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, 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 6,673,160 SHARES
- ------------------------------------ ---------------------------------
(CLASS) OUTSTANDING AT SEPTEMBER 30, 1999
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS PAGE
----
<S> <C>
Condensed Consolidated Balance Sheets -
September 30, 1999 (unaudited) and December 31, 1998.......................................................2
Condensed Consolidated Statements of Earnings -
Three and Nine months ended September 30, 1999 and 1998 (unaudited)........................................3
Condensed Consolidated Statement of Stockholders' Equity -
Nine Months Ended September 30, 1999 (unaudited)...........................................................4
Condensed Consolidated Statements of Cash Flows -
Nine Months ended September 30, 1999 and 1998 (unaudited)..................................................5
Notes to Condensed Consolidated Financial Statements (unaudited)...........................................6-7
Review By Independent Certified Public Accountants...........................................................8
Report on Review by Independent Certified Public Accountants.................................................9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................................................10-16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................................17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS......................................................................................17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................................................18
SIGNATURES.....................................................................................................19
EXHIBIT INDEX..................................................................................................20
</TABLE>
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)
<TABLE>
<CAPTION>
AT
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
Cash and due from banks $ 11,654 16,045
Federal funds sold and securities purchased under
agreements to resell 13,327 11,654
--------- ---------
Total cash and cash equivalents 24,981 27,699
Securities available for sale 81,300 69,087
Loans receivable, net of allowance for losses of $2,840 and $2,436 275,160 208,608
Premises and equipment, net 10,267 9,978
Cash surrender value of bank owned life insurance 12,711 12,020
Accrued interest receivable 1,953 1,646
Deferred tax asset 658 118
Goodwill, net 1,571 1,643
Foreclosed real estate, net 236 309
Other assets 1,244 1,066
--------- ---------
Total $ 410,081 332,174
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits 52,061 45,943
Savings, NOW and money-market deposits 118,793 112,515
Time deposits 177,207 127,914
--------- ---------
Total deposits 348,061 286,372
Other borrowings 30,511 15,438
Other liabilities 1,644 1,400
--------- ---------
Total liabilities 380,216 303,210
--------- ---------
Stockholders' equity:
Class A preferred stock, $5 par value, authorized
1,000,000 shares, none issued or outstanding -- --
Common stock, $1 par value; 25,000,000 shares
authorized, 6,673,160 and 6,643,717 issued and outstanding 6,673 6,644
Additional paid-in capital 21,518 21,397
Retained earnings 2,695 537
Accumulated other comprehensive (loss) income (1,021) 386
--------- ---------
Total stockholders' equity 29,865 28,964
--------- ---------
Total $ 410,081 332,174
========= =========
</TABLE>
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 5,547 3,603 15,947 11,101
Securities 1,291 1,238 3,257 3,733
Other interest-earning assets 132 280 395 690
---------- ---------- ---------- ----------
Total interest income 6,970 5,121 19,599 15,524
---------- ---------- ---------- ----------
Interest expense:
Deposits 2,929 2,318 8,367 6,454
Other borrowings 290 171 665 582
---------- ---------- ---------- ----------
Total interest expense 3,219 2,489 9,032 7,036
---------- ---------- ---------- ----------
Net interest income 3,751 2,632 10,567 8,488
Provision for loan losses 225 90 579 350
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 3,526 2,542 9,988 8,138
---------- ---------- ---------- ----------
Noninterest income:
Service charges on deposit accounts 367 311 1,026 844
Leasing fees and commissions 247 181 639 477
Income earned on bank owned life insurance 154 93 456 193
Other 129 149 421 571
---------- ---------- ---------- ----------
Total noninterest income 897 734 2,542 2,085
---------- ---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 1,951 1,210 5,214 3,952
Occupancy expense 632 533 1,779 1,536
Data processing 153 143 559 429
Advertising 87 49 259 192
Stationery and supplies 108 50 305 212
Other 435 494 1,335 1,249
---------- ---------- ---------- ----------
Total noninterest expense 3,366 2,479 9,451 7,570
---------- ---------- ---------- ----------
Earnings before income taxes 1,057 797 3,079 2,653
Income taxes 320 243 921 898
---------- ---------- ---------- ----------
Net earnings $ 737 554 2,158 1,755
========== ========== ========== ==========
Basic earnings per share $ .11 .08 .32 .27
========== ========== ========== ==========
Basic weighted-average number of
shares outstanding 6,671,910 6,624,371 6,663,659 6,592,343
========== ========== ========== ==========
Diluted earnings per share $ .11 .08 .32 .26
========== ========== ========== ==========
Diluted weighted-average number of
shares outstanding 6,855,893 6,823,042 6,836,479 6,776,351
========== ========== ========== ==========
Dividends per share $ -- -- -- --
========== ========== ========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK COMPRE-
------------ ADDITIONAL HENSIVE TOTAL
NUMBER OF PAID-IN RETAINED (LOSS) 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) -- -- -- 2,158 -- 2,158
Net change in unrealized
gain on securities
available for sale,
net of tax of $844
(unaudited) -- -- -- -- (1,407) (1,407)
---------
Comprehensive income (unaudited) -- -- -- -- -- 751
Shares issued under stock
option plan (unaudited) 18,613 18 79 -- -- 97
Shares sold to employees
(unaudited) 10,830 11 42 -- -- 53
--------- --------- --------- --------- --------- ---------
Balance at September 30, 1999
(unaudited) 6,673,160 $ 6,673 21,518 2,695 (1,021) 29,865
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,158 1,755
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation 790 673
Provision for loan losses 579 350
Net amortization of fees, premiums and discounts 253 88
Deferred income tax provision (credit) 304 (659)
Income from mortgage banking activity (16) (49)
Proceeds from sales of loans held for sale 1,037 3,941
Originations of loans held for sale (973) (3,546)
Stock issued for compensation -- 50
(Increase) decrease in accrued interest receivable (307) 185
Increase in goodwill and other assets (797) (449)
Increase in other liabilities 244 438
-------- --------
Net cash flow provided by operating activities 3,272 2,777
-------- --------
Cash flows from investing activities:
Purchase of securities available for sale (24,640) (23,133)
Proceeds from sales and maturities of securities available for sale 17,147 19,971
Principal repayments on securities available for sale 10,782 12,363
Proceeds from sale of FRB stock -- 180
Proceeds from sale of FHLB stock -- 228
Net purchase of premises and equipment (1,079) (851)
Net increase in loans (85,112) (39,106)
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 (82,902) (31,449)
-------- --------
Cash flows from financing activities:
Net increase in time deposits 49,293 20,696
Net increase in demand, savings, NOW and money-market deposit accounts 12,396 19,496
Net increase (decrease) of other borrowings 15,073 (7,485)
Issuance of common stock 150 850
Dividends paid -- (1)
-------- --------
Net cash provided by financing activities 76,912 33,556
-------- --------
Net (decrease) increase in cash and cash equivalents (2,718) 4,884
Cash and cash equivalents at beginning of period 27,699 17,949
-------- --------
Cash and cash equivalents at end of period $ 24,981 22,833
======== ========
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest $ 8,869 6,915
======== ========
Income taxes $ 1,145 1,165
======== ========
Noncash transactions:
Acquisition of Citizens National Bank and Trust:
Fair value of assets acquired $ -- 77,744
======== ========
Liabilities assumed $ -- 67,020
======== ========
Common stock issued $ -- 10,724
======== ========
Loans converted into available for sale securities $ 18,032 --
======== ========
Accumulated other comprehensive income, net change in unrealized
gain on securities available for sale, net of tax $ (1,407) 253
======== ========
</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, 1999, and the results of operations for the
three-month and nine-month periods ended September 30, 1999 and 1998
and the cash flows for the nine-month periods ended September 30, 1999
and 1998. The results of operations for the three and nine months ended
September 30, 1999 are not necessarily indicative of the results to be
expected for the full year.
2. LOAN IMPAIRMENT AND LOSSES. The Company had no impaired loans at
September 30, 1999 or at September 30, 1998.
The activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period $2,613 2,261 2,436 1,564
Provision for loan losses 225 90 579 350
(Charge-offs), net of recoveries 2 (26) (175) (117)
Purchased via acquisition of Citizens -- -- -- 528
------ ------ ------ ------
Balance at end of period $2,840 2,325 2,840 2,325
====== ====== ====== ======
</TABLE>
6
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
3. EARNINGS PER SHARE ("EPS"). The following is a reconciliation of the
numerators and denominators of the basic and diluted earnings per share
computations. All per share amounts reflect the ten percent stock
dividend declared November 19, 1998. 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 are in thousands, except per
share amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------
1999 1998
---------------------------- ---------------------------
WEIGHTED- PER WEIGHTED- PER
AVERAGE SHARE AVERAGE SHARE
EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT
-------- --------- ------ -------- --------- -------
Basic EPS:
<S> <C> <C> <C> <C> <C> <C>
Net earnings available to
common stockholders $ 737 6,671,910 $ .11 $ 554 6,624,371 $ .08
=== ===
Effect of dilutive securities-
Incremental shares from assumed
exercise of options - 183,983 - 198,671
------ --------- ----- ---------
Diluted EPS:
Net earnings available to
common stockholders
and assumed conversions $ 737 6,855,893 $ .11 $ 554 6,823,042 $ .08
===== ========= ===== ===== ========= =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------
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 $ 2,158 6,663,659 $ .32 $ 1,755 6,592,343 $ .27
=== ===
Effect of dilutive securities-
Incremental shares from assumed
exercise of options - 172,820 - 184,008
-------- --------- -------- ----------
Diluted EPS:
Net earnings available to
common stockholders
and assumed conversions $ 2,158 6,836,479 $ .32 $ 1,755 6,776,351 $ .26
===== ========= === ===== ========= ===
</TABLE>
7
<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, 1999, and for the three-month and nine-month periods ended September 30,
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.
8
<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, 1999, and the
related condensed consolidated statements of earnings for the three-month and
nine-month periods ended September 30, 1999 and 1998, the condensed consolidated
statements of cash flows for the nine-month periods ended September 30, 1999 and
1998 and the condensed consolidated statement of stockholders' equity for the
nine-month period ended September 30, 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.
/s/ HACKER, JOHNSON, COHEN & GRIEB PA
- -------------------------------------
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
October 13, 1999
9
<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 headquartered in St. Petersburg, Florida ("Mercantile"), and all of the
issued and outstanding shares of Mercantile Bank Leasing, Inc. ("MBL"), a
Florida corporation located in Tampa, Florida, which is engaged in equipment
leasing.
Through its subsidiaries, Mercantile and MBL, the Company provides a wide range
of personal and commercial banking services to customers located primarily 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.
During the first half of 1999 the Company was presented with a unique
opportunity to purchase participation interests in approximately $50 million of
seasoned commercial real estate mortgage loans from another financial
institution. These loan participations were funded primarily through the
generation of new deposit accounts. This transaction contributed significantly
to the extraordinary asset growth for the period. Management does not anticipate
a comparable growth rate for the remainder of 1999.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1999, the Company's primary sources
of funds consisted of deposit inflows, borrowed funds, loan principal
repayments, 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 September 30, 1999, the Company had commitments to
originate loans totaling $12.6 million. Management believes the Company has
adequate resources to fund all its commitments and that substantially all of its
existing commitments will be funded during the next twelve months. Management
also believes that, if so desired, it can adjust the rates it pays on deposits
to retain or attract deposits in a changing interest-rate environment.
10
<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 September 30, 1999, Mercantile
had liquidity of approximately $64.9 million, or approximately 18.6% of total
deposits.
Management believes Mercantile was in compliance with all minimum capital
requirements which it was subject to at September 30, 1999.
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,
1999 1998 1998
--------------- -------------- ----------------
<S> <C> <C> <C>
Average equity as a percentage
of average assets 7.67% 9.15% 9.29%
Equity to total assets at end of period 7.28% 8.72% 8.84%
Return on average assets (1) 0.75% 0.84% 0.81%
Return on average equity (1) 9.76% 9.22% 8.69%
Noninterest expenses to average assets (1) 3.28% 3.39% 3.48%
Nonperforming loans and foreclosed real estate as
a percentage of total assets at end of period 0.31% 0.43% 0.25%
</TABLE>
- ---------------------------------------
(1) Annualized for the nine months ended September 30, 1999 and 1998.
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; and (v) net
interest margin.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
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) $ 267,997 5,547 8.28% $ 170,204 3,603 8.47%
Securities 83,558 1,291 6.18 85,465 1,238 5.78
Other interest-earning assets (2) 10,386 132 5.08 20,116 280 5.57
--------- ------- --------- -------
Total interest-earning assets 361,941 6,970 7.70 275,785 5,121 7.43
------- -------
Noninterest-earning assets 42,839 32,362
--------- ---------
Total assets $ 404,780 $ 308,147
========= =========
Interest-bearing liabilities:
Savings and NOW accounts 87,738 419 1.91 75,436 530 2.81
Money-market deposits 35,994 323 3.59 22,319 181 3.24
Time deposits 171,742 2,187 5.09 122,809 1,607 5.23
Borrowings 23,081 290 5.03 12,802 171 5.34
--------- ------- --------- -------
Total interest-bearing liabilities 318,555 3,219 4.04 233,366 2,489 4.27
------- -------
Noninterest-bearing liabilities 56,587 47,057
Stockholders' equity 29,638 27,724
--------- ---------
Total liabilities and stockholders' equity $ 404,780 $ 308,147
========= =========
Net interest income $ 3,751 $ 2,632
======= =======
Interest-rate spread (3) 3.66% 3.16%
==== ====
Net interest margin (4) 4.15% 3.82%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.14 1.18
==== ====
</TABLE>
- ----------------------
(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.
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; and (v) net
interest margin.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
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) $ 258,538 15,947 8.22% $ 165,248 11,101 8.96%
Securities 72,915 3,257 5.96 81,482 3,733 6.11
Other interest-earning assets (2) 10,947 395 4.81 16,823 690 5.47
-------- -------- ------- --------
Total interest-earning assets 342,400 19,599 7.63 263,553 15,524 7.85
------ ------
Noninterest-earning assets 42,109 26,538
-------- -------
Total assets $ 384,509 $ 290,091
======= =======
Interest-bearing liabilities:
Savings and NOW accounts 87,869 1,291 1.96 73,159 1,567 2.86
Money-market deposits 32,096 793 3.29 18,205 406 2.97
Time deposits 164,440 6,283 5.09 112,071 4,481 5.33
Borrowings 19,274 665 4.60 14,228 582 5.45
-------- ------- ------- -------
Total interest-bearing liabilities 303,679 9,032 3.97 217,663 7,036 4.31
------ ------
Noninterest-bearing liabilities 51,342 45,491
Stockholders' equity 29,488 26,937
-------- -------
Total liabilities and stockholders' equity $ 384,509 $ 290,091
======= =======
Net interest income $ 10,567 $ 8,488
====== ======
Interest-rate spread (3) 3.66% 3.54%
==== ====
Net interest margin (4) 4.11% 4.29%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.13 1.21
==== ====
</TABLE>
- --------------------------
(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.
13
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
COMPARISON OF THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
GENERAL. Net earnings for the three months ended September 30, 1999 were
$737,000 or $.11 per basic and diluted share compared to $554,000 or $.08
per basic and diluted share for the comparable 1998 period. The increase
in earnings was primarily due to increased net interest income and
noninterest income partially offset by increases in noninterest expenses.
INTEREST INCOME AND EXPENSE. Interest income increased by $1.9 million to
$7.0 million for the three-month period ended September 30, 1999 from
$5.1 million for the three months ended September 30, 1998. Interest on
loans increased $1.9 million to $5.5 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 increased
$53,000 to $1.3 million for the three-months ended September 30, 1999 due
to a increase in the average yield earned in 1999 partially offset by a
decrease in the average securities portfolio in 1999. Interest on other
interest-earning assets decreased from $280,000 for the three months
ended September 30, 1998 to $132,000 for the three months ended September
30, 1999 due to a decrease in the average balance of other
interest-earning assets in 1999 and a decrease in the weighted-average
yield earned in 1999.
Interest expense on deposits increased $611,000 to $2.9 million for the
three-months ended September 30, 1999 from $2.3 million in 1998. 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
$225,000 for the three-month period ended September 30, 1999 compared to
$90,000 for the same period in 1998. The allowance for loan losses is
$2.8 million at September 30, 1999. While management believes that its
allowance for loan losses is adequate as of September 30, 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 $897,000 in 1999 from
$734,000 for the three months ended September 30, 1998. Service charges
on deposits increased in 1999 due to the growth in deposit accounts.
Income from bank owned life insurance policies increased in 1999
primarily because of the purchases of additional life insurance policies
in 1998.
NONINTEREST EXPENSE. Total noninterest expense increased to $3.4 million for
the three months ended September 30, 1999 from $2.5 million for the
comparable period ended September 30, 1998. Increases resulted primarily
from increases in employee compensation, occupancy expense, data
processing expense and stationery and supplies due to the overall growth
of the Company.
INCOME TAXES. The income tax provision for the three months ended September
30, 1999 was $320,000 or 30.3% of earnings before income taxes compared
to $243,000 or 30.5% for the period ended September 30, 1998. The
effective rate was lower during 1999 because of increases in tax exempt
income from bank owned life insurance.
14
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
COMPARISON OF NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
GENERAL. Net earnings for the nine months ended September 30, 1999 were $2.2
million or $.32 per basic and diluted share compared to $1.8 million or
$.27 per basic and $.26 per diluted share for 1998. The increase in
earnings was primarily due to increased net interest income and
noninterest income partially offset by increases in noninterest expenses.
The continued growth of the Company contributed significantly to these
increases.
INTEREST INCOME AND EXPENSE. Interest income increased by $4.1 million to
$19.6 million for the nine-month period ended September 30, 1999 from
$15.5 million for the nine months ended September 30, 1998. Interest on
loans increased $4.8 million to $15.9 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 $3.3 million for the nine-months ended September 30, 1999
due to a decrease in the average securities portfolio in 1999 and a
decrease in the average yield earned in 1999. Interest on other
interest-earning assets decreased from $690,000 for the nine months ended
September 30, 1998 to $395,000 for the nine months ended September 30,
1999 due to an decrease in the average balance of other interest-earning
assets in 1999 and a decrease in the weighted-average yield earned in
1999.
Interest expense on deposits increased $1.9 million to $8.4 million for
the nine-months ended September 30, 1999 from $6.5 million in 1998. The
increase is due to an increase in the average deposits in 1999 partially
offset by a decrease in the weighted-average rate paid on deposits.
PROVISION FOR LOAN LOSSES. The provision for loan losses is charged against
earnings 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 $579,000 for the nine-month period ended September 30, 1999
compared to $350,000 for the same period in 1998. The allowance for loan
losses is $2.8 million at September 30, 1999. While management believes
that its allowance for loan losses is adequate as of September 30, 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 $2.5 million in 1999 from
$2.1 million for the nine months ended September 30, 1998. Service
charges on deposits increased in 1999 due to the growth in deposit
accounts. Income from officers= life insurance policies increased in 1999
primarily because of the purchases of additional life insurance policies
in 1998.
NONINTEREST EXPENSE. Total noninterest expense increased to $9.5 million for
the nine-months ended September 30, 1999 from $7.6 million for the
comparable period ended September 30, 1998. Increases resulted primarily
from increases in employee compensation, occupancy expense, data
processing expense and other noninterest expense due to the overall
growth of the Company.
INCOME TAXES. The income tax provision for the nine months ended September
30, 1999 was $921,000 or 29.9% of earnings before income taxes compared
to $898,000 or 33.8% for the period ended September 30, 1998. The
effective rate was lower during 1999 because of increases in tax exempt
income from bank owned life insurance.
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. In addition, the Board of Directors engaged a
consulting firm to provide an independent review and evaluation of the Company's
Year 2000 readiness. The independent review has been concluded and the results
reflect that the Bank's plan has satisfactorily addressed the issues.
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 finished its
awareness, assessment, renovation, validation, implementation, and testing
phases, and has completed its contingency plan and customer relations training.
Business resumption training is currently underway. Testing results reflect that
the Bank's internal systems are Year 2000 ready. 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
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 have been
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.
16
<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.
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**** Articles of Amendment to Articles of Incorporation
of Gulf West Banks, Inc.
3.3* 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.
****incorporated by reference to the exhibits included in Gulf West's Form 10-Q
for the quarter ended June 30, 1999, as filed with the Securities and Exchange
Commission on July 27, 1999.
(b) No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1999.
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: October 28, 1999 By: /s/ GORDON W. CAMPBELL
-----------------------------------------
Gordon W. Campbell, Chairman of the Board
and President (Chief Executive Officer)
Date: October 28, 1999 By: /s/ BARRY K. MILLER
---------------------------------------------------
Barry K. Miller, Executive Vice President/Secretary
(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**** Articles of Amendment to Articles of Incorporation of Gulf
West Banks, Inc.
3.3* 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.
****incorporated by reference to the exhibits included in Gulf West's Form 10-Q
for the quarter ended June 30, 1999, as filed with the Securities and Exchange
Commission on July 27, 1999.
(b) No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1999.
20
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the period ended September 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,654
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,327
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 81,300
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 278,000
<ALLOWANCE> 2,840
<TOTAL-ASSETS> 410,081
<DEPOSITS> 348,061
<SHORT-TERM> 30,511
<LIABILITIES-OTHER> 1,644
<LONG-TERM> 0
0
0
<COMMON> 6,673
<OTHER-SE> 23,192
<TOTAL-LIABILITIES-AND-EQUITY> 410,081
<INTEREST-LOAN> 15,947
<INTEREST-INVEST> 3,257
<INTEREST-OTHER> 395
<INTEREST-TOTAL> 19,599
<INTEREST-DEPOSIT> 8,367
<INTEREST-EXPENSE> 9,032
<INTEREST-INCOME-NET> 10,567
<LOAN-LOSSES> 579
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,451<F1>
<INCOME-PRETAX> 3,079
<INCOME-PRE-EXTRAORDINARY> 3,079
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,158
<EPS-BASIC> .32
<EPS-DILUTED> .32
<YIELD-ACTUAL> 4.11
<LOANS-NON> 1,028
<LOANS-PAST> 0<F2>
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,436
<CHARGE-OFFS> 199
<RECOVERIES> 24
<ALLOWANCE-CLOSE> 2,840
<ALLOWANCE-DOMESTIC> 2,840
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
EXHIBIT 27. FINANCIAL DATA SCHEDULE
(F1) Other expense includes: salaries and employee benefits of $5,214,
occupancy of $1,779, data processing of $559, advertising of $259,
stationary and supplies of $305 and other expenses which totaled $1,335.
(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>
