servicing.
ASU 2009-16 provides amendments to Subtopic 860-10 as a result of FASB Statement No. 166,
Accounting for Transfers of Financial Assets.
The adoption of this guidance did not have a material effect on the Companys consolidated
financial condition or results of operations.
In December 2009, the FASB issued Accounting Standards Update No. 2009-17
(ASU 2009-17),
Consolidations (Topic 810) Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.
ASU 2009-17 provides amendments to Subtopic 810-10 as a result of FASB Statement
No. 167,
Amendments to FASB Interpretation No. 46(R).
The adoption of this guidance did not have a material effect on the Companys consolidated financial condition or results of operations.
In January 2010, the FASB issued Accounting Standards Update No. 2010-01 (ASU 2010-01),
Equity (Topic 505)
Accounting for Distributions to Shareholders with Components of Stock and Cash.
ASU 2010-01 clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the
total amount of cash that all shareholders can elect to receive in aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (
Equity and Earnings Per
Share
). These distributions should be accounted for and included in EPS calculations. The amendments in ASU 2010-01 also provide technical correction to the Accounting Standards Codification. The amendments in this Update are effective for
interim and annual periods after December 15, 2009, and should be applied on a retrospective basis. The adoption of this guidance did not have a material effect on the Companys consolidated financial condition or results of operations.
In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU 2010-06),
Fair Value
Measurements and Disclosures (Topic 820) Improving Disclosures about Fair Value Measurements.
ASU 2010-06 provides amendments to Subtopic 820-10 that require the following new disclosures:
|
1.
|
Transfers in and out of Level 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value
measurements and describe the reasons for the transfers.
|
|
2.
|
Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity
should present separately information about purchases, sales, issuances, and settlements on a gross basis rather than as a net number.
|
111
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 3SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting Standards Updates (continued):
This Update provides amendments to Subtopic 820-10 that clarify existing disclosures as follows:
|
1.
|
Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets or liabilities. A class is often a subset of
assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities.
|
|
2.
|
Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value
for both recurring and nonrecurring fair value measurements. These disclosures are required for fair value measurements that fall in either Level 2 or Level 3.
|
The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the rollforward activity in Level 3 fair value measurements. Those disclosures are effective for fiscal periods beginning after
December 15, 2010 and for interim periods within those fiscal years. The adoption of this guidance did not have a material effect on the Companys consolidated financial condition or results of operations.
In February 2010, the FASB issued Accounting Standards Update No. 2010-08 (ASU 2010-08),
Technical Corrections to
Various Topics.
ASU 2010-08 eliminates inconsistencies and outdated provisions and provides the needed clarifications in US generally accepted accounting principles (GAAP). While none of the provisions in this Update fundamentally change
US GAAP, certain clarifications made to the guidance on embedded derivatives and hedging may cause a change in the application of the Subtopic and special transition provisions are provided for accounting changes related to that Subtopic. The
amendments in this Update are effective for the first reporting period beginning after issuance except for certain amendments made to Topic 815 and the nullification of paragraph 852-740-45-2. The amendments related to the nullification of paragraph
852-740-45-2 should be applied to reorganizations for which the date of reorganization is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. With respect to paragraphs 815-15-25-26,
815-15-25-42 and 815-15-55-13, the amendments in this Update are effective for fiscal years beginning after December 15, 2009. The adoption of this guidance will not have a material effect on the Companys consolidated financial condition
or results of operations.
112
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 4 (LOSS) INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Components used in computing (loss) income per share are summarized as follows (in thousands, except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three years ended December 31,
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net
Loss
|
|
|
Weighted
Average
Shares
Outstanding
|
|
Loss
Per
Share
|
|
|
Net
Loss
|
|
|
Weighted
Average
Shares
Outstanding
|
|
Loss
Per
Share
|
|
|
Net
Income
|
|
Weighted
Average
Shares
Outstanding
|
|
Income
Per
Share
|
Net (loss) income
|
|
$
|
(147,498
|
)
|
|
|
|
|
|
|
|
$
|
(13,222
|
)
|
|
|
|
|
|
|
|
$
|
2,743
|
|
|
|
|
|
Less Preferred stock dividends
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common shareholders - basic
|
|
|
(147,604
|
)
|
|
12,788,450
|
|
$
|
(11.54
|
)
|
|
|
(13,222
|
)
|
|
12,779,020
|
|
$
|
(1.03
|
)
|
|
|
2,743
|
|
11,768,529
|
|
$
|
0.23
|
Dilutive effect of stock options outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,927
|
|
|
|
Dilutive effect of warrants outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income available to common shareholders - diluted
|
|
$
|
(147,604
|
)
|
|
12,788,450
|
|
$
|
(11.54
|
)
|
|
$
|
(13,222
|
)
|
|
12,779,020
|
|
$
|
(1.03
|
)
|
|
$
|
2,743
|
|
11,905,196
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Because the Company recorded a net loss for the years
ended December 31, 2009 and 2008, all potentially dilutive securities were anti-dilutive and basic and diluted loss per share were the same. At December 31, 2007, there were 260,185 common stock options that were anti-dilutive and
therefore not included in the above calculation.
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31, 2009
|
|
For the year ended
December 31, 2008
|
|
For the year ended
December 31, 2007
|
Number of Shares
|
|
|
539,768
|
|
|
599,371
|
|
|
260,185
|
Weighted Average Exercise Price
|
|
$
|
14.32
|
|
$
|
15.07
|
|
$
|
21.68
|
Warrants
|
|
|
213,318
|
|
|
146,371
|
|
|
|
Weighted Average Exercise Price
|
|
$
|
7.20
|
|
$
|
11.53
|
|
$
|
|
113
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 5 BUSINESS COMBINATIONS
On April 24, 2007, the Company completed the acquisition of Old Florida Bankshares, Inc., (Old Florida) in Fort Myers,
Florida, by combining the operations of Old Floridas subsidiary, Old Florida Bank, with the Companys wholly-owned subsidiary, Bank of Florida Southwest. The acquisition of Old Florida meets one of our strategic objectives to
expand into the adjacent Lee County marketplace. Old Florida shareholders were entitled to receive either 1.7915 shares of the Companys common stock for each share of Old Florida held, $38.50 per share in cash, or a combination of stock and
cash. The Company issued a total of 3,043,282 shares of common stock and cash consideration of approximately $16.3 million representing total consideration of $73.4 million. The Company recorded $52.0 million in intangible assets, of which $1.4
million was allocated to the core deposit intangible. This core deposit intangible is being amortized on a double declining balance basis over ten years. The remaining intangible of $50.6 million was allocated to goodwill.
On August 25, 2006, the Company completed the acquisition of Bristol Bank (Bristol) in Coral Gables, Florida, by merging
Bristol into the Companys wholly-owned subsidiary, Bank of Florida Southeast. The acquisition of Bristol Bank provided the Company entry into the dynamic Coral Gables market. The Coral Gables/Miami-Dade County demographics are
expected to compliment the Companys premium private-banking brand and entrepreneurial business model. The Company issued a total of 688,218 shares of common stock and cash consideration of approximately $6.8 million representing total
consideration of $21.6 million. The Company recorded $13.1 million in intangible assets, of which $1.7 million was allocated to the core deposit intangible.
The principal factors considered when valuing the core deposit intangible relating to all acquisitions consists of the following: (1) the rate and maturity structure of the interest bearing
liabilities, (2) estimated retention rates for each deposit liability category, (3) the current interest rate environment and (4) estimated noninterest income potential of the acquired relationship. The core deposit intangible created
is being amortized on a double declining balance basis over ten years. The remaining intangible of $11.4 million was allocated to goodwill.
The Company recorded acquired net assets of $73.4 million for Old Florida and $21.5 million for Bristol. The following table summarizes the fair values of the assets acquired and liabilities assumed at
the date of acquisition, including adjustments (in thousands):
|
|
|
|
|
|
|
|
|
Old Florida
|
|
Bristol Bank
|
Cash and due from banks
|
|
$
|
4,432
|
|
$
|
2,332
|
Securities
|
|
|
21,734
|
|
|
23,556
|
Federal funds sold
|
|
|
23,341
|
|
|
4,522
|
Net loans
|
|
|
210,527
|
|
|
60,016
|
Other assets
|
|
|
20,102
|
|
|
1,980
|
Goodwill
|
|
|
50,796
|
|
|
11,406
|
Core deposit intangible
|
|
|
1,400
|
|
|
1,732
|
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
332,332
|
|
$
|
105,544
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
248,711
|
|
|
74,639
|
Federal Home Loan Bank advances
|
|
|
5,300
|
|
|
8,500
|
Other liabilities
|
|
|
4,905
|
|
|
876
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
258,916
|
|
|
84,015
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
73,416
|
|
$
|
21,529
|
|
|
|
|
|
|
|
114
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 5 BUSINESS COMBINATIONS (Continued)
During the third quarter of 2009, the Company completed its annual goodwill impairment
assessment and as a result of the assessment, goodwill was found to be impaired and was written down to zero. The impairment charge of $62.0 million was recognized as an expense in the third quarter 2009 consolidated statement of operations.
The Companys results of operations include the operations of Bristol and Old Florida since the acquisition dates. The
following table presents unaudited proforma results for the year ended December 31, 2007. Since no consideration is given to operational efficiencies and expanded products and services, the proforma summary information does not necessarily
reflect the results of operations as they would have been, if the acquisition had occurred on January 1, for the periods presented (in thousands, except per share amount).
|
|
|
|
|
|
|
2007
|
|
Total revenue
|
|
$
|
96,183
|
|
Net loss
|
|
$
|
(4,747
|
)
|
|
|
Basic loss per share
|
|
$
|
(0.37
|
)
|
Diluted loss per share
|
|
$
|
(0.37
|
)
|
115
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 6SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair value of securities available for sale shown in the consolidated
balance sheets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross Unrealized
|
|
|
Estimated
Fair Value
|
|
|
|
Gains
|
|
Losses
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
87,547
|
|
$
|
41
|
|
$
|
(548
|
)
|
|
$
|
87,040
|
U.S. Treasury securities and other U.S. agency obligations
|
|
|
10,598
|
|
|
12
|
|
|
(39
|
)
|
|
|
10,571
|
Equity securities
|
|
|
508
|
|
|
1
|
|
|
|
|
|
|
509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities available for sale
|
|
$
|
98,653
|
|
$
|
54
|
|
$
|
(587
|
)
|
|
$
|
98,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity- Other Bonds
|
|
$
|
554
|
|
$
|
|
|
$
|
(18
|
)
|
|
$
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross Unrealized
|
|
|
Estimated
Fair Value
|
|
|
|
Gains
|
|
Losses
|
|
|
|
|
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
111,115
|
|
$
|
2,932
|
|
$
|
(2
|
)
|
|
$
|
114,044
|
U.S. Treasury securities and other U.S. agency obligations
|
|
|
600
|
|
|
15
|
|
|
|
|
|
|
615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities available for sale
|
|
$
|
111,715
|
|
$
|
2,947
|
|
$
|
(2
|
)
|
|
$
|
114,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity- Other Bonds
|
|
$
|
3,316
|
|
$
|
11
|
|
$
|
(187
|
)
|
|
$
|
3,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of securities available for sale
for the years ended December 31, 2009, 2008 and 2007 totaled $175,651,000, $2,528,000 and $16,142,000, respectively. Gains on sale of $4,224,000 and $28,000 were recognized in connection with the securities sales for the years ended
December 31, 2009 and 2008, respectively. There were no gains or losses recognized in connection with the 2007 sales.
Due to changes in circumstances, the Company changed its intent to hold certain securities to maturity without calling into question the intent to hold other debt securities to maturity in the future. Proceeds from sales of securities held
to maturity for the year ended December 31, 2009 totaled $2,234,000. Gains on sale of $21,000 were recognized in connection with the securities sales for the year ended December 31, 2009.
116
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 6SECURITIES (Continued)
The composition of the investment securities portfolio reflects the Companys
investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of revenue. The securities portfolio also provides a balance to interest rate risk in other categories of the balance sheet while
providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits.
There were securities pledged with a market value of $7,718,000 and $79,596,000 as collateral to the Federal Home Loan Bank as of December 31, 2009 and 2008, respectively. There were securities
pledged with a market value of $18,078,000, $14,018,000, $13,602,000 and $528,700 to Internal Repurchase agreements, Citigroup Repo, Pacific Coast Bankers Bank and the State of Florida, respectively, as of December 31, 2009.
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, 2009, there were thirteen out of thirty securities at a loss position. The unrealized losses on investment securities available for sale were caused by interest rate changes. It
is expected that the securities would not be settled at a price less than the par value of the investments. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company has the
ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.
Information pertaining to securities with gross unrealized losses at December 31, 2009, aggregated by investment category and length of time that individual securities have been in a continuous loss
position, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than Twelve Months
|
|
Over Twelve Months
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
|
|
Securities available for sale
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
(548
|
)
|
|
$
|
30,350
|
|
$
|
|
|
|
$
|
|
U.S. Treasury and other U.S. agency obligations
|
|
|
(39
|
)
|
|
|
5,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
(587
|
)
|
|
$
|
35,884
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and political subdivisions
|
|
|
(1
|
)
|
|
|
124
|
|
|
(17
|
)
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
$
|
(1
|
)
|
|
$
|
124
|
|
|
(17
|
)
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 6SECURITIES (Continued)
Expected maturities of investment securities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Periodic payments are received of mortgage-backed securities based on the payment patterns of the underlying collateral. As of
December 31, 2009, the amortized cost and estimated fair value of investment securities, by contractual maturities, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
Amortized
Cost
|
|
Fair Value
|
|
Average
Yield
|
|
Due less than one year
|
|
$
|
|
|
|
|
|
|
|
Due after one through five years
|
|
|
10,098
|
|
|
10,092
|
|
1.24
|
%
|
Due after ten years
|
|
|
500
|
|
|
479
|
|
4.07
|
%
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
10,598
|
|
|
10,571
|
|
|
|
Mortgage-backed securities
|
|
|
87,547
|
|
|
87,040
|
|
3.61
|
%
|
Equity securities
|
|
|
508
|
|
|
509
|
|
1.70
|
%
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
98,653
|
|
$
|
98,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity:
|
|
Amortized
Cost
|
|
Fair Value
|
|
Average
Yield
|
|
Due less than one year
|
|
$
|
25
|
|
$
|
25
|
|
4.63
|
%
|
Due after one through five years
|
|
|
|
|
|
|
|
|
|
Due after five through ten years
|
|
|
125
|
|
|
124
|
|
4.00
|
%
|
Due after ten years
|
|
|
404
|
|
|
387
|
|
4.13
|
%
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
554
|
|
$
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 7LOANS
The composition of the loan portfolio at December 31 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
625,703
|
|
|
$
|
576,486
|
|
Land and construction
|
|
|
216,565
|
|
|
|
318,607
|
|
One-to-four family residential
|
|
|
167,015
|
|
|
|
163,143
|
|
Multi-family
|
|
|
35,522
|
|
|
|
42,539
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
$
|
1,044,805
|
|
|
$
|
1,100,775
|
|
|
|
|
Commercial and industrial loans
|
|
|
112,385
|
|
|
|
118,883
|
|
Lines of credit
|
|
|
45,247
|
|
|
|
44,681
|
|
Consumer loans
|
|
|
11,925
|
|
|
|
12,646
|
|
|
|
|
|
|
|
|
|
|
Total gross loans held for investment
|
|
|
1,214,362
|
|
|
|
1,276,985
|
|
Less: allowance for loan losses
|
|
|
(42,063
|
)
|
|
|
(29,533
|
)
|
Less: deferred loan fees, net
|
|
|
(1,329
|
)
|
|
|
(1,674
|
)
|
|
|
|
|
|
|
|
|
|
Total loans held for investment, net
|
|
$
|
1,170,970
|
|
|
$
|
1,245,778
|
|
|
|
|
|
|
|
|
|
|
A loan is considered impaired when, based on current information and events, it is probable that the Company
will be unable to collect all amounts due according to the contractual terms of the loan agreement. Specific impairment on loans in this category is calculated based on the present value of expected future cash flows discounted at the loans
effective interest rate, or for collateral-dependent loans, at the fair value of the collateral. The following is a summary of information pertaining to nonaccrual loans (in thousands):
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
Impaired loans without a valuation allowance
|
|
$
|
72,343
|
|
$
|
10,545
|
Impaired loans with a valuation allowance
|
|
|
141,037
|
|
|
73,724
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
213,380
|
|
$
|
84,269
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance related to impaired loans
|
|
$
|
27,707
|
|
$
|
18,554
|
|
|
|
Total nonaccrual loans
|
|
$
|
164,474
|
|
$
|
71,853
|
Loans defined as Troubled Debt Restructuring accruing
|
|
$
|
48,899
|
|
$
|
12,416
|
Total loans ninety days or more past due and still accruing
|
|
$
|
7
|
|
$
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
213,380
|
|
$
|
84,269
|
|
|
|
|
|
|
|
|
|
|
Total other real estate owned
|
|
$
|
14,357
|
|
$
|
4,817
|
Total loans ninety days or more past due and still accruing
|
|
$
|
7
|
|
$
|
|
Loans defined as Troubled Debt Restructuring
|
|
$
|
90,592
|
|
$
|
19,372
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
Average investment in impaired loans
|
|
$
|
142,889
|
|
$
|
50,298
|
|
$
|
13,714
|
Interest income recognized on impaired loans
|
|
$
|
5,466
|
|
$
|
3,842
|
|
$
|
916
|
Income that would have been recognized on nonaccrual loans in accordance with their original terms
|
|
$
|
5,880
|
|
$
|
3,156
|
|
$
|
840
|
Loans defined as Troubled Debt Restructuring accruing
|
|
$
|
48,899
|
|
$
|
12,416
|
|
$
|
|
Loans defined as Troubled Debt Restructuring non accruing
|
|
$
|
41,693
|
|
$
|
6,956
|
|
$
|
|
119
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 7LOANS (Continued)
There were no outstanding commitments to extend credit related to those loans in
nonaccrual status, 90 days or more past due or loans defined as troubled debt restructuring. In certain isolated cases, the Company has executed forbearance agreements whereby the Company will continue to fund construction loans to completion as
long as the borrower meets the conditions of the forbearance agreement.
Of the $92.8 million total undisbursed lines of
credit, there was approximately $8,200, or less than 1%, related to nonaccrual loans. Of the $164.5 million in nonaccrual loans, $40.4 million was charged down to net realizable value of the collateral.
At December 31, 2009 the primary source of repayment with respect to $218.0 million of the impaired loans is sale of the related
collateral.
The Company had $90.6 million and $19.4 million in loans that would be defined as troubled debt restructuring at
December 31, 2009 and 2008, respectively. Of those amounts, $48.9 million and $12.4 million were accruing as of December 31, 2009 and 2008, respectively, as they were performing in accordance with their restructured terms. The majority of
the restructurings involve extending the interest only period, reducing the interest rate to give borrower relief, or other modifications of terms that deviate from the original contract. There were no unfunded lines of credit related to any
troubled debt restructured loan at December 31, 2009.
With the uncertain real estate market in Florida, obtaining
refinancing or sale of the collateral may be difficult. It is likely many of these loans will be extended and may be modified. Management is closely monitoring these loans and believes the allowance for loan losses related to these loans is adequate
at December 31, 2009.
The activity in the allowance for loan losses for the years ended December 31 is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Balance at beginning of year
|
|
$
|
29,533
|
|
|
$
|
14,431
|
|
|
$
|
7,833
|
|
Reserves related to acquisition
|
|
|
|
|
|
|
|
|
|
|
2,745
|
|
Provision charged to operations
|
|
|
73,670
|
|
|
|
24,327
|
|
|
|
4,254
|
|
Charge-offs
|
|
|
(61,334
|
)
|
|
|
(9,297
|
)
|
|
|
(438
|
)
|
Recoveries
|
|
|
194
|
|
|
|
72
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
42,063
|
|
|
$
|
29,533
|
|
|
$
|
14,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The composition of net chargeoffs for the years ended December 31, 2009, 2008 and 2007 is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
Net Chargeoffs
|
|
2009
|
|
2008
|
|
2007
|
Real estate:
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
21,490
|
|
$
|
328
|
|
$
|
|
Land and construction
|
|
|
28,664
|
|
|
7,344
|
|
|
34
|
One-to-four family residential
|
|
|
6,728
|
|
|
168
|
|
|
|
Multi-family
|
|
|
233
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate net chargeoffs
|
|
$
|
57,115
|
|
$
|
7,850
|
|
$
|
34
|
Commercial and industrial loans
|
|
|
2,834
|
|
|
270
|
|
|
287
|
Lines of credit
|
|
|
791
|
|
|
1,072
|
|
|
|
Consumer loans
|
|
|
400
|
|
|
33
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
Total net chargeoffs
|
|
$
|
61,140
|
|
$
|
9,225
|
|
$
|
401
|
|
|
|
|
|
|
|
|
|
|
120
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 7LOANS (Continued)
The composition of the nonperforming loans, which includes nonaccrual loans and loans
ninety days or more past due and still accruing, for the years ended December 31, 2009 and 2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
Nonperforming loans
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
60,961
|
|
$
|
9,715
|
Land and construction
|
|
|
70,908
|
|
|
41,481
|
One-to-four family residential
|
|
|
24,657
|
|
|
17,572
|
Multi-family
|
|
|
2,764
|
|
|
|
|
|
|
|
|
|
|
Total real estate nonperforming loans
|
|
$
|
159,290
|
|
$
|
68,768
|
Commercial and industrial loans
|
|
|
1,953
|
|
|
1,364
|
Lines of credit
|
|
|
2,646
|
|
|
1,151
|
Consumer loans
|
|
|
592
|
|
|
570
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
$
|
164,481
|
|
$
|
71,853
|
|
|
|
|
|
|
|
NOTE 8PREMISES AND EQUIPMENT
Premises and equipment at December 31 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Land
|
|
$
|
6,820
|
|
|
$
|
6,820
|
|
Building
|
|
|
10,648
|
|
|
|
9,989
|
|
Leasehold improvements
|
|
|
9,793
|
|
|
|
9,672
|
|
Furniture, fixtures and equipment
|
|
|
6,287
|
|
|
|
5,926
|
|
EDP equipment and software
|
|
|
6,041
|
|
|
|
5,730
|
|
Construction in progress
|
|
|
26
|
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
Total premises and equipment
|
|
|
39,615
|
|
|
|
38,402
|
|
Less: accumulated depreciation and amortization
|
|
|
(12,333
|
)
|
|
|
(8,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premises and equipment, net
|
|
$
|
27,282
|
|
|
$
|
29,501
|
|
|
|
|
|
|
|
|
|
|
121
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 9INCOME TAXES
At December 31, 2009, the Company assessed its earnings history and trend over the past year, its estimate of future earnings, and the
expiration dates of the net operating loss carryforwards and determined that it is more likely than not that the deferred tax assets will not be realized in the near term. Accordingly, a valuation allowance was recorded at December 31, 2009.
The allocation of federal and state income taxes between current and deferred for the years ending December 31, 2009,
2008 and 2007 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Current income taxes (benefit)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(320
|
)
|
|
$
|
(1,653
|
)
|
|
$
|
2,140
|
|
State
|
|
|
|
|
|
|
(110
|
)
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
$
|
(320
|
)
|
|
$
|
(1,763
|
)
|
|
$
|
2,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes (benefit)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
9,583
|
|
|
$
|
(5,046
|
)
|
|
$
|
(552
|
)
|
State
|
|
|
1,535
|
|
|
|
(1,024
|
)
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
$
|
11,118
|
|
|
$
|
(6,070
|
)
|
|
$
|
(647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income taxes (benefit)
|
|
$
|
10,798
|
|
|
$
|
(7,833
|
)
|
|
$
|
1,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (benefit) differs from the amount of income tax determined by applying the US federal income
tax rate to pretax income for the years ended December 31, 2009, 2008 and 2007 due to the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Computed taxes (benefit), at statutory rate
|
|
$
|
(46,478
|
)
|
|
(34.0
|
)%
|
|
$
|
(7,159
|
)
|
|
(34.0
|
)%
|
|
$
|
1,557
|
|
|
34.0
|
%
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in valuation allowance on deferred tax asset
|
|
|
38,775
|
|
|
28.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes before valuation allowance, net of Federal tax benefit
|
|
|
(2,761
|
)
|
|
(3.6
|
)%
|
|
|
(749
|
)
|
|
(3.6
|
)%
|
|
|
163
|
|
|
3.6
|
%
|
Stock option expense
|
|
|
23
|
|
|
|
%
|
|
|
35
|
|
|
0.2
|
%
|
|
|
45
|
|
|
1.0
|
%
|
Nondeductible meals & entertainment
|
|
|
122
|
|
|
|
%
|
|
|
75
|
|
|
0.4
|
%
|
|
|
56
|
|
|
1.2
|
%
|
Tax exempt life insurance income
|
|
|
(52
|
)
|
|
|
%
|
|
|
(49
|
)
|
|
(0.2
|
)%
|
|
|
(45
|
)
|
|
(1.0
|
)%
|
Goodwill impairment
|
|
|
21,066
|
|
|
15.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other disallowed expenses
|
|
|
103
|
|
|
1.7
|
%
|
|
|
14
|
|
|
|
%
|
|
|
59
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income taxes (benefit)
|
|
$
|
10,798
|
|
|
7.90
|
%
|
|
$
|
(7,833
|
)
|
|
37.2
|
%
|
|
$
|
1,835
|
|
|
40.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 9INCOME TAXES (Continued)
The components of deferred tax assets and deferred tax liabilities at December 31
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
15,586
|
|
|
$
|
11,067
|
|
Net operating loss carryforwards
|
|
|
26,166
|
|
|
|
3,429
|
|
Organizational and startup costs
|
|
|
70
|
|
|
|
77
|
|
Stock-based compensation
|
|
|
519
|
|
|
|
348
|
|
Deferred Compensation
|
|
|
300
|
|
|
|
196
|
|
Unrealized loss on securities available for sale
|
|
|
200
|
|
|
|
|
|
Other deferred tax assets
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
42,841
|
|
|
|
15,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
|
(2,190
|
)
|
|
|
(2,338
|
)
|
Fair market value adjustments
|
|
|
(443
|
)
|
|
|
(440
|
)
|
Unrealized gain on securities available for sale
|
|
|
|
|
|
|
(1,107
|
)
|
Unrealized gain on interest-rate swap
|
|
|
(1,183
|
)
|
|
|
(1,917
|
)
|
Other deferred tax liabilities
|
|
|
(50
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(3,866
|
)
|
|
|
(5,842
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
|
38,975
|
|
|
|
9,277
|
|
Valuation allowance
|
|
|
(38,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net of valuation allowance
|
|
$
|
200
|
|
|
$
|
9,277
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, the Company had Federal and State tax net operating loss carryforwards of
approximately $65,931,000 and $69,931,000, respectively, available to offset future taxable income. These loss carryforwards can be deducted against taxable income during the carryforward period. Approximately $57 million of these loss carryforwards
expire in 2029, with the others expiring between 2020 and 2028.
The Company has made the determination as of
December 31, 2009 that it is more likely than not that the temporary differences will not produce a tax benefit when they reverse in the future. Accordingly, the Company has recorded a valuation allowance during the current year to
adjust the deferred tax asset.
123
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 10DEPOSITS
Deposits at December 31 are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
Interest-bearing:
|
|
|
|
|
|
|
Money market
|
|
$
|
292,639
|
|
$
|
317,436
|
NOW
|
|
|
53,762
|
|
|
48,913
|
Savings
|
|
|
5,825
|
|
|
5,752
|
Certificates of deposit:
|
|
|
|
|
|
|
Less than $100,000
|
|
|
473,404
|
|
|
454,209
|
$100,000 or more
|
|
|
257,721
|
|
|
225,067
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
1,083,351
|
|
|
1,051,377
|
Demand (noninterest bearing)
|
|
|
103,967
|
|
|
114,905
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
1,187,318
|
|
$
|
1,166,282
|
|
|
|
|
|
|
|
The maturities on all certificates of deposit as of
December 31, 2009 for each of the five successive years are as follows (in thousands):
|
|
|
|
2010
|
|
$
|
363,034
|
2011
|
|
|
287,046
|
2012
|
|
|
56,678
|
2013
|
|
|
14,912
|
2014
|
|
|
9,205
|
Thereafter
|
|
|
250
|
|
|
|
|
Total
|
|
$
|
731,125
|
|
|
|
|
The following table indicates amounts outstanding of
time certificates of deposit of $100,000 or more and their respective maturities as of December 31, 2009 (in thousands):
|
|
|
|
|
|
TIME CERTIFICATES
OF DEPOSIT
|
Three months or less
|
|
$
|
58,971
|
Four six months
|
|
|
47,456
|
Seven 12 months
|
|
|
47,986
|
Over 12 months
|
|
|
103,308
|
|
|
|
|
Total
|
|
$
|
257,721
|
|
|
|
|
Included in interest expense are $16,563,000,
$17,990,000 and $12,288,000, which relates to interest on certificates of deposit of $100,000 or more for 2009, 2008 and 2007, respectively.
The average balance of brokered deposits for 2009 was $281.3 million at an average cost of 3.27% compared to $242.5 million at an average cost of 3.99% for 2008.
124
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 11SUBORDINATED DEBT AND OTHER BORROWINGS
On October 7, 2005, Bank of FloridaSoutheast, issued $3.0 million in subordinated debt with a maturity of December 15, 2015.
Interest is payable quarterly in arrears, commencing December 15, 2005, at a rate of 1.9% over the quarterly adjustable three-month LIBOR rate. The interest rate at December 31, 2009 was 2.20%. Upon the occurrence and continuation of a Tax
Event (a Special Event), Bank of FloridaSoutheast may prepay the debt at its option (and with the approval of its regulators, if necessary), in whole or in part, without penalty, at par through December 15, 2010. After that
date, Bank of FloridaSoutheast may prepay the debt at its option (and with the approval of its regulators, if necessary), in whole or in part, without penalty, at par, irrespective of the occurrence of a Special Event. The
subordinated debt issued qualifies as Tier II capital for regulatory risk-based capital guidelines for the Company and its Bank of FloridaSoutheast subsidiary.
On September 30, 2005, Bank of FloridaSoutheast, issued $3.0 million in subordinated debt with a maturity of December 15, 2011. Interest is payable quarterly in arrears, at a rate of two
and one-half percent over the quarterly adjustable three-month LIBOR rate. The interest rate at December 31, 2009 was 2.80%. Bank of FloridaSoutheast may prepay the debt at its option (and with the approval of its regulators, if
necessary), in whole or in part, without penalty, at par after December 15, 2006. The subordinated debt issued qualifies as Tier II capital for regulatory risk-based capital guidelines for the Company and its Bank of Florida- Southeast
subsidiary.
On August 5, 2005, Bank of FloridaSouthwest issued $5.0 million in junior subordinated debt with a
maturity of October 7, 2015. Interest is payable quarterly in arrears, commencing October 7, 2005, at a rate of two percent over the quarterly adjustable three-month LIBOR rate. The interest rate at December 31, 2009 was 2.51%. Upon
the occurrence and continuation of a Tax Event (a Special Event), Bank of FloridaSouthwest may prepay the debt at its option (and with the approval of its regulators, if necessary) in whole at a redemption price of 105% of par plus
accrued interest during the first five years. The Bank will also have the right to repay this debt security at par, anytime on or after October 7, 2010. The subordinated debt issued qualifies as Tier II capital for regulatory risk-based capital
guidelines for the Company and its Bank of FloridaSouthwest subsidiary.
On April 24, 2007, Bank of
FloridaSouthwest acquired, from the Old Florida acquisition, $5.0 million in subordinated debt with a maturity of June 30, 2015. Interest is payable quarterly in arrears, beginning June 30, 2005, at a rate of 1.9% over the quarterly
adjustable three-month LIBOR rate. The interest rate at December 31, 2009 was 2.51%. After June 30, 2010, the debt may be redeemed at the Banks option at any time. The subordinated debt issued qualifies as Tier II capital for
regulatory risk-based capital guidelines for the Company and its Bank of FloridaSouthwest subsidiary.
As part of Bank
of Florida Corporations (the Company) continuing efforts to conserve capital, on February 17, 2010, the Board of Directors of the Companys wholly-owned subsidiary, Bank of FloridaSoutheast adopted a resolution
suspending interest and principal payments on its $6 million in subordinated debt.
On February 18, 2010, the Board of
Directors of the Companys wholly-owned subsidiary, Bank of FloridaSouthwest adopted a resolution suspending interest and principal payments on its $10 million in subordinated debt.
On March 18, 2008, Bank of FloridaSouthwest entered into a $10.0 million reverse repurchase transaction, with a repurchase date
of March 18, 2013. Interest is payable quarterly in arrears, beginning June 18, 2008, at a rate of 3.29% minus the maximum of three-month LIBOR rate minus three percent, or zero, with a floor of zero. The interest rate at December 31,
2009 was 3.29%. On March 18, 2011, the purchaser of the securities has the right to terminate the transaction with proper notice. After March 17, 2011, interest is payable at a rate of 3.29%.
On March 18, 2008, Bank of FloridaSoutheast entered into a $10.0 million reverse repurchase transaction, with a repurchase date
of March 18, 2013. Interest is payable quarterly in arrears, beginning June 18, 2008, at a rate of 3.29% minus the maximum of three-month LIBOR rate minus three percent, or zero, with a floor of zero. The interest rate at December 31,
2009 was 3.29%. On March 18, 2011, the purchaser of the securities has the right to terminate the transaction with proper notice. After March 17, 2011, interest is payable at a rate of 3.29%.
125
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 11SUBORDINATED DEBT AND OTHER BORROWINGS (Continued)
Pursuant to the Repos, each subsidiary bank sold Citi $10.0 million of securities,
subject to their obligation to repurchase such securities at a specific price in 2013. The Repos provide that if either of our subsidiary Banks fails to remain well capitalized for regulatory purposes, an event of default will be deemed
to have occurred under each of the Repos. We notified Citi that an event of default has occurred and is continuing under each of the Repos, and Citi has reserved all its rights upon an event of default under each Repo.
If Citi exercises its remedies under the Repos, then: (i) our subsidiary Banks would be obligated to immediately repurchase all
securities sold to Citi under the Repos; (ii) all income paid after the declaration on the securities sold would be retained by Citi and applied to the aggregate unpaid repurchase prices and any other amounts owing by our subsidiary banks; and
(iii) our subsidiary banks would have to immediately deliver to Citi any purchased securities subject to the Repos then in their possession or control. We have been informed that Citi would also charge our subsidiary banks an approximately $1.5
million of total penalty for early termination of these Repos. If Citi exercises its right to declare an event of default and exercises its remedies under the Repos, then our financial position, liquidity and earnings may be materially and adversely
affected.
During June 2009, the Company established the Corporate Sweep Program. Funds from customers, who participate in the
sweep program and whose balances exceed a target balance, will be placed in a repurchase agreement with the Company. Repurchase agreements are collateralized borrowings and are, therefore, not FDIC insured. The Company pledges securities as
collateral to secure its obligation to pay the amount due under the repurchase agreement. The client repurchase obligations mature daily and the associated interest rate fluctuates accordingly. As of December 31, 2009, the Company had $12.7
million in funding through client repurchase agreements.
126
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 12FEDERAL HOME LOAN BANK ADVANCES
Borrowings from the FHLB may be either on a fixed or variable rate basis. These borrowings are collateralized by $118.5 million in assets
consisting of $7.7 million of investment securities and a blanket lien on one-to-four family residential loans, home equity lines of credit/second mortgages, multifamily dwellings and commercial real estate as of December 31, 2009. At
December 31, 2009 and 2008, the Company had an unused credit line with the FHLB of $0 million and $125.5 million, respectively. The following table provides the amount, interest rate and maturity of outstanding FHLB advances at
December 31, 2009 and 2008, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
At December 31, 2008
|
|
|
|
Amount
|
|
Rate
|
|
|
Amount
|
|
Rate
|
|
Variable Rate, Daily maturity
|
|
$
|
|
|
|
%
|
|
$
|
34,000
|
|
.46
|
%
|
Fixed Rate; Matures 3/16/2010
|
|
|
25,000
|
|
2.87
|
|
|
|
25,000
|
|
2.87
|
|
Fixed Rate; Matures 10/30/2011
|
|
|
257
|
|
1.50
|
|
|
|
274
|
|
1.50
|
|
Variable Rate; Matures 3/9/2012
2
|
|
|
10,000
|
|
4.29
|
|
|
|
10,000
|
|
4.29
|
|
Variable Rate; Matures 3/19/2012
3
|
|
|
10,000
|
|
4.29
|
|
|
|
10,000
|
|
4.29
|
|
Variable Rate; Matures 5/23/2012
4
|
|
|
5,000
|
|
4.61
|
|
|
|
5,000
|
|
4.61
|
|
Variable Rate; Matures 6/1/2012
|
|
|
7,000
|
|
4.56
|
|
|
|
7,000
|
|
4.56
|
|
Variable Rate; Matures 7/19/2012
5
|
|
|
10,000
|
|
4.78
|
|
|
|
10,000
|
|
4.78
|
|
Variable Rate; Matures 7/19/2012
6
|
|
|
5,000
|
|
4.63
|
|
|
|
5,000
|
|
4.63
|
|
Variable Rate; Matures 6/10/2013
7
|
|
|
7,000
|
|
4.19
|
|
|
|
7,000
|
|
4.19
|
|
Variable Rate; Matures 6/10/2013
8
|
|
|
19,000
|
|
4.28
|
|
|
|
19,000
|
|
4.28
|
|
Fixed Rate; Matures 12/2/2013
|
|
|
10,200
|
|
3.44
|
|
|
|
10,200
|
|
3.44
|
|
Variable Rate; Matures 5/15/2017
9
|
|
|
5,000
|
|
4.09
|
|
|
|
5,000
|
|
4.09
|
|
Variable Rate; Matures 7/19/2017
10
|
|
|
5,000
|
|
4.41
|
|
|
|
5,000
|
|
4.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FHLB Advances
|
|
$
|
118,457
|
|
3.98
|
%
|
|
$
|
152,474
|
|
3.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
Advance includes a one time call option on March 9, 2010
|
3
|
Advance includes a one time call option on March 19, 2010
|
4
|
Advance includes a one time call option on February 23, 2010
|
5
|
Advance includes a one time call option on January 19, 2010
|
6
|
Advance includes a one time call option on January 19, 2010
|
7
|
Advance includes a one time call option on March 10, 2010
|
8
|
Advance includes a one time call option on March 10, 2010
|
9
|
Advance includes a one time call option on February 16, 2010
|
10
|
Advance includes a one time call option on January 19, 2010
|
127
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 13
DERIVATIVE FINANCIAL INSTRUMENTS
The Company may utilize certain derivative financial instruments. Stand alone derivative financial instruments, such as interest-rate swaps,
are used to economically hedge interest-rate risk related to the Companys liabilities. These derivative instruments involve both credit and market risk. The notional amounts are amounts on which calculations, payments, and the value of the
derivative are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Such difference, which represents the fair value
of the derivative instruments, is reflected on the Companys consolidated balance sheet as derivative assets, derivative liabilities or trading activities for stand alone derivative financial instruments.
The Company is exposed to credit related losses in the event of nonperformance by the counterparties to those agreements. The Company
controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and does not expect any counterparties to fail to satisfy their obligations.
Derivative instruments are generally either negotiated over the counter contracts or standardized contracts executed on a recognized
exchange. Negotiated OTC derivative contracts are generally entered into between two counterparties that negotiate specific agreement terms, including the underlying instrument, amount, exercise prices and maturity.
As of September 30, 2009, the interest rate swap was terminated because the forecasted transaction was no longer probable. The
resulting gain is recognized over the remaining life of the interest rate swap. Hedge ineffectiveness is generally measured as the amount by which the cumulative change in the fair value of the hedging instrument exceeds the present value of the
cumulative change in the hedged items expected cash flows. Ineffectiveness is reported within other noninterest income in the Consolidated Statements of Operation. For the year ended December 31, 2009 ineffectiveness on cash flow hedges
was approximately $480,000. The effective portion of the gains or losses on cash flow hedges are reported within accumulated other comprehensive income and are reclassified from accumulated other comprehensive income to current period earnings when
the forecasted transaction affects earnings. As of December 31, 2009, $767,000 in net deferred gains, net of tax, recorded in accumulated other comprehensive income are expected to be reclassified into earnings during the next twelve months.
The Company originally entered into interest rate swaps which provided for the Company to receive payments at a fixed rate in
exchange for paying a floating rate on certain loans. Management believes that entering into the interest rate swaps helps manage the Companys exposure variabilities in cash flows due to changes in the level of interest rates. It is the
Companys objective to hedge the change in cash flows, and maintain coverage levels that are appropriate, given anticipated or existing interest rate levels and other market considerations, as well as the relationship of change in this asset to
other assets of the Company. To meet this objective, the Company utilized interest rate swaps as an asset/liability management strategy. These interest rate swap agreements are contracts to make a series of floating rate payments in exchange for
receiving a series of fixed rate payments. The information pertaining to interest rate swap agreements used to hedge floating rate loans is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Notional amount
|
|
$
|
45,000
|
|
|
$
|
45,000
|
|
Pay rate (Prime)
|
|
|
3.25
|
%
|
|
|
7.25
|
%
|
Receive rate
|
|
|
7.51
|
%
|
|
|
7.51
|
%
|
Maturity in years
|
|
|
4
|
|
|
|
5
|
|
Unrealized gain relating to interest-rate swaps
|
|
$
|
5,098
|
|
|
$
|
1,393
|
|
These agreements
provided for the Company to receive payments at a fixed-rate determined by a specified index (WSJ Prime) in exchange for making payments at a floating rate.
At December 31, 2008 and 2007, the unrealized gain relating to the use of interest rate swaps was recorded in derivate assets.
128
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 14COMMITMENTS AND CONTINGENCIES
The Company has entered into operating lease agreements for certain bank offices, which expire on various dates through 2023. In addition,
the Company has operating leases for office equipment, which expire on various dates through 2015. Certain of these leases require the payment of common area maintenance expenses and may also include renewal options. Rent expense was $4,287,000,
$4,061,000, and $3,262,000 for 2009, 2008 and 2007, respectively.
Future minimum lease commitments, as of December 31,
2009 are as follows (in thousands):
|
|
|
|
Year ending December 31
st
:
|
|
|
|
2010
|
|
$
|
4,122
|
2011
|
|
|
4,134
|
2012
|
|
|
4,248
|
2013
|
|
|
4,337
|
2014
|
|
|
4,178
|
Thereafter
|
|
|
27,834
|
|
|
|
|
|
|
Total minimum payments required
|
|
$
|
48,853
|
|
|
|
|
The Company entered into a Master Software License and
Maintenance Agreement with Jack Henry and Associates (Jack Henry) for data processing services on March 16, 2007. This agreement has a six year term. Data Processing expense paid to Jack Henry was $1,099,000, $1,072,000 and $403,000
for 2009, 2008 and 2007, respectively.
As of December 31, 2009, the Company had available $98.4 million in lines of
credit with financial institutions. The Companys banking subsidiaries are members of the Federal Home Loan Bank and at this time do not have any further borrowing capacity. Please refer to
Note 12Federal Home Loan Bank
Advances of the Notes to the Consolidated Financial Statements
for further information on these borrowings.
From time-to-time, we are involved in litigation arising in the ordinary course of our business. The Company believes that the ultimate aggregate liability represented thereby, if any, will not have a material adverse effect on our
consolidated financial condition or results of operations.
NOTE 15BENEFIT PLANS
401(K) Retirement Plan
The Company maintains a 401(k) Retirement Plan (the Plan) to which eligible employees may contribute a
percentage of their pay. The Company temporarily discontinued making matching contributions in 2009. Prior to this discontinuance, the Company made matching contributions to the Plan on behalf of eligible employees equal to 50% of the first 8%
of the employees contributions. The Company contributed to the Plan in the amounts of $308,000, $346,000 and $454,000 during 2009, 2008 and 2007, respectively. Employees who have completed at least three months of service and have
attained age 21 are generally eligible to participate. Employee contributions are 100% vested as amounts are credited to the employees account. Company contributions, if made, become 20% vested when an employee has completed 1 year
of service, and vest at a rate of 20% per year thereafter, fully vesting when an employee has completed 5 years of service.
2004 Salary Continuation Plan
The Company maintains a Salary Continuation Plan (the SERP) to provide supplemental income for the Companys Chief Executive Officer after his retirement. The SERP, which is
129
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 15BENEFIT PLANS (Continued)
unfunded, is structured such that each participant is scheduled to receive specified levels of salary continuation income after the retirement age of 65 for a certain number of years. In the
event the participant leaves the employment of the Company before retirement, only the benefits vested through that date will be payable to the executive. The SERP originally provided for cliff vesting (50% vested) after five years from its
effective date and for 100% vesting in the event of a change in control of the Company. On November 19, 2008, after extended consultations with its compensation consultants and outside counsel, and in recognition of the Chief Executive
Officers longer than ten years of service to the Company, the Company revised the vesting schedule so that the Chief Executive Officers SERP benefit became 75% vested, with three years now remaining for full vesting. The Company had
approximately $493,000 and $371,000 accrued at December 31, 2009 and 2008, respectively, towards the SERP, which is included in accrued expenses and other liabilities in the accompanying consolidated balance sheets.
The Company has also purchased bank-owned life insurance (BOLI) policies on the Chief Executive Officer and a previous SERP
participant. BOLI is recorded at the amounts to be realized under the insurance contracts, which represent the amounts contributed to the cash surrender value of the policies. The Company recognizes revenue from the investment returns from
the BOLI and compensation expense for the amounts accrued toward a specific participants retirement fund. Revenue earned from the BOLI amounted to $153,000, $143,000 and $134,000 during the years ended December 31, 2009, 2008 and
2007 respectively. Such revenue is included in other income in the accompanying consolidated statements of operations. The Company recognized net earnings of $31,000, $39,000 and $41,000, consisting of earnings on bank-owned life insurance
policies, net of compensation expenses accrued in connection with the SERP, during 2009, 2008 and 2007, respectively.
Deferred Compensation Plan
On December 15, 2008, the Company established a Deferred Compensation Plan (Deferred Plan) to provide supplemental income for certain senior executive officers, excluding the Chief
Executive Officer. The purpose of the Deferred Plan is to serve as a retention mechanism for key executives identified by the Chief Executive Officer in consultation with the Compensation Committee as being necessary to implement the Companys
long-term objectives. The Deferred Plan, which became effective January 1, 2008, is unfunded and is structured such that each participant is scheduled to receive supplemental income for a certain number of years after the retirement age of 65
as determined by the Company, but not to exceed 50% of the executives base salary, increased by not more than 2% each year following the first day in January of the year in which an individual commences participation in the Deferred Plan. The
Deferred Plan provides for cliff vesting over the first five years after the effective date. Prior to the fifth anniversary of entry into the Deferred Plan, a participant will not be entitled to any retirement benefits under the Deferred Plan,
unless there is a change in control of the Company at which time the participant will become 100% vested. Currently, there are three participants in the Deferred Plan. The Company had approximately $306,000 and $151,000 accrued for Deferred
Plan benefits in 2009 and 2008, respectively.
130
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 16RELATED PARTY TRANSACTIONS
The Banks have granted loans to executive officers and directors of the Banks, Bank of Florida Trust Company, and the Company and to
associates of such executive officers and directors. Such loans were made in the ordinary course of business under normal credit terms and do not represent more than the normal risk of collection. The activity for these loans is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
Loan balances at beginning of year
|
|
$
|
83,830
|
|
|
$
|
41,753
|
New loans
|
|
|
29,353
|
|
|
|
27,302
|
Advances (Repayments), net
|
|
|
(7,561
|
)
|
|
|
14,775
|
Adjustments for changes in executive officers and directors
|
|
|
(33,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loan balances at end of year
|
|
$
|
72,332
|
|
|
$
|
83,830
|
|
|
|
|
|
|
|
|
The Banks also accept deposits from employees,
officers and directors of the Banks and the Company and from affiliates of such officers and directors. The deposits are accepted on substantially the same terms as those of other depositors and totaled $37.8 million as of December 31, 2009.
The Company engaged Centuric, LLC of Ft. Lauderdale, Florida, to manage the Information Technology functions of the Company
and the Banks. This service primarily includes the purchase of computer hardware and software, telephones, network management services and disaster recovery. Ramon A. Rodriguez, a director of Bank of Florida Corporation, is a member of Centuric
Group, LLC, the parent company of Centuric, LLC. Centuric, LLC is a consulting and outsourcing firm specializing in system integration, network management and security, disaster recovery and business contingency planning. The Company paid Centuric,
LLC approximately $630,000, $1,112,000 and $1,861,000 in 2009, 2008, and 2007, respectively. Of the $630,000 and $1,112,000 paid to Centuric, LLC in 2009 and 2008, respectively, $40,100 and $314,300 was for the purchase of computer equipment and
software, including set-up fees.
In 2002, the Company entered into a lease for a banking facility and office space located at
1185 Immokalee Road, Naples, Florida owned by Citizens Reserve, LLC until being sold to Naples 9, LLC, an unrelated entity, in May of 2008. Citizens Reserve, LLC is principally owned by several directors of the Company. The Company paid Citizens
Reserve, LLC $369,000 and $1,100,000 in 2008 and 2007, respectively.
Bank of Florida Southwest leases a banking
facility in Bonita Springs, Florida from Brooks Landing, LLC. Brooks Landing, LLC is owned in part by directors Donald R. Barber, John B. James, and LaVonne Johnson. Monthly lease payments as of December 31, 2009 were $18,700. The lease will
expire in 2023.
Bank of Florida Southeast engaged companies that had a relationship with Terry
Stiles, Bank of Florida Corporation director, to buildout the office facility in Downtown Ft. Lauderdale located at 200 SW 1
st
Avenue in addition to the Coral Ridge branch office located at 2521 East Commercial Boulevard. Bank of Florida paid
the various companies $400,000 in 2008 for their services. These services were approved by the Board of Directors.
Bank of
Florida Southeast leases the downtown Ft. Lauderdale facility from 200 Brickell Associates, Ltd., of which Terry W. Stiles, a director of Bank of Florida Corporation, is a partner. The lease commenced November 2007. The monthly lease payment
as of December 2009 was $73,000.
On August 8, 2007, Bank of Florida Southeast signed a binding lease agreement
for the new branch facility in Coral Gables. The lease commenced April 2008 with 2521 Marathon, LLC, of which Terry W. Stiles, a director of Bank of Florida Corporation, is a partner. The monthly lease payment as of December 2009 was $29,000.
Bank of Florida Tampa Bay sublet office space to Medi-Weight Loss Clinics. The Company received $5,600 in sublease
income during 2009. Edward Kaloust, a director of Bank of Florida Corporation, is a managing member of Medi-Weight Loss Clinics. The sublease agreements with Medi-Weight Loss Clinics terminated January 31, 2009.
131
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 17STOCKHOLDERS EQUITY
During June 2009, the Company authorized the issuance and sale of up to 520 shares of Series B Preferred Stock, to accredited investors only.
The Company issued 172 units of the Series B Preferred Stock for consideration of $4,300,000 at an offering price of $25,000 per unit. Each unit consists of one share of Series B Preferred Stock and one warrant to purchase shares of common stock.
The Preferred Stock is perpetual and nonvoting. Each share has a liquidation preference of $25,000 and pays a quarterly
dividend of $625 per share, payable in arrears. Preferred stock dividends of $105,900 were paid to the preferred stock shareholders in October. If the Company conducts any offering for sale of any newly issued securities, the holders of Preferred
Stock shall have the right to acquire such newly issued securities as part of such offering by converting shares of Preferred Stock into the offered securities. In any such conversion, each converted share of Preferred Stock shall be converted into
an amount of securities with an offering price of $25,000. If the Company conducts an offering that results in proceeds of at least $30,000,000 prior to January 1, 2011, and a holder elects to not convert the holders shares of Preferred
Stock in the offering, or if a change in control of the Company occurs, the Company will be obligated to redeem such shares of Preferred Stock at $25,000 per share. If such an offering is not completed by January 1, 2011, the Company shall have
the right to redeem the shares of Preferred Stock at any time thereafter for $25,000 per share.
Each warrant permits its
holder to purchase 720, 742, or 772 shares of Company common stock at $3.47, $3.37, or $3.24, respectively, per share at any time during the ten year period commencing on issuance. The warrants are nontransferable. The fair value of the warrants was
reclassified from preferred stock to additional paid-in capital.
As of December 31, 2009, the Companys Tier 1
Leverage ratio, Tier 1 risk-based capital ratio and Total risk-based capital ratio were 2.41%, 2.94% and 5.33%, respectively.
132
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 18STOCK-BASED COMPENSATION
In 2000, the Company adopted the 1999 Stock Option Plan pursuant to which the Companys Board of Directors may grant stock options to
officers and key employees. The Plan, as amended at the 2005 Annual Shareholders meeting, authorized grants of options to purchase no less than 11.5% of outstanding shares. The 2006 Stock Compensation Plan (the Plan) authorized 12% of common
shares issued after April 3, 2006 plus 58,154 shares which were available for grant under the prior plan, under which no more options may be granted.
This Plan provides for the grant of the following: options to purchase common stock; restricted shares of common stock (which may be subject to both grant and forfeiture conditions) (Restricted
Stock); units (which are a contractual right for a recipient to receive shares of Restricted Stock at a certain date or upon the occurrence of a certain event); and stock appreciation rights (entitling the grantee to receive the difference in
value between the underlying common stock on the date of exercise and the value of such stock on the date of grant) (SARS), which may be either freestanding or granted in tandem with an option. Options to purchase common stock may be
either incentive stock options (ISOs), which are intended to satisfy the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the Code), or non-qualified stock options (NQOs) which
are not intended to satisfy the requirements of Section 422 of the Code.
The exercise price of the stock options may not
be less than the fair market value of common stock on the date the option is granted. The Plan provides for the grant of options at the discretion of the Board of Directors or a committee designated by the Board of Directors to administer the Plan.
Each stock option granted under the Plan has a maximum term of ten years subject to earlier termination in the event the participant ceases to be an employee. The committee shall determine the period during which stock options vest at the date of
grant. The Plan will terminate on June 8, 2016. At December 31, 2009, there were 463,268 shares available for grant under the Plan.
The total fair value of shares vested and recognized as compensation expense was approximately $237,000, $273,000 and $292,000 for the years ended December 31, 2009, 2008 and 2007, respectively.
There was no associated tax benefit recognized in connection with these incentive stock options. The total intrinsic value of options exercised during the years ended December 31, 2009, 2008 and 2007 was $0, $0 and $296,000, respectively. As of
December 31, 2009 and 2008, the Company had 92,530 and 131,573 nonvested options outstanding and there was $554,000 and $881,000 of total unrecognized compensation cost related to these nonvested options, respectively. This cost is expected to
be recognized monthly on a straight-line basis, over the vesting periods, through December 15, 2013.
The Company has
examined its historical pattern of option exercises in an effort to determine if there were any patterns based on certain employee populations. From this analysis, the Company could not identify any patterns in the exercise of options. As such, the
Company determined the estimated useful life of options issued to be the midpoint of the vesting term and the contractual term ((vesting term and original contractual term)/2). Expected volatility is based on historical volatility of the
Companys stock. The risk-free interest rates are based on U. S. Treasury notes in effect at the time of the grant. The dividend yield assumption is based on the Companys history and expectation of dividends payments.
The per share weighted-average fair value of stock options granted during 2009, 2008 and 2007 was $3.29, $5.32, and $11.04, respectively, on
the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Expected dividend yield
|
|
0.00
|
%
|
|
0.00
|
%
|
|
0.00
|
%
|
|
|
|
|
Expected volatility
|
|
124.20
|
%
|
|
67.35
|
%
|
|
48.03
|
%
|
|
|
|
|
Risk free interest rate
|
|
3.09
|
%
|
|
3.29
|
%
|
|
4.64
|
%
|
|
|
|
|
Expected life
|
|
7 years
|
|
|
7 years
|
|
|
7 years
|
|
133
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 18STOCK-BASED COMPENSATION (Continued)
Stock option activity during the periods indicated was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTIONS
OUTSTANDING
|
|
|
WEIGHTED
AVERAGE EXERCISE
PRICE PER SHARE
|
|
REMAINING
CONTRACTUAL
TERM
|
|
AGGREGATE
INTRINSIC
VALUE
|
Balance, December 31, 2006
|
|
667,197
|
|
|
$
|
15.40
|
|
|
|
|
|
Granted
|
|
90,150
|
|
|
|
19.22
|
|
|
|
|
|
Exercised
|
|
(65,437
|
)
|
|
|
13.06
|
|
|
|
|
|
Forfeited
|
|
(90,782
|
)
|
|
|
19.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
601,128
|
|
|
$
|
15.60
|
|
|
|
|
|
Granted
|
|
76,800
|
|
|
|
8.12
|
|
|
|
|
|
Forfeited
|
|
(60,257
|
)
|
|
|
15.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
617,671
|
|
|
$
|
14.71
|
|
|
|
|
|
Granted
|
|
38,414
|
|
|
|
3.03
|
|
|
|
|
|
Forfeited
|
|
(116,317
|
)
|
|
|
13.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
539,768
|
|
|
$
|
14.19
|
|
4.9 years
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2009
|
|
447,238
|
|
|
$
|
14.49
|
|
4.3 years
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company granted restricted stock for 176,500
shares to senior officers as of March 16, 2009. The stock may vest in installments or in total upon satisfaction of the stipulated conditions. If the conditions are not satisfied, the shares are forfeited and again become available under the
2006 Stock Compensation Plan. All shares of restricted stock will be held by the Company until the conditions are satisfied. The grants are divided into the following three categories: restricted shares vesting in one year (31,500 shares),
performance based restricted shares vesting over three years and upon the Companys achieving certain performance goals (63,000 shares) and restricted shares vesting over five years (82,000 shares). The Company also granted 21,378 shares of
restricted stock, at $3.46 per share and which vested immediately, to certain members of the Board of Directors of the Company and its subsidiaries. There were 168,500 nonvested shares of restricted stock as of December 31, 2009 and 8,000
shares of restricted stock were forfeited upon the cessation of one officers employment. Compensation expense totaling $270,000 was recognized for the year ended December 31, 2009 in connection with restricted stock.
In connection with its initial offering of common stock, the Company granted to certain organizers of the Company warrants to purchase
113,330 shares of common stock at an exercise price of $10 per share. These warrants were fully vested as of December 31, 2005 and expired on August 24, 2009.
In connection with the opening of a branch of the Bank of Florida - Southeast, in the Palm Beach area of Florida, the Company granted to Advisory Board members warrants to purchase 40,000 shares of common
stock at an exercise price of $12.50 per share. The warrants vest in equal increments of 20% commencing on the date operations commenced (October 4, 2004) and on each anniversary date thereafter until fully vested. Warrants may be exercised in whole
or in part for $12.50 per share beginning on the commencement date and expired on October 4, 2009. Compensation expense totaling $12,000, $5,000 and $38,000 was recognized during 2009, 2008 and 2007, respectively, in connection with these
warrants. In addition, compensation expense totaling $1,000, $8,000 and $20,000 was recognized during 2009, 2008 and 2007, respectively, in connection with certain stock options which were also granted to these Advisory Board members during 2004.
134
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 18STOCK-BASED COMPENSATION (Continued)
As a result of the acquisition of Bank of FloridaTampa Bay, the Company named
certain individuals of an investor group as directors of Bank of FloridaTampa Bay. These directors were awarded warrants to purchase 85,333 shares of common stock at an exercise price of $12.50. Twenty percent of the warrants became
exercisable on the date that the bank opened for business (November 5, 2004), and twenty percent was scheduled to become exercisable on each of the four succeeding anniversaries of that date. The vesting period on these warrants was accelerated in
December 2005. All of the warrants expired on November 5, 2009.
In connection with the issuance of Series B Preferred
Stock, a total of 124,852 warrants were granted in 2009. Each warrant permits its holder to purchase 720, 742, or 772 shares of Company common stock at $3.47, $3.37, or $3.24, respectively, per share at any time during the ten year period commencing
on issuance. The warrants are nontransferable.
At December 31, 2009 and December 31, 2008 warrants to purchase
124,852 and 145,131 common shares, respectively, at an average exercise price of $3.44 and $11.52, respectively, were outstanding. Of that amount, 124,852 and 136,377, respectively, were fully vested at December 31, 2009 and 2008, respectively.
If, at any time, the holders of these warrants cease to serve as a director of the Company or a Company subsidiary, or an Advisory Board member, the warrants immediately expire. The following table summarizes information about the stock warrants
outstanding for the periods indicated:
|
|
|
|
|
|
|
|
|
WARRANTS
OUTSTANDING
|
|
|
WEIGHTED
AVERAGE EXERCISE
PRICE PER SHARE
|
Balance, December 31, 2006
|
|
241,879
|
|
|
$
|
11.06
|
Exercised
|
|
(95,148
|
)
|
|
|
10.33
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
146,731
|
|
|
$
|
11.53
|
Expired
|
|
(1,600
|
)
|
|
|
12.50
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
145,131
|
|
|
$
|
11.52
|
Granted
|
|
124,852
|
|
|
|
3.44
|
Forfeited
|
|
(145,131
|
)
|
|
|
11.52
|
|
|
|
|
|
|
|
Balance December 31, 2009
|
|
124,852
|
|
|
$
|
3.44
|
|
|
|
|
|
|
|
135
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 19REGULATORY MATTERS
All of the Banks are Florida-chartered banks and are regulated and supervised by the Florida Office of Financial Regulation (the
OFR). As Florida-chartered banks, they are also subject to Florida statutes regarding payment of dividends. Under the Florida Financial Institutions Code, the prior approval of the Department is required for dividend payments if the
total of all dividends declared by a bank in any calendar year will exceed the sum of a banks net retained income (net income less any dividends paid) for that year and its retained income for the preceding two years. The Banks are currently
precluded from approving any dividends.
The Company is subject to regulatory capital requirements administered by federal and
state banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts
and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors, and the regulator can lower classifications in certain cases. Failure to meet various capital requirements can initiate
regulatory action that could have a direct material effect on the financial statements.
At December 31 actual capital
levels and minimum required levels were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Minimum
Required
For Capital
Adequacy
Purposes
|
|
|
Minimum Required
To Be Well
Capitalized Under
Prompt Corrective
Action
Regulations
|
|
|
|
Amount
|
|
Ratio
|
|
|
Amount
|
|
Ratio
|
|
|
Amount
|
|
Ratio
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
64,825
|
|
5.33
|
%
|
|
$
|
97,294
|
|
8.00
|
%
|
|
$
|
|
|
N/A
|
|
Bank of Florida Southwest
|
|
|
17,026
|
|
2.99
|
%
|
|
|
45,626
|
|
8.00
|
%
|
|
|
57,032
|
|
10.00
|
%
|
Bank of Florida Southeast
|
|
|
28,727
|
|
6.47
|
%
|
|
|
35,546
|
|
8.00
|
%
|
|
|
44,433
|
|
10.00
|
%
|
Bank of Florida Tampa Bay
|
|
|
9,190
|
|
4.37
|
%
|
|
|
16,817
|
|
8.00
|
%
|
|
|
21,022
|
|
10.00
|
%
|
Tier 1 capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
35,761
|
|
2.94
|
%
|
|
$
|
48,647
|
|
4.00
|
%
|
|
$
|
|
|
N/A
|
|
Bank of Florida Southwest
|
|
|
8,513
|
|
1.49
|
%
|
|
|
22,813
|
|
4.00
|
%
|
|
|
34,219
|
|
6.00
|
%
|
Bank of Florida Southeast
|
|
|
19,497
|
|
4.39
|
%
|
|
|
17,773
|
|
4.00
|
%
|
|
|
26,660
|
|
6.00
|
%
|
Bank of Florida Tampa Bay
|
|
|
6,495
|
|
3.09
|
%
|
|
|
8,409
|
|
4.00
|
%
|
|
|
12,613
|
|
6.00
|
%
|
Tier 1 leverage (to average assets) leverage ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
35,761
|
|
2.41
|
%
|
|
$
|
59,380
|
|
4.00
|
%
|
|
$
|
|
|
N/A
|
|
Bank of Florida Southwest
|
|
|
8,513
|
|
1.24
|
%
|
|
|
27,548
|
|
4.00
|
%
|
|
|
34,435
|
|
5.00
|
%
|
Bank of Florida Southeast
|
|
|
19,497
|
|
3.44
|
%
|
|
|
22,673
|
|
4.00
|
%
|
|
|
28,341
|
|
5.00
|
%
|
Bank of Florida Tampa Bay
|
|
|
6,495
|
|
2.66
|
%
|
|
|
9,776
|
|
4.00
|
%
|
|
|
12,220
|
|
5.00
|
%
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
145,436
|
|
11.12
|
%
|
|
$
|
104,647
|
|
8.00
|
%
|
|
$
|
|
|
N/A
|
|
Bank of Florida Southwest
|
|
|
63,695
|
|
10.35
|
%
|
|
|
49,214
|
|
8.00
|
%
|
|
|
61,517
|
|
10.00
|
%
|
Bank of Florida Southeast
|
|
|
46,810
|
|
10.15
|
%
|
|
|
36,892
|
|
8.00
|
%
|
|
|
46,115
|
|
10.00
|
%
|
Bank of Florida Tampa Bay
|
|
|
22,814
|
|
10.12
|
%
|
|
|
18,041
|
|
8.00
|
%
|
|
|
22,552
|
|
10.00
|
%
|
Tier 1 capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
112,998
|
|
8.64
|
%
|
|
$
|
52,323
|
|
4.00
|
%
|
|
$
|
|
|
N/A
|
|
Bank of Florida Southwest
|
|
|
45,905
|
|
7.46
|
%
|
|
|
24,607
|
|
4.00
|
%
|
|
|
36,910
|
|
6.00
|
%
|
Bank of Florida Southeast
|
|
|
35,015
|
|
7.59
|
%
|
|
|
18,446
|
|
4.00
|
%
|
|
|
27,669
|
|
6.00
|
%
|
Bank of Florida Tampa Bay
|
|
|
19,961
|
|
8.85
|
%
|
|
|
9,021
|
|
4.00
|
%
|
|
|
13,531
|
|
6.00
|
%
|
Tier 1 leverage (to average assets) leverage ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
112,998
|
|
7.86
|
%
|
|
$
|
57,520
|
|
4.00
|
%
|
|
$
|
|
|
N/A
|
|
Bank of Florida Southwest
|
|
|
45,905
|
|
6.61
|
%
|
|
|
27,774
|
|
4.00
|
%
|
|
|
34,717
|
|
5.00
|
%
|
Bank of Florida Southeast
|
|
|
35,015
|
|
6.84
|
%
|
|
|
20,477
|
|
4.00
|
%
|
|
|
25,596
|
|
5.00
|
%
|
Bank of Florida Tampa Bay
|
|
|
19,961
|
|
8.08
|
%
|
|
|
9,887
|
|
4.00
|
%
|
|
|
12,359
|
|
5.00
|
%
|
136
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 19REGULATORY MATTERS (Continued)
The prompt corrective action regulations provide five classifications, including well
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is
required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required.
At December 31, 2009, our consolidated Tier 1 leverage capital ratio was 2.41%, our consolidated total risk based capital ratio was
5.33% and our consolidated Tier 1 risk based capital ratio was 2.94%. These ratios have caused the Company to be considered under capitalized. In addition, each of our subsidiary banks is considered to be under capitalized as
of December 31, 2009. Continued losses will cause these capital ratios to fall further. Lower capital ratios will impair our ability to compete for loans and deposits, due to regulatory restrictions and public perception.
Our failure to meet our regulatory capital requirements could result in further formal enforcement actions against us or our subsidiary
Banks and could further affect customer confidence, our ability to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends, our ability to make acquisitions, and our business, results of operations and financial condition.
Subsidiary Bank Corrective Resolutions
On June 12, 2009, each of our wholly-owned Bank subsidiaries received a proposed memorandum of understanding (MOU) from the
Florida Office of Financial Regulation (the OFR). With the OFRs consent and approval, the board of directors of each of our subsidiary Banks voluntarily adopted corrective resolutions (Corrective Resolutions) in lieu of
the proposed MOUs. The final Corrective Resolutions, adopted by the board of directors of each of our subsidiary Banks on August 20, 2009, are specific to each of our subsidiary Banks, but contain similar provisions and requirements, some of
which are summarized below.
The board of directors of each of our subsidiary Banks agreed to the following provisions in the
applicable Corrective Resolutions:
|
|
|
Ensure that each subsidiary Bank remains well capitalized at all times. Prepare and submit a capital plan to the OFR and the FDIC to
achieve, by December 31, 2009, a Tier 1 leverage capital ratio of at least 8% and a total risk-based capital ratio of at least 11% and to achieve by June 30, 2010, a total risk-based capital ratio of at least 12%.
|
|
|
|
Prepare and submit a written risk reduction plan to reduce, in the aggregate, the balance of assets classified as Substandard,
Doubtful or Loss according to a specific schedule for each subsidiary Bank.
|
|
|
|
Direct management to systematically reduce the subsidiary Banks concentration in high-risk commercial real estate loans, which include land,
non-owner occupied commercial construction, and residential construction loans.
|
|
|
|
Amend the subsidiary Banks liquidity policy to address and take into consideration the Banks liquidity objectives and current risk profile,
including a reduction in the net non-core funding dependence ratio to a specified percentage by December 31, 2010, with ongoing efforts to further reduce its dependence, and review the liquidity policy annually for adequacy and make appropriate
revisions to the liquidity policy when necessary.
|
|
|
|
Submit to the OFR and the FDIC a strategic business plan and a comprehensive annual budget and earnings forecast for the remainder of 2009 and for 2010
and direct management to prepare a report detailing the subsidiary Banks actual performance compared with the strategic plan and budget at each regular meeting of the subsidiary Banks board of directors.
|
|
|
|
Amend the subsidiary Banks written policies and procedures to address examination report comments and recommendations regarding the use of
interest reserves.
|
|
|
|
Establish a sound ALLL methodology, submit the revised ALLL methodology to the OFR and the FDIC for review and comment and review the adequacy of the
ALLL prior to the end of each calendar quarter.
|
137
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 19REGULATORY MATTERS (Continued)
|
|
|
Notify the OFR and the FDIC in writing when the subsidiary Bank proposes to add any individual to its board of directors or employ any individual as an
executive officer.
|
|
|
|
Furnish quarterly progress reports to the FDIC and the OFR along with a report detailing the subsidiary Banks actual performance compared with
the strategic plan and budget presented at each regular board meeting.
|
|
|
|
Refrain from extending any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from the subsidiary
Bank that has been charged off or classified.
|
We believe our subsidiary Banks are in compliance with the
Corrective Resolutions except that the subsidiary Banks were not considered well capitalized as of December 31, 2009. Furthermore, we will not be in compliance with the capital requirements that will be effective as of June 30,
2010 until and unless we raise additional capital.
FDIC Actions
Based upon the financial condition of our subsidiary Banks, and subsequent correspondence with the FDIC, the FDIC has informed us that:
(1) each of the subsidiary Banks must notify the FDIC and the OFR before adding or replacing a member of their respective boards of directors or employing any person (including any existing employee) as a senior executive officer, and
(2) the subsidiary Banks may not, except under certain circumstances, enter into any agreements to make severance or indemnification payments or make any such payments to institution-affiliated parties. In addition, based on the subsidiary
Banks financial condition late in the third quarter, including additional internally classified loans, non-performing assets, capital level and earnings performance, we understand that the FDIC plans to pursue and implement formal enforcement
actions with respect to our subsidiary Banks in the form of consent orders (FDIC Orders). We currently expect the FDIC Orders will focus on the areas addressed by our existing Corrective Resolutions: to raise and maintain certain capital
ratios, to improve asset quality, to reduce non-core funding dependence, and to reduce our commercial real estate loan concentrations, although the scope and terms of any FDIC Orders or any other action that the FDIC may take is unknown.
Our subsidiary Banks must obtain prior approval from the FDIC before engaging in any transactions that would materially change the
composition of their balance sheets. Such transactions include any transaction or transactions that would increase a subsidiary Banks total assets by 5% or more, or that would significantly change the subsidiary Banks funding resources,
such as by increasing brokered deposits or other potentially volatile funding sources. In addition, our subsidiary Banks cannot pay dividends to the Company without prior FDIC approval.
Company Resolutions
The Company is subject to the supervision and regulation of the Board of Governors of the Federal Reserve System (the Federal Reserve). On June 12, 2009, we received a letter from the
Federal Reserve Bank of Atlanta (the Reserve Bank) requiring us to provide advance notice to the Reserve Bank before appointing any new directors or senior executive officers, which the Federal Reserve may approve or disapprove, or
entering into any agreement to provide indemnification or severance payments. The letter also requested our Board of Directors to adopt certain resolutions (the Board Resolutions). Our Board of Directors adopted the Board Resolutions on
October 19, 2009.
The Board Resolutions provide that the Company is prohibited, without prior Federal Reserve approval,
from incurring debt, including trust preferred securities; declaring or paying dividends including the payment of dividends on our outstanding Series B Preferred Stock; reducing the Companys capital position by purchasing or redeeming any
shares of our capital stock except for any redemption of shares of our outstanding Series B Preferred Stock following an equity offering of not less than $30 million; and making any payment representing a reduction of capital other than the payment
of normal and routine operating expenses. The Board Resolutions also require our board of directors to submit financial statements and confirmation of compliance with the Board Resolutions.
138
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 20OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the normal course of business, the Company uses various financial instruments with off-balance sheet risk to meet the financing needs of
its customers. These instruments include commitments to extend credit through loans approved but not yet funded, lines of credit and standby letters of credit. The credit risks associated with financial instruments are generally managed in
conjunction with the Companys balance sheet activities and are subject to normal credit policies, financial controls and risk limiting and monitoring procedures.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. In addition, large portions of
the commitments are scheduled to be participated to other financial institutions. The Company evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on managements credit evaluation of the counterparty. Collateral held varies but may include compensating balances, accounts receivable, inventory, property, plant and equipment and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Most guarantees expire within one year. The credit risk
involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Credit losses are incurred when one of the parties fails to perform in accordance with the terms of the contract. At
December 31, 2009, these standby letters of credit are secured by real estate with a fair value of $885,000, Lines of Credit totaling $325,000 and $1.4 million in Money Market and Certificates of Deposits maintained by the Company. The
remaining $1.2 million is unsecured.
The Companys exposure to off-balance sheet financial risk is represented by the
contractual amount of the commitments to extend credit and standby letters of credit. At December 31, 2009 and 2008, the following financial instruments were outstanding whose contract amounts represent credit risk (in thousands):
|
|
|
|
|
|
|
|
|
Contract Amount
|
|
|
2009
|
|
2008
|
|
|
|
Unfunded commitments under lines of credit
|
|
$
|
92,794
|
|
$
|
160,864
|
Standby letters of credit
|
|
|
3,819
|
|
|
2,298
|
Commitments to extend credit
|
|
|
7,980
|
|
|
8,483
|
139
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 21FAIR VALUES OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The fair value estimates are presented for financial instruments without attempting to estimate the value of the Banks long-term
relationships with depositors and the benefit that results from low cost funding provided by deposit liabilities. In addition, significant assets which are not considered financial instruments and are, therefore, not a part of the fair value
estimates include office properties and equipment.
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 cash
equivalents
: For these short-term instruments, the carrying amount is a reasonable estimate of fair value.
Securities
: For securities held to maturity and securities available for sale, fair value is based upon open-market quotes obtained from reputable third-party brokers.
Loans
: Loans with no significant change in credit risk and with rates that are repriced in coordination with movements in market rates
were valued at carrying amounts. The fair value of other loans is estimated by discounting scheduled cash flows to maturity using current market rates at which loans with similar terms would be made to borrowers of similar credit quality.
Appropriate adjustments were made to reflect probable credit losses. Impaired loans are valued at the net realizable value of the collateral or the present value of the cash flows.
Restricted securities
: The carrying value of restricted securities, including Federal Home Loan Bank stock, approximates fair value
since there is no active market for such investments.
Cash surrender value of life insurance
: The carrying value is
based upon the initial cash premium to the insurance company plus the income earned on the policy over time.
Interest-rate
swap:
The interest-rate swap is recognized on the consolidated balance sheet at fair value. Fair value is based on accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative.
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 deposits is estimated by discounting future cash flows using rates currently offered for deposits of similar remaining maturities. The fair value estimates do not include the benefits
that result from low-cost funding provided by the deposit liabilities compared to the cost of alternate sources of funds.
Subordinated debt
: The fair value of this variable rate debt was previously estimated by discounting future cash flows using rates currently offered for instruments of similar remaining maturities. However, due to current market
conditions, the fair value is calculated using a premium over LIBOR.
Federal Home Loan Bank Advances and Other
Borrowings
: The fair value for Federal Home Loan Bank Advances and Other Borrowings are estimated by discounting future cash flows using rates currently offered for instruments of similar remaining maturities.
Accrued interest
: The carrying amounts of accrued interest receivable and accrued interest payable approximate their fair values.
Off-balance-sheet instruments
: The fair values for off-balance-sheet, credit-related financial instruments are
based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties credit standing. The fair value of these financial instruments is not significant.
140
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 21FAIR VALUES OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
The following tables present the estimates of fair value of financial instruments as of
December 31 (in thousands):
|
|
|
|
|
|
|
|
|
2009
|
|
|
CARRYING
AMOUNT
|
|
ESTIMATED FAIR
VALUE
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
68,667
|
|
$
|
68,667
|
Securities held to maturity
|
|
|
554
|
|
|
536
|
Securities available for sale
|
|
|
98,120
|
|
|
98,120
|
Loans, net
|
|
|
1,170,970
|
|
|
1,150,690
|
Restricted securities
|
|
|
8,643
|
|
|
8,643
|
Accrued interest receivable
|
|
|
4,805
|
|
|
4,805
|
Cash surrender value of life insurance
|
|
|
3,679
|
|
|
3,679
|
Financial liabilities:
|
|
|
|
|
|
|
Deposits
|
|
|
1,187,318
|
|
|
1,199,259
|
Subordinated debt
|
|
|
16,000
|
|
|
10,698
|
Other borrowings
|
|
|
32,681
|
|
|
34,087
|
Federal Home Loan Bank advances
|
|
|
118,457
|
|
|
125,081
|
Accrued interest payable
|
|
|
2,045
|
|
|
2,045
|
|
|
|
|
2008
|
|
|
CARRYING
AMOUNT
|
|
ESTIMATED FAIR
VALUE
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
47,938
|
|
$
|
47,938
|
Securities held to maturity
|
|
|
3,316
|
|
|
3,140
|
Securities available for sale
|
|
|
114,660
|
|
|
114,660
|
Net loans held for investment
|
|
|
1,245,778
|
|
|
1,242,767
|
Restricted securities
|
|
|
9,246
|
|
|
9,246
|
Accrued interest receivable
|
|
|
4,990
|
|
|
4,990
|
Cash surrender value of life insurance
|
|
|
3,526
|
|
|
3,526
|
Interest-rate swap
|
|
|
5,098
|
|
|
5,098
|
Financial liabilities:
|
|
|
|
|
|
|
Deposits
|
|
|
1,166,282
|
|
|
1,161,130
|
Subordinated debt
|
|
|
16,000
|
|
|
15,923
|
Other borrowings
|
|
|
20,000
|
|
|
21,844
|
Federal Home Loan Bank advances
|
|
|
152,474
|
|
|
159,674
|
Accrued interest payable
|
|
|
2,286
|
|
|
2,286
|
141
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 21 FAIR VALUES OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
The following tables set forth the Companys assets that are measured at fair value
on a recurring basis at December 31, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009
|
|
|
Fair Value
Measurements
12/31/09
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities
|
|
$
|
87,040
|
|
$
|
45,414
|
|
$
|
41,626
|
|
$
|
|
U.S Treasury and other U.S agency obligations
|
|
|
10,571
|
|
|
5,112
|
|
|
5,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale debt securities
|
|
$
|
97,611
|
|
$
|
50,526
|
|
$
|
47,085
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
$
|
509
|
|
$
|
|
|
$
|
509
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale equity securities
|
|
$
|
509
|
|
$
|
|
|
$
|
509
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
$
|
98,120
|
|
$
|
50,526
|
|
$
|
47,594
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2008
|
|
|
Fair Value
Measurements
12/31/08
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
$
|
114,660
|
|
$
|
|
|
$
|
114,660
|
|
$
|
|
Derivative Assets
|
|
|
5,098
|
|
|
|
|
|
5,098
|
|
|
|
Certain
other assets are measured at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of cost or fair value accounting or write-downs of individual assets due to impairment.
142
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 21FAIR VALUES OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
Nonrecurring fair value adjustments to loans reflect full or partial write-downs that
are based on the loans observable market price or current appraised value of the collateral
.
Since the market for impaired loans is not active, loans subjected to nonrecurring fair value adjustments based on the loans observable
market price are generally classified as Level 2. Loans subjected to nonrecurring fair value adjustments based on the current appraised value of the collateral may be classified as Level 2 or Level 3 depending on the type of asset and the inputs to
the valuation. When appraisals are used to determine impairment and these appraisals are based on a market approach incorporating a dollar-per-square-foot multiple, the related loans are classified as Level 2. If the appraisals require significant
adjustments to market-based valuation inputs or apply an income approach based on unobservable cash flows to measure fair value, the related loans subjected to nonrecurring fair value adjustments are typically classified as Level 3 due to the fact
that Level 3 inputs are significant to the fair value measurement.
During the years ended December 31, 2009 and 2008,
the Company recognized losses related to certain assets that are measured at fair value on a nonrecurring basis (i.e. impaired loans). For assets measured at fair value on a nonrecurring basis that were still held on the balance sheet at year end,
the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets at December 31, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at December 31, 2009
|
|
|
Carrying Value
12/31/09
|
|
Quoted Prices in
Active
Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$
|
178,820
|
|
|
|
$
|
48,086
|
|
$
|
130,734
|
Other real estate owned
|
|
$
|
14,357
|
|
|
|
|
|
|
$
|
14,357
|
|
|
|
|
|
|
|
Carrying value at December 31, 2008
|
|
|
Carrying Value
12/31/08
|
|
Quoted Prices in
Active
Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$
|
74,149
|
|
|
|
$
|
18,930
|
|
$
|
55,219
|
Impaired loans had a
carrying amount of $213,380,000 with a valuation allowance of $27,707,000 at December 31, 2009. Included in this balance were impaired loans with a carrying value of $37,800,000 at December 31, 2009 that were measured for impairment and
had fair value in excess of carrying value.
143
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 22CONDENSED FINANCIAL INFORMATION
The condensed financial information of Bank of Florida Corporation (parent company only) as of December 31, 2009 and 2008, and for each
of the years in the three-year period ended December 31, 2009, is as follows (in thousands):
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
December 31
|
|
|
2009
|
|
2008
|
Assets:
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
2,168
|
|
$
|
2,699
|
Investment in subsidiaries
|
|
|
41,575
|
|
|
180,667
|
Premises and equipment
|
|
|
1,225
|
|
|
3,770
|
Other assets
|
|
|
117
|
|
|
5,225
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
45,085
|
|
$
|
192,361
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
1,249
|
|
$
|
2,382
|
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS EQUITY
|
|
|
43,836
|
|
|
189,979
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
45,085
|
|
$
|
192,361
|
|
|
|
|
|
|
|
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on investment securities and other
|
|
$
|
16
|
|
|
$
|
152
|
|
|
$
|
495
|
|
Holding Company service fee income
|
|
|
|
|
|
|
|
|
|
|
6,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL INCOME
|
|
|
16
|
|
|
|
152
|
|
|
|
7,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
1,653
|
|
|
|
1,587
|
|
|
|
6,497
|
|
Occupancy
|
|
|
501
|
|
|
|
537
|
|
|
|
1,504
|
|
General operating
|
|
|
2,230
|
|
|
|
1,764
|
|
|
|
3,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL EXPENSES
|
|
|
4,384
|
|
|
|
3,888
|
|
|
|
11,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from operations before income tax benefit and equity in undistributed net (loss) income of subsidiaries
|
|
|
(4,368
|
)
|
|
|
(3,736
|
)
|
|
|
(3,773
|
)
|
Income taxes (benefit)
|
|
|
416
|
|
|
|
(1,325
|
)
|
|
|
(1,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) before equity in undistributed net (loss) income of subsidiaries
|
|
|
(4,784
|
)
|
|
|
(2,411
|
)
|
|
|
(2,425
|
)
|
Equity in undistributed net (loss) income of subsidiaries
|
|
|
(142,714
|
)
|
|
|
(10,811
|
)
|
|
|
5,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME
|
|
|
(147,498
|
)
|
|
|
(13,222
|
)
|
|
|
2,743
|
|
Accumulated deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
(15,030
|
)
|
|
|
(1,808
|
)
|
|
|
(4,551
|
)
|
Dividends paid on preferred stock
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
(162,634
|
)
|
|
$
|
(15,030
|
)
|
|
$
|
(1,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144
BANK OF FLORIDA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2009, 2008 and 2007
NOTE 22CONDENSED FINANCIAL INFORMATION (continued)
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(147,498
|
)
|
|
$
|
(13,222
|
)
|
|
$
|
2,743
|
|
Adjustments to reconcile net (loss) income to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed net loss (income) of subsidiaries
|
|
|
142,714
|
|
|
|
10,811
|
|
|
|
(5,168
|
)
|
Loss on sale of assets
|
|
|
163
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
229
|
|
|
|
192
|
|
|
|
510
|
|
Stock compensation expense
|
|
|
520
|
|
|
|
286
|
|
|
|
350
|
|
(Increase) decrease in other assets
|
|
|
4,878
|
|
|
|
(2,909
|
)
|
|
|
(874
|
)
|
Increase (decrease) in accrued expenses and other liabilities
|
|
|
(1,105
|
)
|
|
|
1,633
|
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(99
|
)
|
|
|
(3,209
|
)
|
|
|
(1,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiary Banks
|
|
|
(4,602
|
)
|
|
|
(1,090
|
)
|
|
|
(24,709
|
)
|
Purchase of premises and equipment
|
|
|
(24
|
)
|
|
|
(16
|
)
|
|
|
(6,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(4,626
|
)
|
|
|
(1,106
|
)
|
|
|
(30,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series B preferred stock
|
|
|
4,300
|
|
|
|
|
|
|
|
|
|
Dividends on preferred stock
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
Tax benefit from stock options exercised
|
|
|
|
|
|
|
|
|
|
|
397
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
1,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
4,194
|
|
|
|
|
|
|
|
1,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(531
|
)
|
|
|
(4,315
|
)
|
|
|
(31,016
|
)
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
2,699
|
|
|
|
7,014
|
|
|
|
38,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
2,168
|
|
|
$
|
2,699
|
|
|
$
|
7,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of premises and equipment to subsidiary
|
|
$
|
2,340
|
|
|
|
2,496
|
|
|
|
|
|
Transfer of prepaid assets to subsidiary
|
|
|
30
|
|
|
|
|
|
|
|
|
|
Transfer of deposit assets to subsidiary
|
|
|
113
|
|
|
|
|
|
|
|
|
|
Transfer of securities from subsidiary
|
|
|
87
|
|
|
|
|
|
|
|
|
|
145
SIGNATURES
Pursuant to the requirements of Section 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.
|
|
|
|
|
|
|
BANK OF FLORIDA CORPORATION
|
|
|
|
Date: March 5, 2010
|
|
By:
|
|
/
S
/ M
ICHAEL
L.
M
C
M
ULLAN
|
|
|
|
|
Michael L. McMullan
|
|
|
|
|
Principal Executive Officer
|
|
|
|
Date: March 5, 2010
|
|
By:
|
|
/
S
/ T
RACY
L.
K
EEGAN
|
|
|
|
|
Tracy Keegan
|
|
|
|
|
Principal Financial Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature
|
|
|
|
Title
|
|
Date
|
|
|
|
|
/
S
/ M
ICHAEL
L.
M
C
M
ULLAN
|
|
|
|
President, Chief Executive Officer, Principal Executive Officer, Director
|
|
|
Michael L. McMullan
|
|
|
|
|
March 5, 2010
|
|
|
|
|
/
S
/ D
ONALD
R .
B
ARBER
|
|
|
|
|
|
|
Donald R. Barber
|
|
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
/
S
/ J
OE
B.
C
OX
|
|
|
|
|
|
|
Joe B. Cox
|
|
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
/
S
/ B
RADFORD
D
OUGLAS
|
|
|
|
|
|
|
Bradford Douglas
|
|
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
/
S
/ J
OHN
B.
J
AMES
|
|
|
|
|
|
|
John B. James
|
|
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
/
S
/ E
DWARD
K
ALOUST
|
|
|
|
|
|
|
Edward Kaloust
|
|
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
/
S
/ L
A
V
ONNE
J
OHNSON
|
|
|
|
|
|
|
LaVonne Johnson
|
|
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
/
S
/ E
DWARD
M
ORTON
|
|
|
|
|
|
|
Edward Morton
|
|
|
|
Director
|
|
March 5, 2010
|
/
S
/ M
ICHAEL
T.
P
UTZIGER
Michael T. Putziger
|
|
|
|
Director
|
|
March 5, 2010
|
146
|
|
|
|
|
|
|
Signature
|
|
|
|
Title
|
|
Date
|
|
|
|
|
/
S
/ R
AMON
R
ODRIGUEZ
|
|
|
|
|
|
|
Ramon A. Rodriguez
|
|
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
/
S
/ T
ERRY
W.
S
TILES
|
|
|
|
|
|
|
Terry W. Stiles
|
|
|
|
Director
|
|
March 5, 2010
|
147
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