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, 2000
___ 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, 2000
PER SHARE 5,644,137
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ITEM 1. FINANCIAL STATEMENTS
FLORIDA BANKS, INC.
CONDENSED BALANCE SHEETS (Unaudited)
-----------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2000 1999
ASSETS
<S> <C> <C>
CASH AND DUE FROM BANKS $11,393,217 $6,088,628
FEDERAL FUNDS SOLD 26,977,000 19,870,000
---------------- ---------------
Total cash and cash equivalents 38,370,217 25,958,628
INVESTMENT SECURITIES:
Available for sale, at fair value (cost $33,635,889 and $28,681,760
at June 30, 2000, and December 31, 1999, respectively) 32,366,988 27,609,601
Held to maturity, at cost (fair value $3,074,163) 3,107,212
Other investments 1,068,650 901,800
LOANS:
Commercial real estate 111,366,897 69,260,661
Commercial 85,518,791 68,991,516
Residential mortgage 16,534,212 10,845,841
Consumer 8,206,666 7,245,919
Credit card and other loans 1,291,239 1,244,256
---------------- ---------------
Total loans 222,917,805 157,588,193
Allowance for loan losses (2,615,818) (1,858,040)
Net deferred loan fees (71,785) (71,341)
---------------- ---------------
Net loans 220,230,202 155,658,812
PREMISES AND EQUIPMENT, NET 2,808,974 2,440,818
ACCRUED INTEREST RECEIVABLE 1,535,321 1,021,175
DEFERRED INCOME TAXES, NET 4,838,420 4,365,270
OTHER ASSETS 136,484 185,467
---------------- ---------------
TOTAL ASSETS $304,462,468 $218,141,571
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing demand $26,656,245 $22,035,567
Interest-bearing demand 12,621,149 11,211,366
Regular savings 39,294,351 38,954,093
Money market accounts 1,226,680 1,593,930
Time $100,000 and over 83,874,897 51,538,664
Other time 78,002,749 33,772,060
---------------- ---------------
Total deposits 241,676,071 159,105,680
REPURCHASE AGREEMENTS SOLD 15,266,531 11,037,111
OTHER BORROWED FUNDS 7,212,957 7,242,352
ACCRUED INTEREST PAYABLE 1,510,457 616,549
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 832,315 905,024
---------------- ---------------
Total liabilities 266,498,331 178,906,716
---------------- ---------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 30,000,000 shares authorized;
5,885,237 and 5,853,756 shares issued, respectively 58,852 58,538
Additional paid-in capital 46,380,287 46,219,104
Warrants 164,832 164,832
Accumulated deficit (deficit of $8,434,037
eliminated upon quasi-reorganization on December 31, 1995) (6,341,585) (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 (791,413) (668,706)
---------------- ---------------
Total shareholders' equity 37,964,137 39,234,855
---------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $304,462,468 $218,141,571
================ ===============
See notes to condensed financial statements.
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FLORIDA BANKS, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
--------------------------------------------------------------------------------------------------------------------------
Three-Month Period Ended Six-Month Period Ended
June 30, June 30,
--------------------------------------------------------------
2000 1999 2000 1999
--------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 4,744,894 $ 2,014,986 $ 8,453,565 $ 3,625,447
Investment securities 723,387 288,968 1,278,894 720,494
Federal funds sold 367,929 369,205 583,762 453,979
--------- ---------- ---------- ----------
Total interest income 5,836,210 2,673,159 10,316,221 4,799,920
--------- ---------- ---------- ----------
INTEREST EXPENSE:
Deposits 2,982,692 909,069 5,086,185 1,609,433
Repurchase agreements 212,142 189,749 383,701 302,479
Borrowed funds 96,983 12,060 196,458 31,169
--------- ---------- ---------- ----------
Total interest expense 3,291,817 1,110,878 5,666,344 1,943,081
--------- ---------- ---------- ----------
NET INTEREST INCOME 2,544,393 1,562,281 4,649,877 2,856,839
PROVISION FOR LOAN LOSSES 339,328 200,000 709,456 265,000
--------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,205,065 1,362,281 3,940,421 2,591,839
--------- ---------- ---------- ----------
NONINTEREST INCOME:
Service fees 141,114 102,376 265,228 199,411
(Loss) gain on sale of available for sale investment (2,725) 31,729 (8,950) 31,729
securities
Other noninterest income 63,620 19,893 96,307 38,562
--------- ---------- ---------- ----------
202,009 153,998 352,585 269,702
--------- ---------- ---------- ----------
NONINTEREST EXPENSES:
Salaries and benefits 1,766,043 1,265,425 3,451,384 2,407,107
Occupancy and equipment 377,699 199,758 731,375 346,695
Data processing 115,998 51,451 191,963 91,448
Other 531,499 472,746 978,915 851,529
--------- ---------- ---------- ----------
2,791,239 1,989,380 5,353,637 3,696,779
--------- ---------- ---------- ----------
LOSS BEFORE BENEFIT
FOR INCOME TAXES (384,165) (473,101) (1,060,631) (835,238)
BENEFIT FOR INCOME TAX (139,427) (221,176) (399,115) (358,558)
---------- ---------- ---------- ----------
NET LOSS $ (244,738) $ (251,925) $ (661,516) $ (476,680)
========== ========== ========== ==========
LOSS PER SHARE:
Basic $ (0.04) $(0.04) $(0.12) $(0.08)
========== ============= ========== ==========
Diluted $ (0.04) $(0.04) $(0.12) $(0.08)
========== ============= ========== ==========
See notes to condensed financial statements.
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FLORIDA BANKS, INC.
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
-----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Warrants Other
Additional to Acquire Comprehensive
Common Stock Paid-In Common Accumulated (Loss) Treasury
Shares Par Value Capital Stock Deficit Net of Tax Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 5,852,756 58,528 46,209,114 164,832 (3,832,909) (11,716) 42,587,849
Comprehensive loss:
Net loss (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 (661,516) (661,516)
Unrealized gain on available
for sale investment securities,
net of tax (122,707) (122,707)
----------
Comprehensive loss (784,223)
Issuance of common stock to
Employee
Stock Purchase Plan 31,481 314 161,183 161,497
Purchase of treasury stock (647,992) (647,992)
--------- ------ ---------- ------- --------- ------- --------- ----------
BALANCE, JUNE 30, 2000 5,885,237 $ 58,852 $ 46,380,287 $164,832 ($6,341,585) ($791,413) $(1,506,836$ 37,964,137
========= ====== ========== ======= ========= ======= ========= ==========
See notes to condensed financial statements.
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FLORIDA BANKS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
------------------------------------------------------------------------------------------------------------------------
Six-Month Period Ended
June 30,
---------------------------------
2000 1999
---------------- ----------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (661,516) $ (476,680)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 305,175 125,571
Deferred income tax benefit (399,115) (362,044)
Loss on sale of securities 8,950
Amortization of (discounts) premiums on investments, net (64,716) 38,740
Provision for loan losses 709,456 265,000
Increase in accrued interest receivable (514,146) (183,760)
Increase in accrued interest payable 893,908 88,061
Decrease (increase) in other assets 48,983 (72,809)
(Decrease) increase in other liabilities (72,709) 23,648
---------- ----------
Net cash provided by (used in) operating activities 254,270 (554,273)
---------- ----------
INVESTING ACTIVITIES:
Proceeds from sales, paydowns and maturities of investment securities:
Available for sale 6,182,146 16,581,460
Other 28,600
Purchases of investment securities:
Available for sale (11,118,249) (22,119,825)
Held to maturity (3,069,472)
Other investments (166,850) (446,800)
Net increase in loans (65,280,846) (29,490,865)
Purchases of premises and equipment (673,331) (784,968)
---------- ----------
Net cash used in investing activities (74,126,602) (36,232,398)
---------- ----------
FINANCING ACTIVITIES:
Net increase in demand deposits,
money market accounts and savings accounts 6,003,469 12,567,356
Net increase in time deposits 76,566,922 15,782,251
Increase in repurchase agreements 4,229,420 7,175,086
(Decrease) increase in borrowed funds (29,395) 2,347,940
Purchase of treasury stock (647,992)
Exercise of stock options 161,497 10,000
---------- ----------
Net cash provided by financing activities 86,283,921 37,882,633
---------- ----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 12,411,589 1,095,962
CASH AND CASH EQUIVALENTS:
Beginning of period 25,958,628 20,945,139
---------- ----------
End of period $ 38,370,217 $ 22,041,101
========== ==========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
Cash paid for interest $ 4,772,436 $ 1,855,020
========== ==========
See notes to condensed financial statements.
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FLORIDA BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX 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 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 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 six month periods ended June 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 Six Month Period Ended
June 30, June, 30
-------------------------------- --------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Weighted average number of common
shares outstanding - Basic 5,644,137 5,853,613 5,681,919 5,853,187
Incremental shares from the assumed
conversion of stock options - - - -
--------- ---------- ---------- --------- --
Total - Diluted 5,644,137 5,853,613 5,681,919 5,853,187
========== ========== ========== =========
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FLORIDA BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 2000 AND 1999 (UNAUDITED) (Continued)
--------------------------------------------------------------------------------
The exercise prices of stock options outstanding in the three and six
month periods ended June 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) in the first quarter of the year ending December 31, 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 hedges 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. The effect of adoption SFAS No. 133 is currently being
evaluated but is not expected to have a material effect on the Company's
financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Accounting
Bulletin (SAB) No, 101, " Revenue Recognition in Financial Statements."
The objective of this SAB is to provide further guidance on revenue
recognition issues in the absence of authoritative literature addressing a
specific arrangement or a specific industry. The Company is required to
adopt the guidance in the SAB no later than the fourth quarter of the year
ending December 31, 2000. Adoption of this guidance is not expected to
have a material impact on the Company's financial position or results of
operations. The SEC has recently indicated it intends to issue further
guidance with respect to adoption of specific issues addressed by SAB No.
101. Until such time as this additional guidance is issued, the Company is
unable to assess the impact, if any, it may have on its financial position
or results of operations.
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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.
Financial information contained in the Management's Discussion and Analysis of
Financial Condition and Results of Operations is derived from the unaudited
Condensed Balance Sheets and unaudited Condensed Statements of Operations for
the indicated periods. Percentage changes are calculated on the actual amount of
the change and dollar amounts are rounded for presentation purposes.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
The Company's net loss for the second quarter of 2000 decreased $7,000 to
$245,000 for the three month period ending June 30, 2000, from a net loss of
$252,000 for the three month period ended June 30, 1999. Basic loss per share
for the first quarter of 2000 was $.04 compared to basic loss per share of $.04
for the second 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 $982,000 or 62.9%, to $2.5 million for
the second quarter of 2000 compared to $1.6 million the second quarter of 1999,
consists of an increase in interest income of $3.2 million, or 118.3%, offset by
an increase in interest expense of $2.2 million, or 196.3%. The increase in
interest income in the second quarter of 2000 is primarily attributable to an
increase of $2.7 million in interest and fees on loans resulting from the growth
in the loan portfolio. The increase in interest expense is primarily the result
of an increase in interest expense on deposits of $2.1 million attributable to
the growth in time deposits.
The provision for loan losses charged to operations increased $139,000 to
$339,000 for the second quarter of 2000 from $200,000 in the second quarter of
1999. This increase represents the additional reserves resulting from new loan
growth.
Non-interest income increased 31.2% or $48,000 to $202,000 for the three months
ended June 30, 2000 from $154,000 for the three months ended June 30, 1999. The
increase in non-interest income primarily resulted from an increase in service
fees to $141,000 at June 30, 2000 from $102,000 at June 30, 1999. The increase
in service fees resulted primarily from an increase in deposits.
Non-interest expense increased $802,000 or 40.3% to $2.8 million for the three
month period ended June 30, 2000 compared to $2.0 million for the three month
period ended June 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 $501,000 to $1.8
million for the second quarter of 2000 compared to $1.3 million for the second
quarter of 1999. This increase is the result of additional staff associated with
the new banking offices. The increase in occupancy and equipment expense of
$178,000, or 89.1%, 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 $65,000 or 125.5% to $116,000 for the three months ended June
30, 2000 as compared to $51,000 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 $58,000, or 12.4% to $531,000 for the first quarter of
2000 compared to $473,000 for the same period in 1999. This increase is
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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.
A benefit for income taxes of $139,000 was recognized for the three-month period
ended June 30, 2000 as compared to a benefit for income taxes of $221,000 for
the same period in 1999. These benefits for income taxes represent an estimated
effective annual tax rate of 38%.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
The Company's net loss for the first half of 2000 increased $185,000 to $662,000
for the six month period ending June 30, 2000, from a net loss of $477,000 for
the six month period ended June 30, 1999. Basic loss per share for the first
half of 2000 was $.12 compared to basic loss per share of $.08 for the first
half of 1999. The increase in the loss results primarily from costs associated
with the opening of the Pinellas County and Broward County banking offices and
the Ocala loan production office.
The increase in net interest income of $1.8 million, or 62.8%, to $4.6 million
for the first half of 2000 compared to $2.9 million the same period in 1999,
consists of an increase in interest income of $5.5 million, or 114.9%, and an
increase in interest expense of $3.7 million, or 191.6%. The increase in net
interest income of $1.8 million in the first half of 2000 is primarily
attributable to an increase of $4.8 million in interest and fees on loans
resulting from the growth in the loan portfolio. The increase in interest
expense is primarily the result of an increase in interest expense on deposits
of $3.5 million attributable to the growth in time deposits.
The provision for loan losses charged to operations increased $444,000 to
$709,000 for the first half of 2000 from $265,000 in the first half of 1999.
This increase represents the additional reserves resulting from new loan growth.
Non-interest income increased 30.7% or $83,000 to $353,000 for the six months
ended June 30, 2000 from $270,000 for the same period in 1999. The increase in
non-interest income primarily resulted from an increase in service fees to
$265,000 at June 30, 2000 from $199,000 at June 30, 1999. The increase in
service fees resulted primarily from an increase in deposits.
Non-interest expense increased $1.7 million or 44.8% to $5.4 million for the six
month period ended June 30, 2000 compared to $3.7 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 $1.1 million, or 43.4% to $3.5 million for the first
half of 2000 compared to $2.4 million for the first half of 1999. This increase
is the result of additional staff associated with the new banking offices. The
increase in occupancy and equipment expense of $385,000, or 111.0%, 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 $101,000 or 109.9% to
$192,000 for the six months ended June 30, 2000 as compared to $91,000 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 $127,000, or
15.0% to $979,000 for the first half of 2000 compared to $852,000 for the first
half of 1999. This increase is primarily attributed to the additional operating
expenses of the Pinellas County and Broward County banking offices and the Ocala
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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 $399,000 was recognized for the six month period
ended June 30, 2000 as compared to a benefit for income taxes of $359,000 for
the same period in 1999. These benefits for income taxes represent an estimated
effective annual tax rate of 38%.
FINANCIAL CONDITION
Total assets at June 30, 2000 were $304.5 million, an increase of $86.4 million
or 39.6%, 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 increased $7.1 million or
35.8% to $27.0 million at June 30, 2000 as compared to $19.9 million at December
31, 1999. These assets represent short term reserves for future funding of loan
growth. Investment securities increased $8.0 million or 28.2% to $36.5 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
during the first half of 2000.
Total loans increased $65.3 million, or 41.4%, to $222.9 million at June 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 $758,000 or 40.8% for the first half of 2000. The increase resulted
from recoveries of previously charged-off loans of $49,000, partially offset by
$1,000 in charge-offs, and additional provisions of $709,000, during the six
month period ended June 30, 2000. The allowance for loan losses as a percent of
total loans was approximately 1.2% at December 31, 1999 and 1.2% at June 30,
2000. Management believes that such allowance for loan losses is sufficient to
cover estimated losses in the Bank's loan portfolio.
Deposits increased $82.6 million, or 51.9%, to $241.7 million at June 30, 2000
from $159.1 million at December 31, 1999. The increase in total deposits
resulted from an increase of $4.6 million or 21.0% in non-interest bearing
deposits, an increase of $1.4 million or 12.6% in interest-bearing demand, an
increase of $340,000 or 0.9% in savings deposits, and an increase of $76.6
million or 89.7% in time deposits, offset by a decrease of $367,000 or 23.0% in
money market 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 June 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 $284,000 to $1,384,000 at June 30, 2000, compared to
$1,100,000 at December 31, 1999. The increase is the result of seven additional
loans being changed from accrual to non-accrual status during the first half of
2000.
LIQUIDITY AND SOURCES OF CAPITAL
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
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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.
Liquidity is the Company's ability to meet all deposit withdrawals immediately,
while also providing for the credit needs of customers. The June 30, 2000
financial statements evidence a satisfactory liquidity position as total cash
and cash equivalents amounted to $38.4 million, representing 12.6% of total
assets. Investment securities amounted to $36.5 million, representing 12.0% 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, 2000, total
deposits increased from $159.1 million at December 31, 1999 to $241.7 million,
representing an increase of 51.9%. 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,
2000:
<TABLE>
To be Well
Capitalized Under
For Capital Prompt Corrective
Bank Actual Adequacy Purposes Action Provisions
---- ------------- --------------------------- ---------------------
<S> <C> <C> <C> <C>
Tier 1 Capital 9.95 % 4.00 % 6.00 %
====== ====== ======
Total risk-based capital ratio 11.11 % 8.00 % 10.00 %
======= ====== =======
Leverage ratio 7.75 % 4.00 % 5.00 %
====== ====== ======
</TABLE>
11
<PAGE>
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. 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 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 June 30, 2000,
the Company had cumulative gap ratios of approximately 1.28 for the three month
time period and .80 for the one year period ending June 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 or over the next twelve-month period. Conversely, a 200 basis point
decrease in rates would cause a decrease in net interest income of $1.5 million
over a twelve-month period.
12
<PAGE>
This simulation is 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 June 30, 2000, the Company was not engaged in trading activities.
During the second quarter of 2000, the Company entered into various interest
rate swaps to help manage the Company's interest sensitivity. Such contracts
typically have a fixed notional principal amount, and the Company typically pays
a fixed rate on a certificate of deposit while the counterparty pays or receives
a floating rate based on a specified index. This index is generally 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 June 30, 2000, the
estimated fair value of the Company's outstanding interest rate swaps indicated
$28,000 in unrealized gains and $108,000 in unrealized losses. For the three and
six month periods ended June 30, 2000 and 1999, there were no realized gains or
losses on terminated interest rate swaps.
Part II. Other Information
Item 1. Legal Proceedings
No disclosure required.
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.
13
<PAGE>
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 June 30, 2000.
14
<PAGE>
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 11, 2000 By: /s/Charles E. Hughes, Jr.
-------------------------------------
Charles E. Hughes, Jr.
President and Chief Executive Officer
Date: August 11, 2000 By: /s/T. Edwin Stinson, Jr.
-------------------------------------
T. Edwin Stinson, Jr.
Chief Financial Officer
15
