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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1998
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ____________________ to ___________________
Commission file number 000-23713
GULF WEST BANKS, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
FLORIDA 59-3276590
- ---------------------------- -------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
425 22ND AVENUE, NORTH
ST. PETERSBURG, FLORIDA 33704
----------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(813) 894-5696
--------------------------------------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such quarterly reports), and (2) has been subject to such
filing requirements for the past 90 days:
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
COMMON STOCK, PAR VALUE $1 PER SHARE 6,004,657 SHARES
- ------------------------------------ -----------------------------
(CLASS) OUTSTANDING AT MARCH 31, 1998
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<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
March 31, 1998 (unaudited) and December 31, 1997..........................2
Condensed Consolidated Statements of Earnings -
Three months ended March 31, 1998 and 1997 (unaudited)....................3
Condensed Consolidated Statements of Comprehensive Income-
Three months ended March 31, 1998 and 1997 (unaudited)....................4
Condensed Consolidated Statement of Stockholders' Equity -
For the Three-Month Period Ended March 31, 1998 (unaudited)...............5
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1998 and 1997 (unaudited)....................6
Notes to Condensed Consolidated Financial Statements (unaudited).........7-8
Review By Independent Certified Public Accountants.........................9
Report on Review by Independent Certified Public Accountants..............10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..............................................11-13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................................................14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...........................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................15
SIGNATURES..................................................................16
EXHIBIT INDEX...............................................................17
1
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
ASSETS
Cash and due from banks $ 11,393 9,046
Federal funds sold and securities purchased
under agreements to resell 17,550 8,903
-------- --------
Cash and cash equivalents 28,943 17,949
Securities available for sale 76,204 53,183
Loans receivable, net of allowance for loan losses
of $2,206 in 1998 and $1,564 in 1997 161,221 122,555
Loans held for sale, at cost which approximates
market 405 715
Premises and equipment, net 7,390 7,043
Accrued interest receivable 1,575 1,119
Deferred tax asset 105 328
Goodwill 2,048 148
Other assets 2,769 1,808
-------- --------
Total $280,660 204,848
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits 51,112 36,992
Savings, NOW and money-market deposits 88,444 62,212
Time deposits 100,878 69,897
-------- --------
Total deposits 240,434 169,101
Other borrowings 11,958 20,237
Other liabilities 1,612 969
-------- --------
Total liabilities 254,004 190,307
-------- --------
Stockholders' equity:
Common stock, $1 par value; 10,000,000 shares
authorized, 6,004,657 and 3,342,676 issued
and outstanding 6,005 3,343
Additional paid-in capital 20,073 9,308
Retained earnings 372 1,705
Accumulated other comprehensive income,
unrealized gain on securities available
for sale, net of tax 206 185
-------- --------
Total stockholders' equity 26,656 14,541
-------- --------
Total $280,660 204,848
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
<TABLE>
<CAPTION>
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
Interest income:
Loans receivable $ 3,731 2,618
Interest on securities 1,296 650
Other interest-earning assets 168 112
---------- ----------
Total interest income 5,195 3,380
---------- ----------
Interest expense:
Deposits 2,018 1,328
Other borrowings 256 159
---------- ----------
Total interest expense 2,274 1,487
---------- ----------
Net interest income 2,921 1,893
Provision for loan losses 150 105
---------- ----------
Net interest income after provision for loan losses 2,771 1,788
---------- ----------
Noninterest income:
Service charges on deposit accounts 259 184
Leasing fees and commissions 134 138
Income from fiduciary activities 66 --
Income earned on officers life insurance 78 18
Other 176 77
---------- ----------
Total noninterest income 713 417
---------- ----------
Noninterest expense:
Salaries and employee benefits 1,382 1,028
Occupancy expense 484 371
Data processing 150 65
Advertising 72 55
Stationery and supplies 83 51
Other 354 258
---------- ----------
Total noninterest expense 2,525 1,828
---------- ----------
Earnings before income taxes 959 377
Income taxes 344 142
---------- ----------
Net earnings $ 615 235
========== ==========
Basic earnings per share $ 0.10 0.06
========== ==========
Weighted-average number of shares outstanding for basic 5,955,330 3,664,978
========== ==========
Diluted earnings per share $ 0.10 0.06
========== ==========
Weighted-average number of shares outstanding for diluted 6,025,463 3,754,286
========== ==========
Dividends per share $ -- --
========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
------ ------
(UNAUDITED)
Net earnings $ 615 235
Other comprehensive income:
Change in unrealized gains (losses) arising
during period net of tax (benefit) of
$10 in 1998 and $(172) in 1997 21 (327)
----- ----
Comprehensive income (loss) $ 636 (92)
===== ====
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME,
UNREALIZED
GAIN ON
ADDITIONAL SECURITIES TOTAL
NUMBER OF COMMON PAID-IN RETAINED AVAILABLE STOCKHOLDERS'
SHARES STOCK CAPITAL EARNINGS FOR SALE EQUITY
--------- --------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 3,342,676 $ 3,343 9,308 1,705 185 14,541
Net earnings (unaudited) -- -- -- 615 -- 615
Shares issued in exchange for
Citizens National Bank &
Trust shares (unaudited 1,949,919 1,950 8,775 -- -- 10,725
Stock dividend (unaudited) 545,713 546 1,402 (1,948) -- --
Shares issued under stock
option plan (unaudited) 143,280 143 483 -- -- 626
Shares issued to directors
as compensation (unaudited) 8,330 8 42 -- -- 50
Shares issued to employees
(unaudited) 14,739 15 63 -- -- 78
Other comprehensive income
(unaudited) -- -- -- -- 21 21
--------- --------- --------- --------- --------- ---------
Balance at March 31, 1998
(unaudited) 6,004,657 $ 6,005 20,073 372 206 26,656
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1997
-------- --------
(UNAUDITED)
Cash flows from operating activities:
Net earnings $ 615 235
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 210 172
Increase in other assets (896) (110)
Provision for loan losses 150 105
Deferred income tax (credit) provision (140) 81
Income from mortgage banking activity (29) (7)
Increase in other liabilities 202 331
Decrease (increase) in accrued interest
receivable 244 (119)
Net amortization of fees, premiums and
discounts (55) (53)
Proceeds from sales of loans held for sale 2,454 952
Originations of loans held for sale (2,115) (1,021)
Stock issued for compensation 50 --
-------- --------
Net cash flow provided by operating
activities 690 566
-------- --------
Cash flows from investing activities:
Purchase of securities available for sale -- (5,000)
Proceeds from maturity of securities available
for sale 8,800 --
Principal repayments on securities available
for sale 2,151 572
Proceeds from sale of FRB stock 180 --
Proceeds from sale of FHLB stock 228 --
Purchase of premises and equipment (184) (397)
Net (increase) decrease in loans (7,374) 2,742
Purchase of Citizens National Bank & Trust,
net cash acquired 9,323 --
-------- --------
Net cash provided by (used in) investing
activities 13,124 (2,083)
-------- --------
Cash flows from financing activities:
Net (decrease) increase in time deposits (9,503) 2,000
Net increase in demand, savings, NOW
and money-market deposit accounts 14,258 8,551
Net decrease of other borrowings (8,279) (1,149)
Issuance of common stock 704 34
-------- --------
Net cash (used in) provided by
financing activities (2,820) 9,436
-------- --------
Net increase in cash and cash equivalents 10,994 7,919
Cash and cash equivalents at beginning of period 17,949 11,987
-------- --------
Cash and cash equivalents at end of period $ 28,943 19,906
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 2,171 1,332
======== ========
Income taxes $ 147 --
======== ========
Noncash transactions:
Reclassification of loans to
foreclosed real estate $ -- 134
======== ========
Acquisition of Citizens National Bank
and Trust:
Fair value of assets acquired $ 77,744 --
======== ========
Liabilities assumed $ 67,019 --
======== ========
Common stock issued $ 10,725 --
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL. In the opinion of the management of Gulf West Banks, Inc. (the
"Company"), the accompanying condensed consolidated financial statements
contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position at March 31, 1998 and
the results of operations and cash flows for the three-month periods ended
March 31, 1998 and 1997. The results of operations and other data for the
three-month period ended March 31, 1998, are not necessarily indicative of
results that may be expected for the year ending December 31, 1998.
2. ACQUISITION. On January 16, 1998, the Company acquired Citizens National
Bank and Trust Company, Port Richey, Florida ("Citizens"). The Company
exchanged 1.95 million shares of its common stock for all the outstanding
shares of Citizens. Citizens operated one banking office in Pasco County,
Florida. The Company accounted for this transaction using the purchase
method of accounting. The results for the first quarter of 1998 include
the results of Citizens for that period. The excess purchase price over
fair market value of the underlying net assets of $1.9 million was
allocated to goodwill which is being amortized over 20 years. The
unaudited pro forma results below assume the acquisition occurred at the
beginning of the year ended December 31, 1997 (dollars in thousands,
except per share amounts):
THREE MONTHS
ENDED MARCH 31,
---------------
1997
---------------
Interest income $ 4,683
========
Net interest income $ 2,468
========
Net income $ 196
========
Earnings per share:
Basic $ .03
========
Diluted $ .03
========
In management's opinion, the unaudited pro forma combined results of
operations are not indicative of the actual results that would have
occurred had the acquisition been consummated at the beginning of fiscal
1997 or of future operations of the combined entities under the ownership
and management of the Company.
7
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
3. LOAN IMPAIRMENT AND LOSSES. The Company has identified loans totaling
$489,000 and $493,000 as impaired at March 31, 1998 and 1997. The activity
in the allowance for loan losses is as follows:
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1998 1997
--------- -------
(IN THOUSANDS)
Balance at beginning of period $ 1,564 1,184
Provision for loan losses 150 105
Charge-offs, net of recoveries (36) 9
Purchased via acquisition of Citizens 528 -
------- -----
Balance at end of period $ 2,206 1,298
======= =====
4. EARNINGS PER COMMON SHARE. The following is a reconciliation of the
numerators and denominators of the basic and diluted earnings per share
computations. Options to purchase 6,600 shares of common stock at $6.36 a
share issued in 1998 were not included in the computation of diluted EPS
because the options exercise price was not less than the average market
price of the common shares. These options expire on February 19, 2008 ($
in thousands, except per share amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------
1998 1997
----------------------------- -----------------------------
WEIGHTED- PER WEIGHTED- PER
AVERAGE SHARE AVERAGE SHARE
EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT
-------- --------- ------ -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net earnings available to
common stockholders $ 615 5,955,330 $ 0.10 235 3,664,978 $ 0.06
====== ======
Effect of dilutive securities-
Incremental shares from assumed
exercise of options - 70,133 - 89,308
----- --------- --- ---------
Diluted EPS:
Net earnings available to
common stockholders
and assumed conversions $ 615 6,025,463 $ 0.10 235 3,754,286 $ 0.06
===== ========= ====== === ========= ======
</TABLE>
8
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Hacker, Johnson, Cohen & Grieb PA, the Company's independent certified public
accountants, have made a limited review of the financial data as of March 31,
1998, and for the three-month period ended March 31, 1998 and 1997 presented in
this document, in accordance with standards established by the American
Institute of Certified Public Accountants.
Their report furnished pursuant to Article 10 of Regulation S-X is included
herein.
9
<PAGE>
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors of Gulf West Banks, Inc.
St. Petersburg, Florida:
We have reviewed the accompanying condensed consolidated balance sheet of
Gulf West Banks, Inc. and Subsidiaries (the "Company") as of March 31, 1998, and
the related condensed consolidated statements of earnings, comprehensive income
and cash flows for the three-month periods ended March 31, 1998 and 1997 and the
condensed consolidated statement of stockholders' equity for the three-month
period ended March 31, 1998. These financial statements are the responsibility
of the Company's management.
We conducted our review 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 review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above 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, 1997, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for the year then ended (not presented herein); and in our report dated January
16, 1998 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, 1997, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
April 10, 1998
10
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF MARCH 31, 1998 AND DECEMBER 31, 1997
ACQUISITION
On January 16, 1998, the Company acquired Citizens National Bank and Trust
Company, Port Richey, Florida ("Citizens"). The Company exchanged 1.95 million
shares of its common stock for all the outstanding shares of Citizens. Citizens
operated one banking office in Pasco County, Florida. The Company accounted for
this transaction using the purchase method of accounting. The results for the
first quarter of 1998 include the results of Citizens for that period. The
excess purchase price over fair market value of the underlying net assets of
$1.9 million was allocated to goodwill.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1998, the Company's primary sources of
funds consisted of proceeds from the maturity and principal repayment of
securities available for sale, deposit inflows, and cash flows from operating
activities. The Company used its capital resources principally to fund existing
and continuing loan commitments and pay off other borrowings. At March 31, 1998,
the Company had commitments to originate loans totaling $5.2 million. Management
believes the Company has adequate resources to fund all its commitments, that
substantially all of its existing commitments will be funded in 1998 and, if so
desired, that it can adjust the rates on time deposits to retain deposits in a
changing interest rate environment.
As a Florida-chartered commercial bank, Mercantile Bank, the Company's primary
subsidiary (the "Bank") is required to maintain a liquidity reserve of at least
15% of its total transaction accounts and 8% of its total nontransaction
accounts less those deposits of certain public funds. The liquidity reserve may
consist of cash on hand, cash on demand with other correspondent banks and other
investments and short-term marketable securities as defined, such as federal
funds sold and United States securities or securities guaranteed by the United
States. As of March 31, 1998, the Bank has liquidity of approximately $105.1
million, or approximately 43.7% of total deposits.
Management believes the Bank was in compliance with all minimum capital
requirements which it was subject to at March 31, 1998.
The following ratios and rates are presented for the dates and periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED YEAR ENDED ENDED
MARCH 31, DECEMBER 31, MARCH 31,
1998 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
Average equity as a percentage
of average assets 9.42% 7.50% 7.28%
Equity to total assets at end of period 9.50% 7.10% 7.07%
Return on average assets (1) 0.89% 0.69% 0.52%
Return on average equity (1) 9.41% 9.18% 7.19%
Noninterest expenses to average assets (1) 3.64% 4.26% 4.07%
Nonperforming loans and foreclosed real
estate as a percentage of total assets
at end of period 0.22% 0.31% 0.11%
<FN>
- -------------
(1) Annualized for the three months ended March 31, 1998 and 1997.
</FN>
</TABLE>
(continued)
11
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS:
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average rate; (iii) net interest/dividend income; (iv) interest rate spread; and
(v) net interest margin.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------
1998 1997
------------------------------ ---------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
--------- --------- ------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) $ 161,047 3,731 9.27% $ 112,094 2,618 9.34%
Securities 81,382 1,296 6.37 40,657 650 6.39
Other interest-earning assets (2) 12,553 168 5.35 8,582 112 5.22
--------- ------- --------- ------
Total interest-earning assets 254,982 5,195 8.15 161,333 3,380 8.38
------- ------
Noninterest-earning assets 22,481 18,319
--------- ---------
Total assets $ 277,463 $ 179,652
========= =========
Interest-bearing liabilities:
Savings, NOW, money-market deposit
accounts 85,685 612 2.86 50,242 356 2.83
Time deposit 105,081 1,406 5.35 72,923 972 5.33
Borrowings 18,432 256 5.56 12,019 159 5.29
--------- ------- --------- ------
Total interest-bearing liabilities 209,198 2,274 4.35 135,184 1,487 4.40
------- ------
Noninterest-bearing liabilities 42,121 31,397
Stockholders' equity 26,144 13,071
--------- ---------
Total liabilities and
stockholders' equity $ 277,463 $ 179,652
========= =========
Net interest income $ 2,921 $ 1,893
======= =======
Interest-rate spread (3) 3.80% 3.98%
==== ====
Net interest margin (4) 4.58% 4.69%
==== ====
Ratio of average interest-earning
assets to average interest-bearing
liabilities 1.22 1.19
========= =========
<FN>
- ------------------
(1) Includes loans on nonaccrual status.
(2) Includes federal funds sold and securities purchased under agreements to
resell.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average rate of interest-bearing
liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
</FN>
</TABLE>
12
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
COMPARISON OF THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
GENERAL. Net earnings for the three-months ended March 31, 1998 were $615,000
or $0.10 per basic and diluted share compared to $235,000 or $0.06 per
basic and diluted share for 1997. The increase in earnings was primarily
due to increased net interest income only partially offset by increases in
noninterest expenses.
INTEREST INCOME AND EXPENSE. Interest income increased by $1.8 million to
$5.2 million for the three-month period ended March 31, 1998 from $3.4
million for the three months ended March 31, 1997. Interest on loans
increased $1.1 million to $3.7 million due to an increase in the average
loan portfolio balance in 1998 partly offset by a decrease in the
weighted-average yield earned in 1998. Interest on securities increased
$.6 million to $1.3 million for the three-months ended March 31, 1998 due
to a increase in the average securities portfolio in 1998 only partially
offset by a decrease in the average yield earned in 1998. Interest on
other interest-earning assets increased from $112,000 for the three months
ended March 31, 1997 to $168,000 for the three months ended March 31, 1998
due to an increase in the average balance of other interest-earning assets
in 1998 and an increase in the weighted-average yield earned in 1998.
Interest expense on deposits increased $.7 million to $2.0 million for the
three-months ended March 31, 1998 from $1.3 million in 1997. The increase
is due to an increase in the average deposits in 1998 as well as an
increase in the weighted-average rate paid on deposits.
PROVISION FOR LOAN LOSSES. The provision for loan losses is charged to
income to bring the total allowance to a level deemed appropriate by
management and is based upon historical experience, the volume and type of
lending conducted by the Company, industry standards, the amount of
nonperforming loans, general economic conditions, particularly as they
relate to the Company's market areas, and other factors related to the
collectibility of the Company's loan portfolio. The provision for loan
losses was $150,000 for the three-month period ended March 31, 1998
compared to $105,000 for the same period in 1997. The allowance for loan
losses is $2.2 million at March 31, 1998. While management believes that
its allowance for loan losses is adequate as of March 31, 1998, future
adjustments to the Company's allowance for loan losses may be necessary if
economic conditions differ substantially from the assumptions used in
making the initial determination.
NONINTEREST INCOME. Noninterest income increased to $713,000 in 1998 from
$417,000 for the three months ended March 31, 1997. Service charges on
deposits increased in 1998 due to the growth in deposit accounts. Income
from officers' life insurance policies increased in 1998 primarily because
of a reinstatement of accrued income which was not previously accrued.
Income from fiduciary activities was new for 1998 and resulted from the
trust operations acquired as a part of Citizens.
NONINTEREST EXPENSE. Total noninterest expense increased to $2.5 million for
the three-months ended March 31, 1998 from $1.8 million for the comparable
period ended March 31, 1997. Increases resulted primarily from increases
in employee compensation, occupancy expense and data processing expense
due to the acquisition of Citizens.
INCOME TAXES. The income tax provision for the three months ended March 31,
1998 was $344,000 or 35.9% of income before income taxes compared to
$142,000 or 37.7% for the period ended March 31, 1997.
13
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Gulf West and Mercantile are parties to various legal proceedings in the
ordinary course of business. Management does not believe that there is any
pending or threatened proceeding against Gulf West or Mercantile which, if
determined adversely, would have a material adverse effect on the business,
results of operations, or financial position of Gulf West or Mercantile.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The following sales of shares of Gulf West common stock, par value $1.00 per
share ("Gulf West Common Stock"), were not registered pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), but were issued pursuant to the
exemptions indicated below:
During the quarter ended March 31, 1998, 14,739 shares of Gulf West Common
Stock were issued to officers and employees of Gulf West pursuant to Gulf West's
employee stock purchase plan at an average per share purchase price of $5.33.
Such shares were issued pursuant to the intrastate offering exemption contained
in Section 3(11) of the Securities Act. Such exemption was available because all
shares were offered and sold only to employees of Gulf West or its subsidiaries,
all of whom are residents of Florida, and Gulf West is incorporated and does
business solely in the State of Florida.
On January 28, 1998, each member of the Board of Directors of Gulf West (10
individuals) was issued 833 shares of Gulf West Common Stock as compensation for
his service on the Board of Directors. This transaction was made in reliance on
the exemption set forth in Section 4(2) of the Securities Act.
On January 28, 1998, Gordon W. Campbell, the President of Gulf West,
pursuant to the exercise of options, purchased an aggregate of 102,030 shares of
Gulf West Common Stock. 49,530 of such shares were purchased at a per share
exercise price of $2.91, and 52,500 of such shares were purchased at a per share
exercise price of $3.05. This transaction was made in reliance on the exemption
set forth in Section 4(2) of the Securities Act.
On January 28, 1998, Barry K. Miller, the Secretary/Treasurer of Gulf West,
pursuant to the exercise of options, purchased an aggregate of 15,750 shares of
Gulf West Common Stock. These shares were purchased at a per share exercise
price of $3.81. This transaction was made in reliance on the exemption set forth
in Section 4(2) of the Securities Act.
On January 29, 1998, John C. Petagna, Jr., a Director of Gulf West,
pursuant to the exercise of options, purchased an aggregate of 12,750 shares of
Gulf West Common Stock. 5,250 of such shares were purchased at a per share
exercise price of $3.13, another 2,500 shares were purchased at a per share
exercise price of $5.50 per share and 5,000 shares were purchased at a per share
exercise price of $6.00. This transaction was made in reliance on the exemption
set forth in Section 4(2) of the Securities Act.
On February 12, 1998, Algis Koncius, a Director of Gulf West, pursuant to
the exercise of options, purchased an aggregate of 12,750 shares of Gulf West
Common Stock. 2,625 of such shares were purchased at a per share exercise price
of $3.81; 2,625 shares were purchased at a per share exercise price of $2.91 per
share; 2,500 shares were purchased at a per share exercise price of $5.50 and
5,000 shares were purchased at a per share exercise price of $6.00 per share.
This transaction was made in reliance on the exemption set forth in Section 4(2)
of the Securities Act.
Proceeds from the sales of the above securities were used for general
corporate purposes.
14
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- -------------- -----------------------
2* Amended and Restated Agreement and Plan of Merger by and among
Citizens National Bank and Trust Company, Inc., Gulf West Banks,
Inc. and Mercantile Bank
3.1* Articles of Incorporation of Gulf West Banks, Inc.
3.2* Bylaws of Gulf West Banks, Inc.
10.1* Form of Registration Rights Agreement with Gordon W. Campbell
and John Wm. Galbraith
10.2* Salary Continuation Agreements with Gordon W. Campbell, Barry
K. Miller, and Robert A. Blakley
10.3* Employment Contract with Gordon W. Campbell
10.4* Stock Option Plan
10.5 Agreement to transfer fiduciary accounts to SunTrust Bank,
Nature Coast
11** Statement regarding computation of per share earnings
27 Financial Data Schedule (for SEC use only)
* incorporated by reference to the exhibits included in Amendment No. 2 to
Gulf West's S-4 Registration Statement, as filed with the Securities and
Exchange Commission on December 4, 1997 (Registration No. 333-373307).
** contained in Note 4 to the condensed consolidated financial statements set
forth in this 10-Q.
(b) No reports on Form 8-K were filed by the Company during the quarter ended
March 31, 1998.
15
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
GULF WEST BANKS, INC.
(Registrant)
Date: April 30, 1998 By: /s/ GORDON W. CAMPBELL
---------------------- ----------------------
Gordon W. Campbell, Chairman of the Board
and President (Chief Executive Officer)
Date: April 30, 1998 By: /s/ BARRY K. MILLER
---------------------- -------------------
Barry K. Miller, Secretary/Treasurer
(Chief Financial Officer)
16
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- -------------- -----------------------
2* Amended and Restated Agreement and Plan of Merger by and
among Citizens National Bank and Trust Company, Inc., Gulf
West Banks, Inc. and Mercantile Bank
3.1* Articles of Incorporation of Gulf West Banks, Inc.
3.2* Bylaws of Gulf West Banks, Inc.
10.1* Form of Registration Rights Agreement with Gordon W.
Campbell and John Wm. Galbraith
10.2* Salary Continuation Agreements with Gordon W. Campbell,
Barry K. Miller, and Robert A. Blakley
10.3* Employment Contract with Gordon W. Campbell
10.4* Stock Option Plan
10.5 Agreement to transfer fiduciary accounts to SunTrust Bank,
Nature Coast
11** Statement regarding computation of per share earnings
27 Financial Data Schedule (for SEC use only)
* incorporated by reference to the exhibits included in Amendment No. 2 to
Gulf West's S-4 Registration Statement, as filed with the Securities and
Exchange Commission on December 4, 1997 (Registration No. 333-37307).
** contained in Note 4 to the condensed consolidated financial statements set
forth in this Form 10-Q.
17
EXHIBIT 10.15
AGREEMENT
THIS AGREEMENT is made and entered into this 23rd day of March, 1998,
by and between Mercantile Bank ("Mercantile"), and SunTrust Bank, Nature Coast
("SunTrust"), and is made with reference to the following:
Mercantile is a State Bank, having trust powers and authorized to act
as a corporate fiduciary in the State of Florida. Mercantile no longer wishes to
act as fiduciary on individual fiduciary accounts but does wish to keep its
charter for other fiduciary purposes. SunTrust is a State Bank, having trust
powers, authorized to act as a corporate fiduciary in the State of Florida,
current doing business and providing trust services in Pasco, Hernando, and
Citrus Counties.
SunTrust wishes to acquire from Mercantile and Mercantile wishes to
transfer to SunTrust the right to be substituted as the fiduciary of those
fiduciary accounts for which Mercantile is presently the fiduciary. SunTrust
wishes to acquire and Mercantile wishes to transfer and assign to SunTrust any
and all nominations of Mercantile as Personal Representative, Co-Personal
Representative, Trustee, Co-Trustee, Successor Trustee, or Successor Co-Trustee
in any document presently held by Mercantile in which Mercantile is nominated as
said fiduciary.
SunTrust also wishes to solicit prospective fiduciary nominations and
appointments in documents held by Mercantile that currently appoint Mercantile
in a fiduciary capacity and Mercantile wishes to cooperate in attempting to
procure SunTrust's substitution as fiduciary in any document currently held in
Mercantile's Will and Deferred Trust files, and now, therefore, in consideration
of the mutual promises and covenants set forth herein Mercantile and SunTrust
hereby agree as follows:
1. SunTrust agrees to pay to Mercantile ("Purchase Price") an amount
equal to 2.30 times the annual fees currently being collected by Mercantile on
each fiduciary account listed on Attachment A that is transferred or assigned
from Mercantile to SunTrust as Trustee, Co-Trustee, or any other fiduciary
capacity. The fee for each account that is transferred from Mercantile to
SunTrust will be calculated by applying Mercantile's previously provided fee
schedule to the assets and income of each such fiduciary account at the time
that it is transferred from Mercantile to SunTrust. Mercantile will undertake to
use its best efforts, where necessary, to encourage those parties-in-interest in
fiduciary accounts to transfer those accounts to SunTrust and Mercantile will
provide reasonable assistance in the transfer process. The purchase price as
hereinabove described, will be paid to Mercantile by SunTrust within thirty days
after the assets of an account that is transferring from Mercantile to SunTrust
are received by SunTrust in deliverable form.
<PAGE>
2. In order to facilitate the transfer of the accounts from Mercantile
to SunTrust, SunTrust will offer a ten percent discount to its normal market
value fee schedule to fiduciary accounts or parties-in-interest that are
affected by the transfer for a period of two years and SunTrust will also offer
a discount of $120 to its normal base fee to such accounts for the same two year
period.
3. Mercantile's trust employees will remain at their present location
until May 15, 1998. Mercantile will transfer to SunTrust all applicable account
records, files, and assets at the time the accounts are transferred from
Mercantile to SunTrust.
4. Mercantile, to the extent allowed by law, hereby assigns and
transfers to SunTrust all rights and interest that it may have to any Wills or
Deferred Trusts that appoint Mercantile as Personal Representative, Co-Personal
Representative, Trustee, Co-Trustee, Successor Trustee, or Successor Co-Trustee.
Mercantile shall cooperate with SunTrust in attempting to obtain the
substituted nomination of SunTrust in any prospective fiduciary appointments
(hereinafter referred to as prospective appointments), held in any document in
Mercantile's "Will and Deferred Trust files" and Mercantile shall deliver such
file upon said substitution.
The term "prospective fiduciary appointment" means nomination of
Mercantile in a fiduciary capacity in any documents held by Mercantile which has
not come to fruition but in which Mercantile is nominated as Personal
Representative, Co-Personal Representative, Successor Co-Personal
Representative, Trustee, Co-Trustee, Successor Trustee, or Successor Co-Trustee.
5. This Agreement represents an exclusive arrangement between
Mercantile and SunTrust. Mercantile agrees that it will not enter into any
agreement with any other bank, trust company, national association, nor
individual for the transfer and assignment of any documents currently held in
Mercantile's "Will and Deferred Trust files" nor any fiduciary accounts
currently under fiduciary administration by Mercantile.
6. Upon completion of the transfers referred to herein, Mercantile
agrees to cease providing individual fiduciary services in Pasco County,
Florida.
7. The signing of this agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
8. Mercantile has no knowledge of any contingent liabilities relating
to the accounts listed on Attachment A.
<PAGE>
9. Any notice or any other communication regarding this agreement
should be addressed to:
To SunTrust: Robert A. Barnett
Executive Vice President and
Senior Trust Officer
SunTrust Bank, Nature Coast
Post Office Box 578
Brooksville, Florida 34605-0578
To Mercantile: Barry K. Miller
Executive Vice President
Mercantile Bank
Post Office Box 20006
St. Petersburg, Florida 33742-0006
10. Any controversy or claim arising out of or relating to this
agreement will be settled by arbitration in accordance with the rules of the
American Arbitration Association and judgment on the arbitration award may be
entered in any court of competent jurisdiction.
IN WITNESS WHEREOF, the parties have executed this agreement on the
date hereinabove set forth.
MERCANTILE BANK
ATTEST:
By: /s/ BARRY K. MILLER
/s/ KAY L. BONENFANT ----------------------------
- ----------------------- BARRY K. MILLER
Kay L. Bonenfant Title: Executive Vice President
SUNTRUST BANK, NATURE COAST
ATTEST:
By: /s/ ROBERT A. BARNETT
--------------------------
ROBERTA. BARNETT
/s/ BARBARA A. REVELS
- -----------------------
Barbara A. Revels
Vice President and Trust Officer
Title: Executive Vice President and
Senior Trust Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 11,393
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 17,550
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 76,204
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 163,427
<ALLOWANCE> 2,206
<TOTAL-ASSETS> 280,660
<DEPOSITS> 240,434
<SHORT-TERM> 11,958
<LIABILITIES-OTHER> 1,612
<LONG-TERM> 0
6,005
0
<COMMON> 0
<OTHER-SE> 20,651
<TOTAL-LIABILITIES-AND-EQUITY> 280,660
<INTEREST-LOAN> 3,731
<INTEREST-INVEST> 1,296
<INTEREST-OTHER> 168
<INTEREST-TOTAL> 5,195
<INTEREST-DEPOSIT> 2,018
<INTEREST-EXPENSE> 2,274
<INTEREST-INCOME-NET> 2,291
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,525<F1>
<INCOME-PRETAX> 959
<INCOME-PRE-EXTRAORDINARY> 959
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 615
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
<YIELD-ACTUAL> 4.6
<LOANS-NON> 0
<LOANS-PAST> 0<F2>
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,564
<CHARGE-OFFS> 53
<RECOVERIES> 17
<ALLOWANCE-CLOSE> 2,206<F3>
<ALLOWANCE-DOMESTIC> 0<F2>
<ALLOWANCE-FOREIGN> 0<F2>
<ALLOWANCE-UNALLOCATED> 0<F2>
<FN>
<F1>Other expense includes: salaries and employee benefits of $1,383, occupancy
of $484, data processing of $150, advertising of $72, stationary and supplies
of $83 and other expenses which totaled $354.
<F2>Items are only disclosed on an annual basis in the Company's Form 10-K, and
are, therefore, not included in this Financial Data Schedule.
<F3>Includes $528 allowance acquired in Citizens Acquisition.
</FN>
</TABLE>
