- --------------------------------------------------------------------------------
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, 1999
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 6,660,843 SHARES
- ------------------------------------ -----------------------------
(CLASS) OUTSTANDING AT MARCH 31, 1999
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CONFORMED COPY
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
----
Condensed Consolidated Balance Sheets -
March 31, 1999 (unaudited) and December 31, 1998.........................2
Condensed Consolidated Statements of Earnings -
Three months ended March 31, 1999 and 1998 (unaudited)...................3
Condensed Consolidated Statement of Stockholders' Equity -
Three Months Ended March 31, 1999 (unaudited)............................4
Condensed Consolidated Statements of Cash Flows -
Three Months ended March 31, 1999 and 1998 (unaudited)...................5
Notes to Condensed Consolidated Financial Statements (unaudited)...........6
Review By Independent Certified Public Accountants.........................7
Report on Review by Independent Certified Public Accountants...............8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...............................................9-13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........14
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>
<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
-----------------------
MARCH 31, DECEMBER 31,
ASSETS 1999 1998
-------- ------------
(UNAUDITED)
<S> <C> <C>
Cash and due from banks $ 15,232 16,045
Federal funds sold and securities purchased under
agreements to resell 11,389 11,654
-------- --------
Total cash and cash equivalents 26,621 27,699
Securities available for sale 64,386 69,087
Loans receivable, net of allowance for losses of $2,522 and $2,436 271,109 208,608
Premises and equipment, net 10,256 9,978
Cash surrender value of bank owned life insurance 12,170 12,020
Accrued interest receivable 1,925 1,646
Deferred tax asset 327 118
Goodwill, net 1,619 1,643
Foreclosed real estate, net 275 309
Other assets 1,421 1,066
-------- --------
Total $390,109 332,174
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits 49,228 45,943
Savings, NOW and money-market deposits 123,304 112,515
Time deposits 168,744 127,914
-------- --------
Total deposits 341,276 286,372
Other borrowings 17,336 15,438
Other liabilities 2,008 1,400
-------- --------
Total liabilities 360,620 303,210
-------- --------
Stockholders' equity:
Class A preferred stock, $5 par value, authorized
1,000,000 shares, none issued or outstanding -- --
Common stock, $1 par value; 10,000,000 shares
authorized, 6,660,843 and 6,643,717 issued and outstanding 6,661 6,644
Additional paid-in capital 21,463 21,397
Retained earnings 1,090 537
Accumulated other comprehensive income 275 386
-------- --------
Total stockholders' equity 29,489 28,964
-------- --------
Total $390,109 332,174
======== ========
</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
MARCH 31,
------------------------
1999 1998
---------- ----------
(UNAUDITED)
<S> <C> <C>
Interest income:
Loans receivable $ 4,916 3,731
Interest on securities 912 1,296
Other interest-earning assets 175 168
---------- ----------
Total interest income 6,003 5,195
---------- ----------
Interest expense:
Deposits 2,640 2,018
Other borrowings 175 256
---------- ----------
Total interest expense 2,815 2,274
---------- ----------
Net interest income 3,188 2,921
Provision for loan losses 256 150
---------- ----------
Net interest income after provision for loan losses 2,932 2,771
---------- ----------
Noninterest income:
Service charges on deposit accounts 311 259
Leasing fees and commissions 165 134
Income from fiduciary activities -- 66
Income earned on bank owned life insurance 150 78
Other 150 176
---------- ----------
Total noninterest income 776 713
---------- ----------
Noninterest expense:
Salaries and employee benefits 1,554 1,382
Occupancy expense 576 484
Data processing 198 150
Advertising 83 72
Stationery and supplies 84 83
Other 451 354
---------- ----------
Total noninterest expense 2,946 2,525
---------- ----------
Earnings before income taxes 762 959
Income taxes 209 344
---------- ----------
Net earnings $ 553 615
========== ==========
Basic earnings per share $ 0.08 0.09
========== ==========
Weighted-average number of shares outstanding for basic 6,656,562 6,550,863
========== ==========
Diluted earnings per share $ 0.08 0.09
========== ==========
Weighted-average number of shares outstanding for diluted 6,832,669 6,661,686
========== ==========
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
THREE MONTHS ENDED MARCH 31, 1999
(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, 1998 6,643,717 $ 6,644 21,397 537 386 28,964
--------- --------- ---------
Comprehensive income:
Net earnings (unaudited) -- -- -- 553 -- 553
Net change in unrealized
gain on securities
available for sale,
net of tax of $68
(unaudited) -- -- -- -- (111) (111)
--------- --------- ---------
Comprehensive income (unaudited) -- -- -- 553 (111) 442
Shares issued under stock
option plan (unaudited) 6,353 6 28 -- -- 34
Shares sold to employees
(unaudited) 10,773 11 38 -- -- 49
--------- --------- --------- --------- --------- ---------
Balance at March 31, 1999
(unaudited) 6,660,843 $ 6,661 21,463 1,090 275 29,489
========= ========= ========= ========= ========= =========
</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)
THREE MONTHS ENDED
MARCH 31,
---------------------
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 553 615
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation 244 210
Increase in other assets (481) (896)
Provision for loan losses 256 150
Deferred income tax credit (141) (140)
Income from mortgage banking activity (4) (29)
Increase in other liabilities 608 202
(Increase) decrease in accrued interest receivable (279) 244
Net amortization of fees, premiums and discounts 63 (55)
Proceeds from sales of loans held for sale 304 2,454
Originations of loans held for sale (300) (2,115)
Stock issued for compensation -- 50
-------- --------
Net cash provided by operating activities 823 690
-------- --------
Cash flows from investing activities:
Purchase of securities available for sale (5,019) --
Proceeds from maturity of securities available for sale 5,355 8,800
Principal repayments on securities available for sale 4,070 2,151
Proceeds from sale of FRB stock -- 180
Proceeds from sale of FHLB stock -- 228
Purchase of premises and equipment, net (522) (184)
Net increase in loans (62,670) (7,374)
Purchase of Citizens National Bank & Trust, net cash acquired -- 9,323
-------- --------
Net cash (used in) provided by investing activities (58,786) 13,124
-------- --------
Cash flows from financing activities:
Net increase (decrease) in time deposits 40,830 (9,503)
Net increase in demand, savings, NOW and money-market deposit accounts 14,074 14,258
Net increase (decrease) of other borrowings 1,898 (8,279)
Issuance of common stock 83 704
-------- --------
Net cash provided by (used in) financing activities 56,885 (2,820)
-------- --------
Net (decrease) increase in cash and cash equivalents (1,078) 10,994
Cash and cash equivalents at beginning of period 27,699 17,949
-------- --------
Cash and cash equivalents at end of period $ 26,621 28,943
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 2,767 2,171
======== ========
Income taxes $ 83 147
======== ========
Noncash transactions:
Acquisition of Citizens National Bank and Trust:
Fair value of assets acquired $ -- 77,744
======== ========
Liabilities assumed $ -- 67,019
======== ========
Common stock issued $ -- 10,725
======== ========
Accumulated other comprehensive income, net change in unrealized
gain on securities available for sale, net of tax $ (111) 21
======== ========
</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 March 31, 1999 and the results of operations and cash flows
for the three-month periods ended March 31, 1999 and 1998. The results of
operations and other data for the three-month period ended March 31, 1999
are not necessarily indicative of results that may be expected for the
year ending December 31, 1999.
2. LOAN IMPAIRMENT AND LOSSES. The Company had no impaired loans at March
31, 1999. The Company had identified loans totaling $489,000 as impaired
at March 31, 1998.
The activity in the allowance for loan losses is as follows:
THREE MONTHS ENDED
MARCH 31,
--------------------
1999 1998
------- -------
(IN THOUSANDS)
Balance at beginning of period $ 2,436 1,564
Provision for loan losses 256 150
Charge-offs, net of recoveries (170) (36)
Purchased via acquisition of Citizens -- 528
------- -------
Balance at end of period $ 2,522 2,206
======= =======
3. 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 2,200 shares of common stock at $11.82
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 MARCH 31,
----------------------------------------------------------------------------
1999 1998
------------------------------------ ------------------------------------
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 $ 553 $6,656,562 $ .08 $ 615 6,550,863 $ 0.09
===== ======
Effect of dilutive securities-
Incremental shares from assumed
exercise of options -- 176,107 -- 110,823
---------- ---------- ---------- ----------
Diluted EPS:
Net earnings available to
common stockholders
and assumed conversions $ 553 6,832,669 $ .08 $ 615 $6,661,686 $ 0.09
========== ========== ===== ========== ========== ======
</TABLE>
6
<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,
1999, and for the three-month periods ended March 31, 1999 and 1998 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.
7
<PAGE>
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
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, 1999, and
the related condensed consolidated statements of earnings and cash flows for the
three-month periods ended March 31, 1999 and 1998, and the condensed
consolidated statement of stockholders' equity for the three-month period ended
March 31, 1999. 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, 1998, 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
15, 1999 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, 1998, 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 13, 1999
8
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Gulf West Banks, Inc. ("Gulf West" or the "Company") is a one-bank holding
company registered under the Bank Holding Company Act of 1956, as amended, and
was incorporated under the laws of the State of Florida effective October 24,
1994. Gulf West's principal assets are all of the issued and outstanding shares
of capital stock of Mercantile Bank, a Florida state banking corporation which
is located in St. Petersburg, Florida ("Mercantile"), and all of the issued and
outstanding shares of Liberty Leasing Corporation ("Liberty"), a Florida
corporation located in Tampa, Florida, which is engaged in equipment leasing.
Through its subsidiaries, Mercantile and Liberty, the Company provides a wide
range of personal and commercial banking services to customers located in the
Florida counties of Pinellas, Hillsborough, and Pasco. The Company targets niche
markets that are underserved by the larger regional banks. These markets include
small to mid-size businesses and professional offices as well as individuals who
expect a higher level of personalized attention.
The Company has local directorship and management actively involved in its
market areas and committed to the economic growth and development of those
markets. Local management allows the Company to provide faster, more responsive
and flexible decision making which management believes is important to its
targeted customer base.
ACQUISITION
On January 16, 1998, 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 three months ended March 31, 1999, the Company's primary sources of
funds consisted of deposit inflows and proceeds from the maturity and principal
repayment of securities available for sale. The Company used its capital
resources principally to fund existing and continuing loan commitments, to
purchase loan participations and to purchase securities. At March 31, 1999, the
Company had commitments to originate loans totaling $6.6 million. Management
believes the Company has adequate resources to fund all its commitments and that
substantially all of its existing commitments will be funded in 1999. Management
also believes that, if so desired, it can adjust the rates on time deposits to
retain deposits in a changing interest rate environment.
9
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
As a Florida-chartered commercial bank, 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 March 31, 1999, the Bank had
liquidity of approximately $91 million, or approximately 25% of total deposits.
Management believes Mercantile was in compliance with all minimum capital
requirements which it was subject to at March 31, 1999.
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,
1999 1998 1998
------------- ------------ ------------
<S> <C> <C> <C>
Average equity as a percentage
of average assets 8.07% 9.15% 9.42%
Equity to total assets at end of period 7.56% 8.72% 9.50%
Return on average assets (1) 0.61% 0.84% 0.89%
Return on average equity (1) 7.56% 9.22% 9.41%
Noninterest expenses to average assets (1) 3.25% 3.39% 3.64%
Nonperforming loans and foreclosed real estate as
a percentage of total assets at end of period 0.19% 0.43% 0.22%
<FN>
- -------------------------------------
(1) Annualized for the three months ended March 31, 1999 and 1998.
</FN>
</TABLE>
(continued)
10
<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; and (v) net
interest margin.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------
1999 1998
---------------------------------- --------------------------------
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) $ 239,451 4,916 8.21% $ 161,047 3,731 9.27%
Securities 63,701 912 5.73 81,382 1,296 6.37
Other interest-earning assets (2) 15,214 175 4.60 12,553 168 5.35
-------- ------ ------- ------
Total interest-earning assets 318,366 6,003 7.54 254,982 5,195 8.15
----- -----
Noninterest-earning assets 43,769 22,481
------- -------
Total assets $ 362,135 $ 277,463
======= =======
Interest-bearing liabilities:
Savings, NOW, money-market deposit
accounts 114,741 652 2.27 85,685 612 2.86
Time deposit 154,619 1,988 5.14 105,081 1,406 5.35
Borrowings 16,250 175 4.31 18,432 256 5.56
-------- ------- ------- ------
Total interest-bearing liabilities 285,610 2,815 3.94 209,198 2,274 4.35
----- -----
Noninterest-bearing liabilities 47,279 42,121
Stockholders' equity 29,246 26,144
-------- -------
Total liabilities and stockholders' equity $ 362,135 $ 277,463
======= =======
Net interest income $ 3,188 $ 2,921
===== =====
Interest-rate spread (3) 3.60% 3.80%
==== ====
Net interest margin (4) 4.01% 4.58%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.11 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 rate of interest-bearing
liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
</FN>
</TABLE>
11
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
COMPARISON OF THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
GENERAL. Net earnings for the three-months ended March 31, 1999 were $553,000
or $0.08 per basic and diluted share compared to $615,000 or $0.09 per
basic and diluted share for 1998. The decrease in earnings was primarily
due to the method and timing of funding several large loan purchases, the
loan loss provision associated with those loan purchases, and expenses
pertaining to the opening of two offices since March, 1998.
INTEREST INCOME AND EXPENSE. Interest income increased by $.8 million to $6.0
million for the three-month period ended March 31, 1999 from $5.2 million
for the three months ended March 31, 1998. Interest on loans increased
$1.2 million to $4.9 million due to an increase in the average loan
portfolio balance in 1999 partly offset by a decrease in the
weighted-average yield earned in 1999. Interest on securities decreased
$.4 million to $.9 million for the three-months ended March 31, 1999 due
to a decrease in the average securities portfolio in 1999 and a decrease
in the average yield earned in 1999.
Interest expense on deposits increased $.6 million to $2.6 million for
the three-months ended March 31, 1999 from $2.0 million in 1998. The
increase is due to an increase in the average deposits in 1999 only
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 $256,000 for the three-month period ended March 31, 1999
compared to $150,000 for the same period in 1998. The allowance for loan
losses is $2.5 million at March 31, 1999. While management believes that
its allowance for loan losses is adequate as of March 31, 1999, 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 $776,000 in 1999 from
$713,000 for the three months ended March 31, 1998. Service charges on
deposits increased in 1999 due to the growth in deposit accounts. Income
earned on bank owned life insurance increased due to an additional
investment made in August 1998. The increase was partially offset by no
fiduciary income in 1999, due to the sale of trust operations.
NONINTEREST EXPENSE. Total noninterest expense increased to $2.9 million for
the three-months ended March 31, 1999 from $2.5 million for the
comparable period ended March 31, 1998, primarily from increases in
employee compensation, occupancy expense and data processing expense due
to the addition of two banking offices.
INCOME TAXES. The income tax provision for the three months ended March 31,
1999 was $209,000 or 27.4% of income before income taxes compared to
$344,000 or 35.9% for the three months ended March 31, 1998.
12
<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. In addition, the Board of Directors has engaged a
consulting firm to provide an independent review and evaluation of the Company's
Year 2000 readiness.
The Company 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, renovation, validation, implementation, and testing
phases; the results of which reflect the Bank's internal systems to be Year 2000
ready. Its customer relations training being achieved, the Company is actively
involved in its contingency planning training program. 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, item
processing software, and interconnected systems. 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, informational material, and
direct mail in this regard. The Company is working 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 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 are being
finalized; this plan covers actions considering a "worst case scenario,"
although such dire predictions are not anticipated. Based on testing results (as
noted above), the Company's mission critical systems have been deemed to be Year
2000 compliant; therefore a contingency plan has not been developed with respect
to those systems. With regard to nonmission critical internal systems, the
Company has replaced those systems that tested as being noncompliant.
Alternatively, some systems could be handled manually on an interim basis. The
Company is evaluating termination of those relationships with outside service
providers that have been deemed to provide noncompliant systems. 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.
13
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest rate risk inherent in
its lending and deposit taking activities. The Company has little or no risk
related to trading accounts, commodities or foreign exchange.
Management actively monitors and manages its interest rate risk exposure. The
primary objective in managing interest-rate risk is to limit, within established
guidelines, the adverse impact of changes in interest rates on the Company's net
interest income and capital, while adjusting the Company's asset-liability
structure to obtain the maximum yield-cost spread on that structure. Management
relies primarily on its asset-liability structure to control interest rate risk.
However, a sudden and substantial increase in interest rates could adversely
impact the Company's earnings, to the extent that the interest rates borne by
assets and liabilities do not change at the same speed, to the same extent, or
on the same basis. There have been no significant changes in the Company's
market risk exposure since December 31, 1998.
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, 1999, 10,773 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 $4.55.
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.
On January 12, 1999, Barry K. Miller, the Secretary/Treasurer of Gulf West,
pursuant to the exercise of options, purchased an aggregate of 6,353 shares of
Gulf West common stock. These shares were purchased at a per share exercise
price of $3.15. 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 Form S-4 Registration Statement, as filed with the Securities and
Exchange Commission on December 4, 1997 (Registration No. 333-373307).
** contained in Note 3 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
March 31, 1999.
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: MAY 6, 1999 By: /s/GORDON W. CAMPBELL
--------------------
Gordon W. Campbell, Chairman of the
Board and President
(Chief Executive Officer)
Date: MAY 6, 1999 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 Form S-4 Registration Statement, as filed with the Securities and
Exchange Commission on December 4, 1997 (Registration No. 333-37307).
** contained in Note 3 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.
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the period ended March 31, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 15,232
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,389
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 64,386
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 273,631
<ALLOWANCE> 2,522
<TOTAL-ASSETS> 390,109
<DEPOSITS> 341,276
<SHORT-TERM> 17,336
<LIABILITIES-OTHER> 2,008
<LONG-TERM> 0
0
0
<COMMON> 6,661
<OTHER-SE> 22,828
<TOTAL-LIABILITIES-AND-EQUITY> 390,109
<INTEREST-LOAN> 4,916
<INTEREST-INVEST> 912
<INTEREST-OTHER> 175
<INTEREST-TOTAL> 6,003
<INTEREST-DEPOSIT> 2,640
<INTEREST-EXPENSE> 2,815
<INTEREST-INCOME-NET> 3,188
<LOAN-LOSSES> 256
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,946<F1>
<INCOME-PRETAX> 762
<INCOME-PRE-EXTRAORDINARY> 762
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 553
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
<YIELD-ACTUAL> 3.60
<LOANS-NON> 466
<LOANS-PAST> 0<F2>
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,436
<CHARGE-OFFS> 182
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 2,522
<ALLOWANCE-DOMESTIC> 2,522
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Other expense includes: salaries and employee benefits of $1,554, occupancy
of $576, data processing of $198, advertising of $83, stationary and supplies of
$84 and other expenses which totaled $451.
<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.
</FN>
</TABLE>
