ITEM 1. BUSINESS
General
Florida Community Banks, Inc. ("FCBI" or the "Company") is a bank holding company, which owns all of the common stock of Florida Community Bank ("Bank" or "FCB") and a special purpose business trust organized to issue Trust Preferred Securities. The special purpose business trust is not consolidated in the financial statements that are included elsewhere herein. FCBI is a Florida corporation registered with the Board of Governors of the Federal Reserve System as a bank holding company under the Bank Holding Company Act of 1956, as amended. Through its subsidiary Bank, FCBI is engaged in the commercial banking business in southwestern Florida with offices in Collier, Lee, Hendry, Glades and Charlotte counties. At December 31, 2004, FCBI had total assets of approximately $661 million, total deposits of approximately $521 million and stockholders' equity of approximately $53 million.
Florida Community Bank is a Florida-chartered commercial bank, which commenced operations in Everglades City, Florida on May 19, 1923, under the name "Bank of the Everglades." The Bank changed its place of business from Everglades City, Florida to Immokalee, Florida in September 1962. FCB changed its name from Bank of the Everglades to "First Bank of Immokalee" in July 1967 and then to "Florida Community Bank" in July 1996 as part of its merger with Tri-County Bank of Lehigh Acres. The Bank is subject to regulation by the Florida Department of Financial Services ("Department") and the Federal Deposit Insurance Corporation ("FDIC"). The Bank's main office is located at 1400 North 15th Street, Immokalee, Florida and its telephone number is (239) 657-3171. In addition to the main banking office in Immokalee, the Bank currently operates full-service branches in the southwest Florida cities of Lehigh Acres, LaBelle, Naples (Golden Gate area), Port Charlotte, Punta Gorda, Cape Coral and Ft. Myers.
The Company employs approximately 160 persons and it believes that its relationship with these employees is good.
The Bank is engaged primarily in soliciting deposits from the general public and investing such deposits, together with other funds, in commercial loans, consumer loans, agricultural loans, and real estate loans. To a lesser extent, the Bank invests its funds in securities issued or guaranteed by agencies of the United States Government and municipalities.
The Bank operates as a locally operated institution aimed at providing prompt, efficient and personalized service to individuals, small and medium-sized businesses, professionals and other local organizations. The Bank's primary service area encompasses Charlotte, Lee, Collier, Glades and Hendry Counties (the "PSA"). The Bank's principal markets within the PSA are:
(i) commercial and small business lending and deposit services; (ii) residential real estate mortgage and retail lending and deposit services; and (iii) commercial and residential real estate development lending.
The principal sources of funds for the Bank's loans and other investments are demand, time, savings and other deposits, amortization and prepayment of loans, sales to other lenders or institutions of loans or participations in loans, principal payments or maturities of investment securities, and borrowings. The principal sources of income for the Bank are interest and fees collected on loans, including fees received for servicing loans sold to other lenders or institutions, and to a lesser extent, interest and dividends collected on other investments. The principal expenses of the Bank are interest paid on savings and other deposits, interest paid on other borrowings by the Bank, employee compensation, office expenses and other overhead and operational expenses.
The Bank offers several deposit accounts, including demand deposit accounts, negotiable order of withdrawal accounts ("NOW" and "Super-NOW" accounts), money market accounts, certificates of deposit and various retirement accounts. In addition, the Bank belongs to an electronic banking network so that its customers
may use the automated teller machines (the "ATMs") of other financial institutions and operates drive-in teller services and 24-hour depository vaults.
The Bank offers the following loan services:
(a) consumer loans, automobile loans, real estate equity lines of credit, education loans and real estate loans secured by single-family residences;
(b) commercial and business loans for small to medium-sized companies, including Small Business Administration and other government-guaranteed financing;
(c) individual and builder short-term residential construction financing;
(d) home improvement loans; and
(e) commercial and residential real estate development loans.
The Bank provides a full range of competitive banking services and emphasizes the manner in which the services are delivered. Management focuses its efforts on filling the void created by the decreasing number of locally-owned community banks due to acquisitions by large regional holding companies, which it believes has negatively impacted the personal nature of the delivery, quality and availability of banking services available in the PSA and surrounding areas.
Primary Service Area
The PSA enjoys an abundant work force, attractive business climate and a good relationship between the private and public sectors.
In general, commercial real estate in the PSA consists of small shopping centers and office buildings. The type of residential real estate within the PSA varies, with a number of condominiums, townhouses, apartments and single-family housing developments dispersed throughout the PSA.
Competition
The business of banking is highly competitive. The Bank competes with other banks, savings and loan associations and credit unions within the PSA. The Bank believes that its operation as a locally owned and controlled bank with a broad base of ownership in the PSA enhances its ability to compete with those non-local financial institutions now operating in its market, but no assurances can be given in this regard.
The Bank's competitive strategy with respect to the financial institutions described above consists of:
o reviewing and acting upon loan requests quickly with a locally-based loan committee,
o maintaining flexible but prudent lending policies,
o personalizing service by establishing long-term banking relationships with its customers; and
o maintaining an appropriate ratio of employees to customers to enhance the level of service.
Facilities
The Bank's main office in Immokalee, Florida was purchased in 1962. At December 31, 2004, the Bank operated nine branch offices, with a tenth office scheduled to open in January 2005. The Lehigh Acres branch was acquired in 1996 as a result of the acquisition of Tri-County Bank of Lehigh Acres. The Golden Gate branch operates in a facility leased in 1997, on a month-to-month basis, with adjustments made annually to the lease cost based on the Consumer Price Index. The LaBelle branch was acquired as a result of the acquisition of Hendry County Bank by merger in 1998. The land for the Port Charlotte branch was purchased in 1998 and the branch opened in 1999 after construction was completed. The facility for the Ft. Myers branch is leased for 15 years (with renewal options after that period) and opened in 2000. The Bank owns the Punta Gorda branch and the underlying land is subject to a 99-year lease, which commenced in 2000. Land for a second Cape Coral branch was purchased in 2003 and the branch is scheduled to open in January 2005. All of the branch facilities are in good condition.
Regulation
The Bank is subject to comprehensive regulation, examination and supervision by the Department and the FDIC, and is subject to other laws and regulations applicable to banks. Such regulations include limitations on loans to a single borrower and to the Bank's directors, officers and employees; restrictions on the opening and closing of branch offices; the maintenance of required capital and liquidity ratios; the granting of credit under equal and fair conditions; disclosure of the costs and terms of such credit; and restrictions as to permissible investments. The Bank is examined periodically by both the Department and the FDIC and submits periodic reports regarding its financial condition and other matters to each of them. Both the Department and the FDIC have a broad range of powers to enforce regulations under their respective jurisdictions, and to take discretionary actions determined to be for the protection of the safety and soundness of the Bank, including the institution of cease and desist orders and the removal of directors and officers.
FDIC Regulations. The Bank's deposit accounts are insured by the Bank Insurance Fund of the FDIC up to a maximum of $100,000 per insured depositor. The FDIC issues regulations, conducts periodic examinations, requires the filing of reports and generally supervises the operations of its insured banks. The approval of the FDIC is required prior to a merger or consolidation or the establishment or relocation of an office facility. This supervision and regulation is intended primarily for the protection of depositors and not of stockholders.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") substantially revised the depository institution regulatory and funding provisions of the Federal Deposit Insurance Act. Among other things, FDICIA requires the federal banking regulators to take prompt corrective action in respect to depository institutions that do not meet minimum requirements. FDICIA established five capital tiers: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." A depository institution is well capitalized if it significantly exceeds the minimum level required by regulation for each relevant capital measure, adequately capitalized if it meets each such measure, undercapitalized if it fails to meet any such measure, significantly undercapitalized if it is significantly below any such measure and critically undercapitalized if it fails to meet any critical capital level set forth in the regulations. The critically undercapitalized level occurs where tangible equity is less than 2% of total tangible assets or less than 65% of the minimum leverage ratio prescribed by regulation (except to the extent that 2% would be higher than such 65% level). A depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating.
FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) if the depository institution would thereafter be undercapitalized. In addition, undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans to the FDIC. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. If a depository fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of the receipt of deposits from correspondent banks. Critically undercapitalized depository institutions are subject to the appointment of a receiver or conservator.
FDICIA provides authority for special assessments against insured deposits and for the development of a general risk-based insurance assessment system. The risk-based insurance assessment system would be used to calculate a depository institution's semi-annual deposit insurance assessment based on the probability (as defined in the FDICIA) that the BIF will incur a loss with respect to the institution. In accordance with FDICIA, the FDIC implemented a transitional risk-based insurance premium system and increased deposit insurance premiums for commercial banks to an average of 25.4 basis points.
FDICIA also contains various provisions related to an institution's interest rate risk. Under certain circumstances, an institution may be required to provide additional capital or maintain higher capital levels to address interest rate risks.
In addition, the FDIC has adopted a minimum leverage ratio of 4%. The minimum leverage ratio is the ratio of common equity, retained earnings and certain amounts of perpetual preferred stock (after subtracting goodwill and after making certain other adjustments) to the total assets of the institution. Generally, banking organizations are expected to operate well above the minimum required capital level of 4% unless they meet certain specified criteria, including that they have the highest regulatory ratings. Most banking organizations are required to maintain a leverage ratio of 4% plus an additional cushion of 1% to 2%. The guidelines also provide that banking organizations experiencing internal growth or making acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance upon intangible assets.
Dividend Restrictions. In addition to dividend restrictions placed on the Bank by the FDIC based on the Bank's minimum capital requirements, the Florida Financial Institutions Code prohibits the declaration of dividends in certain circumstances. Section 658.37 (Florida Statutes), prohibits the declaration of any dividend until a bank has charged off bad debts, depreciation and other worthless assets, and has made provision for reasonably-anticipated future losses on loans and other assets. Such dividends are limited to the aggregate of the net profits of the dividend period, combined with a bank's retained net profits for the preceding two years. A bank may declare a dividend from retained net profits that accrued prior to the preceding two years with the approval of the Department. However, a bank will be required, prior to the declaration of a dividend on its common stock, to carry 20% of its net profits for such preceding period to its surplus fund, until the surplus fund equals at least the amount of the bank's common and preferred stock then issued and outstanding. In no event may a bank declare a dividend at any time in which its net income from the current year, combined with its retained net income from the preceding two years is a loss or which would cause the capital accounts of the bank to fall below the minimum amount required by law, regulation, order or any written agreement with the Department or other state or federal regulatory agency.
Riegle-Neal Interstate Banking and Branching Efficiency Act. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 provides that as of June 1, 1997, adequately capitalized and managed banks will be able to engage in interstate branching by merging banks in different states, including Florida, which did not opt out of the application of this provision. If a state did not opt out, banks will be required to comply with the host state's regulations with respect to branching across state lines.
Gramm-Leach-Bliley Act. On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act which reforms and modernizes certain areas of financial services regulation. The law permits the creation of new financial services holding companies that can offer a full range of financial products under a regulatory structure based on the principle of functional regulation. The legislation eliminates the legal barriers to affiliations among banks and securities firms, insurance companies, and other financial services companies. The law also provides financial organizations with the opportunity to structure these new financial affiliations through a holding company structure or a financial subsidiary. The new law reserves the role of the Federal Reserve Board as the supervisor for bank holding companies. At the same time, the law provides a system of functional regulation, which is designed to utilize the various existing federal and state regulatory bodies.
The law also includes a minimum federal standard of financial privacy. Financial institutions are required to have written privacy policies that must be disclosed to customers. The disclosure of a financial institution's privacy policy must take place at the time a customer relationship is established and not less than annually during the continuation of the relationship. The act also provides for the functional regulation of bank securities activities. The law repeals the exemption that banks were afforded from the definition of "broker," and replaces it with a set of limited exemptions that allow the continuation of some historical broker activities performed by banks. In addition, the act amends the securities laws to include banks within the general definition of dealer. Regarding new bank products, the law provides a procedure for handling products sold by banks that have securities elements.
In the area of CRA activities, the law generally requires that financial institutions address the credit needs of low-to-moderate income individuals and neighborhoods in the communities in which they operate. Bank regulators are required to take the CRA ratings of a bank or of the bank subsidiaries of a holding company into account when acting upon certain branch and bank merger and acquisition applications filed by the institution. Under the law, financial holding companies and banks that desire to engage in new financial activities are required to have satisfactory or better CRA ratings when they commence the new activity.
Most of the provisions of the law took effect on March 11, 2000, with other provisions being phased in over a one to two year period thereafter. It is anticipated that the effects of the law, while providing additional flexibility to bank holding companies and banks, may result in additional affiliations of different financial services
providers, as well as increased competition, resulting in lower prices, more convenience, and greater financial products and services available to consumers.
USA Patriot Act. On October 26, 2001, President Bush signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "USA Patriot Act"), which is designed to deny terrorists and others the ability to obtain access to the United States financial system. Title III of the USA Patriot Act is the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001. Among its provisions, the USA Patriot Act mandates or will require financial institutions to implement additional policies and procedures with respect to, or additional measures, including additional due diligence and recordkeeping, designed to address, any or all of the following matters, among others: money laundering; suspicious activities and currency transaction reporting; and currency crimes. The U.S. Department of the Treasury in consultation with the Federal Reserve Board and other federal financial institution regulators has promulgated rules and regulations implementing the USA Patriot Act which (i) prohibits U.S. correspondent accounts with foreign banks that have no physical presence in any jurisdiction; (ii) require financial institutions to maintain certain records for correspondent accounts of foreign banks; (iii) require financial institutions to produce certain records relating to anti-money laundering compliance upon request of the appropriate federal banking agency; (iv) require due diligence with respect to private banking and correspondent banking accounts; (v) facilitate information sharing between the government and financial institutions; and (vi) require financial institutions to have in place a money laundering program. In addition, an implementing regulation under the USA Patriot Act regarding verification of customer identification by financial institutions has been proposed, although such regulation has not yet been finalized. The Company has implemented, and will continue to implement, the provisions of the USA Patriot Act as such provisions become effective. The Company currently maintains and will continue to maintain policies and procedures to comply with the USA Patriot Act requirements. At this time, the Company does not expect that the USA Patriot Act will have a significant impact on the financial position of the Company.
Federal Reserve System. FCBI is a bank holding company subject to the supervision and regulations of the Board of Governors of the Federal Reserve System ("Federal Reserve"). As such, the Company is required to file periodic reports and such other information as the Federal Reserve may deem necessary. The Federal Reserve also conducts examinations of the Company. The Federal Reserve maintains the position that the Company should serve as a source of financial and managerial strength for the Bank and may not conduct its operations in an unsound manner.
Corporate Governance. The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act"), which became law on July 30, 2002, and added new legal requirements for public companies affecting corporate governance, accounting and corporate reporting.
The Sarbanes-Oxley Act provides for, among other things:
|X| a prohibition on personal loans made or arranged by the issuer to its directors and executive officers (except for loans made by a bank subject to Regulation O);
|X| independence requirements for audit committee members;
|X| independence requirements for company auditors;
|X| certification of financial statements on Forms 10-K and 10-Q, reports by the chief executive officer and chief financial officer;
|X| the forfeiture by the chief executive officer and the chief financial officer of bonuses or other incentive-based compensation and profits from the sale of an issuer's securities by such officers in the twelve month period following the initial publication of any financial statements that later require restatement due to corporate misconduct;
|X| disclosure of off-balance sheet transactions;
|X| two-business day filing requirements for insiders filing Form 4s;
|X| disclosure of a code of ethic for financial officers and filing a Form 8-K for a change in or waiver of such code;
|X| the reporting of securities violations "up the ladder" by both in-house and outside attorneys;
|X| restrictions on the use of non-GAAP financial measures in the press release and SEC filings;
|X| the formation of a public accounting oversight board; and
|X| various increased criminal penalties for violations of securities laws.
The Sarbanes-Oxley Act contains provisions, which became effective upon enactment on July 30, 2002 and provisions that became effective over varying periods. The SEC has been delegated the task of enacting rules to implement various provisions. In addition, each of the national stock exchanges has adopted new corporate governance rules, including rules strengthening director independence requirements for boards, the adoption of corporate governance codes and charters for the nominating, corporate governance and audit committees.
Recent Regulatory Developments
Changes in the federal deposit insurance program were recommended during 2003 by the FDIC and in the federal budget. A deposit insurance reform bill that would, among other things, merge the BIF and the SAIF, increase the index deposit insurance coverage, give the FDIC flexibility in setting premium assessments, and replace a fixed deposit reserve ratio with a reserve range, was passed by the House of Representatives in April 2003, but no action on the subject was taken by the Senate during the remainder of the year. It is not possible to predict if deposit insurance reform legislation will be enacted, or if enacted, what its effect will be on our banking subsidiary.
Federal banking regulators continued their preparations for the expected issuance by the Basel Committee on Banking Supervision of final "Basel II" regulatory capital guidelines, would mandate changes for large banks in the way in which their risk-based capital requirements are calculated. The guidelines are widely believed likely to permit significant reductions in the levels of required capital for such banks. It is uncertain at the present time if our banking subsidiary or the Holding Company will be either required to or permitted to make changes in the regulatory capital structure in accordance with Basel II guidelines.
The foregoing is necessarily a general description of certain provisions of federal and state law and does not purport to be complete. Proposals to change the laws and regulations governing the banking industry are frequently introduced in Congress, in the state legislatures and before the various bank regulatory agencies. The likelihood and timing of any such changes and the impact such changes might have on the Company cannot be determined at this time.
Available Information
The Company presently does not have a website.
Copies of the Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K are available at no charge. Those who would like a copy should contact Guy W. Harris, Chief Financial Officer, Florida Community Banks, Inc., 1400 North 15th Street, Immokalee, Florida 34142.
We currently file periodic reports with the Securities and Exchange Commission (including Form 10-Ks, Form 10-Qs, Proxy Statements, etc.). We file these periodic reports electronically via EDGAR and they can be reviewed at the Securities and Exchange Commission's website: www.sec.gov.
ITEM 2.
ITEM 2. PROPERTIES
For the description of the property of the Company, see "ITEM I - BUSINESS - - Facilities."
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are no material proceedings to which the Company is a party.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of 2004.
PART II
ITEM 5.
ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
There is no established trading market for the Company's Common Stock, $.01 par value (the "Common Stock"), which has been traded inactively in private transactions. Therefore, no reliable information is available as to trades of the Common Stock or as to the prices at which Common Stock has traded.
In December 2004, the Company issued 1.2 shares for 1.0 share stock split, thereby increasing the number of shares outstanding from 3,766,384 to 4,519,321.
Management has reviewed the limited information available as to the ranges at which the Common Stock has been sold and is aware of trades that occurred during 2003 and 2004. To the best of management's knowledge, the last trade in December was executed at a price of $25.75 per share. The per share price data regarding the Common Stock is provided for information purposes only and should not be viewed as indicative of the actual or market value of the Common Stock.
As of March 4, 2005, there were 4,538,821 shares of Common Stock outstanding held by approximately 928 shareholders of record.
The payment of future dividends will be at the sole discretion of the Company's Board of Directors and will depend on, among other things, future earnings, capital requirements, the general financial condition of the Company and general business conditions. The Company paid dividends of $.21 per share (split-adjusted) in the fourth and second quarters of 2004, $.18 per share (split-adjusted) in the fourth quarter of 2003 and a dividend of $.24 per share (split-adjusted) in the second quarter of 2002.
Equity compensation plan
At their Annual Meeting, the Bank's shareholders adopted the 2002 Key Employee Stock Compensation Program ("Employee Program"), which was assumed by FCBI upon its acquisition of the Bank. The following table reflects the number of shares to be issued upon the exercise of options granted under the Employee Program, the weighted-average exercise price of all such options, and the total number of shares of common stock reserved for the issuance upon the exercise of authorized, but not-yet-granted options, as of December 31, 2004.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents on a historical basis selected financial data and ratios for the Company. All averages are daily averages.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion is to focus on significant changes in the financial condition and results of operations of the Company and its subsidiaries during the past three years. The discussion and analysis is intended to supplement and highlight information contained in the accompanying consolidated financial statements and the selected financial data presented elsewhere in this report.
ITEM 7A.
ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Forward-Looking Statements
This report, including Management's Discussion and Analysis of Financial Condition and Results of Operations, and documents incorporated herein by reference, may contain certain statements relating to the future results of the Company based upon information currently available. These "forward-looking statements" (as defined in Section 21E of The Securities and Exchange Act of 1934) are typically identified by words such as "believes", "expects", "anticipates", "intends", "estimates", "projects", and similar expressions. These forward-looking statements are based upon assumptions the Company believes are reasonable and may relate to, among other things, the allowance for loan loss adequacy, simulation of changes in interest rates and litigation results. Such forward-looking statements are subject to risks and uncertainties, which could cause the Company's actual results to differ materially from those included in these statements. These risks and uncertainties include, but are not limited to, the following: (1) changes in political and economic conditions; (2) interest rate fluctuations; (3) competitive product and pricing pressures within the Company's markets; (4) equity and fixed income market fluctuations; (5) personal and corporate customers' bankruptcies; (6) inflation; (7) acquisitions and integration of acquired businesses; (8) technological changes; (9) changes in law; (10) changes in fiscal, monetary, regulatory and tax policies; (11) monetary fluctuations; (12) success in gaining regulatory approvals when required; and (13) other risks and uncertainties listed from time to time in the Company's SEC reports and announcements.
General
The Company, through its subsidiary Bank, conducts a commercial banking business, which consists of attracting deposits from the general public and applying those funds to the origination of commercial, consumer and real estate loans (including commercial loans collateralized by real estate). The Company's profitability depends primarily on net interest income, which is the difference between interest income generated from interest-earning assets (i.e., loans and investments) less the interest expense incurred on interest-bearing liabilities (i.e., customer deposits and borrowed funds). Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities, and the interest rate paid and earned on these balances. Net interest income is dependent upon the Company's interest rate spread, which is the difference between the average yield earned on its interest-earning assets and the average rate paid on its interest-bearing liabilities. When interest-earning assets approximates or exceeds interest-bearing liabilities, any positive interest rate spread will generate interest income. The interest rate spread is impacted by interest rates, deposit flows and loan demand. Additionally, and to a lesser extent, the Company's profitability is affected by such factors as the level of non-interest income and expenses, the provision for loan losses and the effective tax rate. Non-interest income consists primarily of deposit account service charges and other customer service fees. Non-interest expenses consist of compensation and benefits, occupancy-related expenses, and other expenses.
Summary
Net income for 2004 was $12,241,932, a 45.8% increase over 2003 net income. Net income for 2003 was $8,396,549, a 30.8% increase over 2002 net income. Net income for 2002 was $6,418,306, a 20.1% increase over 2001 net income. Diluted net income per common share for 2004 was $2.68 compared to $1.85 in 2003 and $1.42 in 2002. Net income for 2001 was $5,346,217, a 5.1% increase from 2000 net income of $5,085,061.
The increases in net income from 2000 to 2001 and from 2001 to 2002 were primarily attributable to increased volume of loans, with the resulting increase in interest and fees. In 2001 and 2002, the volume increase in loans more than offset the decrease in loan interest rates as discussed more fully below. The increase from 2002 to 2003 and from 2003 to 2004 was primarily attributable to an increase in the net interest margin as deposit costs decreased more than loan yields decreased.
Earning Assets
During 2004, earning assets averaged $553 million, an increase of $66 million (13.6%) over 2003. During 2003, earning assets averaged $487 million, an increase of $60 million (14.1%) over 2002. During 2002, earning assets averaged $426 million, an increase of $119 million (38.6%) over 2001.
The management of the Company considers many criteria in managing earning assets, including creditworthiness, diversification, maturity, and interest rate sensitivity. The following table sets forth the Company's interest-earning assets by category at December 31, in each of the last three years.
Loan Portfolio
Loan and deposit growth is emphasized in each market the Company operates. The Company has been successful in competing for loans against other larger institutions due primarily to a lending strategy that includes direct involvement by local management. Different customers require different solutions to their financial needs and appreciate local banking officers that understand the local environment and can provide for their business requirements.
Average loans increased $65 million (15.3%) in 2004 compared to 2003. The increase in loans was a result of successful marketing efforts to originate real estate construction loans and other real estate loans. Loan growth for 2004 was funded primarily by issuance of brokered certificate of deposits, as well as by the growth in the bank's core deposits (demand deposits, money market and savings accounts).
Average loans increased $55 million (14.9%) in 2003 compared to 2002. The increase in loans was a result of successful marketing efforts to originate real estate construction loans and other real estate loans. Loan growth for 2003 was funded primarily by issuance of brokered certificates of deposit.
Average loans increased $115 million (45.3%) in 2002 compared to 2001. The increase in loans was a result of successful marketing efforts to originate real estate construction loans and other real estate loans. Loan growth for 2002 was funded primarily by issuance of brokered certificates of deposit and Federal Home Loan Bank of Atlanta advances.
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The following table sets forth the balances in certain categories of loans at December 31 for each of the five years ending December 31, 2004.
The following table shows the maturity distribution of selected loan classifications at December 31, 2004, and an analysis of those loans maturing in over one year:
For the purposes of this schedule, loans that have reached the fixed contractual floor rate are treated as having a pre-determined interest rate.
Securities Portfolio
The securities portfolio increased by $35 million or 90.7% from 2003 to 2004. The securities portfolio increased by $2.4 million or 6.6% from 2002 to 2003. The balance in the securities portfolio increased by $1.5 million or 4.4% from 2001 to 2002. The increase in the securities portfolio from 2003 to 2004 was largely as a result of a $30 million leverage transaction that was put together to better utilize the banks excess capital. From 2001 through 2003 the securities were relatively flat as funds were allocated primarily to the loan portfolio throughout that period.
The Company maintains an investment strategy of seeking portfolio yields within acceptable risk levels, as well as providing liquidity through borrowings secured by that portfolio. On a daily basis, funds available for short-term investment are determined. Funds available for long-term investment are projected based upon anticipated
loan and deposit growth, liquidity needs, pledging requirements, maturities of securities, and other factors. The Company holds two classifications of securities: "Held-to-Maturity" and "Available-for-Sale." The Available-for-Sale securities are carried at estimated fair market value and are equity securities at year-end 2004, 2003 and 2002. Held-to-Maturity securities are carried at amortized cost and represent the largest portion of the total securities portfolio. At December 31, 2004, 2003 and 2002 there were no material unrealized gains (losses) in the Available-for-Sale portfolio. At December 31, 2004, 2003 and 2002, net unrealized gains (losses) in the Held-to-Maturity portfolio amounted to ($338,296), ($456,579), and $780,513, respectively.
The following table presents the carrying amounts of the securities portfolio at December 31, in each of the last three years.
The following table indicates the respective maturities and weighted average yields of securities (dollars in thousands):
There were no securities held by the Company of which the aggregate value at December 31, 2004, 2003 and 2002 exceeded ten percent of shareholders' equity at that date. (Securities, which are payable from, and secured by the same source of revenue or taxing authority, are considered to be securities of a single issuer. Securities of the U.S. Government and U.S. Government agencies and corporations are not included.)
Deposits and Borrowed Funds
Average deposits increased $72 million (17.5%) in 2004 compared to 2003. Average deposits increased $44 million (12.1%) in 2003 compared to 2002. Average deposits increased $95 million (35.1%) in 2002 compared to 2001. In 2004, the largest growth area was again in non-interest bearing demand deposits, money market and savings deposits, which increased $45.7 million in total. The largest area of growth in 2003 was in average money market, savings, and non-interest bearing demand deposits, which increased $29.7 million in total. From 2001 to 2002, the greatest increase was in time deposits, which increased $64.6 million.
Average deposits rose $55 million or 25.5% in 2001 compared to 2000. Total deposits increased $69 million or 27.5% from year-end 2000 to 2001. The largest area of growth in 2001 was in certificates of deposit, which increased $32 million. From 2000 to 2001, interest-bearing transaction deposits increased $5.1 million or 25.5%, savings deposits increased $18 million or 34.5%, other time deposits of less than $100,000 increased $13 million or 17.2%, and time deposits of $100,000 or more increased $19 million or 34.2%.
The following table sets forth the Company's deposit structure at December 31 in each of the last three years.
The following table presents a breakdown by category of the average amount of deposits and the weighted average rate paid on deposits for the periods indicated:
At December 31, 2004, time deposits of $100,000 or greater aggregated approximately $184.6 million. The following table indicates, as of December 31, 2004, the dollar amount of $100,000 or more time deposits by the time remaining until maturity (in thousands):
At December 31, 2004 and 2003, respectively, borrowed funds consisted primarily of long-term debt. The Bank had $54,000,000 in available lines to purchase federal funds and the Company had $5,000,000 in available lines to purchase federal funds, on an unsecured basis, from other financial institutions. At December 31, 2004, the Bank had $3,851,000 advanced against those lines and the Company had $100,000 advanced against those lines. At December 31, 2003, the Bank had $7,000,000 advanced under one of those lines and, at December 31, 2001, the Bank had $1,086,000 advanced against these lines. There were no advances against these lines at the end of 2002. At December 31, 2004 the Company also had credit available of approximately $99 million with the Federal Home Loan Bank of Atlanta, of which approximately $39 million was available and unused. The ability to utilize the remaining line is dependent on the amount of eligible collateral that is available to pledge to the Federal Home Loan Bank. At December 31, 2003 and 2002 the Company had credit available of approximately $79 million with the Federal Home Loan Bank of Atlanta. Of the credit available, $46,000,000 (of which $6,000,000 was a letter of credit used to secure public funds) and $50,000,000 had been utilized at December 31, 2003 and 2002, respectively. The line is secured by residential and commercial real estate loans and investment securities at December 31, 2004.
The following table sets forth the expected debt service for the next five years based on interest rates and repayment provisions as of December 31, 2004.
Capital Resources
Shareholders' equity increased $10.8 million to $52.9 million as of December 31, 2004, increased $7.6 million to $42.1 million as of December 31, 2003, and increased $5.3 million to $34.5 million as of December 31, 2002. Shareholders' equity increased $3.2 million to $29.1 million as of December 31, 2001. The increase in shareholders' equity for 2004, 2003 and 2002 was attributable to net income, less dividends declared.
On June 21, 2002, FCBI Capital Trust I ("FCBI Trust"), a Delaware statutory trust established by the Company, received $10,000,000 in proceeds in exchange for $10,000,000 principal amount of FCBI Trust's floating rate cumulative trust preferred securities (the "preferred securities") in a trust preferred private placement. The proceeds of that transaction were then used by FCBI Trust to purchase an equal amount of floating-rate subordinated debentures (the "subordinated debentures") of the Company. The Company has fully and unconditionally guaranteed
all obligations of FCBI Trust on a subordinated basis with respect to the preferred securities. The Company does not consolidate the FCBI Trust preferred securities and accounts for the debentures issues to FCBI Trust as debt. Subject to certain limitations, the preferred securities qualify as Tier 1 capital, although the Federal Reserve regulators are re-considering this treatment, as a result of recent accounting rules changes, discussed more fully elsewhere herein. The sole asset of FCBI Trust is the subordinated debentures issued by the Company. Both the preferred securities of FCBI Trust and the subordinated debentures of the Company each have approximately 30-year lives. However, both the Company and FCBI Trust have a call option after five years, subject to regulatory capital requirements.
A strong capital position, which is vital to the continued profitability of the Company, also promotes depositor and investor confidence and provides a solid foundation for the future growth of the organization. The objective of management is to maintain a level of capitalization that is sufficient to take advantage of profitable growth opportunities while meeting regulatory requirements. This is achieved by improving profitability through effectively allocating resources to more profitable businesses, improving asset quality, strengthening service quality, and streamlining costs. The primary measures used by management to monitor the results of these efforts are the ratios of return on average assets, return on average common equity and average equity to average assets.
The table below summarizes these and other key ratios for the Company for each of the last three years.
In addition, bank holding companies are required to maintain capital to support, on a risk-adjusted basis, certain off-balance sheet activities such as loan commitments. The Federal Reserve has adopted capital guidelines governing the activities of bank holding companies. These guidelines require the maintenance of an amount of capital based on risk-adjusted assets so that categories of assets with potentially higher credit risk will require more capital backing than assets with lower risk.
The capital guidelines classify capital into two tiers, referred to as Tier I and Tier II. Under risk-based capital requirements, Total Capital consists of Tier I Capital, which is generally common shareholders' equity less goodwill, and Tier II Capital, which is primarily a portion of the allowance for loan losses and certain qualifying debt instruments. In determining risk-based capital requirements, assets are assigned risk-weights of 0% to 100%, depending primarily on the regulatory assigned levels of credit risk associated with such assets. Off-balance sheet items are considered in the calculation of risk-adjusted assets through conversion factors established by the regulators. The framework for calculating risk-based capital requires banks and bank holding companies to meet the regulatory minimums of 4% Tier I and 8% total risk-based capital. In 1990 regulators added a leverage computation to the capital requirements, comparing Tier I Capital to total average assets less goodwill. Banks have similar capital requirements.
During 2001, the Bank issued $5,000,000 in subordinated debt to qualify as Tier II Capital. Portions of this debt qualify according to maturity as allowable Tier II Capital. In 2001, the Bank had $4,400,000 as qualifying Tier II Capital. There were no similar transactions during 2000. The Bank repaid the subordinated debt from the proceeds of the Trust Preferred securities, issued by the Company and injected into the Bank as Tier I capital.
The table below illustrates the Company's regulatory capital ratios under federal guidelines at December 31, 2004, 2003 and 2002:
Information on the Bank capital ratios appears in Note 11 to the consolidated financial statements contained elsewhere herein.
On December 31, 2004 the Company and the Bank exceeded the regulatory minimums and qualified as well capitalized institutions under the regulations.
Liquidity Management
Liquidity is the ability of a company to convert assets into cash without significant loss and to raise funds by increasing liabilities. Liquidity management involves having the ability to meet the day-to-day cash flow requirements of its customers, whether they are depositors wishing to withdraw funds or borrowers requiring funds to meet their credit needs.
The primary function of asset/liability management is not only to assure adequate liquidity in order for the Bank to meet the needs of its customer base, but to maintain an appropriate balance between interest-sensitive assets and interest-sensitive liabilities so that the Bank can remain profitable in varying interest rate environments. Both assets and liabilities are considered sources of liquidity funding and both are, therefore, monitored on a daily basis.
The asset portion of the balance sheet provides liquidity primarily through loan repayments and maturities of or pledge of securities. Additional sources of liquidity are investments in federal funds sold and prepayments from the mortgage-backed securities in the securities portfolio.
The liability portion of the balance sheet provides liquidity through various interest bearing and non-interest-bearing deposit accounts. The Bank had $50,150,000 and $34,500,000 of federal funds available at December 31, 2004 and 2003, respectively, and the Company had $4,900,000 of federal funds available at December 31, 2004. The Bank also had available as a source of financing, a line of credit with the Federal Home Loan Bank of Atlanta of which $39,000,000 and $32,700,000 was available and unused at December 31, 2004 and 2003, respectively, subject to the availability of assets to pledge to secure such borrowings.
Contractual Obligations
The Company and the Bank have various contractual obligations that they must fund as part of their normal operations. The following table shows aggregate information about their contractual obligations, including interest, and the periods in which payments are due. The amounts and time periods are measured from December 31, 2004.
Interest Rate Sensitivity Management
Interest rate sensitivity is a function of the re-pricing characteristics of the Company's portfolio of assets and liabilities. These re-pricing characteristics are the time frames within which the interest-bearing assets and liabilities are subject to change in interest rates either at replacement or maturity during the life of the instruments. Sensitivity is measured as the difference between the volume of assets and liabilities in the Bank's current portfolio that are subject to re-pricing in future time periods. The differences are known as interest sensitivity gaps and are usually calculated separately for segments of time ranging from zero to thirty days, thirty-one to ninety days, ninety-one days to one year, one to five years, over five years and on a cumulative basis.
The following table shows interest sensitivity gaps for different intervals as of December 31, 2004.
The above table indicates that in a rising interest rate environment, the Company's earnings may be positively affected in the short-term, (0-365 days) due to earning assets re-pricing faster than interest-bearing liabilities. As seen in the preceding table, for the first 30 days of re-pricing opportunity there is an excess of earning assets over interest-bearing liabilities of approximately $73.4 million. For the first 365 days, interest earning assets exceed interest-bearing liabilities by approximately $17.4 million. Changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity. In addition, the interest rate spread and the level of interest-bearing assets and liabilities may change, thus impacting net interest income. It should be noted that a matched interest-sensitive position by itself does not ensure maximum net interest income.
Management continually evaluates the condition of the economy, the pattern of market interest rates, and other economic data to determine the types of investments that should be made and at what maturities. Using this analysis, management from time to time assumes calculated interest sensitivity gap positions to maximize net interest income based upon anticipated movements in the general level of interest rates.
Results of Operations
Net Interest Income
Net interest income is the principal component of a financial institution's income stream and represents the spread between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowings. The following discussion is on a fully taxable equivalent basis.
Net interest income increased approximately $6.9 million (29.6%) to $30.4 million in 2004 compared to 2003. Net interest income increased approximately $3.9 million (20.3%) to $23.4 million in 2003 compared to 2002, and interest income increased $3.6 million (22.6%) to $19.5 million from 2001 to 2002. The increase each year in the net interest income is primarily due to increased volume in average loans outstanding during the periods.
Interest income was $39.6 million in 2004, which represented an increase of $6.1 million (18.1%) over 2003. Interest income was $33.5 million in 2003, which represented an increase of $2.2 million (7.2%) over 2002. Interest income produced by the loan portfolio increased $3.0 million (10.6%) in 2003 from 2002. A significant factor in the higher interest income from loans in 2004 and 2003 was the effect of contractual limits on the lowest level to which variable rate loans could decline ("floors"). While floors on interest rates in loan contracts have been beneficial in the current low-rate environment, it is likely that future increases in interest rates, should that occur, will not increase the rates on "floored" loans as rapidly as interest expense will increase. Thus, net interest income will be negatively impacted. At December 31, 2004, management estimated that approximately $191 million of the $354 million in variable rate loans were at their floor rate. Interest income on securities increased $291 thousand (21.9%) from 2003 to 2004. The increase in income was due to an increase in the securities purchased, which was partially offset by lower yields. Interest income on securities decreased $859 thousand (39.2%) from 2002 to 2003. The decrease in securities income from 2002 to 2003 was due the combined effects of lower rates earned and lower average balances invested.
Interest income was $31.3 million in 2002, which represented an increase of 12.1% over 2001. Interest income produced by the loan portfolio increased $3.9 million (15.7%) in 2002 compared to 2001. The increase in loan interest reflected the offsetting effects of a lower average rate earned on a greater average investment in loans. Interest income on securities decreased $299 thousand (12.0%) in 2002 compared to 2001. The decrease in securities interest from 2001 to 2002 resulted from a decline in yield caused by replacing higher rate U.S. Government Agency securities that were called during the year.
Interest income other than loans and securities, decreased by $95 thousand in 2004, increased by $57 thousand in 2003 and decreased by $258 thousand in 2002. In 2004, the average amount invested in fed funds sold declined, which caused the decline in interest income. In 2003 the opposite was true and there was an increase in fed
funds sold, which caused the increase in interest income. The decrease in 2002 was primarily due to the decline in rates.
Total interest expense decreased by $881 thousand (8.7%) in 2004 compared to 2003, decreased by $1.7 million (14.5%) in 2003 compared to 2002, and decreased by $231 thousand (1.9%) in 2002 compared to 2001. The decrease in interest expense in 2004 was caused by lower deposit rates in general; a carryover from 2003's low rates. The decrease in interest expense in 2003 was caused by lower time deposit rates. The interest expense decrease from 2001 to 2002 was primarily due to a decline in the rates, which more than offset the increase in the volume of the time deposit accounts and FHLB advances. (See the "Rate/Volume Analysis" following this section.) Interest expense on time deposit accounts decreased $1.6 million even though the average volume increased by $10.9 million. The significant rate decline was cause by a shift from locally generated time deposits to brokered time deposits and the general decline in rates during 2002.
The trend in net interest income is commonly evaluated by measuring the average yield on earning assets, the average cost of funds, and the net interest margin. The Company's average yield on earning assets (total interest income divided by average interest earning assets) increased in 2004 to 7.16% compared to 6.89% in 2003, decreased in 2003 to 6.89% compared to 7.33% in 2002. The drop in Prime rate caused most of the decline during 2002, which carried over into 2003 at the same time the Bank had over $100 million in loans tied to that index. In line with the national interest rate markets, the Bank's average cost of funds (total interest expense divided by average interest bearing liabilities) declined from 3.30% in 2002 to 2.49% in 2003 and to 2.08% in 2004. The Bank's net interest margin (net interest income divided by average interest earning assets) increased in 2004 to 5.50% compared to 4.82% in 2003 and 4.57% in 2002. The increase was caused by the Bank's ability to utilize rate floors (discussed above) when rates were declining and lowering its cost of funds by increasing its non-interest demand deposits. The Bank also benefited in 2003 when interest rates were dropping and the longer-term interest bearing liabilities (primarily certificates of deposit) were re-pricing at the lower rates (discussed more fully in the section titled "Interest Rate Sensitivity Management" elsewhere in this report).
The net interest margin decreased 60 basis points in 2002 from 5.17% in 2001 to 4.57%, reflecting a major decline in the average Prime rate for the year. The decline in rate was driven by national economic factors and was offset by rapid loan growth resulting in higher interest income on loans in 2002. That loan growth required a significant increase in brokered certificate of deposit utilization to keep rates as low as possible. Raising funds in the local southwest Florida market would have cost more due to competing financial institutions also offering higher than national rates.
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The tables that follow show, for the periods indicated, the daily average balances outstanding for the major categories of interest-bearing assets and interest-bearing liabilities, and the average interest rate earned or paid thereon. Such yields are calculated by dividing income or expense by the average balance of the corresponding assets or liabilities. Also shown are the changes in income attributable to changes in volume and changes in rate.
The following tables set forth, for the years ended December 31, 2004, 2003 and 2002, a summary of the changes in interest income and interest expense resulting from changes in interest rates and in changes in the volume of earning assets and interest-bearing liabilities, segregated by category. The change due to volume is calculated by multiplying the change in volume by the prior year's rate. The change due to rate is calculated by multiplying the change in rate by the prior year's volume. The change attributable to both volume and rate is calculated by multiplying the change in volume by the change in rate. Figures are presented on a taxable equivalent basis.
Allowance for Loan Losses
Each of the Bank's loans is assigned to a lending officer responsible for the ongoing review and administration of that loan. Lending officers make the initial identification of loans, which present some difficulty in collection or where there is an indication that the probability of loss exists. Lending officers are responsible for the collection effort on a delinquent loan. Senior management is informed of the status of delinquent and problem loans on a monthly basis. In addition to the lending officers, there is an independent loan review officer responsible for reviewing the credit ratings on loans and administering the loans.
Senior management makes recommendations monthly to the Board of Directors as to charge-offs. Senior management reviews the allowance for possible loan losses on a monthly basis. The Bank's policy is to discontinue interest accrual when payment of principal and interest is 90 days or more in arrears unless the value of the collateral exceeds the principal plus accrued interest.
The allowance for possible loan losses represents management's assessment of the risks associated with extending credit and its evaluation of the quality of the loan portfolio. Management analyzes the loan portfolio to determine the adequacy of the allowance for possible loan losses and the appropriate provisions required to maintain a level considered adequate to absorb anticipated loan losses. In assessing the adequacy of the allowance, management reviews the size, quality and risk of loans in the portfolio. Management also considers such factors as loan loss experience, the amount of past due and nonperforming loans, specific known risk, the status and amount of nonperforming assets, underlying collateral values securing loans, current and anticipated economic conditions and other factors which affect the allowance for potential credit losses. Although recent historical loan losses have been minimal, there was a significant increase in non-performing loans at December 31, 2003 causing management to increase the allowance during 2004.
While it is the Bank's policy to charge off in the current period the loans in which a loss is considered probable, there are additional risks of future losses, which cannot be quantified precisely or attributed to particular loans or classes of loans. Because these risks include the future state of the economy, management's judgment as to the adequacy of the allowance is necessarily approximate and imprecise.
Management believes that $9,791,269 on December 31, 2004, and $8,066,817 on December 31, 2003, in the allowance for loan losses were adequate to absorb known risks in the portfolio. No assurance can be given, however, that adverse economic circumstances will not result in increased losses in the loan portfolio, and require greater provisions for possible loan losses in the future.
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The following table sets forth certain information with respect to the Bank's loans, net of unearned income, and the allowance for loan losses for the five years ended December 31, 2004.
In evaluating the allowance, management also considers the historical loan loss experience of the Bank, the amount of past due and nonperforming loans, current and anticipated economic conditions, lender requirements and other appropriate information. From 2000 through 2002, management allocated the allowance for loan losses to specific loan categories based on an average of historical losses and the volume of each loan category. In 2003, as presented below, management began to allocate the allowance for loan losses based on the level of non-performing loans in each category. The change in method was due to the minimal historical loan losses on which to base the allocation.
Management allocated the allowance for loan losses to specific loan categories as follows:
Nonperforming Assets
Nonperforming assets include nonperforming loans and foreclosed real estate held for sale. Nonperforming loans include loans classified as non-accrual or renegotiated. The Bank's policy is to place a loan on non-accrual status when it is contractually past due 90 days or more as to payment of principal or interest unless the collateral value is greater than both the principal due and the accrued interest. At the time a loan is placed on non-accrual status, interest previously accrued but not collected is reversed and charged against current earnings. Recognition of any interest while on non-accrual is accounted for on the cash basis when actually received.
The Bank had nonperforming assets at December 31, 2004, 2003, 2002, 2001, and 2000 of approximately $10,012,000, $22,269,000, $7,698,000, $2,367,000, and $1,548,000, respectively.
The following table presents information concerning outstanding balances of nonperforming assets at December 31, 2004, 2003, 2002, 2001, and 2000.
There has been no significant impact on the Company's consolidated financial statements as a result of the provisions of Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan, or Statement of Financial Accounting Standards No. 118, Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures.
Noninterest Income
Noninterest income consists of revenues generated from a broad range of financial services and activities including fee-based services and profits and commissions earned through credit life insurance sales and other activities. In addition, gains or losses realized from the sale of investment portfolio securities are included in noninterest income. Total noninterest income increased by $1.05 million (38.3%) for the year ended December 31, 2004, compared to 2003 due primarily to the gain on the sale of other real estate owned of $520 thousand and a gain from the sale of the old drive-thru building in LaBelle of $415 thousand. Total noninterest income increased by $408 thousand (17.6%) for the year ended December 31, 2003 compared to 2002 due to higher secondary market fees and service charges on deposit accounts. Total noninterest income increased by $621 thousand (36.6%) for the year ended December 31, 2002 compared to 2001. The increase was due to higher service charges on deposit accounts (increased $507 thousand) and gains on sale of available-for-sale securities (increased $36 thousand).
The table below sets forth the Company's noninterest income for the periods indicated.
Noninterest Expenses
From 2003 to 2004, noninterest expense increased $1.3 million (11.6%). Salaries and employee benefits in 2004 increased $721 thousand (10.3%) from 2003 to a total of $7.7 million. The increase was due to the normal increases from year to year for salaries, benefits and insurance costs.
From 2002 to 2003, noninterest expense increased $2.0 million (21.7%). Salaries and employee benefits in 2003 increased $1.4 million (26.2%) from 2002 to a total of $7.0 million. The increase in was due to added staff for a new branch and increased secondary market loan brokerage operations.
From 2001 to 2002, noninterest expense increased $795 thousand (9.7%). Salaries and employee benefits in 2002 increased $320 thousand (6.1%) from 2001 to a total of $5.6 million. The increase in 2002 reflected the effect of adding staff for new branches and higher employee benefits costs.
Occupancy and equipment expense increased $198 thousand (12.9%) from 2003 to 2004, decreased $133 thousand (7.9%) from 2002 to 2003, increased $304 thousand (22.3%) from 2001 to 2002. During 2004 occupancy expenses increased primarily due to the expense of additional equipment added during 2003 and 2004 (increased depreciation and maintenance), increased building repairs due to the hurricanes in 2004 and higher property taxes in general. During 2003 occupancy expenses decreased primarily due to lower maintenance contract costs. The occupancy and equipment expense increases in 2002 and 2001were a result of the additional property and equipment added as a result of new branch locations and the associated depreciation expense.
The significant increase in other expenses was due to $349 thousand in other real estate write-offs and expanses in 2003 compared to no such costs in 2002. Other real estate write-offs and expenses were $479 thousand in 2004.
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The table below sets forth the Company's noninterest expenses for the periods indicated.
Income Taxes
Income tax expense increased $2.6 million (51.1%) to $7.7 million for the year ended December 31, 2004, increased $1.2 million (32.2%) to $5.1 million for the year ended December 31, 2003 and increased $559 thousand (17.0%) to $3.9 million for the year ended December 31, 2002. The effective tax rate as a percentage of pretax income was 38.6% in 2004, 37.7% in 2003, 37.5% in 2002. The statutory federal rate was 34 percent during 2004, 2003 and 2002. There is no current or pending tax legislation of which management is aware that if passed would have any material effect on the financial statements. For further information concerning the provision for income taxes, refer to Note 14, Income Taxes, of the "Notes to Financial Statements."
Impact of Inflation and Changing Prices
A bank's asset and liability structure is substantially different from that of an industrial company in that virtually all assets and liabilities of a bank are monetary in nature. Management believes the impact of inflation on its financial results depends upon the Company's ability to react to changes in interest rates and by such reaction to reduce the inflationary impact on performance. Interest rates do not necessarily move in the same direction, or at the same magnitude, as the prices of other goods and services. As discussed previously, management seeks to manage the relationship between interest-sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation.
Market Risk
Market risk is the risk arising from adverse changes in the fair value of financial instruments due to a change in interest rates, exchange rates and equity prices. The Company's primary risk is interest rate risk.
The primary objective of Asset/Liability Management of the Company is to manage interest rate risk and achieve reasonable stability in net interest income throughout interest rate cycles. This is achieved by maintaining the proper balance of rate sensitive earning assets and rate sensitive liabilities. The relationship of rate sensitive earning assets to rate sensitive liabilities, is the principal factor in projecting the effect that fluctuating interest rates will have on future net interest income. Rate sensitive earning assets and interest-bearing liabilities are those that can be re-priced to current market rates within a relatively short time period. Management monitors the rate sensitivity of earning assets and interest-bearing liabilities over the entire life of these instruments, but places particular emphasis on the first year and through three years.
The Company has not experienced a high level of volatility in net interest income primarily because of the relatively large base of core deposits that do not re-price on a contractual basis. These deposit products include regular savings, interest-bearing transaction accounts, and money market savings accounts. Balances for these accounts are reported based on historical re-pricing experienced at each bank. However, the rates paid are typically not directly related to market interest rates, since management has some discretion in adjusting these rates as market rates change.
The Company uses additional tools to monitor and manage interest rate sensitivity. One of the primary tools is simulation analysis. Simulation analysis is the primary method of estimating earnings at risk and capital at risk under varying interest rate conditions. Simulation analysis is used to test the sensitivity of the Company's net interest income and shareholders' equity to both the level of interest rates and the slope of the yield curve. Simulation analysis accounts for the expected timing and magnitude of assets and liability cash flows, as well as the expected timing and magnitude of deposits that do not re-price on a contractual basis. In addition, simulation analysis includes adjustments for the lag between movements in market interest rates on loans and interest-bearing deposits. These adjustments are made to reflect more accurately possible future cash flows, re-pricing behavior, and ultimately net interest income. The estimated impact on the Company's net interest income before provision for loan loss sensitivity over a one-year time horizon is shown below. Such analysis assumes a sustained parallel shift in interest rates and the Company's estimate of how interest-bearing transaction accounts will re-price in each scenario. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management's strategies, among other factors.
Other Accounting Issues
In January 2003, the Auditing Standards Board issued Statement on Auditing Standards ("SAS") No. 101, Auditing Fair Value Measurements and Disclosures. This statement establishes standards on auditing the measurement and disclosure of assets, liabilities, and specific components of equity presented or disclosed at fair value in financial statements. This SAS is effective for audits of financial statements for periods beginning on or after June 15, 2003. The adoption of SAS No. 101 did not have a material impact on the Company's consolidated financial statements.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. The provisions of this statement are effective for contracts entered into or modified after June 20, 2003, and hedging relationships designated after June 30, 2003, and generally require that contracts with comparable characteristics be accounted for similarly. Except for the provisions related to FASB Statement 133, Accounting for Derivative Instruments and Hedging Activities, all provisions of this statement should be applied prospectively. The provisions of the statement related to Statement 133 Implementation Issues that have been effective for fiscal quarters that begin prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. The adoption of the provisions of this statement did not have a material effect on the Company's operating results or financial position.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires liability treatment for certain financial instruments which had previously been recognized as equity. The provisions of this statement are effective for financial instruments entered into or modified after May 31, 2003, and otherwise are effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in accounting principle for financial instruments created before May 15, 2003,
and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The adoption of the provisions of this statement did not have a material effect on the Company's operating results or financial position.
In December 2003, the FASB revised previously issued SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement. This statement revises employers' disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by FASB Statements No. 87, Employers' Accounting for Pensions, No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and No 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. This statement retains the disclosure requirements contained in FASB Statement No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits, which it replaces. It requires additional disclosures to those in the original Statement 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The required information should be provided separately for pension plans and for other postretirement benefit plans. The provisions of this statement are effective for financial statements with fiscal years ending after December 15, 2003. The interim-period disclosures required by this statement are effective for interim periods beginning after December 15, 2003. The adoption of the provisions of this revised statement did not have a material effect on the Company's operating results or financial position.
In December 2003, the FASB revised previously issued FIN 46, Consolidation of Variable Interest Entities, ("FIN 46R") which clarifies the application of Accounting Research Bulletin ("ARB") 51, Consolidated Financial Statements, to certain entities (called variable interest entities) in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The reporting and disclosure requirements of this Interpretation are effective for all financial statements of public companies for the first period ending after December 15, 2003 and for all other types of entities for periods ending after March 15, 2004. The adoption of this interpretation did not have a material impact on the Company's consolidated financial statements.
In December 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer, which addresses the accounting for differences between contractual cash flows and expected cash flows for loans acquired in a transfer when those differences are attributable at least in part to a decline in credit quality. The scope of SOP 03-3 includes loans where there is evidence of deterioration in credit quality since origination, and includes loans acquired individually, in pools or as part of a business combination. Under SOP 03-3, the difference between expected cash flows and the purchase price is accreted as an adjustment to yield over the life. The Company does not expect the application of SOP 03-03 to have a material impact on our consolidated financial position or results of operations.
In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on the remaining portions of EITF 03-01, The Meaning of Other-Than-Temporary Impairment and It's Application to Certain Investments, effective for the first fiscal year or interim period beginning after June 15, 2004. EITF 03-01 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. Generally, an impairment is considered other-than-temporary unless: (1) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for an anticipated recovery of fair value up to (or beyond) the cost of the investment, and (2) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. If impairment is determined to be other-than-temporary, then an impairment loss should be recognized equal to the difference between the investment's cost and its fair value. Certain disclosure requirements of EITF 03-01 were adopted in 2003 and the Company began presenting the new disclosure requirements in its consolidated financial statements for the year ended December 31, 2003. The recognition and measurement provisions were initially effective for other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. However in September 2004, the effective date of these provisions was delayed until the finalization of an FASB Staff Position to provide additional implementation guidance. Due to the recognition and measurement provisions being suspended and the final rule delayed, the Company is not able to determine whether the adoption of these new provisions will have a material impact on its consolidated financial position or results of operations.
In March 2004, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 105, Application of Accounting Principles to Loan Commitments. SAB 105 requires that the fair value measurement of mortgage loan commitments, which are derivatives, exclude any expected future cash flows related to the customer relationship or servicing rights. The guidance in SAB 105 must be applied to mortgage loan commitments entered into after March 31, 2004. The impact on the Company is not material given the declines in mortgage banking volume, but could be in the future. The impact is primarily the timing of when gains should be recognized in the financial statements.
In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004) entitled Share-Based Payment ("SFAS No. 123R") that will require compensation costs related to share-based payment transactions to be recognized in the financial statements. This Statement eliminates the alternative to use Opinion 25's intrinsic value method of accounting that was provided in Statement 123 as originally issued. Under Opinion 25, issuing stock options to employees generally resulted in recognition of no compensation cost. This statement requires entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions). Recognition of that compensation cost helps users of financial statements to better understand the economic transactions affecting an entity and to make better resource allocation decisions. The Company is currently evaluating the provisions of SFAS No. 123R and will adopt it on July 1, 2005.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Regulation S-X and by Item 302 of Regulation S-K are set forth in the pages listed below.
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS
Letterhead omitted
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders Florida Community Banks, Inc. and subsidiary:
We have audited the accompanying consolidated statements of financial condition of Florida Community Banks, Inc. and subsidiary (the "Company") as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2004. We also have audited management's assessment, included in the accompanying "Management Report on Internal Control Over Financial Reporting," that the Company maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on these consolidated financial statements, an opinion on management's assessment, and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Florida Community Banks, Inc. and subsidiary as of December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, management's assessment that Florida Community Banks, Inc. and subsidiary maintained effective internal control over financial reporting as of December 31, 2004 is fairly stated, in all material respects, based on the criteria established in Internal Control - Integrated Framework issued by COSO. Furthermore, in our opinion, Florida Community Banks, Inc. and subsidiary maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by COSO.
/s/ Schauer Taylor Cox Vise & Morgan, P.C. Birmingham, Alabama March 15, 2005
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2004 AND 2003
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2004, 2003 and 2002
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 2004, 2003 and 2002
See notes to consolidated financial statements
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2004, 2003 and 2002
(Continued on following page)
See notes to consolidated financial statements
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended December 31, 2004, 2003 and 2002
See notes to consolidated financial statements
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies
Florida Community Banks, Inc. ("FCBI") (a Florida corporation) and its wholly owned subsidiary, Florida Community Bank (the "Bank") (a Florida corporation) collectively referred to herein as the "Company," is headquartered in Immokalee, Florida. The Bank's main office is in Immokalee, Florida with nine additional branch offices in Southwest Florida and a tenth office scheduled to open in January 2006. The Bank provides a full range of banking services to individual and corporate customers in Charlotte, Collier, Glades, Hendry, and Lee counties and the surrounding areas.
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States and to general practice within the banking industry. The following summarizes the most significant of these policies.
Business Combination
Florida Community Banks, Inc. was incorporated on February 20, 2002. FCBI had no assets, liabilities, revenues or operations until April 15, 2002, when FCBI acquired 100% of the outstanding shares of Florida Community Bank common stock pursuant to a Plan of Reorganization and Share Exchange by exchanging one common share of FCBI for one common share of the Bank. The combination has been accounted for as a statutory pooling of interest between affiliates, and, accordingly, all periods presented reflect FCBI and the Bank on a combined basis. Since April 15, 2002, FCBI's predominate activity has been acting as a one-bank holding company for the Bank. The Bank has continued to conduct its activities in substantially the same manner as it had before the acquisition.
Basis of Consolidation
The consolidated financial statements include the accounts of Florida Community Banks, Inc., and the Bank. All significant inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans, management obtains independent appraisals for significant collateral. While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies - Continued
economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.
Securities
Securities are classified as either held-to-maturity, available-for-sale or trading.
Securities held-to-maturity are those securities for which management has the ability and intent to hold on a long-term basis or until maturity. These securities are carried at amortized cost, adjusted for amortization of premiums, and accretion of discount to the earlier of the maturity or call date.
Securities available-for-sale represent those securities intended to be held for an indefinite period of time, including securities that management intends to use as part of its asset/liability strategy, or that may be sold in response to changes in interest rates, changes in prepayment risk, the need to increase regulatory capital, or other similar factors. Securities available-for-sale are recorded at market value with unrealized gains and losses net of any tax effect, added or deducted directly from shareholders' equity.
Securities carried in trading accounts are carried at market value with unrealized gains and losses reflected in income.
Realized and unrealized gains and losses are based on the specific identification method.
Declines in the fair value of individual held-to-maturity and available-for-sale securities below their cost that are other than temporary result in write-downs of the individual securities to their fair value. The related write-downs are included in earnings as realized losses.
The Company has no trading securities.
Loans
Loans are stated at unpaid principal balances, less the allowance for loan losses, unearned discounts, and net deferred loan fees.
Unearned discounts on installment loans are recognized as income over the term of the loans using a method that approximates the interest method.
Loan origination and commitment fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over the lives of the related loans using the interest method or the straight-line method.
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies - Continued
Allowance for Possible Loan Losses
A loan is considered impaired, based on current information and events, if it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Uncollateralized loans are measured for impairment based on the present value of expected future cash flows discounted at the historical effective interest rate, while all collateral-dependent loans are measured for impairment based on the fair value of the collateral. Smaller balance homogeneous loans, which consist of residential mortgages and consumer loans, are evaluated collectively and reserves are established based on historical loss experience.
The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. Increases and decreases in the allowance due to changes in the measurement of the impaired loans are considered in the provision for loan losses. Loans continue to be classified as impaired unless they are brought fully current and the collection of scheduled interest and principal is considered probable. When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance.
Management's periodic evaluation of the adequacy of the allowance is based on the Bank's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay, estimated value of any underlying collateral, and an analysis of current economic conditions. While management believes that it has established the allowance in accordance with generally accepted accounting principles and has taken into account the views of banking regulators and the current economic environment, there can be no assurance that in the future the Bank's regulators or its economic environment will not require further increases in the allowance.
Income Recognition on Impaired and Non-accrual Loans
Loans, including impaired loans, are generally classified as non-accrual if they are past due as to maturity or payment of principal or interest for a period of more than 90 days, unless such loans are well collateralized and in the process of collection. If a loan or a portion of a loan is classified as doubtful or is partially charged off, the loan is generally classified as non-accrual. Loans that are on a current payment status or past due less than 90 days may also be classified as non-accrual if repayment in full of principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest amounts contractually due are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance by the borrower, in accordance with the contractual terms of interest and principal.
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies - Continued
While a loan is classified as non-accrual and the future collectability of the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to principal outstanding, except in the case of loans with scheduled amortizations where the payment is generally applied to the oldest payment due. When the future collectability of the recorded loan balance is expected, interest income may be recognized on a cash basis. In the case where a non-accrual loan has been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on the recorded loan balance at the contractual interest rate. Receipts in excess of that amount are recorded as recoveries to the allowance for loan losses until prior charge offs have been fully recovered. Interest income recognized on a cash basis was immaterial for the years ended December 31, 2004, 2003 and 2002.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Expenditures for additions and major improvements that significantly extend the useful lives of the assets are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. The carrying values of assets traded in are used to adjust the carrying values of the new assets acquired by trade. Assets that are disposed of are removed from the accounts and the resulting gains or losses are recorded in operations.
Depreciation is provided generally by accelerated and straight-line methods based on the estimated useful lives of the respective assets.
Foreclosed Real Estate
Foreclosed real estate includes both formally foreclosed property and in-substance foreclosed property. In-substance foreclosed properties are those properties for which the institution has taken physical possession, regardless of whether formal foreclosure proceedings have taken place.
At the time of foreclosure, foreclosed real estate is recorded at the lower of the carrying amount or fair value less cost to sell, which becomes the property's new basis. Any write-downs based on the asset's fair value at date of acquisition are charged to the allowance for loan losses. After foreclosure, these assets are carried at the lower of their new cost basis or fair value less cost to sell. Costs incurred in maintaining foreclosed real estate and subsequent adjustments to the carrying amount of the property are included in income (loss) on foreclosed real estate.
Advertising Costs
The Company's policy is to expense advertising costs as incurred. Advertising expense for the years ended December 31, 2004, 2003 and 2002 amounted to approximately $226,000, $218,000 and $135,000, respectively.
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies - Continued
Income Taxes
Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of the allowance for loan losses, accumulated depreciation, and accrued employee benefits for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Stock-Based Compensation
At December 31, 2004, the Company had a stock-based employee compensation plan, which is more fully described in Note 12. Prior to 2003, the Company accounted for this plan under the recognition and measurement provisions of APB No. 25, Accounting for Stock Issued to Employees, and the related Interpretations. Accordingly, no stock-based compensation cost was included in net earnings for the year ended December 31, 2002, as all options granted under this plan had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2003, the Company adopted the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, as provided by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure. SFAS No. 148 allows for a prospective method of adoption of SFAS 123, whereas, the Company can prospectively account for the current expense of options granted during 2003 and thereafter. Results of prior years have not been restated. The following table illustrates the effects on net income and earnings per share if the fair value based method had been applied to all outstanding awards in each period.
The effects of applying SFAS No. 123 as amended by SFAS No. 148 for providing proforma disclosures are not likely to be representative of the effects on reported earnings for future years, nor are the dividend estimates representative of commitments on the part of the Company's Board.
Retirement Plan
During 2003 the Company had a defined contribution Pension Plan, which was terminated as of December 31, 2003. The Company also has a Profit-Sharing Plan covering all eligible employees that was amended as of December 31, 2003, to allow employee elective contributions under Internal Revenue Code section 401K. The Company also adopted an Employee Stock Ownership Plan ("ESOP"), which also allows elective employee contributions. Employer contributions to the plans are included in salaries and employee benefits expense. Pension Plan contributions were required at 10 percent of total eligible employee compensation. Profit-Sharing and ESOP contributions are determined by the board of directors. The Company also has deferred compensation plans with certain executive officers and directors. The Company contributes amounts to the pension fund sufficient to satisfy funding requirements of the Employee Retirement Income Security Act.
Off-Balance Sheet Financial Instruments
In the ordinary course of business the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commercial letters of credit and standby letters of credit. Such financial instruments are recorded in the financial statements when funded.
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies - Continued
The Bank has available as a source of financing a line of credit with the Federal Home Loan Bank of Atlanta that is limited to 15% of assets (approximately $98,900,000 at December 31, 2004), of which $38,900,000 was available and unused. The ability to utilize the remaining line is dependent on the amount of eligible collateral that is available to pledge to the Federal Home Loan Bank.
The Bank also has available as a source of short-term financing the purchase of federal funds from other commercial banks and commercial lines of credit. At December 31, 2004, the total amount available for short-term financing was $50,150,000.
The Company also has available a $5,000,000 line of credit with the Bankers Bank. This line is secured by 51% of the bank's common stock and is due on demand by the lender. At December 31, 2004, $4,900,000 was available for additional funding.
Segment Information
All of the Company's offices offer similar products and services, are located in the same geographic region, and serve the same customer segments of the market. As a result, management considers all units as one operating segment and therefore feels that the basic consolidated financial statements and related footnotes provide details related to segment reporting.
Reclassifications
Certain amounts in 2003 and 2002 have been reclassified to conform with the 2004 presentation.
Recently Issued Accounting Standards
In January 2003, the Auditing Standards Board issued Statement on Auditing Standards ("SAS") No. 101, Auditing Fair Value Measurements and Disclosures. This statement establishes standards on auditing the measurement and disclosure of assets, liabilities, and specific components of equity presented or disclosed at fair value in financial statements. This SAS is effective for audits of financial statements for periods beginning on or after June 15, 2003. The adoption of SAS No. 101 did not have a material impact on the Company's consolidated financial statements.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. The provisions of this statement are effective for contracts entered into or modified after June 20, 2003, and hedging relationships designated after June 30, 2003, and generally require that contracts with comparable characteristics be accounted for similarly. Except for the provisions related to FASB Statement 133, Accounting for Derivative Instruments and Hedging Activities, all provisions of this statement should be applied prospectively. The provisions of the statement related to Statement 133 Implementation Issues that have been effective for fiscal quarters that begin prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. The adoption of the provisions of this statement did not have a material effect on the Company's operating results or financial position.
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies - Continued
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires liability treatment for certain financial instruments which had previously been recognized as equity. The provisions of this statement are effective for financial instruments entered into or modified after May 31, 2003, and otherwise are effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in accounting principle for financial instruments created before May 15, 2003, and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The adoption of the provisions of this statement did not have a material effect on the Company's operating results or financial position.
In December 2003, the FASB revised previously issued SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement. This statement revises employers' disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by FASB Statements No. 87, Employers' Accounting for Pensions, No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and No 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. This statement retains the disclosure requirements contained in FASB Statement No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits, which it replaces. It requires additional disclosures to those in the original Statement 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The required information should be provided separately for pension plans and for other postretirement benefit plans. The provisions of this statement are effective for financial statements with fiscal years ending after December 15, 2003. The interim-period disclosures required by this statement are effective for interim periods beginning after December 15, 2003. The adoption of the provisions of this revised statement did not have a material effect on the Company's operating results or financial position.
In December 2003, the FASB revised previously issued FIN 46, Consolidation of Variable Interest Entities, ("FIN 46R") which clarifies the application of Accounting Research Bulletin ("ARB") 51, Consolidated Financial Statements, to certain entities (called variable interest entities) in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The reporting and disclosure requirements of this Interpretation are effective for all financial statements of public companies for the first period ending after December 15, 2003 and for all other types of entities for periods ending after March 15, 2004. The adoption of this interpretation did not have a material impact on the Company's consolidated financial statements.
In December 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer, which addresses the accounting for differences between contractual cash flows and expected cash flows for loans acquired in a transfer when those differences are attributable at least in part to a decline in credit quality. The scope of SOP 03-3 includes loans where there is evidence
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies - Continued
of deterioration in credit quality since origination, and includes loans acquired individually, in pools or as part of a business combination. Under SOP 03-3, the difference between expected cash flows and the purchase price is accreted as an adjustment to yield over the life. The Company does not expect the application of SOP 03-03 to have a material impact on our consolidated financial position or results of operations.
In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on the remaining portions of EITF 03-01, The Meaning of Other-Than-Temporary Impairment and It's Application to Certain Investments, effective for the first fiscal year or interim period beginning after June 15, 2004. EITF 03-01 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. Generally, an impairment is considered other-than-temporary unless: (1) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for an anticipated recovery of fair value up to (or beyond) the cost of the investment, and (2) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. If impairment is determined to be other-than-temporary, then an impairment loss should be recognized equal to the difference between the investment's cost and its fair value. Certain disclosure requirements of EITF 03-01 were adopted in 2003 and the Company began presenting the new disclosure requirements in its consolidated financial statements for the year ended December 31, 2003. The recognition and measurement provisions were initially effective for other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. However in September 2004, the effective date of these provisions was delayed until the finalization of a FASB Staff Position to provide additional implementation guidance. Due to the recognition and measurement provisions being suspended and the final rule delayed, the Company is not able to determine whether the adoption of these new provisions will have a material impact on its consolidated financial position or results of operations.
In March 2004, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 105, Application of Accounting Principles to Loan Commitments. SAB 105 requires that the fair value measurement of mortgage loan commitments, which are derivatives, exclude any expected future cash flows related to the customer relationship or servicing rights. The guidance in SAB 105 must be applied to mortgage loan commitments entered into after March 31, 2004. The impact on the Company is not material given the declines in mortgage banking volume, but could be in the future. The impact is primarily the timing of when gains should be recognized in the financial statements.
In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004) entitled Share-Based Payment ("SFAS No. 123R") that will require compensation costs related to share-based payment transactions to be recognized in the financial statements. This Statement eliminates the alternative to use Opinion 25's intrinsic value method of accounting that was provided in Statement 123 as originally issued. Under Opinion 25, issuing stock options to employees generally resulted in recognition of no compensation cost. This statement requires entities to recognize the cost of employee
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies - Continued
services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions). Recognition of that compensation cost helps users of financial statements to better understand the economic transactions affecting an entity and to make better resource allocation decisions. The Company is currently evaluating the provisions of SFAS No. 123R and will adopt it on July 1, 2005.
Earnings Per Common Share
Basic earnings per common share are computed by dividing earnings available to stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if dilutive potential common stock had been converted to common stock, as prescribed by SFAS No. 128, Earnings per Share. All per share amounts included in these consolidated financial statements have been retroactively adjusted to reflect the effects of the 1.2 for 1.0 stock splits which occurred during 2004, 2003 and 2002. The following reconciles the weighted average number of shares outstanding:
In December 2002, December 2003, and December 2004, the Company issued 1.2-for-1.0 stock splits. All per share amounts included in these consolidated financial statements have been retroactively adjusted to give effect to these splits.
Comprehensive Income
Comprehensive income is generally defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income is the total of net income and all other non-owner changes in equity. Items that are to be recognized under accounting standards as components of comprehensive income are displayed in statements of shareholders' equity.
In the calculation of comprehensive income, certain reclassification adjustments are made to avoid double counting items that are displayed as part of net income for a period that also had been displayed as part of other comprehensive income in that period or earlier periods. The Company has no such items to be reclassified at December 31, 2004, 2003 and 2002.
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies - Continued
Statements of Cash Flows
The Company includes cash, due from banks, and certain cash equivalents in preparing the statements of cash flows. The following is supplemental disclosure to the statements of cash flows for the three years ended December 31, 2004.
Note 2 - Restrictions on Cash and Due from Bank Accounts
The Bank is required by regulatory authorities to maintain average reserve balances either in vault cash or on deposit with the Federal Reserve. The average amount of those reserves required at December 31, 2004 and 2003, were approximately $8,879,000 and $5,954,000, respectively.
Note 3 - Securities
The carrying amounts of securities as shown in the consolidated statements of financial condition and their approximate fair values at December 31, 2004 and 2003 were as follows:
The following table shows our investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2004.
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
At December 31, 2004, the Company had 3 individual securities that were in an unrealized loss position or impaired for the timeframe 12 months or more indicated above. All of these investment positions'
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 3 - Securities - Continued
impairments are deemed not to be other-than-temporary impairments. Substantially all of these positions are backed by 1-4 family mortgages and the related securities have experienced volatility in their market prices as a result of the fluctuating home mortgage interest rate environment during 2004. The Company does not expect any other-than-temporary impairments to develop related to the investment positions.
The contractual maturities of securities held-to-maturity and securities available-for-sale at December 31, 2004, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Gross realized gains and losses from the sale of securities for the years ended December 31 are as follows:
Dispositions through calls, maturities and pay-downs resulted in no net gain or loss during 2004, 2003 and 2002.
Equity securities include restricted investments in The Bankers Bank, Independent Bankers' Bank and Federal Home Loan Bank stock, which must be maintained to secure the available lines of credit. The amount of investment in these stocks amounted to $4,125,077 and $2,374,977 at December 31, 2004 and 2003, respectively. Additional equity securities at December 31, 2004 and 2003 consist of a $310,000 investment in the FCBI Capital Trust I (see Note 9) and at December 31, 2004 and 2003 a $500,000 investment in Capital Securities Investors, LLC, which amounts to a 20% ownership in this entity.
Investment securities pledged to secure public funds on deposit, FHLB advances and for other purposes as required by law amounted to approximately $52,912,000 and $23,218,000 at December 31, 2004 and 2003, respectively.
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 4 - Loans
The Company grants loans to customers primarily in Charlotte, Collier, Glades, Hendry and Lee Counties of Southwest Florida.
The major classifications of loans as of December 31, 2004 and 2003 are as follows:
Deposit overdrafts reclassified as loans and included in the other loan category amounted to $382,482 and $225,303, at December 31, 2004 and 2003, respectively.
Loans the Company considered to be impaired (including non-accrual loans) at December 31, 2004 and 2003 totaled approximately $7,809,000 and $16,147,000, respectively. The impaired loans at December 31, 2004 and 2003 had related allowances of $1,171,334 and $2,422,050, respectively. The average recorded investment in impaired loans for the years ended December 31, 2004 and 2003 was approximately $9,600,345 and $3,748,755, respectively. For the years ended December 31, 2004 and 2003, the difference between gross interest income that would have been recorded in such period if the non-accruing loans had been current in accordance with their original terms and the amount of interest income on those loans that was included in such period's net income was approximately $31,692 and $450,861, respectively.
The Company has no commitments to lend additional funds to the borrowers of non-accrual loans.
Net unamortized deferred loan fees and origination costs included in unearned income amounted to $2,101,976 and $1,542,523, as of December 31, 2004 and 2003.
Commercial and residential real estate loans pledged to secure Federal Home Loan Bank advances and letters of credit amounted to approximately $38,457,000 and $33,225,000 at December 31, 2004 and 2003, respectively (see Note 9). Commercial and residential real estate loans pledged to secure the Federal Reserve Bank line of credit amounted to approximately $14,685,000 and $5,856,910 at December 31, 2004 and 2003, respectively.
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 5 - Allowance for Loan Losses
Changes in the allowance for loan losses for the years ended December 31, 2004, 2003 and 2002 were as follows:
Note 6 - Premises and Equipment
Premises and equipment as of December 31, 2004 and 2003 is as follows:
The provision for depreciation charged to occupancy and equipment expense for the years ended December 31, 2004, 2003 and 2002 was $711,547, $669,386 and $687,466, respectively.
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FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 7 - Deposits
The aggregate amounts of time deposits of $100,000 or more, including certificates of deposit of $100,000 or more at December 31, 2004 and 2003 were $184,621,865 and $142,946,476, respectively. Time deposits of less than $100,000 totaled $64,417,437 and $69,095,166 at December 31, 2004 and 2003, respectively. Demand deposit overdrafts reclassified as loan balances as of December 31, 2004 and 2003 amounted to $382,482 and $225,303, respectively.
The maturities of time certificates of deposit and other time deposits issued by the Bank at December 31, 2004, are as follows:
Note 8 - Short-term Borrowings
Short-term borrowings at December 31, 2004 and 2003 consist of the following:
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FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 8 - Short-term Borrowings - Continued
Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the transaction. Information concerning securities sold under agreements to repurchase is summarized as follows:
Note 9 - Long-term Debt
At December 31, 2004 and 2003, the Company had long-term debt totaling $70,310,000 and $50,331,698, respectively.
Long-term debt consists of the following at December 31:
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 9 - Long-term Debt - Continued
In June 2002, the Company formed a wholly-owned Delaware statutory business trust, FCBI Capital Trust I, which issued $10,000,000 of guaranteed preferred securities representing undivided beneficial interests in the assets of the trust ("Trust Preferred Securities"). The common securities of the trust are owned by the Company. The proceeds from the issuance of the Trust Preferred Securities ($10,000,000) and common securities ($310,000) were used by the trust to purchase $10,310,000 of junior subordinated deferrable interest debentures of the Company. The debentures, which bear interest at Prime rate plus 0.5%, represent the sole asset of the trust. The Company has fully and unconditionally guaranteed all obligations of the Trust on a subordinated basis with respect to the Trust Preferred Securities. In accordance with the provisions of Financial Interpretation No. 46R, the Company accounts for the Trust Preferred Securities as a long-term debt liability to the Trust in the amount of $10,310,000. Subject to certain limitations, the Trust Preferred Securities qualify as Tier 1 capital.
The Company has entered into an agreement, which fully and unconditionally guarantees payment of accrued and unpaid distributions required to be paid on the Trust Preferred Securities, with respect to any Trust Preferred Securities called for redemption.
The Trust Preferred Securities mature in September 2032 and may be called by the Company at any time after June 2007. Maturities of long-term debt following December 31, 2004, are as follows:
Note 10 - Shareholders' Equity
At December 31, 2004 and 2003, shareholders' equity of the Company consisted of the following:
Common Stock: 10,000,000 shares authorized with a par value of $0.01 per share. Voting rights equal to one vote per share.
Paid-in Capital: Represents the funds received in excess of par value upon the issuance of stock, net of issuance costs and the related effects of the stock dividends and stock splits.
Retained Earnings: Represents the accumulated net earnings of the Company as reduced by dividends paid to shareholders and the effect of stock dividends issued in previous periods.
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 10 - Shareholders' Equity - Continued
Stock Splits: In April 2002, each share of the Bank was converted into one share of the Company's $0.01 par value common stock. In December 2002, the Company issued a 1.2 for 1.0 common stock split resulting in an increase in the number of outstanding shares to 3,123,316. In December 2003, the Company issued a 1.2 for 1.0 common stock split resulting in an increase in the number of outstanding shares to 3,747,641. In December 2004, the Company issued a 1.2 for 1.0 common stock split resulting in an increase in the number of outstanding shares to 4,519,321. All per share amounts included in these consolidated financial statements have been adjusted to give retroactive effect to the stock splits.
Note 11 - Regulatory Capital Matters
The Company and the Bank are subject to various regulatory capital requirements administered by the state and federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators, which if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its subsidiary bank must meet specific capital guidelines involving quantitative measures of the Company's and its subsidiary bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification under the prompt corrective guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of Total capital and Tier I capital to risk-weighted assets (as defined in the regulations), and Tier I capital to adjusted total assets (as defined). Management believes, as of December 31, 2004, that the Company and the Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 2004, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To remain categorized as well capitalized, the Bank will have to maintain minimum Total capital, Tier 1 capital, and Tier 1 leverage ratios as disclosed in the table below. There are no changes in conditions or events since the most recent notification that management believes have changed the Bank's prompt corrective action category.
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FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 11 - Regulatory Capital Matters - Continued
The Company's and the Bank's actual capital amounts and ratios are also presented in the table.
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 12 - Stock Option Plans
The Company adopted the 2002 Key Employee Stock Compensation Program under which statutory and non-statutory stock options may be granted to certain key employees to purchase up to 170,328 shares (as adjusted for stock splits) at various prices from $10.42 to $22.92 per share. The options granted provide for these key employees to purchase shares of the Company's $0.01 par value common stock at no less than the market value at the dates of grant. The options granted may be exercised within ten years from the dates of grant subject to vesting requirements.
The following information relates to options outstanding under the plan at December 31, 2004.
The following table presents the activity in the plan for the years ended December 31, 2004, 2003 and 2002:
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 13 - Other Operating Expenses
The major components of other operating expenses included in noninterest expenses at December 31, 2004, 2003 and 2002 are as follows (in thousands):
Note 14 - Income Taxes
Federal and state income taxes receivable (payable) as of December 31, 2004 and 2003 included in other assets and other liabilities, respectively, were as follows:
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 14 - Income Taxes - Continued
The components of the deferred income tax asset included in other assets as of December 31, 2004 and 2003 are as follows:
The tax effects of each type of income and expense item that gave rise to deferred taxes are:
The components of income tax expense for the years ended December 31, 2004, 2003 and 2002 were as follows:
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 14 - Income Taxes - Continued
There were no material tax effects of securities transactions for the years ended December 31, 2004, 2003 and 2002.
The principal reasons for the difference in the effective tax rate and the federal statutory rate are as follows for the years ended December 31, 2004, 2003 and 2002.
Note 15 - Benefit Plans
During the years ended December 31, 2004, 2003 and 2002, the Company had three qualified employee benefit plans: 1) a Pension Plan, 2) a Profit Sharing Plan and 3) an Employee Stock Ownership Plan ("ESOP"). The Plans cover substantially all employees, subject to similar eligibility requirements. The Company contributed 10% of eligible compensation to the Pension Plan for the year ended 2002. The Pension Plan was terminated as of December 31, 2003. The Company's contribution to the plan for the year ended December 31, 2002, was $347,214. The Company's annual contribution to the Profit Sharing Plan is discretionary as determined by the board of directors. For the years ended December 31, 2004, 2003 and 2002, the Company's contributions charged to operations for the Profit Sharing Plan amounted to $506,733, $438,163 and $362,215, respectively. Effective January 1, 2003, the Company adopted the ESOP. The Company's annual contribution to the ESOP is discretionary as determined by the board of directors. The Company's contribution to the ESOP for 2004 and 2003 was $575,626 and $433,523, respectively.
The Company also has a Director's Benefit Plan (the "Benefit Plan") covering certain directors and a Salary Continuation Plan (the "Salary Plan") for a former officer. These plans were obtained resulting from a business combination that occurred in 1998.
The Benefit Plan provides for the payment of scheduled benefits to the participants or their beneficiaries at age 65 or their normal retirement date, whichever occurs later. If the participant dies prior to receiving 180 monthly payments, the participant's beneficiary shall receive any remaining monthly payments. Payment of benefits under the Benefit Plan requires that the participant fulfill certain conditions related to age and length of service. The Company is accruing the present value of the future benefits to be paid under the Benefit Plan over the term of each participant's service period.
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 15 - Benefit Plans - Continued
The Salary Plan provides for the payment of a retirement benefit of $30,000 per year for a period of ten years. Payment of these benefits commenced on January 1, 1995, and continued throughout the current year according to the terms of the Plan. The Company has accrued the present value of the future benefits to be paid under the Salary Plan.
The Company has determined that the following disclosures are relevant to the Benefit Plan and the Salary Plan, however, the plans are non-qualified and unfunded. Payments to retired directors and officers are funded through operations.
Net pension cost for the Director's Benefit Plan and the Salary Continuation Plan for 2004, 2003 and 2002 included the following components:
The following table sets forth the accumulated benefit obligation of the Director's Benefit Plan and the Salary Continuation Plan recognized in the Company's statements of financial condition at December 31, 2004 and 2003.
The weighted average discount rate used in determining present value of the projected benefit obligation for the Director's Benefit Plan and Salary Continuation Plan was nine percent.
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FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 16 - Commitments and Contingencies
In the normal course of business, the Company offers a variety of financial products to its customers to aid them in meeting their requirements for liquidity, credit enhancement, and interest rate protection. Generally accepted accounting principles recognize these transactions as contingent liabilities and, accordingly, they are not reflected in the accompanying consolidated financial statements.
Loan commitments are made to accommodate the financial needs of the Company's customers. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. Historically, most loan commitments and standby letters of credit expire unused. The Company's exposure to credit loss in the event of nonperformance by the counter-party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same underwriting standards in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties. The Company records a liability for the estimated fair value of standby letters of credit based on the fees charged for these arrangements. At December 31, 2004 and 2003 these recorded liabilities amounted to $40,712 and $46,152, respectively.
The total amounts of loan commitments and standby letters of credit are summarized as follows at December 31:
Management conducts regular reviews of these instruments on an individual customer basis, and the results are considered in assessing the adequacy of the Company's allowance for loan losses. The total reserve allocated for unfunded commitments was approximately $386,000 and $185,000 at December 31, 2004 and 2003, respectively
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 17 - Concentrations of Credit
Most of the Company's loans, commitments, and commercial and standby letters of credit have been granted to customers in the Company's market area. Many such customers are depositors of the Company. The concentrations of credit by type of loan are set forth in Note 4. The distribution of commitments to extend credit related primarily to unused real estate draw lines. Commercial and standby letters of credit were granted primarily to commercial borrowers.
The Company maintains its cash accounts at various commercial banks in the United States. The balances in commercial banks are insured by the FDIC up to $100,000. Total uninsured balances held at correspondent commercial banks amounted to $1,720,085 and $7,431,961 at December 31, 2004 and 2003, respectively.
Note 18 - Restrictions on Dividends
The Bank is subject to the dividend restrictions set forth by the State Banking Department (Florida). Under such restrictions, the Bank may not, without the prior approval of the State Banking Department, declare dividends in excess of the sum of the current year's earnings plus the retained earnings from the prior two years. For the year ending December 31, 2005, the Bank can declare dividends, without prior regulatory approval, of approximately $17,974,000 plus an additional amount equal to its net profits for 2005.
Note 19 - Litigation
While the Company is party to various legal proceedings arising from the ordinary course of business, management believes after consultation with legal counsel that there are no proceedings threatened or pending against the Company that will, individually or in the aggregate, have a material adverse effect on the business or financial condition of the Company.
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FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 20 - Leases
The Company leased facilities under non-cancelable operating leases during 2004, 2003 and 2002. The leases provided for renewal options and generally required the Company to pay maintenance, insurance, and property taxes. For the years ended December 31, 2004, 2003 and 2002, rental expense for such leases was $177,520, $175,620 and $182,870, respectively. The Company also entered into a sale/leaseback transaction with a related party in January 2001 for a branch facility, future minimum payments under this lease are included in the table below (see also Note 21).
Future minimum lease payments under such non-cancelable operating leases at December 31, 2004, are as follows:
Note 21 - Related Party Transactions
Loans: Certain directors, executive officers, and principal shareholders, including their immediate families and associates were loan customers of the Company during 2004 and 2003. Such loans are made in the ordinary course of business at normal credit terms, including interest rates and collateral and do not represent more than a normal risk of collection. A summary of activity and amounts outstanding are as follows:
Deposits: Deposits held from related parties were $14,428,433 and $13,855,659 at December 31, 2004 and 2003, respectively.
Other: On January 11, 2001, the board of directors of the Bank adopted a resolution to sell the land and premises of the Cypress Lake Branch at fair market value to a Bank Director and lease the property back at a fair rental. The sales price of $1,855,000 is greater than the appraised value and is based on the cost to the Bank of the land, building and closing costs. The agreement specifies a 15-year net lease of $11,805 per month with annual increases of 2.5%.
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 22 - Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and Short-Term Investments: For those short-term instruments, the carrying amount is a reasonable estimate of fair value.
Securities: For securities available-for-sale and securities held-to-maturity, fair values are based on quoted market prices or dealer quotes. For other securities held as investments, fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.
Loans: For certain homogeneous categories of loans, such as some residential mortgage, credit card receivables, and other consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
Accrued Interest Receivable: The carrying amount of accrued interest receivable approximates its fair value.
Deposits: The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.
Accrued Interest Payable: The carrying amount of accrued interest payable approximates its fair value.
Short-Term Borrowings: The carrying amounts of short-term borrowings approximate their fair values.
Long-Term Debt: Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.
Commitments to Extend Credit, Standby Letters of Credit, and Financial Guarantees Written: The fair value of commitments, letters of credit, and financial guarantees is estimated to be approximately the fees charged for these arrangements.
FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 22 - Fair Value of Financial Instruments - Continued
The estimated fair values of the Company's financial instruments as of December 31, 2004 and 2003 are as follows:
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FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 23 - Condensed Parent Company Information
Statements of Financial Condition
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FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 23 - Condensed Parent Company Information - Continued
Statements of Income
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FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 23 - Condensed Parent Company Information - Continued
Statements of Cash Flows
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FLORIDA COMMUNITY BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 24 - Quarterly Results of Operations (Unaudited)
Selected quarterly results of operations for the four quarters ended December 31 are as follows:
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Management of the Company, with the participation and under the supervision of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this annual report. Based on this evaluation the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective as of the end of the period covered by this annual report to provide reasonable assurance that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's rules and forms. A controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls are met, and no evaluation of controls can provide absolute assurance that all controls and instances of fraud, if any, within a company have been detected.
Management Report On Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
o Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
o Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
o Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2004. In making this assessment, the Company's management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework.
Based on our assessment, management believes that, as of December 31, 2004, the Company's internal control over financial reporting is effective based on those criteria.
The Company's independent auditors have issued an audit report on our assessment of the Company's internal control over financial reporting. This report appears in Part II, Item 8 of this report.
There was no change in the Company's internal control over financial reporting that occurred during the Company's most recently completed fiscal quarter that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
The Company did not fail to file any Form 8-K to disclose any information required to be disclosed therein during the fourth quarter of 2004.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information appearing under the headings "ELECTION OF DIRECTORS," "BOARD OF DIRECTORS" and "COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934" on pages 3 to 6 and 14 in the Proxy Statement (the "2005 Proxy Statement") relating to the annual meeting of shareholders of the Company, scheduled to be held on April 21, 2005, is incorporated herein by reference. On March 3, 2003, the Company adopted a Code of Ethic applicable to Chief Financial Officer and its Chief Executive Officer.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the headings "EXECUTIVE COMPENSATION" and "EMPLOYEE BENEFITS" on pages 7 to 13 of the 2005 Proxy Statement is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under the heading "ELECTION OF DIRECTORS" on pages 3 to 5 of the 2005 Proxy Statement and from Item 5 above is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the heading "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" on pages 13 to 14 of the 2005 Proxy Statement is incorporated herein by reference.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees The aggregate fees billed for professional services by Schauer Taylor in connection with the audit of the annual financial statements and the reviews of the financial statements included in the Company's quarterly filings with the Securities and Exchange Commission for the fiscal years ended December 31, 2004 and 2003, were $64,501 and $75,200, respectively.
Audit-Related Fees: In 2004 and 2003, Schauer Taylor also billed the Company $92,997 and $59,230, respectively, for fees reasonably related to the performance of its audit and reviews of financial statements. Such fees included travel and miscellaneous related fees.
Tax Fees: In 2004 and 2003, Schauer Taylor also billed the Company $11,550 and $12,800, respectively, for tax compliance and advice, including the preparation of the Company's corporate tax returns.
In all instances, Schauer Taylor's performance of those services was pre-approved by the Company's Audit Committee.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(a) 1. Financial Statements.
The following consolidated financial statements are located in Item 8 of this Report:
Report of Independent Registered Public Accounting Firm Consolidated Statements of Financial Condition as of December 31, 2004 and 2003 Consolidated Statements of Income for the Years Ended December 31, 2004, 2003 and 2002 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2004, 2003 and 2002 Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002 Notes to Consolidated Financial Statements Quarterly Results (Unaudited)
2. Financial Statement Schedules.
Schedules to the consolidated financial statements are omitted, as the required information is not applicable.
3. Exhibits.
The following exhibits are filed or incorporated by reference as part of this Report:
* The referenced exhibit is a compensatory contract, plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FLORIDA COMMUNITY BANKS, INC.
Date: March 15, 2005 By: /s/ Stephen L. Price -------------------------------------------- Stephen L. Price Chairman and Chief Executive Officer
Date: March 15, 2005 By: /s/ Guy W. Harris -------------------------------------------- Guy W. Harris Chief Financial Officer
EXHIBIT INDEX
The following exhibits are filed as part of this report (in addition to those exhibits listed in Item 15 which are filed as a part of this report and incorporated by reference):
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Florida Community Banks, Inc. Computation of Net Income Per Common Share
The following tabulation presents the calculation of basic and diluted earnings per common share for the years ended December 31, 2004, 2003 and 2002.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIOS
Florida Community Banks, Inc. Computation of Ratio of Earnings to Fixed Charges
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
Subsidiaries - Direct/Wholly-owned State of Incorporation
Florida Community Bank Florida
FCBI Capital Trust I Delaware
EXIHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Stephen L. Price, certify that:
1. I have reviewed this annual report on Form 10-K of Florida Community Banks, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth quarter that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 15, 2005 By: /s/ Stephen L. Price ------------------------------------------------------- Stephen L. Price, President, Chief Executive Officer and Chairman of the Board of Directors
EXIHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Guy W. Harris, certify that:
1. I have reviewed this annual report on Form 10-K of Florida Community Banks, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth quarter that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 15, 2005 By: /s/ Guy W. Harris ----------------------------------------------------- Guy W. Harris Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with Florida Community Banks, Inc.'s ("Company") Annual Report on Form 10-K for the period ended December 31, 2004 ("Report"), each of the undersigned certify that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 15, 2005 By: /s/ Stephen L. Price ------------------------------------------- Stephen L. Price President and Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with Florida Community Banks, Inc.'s ("Company") Annual Report on Form 10-K for the period ended December 31, 2004 ("Report"), each of the undersigned certify that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 15, 2005 By: /s/ Guy W. Harris ------------------------------------------- Guy W. Harris Chief Financial Officer
EXHIBIT 24 - POWER OF ATTORNEY
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stephen L. Price and Guy W. Harris and each of them, his true and lawful attorney-in-fact, as agent with full power of substitution and re-substitution for him and in his name, place and stead, in any and all capacity, to sign any or all amendments to this Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Federal Deposit Insurance Corporation, granting unto said attorney-in-fact and agents in full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as they might or could be in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in capacities and on the dates indicated.