================================================================================
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, 2000
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 7,068,913 SHARES
------------------------------------ ---------------------------------
(CLASS) OUTSTANDING AT SEPTEMBER 30, 2000
================================================================================
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
----
Condensed Consolidated Balance Sheets -
September 30, 2000 (unaudited) and December 31, 1999.....................2
Condensed Consolidated Statements of Earnings -
Three and Nine months ended September 30, 2000 and 1999 (unaudited)......3
Condensed Consolidated Statement of Stockholders' Equity -
Nine Months Ended September 30, 2000 (unaudited).........................4
Condensed Consolidated Statements of Cash Flows -
Nine Months ended September 30, 2000 and 1999 (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..............................................10-15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS....................................................16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................17
SIGNATURES...................................................................18
EXHIBIT INDEX................................................................19
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>
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks .................................................... $ 11,322 11,924
Federal funds sold and securities purchased under agreements to resell ..... 8,197 12,323
--------- ---------
Total cash and cash equivalents ................................... 19,519 24,247
Securities available for sale .............................................. 78,758 77,857
Loans receivable, net of allowance for loan losses of $3,018 and $2,849 .... 298,680 283,225
Cash surrender value of bank owned life insurance .......................... 13,255 12,857
Premises and equipment, net ................................................ 12,235 11,903
Federal Home Loan Bank stock, at cost ...................................... 1,228 --
Accrued interest receivable ................................................ 2,242 2,069
Deferred tax asset ......................................................... 1,477 1,639
Goodwill, net .............................................................. 1,475 1,547
Foreclosed real estate, net ................................................ 236 353
Other assets ............................................................... 773 905
--------- ---------
Total ............................................................. $ 429,878 416,602
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits ..................................... 63,886 55,410
Savings, NOW and money-market deposits .................................. 135,992 122,939
Time deposits ........................................................... 164,534 178,218
--------- ---------
Total deposits .................................................... 364,412 356,567
Other borrowings ........................................................ 29,241 27,417
Other liabilities ....................................................... 2,311 2,284
--------- ---------
Total liabilities ................................................. 395,964 386,268
--------- ---------
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, 7,068,913 and 7,006,595 issued and outstanding ........... 7,069 7,007
Stock dividend distributable October 20, 2000 ........................... 353 --
Additional paid-in capital .............................................. 27,071 24,206
Retained earnings ....................................................... 369 583
Accumulated other comprehensive income (loss) ........................... (948) (1,462)
--------- ---------
Total stockholders' equity ........................................ 33,914 30,334
--------- ---------
Total ............................................................. $ 429,878 416,602
========= =========
</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,
------------------------ ------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable........................................ $ 6,428 5,547 18,793 15,947
Securities ............................................. 1,303 1,291 3,707 3,257
Other interest-earning assets .......................... 195 132 579 395
--------- --------- --------- ---------
Total interest income .............................. 7,926 6,970 23,079 19,599
--------- --------- --------- ---------
Interest expense:
Deposits ............................................... 3,433 2,929 9,828 8,367
Other borrowings ....................................... 496 290 1,158 665
--------- --------- --------- ---------
Total interest expense ............................. 3,929 3,219 10,986 9,032
--------- --------- --------- ---------
Net interest income ................................ 3,997 3,751 12,093 10,567
Provision for loan losses .................................. 47 225 327 579
--------- --------- --------- ---------
Net interest income after
provision for loan losses ...................... 3,950 3,526 11,766 9,988
--------- --------- --------- ---------
Noninterest income:
Service charges on deposit accounts .................... 373 367 1,109 1,026
Leasing fees and commissions ........................... 101 247 399 639
Income earned on bank owned life insurance ............. 132 154 398 456
Other .................................................. 208 129 648 421
--------- --------- --------- ---------
Total noninterest income ........................... 814 897 2,554 2,542
--------- --------- --------- ---------
Noninterest expense:
Salaries and employee benefits ......................... 2,072 1,951 6,103 5,214
Occupancy expense ...................................... 666 632 1,986 1,779
Data processing ........................................ 46 153 285 559
Advertising ............................................ 96 87 269 259
Stationery and supplies ................................ 112 108 300 305
Other .................................................. 395 435 1,302 1,335
--------- --------- --------- ---------
Total noninterest expense .......................... 3,387 3,366 10,245 9,451
--------- --------- --------- ---------
Earnings before income taxes ............................... 1,377 1,057 4,075 3,079
Income taxes ....................................... 463 320 1,374 921
--------- --------- --------- ---------
Net earnings................................................ $ 914 737 2,701 2,158
========= ========= ========= =========
Basic earnings per share.................................... $ .12 .10 .37 .29
========= ========= ========= =========
Basic weighted-average number of
shares outstanding ..................................... 7,414,813 7,355,781 7,397,149 7,346,684
========= ========= ========= =========
Diluted earnings per share.................................. $ .12 .10 .36 .29
========= ========= ========= =========
Diluted weighted-average number of
shares outstanding ..................................... 7,596,203 7,558,622 7,569,879 7,537,219
========= ========= ========= =========
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, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK COMPRE-
---------------------- ADDITIONAL STOCK HENSIVE TOTAL
NUMBER OF PAID-IN DIVIDEND RETAINED (LOSS) STOCKHOLDERS'
SHARES AMOUNT CAPITAL DISTRIBUTABLE EARNINGS INCOME EQUITY
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 ............ 7,006,595 $ 7,007 24,206 -- 583 (1,462) 30,334
---------
Comprehensive income:
Net earnings (unaudited) ........... -- -- -- -- 2,701 -- 2,701
Net change in unrealized
loss on securities
available for sale,
net of tax of $308
(unaudited) ................... -- -- -- -- -- 514 514
---------
Comprehensive income (unaudited) ........ -- -- -- -- -- -- 3,215
---------
Shares issued under stock
option plan (unaudited) ............ 40,973 41 169 -- -- -- 210
Stock dividend distributable,
353,445 shares (unaudited) ......... -- -- 2,562 353 (2,915) -- --
Shares sold to employees (unaudited) .... 21,345 21 134 -- -- -- 155
--------- --------- --------- --------- --------- --------- ---------
Balance at September 30, 2000
(unaudited) ........................ 7,068,913 $ 7,069 27,071 353 369 (948) 33,914
========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings ............................................................. $ 2,701 2,158
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation ......................................................... 851 790
Provision for loan losses ............................................ 327 579
Net amortization of fees, premiums and discounts ..................... 141 253
Deferred income tax (credit) provision ............................... (146) 304
Income from mortgage banking activity ................................ (51) (16)
Proceeds from sales of loans held for sale ........................... 4,187 1,037
Originations of loans held for sale .................................. (4,136) (973)
Net proceeds from sale of foreclosed real estate ..................... 43 --
Increase in accrued interest receivable .............................. (173) (307)
Increase in goodwill, cash surrender value of life insurance
and other assets ................................................ (194) (797)
Increase in other liabilities ........................................ 27 244
-------- --------
Net cash flow provided by operating activities .................. 3,577 3,272
-------- --------
Cash flows from investing activities:
Purchase of securities available for sale ................................ (15,013) (24,640)
Proceeds from sales and maturities of securities available for sale ...... 8,338 17,147
Principal repayments on securities available for sale .................... 6,596 10,782
Purchase of FHLB stock ................................................... (1,228) --
Net purchase of premises and equipment ................................... (1,183) (1,079)
Net increase in loans .................................................... (15,849) (85,112)
-------- --------
Net cash used in investing activities ........................... (18,339) (82,902)
-------- --------
Cash flows from financing activities:
Net increase in deposits ................................................. 7,845 61,689
Net increase of other borrowings ......................................... 1,824 15,073
Issuance of common stock ................................................. 365 150
-------- --------
Net cash provided by financing activities ....................... 10,034 76,912
-------- --------
Net decrease in cash and cash equivalents ....................... (4,728) (2,718)
Cash and cash equivalents at beginning of period .............................. 24,247 27,699
-------- --------
Cash and cash equivalents at end of period .................................... $ 19,519 24,981
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ............................................................. $ 10,967 8,869
======== ========
Income taxes ......................................................... $ 1,575 1,145
======== ========
Noncash transactions:
Reclassification of foreclosed real estate to loans .................. $ 74 --
======== ========
Loans converted into available for sale securities ................... $ -- 18,032
======== ========
Accumulated other comprehensive income (loss), net change in
unrealized loss on securities available for sale, net of tax .... $ 514 (1,407)
======== ========
</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 Company's
financial position at September 30, 2000, and the results of operations
for the three-month and nine-month periods ended September 30, 2000 and
1999 and the cash flows for the nine-month periods ended September 30,
2000 and 1999. The results of operations for the three and nine months
ended September 30, 2000 are not necessarily indicative of the results
to be expected for the full year.
2. STOCK DIVIDEND. On September 21, 2000, the Company's Board of Directors
declared a five percent stock dividend payable on October 20, 2000 to
shareholders of record on October 6, 2000. All per share amounts
reflect this dividend.
3. LOAN IMPAIRMENT AND LOSSES. The average net investment in collateral
dependent impaired loans and interest income recognized and received on
these loans is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
2000 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Gross loans with no related allowance, at end of period $2,537 --
====== ======
Average net investment in impaired loans .............. $2,545 --
====== ======
Interest income recognized on impaired loans .......... $ 170 --
====== ======
Interest income received on impaired loans ............ $ 229 --
====== ======
</TABLE>
The activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
2000 1999 2000 1999
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period ...... $ 2,993 2,613 2,849 2,436
Provision for loan losses ........... 47 225 327 579
(Charge-offs), net of recoveries .... (22) 2 (158) (175)
------- ------- ------- -------
Balance at end of period ............ $ 3,018 2,840 3,018 2,840
======= ======= ======= =======
</TABLE>
(continued)
6
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
4. 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 five percent stock
dividend declared September 21, 2000. (Dollars are in thousands, except
per share amounts).
<TABLE>
<CAPTION>
2000 1999
----------------------------------- -----------------------------------
WEIGHTED- PER WEIGHTED- PER
AVERAGE SHARE AVERAGE SHARE
EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30:
Basic EPS:
Net earnings available to
common stockholders ............... $ 914 7,414,813 $ .12 $ 737 7,355,781 $ .10
========= =========
Effect of dilutive securities-
Incremental shares from assumed
exercise of options ............... -- 181,390 -- 202,841
--------- --------- --------- ---------
Diluted EPS:
Net earnings available to
common stockholders
and assumed conversions ........... $ 914 7,596,203 $ .12 $ 737 7,558,622 $ .10
========= ========= ========= ========= ========= =========
NINE MONTHS ENDED SEPTEMBER 30:
Basic EPS:
Net earnings available to
common stockholders ............... 2,701 7,397,149 $ .37 2,158 7,346,684 $ .29
========= =========
Effect of dilutive securities-
Incremental shares from assumed
exercise of options ............... -- 172,730 -- 190,535
--------- --------- --------- ---------
Diluted EPS:
Net earnings available to
common stockholders
and assumed conversions ...... $ 2,701 7,569,879 $ .36 $ 2,158 7,537,219 $ .29
========= ========= ========= ========= ========= =========
</TABLE>
Shares not included in the computations of diluted earnings per share because
the option exercise price was not less than the average market price are as
follows:
<TABLE>
<CAPTION>
NUMBER OF PRICE YEAR YEAR
SHARES RANGE ISSUED EXPIRES
<S> <C> <C> <C> <C>
For the three months ended
September 30, 2000............................ 12,926 $ 8.45-10.72 1998-1999 2008-2009
September 30, 1999............................ 2,426 10.72 1998 2008
For the nine months ended
September 30, 2000............................ 12,926 8.45-10.72 1998-1999 2008-2009
September 30, 1999............................ 2,426 10.72 1998 2008
</TABLE>
7
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Hacker, Johnson & Smith PA, the Company's independent certified public
accountants, have made a limited review of the financial data as of September
30, 2000, and for the three-month and nine-month periods ended September 30,
2000 and 1999 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
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, 2000, and the
related condensed consolidated statements of earnings for the three-month and
nine-month periods ended September 30, 2000 and 1999, the condensed consolidated
statements of cash flows for the nine-month periods ended September 30, 2000 and
1999 and the condensed consolidated statement of stockholders' equity for the
nine-month period ended September 30, 2000. 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, 1999, 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
21, 2000 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, 1999, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
HACKER, JOHNSON & SMITH PA
Tampa, Florida
October 11, 2000
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 financial 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 variety 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.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 2000, the Company's primary sources
of funds consisted of deposit inflows, loan principal repayments, other
borrowings 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, and to purchase available for sale
securities. At September 30, 2000, the Company had commitments to originate
loans totaling $7.7 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 2000. Management also believes that, if so
desired, it can adjust the rates on time deposits to retain 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, 2000, Mercantile
had liquidity of approximately $69 million or 19% of total deposits (net of
secured deposits).
Management believes Mercantile was in compliance with all minimum capital
requirements which it was subject to at September 30, 2000.
The following ratios and rates are presented for the dates and periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
------------- ------------- ---------
2000 1999 2000 1999 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average equity as a percentage
of average assets .................. 7.77% 7.32% 7.53% 7.67% 7.59%
Equity to total assets at end of
period ............................. 7.89% 7.89% 7.89% 7.28% 7.28%
Return on average assets (1) .......... .86% .73% .85% 0.75% 0.79%
Return on average equity (1) .......... 11.04% 9.95% 11.32% 9.76% 10.35%
Noninterest expenses to average
assets (1) ......................... 7.89% 7.28% 3.24% 3.28% 3.27%
Nonperforming loans and foreclosed
real estate as a percentage of total
assets at end of period ............ .16% .31% .16% 0.31% 0.80%
</TABLE>
(1) Annualized for the three and nine month periods ended September 30, 2000
and 1999.
(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,
-------------------------------------------------------------------------
2000 1999
---------------------------------- ----------------------------------
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).................................... $ 296,797 6,428 8.66% $ 267,997 5,547 8.28%
Securities................................... 78,674 1,303 6.62 83,558 1,291 6.18
Other interest-earning assets (2)............ 11,344 195 6.88 10,386 132 5.08
-------- ------ -------- ------
Total interest-earning assets............ 386,815 7,926 8.20 361,941 6,970 7.70
----- -----
Noninterest-earning assets...................... 39,334 42,839
-------- --------
Total assets............................. $ 426,149 $ 404,780
======= =======
Interest-bearing liabilities:
Savings and NOW accounts..................... 79,543 364 1.83 87,738 419 1.91
Money-market deposits........................ 53,925 680 5.04 35,994 323 3.59
Time deposits................................ 164,879 2,389 5.80 171,742 2,187 5.09
Borrowings................................... 30,298 496 6.55 23,081 290 5.03
------- ------ -------- ------
Total interest-bearing liabilities....... 328,645 3,929 4.78 318,555 3,219 4.04
----- -----
Noninterest-bearing liabilities................. 64,388 56,587
Stockholders' equity............................ 33,116 29,638
-------- -------
Total liabilities and stockholders'
equity............................... $ 426,149 $ 404,780
======= =======
Net interest income............................. $ 3,997 $ 3,751
===== =====
Interest-rate spread (3)........................ 3.42% 3.66%
==== ====
Net interest margin (4)......................... 4.13% 4.15%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities......... 1.18 1.14
==== ====
</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>
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------
2000 1999
---------------------------------- ----------------------------------
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)................................... $ 293,438 18,793 8.54% $ 258,538 15,947 8.22%
Securities.................................. 75,736 3,707 6.53 72,915 3,257 5.96
Other interest-earning assets (2)........... 12,418 579 6.22 10,947 395 4.81
-------- ------ -------- --------
Total interest-earning assets........... 381,592 23,079 8.06 342,400 19,599 7.63
------ ------
Noninterest-earning assets..................... 40,537 42,109
-------- --------
Total assets............................ $ 422,129 $ 384,509
======= =======
Interest-bearing liabilities:
Savings and NOW accounts.................... 84,925 1,174 1.84 87,869 1,291 1.96
Money-market deposits....................... 48,327 1,704 4.70 32,096 793 3.29
Time deposits............................... 169,318 6,950 5.47 164,440 6,283 5.09
Borrowings.................................. 25,549 1,158 6.04 19,274 665 4.60
------- ------ -------- -------
Total interest-bearing liabilities...... 328,119 10,986 4.46 303,679 9,032 3.97
------ ------
Noninterest-bearing liabilities................ 62,205 51,342
Stockholders' equity........................... 31,805 29,488
-------- --------
Total liabilities and stockholders'
equity.............................. $ 422,129 $ 384,509
======= =======
Net interest income............................ $ 12,093 $ 10,567
====== ======
Interest-rate spread (3)....................... 3.60% 3.66%
==== ====
Net interest margin (4)........................ 4.23% 4.11%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities........ 1.16 1.13
==== ====
</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, 2000 AND 1999
GENERAL. Net earnings for the three months ended September 30, 2000 were
$914,000 or $.12 per basic and diluted share compared to $737,000 or $.10
per basic and diluted share for the comparable 1999 period. The increase in
earnings was primarily due to increased net interest income.
INTEREST INCOME AND EXPENSE. Interest income increased by $.9 million to $7.9
million for the three-month period ended September 30, 2000 from $7.0
million for the three months ended September 30, 1999. Interest on loans
increased $.9 million to $6.4 million due to an increase in the average
loan portfolio balance in 2000 and an increase in the weighted-average
yield earned in 2000. Interest on securities increased $12,000 to $1.3
million for the three-months ended September 30, 2000 due to a increase in
the average yield earned in 2000 partially offset by a decrease in the
average securities portfolio in 2000. Interest on other interest-earning
assets increased from $132,000 for the three months ended September 30,
1999 to $195,000 for the three months ended September 30, 2000 due to an
increase in the average balance of other interest-earning assets in 2000
and an increase in the weighted-average yield earned in 2000.
Interest expense on deposits increased $500,000 to $3.4 million for the
three-months ended September 30, 2000 from $2.9 million in 1999. The
increase is due to an increase in the average deposits in 2000 and an
increase in the weighted-average rate paid on deposits.
PROVISION FOR LOAN LOSSES. The provision for loan losses is charged to income to
bring the total allowance to a level deemed appropriate by management and
is based upon historical experience, the volume and type of lending
conducted by the Company, industry standards, the amount of nonperforming
loans, general economic conditions, particularly as they relate to the
Company's market areas, and other factors related to the collectibility of
the Company's loan portfolio. The provision for loan losses was $47,000 for
the three-month period ended September 30, 2000 compared to $225,000 for
the same period in 1999. The allowance for loan losses is $3.0 million at
September 30, 2000. While management believes that its allowance for loan
losses is adequate as of September 30, 2000, 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 for the first three months of 2000
decreased to $814,000 from $897,000 for the three months ended September
30, 1999. Service charges on deposits increased in 2000 due to the growth
in deposit accounts. Income from leasing activity of MBL decreased in 2000
due to lower volume. Income from bank owned life insurance policies
decreased in 2000 primarily because of a decrease in the rate earned on
life insurance.
NONINTEREST EXPENSE. Total noninterest expense remained at $3.4 million for the
three months ended September 30, 2000. Increases resulted primarily from
increases in employee compensation, occupancy expense and stationery and
supplies due to the overall growth of the Company and were offset by a
decrease in data processing due to moving this function in-house.
INCOME TAXES. The income tax provision for the three months ended September 30,
2000 was $463,000 or 33.6% of earnings before income taxes compared to
$320,000 or 30.3% for the period ended September 30, 1999. The effective
rate was higher during 2000 primarily because of decreases in tax exempt
income from bank owned life insurance and municipal securities in 2000.
14
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
COMPARISON OF NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
GENERAL. Net earnings for the nine months ended September 30, 2000 were $2.7
million or $.37 per basic and $.36 per diluted share compared to $2.2
million or $.29 per basic and diluted share for 1999. The increase in
earnings was primarily due to increased net interest 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 $3.5 million to $23.1
million for the nine-month period ended September 30, 2000 from $19.6
million for the nine months ended September 30, 1999. Interest on loans
increased $2.8 million to $18.8 million due to both an increase in the
average loan portfolio balance and an increase in the weighted-average
yield earned in 2000. Interest on securities increased $.5 million to $3.7
million for the nine-months ended September 30, 2000 due to an increase in
the average securities portfolio in 2000 and an increase in the average
yield earned in 2000. Interest on other interest-earning assets increased
from $395,000 for the nine months ended September 30, 1999 to $579,000 for
the nine months ended September 30, 2000 due to an increase in the average
balance of other interest-earning assets in 2000 and an increase in the
weighted-average yield earned in 2000.
Interest expense on deposits increased $1.4 million to $9.8 million for the
nine-months ended September 30, 2000 from $8.4 million in 1999. The
increase is due to an increase in the average deposits in 2000 and an
increase 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 $327,000 for the nine-month period ended September 30, 2000
compared to $579,000 for the same period in 1999. The allowance for loan
losses is $3.0 million at September 30, 2000. While management believes
that its allowance for loan losses is adequate as of September 30, 2000,
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 remained at $2.5 million for the nine
months ended September 30, 2000. Service charges on deposits increased in
2000 due to the growth in deposit accounts. Income from leasing activity of
MBL decreased in 2000 due to lower volume. Income from bank owned life
insurance policies decreased in 2000 primarily because of a decrease in the
rate earned on life insurance.
NONINTEREST EXPENSE. Total noninterest expense increased to $10.2 million for
the nine-months ended September 30, 2000 from $9.5 million for the
comparable period ended September 30, 1999. Increases resulted primarily
from increases in employee compensation, occupancy expense and other
noninterest expense due to the overall growth of the Company and was
partially offset by a decrease in data processing due to moving this
function in-house.
INCOME TAXES. The income tax provision for the nine months ended September 30,
2000 was $1.4 million or 33.7% of earnings before income taxes compared to
$921,000 or 29.9% for the period ended September 30, 1999. The effective
rate was higher during 2000 primarily because of decreases in tax exempt
income from bank owned life insurance and municipal securities in 2000.
15
<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, 1999.
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.
16
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION, CONTINUED
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
-------------- -----------------------
2(1) 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(1) Articles of Incorporation of Gulf West Banks, Inc.
3.2(1) Bylaws of Gulf West Banks, Inc.
3.3(4) Articles of Amendment to Articles of Incorporation of Gulf West
Banks, Inc.
10.1(1) Form of Registration Rights Agreement with Gordon W. Campbell
and John Wm. Galbraith
10.2(1) Salary Continuation Agreements with Gordon W. Campbell, Barry K.
Miller, and Robert A. Blakley
10.3(6) Amended and Restated Contract of Employment with Gordon W.
Campbell
10.4(6) 1995 Nonstatutory Stock Option Plan as Amended April 20, 2000
10.5(3) Agreement to transfer fiduciary accounts to SunTrust Bank,
Nature Coast
10.6(5) Executive Officer Bonus Program
10.7(6) Mercantile Bank Executive Severance Pay Plan
10.8 Executive Vice President Bonus Program
11(2) Statement regarding computation of per share earnings
27 Financial Data Schedule (for SEC use only)
(1) incorporated by reference to the exhibits included in Amendment No. 2
to Gulf West's S-4 Registration Statement, as filed with the Securities and
Exchange Commission on December 4, 1997 (Registration No. 333-37307).
(2) contained in Note 4 to the consolidated financial statements set forth
in this Form 10-Q.
(3) 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.
(4) 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.
(5) incorporated by reference to the exhibits included in Gulf West's Form
10-K for the year ended December 31, 1999 as filed with the Securities and
Exchange Commission on March 20, 2000.
(6) incorporated by reference to the exhibits included in Gulf West's Form
10-Q for the quarter ended June 30, 2000 as filed with the Securities and
Exchange Commission on July 26, 2000.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 2000.
17
<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: NOVEMBER 6, 2000 By: /s/ GORDON W. CAMPBELL
-------------------- -----------------------------------------
Gordon W. Campbell, Chairman of the Board
and President (Chief Executive Officer)
Date: NOVEMBER 6, 2000 By: /s/ BARRY K. MILLER
--------------------------- -----------------------------------------
Barry K. Miller, Secretary
(Chief Financial Officer)
18
<PAGE>
GULF WEST BANKS, INC. AND SUBSIDIARIES
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
-------------- -----------------------
2(1) 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(1) Articles of Incorporation of Gulf West Banks, Inc.
3.2(1) Bylaws of Gulf West Banks, Inc.
3.3(4) Articles of Amendment to Articles of Incorporation of Gulf West
Banks, Inc.
10.1(1) Form of Registration Rights Agreement with Gordon W. Campbell
and John Wm. Galbraith
10.2(1) Salary Continuation Agreements with Gordon W. Campbell, Barry K.
Miller, and Robert A. Blakley
10.3(6) Amended and Restated Contract of Employment with Gordon W.
Campbell
10.4(6) 1995 Nonstatutory Stock Option Plan as Amended April 20, 2000
10.5(3) Agreement to transfer fiduciary accounts to SunTrust Bank,
Nature Coast
10.6(5) Executive Officer Bonus Program
10.7(6) Mercantile Bank Executive Severance Pay Plan
10.8 Executive Vice President Bonus Program
11(2) Statement regarding computation of per share earnings
27 Financial Data Schedule (for SEC use only)
(1) incorporated by reference to the exhibits included in Amendment No. 2
to Gulf West's S-4 Registration Statement, as filed with the Securities and
Exchange Commission on December 4, 1997 (Registration No. 333-37307).
(2) contained in Note 4 to the consolidated financial statements set forth
in this Form 10-Q.
(3) 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.
(4) 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.
(5) incorporated by reference to the exhibits included in Gulf West's Form
10-K for the year ended December 31, 1999 as filed with the Securities and
Exchange Commission on March 20, 2000.
(6) incorporated by reference to the exhibits included in Gulf West's Form
10-Q for the quarter ended June 30, 2000 as filed with the Securities and
Exchange Commission on July 26, 2000.
