- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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 June 30, 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)
(727) 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 6,015,795 SHARES
- ------------------------------------ ----------------------------
(CLASS) OUTSTANDING AT JUNE 30, 1998
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
CONFORMED COPY
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
INDEX
ITEM 1. FINANCIAL STATEMENTS PAGE
Condensed Consolidated Balance Sheets -
At June 30, 1998 (unaudited) and December 31, 1997........................2
Condensed Consolidated Statements of Earnings -
Three and Six months ended June 30, 1998 and 1997 (unaudited).............3
Condensed Consolidated Statements of Comprehensive Income -
Three and Six months ended June 30, 1998 and 1997 (unaudited).............4
Condensed Consolidated Statement of Stockholders' Equity -
For the Six months ended June 30, 1998 (unaudited)........................5
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1998 and 1997 (unaudited).......................6
Notes to Condensed Consolidated Financial Statements (unaudited).........7-9
Review By Independent Certified Public Accountants........................10
Report on Review by Independent Certified Public Accountants..............11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..............................................12-16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................................................17
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...........................17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................18
SIGNATURES..................................................................19
EXHIBIT INDEX...............................................................20
1
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
AT
---------------------
JUNE 30, DECEMBER 31,
-------- ------------
ASSETS 1998 1997
---- ----
(UNAUDITED)
Cash and due from banks $ 12,545 9,046
Federal funds sold and securities purchased under
agreements to resell 16,341 8,903
------ -------
Cash and cash equivalents 28,886 17,949
Securities available for sale 90,135 53,183
Loans receivable, net of allowance for loan losses of
$2,261 in 1998 and $1,564 in 1997 161,857 122,555
Loans held for sale, at cost which approximates market -- 715
Premises and equipment, net 7,459 7,043
Accrued interest receivable 1,691 1,119
Deferred tax asset 5 328
Goodwill 1,739 148
Other assets 2,974 1,808
------- -------
Total $ 294,746 204,848
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits 48,196 36,992
Savings, NOW and money-market deposits 92,299 62,212
Time deposits 113,716 69,897
------- -------
Total deposits 254,211 169,101
Other borrowings 11,969 20,237
Other liabilities 1,230 969
------- -------
Total liabilities 267,410 190,307
------- -------
Stockholders' equity:
Common stock, $1 par value; 10,000,000 shares authorized;
6,015,795 and 3,342,676 issued and outstanding in 1998
and 1997 6,016 3,343
Additional paid-in capital 20,151 9,308
Retained earnings 958 1,705
Accumulated other comprehensive income, unrealized gain
on securities available for sale, net of tax 211 185
------- -------
Total stockholders' equity 27,336 14,541
------- -------
Total $ 294,746 204,848
======= =======
See accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1998 1997 1998 1997
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 3,767 2,602 7,498 5,220
Interest on securities 1,199 780 2,495 1,430
Other interest-earning assets 242 87 410 199
---------- ---------- ---------- ----------
Total interest income 5,208 3,469 10,403 6,849
---------- ---------- ---------- ----------
Interest expense:
Deposits 2,118 1,407 4,136 2,735
Other borrowings 155 127 411 286
---------- ---------- ---------- ----------
Total interest expense 2,273 1,534 4,547 3,021
---------- ---------- ---------- ----------
Net interest income 2,935 1,935 5,856 3,828
Provision for loan losses 110 135 260 240
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 2,825 1,800 5,596 3,588
---------- ---------- ---------- ----------
Noninterest income:
Service charges on deposit accounts 274 189 533 373
Leasing fees and commissions 162 116 296 254
Income from fiduciary activities 39 -- 105 --
Income earned on officers life insurance 22 14 100 32
Other 141 142 317 219
---------- ---------- ---------- ----------
Total noninterest income 638 461 1,351 878
---------- ---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 1,360 1,035 2,742 2,063
Occupancy expense 519 428 1,003 799
Data processing 136 111 286 176
Advertising 71 51 143 106
Stationery and supplies 119 59 202 110
Other 361 264 715 522
---------- ---------- ---------- ----------
Total noninterest expense 2,566 1,948 5,091 3,776
---------- ---------- ---------- ----------
Earnings before income taxes 897 313 1,856 690
Income taxes 311 92 655 234
---------- ---------- ---------- ----------
Net earnings $ 586 221 1,201 456
========== ========== ========== ==========
Basic earnings per share $ .10 .06 .20 .12
========== ========== ========== ==========
Weighted-average number of
shares outstanding for basic 6,008,726 3,668,017 5,979,653 3,666,413
========== ========== ========== ==========
Diluted earnings per share $ .09 .06 .20 .12
========== ========== ========== ==========
Weighted-average number of
shares outstanding for diluted 6,217,749 3,744,915 6,142,993 3,743,311
========== ========== ========== ==========
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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net earnings $ 586 221 1,201 456
Other comprehensive income:
Change in unrealized gain arising during
period net of tax of $3 and $204
for the three months ended June 30,
1998 and 1997 (unaudited) and $13 and
$8 for the six months ended June 30,
1998 and 1997 (unaudited) 5 340 26 13
----- ----- ----- -----
Comprehensive income $ 591 561 1,227 469
===== ===== ===== =====
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
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) -- -- -- 1,201 -- 1,201
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) 154,418 154 561 -- -- 715
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) -- -- -- -- 26 26
--------- --------- --------- --------- --------- ---------
Balance at June 30, 1998
(unaudited) 6,015,795 $ 6,016 20,151 958 211 27,336
========= ========= ========= ========= ========= =========
</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)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------
1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,201 456
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation 442 361
Provision for loan losses 260 240
Net amortization of fees, premiums and discounts 41 (46)
Deferred income tax credit (33) (39)
Income from mortgage banking activity (32) (21)
Proceeds from sales of loans held for sale 2,903 2,199
Originations of loans held for sale (2,156) (1,942)
Stock issued for compensation 50 --
Decrease (increase) in accrued interest receivable 128 (200)
Increase in goodwill and other assets (792) (330)
(Decrease) increase in other liabilities (180) 198
-------- --------
Net cash provided by operating activities 1,832 876
-------- --------
Cash flows from investing activities:
Purchase of securities available for sale (23,133) (9,970)
Proceeds from maturity of securities available for sale 12,306 1,000
Principal repayments on securities available for sale 7,762 1,283
Proceeds from sale of FRB stock 180 --
Proceeds from sale of FHLB stock 228 --
Purchase of premises and equipment (485) (666)
Net increase in loans (8,133) (505)
Purchase of Citizens National Bank & Trust, net cash acquired 9,323 --
-------- --------
Net cash used in investing activities (1,952) (8,858)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in time deposits 3,335 (267)
Net increase in demand, savings, NOW and money-market deposit accounts 15,197 11,225
Net decrease of other borrowings (8,268) (4,898)
Issuance of common stock 793 53
Net cash provided by financing activities 11,057 6,113
-------- --------
Net increase (decrease) in cash and cash equivalents 10,937 (1,869)
Cash and cash equivalents at beginning of period 17,949 11,987
-------- --------
Cash and cash equivalents at end of period $ 28,886 10,118
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 4,372 2,867
======== ========
Income taxes $ 918 273
======== ========
Noncash transactions:
Reclassification of loans to foreclosed real estate $ -- 179
======== ========
Acquisition of Citizens National Bank and Trust:
Fair value of assets acquired $ 77,744 --
======== ========
Liabilities assumed $ 67,019 --
======== ========
Common stock issued $ 10,725 --
======== ========
</TABLE>
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, the accompanying condensed
consolidated financial statements of Gulf West Banks, Inc. and Subsidiaries
(the "Company") contain all adjustments (consisting principally of normal
recurring accruals) necessary to present fairly the financial position at
June 30, 1998, and the results of operations for the three-month and
six-month periods ended June 30, 1998 and 1997 and the cash flows for the
six-month periods ended June 30, 1998 and 1997. The results of operations
for the three and six months ended June 30, 1998 are not necessarily
indicative of the results to be expected for the full year.
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 three months and six months ended
June 30, 1998 include the results of Citizens. 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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1997 1997
---- ----
Interest income $ 4,792 9,475
===== =====
Net interest income $ 2,507 4,975
===== =====
Net income $ 379 575
====== =====
Earnings per share:
Basic $ .07 .11
====== =====
Diluted $ .07 .11
====== =====
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 had no impaired loans at June 30,
1998. The Company has identified loans totaling $ 492,000 as impaired at
June 30, 1997. The activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 2,206 1,298 1,564 1,184
Provision for loan losses 110 135 260 240
Charge-offs, net of recoveries (55) (18) (91) (9)
Purchased via acquisition of Citizens -- -- 528 --
------- ------- ------- -------
Balance at end of period $ 2,261 1,415 2,261 1,415
======= ======= ======= =======
</TABLE>
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 2,000 shares of common stock at $13.00 a
share issued in 1998 were not included in the computation of diluted
Earnings Per Share because the options exercise price was not less than the
average market price of the common shares. These options expire on June 17,
2008 (Dollars in thousands, except per share amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
------------------------------------------------------------
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 $ 586 6,008,726 $ .10 221 3,668,017 $ .06
==== ====
Effect of dilutive securities-
Incremental shares from assumed
exercise of options -- 209,023 -- 76,898
---- --------- ---- ---------
Diluted EPS:
Net earnings available to
common stockholders
and assumed conversions $ 586 6,217,749 $ .09 221 3,744,915 $ .06
===== ========= ===== === ========= =====
</TABLE>
(continued)
8
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
4. EARNINGS PER COMMON SHARE, CONTINUED.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------
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 $ 1,201 5,979,653 $ .20 456 3,666,413 $ .12
==== ====
Effect of dilutive securities-
Incremental shares from assumed
exercise of options -- 163,340 -- 76,898
------- --------- ---- ---------
Diluted EPS:
Net earnings available to
common stockholders
and assumed conversions $ 1,201 6,142,993 $ .20 456 3,743,311 $ .12
====== ========= ==== === ========= ====
</TABLE>
9
<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 June 30,
1998, and for the three-month and six-month periods ended June 30, 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.
10
<PAGE>
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Gulf West Banks, Inc.
St. Petersburg, Florida:
We have reviewed the condensed consolidated balance sheet of Gulf West
Banks, Inc. and Subsidiaries (the "Bank") as of June 30, 1998, and the related
condensed consolidated statements of earnings and comprehensive income for the
three-month and six-month periods ended June 30, 1998 and 1997, the condensed
consolidated statements of cash flows for the six-month periods ended June 30,
1998 and 1997 and the condensed consolidated statement of stockholders' equity
for the six-month period ended June 30, 1998. These financial statements are the
responsibility of the Bank'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
July 16, 1998
11
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF JUNE 30, 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 1998 include the results of Citizens. 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 six months ended June 30, 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 liquidity and capital resources principally to
fund existing and continuing loan commitments, purchase securities and pay off
other borrowings. At June 30, 1998, the Company had commitments to originate
loans totaling $10.3 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 June 30, 1998, the Bank had liquidity of approximately $119.0
million, or approximately 46.7% of total deposits.
Management believes the Bank was in compliance with all minimum capital
requirements which it was subject to at June 30, 1998.
The following ratios and rates are presented for the dates and periods
indicated:
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30,
1998 1997 1997
----------------------------------
Average equity as a percentage
of average assets 9.45% 7.50% 7.40%
Equity to total assets at end of period 9.27% 7.10% 7.50%
Return on average assets (1) .86% 0.69% .50%
Return on average equity (1) 9.05% 9.18% 6.83%
Noninterest expenses to average assets (1) 3.62% 4.26% 4.18%
Nonperforming loans and foreclosed real estate
as a percentage of total assets
at end of period .17% 0.31% .32%
- ----------------------------------------------------
(1) Annualized for the six months ended June 30, 1998 and 1997.
(continued)
12
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of the Bank 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 cost; (iii) net interest income; (iv) interest rate spread; (v) net
interest margin.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------
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) $ 166,027 3,767 9.08% $ 112,622 2,602 9.24%
Securities 77,602 1,199 6.18 47,790 780 6.53
Other interest-earning assets (2) 17,745 242 5.46 6,430 87 5.41
-------- -------- ---- -------- -------- ----
Total interest-earning assets 261,374 5,208 7.97 166,842 3,469 8.32
--------
Noninterest-earning assets 22,990 16,199
-------- --------
Total assets $ 284,364 $ 183,041
======== ========
Interest-bearing liabilities:
Savings and NOW accounts 72,677 522 2.88 41,757 333 3.19
Money-market deposits 17,866 127 2.84 11,946 80 2.68
Time deposits 108,145 1,469 5.43 73,497 994 5.41
Borrowings 11,476 155 5.40 9,356 127 5.43
-------- ---- -------- -------- ----
Total interest-bearing liabilities 210,164 2,273 4.33 136,556 1,534 4.49
-------- --------
Noninterest-bearing liabilities 47,240 33,153
Stockholders' equity 26,960 13,332
-------- --------
Total liabilities and stockholders' equity $ 284,364 $ 183,041
======== ========
Net interest income $ 2,935 $ 1,935
======== ========
Interest-rate spread (3) 3.64% 3.83%
==== ====
Net interest margin (4) 4.49% 4.64%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.24 1.22
==== ====
<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 cost of interest-bearing
liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
</FN>
</TABLE>
13
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of the Bank 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 cost; (iii) net interest income; (iv) interest rate spread; (v) net
interest margin.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------------
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) $ 163,537 7,498 9.17% $ 112,019 5,220 9.32%
Securities 79,492 2,495 6.28 44,241 1,430 6.46
Other interest-earning assets (2) 15,149 410 5.41 7,498 199 5.31
-------- ------ -------- -----
Total interest-earning assets 258,178 10,403 8.06 163,758 6,849 8.36
------ -----
Noninterest-earning assets 22,736 16,878
------- --------
Total assets $ 280,914 $ 180,636
======== ========
Interest-bearing liabilities:
Savings and NOW accounts 72,000 1,037 2.88 38,968 595 3.05
Money-market deposits 16,114 225 2.79 13,015 174 2.67
Time deposits 106,613 2,874 5.39 72,923 1,966 5.39
Borrowings 14,954 411 5.50 10,680 286 5.35
-------- ----- ------- -----
Total interest-bearing liabilities 209,681 4,547 4.34 135,586 3,021 4.46
------ -----
Noninterest-bearing liabilities 44,696 31,689
Stockholders' equity 26,537 13,361
-------- -------
Total liabilities and stockholders' equity $ 280,914 $ 180,636
======== ========
Net interest income $ 5,856 $ 3,828
====== ======
Interest-rate spread (3) 3.72% 3.90%
==== ====
Net interest margin (4) 4.54% 4.68%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.23 1.21
======== =========
<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 cost of interest-bearing
liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
</FN>
</TABLE>
14
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
COMPARISON OF THREE-MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
GENERAL. Net earnings for the three-months ended June 30, 1998 were $586,000 or
$.10 per basic and $.09 per diluted share compared to $221,000 or $.06 per
basic and diluted share for 1997. The increase in earnings was primarily due
to increases in net interest income and noninterest income partially offset by
an increase in noninterest expenses.
INTEREST INCOME AND EXPENSE. Interest income increased by $1.7 million to $5.2
million for the three-month period ended June 30, 1998 from $3.5 million for
the three months ended June 30, 1997. Interest on loans increased $1.2 million
to $3.8 million due to an increase in the average loan portfolio balance in
1998 partially offset by a decrease in the weighted-average yield earned in
1998. Interest on securities increased $419,000 to $1.2 million for the three
months ended June 30, 1998 due to an increase in the average securities
portfolio in 1998 partially offset by a decrease in the average yield earned
in 1998. Interest on other interest-earning assets increased from $87,000 for
the three months ended June 30, 1997 to $242,000 for the three months ended
June 30, 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 $711,000 to $2.1 million for the three
months ended June 30, 1998 from $1.4 million in 1997. The increase is due to
an increase in the average deposits in 1998 partially offset by a decrease 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 $110,000 for the three-month
period ended June 30, 1998 compared to $135,000 for the same period in 1997.
The allowance for loan losses is $2.3 million at June 30, 1998. While
management believes that its allowance for loan losses is adequate as of June
30, 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 $638,000 in 1998 from
$461,000 for the three months ended June 30, 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 $2.6 million for the
three months ended June 30, 1998 from $1.9 million for the comparable period
ended June 30, 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 June 30, 1998
was $311,000 or 34.7% of income before income taxes compared to $92,000 or
29.4% for the three months ended June 30, 1997.
15
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
COMPARISON OF SIX-MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
GENERAL. Net earnings for the six-months ended June 30, 1998 were $1.2 million
or $.20 per basic and diluted share compared to $456,000 or $.12 per basic and
diluted share for 1997. The increase in earnings was primarily due to an
increase in net interest income and noninterest income partially offset by an
increase in noninterest expenses.
INTEREST INCOME AND EXPENSE. Interest income increased by $3.6 million to $10.4
million for the six-month period ended June 30, 1998 from $6.8 million for the
six months ended June 30, 1997. Interest on loans increased $2.3 million to
$7.5 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 $1.1 million to $2.5 million for the six
months ended June 30, 1998 due to an 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
$199,000 for the six months ended June 30, 1997 to $410,000 for the six months
ended June 30, 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 $1.4 million to $4.1 million for the
six months ended June 30, 1998 from $2.7 million in 1997. The increase is due
to an increase in the average deposits in 1998 partially offset by a decrease
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 $260,000 for the six-month period
ended June 30, 1998 compared to $240,000 for the same period in 1997. The
allowance for loan losses is $2.3 million at June 30, 1998. While management
believes that its allowance for loan losses is adequate as of June 30, 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 $1.4 million in 1998 from
$878,000 for the six months ended June 30, 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 $5.1 million for the
six months ended June 30, 1998 from $3.8 million for the comparable period
ended June 30, 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 six months ended June 30, 1998
was $655,000 or 35.3% of income before income taxes compared to $234,000 or
33.9% for the period ended June 30, 1997.
16
<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:
On May 11, 1998, Graham R. Cook, a Vice President of Mercantile Bank, pursuant
to the exercise of options, purchased an aggregate of 2,888 shares of Gulf
West Common Stock. These shares were purchased at a per share exercise price
of $3.89. This transaction was made in reliance on the exemption set forth in
Section 4(2) of the Securities Act.
On May 15, 1998, John Wm. Galbraith, a Director Emeritus of Gulf West,
pursuant to the exercise of options, purchased an aggregate of 8,250 shares of
Gulf West Common Stock. 5,550 of such shares were purchased at a per share
exercise price of $5.45, and another 2,750 shares were purchased at a per
share exercise price of $5.00 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders (the "Annual Meeting") of Gulf West Banks,
Inc., was held on April 16, 1998, to consider the election of four directors
with various terms. No other matters were voted upon at the Annual Meeting.
At the Annual Meeting, 3,674,072 shares were present in person or by proxy.
Listed below are the directors that were elected at the Annual Meeting with a
summary of the votes cast for each nominee:
FOR AGAINST ABSTAIN TERM
--------- ------- ------- -------
Henry W. Hanff, M.D. 3,655,310 - 18,762 3 years
Thomas M. Harris 3,655,327 - 18,745 3 years
Ross E. Roeder 3,655,310 - 18,762 3 years
Pandurang V. Kamat, M.D. 3,655,012 - 19,060 2 years
In addition to the foregoing, the following individuals are directors of Gulf
West whose terms continued after the Annual Meeting:
Gordon W. Campbell Louis P. Ortiz, CPA
John Wm. Galbraith (Director Emeritus) John Cooper Petagna
Algis Koncius P.N. Risser, III
17
<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 Form 10-Q.
*** incorporated by reference to the exhibits included in Gulf West's Form
10-Q for the quarter ended March 31, 1998, as filed with the Securities and
Exchange Commission on May 8, 1998.
(b) No reports on Form 8-K were filed by the Company during the quarter ended
June 30, 1998.
18
<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: JULY 29, 1998 By: /s/GORDON W. CAMPBELL
-------------- -----------------------------------------
Gordon W. Campbell, Chairman of the Board
and President (Chief Executive Officer)
Date: JULY 29, 1998
-------------- By: /s/BARRY K. MILLER
------------------------------------
Barry K. Miller, Secretary/Treasurer
(Chief Financial Officer)
19
<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. 333-373307).
** contained in Note 4 to the condensed consolidated financial statements set
forth in this Form 10-Q.
*** incorporated by reference to the exhibits included in Gulf West's Form 10-Q
for the quarter ended March 31, 1998, as filed with the Securities and Exchange
Commission on May 8, 1998.
(b) No reports on Form 8-K were filed by the Company during the quarter ended
June 30, 1998.
20
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the period ended June 30, 1998 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-06-1998
<CASH> 12,545
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16,341
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 90,135
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 164,118
<ALLOWANCE> 2,261
<TOTAL-ASSETS> 294,746
<DEPOSITS> 254,211
<SHORT-TERM> 11,969
<LIABILITIES-OTHER> 1,230
<LONG-TERM> 0
0
0
<COMMON> 6,016
<OTHER-SE> 21,320
<TOTAL-LIABILITIES-AND-EQUITY> 294,746
<INTEREST-LOAN> 7,498
<INTEREST-INVEST> 2,495
<INTEREST-OTHER> 410
<INTEREST-TOTAL> 10,403
<INTEREST-DEPOSIT> 4,136
<INTEREST-EXPENSE> 4,547
<INTEREST-INCOME-NET> 5,856
<LOAN-LOSSES> 260
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,091<F1>
<INCOME-PRETAX> 1,856
<INCOME-PRE-EXTRAORDINARY> 1,856
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,201
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<YIELD-ACTUAL> 4.54
<LOANS-NON> 493
<LOANS-PAST> 0<F2>
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,564
<CHARGE-OFFS> 110
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 2,261<F3>
<ALLOWANCE-DOMESTIC> 0<F2>
<ALLOWANCE-FOREIGN> 0<F2>
<ALLOWANCE-UNALLOCATED> 0<F2>
<FN>
<F1>Other expenses includes: salaries and employee benefits of $2,742, occupancy of
$1,003, data processing of $286, advertising of $143, stationary and supplies
of $202 and other expenses which totaled $715.
<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>
