<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 June 30, 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)
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 JUNE 30, 1999
PER SHARE 5,853,756
<PAGE> 2
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FLORIDA BANKS, INC.
CONDENSED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 5,724,853 $ 4,295,139
FEDERAL FUNDS SOLD AND REPURCHASE AGREEMENTS PURCHASED 16,316,248 16,650,000
------------- -------------
Total cash and cash equivalents 22,041,101 20,945,139
INVESTMENT SECURITIES:
Available for sale, at fair value (cost $27,432,671 and $21,968,826
at June 30, 1999 and December 31, 1998, respectively) 26,781,149 21,949,929
Other investments 738,650 291,850
LOANS:
Commercial real estate 42,173,230 25,325,557
Commercial 40,348,923 33,103,488
Residential mortgage 7,487,224 6,046,666
Consumer 4,962,889 2,020,954
Credit card and other loans 1,158,776 796,120
------------- -------------
Total loans 96,131,042 67,292,785
Allowance for loan losses (762,547) (1,073,346)
Net deferred loan fees (85,525) (162,334)
------------- -------------
Net loans 95,282,970 66,057,105
PREMISES AND EQUIPMENT, NET 1,481,680 822,283
ACCRUED INTEREST RECEIVABLE 662,460 478,700
DEFERRED INCOME TAXES, NET 3,500,094 2,893,078
OTHER ASSETS 200,894 128,086
------------- -------------
TOTAL ASSETS $ 150,688,998 $ 113,566,170
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing demand $ 18,710,502 $ 11,840,430
Interest-bearing demand 4,909,805 3,913,509
Regular savings 22,281,786 17,910,355
Money market accounts 1,670,336 1,340,779
Time $100,000 and over 16,434,500 9,549,263
Other time 28,963,285 20,066,271
------------- -------------
Total deposits 92,970,214 64,620,607
REPURCHASE AGREEMENTS SOLD 12,843,750 5,668,664
OTHER BORROWED FUNDS 2,397,753 49,813
ACCRUED INTEREST PAYABLE 306,958 218,897
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 443,988 420,340
------------- -------------
Total liabilities 108,962,663 70,978,321
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 30,000,000 shares authorized; 5,853,756
and 5,852,756 shares outstanding 58,538 58,528
Additional paid-in capital 46,219,104 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) (4,309,589) (3,832,909)
Accumulated other comprehensive loss, net of tax (406,550) (11,716)
------------- -------------
Total shareholders' equity 41,726,335 42,587,849
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 150,688,998 $ 113,566,170
============= =============
</TABLE>
See notes to financial statements.
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<PAGE> 3
FLORIDA BANKS, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
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<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED SIX MONTH PERIOD ENDED
JUNE 30, JUNE 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 2,014,986 $ 868,882 $ 3,625,447 $ 1,676,700
Investment securities 288,968 157,580 720,494 320,296
Federal funds sold and repurchase agreements 369,205 81,150 453,979 177,439
----------- ----------- ----------- -------------
Total interest income 2,673,159 1,107,612 4,799,920 2,174,435
----------- ----------- ----------- -------------
INTEREST EXPENSE:
Deposits 909,069 506,112 1,609,433 1,015,598
Repurchase agreements 189,749 59,030 302,479 119,732
Borrowed funds 12,060 22,853 31,169 47,568
----------- ----------- ----------- -------------
Total interest expense 1,110,878 587,995 1,943,081 1,182,898
----------- ----------- ----------- -------------
NET INTEREST INCOME 1,562,281 519,617 2,856,839 991,537
PROVISION FOR LOAN LOSSES 200,000 15,000 265,000 30,000
----------- ----------- ----------- -------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,362,281 504,617 2,591,839 961,537
----------- ----------- ----------- -------------
NONINTEREST INCOME:
Service fees 102,376 91,276 199,411 186,239
Gain on sale of loans 19,709
Gain on sale of securities 31,729 31,729 8,197
Other noninterest income 19,893 24,314 38,562 53,677
----------- ----------- ----------- -------------
153,998 115,590 269,702 267,822
----------- ----------- ----------- -------------
NONINTEREST EXPENSES:
Salaries and benefits 1,265,425 335,017 2,407,107 634,887
Occupancy and equipment 199,758 87,735 346,695 163,445
Data processing 51,451 23,774 91,448 49,239
Other 472,746 182,066 851,529 306,649
----------- ----------- ----------- -------------
1,989,380 628,592 3,696,779 1,154,220
(LOSS) INCOME BEFORE (BENEFIT)
PROVISION FOR INCOME TAXES (473,101) (8,385) (835,238) 75,139
(BENEFIT) PROVISION FOR
INCOME TAX EXPENSES (221,176) (3,180) (358,558) 28,550
----------- ----------- ----------- -------------
NET (LOSS) INCOME $ (251,925) $ (5,205) $ (476,680) $ 46,589
=========== =========== =========== =============
(LOSS) EARNINGS PER SHARE:
Basic $ (0.04) $ 0.00 $ (0.08) $ 0.04
=========== =========== =========== =============
Diluted N/A $ 0.00 N/A $ 0.03
=========== =============
</TABLE>
See notes to condensed financial statements.
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<PAGE> 4
FLORIDA BANKS, INC.
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warrants Accumulated
to Retained Other
Preferred Stock Common Stock Additional Acquire Earnings Income
------------------ ------------------- Paid-In Common (Accumulated (Loss),
Shares Par Value Shares Par Value Capital Stock Deficit) Net of Tax Total
-------- --------- --------- --------- ----------- -------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 1,215,194 $12,152 $ 5,537,996 $ 759,707 $ 3,780 $ 6,313,635
Comprehensive Income
Net income (4,592,616) (4,592,616)
Unrealized loss on available
for sale investment
securities, net of tax
of $7,180 (15,496) (15,496)
----------- --------- -----------
Comprehensive Income (4,592,616) (15,496) (4,608,112)
Issuance of common stock, net 4,100,000 41,000 37,351,948 37,392,948
Exercise of stock options 159,806 1,598 238,402 240,000
Income tax benefit resulting
from the exercise of stock
options 118,265 118,265
Issuance of common stock to
founders 297,000 2,970 2,155,718 2,158,688
Issuance of units 80,800 808 807,192 164,832 972,832
Issuance of preferred stock 60,600 606,000 606,000
Redemption of preferred stock (60,600) (606,000) (606,000)
Purchase of fractional shares (44) (407) (407)
-------- -------- --------- ------- ----------- -------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1998 5,852,756 58,528 46,209,114 164,832 (3,832,909) (11,716) 42,587,849
Comprehensive Income:
Net Income (476,680) (476,680)
Unrealized gain on available
for sale investment securities,
net of tax (394,834) (394,834)
----------- --------- -----------
Comprehensive Income (4,309,589) (406,550) 41,716,335
Exercise of stock options 1,000 10 9,990 10,000
-------- -------- --------- ------- ----------- -------- ----------- --------- -----------
BALANCE, JUNE 30, 1999
(UNAUDITED) 5,853,756 $58,538 $46,219,134 $164,832 $(4,309,589) $(406,550) $41,726,335
======== ======== ========= ======= =========== ======== =========== ========= ===========
</TABLE>
See notes to condensed financial statements.
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<PAGE> 5
FLORIDA BANKS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED
JUNE 30,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (476,680) $ 46,589
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 125,571 68,502
Deferred income (benefit) taxes (362,044) 63,553
Gain on sale of securities (8,197)
Amortization of premiums on (discounts) investments, net 38,740 (20,365)
Provision for loan losses 265,000 30,000
Increase in accrued interest receivable (183,760) (13,527)
Increase (decrease) in accrued interest payable 88,061 (15,309)
Increase in other assets (72,809) (44,258)
Increase (decrease) in other liabilities 23,648 (4,396)
------------ ------------
Net cash (used in) provided by operating activities (554,273) 102,592
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sales, paydowns and maturities
of investment securities:
Available for sale 16,581,460 5,499,797
Other 28,600 28,600
Purchases of investment securities:
Available for sale (22,119,825) (5,501,110)
Other investments (446,800) (7,400)
Net increase in loans (29,490,865) (1,541,159)
Purchases of premises and equipment (784,968) (141,866)
------------ ------------
Net cash used in investing activities (36,232,398) (1,663,138)
------------ ------------
FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits,
money market accounts and savings accounts 12,567,356 (164,029)
Net increase (decrease) in time deposits 15,782,251 (918,441)
Increase (decrease) in repurchase agreements 7,175,086 (47,964)
Increase (decrease) in other borrowed funds 2,347,940 (1,408)
Exercise of stock options 10,000 240,000
------------ ------------
Net cash provided by (used in) financing activities 37,882,633 (891,842)
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,095,962 (2,452,388)
CASH AND CASH EQUIVALENTS:
Beginning of period 20,945,139 13,033,211
End of period $ 22,041,101 $ 10,580,823
============ ============
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
Cash paid for interest $ 1,855,020 $ 1,198,207
============ ============
</TABLE>
See notes to condensed financial statements.
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<PAGE> 6
FLORIDA BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED
JUNE 30, 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 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 six month period ended June 30, 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.
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<PAGE> 7
FLORIDA BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED
JUNE 30, 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 SIX MONTH PERIOD ENDED
JUNE 30, JUNE 30,
------------------------- ------------------------
1999 1998 1999 1998
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding - Basic 5,853,613 1,272,013 5,853,187 1,243,604
Incremental shares from the assumed
conversion of stock options -- 87,519 -- 111,663
---------- --------- --------- ---------
Total - Diluted 5,853,613 1,359,532 5,853,187 1,355,267
========== ========= ========= =========
</TABLE>
-7-
<PAGE> 8
FLORIDA BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED
JUNE 30, 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 June of 1998 as the Bank's stock was not actively traded and limited
trades during the second 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 JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
The Company's net income for the second quarter of 1999 decreased $(247,000) to
a net loss of $(252,000) for the three month period ending June 30, 1999, from a
net loss of $(5,000) for the three month period ended June 30, 1998. Basic
earnings per share for the second quarter of 1999 was a loss of $(.04) compared
to basic and diluted earnings per share of $(0.0) and $(0.0) respectively for
the second quarter of 1998. Prior year results reflected the operating
performance of First National Bank of Tampa, which was merged into Florida
Banks, Inc. concurrent with Florida Banks, initial public offering in August
1998. Included in the loss of $(252,000) for the second quarter of 1999 were
non-recurring expenses attributable to the relocation of corporate offices and
the Jacksonville banking office, and the opening of the Pinellas and Broward
county offices.
The increase in net interest income of $1 million, or 200.7%, to $1.6 million
for the second quarter of 1999 compared to $520,000 for the second quarter in
1998, consists of an increase in interest income of $1.6 million, or 141.3%,
partially offset by an increase in interest expense of $523,000, or 88.9%. The
increase in interest income of $1.6 million in the second quarter of 1999 is
primarily attributable to an increase of $1.1 million in interest on loans
resulting from loan growth and an increase of $288,000 in interest on federal
funds sold resulting from the investment of a portion of the net proceeds of the
public offering. The increase in interest expense is attributable to an increase
in the volume of interest bearing deposits, repurchase agreements sold and other
interest bearing liabilities
The provision for loan losses charged to operations increased $185,000 to
$200,000 for the second quarter of 1999 from $15,000 in the second quarter of
1998. This increase represents the additional reserves resulting from new loan
growth.
Non-interest income increased 33.2% or $38,000 to $154,000 for the three months
ended June 30, 1999 from $116,000 for the three months ended June 30, 1998. The
increase in non-interest income primarily resulted from an increase of $32,000
in the gain on sale of securities for the second quarter of 1999 compared to $0
for the second quarter of 1998. The increase in service fees of $11,000 reflect
an increase in deposit account fees and other service related service fees.
Non-interest expense increased $1.4 million to $2.0 million for the three month
period ended June 30, 1999 compared to $629,000 for the three month period ended
June 30, 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 $930,000 to $1.3 million for the second
quarter of 1999 compared to $335,000 for the second quarter of 1998. This
increase resulted from the addition of staff for the holding company,
Jacksonville, Alachua, Broward and Pinellas offices and additional staff at the
Tampa bank..
The increase in occupancy and equipment expense of $112,000, or 127.7%, resulted
from the relocation of the corporate offices and Jacksonville banking office to
their permanent locations; startup costs and lease expense for the Alachua,
Pinellas, and Broward county offices; and from additional depreciation and
maintenance expenses resulting from the purchase of additional computer
equipment and furniture. Data processing expenses increased $28,000 or 116.4% to
$51,000 for the three months ended June 30, 1999 as compared to $24,000 for the
same period in 1998. This increase resulted from the conversion and
implementation of several new products and the additional processing expenses
associated with opening of the additional offices. Other expenses increased
$291,000, to $473,000 for the second quarter of 1999 compared to $182,000 for
the second quarter of 1998. This increase resulted primarily from non-recurring
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<PAGE> 10
expenses relating to the set-up of the Company's wide area network; costs
associated with the opening of the Pinellas and Broward county banking offices;
and legal, and other professional fees.
A benefit for income taxes of $221,000 was recognized for the three-month period
ended June 30, 1999 as compared to a benefit for income taxes of $3,000 for the
same period ended June 30, 1998. The benefit for income taxes of $221,000 for
the second quarter of 1999 represents an estimated effective annual tax rate of
38%, as does the benefit for income taxes of $3,000 for the same period in 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
The Company's net income for the six months ended June 30, 1999 decreased
$(523,000) to a net loss of $(477,000) for the six month period ending June
30,1999, from net income of $47,000 for the six month period ended June 30,
1998. Basic earnings per share for the six months ended June 30, 1999 was a loss
$(.08) compared to basic and diluted earnings per share of $.04 and $.03
respectively for the six months ended June 30, 1998. Prior year results
reflected the operating performance of First National Bank of Tampa, which was
merged into Florida Banks, Inc. concurrent with Florida Banks, initial public
offering in August 1998. Included in the loss of $(477,000) for the first six
months of 1999 were non-recurring expenses attributable to the relocation of the
corporate office and the Jacksonville banking office; the opening of the
Gainesville office (Florida Bank of Alachua County); and the opening of the
Pinellas and Broward county offices.
The increase in net interest income of $1.9 million, or 188.1%, for the six
months ending June 30, 1999 compared to the same period in 1998, consists of an
increase in interest income of $2.6 million, or 120.7%, and an increase in
interest expense of $760,000, or 64.3%. The increase in interest income for the
first six months of 1999 is primarily attributable to an increase of $1.9
million in interest on loans resulting from loan growth and an increase of
$400,000 in interest on investments resulting from the investment of a portion
of the net proceeds of the public offering. The increase in interest expense is
attributable to an increase in the volume of interest bearing deposits,
repurchase agreements sold and other interest bearing liabilities.
The provision for loan losses charged to operations increased $235,000 to
$265,000 for the period ended June 30, 1999 from $30,000 for the same period in
1998. This increase represents the additional reserves resulting from new loan
growth.
Non-interest income increased $2,000 or .7% to $270,000 for the six month period
ended June 30, 1999 from $268,000 for the same period in 1998. The increase in
non-interest income resulted from a decrease in other income of $15,000 and a
decrease of $20,000 in the gain on sale of loans offset by an increase in
service fee income of $13,000, and an increase in the gain on sale of securities
of $24,000. Increases in service fees of $13,000 reflect increases in deposit
account fees and other service related fees. The decrease in the gain on sale of
loans reflects a reduction in SBA lending and the reduction in other
non-interest income resulted from the waiving of certain fees for new deposit
relationships.
Non-interest expense increased $2.5 million to $3.7 million for the six month
period ended June 30, 1999 compared to $1.2 million for the six month period
ended June 30, 1998. The increase in non-interest expense resulted primarily
from increases in salaries and benefits, occupancy and equipment, data
processing, and other expenses. Salaries and benefits expenses increased $1.8
million to $2.4 million for the six months ending June 30, 1999 compared to
$635,000 for the same period in 1998. This increase resulted from the addition
of staff for the holding company, Jacksonville, Alachua, Broward and Pinellas
offices and additional staff at the Tampa bank. The increase in occupancy and
equipment expense of $183,000, or 112.1%, resulted from the relocation of the
corporate offices and Jacksonville banking office; startup costs and lease
expense for the Alachua, Pinellas, and Broward county offices; and from
additional depreciation and maintenance expenses resulting from the purchase of
additional computer equipment and furniture. Data processing expenses increased
$42,000 or 85.7% to $91,000 for the six months ended June 30, 1999 as compared
to $49,000 for the same period in 1998. This increase resulted from the
conversion and implementation of several new products and the additional
processing expenses associated with opening of
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<PAGE> 11
the additional offices . Other expenses increased $545,000, to $852,000 for
the six months ended June 30, 1999 compared to $307,000 for the same period in
1998. This increase resulted primarily from non-recurring expenses relating to
the set-up of the Company's wide area network and the expenses associated with
the opening of the Alachua, Broward and Pinellas banking offices; and legal, and
other professional fees.
A benefit for income taxes of $359,000 was recognized for the six month period
ended June 30, 1999 as compared to a provision for income taxes of $29,000 for
the same period ended June 30, 1998. The benefit for income taxes of $359,000
for the six month period ended June 30, 1999 represents an estimated effective
annual tax rate of 38%, as does the provision for income taxes of $29,000 for
the same period in 1998.
FINANCIAL CONDITION
Total assets at June 30, 1999 were $150.7 million, an increase of $37 million or
32.7%, from $113.6 million at December 31, 1998. The increase in total assets
primarily resulted from the increase in investments and loans outstanding.
Investment securities increased $5.3 million or 23.7% to $27.5 million from
$22.2 million at December 31, 1998. The increase in investment securities also
reflects investment of the excess proceeds of the public offering reserved for
future capitalization of the Bank and the funding of loan growth.
Total loans increased $28.8 million, or 42.9%, to $96.1 million at June 30 1999,
from $67.3 million at December 31, 1998. The increase in total loans was
primarily funded by an increase in deposits. The allowance for loan losses
decreased $(311,000) or 29% to $(763,000) at June 30, 1999 from $(1.1) million
at December 31, 1998. The decrease resulted from recoveries of previously
charged-off loans of $11,000, and additional provisions of $265,000, off-set by
$587,000 in charge-offs. The charge-offs of $587,000 included a previously
reserved for impaired loan in the amount of $575,000 charged against the
allowance for loans losses, and $12,000 in non-performing credit card debt. The
allowance for loan losses as a percent of total loans decreased from 1.60% at
December 31, 1998 to .79% at June 30, 1999. Management believes that such
allowance for loan losses is sufficient to cover estimated losses in the Bank's
loan portfolio.
Deposits increased $28.3 million, or 43.9%, to $93 million at June 30, 1999 from
$64.6 million at December 31, 1998. The increase in total deposits resulted from
an increase of $6.9 million or 58% in non-interest deposits, an increase of
$996,000 or 25.5% in interest bearing demand, an increase of $330,000 or 24.6%
in money market deposits, an increase of $4.4 million or 24.4% in savings
deposits, and an increase $15.8 million or 53.3% 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 in non-interest and
interest-bearing demand reflects the normal season fluctuations for these types
of accounts.
Shareholders' equity decreased by $862,000 to $41.7 million at June 30, 1999,
from $42.6 million at December 31, 1998. This decrease is primarily the result
of operating losses from the startup expenses of the Company and the opening of
the new banking offices.
Non-accrual loans decreased to $298,000 at June 30, 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 and the charge-off of the impaired loan in the
amount of $575,000.
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.
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<PAGE> 12
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 June 30, 1999
financial statements evidence a satisfactory liquidity position as total cash
and cash equivalents amounted to $22 million, representing 14.6% of total
assets. Investment securities amounted to $27.5 million, representing 18.3% 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 six-month period ended June 30, 1999, total
deposits increased from $64.6 million at December 31, 1998 to $93 million,
representing an increase of 43.9%. 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 Bank's regulatory capital ratios at June 30,
1999:
Minimum
June 30, regulatory
Bank 1999 requirement
- ---- ---- -----------
Tier 1 capital ratio 34.25 % 4.00 %
------- ------
Total risk-based capital ratio 34.9 % 8.00 %
------- ------
Leverage ratio 30.18 % 3.00 %
------- ------
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, "98" is stored on the system and
represents 1998 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, during the
first half of 1999,
-12-
<PAGE> 13
implemented a Year 2000 compliance program. As a part of this program, the Bank
reviewed the Year 2000 issues that may be faced by its other third-party vendors
and loan and deposit customers. In addition, the Company examined the need for
modifications or replacement of all non-Year 2000 compliant pieces of software.
This process has been completed, and the Bank has not identified any mission
critical software systems that are now 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, other hardware and equipment to
determine if such hardware is Year 2000 compliant. As part of this process, the
Company and 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, the Office of the Comptroller of the
Currency, the Bank's primary regulator, and the 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
customer's 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 affected by Year 2000
issues, and has addressed the Bank's concern with these customers. Continuing
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.
The Company believes that its mission critical systems are currently Year 2000
compliant and expects that it will satisfy such 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 effected 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 have been prepared to provide 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.
-13-
<PAGE> 14
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,
including, but not limited to, those risk factors set forth in the Final
Prospectus dated July 29, 1998 used in connection with the Company's initial
public offering.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual shareholders meeting held on April 23, 1999, the
shareholders voted to elect three directors to serve for a term of
three years. The directors elected were T. Stephen Johnson, J. Malcolm
Jones, Jr. and Nancy E. LaFoy. 4,433,348 votes were cast in favor and
15,825 votes were withheld for each nominated director. The
shareholders also voted to adopt the Employee Stock Purchase Plan, as
described in Form S-8, Registration No. 333-79319, at the April 23,
1999 annual shareholders meeting. 4,301,148 votes were cast in favor of
the adoption of the Employee Stock Purchase Plan, 134,500 votes were
cast against the adoption, and 13,525 votes were abstained.
ITEM 5. OTHER INFORMATION
No disclosure required.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed with this Report.
Exhibit No. Description
----------- -----------
10.1 Employee Stock Purchase Plan
(incorporated by reference to the
registrants registration statement
on Form S-8 - Registration No.
333-79319)
27.1 Financial Data Schedule (for SEC use only)
-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: August 13, 1999 By: /s/ Charles E. Hughes, Jr.
-------------------------------------
Charles E. Hughes, Jr.
President and Chief Executive Officer
Date: August 13, 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 JUNE 30, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 22,041,101
<INT-BEARING-DEPOSITS> 12,361,248
<FED-FUNDS-SOLD> 3,955,999
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 26,781,149
<INVESTMENTS-CARRYING> 738,650
<INVESTMENTS-MARKET> 0
<LOANS> 96,131,042
<ALLOWANCE> 762,547
<TOTAL-ASSETS> 150,688,999
<DEPOSITS> 92,970,214
<SHORT-TERM> 15,992,449
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
0
<COMMON> 58,538
<OTHER-SE> 41,667,798
<TOTAL-LIABILITIES-AND-EQUITY> 41,726,336
<INTEREST-LOAN> 3,625,447
<INTEREST-INVEST> 720,494
<INTEREST-OTHER> 453,979
<INTEREST-TOTAL> 4,799,920
<INTEREST-DEPOSIT> 1,609,433
<INTEREST-EXPENSE> 1,943,081
<INTEREST-INCOME-NET> 2,856,839
<LOAN-LOSSES> 265,000
<SECURITIES-GAINS> 31,729
<EXPENSE-OTHER> 3,696,779
<INCOME-PRETAX> (835,238)
<INCOME-PRE-EXTRAORDINARY> (835,238)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (476,680)
<EPS-BASIC> (0.08)
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 298,000
<LOANS-PAST> 80,799
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 64,148
<ALLOWANCE-OPEN> 1,073,346
<CHARGE-OFFS> 586,558
<RECOVERIES> 10,759
<ALLOWANCE-CLOSE> 762,547
<ALLOWANCE-DOMESTIC> 762,547
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
