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 September 30, 1998
or
[ ] 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 6,024,476 SHARES
- ------------------------------------ ---------------------------------
(CLASS) OUTSTANDING AT SEPTEMBER 30, 1998
<PAGE>
<TABLE>
<CAPTION>
GULF WEST BANKS, INC. AND SUBSIDIARIES
INDEX
ITEM 1. FINANCIAL STATEMENTS PAGE
----
<S> <C>
Condensed Consolidated Balance Sheets -
September 30, 1998 (unaudited) and December 31, 1997.......................2
Condensed Consolidated Statements of Earnings -
Three and Nine months ended September 30, 1998 and 1997 (unaudited)........3
Condensed Consolidated Statement of Stockholders' Equity -
Nine Months Ended September 30, 1998 (unaudited)...........................4
Condensed Consolidated Statements of Cash Flows -
Nine Months ended September 30, 1998 and 1997 (unaudited)..................5
Notes to Condensed Consolidated Financial Statements (unaudited)...........6-8
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................................................11-16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS......................................................17
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..............................17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................18
SIGNATURES.....................................................................19
EXHIBIT INDEX..................................................................20
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
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
----------------------------
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Cash and due from banks $ 15,404 9,046
Federal funds sold and securities purchased under
agreements to resell 7,429 8,903
-------- --------
Cash and cash equivalents 22,833 17,949
Securities available for sale 78,186 53,183
Loans receivable, net of allowance for loan losses of
$2,325 in 1998 and $1,564 in 1997 192,740 122,555
Loans held for sale, at cost which approximates market 369 715
Premises and equipment, net 7,594 7,043
Accrued interest receivable 1,634 1,119
Deferred tax asset 494 328
Goodwill 1,714 148
Cash surrender value of bank owned life insurance 11,874 1,450
Other assets 1,206 358
-------- --------
Total $318,644 204,848
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits 42,266 36,992
Savings, NOW and money-market deposits 102,528 62,212
Time deposits 131,077 69,897
-------- --------
Total deposits 275,871 169,101
Other borrowings 12,752 20,237
Other liabilities 1,849 969
-------- --------
Total liabilities 290,472 190,307
-------- --------
Stockholders' equity:
Common stock, $1 par value; 10,000,000 shares
authorized, 6,024,476 and 3,342,676 issued and outstanding
in 1998 and 1997 6,025 3,343
Additional paid-in capital 20,198 9,308
Retained earnings 1,511 1,705
Accumulated other comprehensive income 438 185
-------- --------
Total stockholders' equity 28,172 14,541
-------- --------
Total $318,644 204,848
======== ========
</TABLE>
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 3,603 2,805 11,101 8,025
Interest on securities 1,238 671 3,733 2,101
Other interest-earning assets 280 82 690 281
---------- ---------- ---------- ----------
Total interest income 5,121 3,558 15,524 10,407
---------- ---------- ---------- ----------
Interest expense:
Deposits 2,318 1,413 6,454 4,148
Other borrowings 171 100 582 386
---------- ---------- ---------- ----------
Total interest expense 2,489 1,513 7,036 4,534
---------- ---------- ---------- ----------
Net interest income 2,632 2,045 8,488 5,873
Provision for loan losses 90 165 350 405
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 2,542 1,880 8,138 5,468
---------- ---------- ---------- ----------
Noninterest income:
Service charges on deposit accounts 311 208 844 581
Leasing fees and commissions 181 73 477 327
Income earned on bank owned life insurance 93 18 193 53
Other 149 166 571 382
---------- ---------- ---------- ----------
Total noninterest income 734 465 2,085 1,343
---------- ---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 1,210 1,023 3,952 3,086
Occupancy expense 533 420 1,536 1,219
Data processing 143 118 429 294
Advertising 49 42 192 148
Stationery and supplies 50 51 212 161
Other 494 280 1,249 802
---------- ---------- ---------- ----------
Total noninterest expense 2,479 1,934 7,570 5,710
---------- ---------- ---------- ----------
Earnings before income taxes 797 411 2,653 1,101
Income taxes 243 155 898 389
---------- ---------- ---------- ----------
Net earnings $ 554 256 1,755 712
========== ========== ========== ==========
Basic earnings per share $ .09 .07 .29 .19
========== ========== ========== ==========
Basic weighted-average number of
shares outstanding 6,022,155 3,672,328 5,993,039 3,668,341
========== ========== ========== ==========
Diluted earnings per share $ .09 .07 .28 .19
========== ========== ========== ==========
Diluted weighted-average number of
shares outstanding 6,202,764 3,758,394 6,160,318 3,747,530
========== ========== ========== ==========
Dividends per share $ -- -- -- --
========== ========== ========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
ACCUMULATED
COMMON STOCK OTHER
---------------------- ADDITIONAL COMPRE- TOTAL
NUMBER OF PAID-IN RETAINED HENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME 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
--------- --------- --------- --------- --------- ---------
Comprehensive income:
Net earnings (unaudited) -- -- -- 1,755 -- 1,755
Net change in unrealized
gain on securities
available for sale,
net of tax of $151
(unaudited) -- -- -- -- 253 253
--------- --------- --------- --------- --------- ---------
Comprehensive income (unaudited) -- -- -- 1,755 253 2,008
Shares issued in exchange for
Citizens National Bank &
Trust shares (unaudited) 1,949,919 1,950 8,774 -- -- 10,724
Stock dividend (unaudited) 545,713 546 1,402 (1,948) -- --
Cash dividend (unaudited) -- -- -- (1) -- (1)
Shares issued under stock
option plan (unaudited) 162,125 162 604 -- -- 766
Shares issued to directors
as compensation (unaudited) 8,330 8 42 -- -- 50
Shares sold to employees
(unaudited) 15,713 16 68 -- -- 84
--------- --------- --------- --------- --------- ---------
Balance at September 30, 1998
(unaudited) 6,024,476 $ 6,025 20,198 1,511 438 28,172
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,755 712
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation 673 551
Provision for loan losses 350 405
Net amortization of fees, premiums and discounts 88 34
Deferred income tax credit (659) --
Income from mortgage banking activity (49) (40)
Proceeds from sales of loans held for sale 3,941 4,584
Originations of loans held for sale (3,546) (5,091)
Stock issued for compensation 50 --
Gain on sale of foreclosed real estate -- (23)
Gain on securities available for sale -- (21)
Decrease (increase) in accrued interest receivable 185 (48)
Increase in other assets (449) (211)
Increase in other liabilities 438 605
-------- --------
Net cash flow provided by operating activities 2,777 1,457
-------- --------
Cash flows from investing activities:
Purchase of securities available for sale (23,133) (9,970)
Proceeds from maturity of securities available for sale 19,971 12,881
Principal repayments on securities available for sale 12,363 2,088
Proceeds from sale of FRB stock 180 --
Proceeds from sale of FHLB stock 228 --
Purchase of premises and equipment (851) (793)
Proceeds from sales of foreclosed real estate -- 74
Net increase in loans (39,106) (8,185)
Purchase of officers life insurance policies (10,424) --
Purchase of Citizens National Bank and Trust, net cash acquired 9,323 --
-------- --------
Net cash used in investing activities (31,449) (3,905)
-------- --------
Cash flows from financing activities:
Net increase in time deposits 20,696 2,027
Net increase in demand, savings, NOW and money-market deposit accounts 19,496 15,032
Net decrease of other borrowings (7,485) (8,892)
Issuance of common stock 850 71
Dividends paid (1) --
-------- --------
Net cash provided by financing activities 33,556 8,238
-------- --------
Net increase in cash and cash equivalents 4,884 5,790
Cash and cash equivalents at beginning of period 17,949 11,987
-------- --------
Cash and cash equivalents at end of period $ 22,833 17,777
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 6,915 4,466
======== ========
Income taxes $ 1,165 423
======== ========
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 $ 67,020 --
======== ========
Common stock issued $ 10,724 --
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<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" or "Gulf West"), the accompanying condensed consolidated
financial statements contain all adjustments (consisting principally of
normal recurring accruals) necessary to present fairly the financial
position at September 30, 1998, and the results of operations for the
three-month and nine- month periods ended September 30, 1998 and 1997 and
the cash flows for the nine-month periods ended September 30, 1998 and
1997. The results of operations for the three and nine months ended
September 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 nine months
ended September 30, 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1997
------------------ -----------------
Interest income $ 4,796 14,271
============ =======
Net interest income $ 2,562 7,537
============ =======
Net income $ 230 805
============ =======
Earnings per share:
Basic $ .04 .15
============ =======
Diluted $ .04 .15
============ =======
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.
6
<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 September
30, 1998. The Company had identified loans totaling $481,000 as impaired
at September 30, 1997.
The activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 2,261 1,415 1,564 1,184
Provision for loan losses 90 165 350 405
Charge-offs, net of recoveries (26) (40) (117) (49)
Purchased via acquisition of Citizens -- -- 528 --
------- ------- ------- -------
Balance at end of period $ 2,325 1,540 2,325 1,540
======= ======= ======= =======
</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 EPS
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 SEPTEMBER 30,
---------------------------------------------------------------------------------
1998 1997
-------------------------------------- -------------------------------------
WEIGHTED- PER WEIGHTED- PER
AVERAGE SHARE AVERAGE SHARE
EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT
--------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Basic EPS:
Net earnings available to
common stockholders $ 554 6,022,155 $ .09 $ 256 3,672,328 $ .07
======= =======
Effect of dilutive securities-
Incremental shares from assumed
exercise of options -- 180,609 -- 86,066
--------- --------- --------- ---------
Diluted EPS:
Net earnings available to
common stockholders
and assumed conversions $ 554 6,202,764 $ .09 $ 256 3,758,394 $ .07
========= ========= ======= ========= ========= =======
</TABLE>
7
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
4. EARNINGS PER COMMON SHARE, CONTINUED.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 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 $1,755 5,993,039 $ .29 $712 3,668,341 $ .19
======= =======
Effect of dilutive securities-
Incremental shares from assumed
exercise of options -- 167,279 -- 79,189
------ --------- ---- ---------
Diluted EPS:
Net earnings available to
common stockholders
and assumed conversions $1,755 6,160,318 $ .28 712 3,747,530 $ .19
====== ========= ======= ==== ========= =======
</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 September
30, 1998, and for the three-month and nine-month periods ended September 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.
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 condensed consolidated balance sheet of Gulf West
Banks, Inc. and Subsidiaries (the "Company") as of September 30, 1998, and the
related condensed consolidated statements of earnings for the three-month and
nine-month periods ended September 30, 1998 and 1997, the condensed consolidated
statements of cash flows for the nine-month periods ended September 30, 1998 and
1997 and the condensed consolidated statement of stockholders' equity for the
nine-month period ended September 30, 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
October 9, 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 SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
ACQUISITION
On January 16, 1998, Gulf West Banks, Inc. (the "Company" or "Gulf West")
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 nine months ended September 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 capital resources principally to fund existing
and continuing loan commitments, purchase securities and pay off other
borrowings. At September 30, 1998, the Company had commitments to originate
loans totaling $12.5 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" or "Mercantile") 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 September 30, 1998, the Bank
had liquidity of approximately $101.0 million, or approximately 36.6% of total
deposits.
Management believes the Bank was in compliance with all minimum capital
requirements which it was subject to at September 30, 1998.
The following ratios and rates are presented for the dates and periods
indicated:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1998 1997 1997
------------- ----------- ------------
<S> <C> <C> <C>
Average equity as a percentage
of average assets 9.29% 7.50% 7.45%
Equity to total assets at end of period 8.84% 7.10% 7.62%
Return on average assets (1) 0.81% 0.69% 0.52%
Return on average equity (1) 8.69% 9.18% 7.02%
Noninterest expenses to average assets (1) 3.48% 4.26% 4.20%
Nonperforming loans and foreclosed real estate as
a percentage of total assets at end of period 0.25% 0.31% 0.26%
<FN>
- ----------
(1) Annualized for the nine months ended September 30, 1998 and 1997.
</FN>
</TABLE>
(continued)
11
<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 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 cost; (iii) net interest income; (iv) interest-rate spread; (v) net
interest margin.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 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) $ 170,204 3,603 8.47% $ 118,479 2,805 9.47%
Securities 85,465 1,238 5.78 41,486 671 6.47
Other interest-earning assets (2) 20,116 280 5.57 5,907 82 5.55
------- ----- ------- -----
Total interest-earning assets 275,785 5,121 7.43 165,872 3,558 8.58
----- -----
Noninterest-earning assets 32,362 17,313
------- -------
Total assets $ 308,147 $ 183,185
======= =======
Interest-bearing liabilities:
Savings and NOW accounts 75,436 530 2.81 40,735 321 3.15
Money-market deposits 22,319 181 3.24 13,843 93 2.69
Time deposits 122,809 1,607 5.23 72,860 999 5.48
Borrowings 12,802 171 5.34 7,661 100 5.22
------- ----- ------- -----
Total interest-bearing liabilities 233,366 2,489 4.27 135,099 1,513 4.48
----- -----
Noninterest-bearing liabilities 47,057 34,153
Stockholders' equity 27,724 13,933
------- -------
Total liabilities and stockholders'
equity $ 308,147 $ 183,185
======= =======
Net interest income $ 2,632 $ 2,045
===== =====
Interest-rate spread (3) 3.16% 4.10%
==== ====
Net interest margin (4) 3.82% 4.93%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.18 1.23
==== ====
<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>
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 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 cost; (iii) net interest income; (iv) interest-rate spread; (v) net
interest margin.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 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) $ 165,248 11,101 8.96% $ 114,183 8,025 9.37%
Securities 81,482 3,733 6.11 43,319 2,101 6.47
Other interest-earning assets (2) 16,823 690 5.47 6,956 281 5.39
------- ------ ------- ------
Total interest-earning assets 263,553 15,524 7.85 164,458 10,407 8.44
------ ------
Noninterest-earning assets 26,538 16,989
------- -------
Total assets $ 290,091 $ 181,447
======= =======
Interest-bearing liabilities:
Savings and NOW accounts 73,159 1,567 2.86 39,561 916 3.09
Money-market deposits 18,205 406 2.97 13,292 267 2.68
Time deposits 112,071 4,481 5.33 73,089 2,965 5.41
Borrowings 14,228 582 5.45 9,664 386 5.33
------- ------ ------- ------
Total interest-bearing liabilities 217,663 7,036 4.31 135,606 4,534 4.46
------
Noninterest-bearing liabilities 45,491 32,325
Stockholders' equity 26,937 13,516
------- -------
Total liabilities and stockholders'
equity $ 290,091 $ 181,447
======= =======
Net interest income $ 8,488 $ 5,873
====== ======
Interest-rate spread (3) 3.54% 3.98%
==== ====
Net interest margin (4) 4.29% 4.76%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.21 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>
13
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
COMPARISON OF THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
GENERAL. Net earnings for the three months ended September 30, 1998 were
$554,000 or $.09 per basic and diluted share compared to $256,000 or $.07
per basic and diluted share for the comparable 1997 period. The increase in
earnings was primarily due to increased net interest income and noninterest
income partially offset by increases in noninterest expenses. The acquisition
of Citizens and continued growth of the Company both contributed
significantly to these increases.
INTEREST INCOME AND EXPENSE. Interest income increased by $1.5 million to
$5.1 million for the three-month period ended September 30, 1998 from $3.6
million for the three months ended September 30, 1997. Interest on loans
increased $798,000 to $3.6 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 $567,000 to $1.2
million for the three- months ended September 30, 1998 due to a 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 $82,000 for the three months ended September 30, 1997 to
$280,000 for the three months ended September 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 $905,000 to $2.3 million for the
three-months ended September 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 $90,000 for the
three-month period ended September 30, 1998 compared to $165,000 for the same
period in 1997. The allowance for loan losses is $2.3 million at September
30, 1998. While management believes that its allowance for loan losses is
adequate as of September 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 $734,000 in 1998 from
$465,000 for the three months ended September 30, 1997. Service charges on
deposits increased in 1998 due to the growth in deposit accounts. Income from
bank owned life insurance policies increased in 1998 primarily because of a
reinstatement of accrued income which was not previously accrued and
purchases of additional life insurance policies.
NONINTEREST EXPENSE. Total noninterest expense increased to $2.5 million for the
three months ended September 30, 1998 from $1.9 million for the comparable
period ended September 30, 1997. Increases resulted primarily from increases
in employee compensation, occupancy expense, data processing expense and
other noninterest expense due to the acquisition of Citizens and overall
growth of the Company.
INCOME TAXES. The income tax provision for the three months ended September 30,
1998 was $243,000 or 30.5% of income before income taxes compared to
$155,000 or 37.7% for the period ended September 30, 1997. The effective rate
was lower during 1998 because of increases in tax exempt income from bank
owned life insurance and municipal securities.
14
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
COMPARISON OF NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
GENERAL. Net earnings for the nine months ended September 30, 1998 were $1.8
million or $.29 per basic or $.28 per diluted share compared to $712,000
or $.19 per basic and diluted share for 1997. The increase in earnings was
primarily due to increased net interest income and noninterest income
partially offset by increases in noninterest expenses. The acquisition of
Citizens and continued growth of the Company both contributed significantly
to these increases.
INTEREST INCOME AND EXPENSE. Interest income increased by $5.1 million to $15.5
million for the nine-month period ended September 30, 1998 from $10.4
million for the nine months ended September 30, 1997. Interest on loans
increased $3.1 million to $11.1 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 $1.6
million to $3.7 million for the nine-months ended September 30, 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 $281,000 for the nine months ended
September 30, 1997 to $690,000 for the nine months ended September 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 $2.3 million to $6.5 million for
the nine-months ended September 30, 1998 from $4.1 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 $350,000 for the
nine-month period ended September 30, 1998 compared to $405,000 for the same
period in 1997. The allowance for loan losses is $2.3 million at September
30, 1998. While management believes that its allowance for loan losses is
adequate as of September 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 $2.1 million in 1998 from
$1.3 million for the nine months ended September 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 and
purchases of additional life insurance policies.
NONINTEREST EXPENSE. Total noninterest expense increased to $7.6 million for the
nine-months ended September 30, 1998 from $5.7 million for the comparable
period ended September 30, 1997. Increases resulted primarily from increases
in employee compensation, occupancy expense, data processing expense and
other noninterest expense due to the acquisition of Citizens and overall
growth of the Company.
INCOME TAXES. The income tax provision for the nine months ended September 30,
1998 was $898,000 or 33.8% of income before income taxes compared to
$389,000 or 35.3% for the period ended September 30, 1997. The effective rate
was lower during 1998 because of increases in tax exempt income from bank
owned life insurance and municipal securities.
15
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
YEAR 2000 ISSUES
The Company is acutely aware of the many areas affected by the Year 2000
computer issue, as addressed by the Federal Financial Institutions Examination
Council ("FFIEC") in its interagency statement which provided an outline for
institutions to effectively manage the Year 2000 challenges. A Year 2000 plan
has been approved by the Board of Directors which includes multiple phases,
tasks to be completed, and target dates for completion. Issues addressed therein
include awareness, assessment, renovation, validation, implementation, testing,
and contingency planning.
The Company has formed a Year 2000 committee that is charged with the oversight
of completing the Year 2000 project on a timely basis. The Company has completed
its awareness, assessment and renovation phases and is actively involved in
validating and implementing its plan. At the present time, the Company is well
into its testing phase and anticipates that this phase will be substantially
completed by December 31, 1998. Since it routinely upgrades and purchases
technologically advanced software and hardware on a continual basis, the Company
has determined that the cost of making modifications to correct any Year 2000
issues will not materially affect reported operating results.
The Company's vendors and suppliers have been contacted for written confirmation
of their product readiness for Year 2000 compliance. Negative or deficient
responses are analyzed and periodically reviewed to prescribe timely actions
within the Company's contingency planning. The Company's main service provider
has completed testing of its mission critical application software and item
processing software; the test results, which have been documented and validated,
are deemed to be Year 2000 compliant. FFIEC guidance on testing Year 2000
compliance of service providers states that proxy tests are acceptable
compliance tests. In proxy testing, the service provider tests with a
representative sample of financial institutions that use a particular service,
with the results of such testing shared with all similarly situated clients of
the service provider. The Company has authorized the acceptance of proxy testing
since the proxy tests have been conducted with financial institutions that are
similar in type and complexity to its own, using the same version of the Year
2000 ready software and the same hardware and operating systems.
The Company also recognizes the importance of determining that its borrowers are
facing the Year 2000 problem in a timely manner to avoid deterioration of the
loan portfolio solely due to this issue. All material relationships have been
identified and questionnaires have been completed to assess the inherent risks.
Deposit customers have received statement stuffers and informational material in
this regard. The Company plans to work on a one-on-one basis with any borrower
who has been identified as having high Year 2000 risk exposure.
Accordingly, management does not believe that the Company has incurred or will
incur material costs associated with the Year 2000 issue. Yet, there can be no
assurances that all hardware and software that the Company will use will be Year
2000 compliant. Management cannot predict the amount of financial difficulties
it may incur due to customers and vendors inability to perform according to
their agreements with the Company or the effects that other third parties may
cause as a result of this issue. Therefore, there can be no assurance that the
failure or delay of others to address the issue or that the costs involved in
such process will not have a material adverse effect on the Company's business,
financial condition, and results of operations.
The Company's contingency plans relative to Year 2000 issues have not been
finalized - these plans are evolving as the testing of systems proceeds. During
the testing phase (scheduled for completion by December 31, 1998) management
will determine if it is necessary to develop a "worst case scenario" contingency
plan. Based on testing results to date (as noted above), the Company's mission
critical systems have been deemed to be Year 2000 compliant and, therefore a
contingency plan has not been developed with respect to those systems. With
regards to non-mission critical internal systems, the Company's contingency
plans are to replace those systems that test as being noncompliant.
Alternatively, some systems could be handled manually on an interim basis.
Should outside service providers not be able to provide compliant systems, the
Company will terminate those relationships and transfer to other vendors. It is
anticipated that the Company's deposit customers will have increased demands for
cash in the latter part of 1999 and correspondingly the Company will maintain
higher liquidity levels.
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:
During the quarter ended September 30, 1998, 974 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 $5.00.
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 in the State
of Florida.
Proceeds from the sales of the above securities were used for general
corporate purposes.
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.
Campbelland 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,
NatureCoast
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 Form 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
September 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: , 1998 By: /s /GORDON W. CAMPBELL
---------------- ----------------------
Gordon W. Campbell, Chairman of the Board
and President (Chief Executive Officer)
Date: , 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 Form 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.
***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 in May 8, 1998.
20
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the period ended September 30, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 15,404
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,429
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 78,186
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 195,065
<ALLOWANCE> 2,325
<TOTAL-ASSETS> 318,644
<DEPOSITS> 275,871
<SHORT-TERM> 12,752
<LIABILITIES-OTHER> 1,849
<LONG-TERM> 0
6,025
0
<COMMON> 0
<OTHER-SE> 22,147
<TOTAL-LIABILITIES-AND-EQUITY> 318,644
<INTEREST-LOAN> 11,101
<INTEREST-INVEST> 3,733
<INTEREST-OTHER> 690
<INTEREST-TOTAL> 15,524
<INTEREST-DEPOSIT> 6,454
<INTEREST-EXPENSE> 7,036
<INTEREST-INCOME-NET> 8,488
<LOAN-LOSSES> 350
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,570<F1>
<INCOME-PRETAX> 2,653
<INCOME-PRE-EXTRAORDINARY> 2,653
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,755
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.28
<YIELD-ACTUAL> 4.29
<LOANS-NON> 812
<LOANS-PAST> 0<F2>
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,564
<CHARGE-OFFS> 153
<RECOVERIES> 36
<ALLOWANCE-CLOSE> 2,325<F3>
<ALLOWANCE-DOMESTIC> 2,325
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Other expense includes: salaries and employee benefits of $3,952, occupancy of
$1,536, data processing of $429, advertising of $192, stationary and supplies
of $212 and other expenses which totaled $1,249.
<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>
