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 September 30, 2000
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 SEPTEMBER 30, 2000
PER SHARE 5,688,651
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ITEM 1. FINANCIAL STATEMENTS
FLORIDA BANKS, INC.
CONDENSED BALANCE SHEETS (Unaudited)
----------------------------------------------------------------------------------------------------------------------
September 30, December 31,
2000 1999
ASSETS
<S> <C> <C>
CASH AND DUE FROM BANKS $10,333,594 $6,088,628
FEDERAL FUNDS SOLD AND REPURCHASE AGREEMENTS 15,247,000 19,870,000
--------------- ---------------
Total cash and cash equivalents 25,580,594 25,958,628
INVESTMENT SECURITIES:
Available for sale, at fair value (cost $33,845,349 and $28,681,760
at September 30, 2000, and December 31, 1999, respectively) 33,025,449 27,609,601
Held to maturity, at cost (fair value $3,036,392) 3,116,863
Other investments 1,182,150 901,800
LOANS:
Commercial real estate 146,517,998 69,260,661
Commercial 87,936,853 68,991,516
Residential mortgage 13,547,874 10,845,841
Consumer 11,453,498 7,245,919
Credit card and other loans 1,445,833 1,244,256
--------------- ---------------
Total loans 260,902,056 157,588,193
Allowance for loan losses (3,361,881) (1,858,040)
Net deferred loan fees (112,244) (71,341)
--------------- ---------------
Net loans 257,427,931 155,658,812
PREMISES AND EQUIPMENT, NET 3,012,757 2,440,818
OTHER REAL ESTATE OWNED 846,000
ACCRUED INTEREST RECEIVABLE 1,624,266 1,021,175
DEFERRED INCOME TAXES, NET 4,956,170 4,365,270
OTHER ASSETS 607,282 185,497
--------------- ---------------
TOTAL ASSETS $331,379,462 $218,141,571
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing demand $26,585,647 $22,035,567
Interest-bearing demand 12,729,749 11,211,366
Regular savings 44,767,743 38,954,093
Money market accounts 2,247,432 1,593,930
Time $100,000 and over 89,367,936 51,538,664
Other time 92,230,341 33,772,060
--------------- ---------------
Total deposits 267,929,848 159,105,680
REPURCHASE AGREEMENTS SOLD 15,702,778 11,037,111
OTHER BORROWED FUNDS 7,223,282 7,242,352
ACCRUED INTEREST PAYABLE 1,721,106 615,549
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 827,818 905,024
--------------- ---------------
Total liabilities 293,404,835 178,906,716
--------------- ---------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 30,000,000 shares authorized;
5,929,751 and 5,853,756 shares issued, respectively 59,298 58,538
Additional paid-in capital 46,585,497 46,219,104
Warrants 164,832 164,832
Accumulated deficit (deficit of $8,434,037
eliminated upon quasi-reorganization on December 31, 1995) (6,816,792) (5,680,069)
Treasury Stock, 241,100 and 135,100 shares at cost (1,506,836) (858,844)
Accumulated other comprehensive loss, net of tax (511,372) (668,706)
--------------- ---------------
Total shareholders' equity 37,974,627 39,234,855
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $331,379,462 $218,141,571
=============== ===============
</TABLE>
2
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<TABLE>
FLORIDA BANKS, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
--------------------------------------------------------------------------------------------------------------------------
Three-Month Period Ended Nine-Month Period Ended
September 30, September 30,
--------------------------------------------------------------
2000 1999 2000 1999
--------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Loans, including fees $5,350,755 $2,382,905 $13,804,320 $6,008,352
Investment securities 682,268 383,901 1,961,162 1,104,395
Federal funds sold 317,730 235,196 901,492 689,175
--------- --------- ---------- ---------
Total interest income 6,350,753 3,002,002 16,666,974 7,801,922
--------- --------- ---------- ---------
INTEREST EXPENSE:
Deposits 3,510,830 1,157,097 8,597,015 2,766,530
Repurchase agreements 225,121 143,736 608,822 446,215
Borrowed funds 112,983 29,585 309,441 60,754
--------- --------- --------- ---------
Total interest expense 3,848,934 1,330,418 9,515,278 3,273,499
--------- --------- --------- ---------
NET INTEREST INCOME 2,501,819 1,671,584 7,151,696 4,528,423
PROVISION FOR LOAN LOSSES 876,846 718,000 1,586,302 983,000
--------- --------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,624,973 953,584 5,565,394 3,545,423
--------- --------- --------- ---------
NONINTEREST INCOME:
Service fees 122,190 121,950 459,782 321,361
Gain (Loss) on sale of available for sale investment
securities 4,747 (4,203) 31,729
Other noninterest income 124,787 29,419 148,730 67,981
--------- ---------- ------- ---------
251,724 151,369 604,309 421,071
--------- ---------- ------- ---------
NONINTEREST EXPENSES:
Salaries and benefits 1,641,529 1,507,493 5,092,913 3,914,600
Occupancy and equipment 398,964 240,027 1,130,339 586,722
Data processing 130,280 59,802 322,243 151,250
Other 467,840 363,852 1,446,755 1,215,381
--------- --------- --------- ---------
2,638,613 2,171,174 7,992,250 5,867,953
--------- --------- --------- ---------
LOSS BEFORE BENEFIT
FOR INCOME TAXES (761,916) (1,066,221) (1,822,547) (1,901,459)
BENEFIT FOR INCOME TAX (286,709) (364,025) (685,824) (722,583)
--------- --------- --------- ---------
NET LOSS $(475,207) $(702,196) $(1,136,723) $(1,178,876)
========= ========= ========= =========
LOSS PER SHARE:
Basic $(0.08) $(0.12) $(0.20) $(0.20)
========= ========= ========= =========
Diluted $(0.08) $(0.12) $(0.20) $(0.20)
========= ========= ========= =========
</TABLE>
3
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<TABLE>
FLORIDA BANKS, INC.
Condensed Statements of Shareholders' Equity (Unaudited)
Accumulated
Other
Warrants Comprehensive
Common Stock Additional to Acquire Income (loss
---------------------- Paid-In Common Accumulated Net of Treasury
Shares Par Value Capital Stock Deficit Tax Stock Total
------ --------- ---------- ---------- ----------- -------------- -------- ------
<S> <C> <C> <C> <C>
BALANCE JANUARY 1, 1999 5,582,756 $ 58,528 $ 46,709,114 $ 164,832 $(3,832,909) (11,716) $42,587,849
Comprehensive (loss):
Net loss (unaudited) (1,847,160) (1,847,160)
Unrealized gain on available
for sale investment securities,
net of tax of $396,270 (656,990) (656,990)
---------
Comprehensive loss 2,504,150)
Exercise of stock options 1,000 10 9,990 10,000
Purchase of treasury stock (858,844) (858,844)
--------- ------- ---------- -------- --------- -------- ------- ---------
BALANCE, DECEMBER 31, 1999 5,853,756 58,538 46,219,104 164,832 (5,680,069) (668,706) (858,844) 39,234,855
Comprehensive (loss):
Net loss (unaudited) (1,136,723) (1,136,723)
Unrealized gain on available
for sale investment securities,
net of tax 157,334 157,334
---------
Comprehensive loss (979,389)
Issuance of common stock to Employee
Stock Purchase Plan 79,995 760 366,393 367,153
Purchase of treasury stock (647,992) (647,992)
BALANCE September 30, 2000 --------- ------- ---------- -------- ---------- ------- --------- ----------
(unaudited) 5,929,751 $ 59,298 $ 46,585,497 $164,832 $(6,816,792) $(511,372) $(1,506,836) $37,974,627
========= ======= ========== ======== ========== ======= ========= ==========
See Accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
4
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<TABLE>
FLORIDA BANKS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
---------------------------------------------------------------------------------------------------------------------------
Nine Month Period Ended
September 30,
-----------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,136,723) $ (1,178,876)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 486,608 216,196
Deferred income tax benefit (685,824) (722,583)
Loss (gain) on sale of securities 4,203 (31,729)
Amortization of premiums (discounts) on investments, net (127,640) 36,938
Provision for loan losses 1,586,302 983,000
Increase in accrued interest receivable (603,091) (368,368)
Increase in accrued interest payable 1,104,557 121,268
Decrease in other assets (421,815) (98,813)
Increase (decrease) in other liabilities (77,206) 350,010
------------ ------------
Net cash provided by (used in) operating activities 129,371 (692,957)
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sales, paydowns and maturities of investment securities:
Available for sale 9,146,407 25,083,816
Other 1,044,918 42,237
Purchases of investment securities:
Available for sale (14,247,574) (26,609,764)
Held to maturity (4,100,767)
Other investments (280,350) (573,637)
Net increase in loans (104,201,421) (61,780,045)
Purchases of premises and equipment (1,058,547) (1,080,727)
------------ ------------
Net cash used in investing activities (113,697,334) (64,918,120)
------------ ------------
FINANCING ACTIVITIES:
Net increase in demand deposits,
money market accounts and savings accounts 12,536,615 22,359,376
Net increase in time deposits 96,287,553 33,851,497
Increase (decrease) in repurchase agreements 4,665,667 (1,343,898)
Increase (decrease) in borrowed funds (19,067) 2,370,077
Purchase of treasury stock (647,992) (103,751)
Exercise of stock options 367,153 10,000
------------ ------------
Net cash provided by financing activities 113,189,929 57,143,301
------------ ------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (378,034) (8,467,776)
CASH AND CASH EQUIVALENTS:
Beginning of period 25,958,628 20,945,139
------------ ------------
End of period $ 25,580,594 $ 12,477,363
============ ============
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
Cash paid for interest $ 8,410,721 $ 3,152,231
============ ============
See notes to condensed financial statements.
</TABLE>
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FLORIDA BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS ENDED
JUNE 30, 2000 AND 1999 (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 acquirer. 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 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 Registration Statement on Form S-1 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 and nine month periods ended September 30, 2000,
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. EARNINGS PER SHARE
The following is a reconciliation of the denominator used in the
computation of basic and diluted earnings per common share.
<TABLE>
Three Month Period Ended Nine Month Period Ended
September 30, September, 30
-------------------------------- --------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C>
Weighted average number of common
shares outstanding - Basic 5,672,684 5,853,593 5,678,818 5,853,324
Incremental shares from the assumed
conversion of stock options - - - -
--------- --------- --------- ---------
Total - Diluted 5,672,684 5,853,593 5,678,818 5,853,324
========= ========= ========= =========
</TABLE>
6
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FLORIDA BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS ENDED
SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) (Continued)
--------------------------------------------------------------------------------
The exercise prices of stock options outstanding in the three and nine
month periods ended September 30, 2000 and 1999 were above the fair market
value of the stock during those periods, therefore the options are
considered anti-dilutive for purposes of calculating the loss per share.
3. NEW ACCOUNTING STANDARDS
The Company intends to adopt Statement of Financial Accounting Standard
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS No. 133) on January 1, 2001. SFAS No. 133 will require the Company
to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities or firm
commitments through earnings, or recognized in other comprehensive income
until the hedged item is recognized in earnings. The change in a
derivative's fair value related to the ineffective portion of a hedge, if
any, will be immediately recognized in earnings. Management has completed
its evaluation of the impact of the adoption of SFAS No. 133. Four
interest rate swaps have been identified as derivatives and will qualify
for the fair value method of hedge accounting under the short cut method.
The fair value of these financial instruments as of September 30, 2000 was
approximately $185,000.
7
<PAGE>
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 September 30, 2000 Compared to Three Months Ended September
30, 1999
The Company's net loss for the third quarter of 2000 decreased $227,000 to
$475,000 for the three-month period ending September 30, 2000, from a net loss
of $702,000 for the three-month period ended September 30, 1999. Basic loss per
share for the third quarter of 2000 was $.08 compared to $.12 for the third
quarter of 1999. The decrease in the loss can be primarily attributed to
increased revenues associated with the Company's growth over the past twelve
months.
The increase in net interest income of $830,000 or 49.7%, to $2.5 million for
the third quarter of 2000 compared to $1.7 million the third quarter of 1999,
consists of an increase in interest income of $3.3 million, or 111.6%, and an
increase in interest expense of $2.5 million, or 189.3%. The increase in
interest income in the second quarter of 2000 is primarily attributable to an
increase of $3.0 million in interest and fees on loans resulting from the growth
in the loan portfolio.
The provision for loan losses charged to operations increased $159,000 to
$877,000 for the third quarter of 2000 from $718,000 in the third quarter of
1999. This increase represents the additional reserves resulting from new loan
growth and additional provisions of $340,000 related to two loans.
Non-interest income increased 66.3% or $100,000 to $252,000 for the three months
ended September 30, 2000 from $151,000 for the three months ended September 30,
1999. The increase in non-interest income primarily resulted from an increase in
other non-interest income to $125,000 at September 30, 2000 from $29,000 at
September 30, 1999. The increase in other non-interest income resulted primarily
from an increase in charges and fees not related to deposit accounts.
Non-interest expense increased $467,000 or 21.5% to $2.6 million for the
three-month period ended September 30, 2000 compared to $2.2 million for the
three-month period ended September 30, 1999. 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
$134,000 to $1.6 million for the third quarter of 2000 compared to $1.5 million
for the third quarter of 1999. This increase is primarily the result of
additional staff associated with the new banking offices. The increase in
occupancy and equipment expense of $159,000, or 66.2%, resulted from the
additional leased space for the Jacksonville banking office and the Company,
startup costs for the Pinellas County and Broward County banking offices and the
Ocala loan production office, and from additional depreciation and maintenance
expenses resulting from the purchase of additional furniture and computer
equipment. Data processing expenses increased $70,000 or 117.9% to $130,000 for
the three months ended September 30, 2000 as compared to $60,000 for the same
period in 1999. This increase resulted primarily from the additional processing
expenses for the Pinellas County and Broward County banking offices and the
Ocala loan production office. Other expenses increased $104,000, or 28.6% to
$468,000 for the third quarter of 2000 compared to $364,000 for the same period
in 1999. This increase is primarily attributed to the additional operating
expenses of the Pinellas County and Broward County banking offices and the Ocala
loan production office, and the supporting operations. Specific operational
expenses which increased were communications, stationery and supplies, postage
and courier, and consulting expenses.
8
<PAGE>
A benefit for income taxes of $287,000 was recognized for the three-month period
ended September 30, 2000 as compared to a benefit for income taxes of $364,000
for the same period in 1999. These benefits for income taxes represent an
estimated effective annual tax rate of approximately 38%.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September
30, 1999
The Company's net loss for the first nine months of 2000 decreased $42,000 to
$1.1 million, from a net loss of $1.2 million for the nine month period ended
September 30, 1999. Basic loss per share for the first nine months of 2000 was
$.20 compared to basic loss per share of $.20 for the first nine months of 1999.
The decrease in the loss can be primarily attributed to revenues associated with
the growth of the Company's earning assets.
The increase in net interest income of $2.6 million, or 57.9%, to $7.2 million
for the first nine months of 2000 compared to $4.5 million the same period in
1999, consists of an increase in interest income of $8.9 million, or 113.6%, and
an increase in interest expense of $6.2 million, or 190.7%. The increase in net
interest income of $2.6 million in the first nine months of 2000 is primarily
attributable to an increase of $7.8 million in interest and fees on loans
resulting from the growth in the loan portfolio.
The provision for loan losses charged to operations increased $603,000 to $1.6
million for the first nine months of 2000 from $983,000 for the same period in
1999. This increase represents the additional reserves resulting from new loan
growth and additional provisions of $340,000 related to two loans.
Non-interest income increased 43.5% or $183,000 to $604,000 for the nine months
ended September 30, 2000 from $421,000 for the same period in 1999. The increase
in non-interest income primarily resulted from an increase in service fees to
$460,000 at September 30, 2000 from $321,000 for the same period in 1999. The
increase in service fees resulted primarily from an increase in deposits.
Non-interest expense increased $2.1 million or 36.2% to $8.0 million for the
nine month period ended September 30, 2000 compared to $5.9 million for the same
period in 1999. 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 $1.2 million, or 30.1% to $5.1 million
for the first nine months of 2000 compared to $3.9 million for the first nine
months of 1999. This increase is primarily the result of additional staff
associated with the new banking offices. The increase in occupancy and equipment
expense of $544,000, or 92.7%, resulted from the additional leased space for the
Jacksonville banking office and the Company, startup costs for the Pinellas
County and Broward County banking offices and the Ocala loan production office,
and from additional depreciation and maintenance expenses resulting from the
purchase of additional furniture and computer equipment. Data processing
expenses increased $171,000 or 113.1% to $322,000 for the nine months ended
September 30, 2000 compared to $151,000 for the same period in 1999. This
increase resulted primarily from the additional processing expenses for the
Pinellas County and Broward County banking offices and the Ocala loan production
office. Other expenses increased $231,000, or 19.0% to $1.4 million for the
first nine months of 2000 compared to $1.2 million for the first nine months of
1999. This increase is primarily attributed to the additional operating expenses
of the Pinellas County and Broward County banking offices and the Ocala loan
production office and the supporting operations. Specific operational expenses,
which increased, were communications, travel, stationery and supplies, and
postage and courier expenses.
A benefit for income taxes of $686,000 was recognized for the nine-month period
ended September 30, 2000 as compared to a benefit for income taxes of $723,000
for the same period in 1999. These benefits for income taxes represent an
estimated effective annual tax rate of approximately 38%.
9
<PAGE>
FINANCIAL CONDITION
Total assets at September 30, 2000 were $331.4 million, an increase of $113.2
million or 51.9%, from $218.1 million at December 31, 1999. The increase in
total assets primarily resulted from the investment of new deposit growth and
other borrowed funds in loans and investments. Federal Funds sold decreased $4.6
million or 23.3% to $15.2 million at September 30, 2000 as compared to $19.9
million at December 31, 1999. This decrease represents the use of short-term
reserves for funding of loan growth. Investment securities increased $8.8
million or 30.9% to $37.3 million from $28.5 million at December 31, 1999. The
increase in investment securities reflects investment of the proceeds of deposit
growth in excess of loan growth for this period.
Total loans increased $103.3 million, or 65.6%, to $260.9 million at September
30, 2000, from $157.6 million at December 31, 1999. The increase in total loans
was funded by increases in depository accounts. The allowance for loan losses
increased $1.5 million, or 80.9% during the nine months of 2000. The increase
resulted from recoveries of previously charged-off loans of $71,000 and
additional provisions of $877,000, during the nine-month period ended September
30, 2000, partially offset by $154,000 in charge-offs. The allowance for loan
losses as a percent of total loans was 1.18% at December 31, 1999 and 1.28% at
September 30, 2000. Management believes that such allowance for loan losses is
sufficient to cover estimated losses in the Bank's loan portfolio.
Deposits increased $108.8 million, or 68.4%, to $267.9 million at September 30,
2000 from $159.1 million at December 31, 1999. The increase in total deposits
resulted from an increase of $4.6 million or 20.6% in non-interest bearing
deposits, an increase of $1.5 million or 13.5% in interest-bearing demand, an
increase of $5.8 million or 14.9% in savings deposits, an increase of $655,000
or 41.1% in money market deposits and an increase of $96.3 million or 112.9% in
time deposits. Time deposits often fluctuate in response to interest rate
changes and can vary rather significantly on a quarterly basis. The increase in
time deposits resulted primarily from an increase in brokered deposits, together
with an increase in time deposits issued through the Bank's Internet banking
activities.
Shareholders' equity decreased by $1.3 million to $38.0 million at September 30,
2000, from $39.2 million at December 31, 1999. This decrease is primarily the
result of operating losses from the opening of the Broward County and Pinellas
County banking offices and the Ocala loan production office, and the purchase of
106,000 shares of treasury stock at a cost of $648,000.
Non-accrual loans increased $1.5 million to $2.7 million at September 30, 2000,
compared to $1.1 million at December 31, 1999. The increase is primarily the
result of two additional loans being changed from accrual to non-accrual status
during the first nine months of 2000.
LIQUIDITY
The Company, through its 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 foresee any liquidity problems for
2000.
10
<PAGE>
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 September 30, 2000
financial statements evidence a satisfactory liquidity position as total cash
and cash equivalents amounted to $25.6 million, representing 7.7% of total
assets. Investment securities amounted to $37.3 million, representing 11.3% 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 nine-month period ended September 30, 2000, total
deposits increased from $159.1 million at December 31, 1999 to $267.9 million,
representing an increase of 68.4%. 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 September
30, 2000:
Minimum
September 30, Regulatory
Bank 2000 Requirement
----
----------------------------------
Tier 1 Capital 9.92 % 4.00 %
====== ======
Total risk-based capital ratio 11.17 % 8.00 %
======= ======
Leverage ratio 8.83 % 4.00 %
====== ======
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CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis, as well as other portions of
the Quarterly Report on Form 10-Q, 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 those factors
discussed in the Company's filings with the Securities and Exchange Commission.
The Company does not assume any obligation to update such forward looking
statements.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
The Company's financial performance is subject to risk from interest
rate fluctuations. This interest rate risk arises due to differences between the
amount of interest-earning assets and the amount of interest-earning liabilities
subject to repricing over a specified period and the amount of change in
individual interest rates. In the current interest rate environment, the
liquidity and maturity structure of the Company's assets and liabilities are
important to the maintenance of acceptable performance levels. A decreasing rate
environment negatively impacts earnings as the Company's rate-sensitive assets
generally reprice faster than its rate-sensitive liabilities. Conversely, in an
increasing rate environment, earnings are positively impacted. This
asset/liability mismatch in pricing is referred to as a gap ratio and is
measured as rate sensitive assets divided by rate sensitive liabilities for a
defined time period. A gap ratio of 1.00 means that assets and liabilities are
perfectly matched as to repricing. Management has specified gap ratio guidelines
for a one year time horizon of between .80 and 1.20 years for the Bank. At
September 30, 2000, the Company had cumulative gap ratios of approximately 1.50
for the three month time period and .71 for the one-year period ending September
30, 2001. Thus, over the next three-month period, rate-sensitive assets will
reprice faster than rate-sensitive liabilities, and for the following nine-month
period, rate sensitive liabilities will reprice faster than rate-sensitive
assets.
Varying interest rate environments can create unexpected changes in prepayment
levels of assets and liabilities, which are not reflected in the interest
sensitivity analysis. Prepayments may have significant effects on the Company's
net interest margin. Because of these factors and in a static test, interest
sensitivity gap reports may not provide a complete assessment of the Company's
exposure to changes in interest rates. Management utilizes computerized interest
rate simulation analysis to determine the Company's interest rate sensitivity.
The Company is in a liability sensitive gap position for the first year, and
then moves into a matched position through the five-year period. Overall, due to
the factors cited, current simulations results indicate a relatively low
sensitivity to parallel shifts in interest rates. A liability sensitive company
will generally benefit from a falling interest rate environment as the cost of
interest-bearing liabilities falls faster than the yields on interest-bearing
assets, thus creating a widening of the net interest margin. Conversely, an
asset sensitive company will benefit from a rising interest rate environment as
the yields on earning assets rise faster than the costs of interest-bearing
liabilities. Management also evaluates economic conditions, the pattern of
market interest rates and competition to determine the appropriate mix and
repricing characteristics of assets and liabilities required to produce a
targeted net interest margin.
In addition to the gap analysis, management uses rate shock simulation
to measure the rate sensitivity of its balance sheet. Rate shock simulation is a
modeling technique used to estimate the impact of changes in rates on the
Company's net interest margin. The Company measures its interest rate risk by
estimating the changes in net interest income resulting from instantaneous and
sustained parallel shifts in interest rates of plus or minus 200 basis points
over a period of twelve months. The Company's most recent rate shock simulation
analysis, which was performed as of June 30, 2000, indicates that a 200 basis
point increase in rates would cause an increase in net interest income of $1.5
million over the next twelve-month period. Conversely, a 200 basis point
decrease in rates would cause a decrease in net interest income of $2.2 million
over a twelve-month period. Variances in the amount of net interest income
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resulting from a rate increase as compared to a rate decrease are attributed to
the repricing term of the assets and liabilities. Adjustable rate loans and
certain other assets are immediately impacted by a rate change. Other longer
term liabilities such as certificates of deposits would not reprice until the
next maturity date. The result is a timing difference in the repricing
opportunity which affects the amount of additional or decreased interest income
or interest expense resulting from the interest rate movement.
This simulation is also based on management's assumption as to the
effect of interest rate changes on assets and liabilities and assumes a parallel
shift of the yield curve. It also includes certain assumptions about the future
pricing of loans and deposits in response to changes in interest rates. Further,
it assumes that delinquency rates would not change as a result of changes in
interest rates although there can be no assurance that this will be the case.
While this simulation is a useful measure of the Company's sensitivity to
changing rates, it is not a forecast of the future results and is based on many
assumptions that if changed, could cause a different outcome. In addition, a
change in U.S. Treasury rates in the designated amounts accompanied by a change
in the shape of the Treasury yield curve would cause significantly different
changes to net interest income than indicated above.
At September 30, 2000, the Company was not engaged in trading
activities.
During the second and third quarters of 2000, the Company entered into
various interest rate swaps to help manage the Company's interest sensitivity.
Such contracts are indexed to the London Interbank Offered Rate ("LIBOR"). The
interest rate risk factor in these contracts is considered in the overall
interest management strategy and the Company's interest risk management program.
The income or expense associated with these contracts is reflected as an
adjustment to interest expense, and results in an adjustment of the rate on the
liabilities with which the contracts are associated. Changes in the estimated
fair value of these contracts are not reflected in the financial statements
unless realized. At September 30, 2000, the estimated fair value of the
Company's outstanding interest rate swaps indicated $210,000 in unrealized gains
and $395,000 in unrealized losses. For the three and nine month periods ended
September 30, 2000 and 1999, there were no realized gains or losses on
terminated interest rate swaps.
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
No disclosure required.
Item 3. Defaults Upon Senior Securities
No disclosure required.
Item 4. Submission of Matters to a Vote of Security Holders
No disclosure required.
Item 5. Other Information
No disclosure required.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibit is filed with this Report.
Exhibit No. Description
27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K. No report on Form 8-K was filed during the
quarter ended September 30, 2000.
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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: November 14, 2000 By: /s/ Charles E. Hughes, Jr.
--------------------------------
Charles E. Hughes, Jr.
President and
Chief Executive Officer
Date: November 14, 2000 By: /s/ T. Edwin Stinson, Jr.
--------------------------------
T. Edwin Stinson, Jr.
Chief Financial Officer
