| In addition to the other information set forth elsewhere in this Report, the following factors relating to us and our common stock should be carefully considered in deciding whether to invest in our common stock |
| Though we turned profitable in the second quarter of 2005, we have incurred cumulative operating losses since we commenced operations and may continue to incur losses in the future Since we commenced our operations on August 24, 1999, we have incurred an accumulated deficit of approximately dlra6dtta9 million |
| This deficit is primarily due to the costs of establishing our business strategy, which included opening Bank of Florida – Southwest, Bank of Florida Trust Company, Bank of Florida in Fort Lauderdale and Bank of Florida – Tampa Bay, and the continuing expansion of our banking activities in our markets, as well as the impact of historically low interest rates and other factors |
| We may charter additional banks in the future |
| A newly formed bank is typically expected to incur operating losses in its early periods of operations because of an inability to generate sufficient net interest income to cover operating expenses |
| Those operating losses can be significant and can occur for longer periods than planned, depending on the new bank’s ability to control operating expenses and generate net interest income |
| There is a risk that losses at our new subsidiaries may exceed profits at our existing subsidiaries |
| We may encounter unexpected financial and operating problems due to our rapid growth We have grown significantly since we opened our first bank subsidiary, Bank of Florida – Southwest, in 1999 |
| Our total assets have grown to approximately dlra569dtta8 million as of December 31, 2005 |
| Our rapid growth may result in unexpected financial and operating problems, including problems in our loan portfolio due to its unseasoned nature, and turnover or rapid increases in members of management and staff, which may affect the value of our shares |
| The addition of our new bank in Tampa and our Boca Raton office may add additional pressures to our internal control systems, and our financial and operating success will depend in large part on our success in integrating these operations |
| In addition, if our loan and asset growth continues at its current pace, it may be difficult to retain our and our subsidiaries’ “well capitalized” designations with the Federal Deposit Insurance Corporation |
| If we or our bank subsidiaries fall below being “well capitalized” to “adequately capitalized,” we may sell participations in some of our loans in order to decrease the amount of our assets |
| This could result in lower earnings due to our retaining a lower level of earning assets |
| 15 ______________________________________________________________________ [55]Table of Contents Our growth strategy may not be successful As a strategy, we have sought to increase the size of our franchise through rapid growth and by aggressively pursuing business development opportunities |
| We can provide no assurance that we will continue to be successful in increasing the volume of loans and deposits at acceptable risk levels and upon acceptable terms and expanding our asset base while managing the costs and implementation risks associated with this growth strategy |
| There can be no assurance that any further expansion will be profitable or that we will continue to be able to sustain our historical rate of growth, either through internal growth or through other successful expansions of our banking markets, or that we will be able to maintain capital sufficient to support our continued growth |
| Losses from loan defaults may exceed the allowance we establish for that purpose, which will have an adverse effect on our business If a significant number of loans are not repaid, it would have an adverse effect on our earnings and overall financial condition |
| Like all financial institutions, we maintain an allowance for loan losses to provide for losses inherent in the loan portfolio |
| The allowance for loan losses reflects our management’s best estimate of probable losses in the loan portfolio at the relevant balance sheet date |
| This evaluation is primarily based upon a review of our and the banking industry’s historical loan loss experience, known risks contained in the loan portfolio, composition and growth of the loan portfolio, and economic factors |
| However, the determination of an appropriate level of loan loss allowance is an inherently difficult process and is based on numerous assumptions |
| As a result, our allowance for loan losses may not be adequate to cover actual losses, and future provisions for loan losses may adversely affect our earnings |
| If real estate values in our target markets decline, our loan portfolio would be impaired A significant portion of our loan portfolio consists of mortgages secured by real estate located in the Collier/Lee County markets |
| We have also been generating a significant amount of real estate-secured loans in our Broward/Palm Beach County and Hillsborough County markets |
| Real estate values and real estate markets are generally affected by, among other things, changes in national, regional or local economic conditions; fluctuations in interest rates and the availability of loans to potential purchasers; changes in the tax laws and other governmental statutes, regulations and policies; and acts of nature |
| If real estate prices decline in any of these markets, the value of the real estate collateral securing our loans could be reduced |
| Such a reduction in the value of our collateral could increase the number of non-performing loans and adversely affect our financial performance |
| If we lose key employees, our business may suffer Our success is largely dependent on the personal contacts of our officers and employees in our market areas |
| If we lose key employees, temporarily or permanently, our business could be hurt |
| We could be particularly hurt if our key employees went to work for our competitors |
| Our future success depends on the continued contributions of our existing senior management personnel, including our President and Chief Executive Officer Michael L McMullan, Chief Operating Officer Martin P Mahan, and our Chief Lending Officer Craig D Sherman |
| In each of our markets, we are also dependent on the Presidents and Chief Executive Officers of our subsidiaries |
| We have entered into employment contracts with many of our key executive officers which contain standard non-competition provisions to help alleviate some of this risk |
| Our executive officers and directors have substantial control over our company, which could delay or prevent a change of control favored by our other shareholders Our executive officers and directors, if acting together, will be able to significantly influence all matters requiring approval by our shareholders, including elections of directors and the approval of mergers or other business combination transactions |
| Our executive officers and directors own approximately 902cmam000 shares, representing approximately 15prca of the total number of shares outstanding and will have vested options and warrants to acquire approximately 426cmam000 additional shares |
| The interest of these shareholders may differ from the interests of our other shareholders, and these shareholders, acting together, will be able to influence all matters requiring approval by shareholders |
| As a result, these shareholders could approve or cause us to take actions of which you may disapprove or that may be contrary to your interests and those of other investors |
| 16 ______________________________________________________________________ [56]Table of Contents Our subsidiary banks face strong competition in their market areas that may limit their asset growth and profitability Our primary market areas are the urban areas on the East and West Coasts of South Florida and the Central West Coast of Florida |
| The banking business in these areas is extremely competitive, and the level of competition facing us following our expansion plans may increase further, which may limit our asset growth and profitability |
| Each of our subsidiary banks experiences competition in both lending and attracting funds from other banks, savings institutions, and non-bank financial institutions located within its market area, many of which are significantly larger institutions |
| Non-bank competitors competing for deposits and deposit type accounts include mortgage bankers and brokers, finance companies, credit unions, securities firms, money market funds, life insurance companies and the mutual funds industry |
| For loans, we encounter competition from other banks, savings associations, finance companies, mortgage bankers and brokers, insurance companies, small loan and credit card companies, credit unions, pension trusts and securities firms |
| If adverse economic conditions in our target markets exist for a prolonged period, our financial results could be adversely affected Our success will depend in large part on economic conditions in Southeast and Southwest Florida, as well as the Tampa Bay area |
| A prolonged economic downturn or recession in these markets could increase our nonperforming assets, which would result in operating losses, impaired liquidity and the erosion of capital |
| A variety of factors could cause such an economic dislocation or recession, including adverse developments in the industries in these areas such as tourism, or natural disasters such as hurricanes, floods or tornadoes, or additional terrorist activities such as those our country experienced in September 2001 |
| Bancshares of Florida and its subsidiaries operate in an environment highly regulated by state and federal government; changes in federal and state banking laws and regulations could have a negative impact on Bancshares of Florida’s business |
| As a bank holding company, Bancshares of Florida is regulated primarily by the Federal Reserve Board |
| Our current subsidiaries are regulated primarily by the Florida Office of Financial Regulation and the Federal Deposit Insurance Corporation |
| Federal and various state laws and regulations govern numerous aspects of the banks’ operations, including: • Adequate capital and financial condition; • Permissible types and amounts of extensions of credit and investments; • Permissible non-banking activities; and • Restrictions on dividend payments |
| Federal and state regulatory agencies have extensive discretion and power to prevent or remedy unsafe or unsound practices or violations of law by banks and bank holding companies |
| Bancshares of Florida and its subsidiaries also undergo periodic examinations by one or more regulatory agencies |
| Following such examinations, Bancshares of Florida may be required, among other things, to change its asset valuations or the amounts of required loan loss allowances or to restrict its operations |
| Those actions would result from the regulators’ judgments, based on information available to them at the time of their examination |
| Regulatory action could severely limit future expansion plans To carry out some of our expansion plans, Bancshares of Florida is required to obtain permission from the Federal Reserve Board |
| Application for the formation of new banks and the acquisition of existing banks are submitted to the state and federal bank regulatory agencies for their approval |
| The future climate for regulatory approval is impossible to predict |
| Regulatory agencies could prohibit or otherwise significantly restrict the expansion plans of Bancshares of Florida, its current subsidiaries and future new start-up banks, which could limit our ability to increase revenue |
| Investors may face dilution resulting from the issuance of common stock in the future We have the power to issue common stock without shareholder approval, up to the number of authorized shares set forth in our Articles of Incorporation |
| Our Board of Directors may determine from time to time a need to obtain additional capital through the issuance of additional shares of common stock or other securities, subject to limitations imposed by Nasdaq and the Federal Reserve Board |
| There can be no assurance that such shares can be issued at prices or on terms better than or equal to the terms obtained by our current shareholders |
| The issuance of any additional shares of common stock by us in the future may result in a reduction of the book value or market price, if any, of the then-outstanding common stock |
| Issuance of additional shares of common stock will reduce the proportionate ownership and voting power of our existing shareholders |
| 17 ______________________________________________________________________ [57]Table of Contents Shares of our preferred stock may be issued in the future which could materially adversely affect the rights of the holders of our common stock Pursuant to our Articles of Incorporation, we have the authority to issue additional series of preferred stock and to determine the designations, preferences, rights and qualifications or restrictions of those shares without any further vote or action of the shareholders |
| The rights of the holders of our common stock will be subject to, and may be materially adversely affected by, the rights of the holders of any preferred stock that may be issued by us in the future |
| Our common stock is not an insured bank deposit and is subject to market risk Our shares of common stock are not deposits, savings accounts or other obligations of us, our subsidiaries or any other depository institution, are not guaranteed by us or any other entity, and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency |
| We may need additional capital in the future and this capital may not be available when needed or at all We may need to incur additional debt or equity financing in the near future to fund future growth and meet our capital needs |
| We cannot assure you that such financing will be available to us on acceptable terms or at all |
| If we are unable to obtain future financing, we may not have the resources available to fund our planned growth |
| Future sales of our common stock could depress the price of the common stock Sales of a substantial number of shares of our common stock in the public market by our shareholders, or the perception that such sales are likely to occur, could cause the market price of our common stock to decline |
| We have not paid dividends in the past and we are restricted in our ability to pay dividends to our shareholders We have not paid any cash dividends on our common stock to date and do not intend to pay cash dividends on our common stock in the foreseeable future |
| We intend to retain earnings to finance operations and the expansion of our business |
| Therefore, any gains from your investment in our common stock must come from an increase in its market price |
| In addition, we are a holding company with no independent sources of revenue and would likely rely upon cash dividends and other payments from our subsidiaries to fund any cash dividends we decided to pay to our shareholders |
| Payment of dividends by our subsidiaries may be prohibited by certain regulatory restrictions |
| There are substantial regulatory limitations on ownership of our common stock and changes of control With certain limited exceptions, federal regulations prohibit a person or company or a group of persons deemed to be “acting in concert” from, directly or indirectly, acquiring 10prca or more (5prca if the acquiror is a bank holding company) of any class of our voting stock or obtaining the ability to control in any manner the election of a majority of our directors or otherwise direct our management or our policies without prior notice or application to and the approval of the Federal Reserve Board |
| Although publicly traded, our common stock has substantially less liquidity than the average trading market for a stock quoted on the Nasdaq National Market, and our price may fluctuate in the future Although our common stock is listed for trading on the Nasdaq National Market, the trading market in our common stock has substantially less liquidity than the average trading market for companies quoted on the Nasdaq National Market |
| A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of our common stock at any given time |
| This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control |
| The market price of our common stock may fluctuate in the future, and these fluctuations may be unrelated to our performance |
| General market price declines or overall market volatility in the future could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices |