<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-24683
FLORIDA BANKS, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 58-2364573
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5210 BELFORT ROAD, SUITE 310
JACKSONVILLE, FL
32256
(Address of principal executive offices)
(904) 332-7772
(Registrant's telephone number, including area code)
SUITE 212, SOUTHPOINT SQUARE II
4110 SOUTHPOINT BOULEVARD
JACKSONVILLE, FL 32216-0925
(Former address since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Title Outstanding
COMMON STOCK, $.01 PAR VALUE OUTSTANDING AT MARCH 31, 1999
PER SHARE 5,852,756
<PAGE> 2
ITEM 1. FINANCIAL STATEMENTS
FLORIDA BANKS, INC.
CONDENSED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 4,993,851 $ 4,295,139
FEDERAL FUNDS SOLD AND REPURCHASE AGREEMENTS PURCHASED 20,620,000 16,650,000
------------- -------------
Total cash and cash equivalents 25,613,851 20,945,139
INVESTMENT SECURITIES:
Available for sale, at fair value (cost $31,419,394 and $21,968,826
at March 31, 1999 and December 31, 1998, respectively) 31,333,212 21,949,929
Other investments 738,650 291,850
LOANS:
Commercial real estate 33,216,984 25,325,557
Commercial 39,479,438 33,103,488
Residential mortgage 6,675,499 6,046,666
Consumer 3,532,075 2,020,954
Credit card and other loans 976,818 796,120
------------- -------------
Total loans 83,880,814 67,292,785
Allowance for loan losses (1,142,266) (1,073,346)
Net deferred loan fees (174,219) (162,334)
------------- -------------
Net loans 82,564,329 66,057,105
PREMISES AND EQUIPMENT, NET 904,070 822,283
ACCRUED INTEREST RECEIVABLE 700,581 478,700
DEFERRED INCOME TAXES, NET 3,066,724 2,893,078
OTHER ASSETS 163,608 128,086
------------- -------------
TOTAL ASSETS $ 145,085,025 $ 113,566,170
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing demand $ 14,860,958 $ 11,840,430
Interest-bearing demand 3,122,328 3,913,509
Regular savings 19,295,064 17,910,355
Money market accounts 2,779,771 1,340,779
Time $100,000 and over 17,242,073 9,549,263
Other time 26,138,084 20,066,271
------------- -------------
Total deposits 83,438,278 64,620,607
REPURCHASE AGREEMENTS SOLD 18,559,509 5,668,664
OTHER BORROWED FUNDS 291,237 49,813
ACCRUED INTEREST PAYABLE 290,615 218,897
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 184,008 420,340
------------- -------------
Total liabilities 102,763,647 70,978,321
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 30,000,000 shares authorized; 5,852,756, outstanding 58,528 58,528
Additional paid-in capital 46,209,114 46,209,114
Warrants 164,832 164,832
Retained earnings (accumulated deficit) (deficit of $8,434,037
eliminated upon quasi-reorganization on December 31, 1995) (4,057,663) (3,832,909)
Accumulated other comprehensive loss, net of tax (53,433) (11,716)
------------- -------------
Total shareholders' equity 42,321,378 42,587,849
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 145,085,025 $ 113,566,170
============= =============
</TABLE>
See notes to condensed financial statements.
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<PAGE> 3
FLORIDA BANKS, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Month Period Ended
March 31,
1999 1998
<S> <C> <C>
INTEREST INCOME:
Loans, including fees $ 1,610,461 $ 807,818
Investment securities 431,526 162,716
Federal funds sold 84,774 96,289
----------- ----------
Total interest income 2,126,761 1,066,823
----------- ----------
INTEREST EXPENSE:
Deposits 700,364 509,486
Repurchase agreements 112,730 60,702
Borrowed funds 19,109 24,715
----------- ----------
Total interest expense 832,203 594,903
----------- ----------
NET INTEREST INCOME 1,294,558 471,920
PROVISION FOR LOAN LOSSES 65,000 15,000
----------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,229,558 456,920
----------- ----------
NONINTEREST INCOME:
Service fees 97,035 94,963
Gain on sale of loans -- 19,709
Gain on sale of securities -- 8,197
Other noninterest income 18,669 29,363
----------- ----------
115,704 152,232
----------- ----------
NONINTEREST EXPENSES:
Salaries and benefits 1,141,682 299,870
Occupancy and equipment 146,937 75,710
Data processing 39,997 25,465
Other 378,783 124,583
----------- ----------
1,707,399 525,628
----------- ----------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES (362,137) 83,524
PROVISION (BENEFIT) FOR
INCOME TAX EXPENSES (137,383) 31,739
----------- ----------
NET INCOME (LOSS) $ (224,754) $ 51,785
=========== ==========
EARNINGS (LOSS) PER SHARE:
Basic $ (0.04) $ 0.04
=========== ==========
Diluted N/A $ 0.04
==========
</TABLE>
See notes to condensed financial statements.
- 3 -
<PAGE> 4
FLORIDA BANKS, INC.
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
WARRANTS RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL TO ACQUIRE EARNINGS
--------------------- --------------------- PAID-IN COMMON (ACCUMULATED
SHARES PAR VALUE SHARES PAR VALUE CAPITAL STOCK DEFICIT)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 1,215,194 $ 12,152 $ 5,537,966 $ 759,707
Comprehensive Income
Net Income (4,592,616)
Unrealized loss on available for
sale investment securities, net
of tax of $7,180
---------- -------- --------- -------- ------------ -------- ------------
Comprehensive income (4,592,616)
Issuance of common stock, net 4,100,000 41,000 37,351,948
Exercise of stock options 159,806 1,598 238,402
Income tax benefit resulting from
the exercise of stock options 118,265
Issuance of common stock to founders 297,000 2,970 2,155,748
Issuance of units 80,800 808 807,192 164,832
Issuance of preferred stock 60,600 $606,000
Redemption of preferred stock (60,600) (606,000)
Purchase of fractional shares (44) (407)
---------- -------- --------- -------- ------------ -------- ------------
BALANCE, DECEMBER 31, 1998 5,852,756 58,528 46,209,114 164,832 (3,832,909)
Comprehensive Income:
Net Income (224,754)
Unrealized gain on available for sale
investment securities, net of tax
Comprehensive income (224,754)
---------- -------- --------- -------- ------------ -------- ------------
BALANCE, MARCH 31, 1999
(UNAUDITED) $ 5,852,756 $ 58,528 $ 46,209,114 $164,832 $ (4,057,663)
========== ======== ========= ======== ============ ======== ============
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
NET OF TAX TOTAL
<S> <C> <C>
BALANCE, DECEMBER 31, 1997 $ 3,780 $ 6,313,605
Comprehensive Income
Net Income (4,592,616)
Unrealized loss on available for
sale investment securities, net
of tax of $7,180 (15,496) (15,496)
--------- ------------
Comprehensive income (15,496) (4,608,112)
Issuance of common stock, net 37,392,948
Exercise of stock options 240,000
Income tax benefit resulting from
the exercise of stock options 118,265
Issuance of common stock to founders 2,158,718
Issuance of units 972,832
Issuance of preferred stock 606,000
Redemption of preferred stock (606,000)
Purchase of fractional shares (407)
--------- ------------
BALANCE, DECEMBER 31, 1998 (11,716) 42,587,849
Comprehensive Income:
Net Income (224,754)
Unrealized gain on available for sale
investment securities, net of tax (41,717) (41,717)
--------- ------------
Comprehensive income (41,717) (266,471)
--------- ------------
BALANCE, MARCH 31, 1999
(UNAUDITED) $ (53,433) $ 42,321,378
========= ============
</TABLE>
See notes to condensed financial statements.
- 4 -
<PAGE> 5
FLORIDA BANKS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
March 31,
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (224,754) $ 51,785
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 55,570 31,587
Deferred income (benefit) taxes (137,383) 31,739
Gain on sale of securities (8,197)
Amortization of premiums on investments, net (22,359) (21,048)
Provision for loan losses 65,000 15,000
Increase in accrued interest receivable (221,881) (13,192)
Increase (decrease) in accrued interest payable 71,718 (24,175)
(Increase) decrease in other assets (35,522) 24,844
Decrease in other liabilities (236,332) (36,797)
------------ ------------
Net cash (used in) provided by operating activities (685,943) 51,546
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sales, paydowns and maturities of investment securities:
Available for sale 6,061,096 3,716,159
Other 28,600
Purchases of investment securities:
Available for sale (15,500,000) (4,512,985)
Other investments (446,800) (7,400)
Net increase in loans (16,572,224) (2,371,590)
Purchases of premises and equipment (137,357) (53,583)
------------ ------------
Net cash used in investing activities (26,595,285) (3,200,799)
------------ ------------
FINANCING ACTIVITIES:
Net increase in demand deposits,
money market accounts and savings accounts 5,053,048 183,352
Net increase (decrease) in time deposits 13,764,623 (429,092)
Increase in repurchase agreements 12,890,845 2,052,744
Increase (decrease) in other borrowed funds 241,424 (2,041)
------------ ------------
Net cash provided by financing activities 31,949,940 1,804,963
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 4,668,712 (1,344,290)
CASH AND CASH EQUIVALENTS:
Beginning of period 20,945,139 13,033,211
------------ ------------
End of period $ 25,613,851 $ 11,688,921
============ ============
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
Cash paid for interest $ 760,485 $ 619,078
============ ============
</TABLE>
See notes to condensed financial statements.
- 5 -
<PAGE> 6
FLORIDA BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1999 AND 1998 (UNAUDITED)
1. BASIS OF PRESENTATION
Florida Banks, Inc. (the "Company") was incorporated on October 15, 1997
for the purpose of becoming a bank holding company and acquiring First
National Bank of Tampa (the "Bank"). On August 4, 1998, the Company
completed its initial public offering and its merger (the "Merger") with
the Bank pursuant to which the Bank was merged with and into Florida Bank
No. 1, N.A., a wholly-owned subsidiary of the Company, and renamed Florida
Bank, N.A. Shareholders of the Bank received 1,375,000 shares of common
stock of the Company valued at $13,750,000. The Merger was considered a
reverse acquisition for accounting purposes, with the Bank identified as
the accounting acquiror. The Merger has been accounted for as a purchase,
but no goodwill has been recorded in the Merger and the financial
statements of the Bank have become the historical financial statements of
the Company.
The number of shares of common stock, the par value of common stock and
per share amounts have been restated to reflect the shares exchanged in
the Merger.
The condensed financial statements have been prepared in accordance with
the rules and regulations of the Securities and Exchange Commission
related to interim financial statements. These unaudited condensed
financial statements do not include all disclosures provided in the annual
financial statements. The condensed financial statements should be read in
conjunction with the financial statements and notes thereto contained in
the Company's Annual Report on Form 10-K for the year ended December 31,
1998 as filed with the Securities and Exchange Commission. All adjustments
of a normal recurring nature which, in the opinion of management, are
necessary to fairly present the results of the interim periods have been
made. Results of operations for the three month period ended March 31,
1999, are not necessarily indicative of the results to be expected for the
full year.
The consolidated financial statements include the accounts of the Company
and the Bank. All significant intercompany balances and transactions have
been eliminated in consolidation.
2. NON-RECURRING EXPENSES
The Company incurred a non-recurring non-cash, charge of $3,939,054
related to the February 3, 1998 sale of common stock and warrants included
in the Units sold to foreign investors and the February 11, 1998 sale of
the 297,000 shares of common stock to 14 officers, directors, and
consultants. The Company recorded such non-cash compensation expense and
financing costs measured as the difference between the fair value of
common stock, based upon the initial public offering price of $10.00 per
share, and the sale price or allocated proceeds of $.01 per share. These
non-cash charges were recorded with a corresponding increase in additional
paid-in capital and therefore had no effect on the Company's total
shareholders' equity or book value.
- 6 -
<PAGE> 7
FLORIDA BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1999 AND 1998 (UNAUDITED) (CONTINUED)
3. SHAREHOLDERS' EQUITY
On February 3, 1998, the Company sold 101 Units to accredited foreign
investors. Each Unit was comprised of (i) 600 shares of Series A Preferred
Stock, (ii) 800 shares of Common Stock, and (iii) Warrants to purchase 800
shares of Common Stock at the initial public offering price, at the price
of $6,008 per Unit. The net proceeds to the Company from this private
placement was approximately $600,000. The Series A Preferred Stock was
valued at its redemption value of $606,000. The Company redeemed the
Series A Preferred Stock at a redemption price of $10.00 per share using a
portion of the proceeds from the initial public offering. The Company
recorded a nonrecurring noncash charge of $972,000 relating to the
issuance of the Common Stock and Warrants, with a corresponding increase
to shareholders' equity. Financing costs relating to the Common Stock have
been measured as the difference between the fair value of the Common
Stock, based on the initial public offering price of $10.00 per share, and
the allocated proceeds of $.01 per share. The Warrants have been valued at
an aggregate price of $164,832 or $2.04 per share, as determined by an
independent appraisal. The proceeds from the issuance of such Units
provided funding for the Company's development stage operations.
On August 4, 1998, the Company completed its initial public offering of
4,000,000 shares at an offering price of $10.00 per share and completed
its Merger with the Bank. See Note 1.
On September 1, 1998, the Underwriters exercised a portion of their
over-allotment and purchased an additional 100,000 shares of the Company's
common stock, $.01 par value per share, at a price of $10.00 per share,
less underwriting discounts and commissions.
4. EARNINGS PER SHARE
The following is a reconciliation of the denominator used in the
computation of basic and diluted earnings per common share.
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
March 31,
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
Weighted average number of common
shares outstanding - Basic 5,852,756 1,215,194
Incremental shares from the assumed
conversion of stock options - 103,767
--------- ---------
Total - Diluted 5,852,756 1,318,961
========= =========
</TABLE>
- 7 -
<PAGE> 8
FLORIDA BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1999 AND 1998 (UNAUDITED) (CONTINUED)
The incremental shares from the assumed conversion of stock options were
determined using the treasury stock method under which the assumed
proceeds were equal to (1) the amount that the Bank would receive upon the
exercise of the options plus (2) the amount of tax benefit that would be
credited to additional paid-in capital assuming exercise of the options.
The assumed proceeds are used to purchase outstanding common shares at an
assumed fair value equal to the Bank's average book value per common share
for March of 1998 as the Bank's stock was not actively traded and limited
trades during the first quarter of 1998 indicated that book value was a
reasonable estimate of fair value.
- 8 -
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the financial
statements and related notes appearing elsewhere in this Form 10-Q.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
The Company's net income for the first quarter of 1999 decreased $(277,000) to a
net loss of $(225,000) for the three month period ending March 31, 1999, from
net income of $52,000 for the three month period ended March 31, 1998. Basic
earnings per share for the first quarter of 1999 was a loss of $(.04) compared
to basic and diluted earnings per share of $.04 and $.04, respectively, for the
first quarter of 1998. The increase in the loss can be primarily attributed to
the cost associated with the opening of the Alachua County (Gainesville) banking
office.
The increase in net interest income of $823,000 or 174.3%, to $1.3 million for
the first quarter of 1999 compared to $472,000 the first quarter in 1998,
consists of an increase in interest income of $1.1 million, or 99.4%, and an
increase in interest expense of $237,000, or 39.9%. The increase in interest
income of $1.1 million in the first quarter of 1999 is primarily attributable to
an increase of $803,000 in interest and fees on loans resulting from the growth
in the loan portfolio.
The provision for loan losses charged to operations increased $50,000 to $65,000
for the first quarter of 1999 from $15,000 in the first quarter of 1998. This
increase represents the additional reserves resulting from new loan growth.
Non-interest income decreased 24.0% or $37,000 to $116,000 for the three months
ended March 31, 1999 from $152,000 for the three months ended March 31, 1998.
The decrease in non-interest income primarily resulted from a reduction in the
gains on sales of loans to $0 at March 31, 1999 from $20,000 at March 31, 1998
and a reduction in the gain on sale of securities to $0 at March 31, 1999 from
$8,000 at March 31, 1998. The reduction in gains on sale of loans resulted from
a reduction in the origination of SBA guaranteed loans which are generally sold
shortly after closing. The gain on sale of securities for the period ended March
31, 1998 resulted from the restructuring of the portfolio. Other non-interest
income decreased $11,000, or 36.4%, to $19,000 for the three months ended March
31, 1999 from $29,000 for the three months ended March 31, 1998. This reduction
resulted primarily from a reduction in factoring income, a service which the
Company is not currently offering.
Non-interest expense increased $1.2 million, or 224.8%, to $1.7 million for the
three month period ended March 31, 1999 compared to $526,000 for the three month
period ended March 31, 1998. The increase in non-interest expense resulted
primarily from increases in salaries and benefits, occupancy and equipment, and
other expenses. Salaries and benefits expenses increased $842,000 to $1.1
million for the first quarter of 1999 compared to $300,000 for the first quarter
of 1998. This increase is the result of additional staff associated with the new
banking offices and the addition of the management staff of the Company.
The increase in occupancy and equipment expense of $71,000, or 94.1%, resulted
from the additional leased space for the Jacksonville banking office and startup
costs for the Alachua County banking office, and from additional depreciation
and maintenance expenses resulting from the purchase of additional furniture and
computer equipment. Data processing expenses increased $15,000 or 57.1% to
$40,000 for the three months ended March 31, 1999 as compared to $25,000 for the
same period in 1998. This increase resulted from the conversion and
implementation of several new products and the additional
- 9 -
<PAGE> 10
processing expenses for the Company and the Alachua County banking office. Other
expenses increased $254,000, or 204.0% to $379,000 for the first quarter of 1999
compared to $125,000 for the first quarter of 1998. This increase is primarily
attributable to the additional operating expenses of the Jacksonville and
Alachua County banking offices and the supporting operations. Specific
operational expenses which increased were accounting and other professional
fees, shareholder relations expenses, travel expenses and expenses associated
with communications and computer network installations.
A benefit for income taxes of $137,000 was recognized for the three month period
ended March 31, 1999 as compared to a provision for income taxes of $32,000 for
the three months ended March 31, 1998. The benefit for income taxes and
provision for income taxes of $(137,000) for the first quarter of 1999 and of
$38,000 for the first quarter of 1998 represents an estimated effective annual
tax rate of 38%.
FINANCIAL CONDITION
Total assets at March 31, 1999 were $145.1 million, an increase of $31.5
million, or 27.8%, from $113.6 million at December 31, 1998. The increase in
total assets primarily resulted from the investment of new deposit growth and
other borrowed funds in loan and investment securities. Federal Funds sold
increased $1.7 million, or 25.1%, to $8.7 million at March 31, 1999 as compared
to $7.0 million at December 31, 1998. Repurchase agreements purchased increased
$2.2 million, or 22.9%, to $11.9 million at March 31, 1999 as compared to $9.7
million at December 31, 1998. These assets represent short-term reserves for
future funding of loan growth. Investment securities increased $9.8 million, or
44.2%, to $32.1 million from $22.2 million at December 31, 1998. The increase in
investment securities reflects investment of the excess proceeds of the August
4, 1998 public offering reserved for future capitalization of the Bank and the
funding of loan growth.
Total loans increased $16.6 million, or 24.7%, to $83.9 million at March 31,
1999, from $67.3 million at December 31, 1998. The increase in total loans was
funded by increases in depository accounts. The allowance for loan losses
increased $69,000, or 6.4%, for the first quarter of 1999. The increase resulted
from recoveries of previously charged-off loans of $4,000 and additional
provisions of $65,000 during the three month period ended 1999. The allowance
for loan losses as a percentage of total loans decreased from 1.60% at December
31, 1998 to 1.36% at March 31, 1999. Management believes that such allowance for
loan losses is sufficient to cover estimated losses in the Bank's loan
portfolio.
Deposits increased $18.8 million, or 29.1%, to $83.4 million at March 31, 1999
from $64.6 million at December 31, 1998. The increase in total deposits resulted
from an increase of $3.0 million or 25.5% in non-interest deposits, an increase
of $1.4 million or 107.3% in money market deposits, offset by a decrease of
$791,000, or 20.2%, in interest-bearing demand deposits, an increase of $1.4
million, or 7.7%, in savings deposits, and an increase of $13.8 million, or
46.5%, in total time deposits. Time deposits often fluctuate in response to
interest rate changes and can vary rather significantly on a quarterly basis.
The increase and decrease in non-interest and interest-bearing demand deposits
reflects the normal seasonal fluctuations for these types of accounts.
Shareholders' equity decreased by $266,000 to $42.3 million at March 31 1999,
from $42.6 million at December 31, 1998. This decrease is primarily the result
of operating losses from the opening of the Alachua County banking office.
Non-accrual loans decreased to $686,000 at March 31, 1999, compared to $725,000
at December 31, 1998. The decrease is the result of a pay-down of the guaranteed
portion on an SBA guaranteed loan.
- 10 -
<PAGE> 11
LIQUIDITY
The Company, through its wholly-owned subsidiary, the Bank, has traditionally
maintained levels of liquidity above levels required by regulatory authorities.
The Bank's operational needs, demand for loan disbursements, and savings
withdrawals can be met by loan principal and interest payments received, new
deposits, and excess liquid assets. Significant loan demand, deposit withdrawal,
increased delinquencies and increased real estate acquired in settlement of
loans could alter this condition. Management does not anticipate any events
which would require liquidity beyond that which is available through deposit
growth, Federal Funds balances, or investment portfolio maturities.
Liquidity and Sources of Capital
Liquidity is the Company's ability to meet all deposit withdrawals immediately,
while also providing for the credit needs of customers. The March 31, 1999
financial statements evidence a satisfactory liquidity position as total cash
and cash equivalents amounted to $25.6 million, representing 17.7% of total
assets. Investment securities amounted to $32.1 million, representing 22.1% of
total assets. These securities provide a secondary source of liquidity since
they can be converted into cash in a timely manner. The Company's ability to
maintain and expand its deposit base and borrowing capabilities are also a
source of liquidity. For the three-month period ended March 31, 1999, total
deposits increased from $64.6 million at December 31, 1998 to $83.4 million,
representing an increase of 29.1%. There can be no assurance that the Company
will be able to maintain this level of growth. The Company's management closely
monitors and maintains appropriate levels of interest earning assets and
interest bearing liabilities so that maturities of assets are such that adequate
funds are provided to meet customer withdrawals and loan demand. There are no
trends, demands, commitments, events or uncertainties that will result in, or
are reasonably likely to result in, the Company's liquidity increasing or
decreasing in any material way.
Management is committed to maintaining capital at a level sufficient to protect
depositors, provide for reasonable growth, and fully comply with all regulatory
requirements. Management's strategy to achieve this goal is to retain sufficient
earnings while providing a reasonable return on equity.
The table below illustrates the Company's regulatory capital ratios at March 31,
1999:
<TABLE>
<CAPTION>
Minimum
March 31, regulatory
1999 requirement
-------------------------------
<S> <C> <C>
Tier 1 Capital 46.82% 4.00%
===== ====
Total risk-based capital ratio 45.51% 8.00%
===== ====
Leverage ratio 33.46% 3.00%
===== ====
</TABLE>
Note that with respect to the leverage ratio, the OCC expects a minimum of 5.0
percent to 6.0 percent ratio for banks that are not rated CAMEL 1. Although the
Bank is not rated CAMEL 1, its leverage ratio of 33.46% is well above the
required minimum.
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<PAGE> 12
YEAR 2000 COMPLIANCE DISCLOSURE
As the year 2000 ("Year 2000") approaches, an important business issue has
emerged regarding existing application software programs and operating systems.
Many existing application software products, including the Bank's, were designed
to accommodate a two-digit year. For example, "99" is stored on the system and
represents 1999 and "00" represents 1900. The Bank primarily utilizes M&I Data
Services, Inc. ("M&I"), a third-party vendor, to provide its primary banking
applications, including core processing systems. In addition, the Bank also uses
M&I's software for certain ancillary computer applications. M&I has committed
substantial resources in the process of modifying, upgrading or replacing its
computer applications to ensure timely Year 2000 compliance. M&I has notified
the Bank that it has successfully completed the conversion of its banking
systems to a Year 2000-ready platform. Prior to the actual conversion, both the
Bank and M&I conducted comprehensive awareness, assessment, renovation, and
testing phases as part of their respective Year 2000 projects. Each of these
phases helped both organizations ensure that that they understood the scope of
the Year 2000 impact on their day-to-day business. In August 1998, M&I Data
Services' Year 2000 Outsourcing Solution, the Bank's core processing systems,
was certified by the Information Technology of America (ITAA). ITAA 2000 is the
banking industry's century date change certification program. The program
examines processes and methods used by companies to perform their Year 2000
software conversion. M&I Data Services has provided all upgrades, modifications
and systems enhancements to the Bank in accordance with its data processing
agreement and without additional costs to the Bank.
In addition to its core processing systems, the Company and the Bank have
implemented a Year 2000 compliance program whereby the Bank is reviewing the
Year 2000 issues that may be faced by its other third-party vendors and loan and
deposit customers. Under such program, the Company will examine the need for
modifications or replacement of all non-Year 2000 compliant pieces of software.
This process is ongoing. However, to date, the Bank has not identified any
mission critical software systems that are not Year 2000 compliant or in the
process of being modified for compliance. Within the last twelve months, the
Bank has made a physical inventory of its computer and other hardware and
equipment to determine if such hardware is Year 2000 compliant. As part of this
process, the Company and the Bank have replaced certain equipment and hardware
at a cost of approximately $34,000. Management of the Company does not currently
expect that the cost of its and the Bank's Year 2000 compliance program will be
material for the remainder of 1999.
An area of concern by the Company, Bank and its primary regulator, the Office of
the Comptroller of the Currency, Administrator of National Banks is the effect
of Year 2000 issues on its deposit and loan customers. Failure to address Year
2000 related issues could have significant impact on the ability of certain
customers of the Bank to continue operations. The Bank's loan portfolio could be
negatively impacted if customers are unable to honor loan agreements and
defaults occur as a result of failure to address Year 2000 issues. In February
of 1998, the Bank conducted a review of all loan relationships in excess of
$25,000 to determine the potential effect of Year 2000 issues on the customers
systems. The primary focus of this review was a determination of the readiness
of the customer to address Year 2000 problems and the effect of such readiness
on the customer's ability to repay loans. Management identified a small number
of customers which could be potentially be affected by Year 2000 issues, and has
addressed the Bank's concern with these customers. Continued monitoring of these
customer relationships will be made to ensure that the necessary modifications
to systems will be made on a timely basis. In addition, the Bank now reviews
Year 2000 related issues, as part of its normal underwriting criteria and loan
approval process. The Bank also includes Year 2000 compliance requirements and
covenants requiring compliance within its standard loan agreements. Although the
Company and Bank have taken extensive steps to address Year 2000 customer
related issues, there can be no assurance that these customers will be Year 2000
compliant. Failure of certain customers to adequately address these issues could
result in loan defaults which would negatively impact the Company's earnings.
- 12 -
<PAGE> 13
The Company believes that its mission critical systems are currently Year 2000
compliant and expects that it will complete its compliance program without
material disruption of its operations. Management of the Company has also
evaluated the potential effect on M&I's data processing systems should events
beyond M&I's control such as power and communications failures occur as a result
of Year 2000 issues. In addition, the Bank's internal systems could fail as a
result of undetected system or software errors or failure of certain
infrastructure which is beyond the control of the Bank. The Bank has prepared a
Year 2000 Contingency Strategy and Policy (the "Plan") to address the various
recovery solutions for Year 2000-related issues, which may arise from the most
likely Year 2000 scenarios, based on current available information. The Plan
identifies and classifies areas within the organization which could potentially
be affected by Year 2000 issues. The identified areas are assigned a status of
Mission Critical, Long-Term Mission Critical, or Non-Mission Critical. Based on
these classifications, contingency plans are prepared to provide at least a
minimum acceptable level of service on an ongoing basis to the Bank's customers.
An outside consultant has reviewed the Company's Plan and testing on mission
critical functions and has noted no material weaknesses in the Company's Year
2000 readiness efforts.
Although the Company and Bank have taken extensive steps to address Year 2000
related issues, there can be no assurance that all necessary modifications will
be identified and corrected or that unforeseen difficulties or costs will not
arise. In addition, there can be no assurance that the failure of the Bank's
internal systems or the systems provided by M&I or other companies on which the
Company's systems rely will not negatively impact the Company's systems or
operations.
CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis contains various "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs concerning future
events, including, but not limited to, statements regarding growth in sales of
the Company's products, profit margins and the sufficiency of the Company's cash
flow for its future liquidity and capital resource needs. These forward looking
statements are further qualified by important factors that could cause actual
results to differ materially from those in the forward looking statements.
Item 3. Changes in Information About Market Risk
Not Applicable.
Part II. Other Information
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities
No disclosure required.
Item 3. Defaults Upon Senior Securities
No disclosure required.
- 13 -
<PAGE> 14
Item 4. Submission of Matters to a Vote of Security Holders
No disclosure required.
Item 5. Other Information
No disclosure required.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibit is filed with this Report.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K. No report on Form 8-K was filed during the
quarter ended March 31, 1999.
- 14 -
<PAGE> 15
SIGNATURES
Pursuant to the requirements 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 Banks, Inc.
Date: May 12, 1999 By: /s/ Charles E. Hughes, Jr.
-------------------------------------
Charles E. Hughes, Jr.
President and Chief Executive Officer
Date: May 12, 1999 By: /s/ T. Edwin Stinson, Jr.
-------------------------------------
T. Edwin Stinson, Jr.
Chief Financial Officer
- 15 -
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF FLORIDA BANKS, INC. FOR THE THREE
MONTH PERIOD FROM JANUARY 1, 1999 THROUGH MARCH 31, 1999, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,993,851
<INT-BEARING-DEPOSITS> 11,925,000
<FED-FUNDS-SOLD> 8,695,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,333,212
<INVESTMENTS-CARRYING> 738,650
<INVESTMENTS-MARKET> 0
<LOANS> 83,880,814
<ALLOWANCE> 1,142,266
<TOTAL-ASSETS> 145,085,025
<DEPOSITS> 83,438,278
<SHORT-TERM> 19,325,369
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
0
<COMMON> 58,528
<OTHER-SE> 42,262,850
<TOTAL-LIABILITIES-AND-EQUITY> 42,321,378
<INTEREST-LOAN> 1,610,461
<INTEREST-INVEST> 431,526
<INTEREST-OTHER> 84,774
<INTEREST-TOTAL> 2,126,761
<INTEREST-DEPOSIT> 700,364
<INTEREST-EXPENSE> 832,203
<INTEREST-INCOME-NET> 1,294,558
<LOAN-LOSSES> 65,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,707,399
<INCOME-PRETAX> (362,137)
<INCOME-PRE-EXTRAORDINARY> (362,137)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (224,754)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 686,249
<LOANS-PAST> 669,727
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 315,049
<ALLOWANCE-OPEN> 1,073,346
<CHARGE-OFFS> 0
<RECOVERIES> 3,920
<ALLOWANCE-CLOSE> 1,142,266
<ALLOWANCE-DOMESTIC> 1,142,266
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
