<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21967
KEY FLORIDA BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 65-0105205
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER)
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6016 26TH STREET WEST, BRADENTON FLORIDA 34207
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (941) 751-0611
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 .
----- -----
As of August 14, 1997 there were outstanding 2,758,129 shares of the
Registrant's Common Stock.
<PAGE> 2
KEY FLORIDA BANCORP, INC.
FORM 10-QSB - For the Quarter Ended June 30, 1997
TABLE of CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1. Financial Statements ........................................................ 4-19
Item 2. Management's Discussion and Analysis of Financial
Condition and Result of Operations .......................................... 20-47
Part II. Other Information
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults upon Senior Securities - Not Applicable
Item 4. Submissions of Matters to a Vote of Security Holders.......................... 48
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K.............................................. 49
</TABLE>
<PAGE> 3
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
KEY FLORIDA BANCORP, INC.
AND SUBSIDIARIES
BRADENTON, FLORIDA
JUNE 30, 1997
CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT 4
CONDENSED CONSOLIDATED BALANCE SHEETS 5
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR KEY FLORIDA
BANCORP, INC. AND SUBSIDIARIES FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1996 6
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR KEY FLORIDA
BANCORP, INC. AND SUBSIDIARIES FOR THE THREE MONTHS
ENDED JUNE 30, 1997 AND 1996 7
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY FOR KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES FOR
THE SIX MONTHS ENDED JUNE 30, 1997 8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR KEY FLORIDA
BANCORP, INC. AND SUBSIDIARIES FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 11-19
</TABLE>
(3)
<PAGE> 4
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors
Key Florida Bancorp, Inc. and Subsidiaries
Bradenton, Florida
We have reviewed the condensed consolidated balance sheet and condensed
consolidated statement of changes in stockholders' equity of Key Florida
Bancorp, Inc. and subsidiaries as of June 30, 1997, and the related condensed
consolidated statements of income for the three months and six months ended
June 30, 1997 and 1996, and condensed consolidated statements of cash flows for
the six months ended June 30, 1997 and 1996. These financial statements are
the responsibility of Key Florida Bancorp, Inc. and its subsidiaries'
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the year then ended (not presented herein) and, in our report
dated March 7, 1997, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1996, is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ PURVIS, GRAY AND COMPANY
August 1, 1997
Gainesville, Florida
(4)
<PAGE> 5
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES - BRADENTON, FLORIDA
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
JUNE 30, DECEMBER 31,
1997 1996
-------------- ---------------
<S> <C> <C>
ASSETS
ASSETS
Cash and Demand Deposits Due From Banks $ 7,017,010 $ 10,542,883
Federal Funds Sold and Federal Home Loan Bank
Overnight Account 5,947,054 971,647
Investment Securities - Available-For-Sale 24,819,490 27,414,233
Loans Receivable, Net 160,906,664 153,708,503
Premises and Equipment, Net 5,214,400 4,542,646
Accrued Interest Receivable 1,303,635 1,352,943
Other Real Estate Owned 201,389 120,000
Other Assets 1,887,302 2,237,292
-------------- ---------------
TOTAL ASSETS 207,296,944 200,890,147
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-Bearing 18,452,355 17,010,952
Interest-Bearing Demand 174,470,782 170,335,869
-------------- ---------------
Total Deposits 192,923,137 187,346,821
Accrued Interest Payable 646,176 549,342
Other Liabilities 618,572 302,816
-------------- ---------------
TOTAL LIABILITIES 194,187,885 188,198,979
-------------- ---------------
STOCKHOLDERS' EQUITY
Common Stock, $.01 Par Value; 4,000,000 Shares
Authorized, 2,758,129 Shares Issued 27,581 27,581
Additional Paid-In Capital 11,400,484 11,400,484
Unrealized (Loss) on Securities (Net of Deferred
Taxes) (6,991) (18,654)
Retained Earnings 1,688,475 1,282,247
(Treasury Stock, At Cost - 143 Shares) (490) (490)
-------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 13,109,059 12,691,168
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 207,296,944 $ 200,890,147
============== ===============
</TABLE>
See accompanying notes.
(5)
<PAGE> 6
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
BRADENTON, FLORIDA
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1997 1996
------------ -------------
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 7,130,052 $ 3,352,506
Interest on Investment Securities - Taxable 803,400 566,342
Exempt From Federal Income Taxes 12,089 11,847
Federal Funds Sold and Overnight Accounts 81,110 64,872
------------ -------------
TOTAL INTEREST INCOME 8,026,651 3,995,567
------------ -------------
INTEREST EXPENSE
Interest on Deposits 4,122,027 1,990,371
Interest on Other Borrowings 38,538 2,844
------------ -------------
TOTAL INTEREST EXPENSE 4,160,565 1,993,215
------------ -------------
NET INTEREST INCOME 3,866,086 2,002,352
PROVISION FOR LOAN LOSSES 115,000 195,000
------------ -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,751,086 1,807,352
------------ -------------
NONINTEREST INCOME
Service Charges on Deposit Accounts 135,096 151,496
Gain on Loan Sales 67,479 0
Gain on Other Real Estate Sales 35,276 0
Gain on Sale of Investment Securities 50,762 0
Other Income 192,281 92,878
------------ -------------
TOTAL NONINTEREST INCOME 480,894 244,374
------------ -------------
NONINTEREST EXPENSE
Salaries and Employees Benefits 1,573,966 775,427
Occupancy Expense 553,813 217,335
Data Processing Expense 235,521 94,151
FDIC Insurance Premiums and Assessments 61,432 28,965
Other Expenses 1,180,715 424,322
------------ -------------
TOTAL NONINTEREST EXPENSE 3,605,447 1,540,200
------------ -------------
INCOME BEFORE INCOME TAXES 626,533 511,526
INCOME TAX (EXPENSE) (220,305) (189,033)
------------ -------------
NET INCOME $ 406,228 $ 322,493
============ =============
EARNINGS PER SHARE $ 0.15 $ 0.12
============ =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,789,924 2,744,054
============ =============
</TABLE>
See accompanying notes.
(6)
<PAGE> 7
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
BRADENTON, FLORIDA
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------------
1997 1996
------------ -------------
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 3,572,573 $ 1,778,886
Interest on Investment Securities - Taxable 390,081 281,750
Exempt From Federal Income Taxes 5,801 5,913
Federal Funds Sold and Overnight Accounts 76,692 43,324
------------ -------------
TOTAL INTEREST INCOME 4,045,147 2,109,873
------------ -------------
INTEREST EXPENSE
Interest on Deposits 2,101,997 1,017,308
Interest on Other Borrowings 2,830 0
------------ -------------
TOTAL INTEREST EXPENSE 2,104,827 1,017,308
------------ -------------
NET INTEREST INCOME 1,940,320 1,092,565
PROVISION FOR LOAN LOSSES 55,000 135,000
------------ -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,885,320 957,565
------------ -------------
NONINTEREST INCOME
Service Charges on Deposit Accounts 77,039 81,972
Gain on Loan Sales 22,543 0
Gain on Other Real Estate Sales 0 0
Gain on Sale of Securities 50,762 0
Other Income 91,464 35,354
------------ -------------
TOTAL NONINTEREST INCOME 241,808 117,326
------------ -------------
NONINTEREST EXPENSE
Salaries and Employees Benefits 800,228 392,713
Occupancy Expense 276,287 119,327
Data Processing Expense 137,962 43,429
FDIC Insurance Premiums and Assessments 31,144 18,870
Other Expenses 602,630 307,480
------------ -------------
TOTAL NONINTEREST EXPENSE 1,848,251 881,819
------------ -------------
INCOME BEFORE INCOME TAXES 278,877 193,072
INCOME TAX (EXPENSE) (98,605) (69,750)
------------ -------------
NET INCOME $ 180,272 $ 123,322
============ =============
EARNINGS PER SHARE $ .06 $ .04
============ =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,789,924 2,744,054
============ =============
</TABLE>
See accompanying notes.
(7)
<PAGE> 8
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997
BRADENTON, FLORIDA
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK TREASURY STOCK ADDITIONAL GAIN (LOSS)
--------------------- --------------- PAID-IN ON RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES EARNINGS TOTAL
--------- ---------- ----- -------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1997 (AUDITED) 2,758,129 $ 27,581 143 $ (490) $ 11,400,484 $ (18,654) $ 1,282,247 $ 12,691,168
Unrealized (Loss) on
Securities - Available-
For-Sale 0 0 0 0 0 11,663 0 11,663
Net Income 0 0 0 0 0 0 406,228 406,228
--------- ---------- ----- -------- ------------ ----------- ------------ -------------
BALANCE, JUNE 30, 1997
(UNAUDITED) 2,758,129 $ 27,581 143 $ (490) $ 11,400,484 $ (6,991) $ 1,688,475 $ 13,109,059
========= ========== ===== ======== ============ =========== ============ =============
</TABLE>
See accompanying notes.
(8)
<PAGE> 9
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
BRADENTON, FLORIDA
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1997 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 406,228 $ 322,493
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Depreciation and Amortization 218,051 51,298
Provision For Possible Loan Losses 115,000 195,000
Net Amortization/Accretion of Premium/Discount on
Investment Securities 27,083 (5,588)
Net (Gain) on Sale of Loans (67,479) 0
Net (Gain) on Sale of Investment Securities (50,762) (938)
Net (Gain) Loss on Sale of Other Real Estate Owned (35,276) 13,143
Deferred Income Taxes (5,909) 34,959
Changes in Assets and Liabilities:
Decrease (Increase) in Accrued Interest Receivable 49,308 (103,521)
Decrease (Increase) in Other Assets 472,533 (234,009)
Increase in Accrued Interest Payable 96,834 3,793
Increase in Other Liabilities 315,756 139,608
------------ -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,541,367 416,238
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Sale of Investment Securities 5,977,809 500,938
Loan Originations, Net (10,446,513) (8,118,657)
Proceeds From Sale of Loans 2,701,402 0
Proceeds From Sale of Other Real Estate Owned 330,773 132,194
Purchase of Investment Securities (5,308,942) (5,041,679)
Proceeds From Maturities and Calls of Investment Securities 1,967,127 5,088,296
Purchase of Bank Premises and Equipment (889,805) (906,809)
------------ -------------
NET CASH (USED IN) INVESTING ACTIVITIES (5,668,149) (8,345,717)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Noninterest-Bearing Deposits 1,441,403 (1,667,116)
Net (Decrease) Increase in Money Market Deposits (2,376,434) 1,362,188
Net Increase in Savings and NOW Deposits 6,112,425 960,963
Net Increase in Time Deposits 398,922 5,804,304
------------ -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,576,316 6,460,339
------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,449,534 (1,469,140)
CASH AND CASH EQUIVALENTS, JANUARY 1 11,514,530 6,249,579
------------ -------------
CASH AND CASH EQUIVALENTS, JUNE 30 $ 12,964,064 $ 4,780,439
============ =============
</TABLE>
See accompanying notes.
(9)
<PAGE> 10
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
BRADENTON, FLORIDA
(UNAUDITED)
(CONCLUDED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1997 1996
------------ -------------
<S> <C> <C>
SHOWN ON THE BALANCE SHEETS AS
- ------------------------------
Cash and Demand Deposits Due From Banks $ 7,017,010 $ 3,530,274
Federal Home Loan Bank Overnight Accounts and
Federal Funds Sold 5,947,054 1,250,165
------------ -------------
TOTAL CASH AND CASH EQUIVALENTS $ 12,964,064 $ 4,780,439
============ =============
SUPPLEMENTAL CASH DISCLOSURES
- -----------------------------
Interest Paid $ 4,025,193 $ 1,986,578
============ =============
Income Taxes Paid $ 185,200 $ 148,500
============ =============
</TABLE>
See accompanying notes.
(10)
<PAGE> 11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
BRADENTON, FLORIDA
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
BUSINESS ACTIVITY
Key Florida Bancorp, Inc. (the Company) is a commercial bank
holding company, incorporated under the laws of Florida. It is
the parent company of its wholly-owned subsidiary, Liberty
National Bank (the Bank), a national bank. The Bank is engaged in
bank and bank-related activities. The Bank conducts a commercial
banking business which consists of attracting deposits from the
general public and applying those funds to the origination of
commercial, consumer and real estate loans (including commercial
loans collateralized by real estate). The Bank's profitability
depends primarily on net interest income, which is the difference
between interest income generated from interest-earning assets
(i.e., loans and investments) less the interest expense incurred
on interest-bearing liabilities (i.e., customer deposits and
borrowed funds). Net interest income is affected by the relative
amounts of interest-earning assets and interest-bearing
liabilities, and the interest rate earned and paid on these
balances. Net interest income is dependent upon the Bank's
interest rate spread, which is the difference between the average
yield earned on its interest-earning assets and the average rate
paid on its interest-bearing liabilities. When interest-earning
assets approximate or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income.
The interest rate spread is impacted by interest rates, deposit
flows, and loan demand.
Additionally, and to a lesser extent, the Bank's profitability is
affected by such factors as the level of noninterest income and
expenses, the provision for credit losses, and the effective tax
rate.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-QSB
and do not include all of the information and footnotes required
by generally accepted accounting principles for complete
consolidated financial statements. In the opinion of the Company,
the unaudited consolidated financial statements reflect all
adjustments which are of a normal recurring nature and which are
necessary to present fairly the consolidated financial position of
the Company as of June 30, 1997, the results of its operations for
the six months and the three months ended June 30, 1997 and 1996,
and its cash flows for the six months ended June 30, 1997 and
1996. The results of operations for the six months and the three
months ended June 30, 1997, are not necessarily indicative of the
results which may be expected for the entire fiscal year.
WEIGHTED AVERAGE SHARES OUTSTANDING
Net income per share of the Company's common stock was computed by
dividing net income for the respective period by the weighted
average number of shares of common stock outstanding, including
common stock equivalents using the treasury stock method. Stock
options issued to officers are considered common stock
equivalents. Because there is established public trading of the
Company's common stock, the treasury stock method uses the
Company's quoted market price at the end of the respective period.
(11)
<PAGE> 12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
BRADENTON, FLORIDA
(CONTINUED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION (CONCLUDED)
WEIGHTED AVERAGE SHARES OUTSTANDING (CONCLUDED)
Because the assumed exercise of stock options does not pass the 3%
dilution test in accordance with Accounting Principles Board
Opinion No. 15 (APB No. 15), the Company is deemed to have a
simple capital structure and need only report primary earnings per
share. For the six months ended June 30, 1997 and 1996, weighted
average number of shares of common stock and common stock
equivalents outstanding was computed as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
---------------------------
1997 1996
------------ -------------
<S> <C> <C>
Weighted Average Shares of Common Stock Outstanding 2,758,129 2,739,847
Common Shares Assumed Outstanding to Reflect the
Dilutive Effect of Stock Options to Purchase Common
Stock 31,795 4,207
------------ -------------
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON
STOCK AND COMMON STOCK EQUIVALENTS OUTSTANDING 2,789,924 2,744,054
============ =============
</TABLE>
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the report
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS
Cash equivalents include cash, demand deposits due from banks,
federal funds sold, and Federal Home Loan Bank overnight deposits.
Generally, federal funds sold mature within ninety days.
NOTE 2 - BUSINESS COMBINATION AND COMPARABILITY OF FINANCIAL STATEMENTS
MERGER WITH KEY FLORIDA BANK, F.S.B.
On July 30, 1996, effective the close of business, the Company and
the Bank closed the merger of Key Florida Bank, F.S.B. with and
into the Bank. The Key Florida Bank, F.S.B./Liberty National Bank
merger transaction was accounted for under the purchase method of
accounting. As a result of the merger, the outstanding shares of
the Bank were converted into an aggregate of 1,798,861 shares of
Key Florida Bancorp, Inc. common stock resulting in 2,739,847
shares of Key Florida Bancorp, Inc. stock outstanding after the
merger. In connection with the merger, the Bank recorded
intangible assets, including a core deposit intangible in the
amount of $975,000, which is being amortized over ten years in
accordance with guidelines promulgated by the Office of the
Comptroller of the Currency (OCC).
(12)
<PAGE> 13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
BRADENTON, FLORIDA
(CONTINUED)
NOTE 2 - BUSINESS COMBINATION AND COMPARABILITY OF FINANCIAL STATEMENTS
(CONCLUDED)
COMPARABILITY OF FINANCIAL STATEMENTS
Due to the aforementioned merger transaction and to the number of
shares of the Company's stock issued to Bank shareholders in the
merger, a change of control of the Company was deemed to have
occurred. Because control changed to Bank shareholders at merger,
the comparative financial statements presented for the preceding
fiscal period ended June 30, 1996, are those of Liberty National
Bank.
RECAPITALIZATION RESULTING FROM MERGER
As a result of the merger transaction, the January 1, 1995,
balance of the Bank's common stock outstanding and the related
balance in par value have been retroactively restated to reflect
the number of shares outstanding of the Company and the Company's
one-cent par value. Additionally, additional paid-in capital at
that date has been restated to reflect the corresponding
adjustment of the balance in par value. These adjustments were
made to give retroactive application to the aforementioned
recapitalization resulting from the merger on July 30, 1996. The
amounts as originally reported and as adjusted at January 1, 1995,
are as follows:
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------------- PAID-IN
SHARES AMOUNT CAPITAL
------------ ------------ ---------------
<S> <C> <C> <C>
As Originally Reported ($5 Par Value) 845,606 $ 4,228,030 $ 2,233,630
Adjustment For Recapitalization (16,024) (4,219,734) 4,219,734
------------ ------------ ---------------
AS ADJUSTED (ONE-CENT PAR VALUE) 829,582 $ 8,296 $ 6,453,364
============ ============ ===============
</TABLE>
Additionally, per share data as of June 30, 1996, has been
retroactively restated for the recapitalization resulting from the
merger.
NOTE 3 - INCOME TAXES
Federal and state income taxes are provided on income reported for
financial statement purposes and include both current and deferred
income tax expense. Current income tax expense is recorded to
reflect income taxes based upon the tax returns filed with the
appropriate taxing agencies. Deferred income taxes are recorded
to reflect the tax consequences on future years of differences
between the taxes bases of assets and liabilities and their
financial reporting amounts at year end. The change in deferred
taxes attributable to the carrying value of investments
categorized as "available-for-sale" is recognized as a change in
stockholders' equity. The change in deferred income taxes
attributable to all other timing differences is recognized as
deferred income tax expense or benefit. The tax benefits related
to operating loss and tax credit carryforwards, if any, recognized
if management believes, based on available evidence, that it is
more likely than not that they will be realized. Investment tax
credits, if any, are accounted for using the flow-through method.
(13)
<PAGE> 14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
BRADENTON, FLORIDA
(CONTINUED)
NOTE 3 - INCOME TAXES (CONCLUDED)
The Company files consolidated federal and state income tax
returns with its subsidiary, the Bank. Federal and state income
taxes are allocated between the Company and its subsidiary in
proportion to the respective contributions in consolidated taxable
income.
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
The major categories of loans included in the loan portfolio are:
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
JUNE 30, DECEMBER 31,
1997 1996
---------------- -----------------
<S> <C> <C>
Commercial, Financial and Agricultural $ 24,893,390 $ 22,592,750
Real Estate 132,243,282 121,533,213
Installment Loans 5,138,187 10,980,785
---------------- -----------------
Loans Receivable (Gross) 162,274,859 155,106,748
Unearned Income (73,955) (76,914)
---------------- -----------------
Loans Receivable (Net of Unearned Income) 162,200,904 155,029,834
Less: Allowance For Loan Losses (1,294,240) (1,321,331)
---------------- -----------------
LOANS RECEIVABLE (NET) $ 160,906,664 $ 153,708,503
================ =================
</TABLE>
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
JUNE 30, DECEMBER 31,
1997 1996
---------------- -----------------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 1,321,331 $ 704,317
Provision Charged to Expense 115,000 256,859
Purchase of Key Florida Bank, FSB 0 528,109
Recoveries of Loans Previously Charged Off 1,142 6,187
---------------- -----------------
Total Additions 1,437,473 1,495,472
(Loans Charged Off) (143,233) (174,141)
---------------- -----------------
BALANCE, END OF YEAR $ 1,294,240 $ 1,321,331
================ =================
</TABLE>
NOTE 5 - INVESTMENTS
The carrying amounts of investment securities as shown on the
balance sheet of the Bank and their approximate market value at
June 30, 1997 and December 31, 1996, were as follows:
(14)
<PAGE> 15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
BRADENTON, FLORIDA
(CONTINUED)
NOTE 5 - INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
CARRYING VALUE SUMMARY
AVAILABLE-FOR-SALE - JUNE 30, 1997
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS (LOSSES) VALUE
------------ -------------- ------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 3,484,882 $ 3,573 $ (3,220) $ 3,485,235
U.S. Government Agencies 15,644,261 14,655 (34,382) 15,624,534
Mortgage-Backed Securities 3,969,348 24,920 (23,531) 3,970,737
Obligations of State and Political
Subdivisions 391,440 7,294 0 398,734
------------ -------------- ------------- ------------
Total Debt Securities 23,489,931 50,442 (61,133) 23,479,240
Equity Securities 1,340,250 0 0 1,340,250
------------ -------------- ------------- ------------
TOTAL SECURITIES $ 24,830,181 $ 50,442 $ (61,133) $ 24,819,490
============ ============== ============= ============
</TABLE>
<TABLE>
<CAPTION>
(AUDITED)
CARRYING VALUE SUMMARY
AVAILABLE-FOR-SALE - DECEMBER 31, 1996
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS (LOSSES) VALUE
------------ -------------- ------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 6,443,876 $ 31,741 $ (5,307) $ 6,470,310
U.S. Government Agencies 15,798,228 21,822 (97,498) 15,722,552
Mortgage-Backed Securities 4,061,703 28,480 (15,474) 4,074,709
Obligations of State and Political
Subdivisions 426,789 7,973 0 434,762
------------ -------------- ------------- ------------
Total Debt Securities 26,730,596 90,016 (118,279) 26,702,333
Equity Securities 711,900 0 0 711,900
------------ -------------- ------------- ------------
TOTAL SECURITIES $ 27,442,496 $ 90,016 $ (118,279) $ 27,414,233
============ ============== ============= ============
</TABLE>
The book value and approximate market value of investments at June
30, 1997 and December 31, 1996, by contractual maturity are shown
below. Expected maturities may differ from contractual maturities
due to borrowers having the right to call or repay obligations
with or without prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE
--------------------------------------------------------
(UNAUDITED) (AUDITED)
JUNE 30, 1997 DECEMBER 31, 1996
--------------------------- --------------------------
CARRYING CARRYING
AMORTIZED (MARKET) AMORTIZED (MARKET)
COST VALUE COST VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Due in One Year or Less $ 3,343,136 $ 3,319,192 $ 2,510,639 $ 2,505,070
Due in One Year to Five Years 13,457,380 13,444,889 19,649,725 19,618,654
Due From Five to Ten Years 3,508,416 3,509,240 508,529 503,900
Other 4,521,249 4,546,169 4,773,603 4,786,609
------------ ------------ ------------ ------------
TOTAL $ 24,830,181 $ 24,819,490 $ 27,442,496 $ 27,414,233
============ ============ ============ ============
</TABLE>
(15)
<PAGE> 16
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
BRADENTON, FLORIDA
(CONTINUED)
NOTE 5 - INVESTMENTS (CONCLUDED)
Effective December 31, 1993, the Company adopted the investment
categorizations and carrying value rules as required by Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 115 (FASB No. 115), Accounting for Certain
Investments in Debt and Equity Securities. Under this statement,
the unrealized gain or loss on investment securities
available-for-sale, net of the applicable deferred income taxes,
is shown as a separate component of stockholders' equity in the
balance sheet. The following is a summary of the effects on the
statement of stockholders' equity as of June 30, 1997 and December
31, 1996:
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
JUNE 30, DECEMBER 31,
1997 1996
---------------- -----------------
<S> <C> <C>
Gross Unrealized (Gain) Loss on Securities
Available-For-Sale $ 17,572 $ 70,575
Deferred Income Tax Benefit on Unrealized
Loss (Gain) (5,909) (24,991)
---------------- -----------------
Net Increase in Stockholders' Equity $ 11,663 $ 45,584
================ =================
</TABLE>
NOTE 6 - PREMISES AND EQUIPMENT
A summary of premises and equipment at June 30, 1997 and December
31, 1996, is as follows:
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
JUNE 30, DECEMBER 31,
1997 1996
---------------- -----------------
<S> <C> <C>
Land $ 1,649,017 $ 1,246,665
Buildings 1,821,397 1,909,165
Furniture, Fixtures and Equipment 3,272,224 2,725,050
---------------- -----------------
6,742,638 5,880,880
(Accumulated Depreciation) 1,528,238 (1,338,234)
---------------- -----------------
TOTAL PREMISES AND EQUIPMENT $ 5,214,400 $ 4,542,646
================ =================
</TABLE>
NOTE 7 - DEPOSITS
A summary of interest-bearing deposits at June 30, 1997 and
December 31, 1996, is as follows:
(16)
<PAGE> 17
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
BRADENTON, FLORIDA
(CONTINUED)
NOTE 7 - DEPOSITS (CONCLUDED)
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
JUNE 30, DECEMBER 31,
1997 1996
---------------- -----------------
<S> <C> <C>
Demand $ 22,623,297 $ 26,111,666
Savings 26,814,755 19,590,395
Time 125,032,730 124,633,808
---------------- -----------------
TOTAL INTEREST-BEARING DEPOSITS $ 174,470,782 $ 170,335,869
================ =================
</TABLE>
Time deposit maturities for future years are presented in the
following table:
<TABLE>
<CAPTION>
YEAR AMOUNT
-------------------- ------------------
<S> <C>
June 30, 1998 $ 98,876,255
June 30, 1999 10,705,764
June 30, 2000 4,562,334
June 30, 2001 0
June 30, 2002 8,682,171
Thereafter 2,206,206
------------------
TOTAL $ 125,032,730
==================
</TABLE>
Included in interest-bearing deposits are certificates of deposit
in amounts of $100,000 or more. These certificates and their
remaining maturities are as follows:
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
JUNE 30, DECEMBER 31,
1997 1996
-------------- -----------------
<S> <C> <C>
Three Months or Less $ 4,286,305 $ 7,321,198
Three Through Six Months 4,641,971 4,829,065
Six Through Twelve Months 6,811,413 3,836,963
Over Twelve Months 3,454,800 4,146,655
-------------- -----------------
TOTAL $ 19,194,489 $ 20,133,881
============== =================
</TABLE>
A summary of interest on deposits is as follows:
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
JUNE 30, 1997 JUNE 30, 1996
--------------------------------------- ----------------------------------------
THREE MONTHS SIX MONTHS THREE MONTHS SIX MONTHS
------------------ ------------------ ------------------ -------------------
<S> <C> <C>
Interest-Bearing Demand Deposits $ 152,699 $ 316,481 $ 100,988 $ 192,223
Savings 307,960 564,315 32,239 65,508
Time Deposits of $100,000 or More 285,589 577,365 181,209 353,362
Other Time Deposits 1,355,749 2,663,866 702,872 1,379,278
------------------ ------------------ ------------------ -------------------
TOTAL $ 2,101,997 $ 4,122,027 $ 1,017,308 $ 1,990,371
================== ================== ================== ===================
</TABLE>
(17)
<PAGE> 18
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
BRADENTON, FLORIDA
(CONTINUED)
NOTE 8 - STOCK OPTION PLAN
In 1997, the Company adopted a stock option plan for granting
nonqualified stock options to employees of the Company and its
subsidiaries. The number of shares under option shall not exceed
150,000 shares. Option price shall not be less than the fair
market value of the stock on the date of the grant.
At June 30, 1997, no shares have been issued or granted.
NOTE 9 - EMPLOYEE BENEFIT PLAN
The Company implemented a 401(k) benefit plan effective April
1997, covering substantially all employees. Company contributions
are determined annually at the discretion of the Board of
Directors. As of June 30, 1997, no contributions had been
recorded.
NOTE 10 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements of Key Florida Bancorp, Inc.
(Parent Company only) for the six months ended June 30, 1997, are
presented as follows:
CONDENSED BALANCE SHEET
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Cash $ 42,229
Investment in Wholly-Owned Subsidiary at Equity
in Underlying Assets 13,190,712
Other Assets 233,667
-----------------
TOTAL ASSETS $ 13,466,608
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes Payable $ 132,371
Other Liabilities 225,178
-----------------
TOTAL LIABILITIES 357,549
-----------------
STOCKHOLDERS' EQUITY
Common Stock 27,581
Additional Paid-In Capital 11,400,484
Retained Earnings 1,688,475
(Treasury Stock) (490)
Unrealized (Loss) on Certain Securities (6,991)
-----------------
TOTAL STOCKHOLDERS' EQUITY 13,109,059
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,466,608
=================
</TABLE>
(18)
<PAGE> 19
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
KEY FLORIDA BANCORP, INC. AND SUBSIDIARIES
BRADENTON, FLORIDA
(CONCLUDED)
NOTE 10 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONCLUDED)
CONDENSED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
INCOME
Cash Dividends From Subsidiary $ 150,000
Other Income 176
-----------------
TOTAL INCOME 150,176
-----------------
EXPENSES
Interest 6,183
Other Expense 196,504
-----------------
(TOTAL EXPENSES) 202,687
-----------------
(LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF
SUBSIDIARY (52,511)
INCOME TAX BENEFIT RESULTING FROM FILING CONSOLIDATED
INCOME TAX RETURNS 73,243
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY 385,496
-----------------
NET INCOME $ 406,228
=================
</TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 406,228
Adjustments to Reconcile Net Income to Net Cash Provided By
Operating Activities:
Depreciation 4,875
Income From Subsidiary (385,496)
Other 23,140
-----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 48,747
-----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Premises and Equipment (2,675)
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments on Notes Payable (10,682)
-----------------
INCREASE IN CASH 35,390
CASH, JANUARY 1 6,839
-----------------
CASH, JUNE 30 $ 42,229
=================
</TABLE>
(19)
<PAGE> 20
KEY FLORIDA BANCORP, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis relates to the financial condition and
results of operations of the Company for the second quarter of fiscal 1997
ending June 30, 1997. Management's discussion and analysis of earnings and
related financial data are presented herein to assist investors in
understanding the financial condition of the Company at June 30, 1997, and the
results of operations of the Company for the six months ended June 30, 1997
and 1996, respectively. This discussion should be read in conjunction with the
unaudited consolidated financial statements and related unaudited footnotes of
the Company presented elsewhere within.
General
The Company's principal asset is its ownership of a controlling interest in
Liberty National Bank ("the Bank"). Accordingly, the Company's results of
operations are primarily dependent upon the results of operations of the Bank.
The Bank conducts commercial business consisting of attracting deposits from
the general public and applying those funds to the origination of commercial,
consumer and real estate loans (including commercial loans collateralized by
real estate). The Bank's profitability depends primarily on net interest
income, which is the difference between interest income generated from
interest-earning assets (i.e., loans and investments) less the interest expense
incurred on interest-bearing liabilities (i.e., customer deposits and borrowed
funds). Net interest income is affected by the relative amounts of
interest-earning assets and interest-bearing liabilities, and the interest rate
earned and paid on these balances. Net interest income is dependent upon the
Bank's interest-rate spread which is the difference between the average yield
earned on its interest-earning assets and the average rate paid on its
interest-bearing liabilities. When interest-earning assets approximate or
exceed interest-bearing liabilities, any positive interest rate spread will
generate net interest income. The interest rate spread is impacted by interest
rates, deposit flows, and loan demand. Additionally, and to a lesser extent,
the Bank's profitability is affected by such factors as the level of
noninterest income and expenses, the provision for loan losses, and the
effective tax rate. Noninterest income consists primarily of service fees on
deposit accounts and income from the sale of loans and investment securities.
Noninterest expense consists of compensation and employee benefits, occupancy
and equipment expenses, deposit insurance premiums paid to the FDIC, and other
operating expenses.
Management's discussion and analysis of earnings and related financial data are
presented herein to assist in an understanding of the financial condition of
the Company at, and results of operations of the Company for, the six months
ended June 30, 1997.
Recent Developments
During the fourth quarter of 1996, Bancorp purchased an existing structure in
Ellenton, Florida (Manatee County), and renovated it for use as its seventh
branch location. The Ellenton branch opened early January 1997. Through June
30, 1997 the branch has grown to $8.9 million in total deposits.
Also, during July 1997 the Bank acquired an existing structure near its Cortez
Road location and intends to renovate the structure and relocate its current
Cortez Road branch and operations center by December 1, 1997. The current
location at Cortez Road is leased for approximately $5,100 per month. The
depreciation on the new location will be approximately $1,600 per month
resulting in a net savings to the Bank of $42,000 annually.
(20)
<PAGE> 21
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
Liquidity Management
The objective of liquidity management is to ensure the availability of
sufficient resources to meet all financial commitments and to capitalize on
opportunities for business expansion. Liquidity Management addresses the
ability to meet deposit withdrawals either on demand or by contractual
maturity, to repay other borrowings as they mature and to make new loans and
investments as opportunities arise.
The Company's principal source of funds are those generated by the Bank,
including net increases in deposits, principal and interest payments on loans
and proceeds from sales and maturities of investment and mortgage-backed
securities.
The Bank has numerous sources of liquidity including loan and security
principal repayments and maturities, lines of credit at other financial
institutions, a line of credit with the Federal Home Loan Bank, the sale of
securities from its available-for-sale portfolio, whole loan sales and growth
in its core deposit base. As a member of the Federal Home Loan Bank system the
Bank has the ability to borrow on a secured basis utilizing mortgage related
loans and securities as collateral. At June 30, 1997 the Bank had no advances
with the Federal Home Loan Bank. The Bank also had an available line of credit
of $10 million.
The liquidity reserve may consist of cash on hand, cash on demand deposit with
other correspondent banks, and other investments and short-term marketable
securities as determined by the rules of the Office of the Comptroller of the
Currency, such as federal funds sold and United States securities and
securities guaranteed by the United States. At June 30, 1997, the Company
had a liquidity ratio of 13.07%.
Liquidity, as measured in the form of cash and cash equivalents, totaled
$12,964,064 at June 30, 1997. At June 30, 1996, cash and cash equivalents
totaled $4,780,000, an increase of 171% from June 30, 1996 to June 30,
1997. Cash and cash equivalents vary with seasonal deposit movements and are
generally higher in the winter than in the summer, and vary with the level of
principal repayments occurring in the Bank's investment securities portfolio
and loan portfolio.
As is typical of financial institutions, cash flows from investing (primarily
in loans and securities) and from financing (primarily through deposit
generation and short-term borrowings) are in excess of cash flows from
operations. For the six months ended June 30, 1997, the cash flow from
operations of $1,541,367 was higher than the same period 1996. Cash flows
from investing activities primarily reflect the net increase in loans due to
continued strong loan demand. The cash flows from financing activities at
June 30, 1997 reflect the increase in deposits primarily resulting from an
increase in savings and NOW deposits partially offset by a decrease in money
market deposits.
(21)
<PAGE> 22
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
Liquidity Management - Continued
Capital Resources
As mentioned previously, the Bank's principal sources of funds are net
increases in deposits, principal and interest payments on loans and proceeds
from sales and maturities of investment and mortgage-backed securities. The
Bank uses its capital resources primarily to fund existing and continuing loan
commitments and to purchase investment and mortgage-backed securities. At
June 30, 1997 the Bank had commitments to originate loans totaling $1,612,300
and had issued but unused standby letters of credit of $216,000. Scheduled
maturities of certificates of deposit during the twelve months following June
30, 1997 totaled $98.88 million. Management believes that the Bank has
adequate resources to fund all of its commitments, that substantially all of
its existing commitments will be funded in the subsequent twelve months and, if
so desired, it can adjust the rates on certificates of deposit and other
deposit accounts to retain deposits in a changing interest rate environment.
The Federal Reserve Board's (FRB) capital adequacy guidelines mandate that
minimum ratios be maintained by bank holding companies and banks.
Based upon their respective regulatory capital ratios at June 30, 1997 both
the Company and the Bank are well capitalized, based on the definitions in the
regulations issued by the Federal Reserve Board and the other federal bank
regulatory agencies setting forth the general capital requirements mandated by
the Federal Deposit Insurance Corporation Improvement Act of 1991.
The table below indicates the regulatory capital ratios of the Company and the
Bank and the regulatory categories for a well capitalized bank under the
regulatory framework for prompt corrective action (all three regulatory capital
ratios) at both June 30, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
Actual Ratios
------------------------ To Be Well
Capitalized Under
Prompt Corrective
June 30, June 30, Action
1997 1996 Provisions
----------------------------------------------
<S> <C> <C> <C>
Risk Based Ratios
Tier 1 Capital to risk-weighted assets 9.33% 10.15% 6.0%
Total Equity Capital to risk-weighted assets 10.30% 10.05% 10.0%
Tier I Capital to adjusted total assets-
leverage ratio 5.86% 7.57% 5.0%
</TABLE>
(22)
<PAGE> 23
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
Capital Resources - Concluded
The following were the essential components of the Company and the Bank's
risk-based capital ratio:
<TABLE>
<CAPTION>
Key Florida Liberty National
Bancorp, Inc. Bank
June 30, June 30,
1997 1996
------------ ----------------
(In thousands)
<S> <C> <C>
Tier 1 Capital
Common Stock $28 $4,797
Additional Paid-in Capital 11,400 1,751
Retained Earnings 1,688 1,187
Intangible assets (680) (157)
-------- --------
Total Tier 1 Capital 12,436 7,578
-------- --------
Tier 2 Capital
Allowance for loan losses, as limited 1,294 792
-------- --------
Total Tier 2 Capital 1,294 792
-------- --------
Total risk-based Capital $13,730 $8,370
======== ========
Risk-weighted Assets $133,436 $74,681
======== ========
</TABLE>
During the six months ended June 30, 1997 the Company's Tier 1 Capital ratio
increased by 29 basis points and the Total Capital ratio increased by 25 basis
points. Though the total risk-weighted assets increased approximately
$2,016,000 during the six months ended June 30, 1997 the increase was
accompanied by an increase in Tier 1 Capital for the quarter ending June 30,
1997, due to profitability of the Company.
(23)
<PAGE> 24
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
RESULTS OF OPERATIONS
Six months ended June 30, 1997, compared to six months ended June 30, 1996
General
The Company's net income was $406,000 or $.15 per share for the six months
ended June 30, 1997 as compared to the Bank's net income of $322,000, or
$.12 per share for the six months ended June 30, 1996, or an increase of
$84,000 or 26%. The Company's income before taxes on income was $626,500 for
the six months ended June 30, 1997, as compared to $512,000 for the Bank for
the six months ended June 30, 1996, or an increase of $114,500, or 22%.
The total interest earning assets increased from $93,018,000 at June 30, 1996
to $189,172,000 at June 30, 1997. The increase in total interest earning
assets was due in large part to the merger with Key Florida Bank, F.S.B. in
1996. The average yield on interest earning assets decreased from 8.59% at
June 30, 1996 to 8.49% at June 30 1997. The average yield on loans decreased
during this period from 9.50% to 8.96%, this was due to the large number of
residential real estate mortgages obtained in the merger with Key Florida Bank,
F.S.B. While residential real estate mortgages carry a weighted average yield
which is typically less than a similar sized commercial loan they generally
have a lower level of risk and bring a measure of increased asset quality. The
average yield on investments increased from 5.77% at June 30, 1996 to 6.01% at
June 30, 1997. During the prior three quarters the Bank has reduced its
position in mortgage-backed securities due to market price sensitivity and
reinvested in U.S. Treasury and government agency securities primarily due to
higher yield opportunities. The average rate paid for interest-bearing
liabilities decreased from 4.97% at June 30, 1996 to 4.84% at June 30, 1997.
The decrease during the quarter ended June 30, 1997 was primarily due to the
repricing of approximately $4.58 million in time deposits, which had been at
rates in excess of 6.8%, to a lesser rate. The decrease in the average rate
paid on interest-bearing liabilities from June 30, 1996 to June 30, 1997 was
primarily due to the repricing of time deposits.
The interest rate spread has increased from 3.62% at June 30, 1996 to 3.65% at
June 30, 1997, time deposits continue to reprice at lower rates of interest and
the Banks' loan to deposit ratio continues to increase. At year-end the loan
to deposits ratio was at 82% and increased during the first six months of
1997 to 83.4%.
The following table shows selected ratios for the periods ended:
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
-----------------------------------
1997 1996
----- ----
<S> <C> <C>
Average equity as a percentage of average assets 6.46% 7.61%
Equity to total assets at end of period 6.32% 7.30%
Return on average assets .40% .65%
Return on average equity 6.23% 8.61%
Interest expense to average assets 4.13% 4.29%
Interest income to average earning assets 7.96% 8.59%
Interest expense to average interest-bearing liabilities 4.84% 4.97%
Net Interest Margin 4.09% 4.31%
</TABLE>
(24)
<PAGE> 25
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
RESULTS OF OPERATIONS (CONTINUED)
General ( Continued)
The following tables set forth for the periods indicated, information regarding
(1) the total amount of interest and dividend income of the Bank from
interest-earning assets and the resultant average yield (ii) the total total
dollar amount of interest expense on interest-bearing liabilities and the
resultant average cost (iii) net interest/dividend income;(iv) interest rate
spread; and (v) net interest margin.
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------------------------------------------------
1997 1996(5)
----------------------------------------- ----------------------------------------
(Dollars in Thousands)
Interest Average nterest Average
Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate
------------ ----------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) $159,066 $7,130 8.96% $70,597 $3,353 9.50%
Investment and mortgage-
backed securities 27,128 816 6.01% 20,046 578 5.77%
Other interest-earning assets(2) 2,978 81 5.44% 2,375 65 5.47%
--------- -------- ------- -------- ------- ---------
Total interest-earning assets 189,172 8,027 8.49% 93,018 3,996 8.59%
Noninterest-earning assets 12,496 5,483
--------- --------
Total assets $201,668 $98,501
========= ========
Interest-bearing liabilities:
Demand, money market and
NOW deposits $24,478 317 2.59% $14,078 $191 2.71%
Savings 24,577 564 4.59% 4,479 66 2.95%
Certificates of deposit 121,489 3,241 5.33% 61,323 1,733 5.65%
Other borrowings 1,311 39 5.95% 229 3 2.62%
--------- -------- ------- -------- ------- ---------
Total interest-bearing
liabilities 171,855 4,161 4.84% 80,109 1,993 4.97%
--------- -------- ------- -------- ------- ---------
Noninterest-bearing liabilities 16,779 10,897
Stockholders' equity 13,034 7,495
--------- ---------
Total Liabilities and
Stockholders' equity $201,668 $98,501
========= =========
Net interest/dividend income $3,866 $2,003
========== ===========
Interest-rate spread(3) 3.65% 3.62%
========= ==========
Net interest margin(4) 4.09% 4.31%
========= ==========
Ratio of average interest-earning
assets to average interest-
bearing liabilities 1.10% 1.16%
========== ==========
</TABLE>
- ------------------------------------------------------------
(1) Includes nonaccrual loans.
(2) Includes interest-bearing deposits on other banks and federal funds sold.
(3) Interest-rate spread represents the difference between the average-yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
(5) 1996 Average balances are calculated using month-end totals, not daily
average balances.
(25)
<PAGE> 26
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
RESULTS OF OPERATIONS (CONTINUED)
Net interest income
Net interest income, which constitutes the principal source of income for the
Bank, represents the excess of interest income on interest-earning assets over
interest expense on interest-bearing liabilities. The principal
interest-earning assets are federal funds sold, investment securities and loans
receivable. Interest-bearing liabilities primarily consist of time deposits,
interest-bearing checking accounts ("NOW accounts"), savings, deposits and
money market accounts. Funds attracted by these interest-bearing liabilities
are invested in interest-earning assets. Accordingly, net interest income
depends upon the volume of average interest-earning assets and average
interest-bearing liabilities and the interest rates earned or paid on them.
The following table sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated.
The rate/volume variance for each category has been allocated on a consistent
basis between rate and volume variances based on the percentage of the rate or
volume variance to the sum of the two absolute variances.
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 Compared to 1996
(Dollars in thousands)
Rate Volume Total
---- ------ ------
<S> <C> <C> <C>
Interest-earning assets:
Loans $164 $3,613 $3,777
Investment and mortgage back securities 25 213 238
Other interest-earning assets 1 15 16
---- ------ ------
Total 190 3,841 4,031
---- ------ ------
Interest-bearing liabilities
Demand money market and NOW deposits 8 118 126
Savings 55 443 498
Certificate of Deposit 82 1,425 1,508
Other borrowings 8 28 36
---- ------ ------
Total 153 2,015 2,168
---- ------ ------
Net change in net interest income $37 $1,826 $1,863
==== ====== ======
</TABLE>
(26)
<PAGE> 27
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
RESULTS OF OPERATIONS (CONTINUED)
Net interest Income (Continued)
The Company's net interest income was $3,866,000 for the six months ended
June 30, 1997 compared with $2,002,000 for the Bank for the six months ended
June 30, 1996, or an increase of $1,864,000 or 93%. This increase in net
interest income resulted primarily from the increase in the loan portfolio due
to the merger with Key Florida Bank, F.S.B. The 125% volume increase in the
average balance of the loan portfolio for the first six months of 1997 as
compared to the first six months of 1996 resulted in a 113% increase in loan
interest income. As the above rate/volume variance table indicates the increase
in interest income in the first quarter of 1997 was primarily driven by the
increased volume of loans and to a lesser extent by an increased volume of
investment securities.
Provision for Loan Losses
The provision for loan losses is charged to earnings to bring the allowance for
loan losses to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by the Company,
the amounts of non-performing loans, general economic conditions, particularly
as they relate to the Company's market area, and other factors related to the
collectibility of the Company's loan portfolio. During the six months ended
June 30, 1997, the provision for loan losses was $115,000, as compared to
$195,000 during the six months ended June 30, 1996. Management believes that
the allowance at June 30, 1997 was adequate. See "---Financial
Condition---Allowance for Loan Losses". As of June 30, 1997, the allowance for
loan losses was .80% of total loans outstanding.
Noninterest Income
Noninterest income is composed primarily of service charges and fees but also
includes gains or losses on the sale of loans, gains or losses on the
disposition of bank premises and equipment, gain or losses on the sale of other
real estate owned and the gain or loss on the sale of investment securities.
During the six months ended June 30, 1997, noninterest income was $481,000 as
compared to $244,000 during the six months ended June 30, 1996 or an increase
of $237,000 or 97%. This increase was primarily attributable to the gains
on sale of loans of $67,500, gains of $35,000 recorded on the sale of other
real estate owned and gains on the sale of investment securities of $51,000.
(27)
<PAGE> 28
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
RESULTS OF OPERATIONS (CONTINUED)
Noninterest Expenses
During the six months ended June 30, 1997, noninterest expenses were $3,505,000
as compared to $1,540,000 during the six months ended June 30, 1996, or an
increase of $1,965,000 or 128%. The following sets forth additional
information on certain other expenses categories which had significant changes.
Compensation and benefits increased $799,000 or 103% to $1,574,000 during the
six months ended June 30, 1997 from $775,000 during the six months ended June
30, 1996. This increase is primarily due to the merger of the bank with Key
Florida Bank, F.S.B. on July 30, 1996. Prior to the merger of the two
financial institutions, the number of full time equivalent employees at the
Bank had averaged 44. Since the merger transaction occurred the average number
of full time equivalent employees is approximately 93.
Occupancy expenses increased $337,000 or 155% to $554,000 during the six
months ended June 30, 1997 from $217,000 during the six months ended June 30,
1996. This increase is also attributable to the merger with Key Florida
F.S.B. The Bank had three branch offices prior to the merger transaction
and acquired the three branch offices of Key Florida Bank, F.S.B. Also, the
Bank opened a seventh branch in early January, 1997. Key Florida Bancorp, Inc.
maintains it's offices in a separate location from the Bank and its branches.
Data processing expenses increased $142,000 or 151% to $236,000 during the
six months ended June 30, 1997 from $94,000 during the six months ended
June 30, 1996. This increase was the result of the merger transaction with Key
Florida Bank, F.S.B. During the fourth quarter of 1996 the Bank converted its
data processing systems to one service bureau and now has a management
information system which will allow for the continued growth of the Bank.
FDIC insurance assessments increased $32,000, or 110%, to $61,000 during the
six months ended June 30, 1997 from $29,000 during the six months ended June
30, 1996. At June 30, 1997 the Bank is a well capitalized financial
institution under regulatory guidelines and is assessed insurance premiums at
the lowest assessable rate. (See "Liquidity Management - Capital Resources")
Other expenses were $1,181,000 for the six months ended June 30, 1997, as
compared to $424,000 during the six months ended June 30, 1996, or an increase
of $757,000, or 179%. The increase in other expenses was primarily due to
the merger with Key Florida Bank, F.S.B. resulting in the doubling in size of
the Bank. Included in Other Expenses is the amortization of the core deposit
intangible (See Note 2 to the Notes to Unaudited Financial Statements - "Merger
with Key Florida Bank, F.S.B."), which is a direct result of the purchase of
Key Florida Bank, F.S.B. The amount of the amortization during the first two
quarters of 1997 was $161,000. Also, during the six months ended June 30,
1997 the Company paid costs of $68,000 associated with its registration
statement and application fees to NASDAQ to have its stock publicly traded on
the NASDAQ market, and charged off $100,000 for other repossessed assets. See
"Financial Condition - Classification of Assets."
(28)
<PAGE> 29
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
RESULTS OF OPERATIONS (CONTINUED)
Taxes on Income
During the six months ended June 30, 1997 and 1996, the Company and the Bank
recorded taxes on income of $627,000 and $512,000 respectively, reflecting
effective income tax rates of 35.16% in 1997 and 37.46% in 1996.
Comparison of the Quarters ended June 30, 1997 and 1996
General
The Company's net income was $180,000 or $.06 per share for the quarter ended
June 30 , 1997 as compared to the Bank's net income of $123,000, or $.04
per share for the quarter ended June 30, 1996, or an increase of $57,000 or
46.3%. The Company's income before taxes on income was $279,000 for the
quarter ended June 30, 1997, as compared to $193,000 for the Bank for the
quarter ended June 30, 1996, or an increase of $86,000, or 44.6%.
The total interest earning assets increased from $93,819,000 for the quarter
ended June 30, 1996 to $203,687,000 for the quarter ended June 30, 1997. The
increase in total interest earning assets was due in large part to the merger
with Key Florida Bank, F.S.B. in 1996. The average yield on interest earning
assets decreased from 9.00% for the quarter ended June 30, 1996 to 8.45% for
the quarter ended June 30 1997. The average yield on loans decreased during
this period from 9.20% to 8.95%, this was due to the large number of
residential real estate mortgages obtained in the merger with Key Florida Bank,
F.S.B. While residential real estate mortgages carry a weighted average yield
which is typically less than a similar sized commercial loan they generally
have a lower level of risk and bring a measure of increased asset quality. The
average yield on investments increased from 5.77% for the quarter ended June
30, 1996 to 6.01% for the quarter ended June 30, 1997. During the prior three
quarters of the Bank has reduced its position in mortgage-backed securities
due to market price sensitivity and reinvested in U.S. Treasury and government
agency securities primarily due to higher yield opportunities. The average
rate paid for interest-bearing liabilities decreased from 4.95% for the quarter
ended June 30, 1996 to 4.87% for the quarter ended June 30, 1997. There was
also a decrease from the end of 1996 from 4.93%, a decrease of 6 basis
points, or 1%. The decrease during the quarter ended June 30, 1997 was
primarily due to the repricing of approximately $4.58 million in time deposits,
which had been at rates in excess of 6.8%, to a lesser rate. The decrease in
the average rate paid on interest-bearing liabilities during the first two
quarters of 1997 was primarily due to the repricing of approximately $9.7
million of time deposits which were at rates in excess of 6.8%.
The interest rate spread has decreased from 4.05% for the quarter ended
June 30, 1996 to 3.58% for the quarter ended June 30, 1997. This decrease is
primarily due to a decrease of 55 basis points in the average yield of
interest-earning assets from June 30, 1996 to June 30, 1997. A large portion
of the decrease is attributable to a decrease in the average yield on loans
(which is the result of acquiring the predominantly residential real estate
loan portfolio of Key Florida Bank, F.S.B. in 1996). At year-end the loan to
deposits ratio was at 82% and increased during the first six months of 1997 to
83.4%.
(29)
<PAGE> 30
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
RESULTS OF OPERATIONS (CONTINUED)
General ( Continued)
The following tables set forth for the periods indicated, information regarding
(1) the total amount of interest and dividend income of the Bank from
interest-earning assets and the resultant average yield (ii) the total total
dollar amount of interest expense on interest-bearing liabilities and the
resultant average cost (iii) net interest/dividend income;(iv) interest rate
spread; and (v) net interest margin.
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------------------------------------------------------------
1997 1996(5)
----------------------------------------- ------------------------------------------
(Dollars in Thousands)
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate
------------ ----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) $159,547 $3,573 8.95% $71,728 $1,779 9.20%
Investment and mortgage-
backed securities 26,350 396 6.01% 19,950 288 5.77%
Other interest-earning assets(2) 5,576 76 5.45% 2,141 43 8.03%
-------- ------ -------- ------- ------ ------
Total interest-earning assets 191,473 4,045 8.45% 93,819 2,110 9.00%
Noninterest-earning assets 12,214 6,815
-------- -------
Total assets $203,687 $100,634
======== ========
Interest-bearing liabilities:
Demand, money market and
NOW deposits $24,464 153 2.50% $14,565 $89 2.45%
Savings 26,424 308 4.66% 4,536 40 3.55%
Certificates of deposit 121,809 1,641 5.39% 62,712 884 5.63%
Other borrowings 106 3 11.32% 343 4 4.66%
-------- ------ -------- ------- ------ ------
Total interest-bearing
liabilities 172,803 2,105 4.87% 82,156 1,017 4.95%
-------- ------ -------- -------- ------ ------
Noninterest-bearing liabilities 17,963 10,974
Stockholders' equity 12,921 7,504
--------- --------
Total Liabilities and
Stockholders' equity $203,687 $100,634
========= ========
Net interest/dividend income $1,940 $1,093
======= =======
Interest-rate spread(3) 3.58% 4.05%
======= =======
Net interest margin(4) 4.05% 4.66%
======= =======
Ratio of average interest-earning
assets to average interest-
bearing liabilities 1.11% 1.14%
========= ========
</TABLE>
- ------------------------------------------------------------
(1) Includes nonaccrual loans.
(2) Includes interest-bearing deposits on other banks and federal funds sold.
(3) Interest-rate spread represents the difference between the average-yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
(5) 1996 Average balances are calculated using month-end totals, not daily
average balances.
(30)
<PAGE> 31
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
RESULTS OF OPERATIONS (CONTINUED)
General (Concluded)
The following table sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated.
The rate/volume variance for each category has been allocated on a consistent
basis between rate and volume variances based on the percentage of the rate or
volume variance to the sum of the two absolute variances.
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 Compared to 1996
(Dollars in thousands)
------------------------------
Rate Volume Total
---- ------ -----
<S> <C> <C> <C>
Interest-earning assets:
Loans $39 $1,755 $1,794
Investment and mortgage back securities 12 96 108
Other interest-earning assets 6 27 33
--- ------ ------
Total 57 1,878 1,935
--- ------ ------
Interest-bearing liabilities
Demand money market and NOW deposits 2 62 64
Savings 16 252 268
Certificate of Deposit 33 724 757
Other borrowings 0 (1) (1)
--- ------ ------
Total 51 1,037 1,088
--- ------ ------
Net change in net interest income $6 $841 $847
=== ====== ======
</TABLE>
The Company's net interest income was $1,940,000 for the quarter ended June
30, 1997 compared with $1,093,000 for the Bank for the three months ended June
30, 1996, or an increase of $847,000 or 77.5%. This increase in net interest
income resulted primarily from the increase in the loan portfolio due to the
merger with Key Florida Bank, F.S.B. The 122% volume increase in the average
balance of the loan portfolio for the second quarter of 1997 as compared to
the second quarter of 1996 resulted in a 101% increase in loan interest
income. As the above rate/volume variance table indicates the increase in
interest income in the second quarter of 1997 was primarily driven by the
increased volume of loans and to a lesser extent by an increased volume of
investment securities.
Provision for Loan Losses
The provision for loan losses is charged to earnings to bring the allowance for
loan losses to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by the Company,
the amounts of non-performing loans, general economic conditions, particularly
as they relate to the Company's market area, and other factors related to the
collectibility of the Company's loan portfolio. During the quarter ended
June 30, 1997, the provision for loan losses was $55,000, as compared to
$135,000 during the quarter ended June 30, 1996. Management believes that the
allowance at June 30, 1997 was adequate. See "---Financial
Condition---Allowance for Loan Losses". As of June 30, 1997, the allowance for
loan losses was 0.80% of total loans outstanding.
(31)
<PAGE> 32
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
RESULTS OF OPERATIONS (CONTINUED)
Noninterest Income
Noninterest income is composed primarily of service charges and fees but also
includes gains on the sale of loans, gains on the disposition of bank
premises and equipment, gain on the sale of other real estate owned and the
gain on the sale of investment securities. During the three months ended June
30, 1997, noninterest income was $242,000 as compared to $117,000 during the
three months ended June 30, 1996 or an increase of $125,000 or 107%. This
increase was primarily attributable to the gains on sale of loans of $22,500
and gains on the sale of investment securities of $51,000.
Noninterest Expenses
During the three months ended June 30, 1997, noninterest expenses were
$1,848,000 as compared to $882,000 during the three months ended June 30,
1996, or an increase of $966,000 or 110%. The following sets forth additional
information on certain other expenses categories which had significant changes.
Compensation and benefits increased $407,000 or 104% to $800,000 during the
three months ended June 30, 1997 from $393,000 during the three months ended
June 30, 1996. This increase is primarily due to the merger of the bank with
Key Florida Bank, F.S.B. on July 30, 1996. Prior to the merger of the two
financial institutions, the number of full time equivalent employees at the
Bank had averaged 44. Since the merger transaction occurred the average number
of full time equivalent employees is approximately 93.
Occupancy expenses increased $157,000 or 132% to $276,000 during the three
months ended June 30, 1997 from $119,000 during the three months ended June
30, 1996. This increase is also attributable to the merger with Key
Florida F.S.B. The Bank had three branch offices prior to the merger
transaction and acquired the three branch offices of Key Florida Bank, F.S.B.
Also, the Bank opened its seventh branch location in early January, 1997 in
Ellenton, Florida. The Company maintains its corporate offices separate from
those of the Bank and its branches.
Data processing expenses increased $95,000 or 221% to $138,000 during the
three months ended June 30, 1997 from $43,000 during the three months
ended June 30, 1996. This increase was the result of the merger transaction
with Key Florida Bank, F.S.B. During the fourth quarter of 1996 the Bank
converted its data processing systems to one service bureau and now has a
management information system which will allow for the continued growth of the
Bank.
FDIC insurance assessments increased $12,000, or 63%, to $31,000 during the
three months ended June 30, 1997 from $19,000 during the three months ended
June 30, 1996. At June 30, 1997 the Bank is a well capitalized financial
institution under regulatory guidelines and is assessed insurance premiums at
the lowest assessable rate.
(32)
<PAGE> 33
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
RESULTS OF OPERATIONS (CONTINUED)
Noninterest Expenses (Continued)
Other expenses were $603,000 for the three months ended June 30, 1997, as
compared to $307,000 during the three months ended June 30, 1996, or an
increase of $296,000, or 96%. The increase in other expenses was primarily
due to the merger with Key Florida Bank, F.S.B. resulting in the doubling in
size of the Bank. Included in Other Expenses is the amortization of the core
deposit intangible ( See Item 1 - Note 2 to the Notes to Unaudited Financial
Statements - "Merger with Key Florida Bank, F.S.B."), which is a direct result
of the purchase of Key Florida bank, F.S.B. The amount of the amortization
during the second quarter of 1997 was $80,400. During the quarter ended June
30, 1997 the Company also paid costs of $31,930 associated with its
registration statement and application fees to NASDAQ to have its stock
publicly traded on the NASDAQ market, and charged off $100,000 for the other
repossessed assets. See "Financial Condition - Classification of Assets."
Taxes on Income
During the quarters ended June 30, 1997 and 1996, the Company and the Bank
recorded taxes on income of $99,000 and $70,000 respectively, reflecting
effective income tax rates of $35.36% in 1997 and 36.13% in 1996.
(33)
<PAGE> 34
KEY FLORIDA BANCORP, INC.
ASSET/LIABILITY MANAGEMENT
A principal objective of the Bank's asset/liability management strategy is to
minimize it's exposure to changes in interest rates by matching the maturity
and repricing horizons of interest-earning assets and interest-bearing
liabilities. This strategy is monitored by an Asset and Liability Committee
(the "ALCO Committee") which establishes policies and monitors results to
control interest rate sensitivity.
Management evaluates interest-rate-risk and then formulates guidelines
regarding asset generation and repricing funding sources and pricing, and
off-balance sheet commitments in order to maintain interest rate risk within
target levels for the appropriate level of risk which are determined by the
ALCO Committee. The ALCO Committee uses computer models prepared by a third
party to measure the Bank's interest rate sensitivity. From these reports,
the ALCO Committee can estimate the net income effect of various interest rate
scenarios.
As a part of the Bank's interest rate risk management policy, the ALCO
Committee examines the extent to which its assets and liabilities are "interest
rate sensitive" and monitors the Bank's interest rate sensitivity "gap." An
asset or liability is considered to be interest rate sensitive if it will
reprice or mature within the time period analyzed, usually one year or less.
The interest rate sensitivity gap is the difference between interest-earning
assets and interest-bearing liabilities scheduled to mature or reprice within
such time period. A gap is considered positive when the amount of interest
rate sensitive assets exceeds the amount of interest sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds interest rate sensitive assets. During a period of rising
interest rates a negative gap would tend to adversely affect net interest
income, while a positive gap would tend to result in an increase in net
interest income. During a period of falling interest rates, a negative gap
would tend to result in an increase in net interest income, while a positive
gap would tend to adversely affect net interest income. If the repricing of
the Bank's assets and liabilities were equally flexible and moved concurrently,
the impact of any increase or decrease in interest rates on net interest income
would be minimal.
The ALCO Committee's policy is to maintain a cumulative one-year gap which
falls in the range of (5%) to 10% of total assets. Management attempts to
conform to this policy by managing the maturity distribution of its investment
portfolio and emphasizing origination's and purchases of adjustable rate loans,
and by managing the product mix and maturity of its deposit accounts.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO Committee also evaluates how the repayment of
particular assets and liabilities is impacted by changes in interest rates.
Income associated
(34)
<PAGE> 35
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
ASSETS/LIABILITY MANAGEMENT (CONTINUED)
with interest-earning assets and costs associated with interest-bearing
liabilities may not be affected uniformly by changes in interest rates. In
addition, the magnitude and duration of changes in interest rates may have a
significant impact on net interest income. For example, although certain
assets and liabilities may have similar maturities or periods of repricing,
they may react in different degrees to changes in market interest rates.
Interest rates on certain types of assets and liabilities fluctuate in advance
of changes in general market interest rates, while interest rates on other
types may lag behind changes in general market rates. In addition, certain
assets, such as adjustable rate mortgage loans, have features (generally
referred to as "interest rate caps") which limit changes in interest rates on a
short-term basis and over the life of the asset. In the event of a change in
interest rates, prepayment (on loans) and early withdrawal(of deposit accounts)
levels also could deviate significantly from those assumed in calculating the
interest rate gap. The ability of many borrowers to service their debts also
may decrease in the event of an interest rate increase.
Management's strategy is to maintain a balanced interest rate risk position to
protect its net interest margin from market fluctuations. To this end, the
ALCO Committee reviews, on a quarterly basis, the maturity and repricing of
assets and liabilities.
The Bank's cumulative twelve month gap at June 30, 1997 was a positive 10.00%
which was within the target range established by the ALCO Committee.
Management believes that the foregoing interest rate sensitivity analysis does
not take into account the potential impact of prepayments on fixed rate loans
(which would tend to mitigate the effect of a negative gap). Also, management
believes the analysis assumes all NOW and statement savings accounts will
reprice immediately, although management considers at least a portion of such
accounts to be "core deposits" which management believes would not reprice in
direct response to changes in market interest rates, and therefore would tend
to mitigate the effect of a negative gap.
Principal among the Bank's asset/liability management strategies has been the
emphasis on managing its interest rate sensitive liabilities in a manner
designed to attempt to reduce the Bank's exposure during periods of
fluctuating interest rates. Management believes that the type and amount of
the Bank's interest rate sensitive liabilities may reduce the potential impact
that a rise in interest rates might have on the Bank's net interest income.
The Bank seeks to maintain a core deposit base by providing quality services to
its customers without significantly increasing its cost of funds or operating
expenses. The Bank's demand, money market, and NOW deposit accounts,
approximated 14.35% of total deposits at June 30, 1997. These accounts bore a
weighted average rate of 2.59% and 2.71% during the six months ended June 30,
1997, and during the six months ended June 30, 1996, respectively. Management
anticipates that these accounts will continue to comprise a significant portion
of the Bank's total deposit base. At June 30, 1997, 17.58% of total assets
consisted of cash and cash equivalents and short-term investment securities.
The Bank also maintains a "floor", or minimum rate, on certain of its floating
or prime based loans. These floors allow the Bank to continue to earn a higher
rate when the floating rate falls below the established floor rate.
(35)
<PAGE> 36
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
ASSET/LIABILITY MANAGEMENT (CONCLUDED)
The following table sets forth certain information relating to Bank's
interest-earning assets and interest-bearing liabilities at June 30, 1997 that
were estimated to mature or were scheduled to reprice within the period shown:
<TABLE>
<CAPTION>
(Dollars in thousands)
0-3 4-12 More than
Months Months One Year Total
-------- -------- ----------- -------
<S> <C> <C> <C> <C>
Loans receivable: (1)
Adjustable-rate $30,389 $23,994 $55,897 $110,280
Fixed-rate 4,154 5,483 42,358 51,995
------- ------- ------- --------
Total loans 34,543 29,477 98,255 162,275
Federal funds sold and Federal Home
Loan Bank Overnight Account 5,947 5,947
Investment and mortgage-backed
Securities (2) 485 2,834 21,500 24,819
------- ------- ------- --------
Total rate-sensitive assets $40,975 $32,311 $119,755 $193,041
------- ------- ------- --------
Deposit accounts (2)
Money market deposits $8,834 $8,834
NOW and savings deposits 40,604 40,604
Certificates of deposit 24,410 74,466 26,156 125,032
------- ------- ------- --------
Total rate-sensitive liabilities 73,848 74,466 26,156 174,470
------- ------- ------- --------
GAP (repricing differences) $(32,873) $(42,155) $93,599 $18,571
======== ======== ======= =======
Cumulative GAP ($32,873) $(75,028) $18,571
======== ======== =======
Cumulative GAP/total assets (17)% (13)% 10%
======== ======== =======
</TABLE>
- --------------------------------------------
(1) In preparing the table above, adjustable-rate loans were included in the
period in which the interest rates are next scheduled to adjust rather
than in the period in which the loans mature. Fixed rate loans were
scheduled according to their contractual maturities.
(2) Excluded noninterest bearing deposit accounts, money market, NOW, and
savings deposits were regarded as maturing immediately. All other time
deposits were scheduled through the maturity dates. Investment and
mortgage-backed securities were scheduled through their contractual
maturity dates.
(36)
<PAGE> 37
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
FINANCIAL CONDITION
Lending Activities
A significant source of income for the Company is the interest earned on loans.
At June 30 1997, the Company's total assets were $207.3 million and its net
loans were $160.9 million or 77.6% of total assets. At June 30, 1996, the
Bank's total assets were $102.87 million and its net loans were $73.67 million
or 71.61% of total assets.
Lending activities were conducted pursuant to a written policy which has been
adopted by the Bank. Each loan officer has defined lending authority beyond
which loans, depending upon their type and size, must be reviewed and approved
by loan committee comprised of certain directors of the Bank.
The following table sets forth information concerning the Company loan
portfolio by type of loan at the dates indicated:
<TABLE>
<CAPTION>
(Unaudited)
June 30, June 30,
------------------------ --------------------------
1997 1996
-------------------------- -------------------------
(Dollars In Thousands)
% of % of
Amount Total Amount Total
------ -------- ------ --------
<S> <C> <C> <C> <C>
Commercial, Financial
and Agricultural Loans $ 24,893 15 $ 15,593 21
Real Estate Loans 132,244 82 54,996 74
Consumer Loans 5,138 3 3,948 5
-------- --- ---------- ---
TOTAL LOANS $162,275 100% $ 74,537 100%
=== ===
Less:
Deferred Loan Fees 74 (78)
Allowance for Loan Losses 1,294 (792)
-------- ----------
LOANS, NET $160,907 $ 73,667
======== ==========
</TABLE>
The net loan originations were at an annualized rate of $21 million for the
six months ended June 30, 1997. The continued strong loan origination's from
December 31, 1996 to June 30, 1997 can be attributed to (i) continued loan
demand in the Bank's primary market areas of Manatee and Sarasota Counties,
Florida and (ii) the doubling of the Bank's branch network due to the merger
with Key Florida Bank, F.S.B. in July 1996. Also, the bank opened its seventh
branch location in January 1997 in Ellenton, Florida which has increased its
loan demand.
(37)
<PAGE> 38
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
FINANCIAL CONDITION (CONTINUED)
Asset Quality
Management seeks to maintain a high quality of assets through conservative
underwriting and sound lending practices. As of June 30, 1997 and December 31,
1996, approximately 81.5% and 78.39%, respectively, of the total loan portfolio
was collateralized by commercial and residential real estate mortgages. The
level of delinquent loans and real estate owned also is relevant to the credit
quality of a loan portfolio. As of June 30, 1997 total nonperforming assets
were $3,309,000 or 1.60% of total assets. As of December 31, 1996, total
nonperforming assets were $2,131,000 or 1.06% of total assets. For the six
months ended June 30, 1997, the total nonperforming assets to total assets
ratio increased to 1.60% from 0.80% at December 31, 1996, due in large part to
$518,000 in commercial loans being placed on nonaccrual at the end of the
first quarter. During the second quarter management restructured these loans
into a single credit and added mortgages on the borrowers residence and income
producing property to further secure the Bank's collateral position. Though
this loan has performed as agreed subsequent to its restructure the OCC has
instructed bank management to classify this credit as a nonaccural loan until
notified otherwise. In an effort to maintain the quality of the loan portfolio
management seeks to minimize higher risk types of lending. In view of the
relative significance of real estate related loans, a downturn in the value of
the real estate could have an adverse impact on the Bank's profitability.
However, as part of its loan portfolio management strategy, the Bank generally
limits its loans to a maximum of 80% of the value of the underlying real estate
as determined by appraisal. In addition, knowledgeable members of management
generally make physical inspections of properties being considered for mortgage
loans.
Commercial loans also entail risks since repayment is usually dependent upon
the successful operation of the commercial enterprise. They also are subject
to adverse conditions in the economy. Commercial loans are generally riskier
than mortgage loans because they are typically underwritten on the basis of the
ability to repay from the cash flow of a business rather than on the ability of
the borrower or guarantor to repay. Further, the collateral underlying a
commercial loan may depreciate over time, cannot be appraised with as much
precision as real estate, and may fluctuate in value based on the success of
the business.
Loan concentrations are defined as amounts loaned to a number of borrowers
engaged in similar activities which would cause them to be similarly impacted
by economic or other conditions. The Bank on a routine basis, monitors these
concentrations in order to consider adjustments in its lending practices to
reflect economic conditions, loan to deposit ratios, and industry trends.
Concentrations of loans in the following categories constituted the total loan
portfolio as of June 30, 1997.
Commercial loans 15%
Real estate mortgage loans 82%
Installment and other loans 3%
The Loan Committee of the Board of Directors of the Bank concentrates its
efforts and resources, and that of its senior management and lending officers,
on loan review and underwriting procedures. Internal controls include ongoing
reviews of loans made to monitor documentation and the existence and valuations
of collateral. In addition, management of the Bank has established a review
process with the objective of identifying, evaluating, and initiating necessary
corrective action for marginal loans. The goal of the loan review process is
to address classified and nonperforming loans as early as possible.
(38)
<PAGE> 39
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
FINANCIAL CONDITION (CONTINUED)
Classification of Assets
Generally, interest on loans accrues and is credited to income based upon the
principal balance outstanding. It is management's policy to discontinue the
accrual of interest income and classify a loan as non-accrual when principal or
interest is past due 90 days or more and the loan is not adequately
collateralized, or when in the opinion of management, principal or interest is
not likely to be paid in accordance with the terms of the obligation. Consumer
installment loans are generally charged-off after 90 days of delinquency unless
adequately collateralized and in the process of collection. Loans are not
returned to accrual status until principal and interest payments are brought
current and future payments appear reasonably certain. Interest accrued and
unpaid at the time a loan is placed on nonaccrual status is charged against
interest income. Subsequent payments received are applied to the outstanding
principal balance.
Real estate acquired by the Bank as a result of foreclosure or by deed in lieu
of foreclosure is classified as other real estate owned ("OREO"). The Bank
considers the collateral for a loan in-substance foreclosed when the debtor has
little or no equity in the collateral, expects repayment for the loan to come
only from the operation and sale of the collateral, and the borrower has
either effectively abandoned control of the collateral or has retained control
of the collateral but will be unable to rebuild equity in collateral or repay
the loan.
OREO properties are recorded at the lower of cost or fair value estimated
selling costs, and the estimated loss, if any, is charged to the allowance for
credit losses at the time it is transferred to OREO. Further allowances for
losses in OREO, including in-substance foreclosed loans, are recorded by a
charge to operations at the time management believes additional deterioration
in value has occurred.
The following table sets forth certain information on nonaccrual loans and
other real estate owned, the ratio of such loans and other real estate owned to
total loans and total assets as of the dates indicated, and certain other
related information
(39)
<PAGE> 40
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
FINANCIAL CONDITION (CONTINUED)
Classification of Assets (Continued)
<TABLE>
<CAPTION>
At June 30, At December 31,
--------------------------------- -------------------
1997 1996 1996
-------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans:
Commercial real estate $75 $66 $360
Residential mortgage loans 1,491 67 1,003
Commercial loans(2) 619 408 208
Consumer and other loans 72 65 35
-------- ------- --------
Total Nonaccrual Loans 2,257 606 1,606
Accruing loans 90 days or more past due 526 391 0
Troubled debt restructuring(2) 0 0 0
------- ------- --------
Total Nonperforming Loans $2,783 $997 $1,606
------- ------- --------
Repossessed Assets:
Real estate acquired by foreclosure
or deed in lieu of foreclosure 201 $0 $145
Other repossessions 325 380
------- ------- --------
Total Repossessed Assets 526 $0 $525
------- ------- --------
Total Nonperforming Assets $3,309 $997 $2,131
======== ======= ========
Total nonperforming assets to total assets 1.60% 0.97% 1.06%
======== ======= ========
Total nonperforming loans as a
percentage of total loans 1.71% 1.34% 1.04%
======== ======= ========
Total nonperforming loans as a
percentage of total assets 1.34% 0.97% 0.80%
======== ======= ========
Period-end total loans $162,275 $74,537 $155,107
======== ======= ========
Average loans outstanding, net (1) $157,798 $70,597 $103,731
======== ======= ========
</TABLE>
(1) Average loans outstanding less the average allowance for loan losses
(2) There is one nonperforming Commercial loan for $518,000 which is also a
troubled debt restructure but is listed here in Nonaccrual loans. Though
the loan is performing as agreed since restructuring the OCC has mandated
that it be classified as a nonaccruing loan.
(40)
<PAGE> 41
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
FINANCIAL CONDITION (CONTINUED)
Classification of Assets (Concluded)
Nonperforming assets (other real estate owned, other repossessed assets and
nonaccrual loans) at June 30, 1997 were $3,309,000 an increase of $1,178,000 or
55.3% from December 31, 1996. As previously mentioned, $518,000 of the
increase was due to commercial loans to a single borrower that were placed on
nonaccrual status during the first quarter and were restructured during the
quarter-ended June 30, 1997. As previously mentioned this loan has performed
as agreed since it was restructured on April 15, 1997 but the OCC has required
bank management to classify this performing loan as nonaccruing until
instructed to do otherwise.
During 1996 the Bank repossessed the inventory of a boat manufacturer which it
had underwritten. The Bank has classified this iventory as other repossessed
assets. In the Banks evaluation process of its problem assets the senior
management and loan staff have determined that the carrying amount of these
boats should be charged off $100,000 in order to reflect the boat inventory at
managements' best estimate of their valuation at June 30, 1997.
As of June 30, 1997, loans 30 to 89 days delinquent totaled $748,000 and
consisted primarily of commercial loans totaling $398,000 or 53.2% of total
loans 30 to 89 days delinquent. The remaining $350,000 of loans 30 to 89 days
delinquent consisted $160,000 of consumer installment loans and $190,000 of
real estate loans. The delinquencies of the Bank have shown a continued
positive trend during the second quarter of 1997. At the end of the first
quarter the Bank had $4.4 million in delinquent loans or 2.83% of its loan
portfolio. At the end of the second quarter delinquencies had decreased to
$1.3 million or .79% of the loan portfolio. This decrease in the total
delinquencies of $3.1 million represents a 71% improvement during the second
quarter of 1997.
Due to the merger and the approximate doubling of the Bank's loan portfolio,
management continues its special review of the Bank's loan portfolio and has
instituted a number of procedures intended to improve the identification,
evaluation, and resolution of the Bank's problem assets. As a result of these
actions, the senior management and loan staff of the Bank meet periodically to
review all past due and nonperforming loans and to discuss collection efforts.
The Board of Directors of the Bank also reviews problem assets on a monthly
basis. Additionally, an independent firm has been retained to oversee periodic
loan reviews and make recommendations for improvement. The Bank's underwriting
practices also have been enhanced by the establishment of a Bank credit policy
department separate from the loan origination function and a change in loan
origination authorities.
(41)
<PAGE> 42
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
FINANCIAL CONDITION (CONTINUED)
Allowance for Loan Losses
In originating loans, the Bank recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of a collateralized loan, the quality of the loan as
well as general economic conditions. It is management's policy to attempt to
maintain an adequate allowance for loan losses based on, among other things,
the Bank's historical loan loss experience, evaluation of economic conditions
and regular reviews of any delinquencies and loan portfolio quality. Specific
allowances are provided for individual loans, in accordance with FASB No. 114,
when ultimate collection is considered questionable by management after
reviewing the current status of loans which are contractually past due and
considering the fair value of the collateral for the loan. Management
recognizes the greater inherent risks in connection with commercial and
consumer lending.
Management continues to monitor the Bank's asset quality and to charge-off
loans against the allowance for credit losses when appropriate or to provide
specific loss allowances when necessary. Although management believes it uses
the best information available to make determinations with respect to the
allowance for credit losses, future adjustments may be necessary if economic
conditions differ from the economic conditions in the assumptions used in
making the initial determinations. The Bank's allowance was $1,294,000 or
0.80% of total loans at June 30, 1997. The allowance was $1,321,331 or .85% of
total loans at December 31, 1996. The lower percentage of the allowance to
total loans at June 30, 1997 was due to the increase in the residential real
estate loan portfolio which are typically lower risk loans with readily salable
collateral which bring a measure of increased asset quality.
(42)
<PAGE> 43
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
FINANCIAL CONDITION (CONTINUED)
Allowance for Loan Losses (Continued)
The following table sets forth information with respect to activity in the
Bank's allowance for loan losses during the periods indicated:
<TABLE>
<CAPTION>
Six Months Six Months Year
Ended Ended Ended
June 30, June 30, December 31,
1997 1996 1996
------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Allowance at beginning of period $1,321 $704 $704
Allowance brought forward
from merger 0 0 528
Charge-offs:
Commercial loans (116) (100) (111)
Real Estate (16) 0 (30)
Consumer loans (11) (12) (33)
------------ ------------ ------------
Total loans charged-off (143) (112) (174)
------------ ------------ ------------
Recoveries 1 5 6
------------ ------------ ------------
Net charge-offs (142) (107) (168)
Provision for loan losses charged
to operating expenses 115 195 257
------------ ------------ ------------
Allowance at end of period $1,294 $792 $1,321
============ ============ ============
Net charge-offs as a percentage of
average loans outstanding 0.15% 0.15% 0.16%
============ ============ ============
Allowance for loan losses as a
percentage of period-end total loans 0.80% 1.06% 0.85%
============ ============ ============
Allowance for loan losses as a
percentage of nonperforming loans 46.50% 79.44% 82.25%
============ ============ ============
Period-end total loans $162,275 $74,537 $155,107
============ ============ ============
Average loans outstanding, gross(1) $159,066 $71,356 $104,728
============ ============ ============
</TABLE>
(1) Average loans outstanding before average allowance for loan losses
(43)
<PAGE> 44
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
FINANCIAL CONDITION (CONTINUED)
Allowance for Loan Losses (Concluded)
The following table presents information regarding the Bank's total allowance
for loan losses as well as the allocation of such amounts to the various
categories of loans:
<TABLE>
<CAPTION>
(Dollars in thousands)
Six Months Ended June 30, 1997 Year Ended December 31, 1996
------------------------------- ----------------------------
% of % of
Loans to Loans to
Total Total
Amount Loans Amount Loans
------ ----- ------ -----
<S> <C> <C> <C> <C>
Commercial loans $ 546 42.2% $ 596 45.1%
Real Estate 620 47.9% 585 44.3%
Consumer loans and other 128 9.9% 140 10.6%
----------- -------- --------- -------
Total allowance for
loan losses $ 1,294 100.0% 1,321 100.0%
=========== ======== ========= =======
</TABLE>
The allowance for loan losses represented .80% of the total loans outstanding
as of June 30, 1997 compared with .85% of the total loans outstanding as of
December 31, 1996. The amount of the provision for loan losses charged to
expense in each of the periods presented above represents management's best
estimate during those periods of the addition necessary to establish
appropriate allowances for estimated credit losses. Such estimates were based
on management's assessment of the current and future general economic
conditions in the Bank's market area, the risk levels associated with the
particular composition of the loan portfolio during such periods, and the
Bank's past collection experience.
On a quarterly basis management performs a calculation of its required loan
loss reserve using historical loan loss rates and giving weight to risk-related
loans by loan pool groups. The Bank analyzes the reserve requirements and
based on this analysis, which again gives relative risk weight to loan pools,
the Bank has determined that its reserve balance was adequate at June 30,
1997.
Deposit Activities
Deposits are the major source of the Bank's funds for lending and other
investment purposes. Deposits are attracted principally from within the Bank's
primary market area through the offering of a broad variety of deposit
instruments including checking accounts, money market accounts, regular savings
accounts, term certificate accounts (including "jumbo" certificates in
denominations of $100,000 or more) and retirement savings plans.
Maturity terms, service fees and withdrawal penalties are established by the
Bank on a periodic basis. The determination of rates and terms is predicated
on funds acquisition and liquidity requirements, rates paid by competitors,
growth goals and federal regulations.
(44)
<PAGE> 45
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
FINANCIAL CONDITION
Deposit Activities (Continued)
The following table shows the distribution of, and certain other information
relating to, the Bank's deposit accounts by type:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------------------------- -----------------------------
(Dollars in thousands)
% of % of
Total Total
Amount Deposits Amount Deposits
--------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Demand deposit $18,495 9.58% $17,011 9.08%
NOW deposit 13,790 7.15% 14,902 7.95%
Money market 8,834 4.58% 11,210 5.98%
Savings accounts 26,815 13.90% 19,590 10.46%
Time deposits under $100,000 105,838 54.85% 103,050 55.00%
Time deposits $100,000 and over 19,193 9.94% 21,584 11.53%
=========== ======= ======== ======
Total deposits $192,965 100.00% $187,347 100.00%
=========== ======= ======== ======
</TABLE>
Time deposits included individual retirement accounts ("IRA") totaling $10.45
million and $11.02 million as of June 30, 1997 and December 31, 1996,
respectively, all of which are in the form of certificates of deposit.
The Company's deposits increased $5.6 million or 3.0% to $192.97 million as of
June 30, 1997, from $187.35 million as of December 31, 1996. This increase
was primarily attributable to an increase in savings deposits of $7.2
million since December 31, 1996.
The following table shows the average amount of and the average rate paid on
each of the following deposit account categories during the period indicated:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
--------------------------- ----------------------------
Average Average Average Average
Balance Rate Balance Rate
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Demand, Money Market and NOW $24,478 2.59% $19,380 2.95%
Savings deposits 24,577 4.59% 10,151 3.87%
Certificate of deposit 121,489 5.33% 87,558 5.50%
--------- --------- -------- --------
Total Interest-bearing deposits $170,544 4.83% $117,089 4.93%
===-===== ========= ======== ========
</TABLE>
(45)
<PAGE> 46
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
FINANCIAL CONDITION
Deposit Activities (Concluded)
Management believes that the Bank does not have a concentration of deposits
from any one source, the loss of which would have a material adverse effect on
the business of the Bank. Management believes that substantially all of the
Bank's depositors are residents in its primary market area. The Bank currently
does not accept brokered deposits. As shown in the table below, a significant
amount of the Bank's certificates of deposit will mature during the year ending
December 31, 1997. The high volume of maturities during this period is
primarily due to customer demand for certificates of deposit having original
maturities of 12 months or less. Based upon current and anticipated levels of
interest rates and past practice management anticipates that substantially all
of the Bank's certificates of deposit maturing during this time period will be
renewed or replaced by certificates of deposit issued to other customers at
competitive market rates, which may be higher or lower than the rates currently
being paid. Consequently, bank management does not believe that the maturity
of the Bank's certificates of deposit during the year ended December 31, 1997
will have a material adverse effect on the Bank's liquidity. However, if the
Bank is required to pay substantially higher rates to obtain the renewal of
these or other certificates of deposit or alternative sources of funds, the
higher net interest expense could have a material adverse effect on the Bank's
net income.
As of June 30, 1997 and December 31, 1996, all time certificates of deposit
mature as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- --------------
(In thousands)
<S> <C> <C>
Due in three months $ 1,258 $ 39,300
Due from three months to one year 75,832 50,970
Due over one year 47,943 34,364
----------- ----------
Total $ 125,033 $ 124,634
=========== ==========
</TABLE>
As of June 30, 1997 and December 31, 1996, time deposits of $100,000 and over
mature as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- --------------
(In thousands)
<S> <C> <C>
Due in three months or less $ 300 $ 7,321
Due from three months to one year 11,378 8,666
Due over one year 7,516 4,147
----------- ----------
Total time deposits $100,000 and over $ 19,194 $ 20,134
=========== ==========
</TABLE>
Investment Securities
The Bank's investment securities at June 30, 1997 primarily consisted of United
States Treasury and Government Agency securities. Although investment
securities generally have a lower yield than loans, investment securities
increase the quality of the Bank's assets by virtue of the guarantees that back
them, are more liquid than loans, and may be used to collateralize borrowing or
other obligations of the Bank.
(46)
<PAGE> 47
KEY FLORIDA BANCORP, INC.
ITEM 2 - CONTINUED
FINANCIAL CONDITION (CONTINUED)
Investment Securities (Continued)
Due to repayment and prepayments of the underlying loans mortgage-backed
securities are substantially less than the scheduled maturities. Changes in
interest rates may also affect the average life, yield to maturity, and related
market value of the Bank's securities portfolio.
The following table sets forth the carrying value of investment securities held
by the Bank at the dates indicated:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
--------------------------- ----------------------------
Amortized Market Amortized Market
Cost Value Cost Value
------------- ------------- -------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Investment securities:
U.S. Treasury securities $3,485 $3,485 $6,444 $6,470
U.S. Government Agency securities 15,644 $15,624 $15,798 $15,723
Mortgage-backed securities 3,969 3,971 4,062 4,075
State revenue obligations 391 399 427 435
Other equity securities $1,340 1,340 711 711
------------ ------------ ------------- ------------
Total investment securities $24,829 $24,819 $27,442 $27,414
============= ============= ============== =============
</TABLE>
The following table sets forth, by maturity distribution certain information
pertaining to the investment securities portfolio as follows:
<TABLE>
<CAPTION>
After One Year After Five Years
One Year or Less To Five Years To Ten Years After Ten Years Total
------------------- -------------------- -------------------- ------------------- ---------------------
Amortized Average Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield Cost Yield
--------- -------- ----------- --------- ----------- -------- ---------- -------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1997:
U.S. Treasury
securities $1,500 5.50% $1,985 5.23% $3,485 5.34%
Government
agencies 1,000 4.51% 12,639 6.39% $2,005 7.56% 15,644 6.42%
Mortgage-backed
securities 788 5.50% $3,181 7.05% 3,969 6.74%
State revenue
obligations 391 5.75% 391 5.75%
Other equity
securities 1,340 6.63% 1,340 6.63%
------- ----- ------- ----- ------ ---- ------ ---- ------- ----
Total $3,840 5.64% $15,803 6.18% $2,005 7.56% $3,181 7.05% $24,829 6.01%
======= ===== ======= ===== ====== ==== ====== ==== ======= ====
</TABLE>
(47)
<PAGE> 48
KEY FLORIDA BANCORP, INC.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 3, 1997, the Company held its annual meeting of shareholders. The
Company's shareholders elected the following eight persons as directors, each
to serve until the next annual meeting of shareholders or until his successor
is elected and qualified. The Company's shareholders also voted to approve a
stock option plan for officers and employees.
The number of shares voted for or against each director and the stock option
plan were as follows:
<TABLE>
<CAPTION>
Election of Directors For Against Abstained Not Voted
--------------------- --- ------- --------- ---------
<S> <C> <C> <C> <C>
Harvey E. Anderson 1,613,495 3,449 3,247 1,137,938
Roger P. Conley 1,594,975 22,086 3,130 1,137,938
Daniel S. Hager 1,609,975 7,149 3,130 1,137,938
Stephen R. Jonsson 1,604,224 12,720 3,247 1,137,938
Bryant A. Meeks 1,611,908 5,153 3,130 1,137,938
Leonard J. Najjar 1,603,877 13,184 3,130 1,137,938
Dr. James T. Rogers 1,616,471 5 3,715 1,137,938
H. R. Williams 1,598,109 117 21,965 1,137,938
</TABLE>
Approval of a stock option plan for officers and employees:
<TABLE>
<CAPTION>
For Against Abstain Not Voted
--- ------ ------- ---------
<S> <C> <C> <C>
1,589,655 12,710 17,826 1,137,938
</TABLE>
(48)
<PAGE> 49
KEY FLORIDA BANCORP, INC.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 Financial Data Schedule (for SEC use only)
Reports
No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
Signatures
Pursuant to the requirement 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.
KEY FLORIDA BANCORP, INC.
(REGISTRANT)
DATED: August 13, 1997 BY: /s/ Steven R. Jonsson
------------------------------------------------
Steven R. Jonsson, President
DATED: August 13, 1997 BY: /s/ Michael L. Hogan
------------------------------------------------
Michael L. Hogan, Vice President/Treasurer
(49)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND ACCOUNTANTS' REVIEW REPORT
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10QSB FOR THE QUARTER
ENDING JUNE 30, 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,017,010
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,947,054
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,819,490
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 162,200,904
<ALLOWANCE> 1,294,240
<TOTAL-ASSETS> 207,296,944
<DEPOSITS> 192,923,137
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,264,748
<LONG-TERM> 0
0
0
<COMMON> 27,581
<OTHER-SE> 13,081,478
<TOTAL-LIABILITIES-AND-EQUITY> 207,296,944
<INTEREST-LOAN> 7,130,052
<INTEREST-INVEST> 815,489
<INTEREST-OTHER> 81,110
<INTEREST-TOTAL> 8,026,651
<INTEREST-DEPOSIT> 4,122,027
<INTEREST-EXPENSE> 4,160,565
<INTEREST-INCOME-NET> 3,866,086
<LOAN-LOSSES> 215,000
<SECURITIES-GAINS> 50,762
<EXPENSE-OTHER> 3,505,447
<INCOME-PRETAX> 626,533
<INCOME-PRE-EXTRAORDINARY> 626,533
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 406,228
<EPS-PRIMARY> .15
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.09
<LOANS-NON> 2,257,000
<LOANS-PAST> 526,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 518,000
<ALLOWANCE-OPEN> 1,321,000
<CHARGE-OFFS> 243,000
<RECOVERIES> 1,000
<ALLOWANCE-CLOSE> 1,294,000
<ALLOWANCE-DOMESTIC> 1,294,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
