-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C0+YDOYvhLxWUG+5Z0XH3ybNwk3L9vcESCoMM40y14KZu9O9BNBhnUe5J5uqEmIj cKWYWHDvmvfViFIwBPuqnA== 0000919607-02-000356.txt : 20021112 0000919607-02-000356.hdr.sgml : 20021111 20021112150819 ACCESSION NUMBER: 0000919607-02-000356 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLORIDA BANKS INC CENTRAL INDEX KEY: 0001058802 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 582364573 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-50867 FILM NUMBER: 02816924 BUSINESS ADDRESS: STREET 1: 5210 BELFORT ROAD SUITE 310 CITY: JACKSONVILLE STATE: FL ZIP: 32256 BUSINESS PHONE: 9042962329 MAIL ADDRESS: STREET 1: 5210 BELFORT ROAD SUITE CITY: JACKSONVILLE STATE: FL ZIP: 32256 10-Q 1 flbnks10q.txt INITIAL FILING FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File Number 0-24683 FLORIDA BANKS, INC. (Exact name of registrant as specified in its charter) FLORIDA 58-2364573 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5210 BELFORT ROAD, SUITE 310 JACKSONVILLE, FL 32256 (Address of principal executive offices) (904) 332-7770 (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 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 registrant's classes of common stock, as of the latest practicable date. Title Outstanding COMMON STOCK, $.01 PAR VALUE OUTSTANDING AT SEPTEMBER 30, 2002 PER SHARE 6,751,420 PART I. Financial Information Item 1. Financial Statements FLORIDA BANKS, INC. CONDENSED BALANCE SHEETS (Unaudited) - ------------------------------------------------------------------------------------------------------------------- September 30, December 31, ASSETS 2002 2001 CASH AND DUE FROM BANKS $ 30,590,467 $ 19,332,159 FEDERAL FUNDS SOLD AND REPURCHASE AGREEMENTS 76,465,000 54,657,000 ------------ -------------- Total cash and cash equivalents 107,055,467 73,989,159 INVESTMENT SECURITIES: Available for sale, at fair value (cost $45,938,056 and $33,562,507 at September 30, 2002 and December 31, 2001) 46,796,983 33,954,045 Held to maturity, at cost (fair value $558,871 and $2,934,245 at September 30, 2002 and December 31, 2001) 551,638 2,867,163 Other investments 2,253,350 2,064,550 ------------ -------------- Total investment securities 49,601,971 38,885,758 LOANS: Commercial real estate 289,837,209 210,373,284 Commercial 159,496,235 142,910,691 Residential mortgage 22,050,991 22,308,820 Consumer 41,004,553 23,158,053 Credit card and other loans 2,290,457 2,911,884 ------------ -------------- Total loans 514,679,445 401,662,732 Allowance for loan losses (6,384,650) (4,692,216) Net deferred loan fees (471,131) (218,821) ------------ -------------- Net loans 507,823,664 396,751,695 PREMISES AND EQUIPMENT, NET 5,411,999 3,361,882 ACCRUED INTEREST RECEIVABLE 2,354,383 1,722,746 DEFERRED INCOME TAXES, NET 3,288,869 4,016,786 DERIVATIVE INSTRUMENTS 2,649,634 279,784 OTHER REAL ESTATE OWNED 3,187,348 2,777,827 OTHER ASSETS 497,100 537,588 ------------ -------------- TOTAL ASSETS $681,870,435 $ 522,323,225 ============ ============== LIABILITIES AND SHAREHOLDERS' EQUITY DEPOSITS: Noninterest-bearing demand $ 74,720,584 $ 99,899,425 Interest-bearing demand 49,226,495 19,164,133 Regular savings 63,925,493 64,338,080 Money market accounts 22,415,092 6,342,009 Time $100,000 and over 269,493,975 194,016,109 Other time 83,064,794 67,489,519 ------------ -------------- Total deposits 562,846,433 451,249,275 REPURCHASE AGREEMENTS SOLD 42,098,751 4,495,547 OTHER BORROWED FUNDS 10,308,781 9,714,692 ACCRUED INTEREST PAYABLE 2,566,281 2,863,882 ACCOUNTS PAYABLE AND ACCRUED EXPENSES 3,092,724 2,038,795 ------------ -------------- Total liabilities 620,912,970 470,362,191 ------------ -------------- COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES 13,537,016 5,819,000 ------------ -------------- OF SUBSIDIARY TRUST SHAREHOLDERS' EQUITY: Series B Preferred Stock, $68.00 par value, 1,000,000 shares authorized, 102,283 shares issued and outstanding at December 31, 2001 6,955,244 Common stock, $.01 par value; 30,000,000 shares authorized; 7,053,620 and 5,979,860 shares issued, respectively 70,537 59,799 Additional paid-in capital 54,099,061 46,828,142 Accumulated deficit (deficit of $8,434,037 eliminated upon quasi-reorganization on December 31, 1995) (5,418,664) (6,079,156) Treasury stock 302,200 shares at cost (1,866,197) (1,866,197) Accumulated other comprehensive income, net of tax 535,712 244,202 ------------ -------------- Total shareholders' equity 47,420,449 46,142,034 ------------ -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $681,870,435 $ 522,323,225 ============ ==============
See notes to condensed financial statements. -2- FLORIDA BANKS, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ Three-Month Period Ended Nine-Month Period Ended September 30, September 30, ------------------------ ----------------------- 2002 2001 2002 2001 ----- ---- ---- ---- INTEREST INCOME: Loans, including fees $ 8,208,741 $ 7,022,541 $ 23,386,476 $ 20,432,642 Investment securities 570,382 696,435 1,716,879 2,050,150 Federal funds sold 287,774 303,339 647,361 834,555 ------------ ------------ ------------ ------------ Total interest income 9,066,897 8,022,315 25,750,713 23,317,347 ------------ ------------ ------------ ------------ INTEREST EXPENSE: Deposits 3,899,450 3,711,474 10,839,723 11,413,299 Repurchase agreements 128,367 272,910 379,825 1,014,244 Borrowed funds 98,299 87,942 323,402 276,576 ------------ ------------ ------------ ------------ Total interest expense 4,126,116 4,072,326 11,542,950 12,704,119 ------------ ------------ ------------ ------------ NET INTEREST INCOME 4,940,781 3,949,989 14,207,763 10,613,228 PROVISION FOR LOAN LOSSES 699,286 820,257 2,107,236 1,443,670 ------------ ------------ ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,241,495 3,129,732 12,100,527 9,169,558 ------------ ------------ ------------ ------------ NONINTEREST INCOME: Service fees 431,390 336,020 1,200,908 851,600 Gain (loss) on sale of available for sale investment securities (3,967) 73,988 (3,967) 73,976 Gain on sale of loans 42,888 42,888 Other noninterest income 284,778 180,999 621,015 387,782 ------------ ------------ ------------ ------------ 755,089 591,007 1,860,844 1,313,358 ------------ ------------ ------------ ------------ NONINTEREST EXPENSES: Salaries and benefits 2,799,217 2,154,002 7,510,262 6,318,970 Occupancy and equipment 532,467 460,054 1,505,757 1,323,426 Data processing 224,260 179,484 621,456 510,931 Dividends on preferred security of subsidiary trust 205,126 428,866 Other 817,120 573,296 2,414,724 1,777,182 ------------ ------------ ------------ ------------ 4,578,190 3,366,836 12,481,065 9,930,509 ------------ ------------ ------------ ------------ INCOME BEFORE PROVISION FOR INCOME TAXES 418,394 353,903 1,480,306 552,407 PROVISION FOR INCOME TAXES 152,950 133,930 557,039 208,895 ------------ ------------ ------------ ------------ NET INCOME $ 265,444 $ 219,973 $ 923,267 $ 343,512 ============ ============ ============ ============ PREFERRED STOCK DIVIDENDS (127,373) (140,058) (127,373) ------------ ------------ ------------ ------------ NET INCOME APPLICABLE TO COMMON SHARES $ 265,444 $ 92,600 $ 783,209 $ 216,139 ============ ============ ============ ============ INCOME PER COMMON SHARE: Basic $ 0.04 $ 0.02 $ 0.12 $ 0.04 ============ ============ ============ ============ Diluted $ 0.04 $ 0.02 $ 0.12 $ 0.04 ============ ============ ============ ============
See notes to condensed financial statements. -3- FLORIDA BANKS, INC. CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ Preferred Stock Common Stock Additional ---------------------------------------- Paid-In Accumulated Treasury Shares Par Value Shares Par Value Capital Deficit Stock BALANCE, JANUARY 1, 2001 5,929,751 $59,298 $46,750,329 $(6,760,222) $(1,506,836) Comprehensive income: Net Income 808,439 Unrealized gain on available for sale investment securities, net of tax of $160,168 Comprehensive income Issuance of common stock to Employee Stock Purchase Plan 50,109 501 226,587 Issuance of Series B Preferred Stock 102,283 $ 6,955,244 (148,774) Series B Preferred Stock Dividends Paid (127,373) Purchase of treasury stock (359,361) _______ ___________ _________ ______ ___________ ___________ ___________ BALANCE, JANUARY 1, 2002 102,283 6,955,244 5,979,860 59,799 46,828,142 (6,079,156) (1,866,197) Comprehensive income: Net Income 923,267 Unrealized gain on available for sale investment securities, net of tax of $337,502 Comprehensive income Issuance of common stock to Employee Stock Purchase Plan 41,133 412 210,359 Series B Preferred Stock Dividends Paid (262,775) Conversion of Series B Preferred Stock to Common (102,283) (6,955,244) 1,022,830 10,228 6,945,015 Exercise of stock options and issue of stock grants 9,797 98 115,545 _______ ___________ _________ _______ ___________ ___________ ___________ BALANCE, September 30, 2002 (Unaudited) - $ - 7,053,620 $70,537 $54,099,061 $(5,418,664) $(1,866,197) ======= =========== ========= ======= =========== =========== =========== Accumulated Other Comprehensive (loss) income Net of Tax Total BALANCE, JANUARY 1, 2001 $ 13,870 $38,556,439 Comprehensive income: Net Income 808,439 Unrealized gain on available for sale investment securities, net of tax of $160,168 230,332 230,332 Comprehensive income 1,038,771 Issuance of common stock to Employee Stock Purchase Plan 227,088 Issuance of Series B Preferred Stock 6,806,470 Series B Preferred Stock Dividends Paid (127,373) Purchase of treasury stock (359,361) ________ ___________ BALANCE, JANUARY 1, 2002 244,202 46,142,034 Comprehensive income: Net Income 923,267 Unrealized gain on available for sale investment securities, net of tax of $337,502 291,510 291,510 ___________ Comprehensive income 1,214,777 Issuance of common stock to Employee Stock Purchase Plan 210,771 Series B Preferred Stock Dividends Paid (262,775) Conversion of Series B Preferred Stock to Common Exercise of stock options and issue of stock grants 115,643 ________ ___________ BALANCE, September 30, 2002 (Unaudited) $535,712 $47,420,449 ======== ===========
See notes to condensed financial statements. - 4 - FLORIDA BANKS, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ Nine-Month Period Ended September 30, ---------------------------------- OPERATING ACTIVITIES: 2002 2001 ---------------------------------- Net income $ 923,267 $ 343,512 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 579,343 569,660 Reinvested dividends on investment securities (116,826) Deferred income tax provision 537,751 208,894 Loss on disposition of furniture and equipment 14,518 Amortization of premium on investments, net (37,177) (227,180) Amortization of premium on loans 95,356 Loss (gain) on sale of securities 3,967 (73,976) Provision for loan losses 2,107,236 1,443,670 Loss on foreign currency translation 41,675 Gain on derivative instruments (43,056) (31,654) Increase in accrued interest receivable (631,637) (119,861) (Decrease) increase in accrued interest payable (297,601) 253,620 Decrease (increase) in other assets 40,488 55,296 Increase in other liabilities 1,053,929 538,283 ------------- ------------- Net cash provided by operating activities 4,256,715 2,974,782 ------------- ------------- INVESTING ACTIVITIES: Proceeds from sales, paydowns and maturities of investment securities: Available for sale 16,271,660 12,196,782 Held to maturity 2,360,879 3,579,079 Purchases of investment securities: Available for sale (28,528,240) (9,985,910) Held to maturity (3,361,015) Other investments (188,800) (355,900) Net increase in loans (113,968,736) (75,685,755) Proceeds from sale of other real estate owned 242,979 Purchases of premises and equipment (2,629,460) (586,408) ------------- ------------- Net cash used in investing activities (126,439,718) (74,199,127) ------------- ------------- FINANCING ACTIVITIES: Net increase in demand deposits, money market accounts and savings accounts 20,754,787 27,893,750 Net increase in time deposits 88,726,347 42,940,995 Increase in repurchase agreements 37,603,204 15,010,827 (Decrease) increase in borrowed funds (2,405,911) 2,482,935 Proceeds from FHLB advances 3,000,000 Proceeds from exercise of stock options and issuance of stock grants 115,643 Purchase of treasury stock (241,411) Proceeds from sale of Series B preferred stock 6,817,669 Preferred dividends paid (262,775) Proceeds from issuance of trust preferred securities, net 7,718,016 ------------- ------------- Net cash provided by financing activities 155,249,311 94,904,765 ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 33,066,308 23,680,420 CASH AND CASH EQUIVALENTS: Beginning of period 73,989,159 43,687,964 ------------- ------------- End of period $ 107,055,467 $ 67,368,384 ============= ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 11,840,551 $ 12,450,499 ============= ============= NONCASH FINANCING ACTIVITIES: Proceeds from demand deposits used to purchase shares of common stock under Employee Stock Purchase Plan $ 210,771 $ 227,088 ============= =============
See notes to condensed financial statements. - 5 - FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED) - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION Florida Banks, Inc. (the "Company") was incorporated October 15, 1997 to become a bank holding company and acquire First National Bank of Tampa (the "Bank"). On August 4, 1998, the Company completed its initial public offering and its merger (the "Merger") with the Bank pursuant to which the Bank was merged with and into Florida Bank No. 1, N.A., a wholly-owned subsidiary of the Company, and renamed Florida Bank, N.A. The condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission related to interim financial statements. These unaudited condensed financial statements do not include all disclosures provided in the annual financial statements. The condensed financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report to Shareholders incorporated by reference into the Company's Form 10-K for the year ended December 31, 2001. All adjustments of a normal recurring nature which, in the opinion of management, are necessary to fairly present the results of the interim periods have been made. Results of operations for the three- and nine-month periods ended September 30, 2002, are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 2. EARNINGS PER COMMON SHARE The following is a reconciliation of the denominator used in the computation of basic and diluted earnings per common share. Three-Month Period Ended Nine-Month Period Ended September 30, September 30, -------------------------------- ------------------------------- 2002 2001 2002 2001 --------------- --------------- -------------- -------------- Weighted average number of common shares outstanding - Basic 6,751,156 5,726,851 6,335,832 5,709,203 Incremental shares from the assumed conversion of stock options 97,729 1,514 85,233 2,531 --------- --------- --------- --------- Total - Diluted 6,848,885 5,728,365 6,421,065 5,711,734 ========= ========= ========= =========
The incremental shares from the assumed conversion of stock options for the three- and nine-month periods ended September 30, 2002 and 2001 were determined using the treasury stock method, under which the assumed proceeds were equal to (1) the amount that the Company would receive upon exercise of the options plus (2) the amount of tax benefit that would be credited to additional paid-in capital assuming exercise of the options. The assumed proceeds are used to purchase outstanding common shares at the Company's average market value for the period. The convertible preferred - 6 - FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED) (Continued) - -------------------------------------------------------------------------------- stock outstanding at September 30, 2001 was considered to be anti-dilutive and is therefore excluded from the computation of diluted earnings per share. 3. DERIVATIVE INSTRUMENTS The Company adopted Statement of Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, on January 1, 2001. This statement requires all derivative instruments to be recorded on the balance sheet at fair value. The following instruments qualify as derivatives as defined by SFAS No. 133: September 30, 2002 ------------------------------------- Contract/Notional Fair Amount Value Interest rate swap agreements $ 42,500,000 $ 2,584,240 Foreign currency swap agreements $ 2,000,000 $ 65,394 Interest rate swap agreements at September 30, 2002 consist of seven agreements, which effectively convert the interest rate on certain certificates of deposit from a fixed rate to a variable rate to more closely match the interest rate sensitivity of the Company's assets and liabilities. The Company has designated and assessed the derivatives as highly effective fair value hedges, as defined by SFAS No. 133. The Company recognized losses of $0 and $49,643 during the three-month and nine-month periods ended September 30, 2002 as a result of changes in the fair value of loan participation agreements, which contained imbedded derivatives at December 31, 2001, and were no longer in place at September 30, 2002. Additionally, the Company entered into a foreign currency swap agreement during the first quarter of 2001. This swap agreement does not qualify for hedge accounting under SFAS No. 133. Accordingly, all changes in the fair value of the foreign currency swap agreement are reflected in the earnings of the Company. The Company recognized gains of $34,855 and $17,506 during the three-month and nine-month periods ended September 30, 2002 as a result of changes in the fair value of the foreign currency agreement and the related translation adjustment. 4. PREFERRED STOCK On June 29, 2001, the Company issued 100,401 shares of Series B Preferred stock. On July 24, 2001, the Company issued an additional 1,882 shares of Series B Preferred Stock. All Series B Preferred shares were issued for $68.00 per share through a private placement. On April 16, 2002, all 102,283 shares of Series B Preferred stock automatically converted into 1,022,830 shares of common stock as a result of the average closing price of the Company's common stock being above $8.00 for the period from March 4, 2002 through April 15, 2002. - 7 - FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED) (Continued) - -------------------------------------------------------------------------------- 5. RECENT ACCOUNTING PRONOUNCEMENTS In July of 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 establishes accounting and reporting standards for business combinations. This Statement eliminates the use of the pooling-of-interests method of accounting for business combinations, requiring future business combinations to be accounted for using the purchase method of accounting. The provisions of this Statement apply to all business combinations initiated after June 30, 2001. This Statement also applies to all business combinations accounted for using the purchase method of accounting for which the date of acquisition is July 1, 2001 or later. The Statement had no impact on the Company's consolidated financial position and results of operations. SFAS No. 142 establishes accounting and reporting standards for goodwill and other intangible assets. With the adoption of this Statement, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value based test. The Company adopted SFAS No. 142 on January 1, 2002. As the Company currently has no goodwill or intangible assets, the adoption of the Statement did not have an impact on the Company's consolidated financial position and results of operations. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and requires that the amount recorded as a liability be capitalized by increasing the carrying amount of the related long-lived assets. Subsequent to initial measurement, the liability is accreted to the ultimate amount anticipated to be paid, and is also adjusted for revisions to the timing or amount of estimated cash flows. The capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. SFAS No. 143 is required to be adopted for fiscal years beginning after June 15, 2002, with earlier application encouraged. The Statement will not have an impact on the Company's consolidated financial position and results of operations. In August, 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement supersedes SFAS No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The adoption of the Statement did not have a material impact on the Company's consolidated financial position and results of operations. - 8 - FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED) (Continued) - -------------------------------------------------------------------------------- In April 2002, the Financial Accounting Standards Board issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This Statement rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt", and an amendment of that Statement, SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". This Statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers". This Statement amends SFAS No. 13, "Accounting for Leases", to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. This Statement will be effective for the year ended December 31, 2003 and for transactions entered into after May 15, 2002. It does not appear that this statement will have a material effect on the financial position, operations or cash flows of the Company. In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This Statement nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Under Issue 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. It does not appear that this statement will have a material effect on the financial position, operations or cash flows of the Company. 6. TRUST PREFERRED SECURITIES On April 10, 2002, the Company participated in a pooled trust preferred offering. In connection with the transaction, the Company, through its subsidiary trust, Florida Banks Capital II (the "Trust II"), issued $4,000,000 in trust preferred securities. The Trust II also issued $124,000 of common securities to the Company and used the total proceeds to purchase $4,124,000 in 30-year subordinated debentures of the Company. The trust preferred securities pay dividends at an initial rate of 6.02% through October 22, 2002. The rate then becomes a floating rate based on 6-month LIBOR plus 3.70%, adjusted semi-annually after each dividend payment date. Dividend payment dates are April 22 and October 22 of each year. There is a par call option beginning April 22, 2007. The subordinated debentures are the sole assets of the Trust II and are eliminated, along with the related income statement effects, in the Company's consolidated financial statements. On June 28, 2002, the Company participated in an additional pooled trust preferred offering. In connection with the transaction, the Company, through its subsidiary trust, Florida Banks Capital I (the "Trust I"), issued $4,000,000 in trust preferred securities. The Trust I also issued - 9 - FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED) (Continued) - -------------------------------------------------------------------------------- $124,000 of common securities to the Company and used the total proceeds to purchase $4,124,000 in 30-year subordinated debentures of the Company. The trust preferred securities pay dividends at an initial rate of 5.48% through September 30, 2002. The rate then becomes a floating rate based on 3-month LIBOR plus 3.75%, adjusted quarterly after each dividend payment date. Dividend payment dates are March 30, June 30, September 30 and December 30 of each year. There is a par call option beginning June 30, 2007. The subordinated debentures are the sole assets of the Trust I and are eliminated, along with the related income statement effects, in the Company's consolidated financial statements. 7. SUBSEQUENT EVENT On November 1, 2002, the Company sold one of the two parcels of Other Real Estate Owned which were carried on the balance sheet at September 30, 2002. This parcel had a carrying value of $2,534,848. The net proceeds of the sale were $2,528,145, resulting in a loss on the disposal of $6,703. The carrying amount of the remaining parcel is $652,500. - 10 - PART II. Other Information Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. Critical Accounting Policies The accounting and reporting policies for the Company and its subsidiaries are in accordance with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The more critical accounting and reporting policies include the Company's accounting for the allowance for loan losses, other real estate owned and derivative instruments. In particular, the accounting for these areas requires significant judgments to be made by management. Different assumptions in the application of these policies could result in material changes in the Company's consolidated financial position or consolidated results of operations. See "Allowance for Loan Losses" herein for a complete discussion. Please also refer to Note 1 in the "Notes to Consolidated Financial Statements" in the Company's Annual Report and "Critical Accounting Policies" in management's discussion and analysis section of the Company's Form 10-K for the year ended December 31, 2001 on file with the Securities and Exchange Commission for details regarding all of the Company's critical and significant accounting policies. RESULTS OF OPERATIONS Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001 The Company's net income applicable to common shares for the third quarter of 2002 was $265,444, compared to $92,600 for the third quarter of 2001. Basic income per common share for the third quarter of 2002 was $.04 compared to $.02 for the third quarter of 2001. The increase in net income can be attributed to increased net interest income, increased non-interest income, and a reduction in the provision for loan losses, partially offset by an increase in non-interest expenses. The increase in net interest income of $991,000 or 25.1%, to $4.9 million for the third quarter of 2002 compared to $3.9 million for the third quarter of 2001, consists of an increase in interest income of $1.0 million, or 13.0%, and an increase in interest expense of $54,000, or 1.3%. The increase in interest income in the third quarter of 2002 is primarily attributable to an increase of $1.2 million in interest and fees on loans resulting from the growth in the loan portfolio. The increase in interest expense resulted primarily from an increase of $188,000 in interest on deposits and a decrease of $145,000 in interest on repurchase agreements. The increase in interest expense on deposits is primarily attributable to an increase in deposits, partially offset by a decrease in market interest rates on deposits. The decrease in interest expense on repurchase agreements is primarily attributable to the decline in market interest rates on repurchase agreements. The provision for loan losses charged to operations decreased $121,000 to $699,000 for the third quarter of 2002 from $820,000 in the third quarter of 2001. This decrease primarily reflects slower growth of the overall loan portfolio in the third quarter of 2002 as compared to the third quarter of 2001. For a more detailed discussion of the provision for loan losses, see "Allowance for Loan Losses" in the "Financial Condition" section below. Non-interest income increased 27.8% or $164,000 to $755,000 for the three months ended September 30, 2002 from $591,000 for the three months ended September 30, 2001. The increase in non-interest income primarily resulted from an increase in - 11 - other noninterest income of $104,000 to $285,000 for the three months ended September 30, 2002 from $181,000 for the three months ended September 30, 2001, combined with a $43,000 gain on sale of loans for the three-month period ended September 30, 2002, compared to $0 for the same period in 2001. The increase in other non-interest income is primarily attributable to increases in mortgage loan origination fees and Automated Clearing House fees. These increases in non-interest income were partially offset by a decrease in gains on sale of available for sale securities. Income on sale of available for sale securities decreased $78,000, or 105.4%, to a loss of ($4,000) for the three months ended September 30, 2002, compared to a gain of $74,000 for the same period in 2001. Non-interest expense increased $1.0 million or 29.9% to $4.6 million for the three-month period ended September 30, 2002 compared to $3.4 million for the three-month period ended September 30, 2001. The increase in non-interest expense resulted primarily from increases in salaries and benefits, dividends on preferred security of subsidiary trust, and other expenses. Salaries and benefits expenses increased $645,000 to $2.8 million for the third quarter of 2002 compared to $2.2 million for the third quarter of 2001. This increase is primarily the result of additional staff associated with the overall growth of the Company's business and with the addition in the third quarter of 2002 of a wholesale mortgage division. Dividends on trust preferred securities of subsidiary trust were $205,000 for the third quarter of 2002. The Company had no subsidiary trust securities outstanding during the third quarter of 2001. Other expenses increased $244,000, or 42.5% to $817,000 for the third quarter of 2002 compared to $574,000 for the third quarter of 2001. This increase is primarily attributed to the expenses associated with supporting operations related to the overall growth of the Company. Specific operational expenses which increased include communications, recruitment expenses and expenses related to other real estate owned. A provision for income taxes of $153,000 was recognized for the third quarter of 2002 compared to $134,000 for the same period in 2001. These provisions for income taxes represent an estimated effective annual tax rate of approximately 38%. Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001 The Company's net income applicable to common shares for the first nine months of 2002 was $783,000, compared to $216,000 for same period in 2001. Basic income per common share for the first nine months of 2002 was $.12 compared to $.04 for the same period 2001. The increase in net income can be attributed to increased net interest income and increased non-interest income, partially offset by an increase in the provision for loan losses and increased non-interest expenses. The increase in net interest income of $3.6 million or 33.9%, to $14.2 million for the first nine months of 2002, compared to $10.6 million the same period in 2001, consists of an increase in interest income of $2.4 million, or 10.4%, and a decrease in interest expense of $1.1 million, or 9.1%. The increase in interest income in the first nine months of 2002 is primarily attributable to an increase of $3.0 million in interest and fees on loans resulting from the growth in the loan portfolio. The decrease in interest expense for the first nine months of 2002 is primarily attributable to a decrease of $574,000 in interest on deposits and a decrease of $634,000 in interest on repurchase agreements. These decreases in interest expense are attributable to the decline in market interest rates on deposits and repurchase agreements. The provision for loan losses charged to operations increased $664,000 to $2.1 million for the first nine months of 2002 from $1.4 million in the first nine months of 2001. This increase primarily reflects the growth of the overall loan portfolio. For a more detailed discussion of the provision for loan losses, see "Allowance for Loan Losses" in the "Financial Condition" section below. - -------------------------- - 12 - Non-interest income increased 41.7% or $548,000 to $1.9 million for the nine months ended September 30, 2002 from $1.3 million for the nine months ended September 30, 2001. The increase in non-interest income primarily resulted from an increase in service fees of $349,000 to $1.2 million for the nine months ended September 30, 2002 from $852,000 for the nine months ended September 30, 2001. The increase in service fees resulted primarily from an increase in deposits. Other noninterest income increased $233,000 to $621,000 for the nine months ended September 30, 2002 from $388,000 for the same period in 2001. This increase was primarily attributable to increases in mortgage loan origination fees and Automated Clearing House fees. Non-interest expense increased $2.1 million or 21.4% to $12.5 million for the nine-month period ended September 30, 2002 compared to $9.9 million for the same period in 2001. The increase in non-interest expense resulted primarily from increases in salaries and benefits, dividends on preferred security of subsidiary trust, and other expenses. Salaries and benefits expenses increased $1.2 million to $7.5 million for the first nine months of 2002 compared to $6.3 million for the first nine months of 2001. This increase is primarily the result of additional staff associated with the overall growth of the Company's business, together with the addition of a wholesale mortgage division during the third quarter of 2002. Dividends on trust preferred securities of subsidiary trust were $429,000 for the first nine months of 2002. The Company had no subsidiary trust securities outstanding during the first nine months of 2001. Other expenses increased $638,000, or 35.9% to $2.4 million for the first nine months of 2002 compared to $1.8 million for the first nine months of 2001. This increase is primarily attributed to the expenses associated with supporting operations related to the overall growth of the Company. Specific operational expenses which increased include Automated Clearing House expenses and expenses related to other real estate owned. A provision for income taxes of $557,000 was recognized for the nine-month period ended September 30, 2002 as compared to $209,000 for the same period in 2001. These provisions for income taxes represent an estimated effective annual tax rate of approximately 38%. FINANCIAL CONDITION Total assets at September 30, 2002 were $681.9 million, an increase of $159.5 million or 30.6%, from $522.3 million at December 31, 2001. The increase in total assets primarily resulted from the investment of new deposit growth and other borrowed funds in loans and investment securities. Securities available for sale increased $12.8 million or 37.8% to $46.8 million at September 30, 2002 as compared to $34.0 million at December 31, 2001. Federal funds sold increased $21.8 million or 39.9% to $76.5 million at September 30, 2002 from $54.7 million at December 31, 2001. The increase in federal funds sold reflects additional deposit growth late in the second quarter that had not yet been deployed in loan growth. Total loans increased $113.0 million, or 28.1%, to $514.7 million at September 30, 2002, from $401.7 million at December 31, 2001. The increase in total loans was funded by increases in depository accounts, repurchase agreements sold and other borrowings. The allowance for loan losses increased $1.7 million or 36.1% during the first nine months of 2002. The increase resulted from net charge-offs of loans of $415,000 plus additional provisions of $2.1 million during that period. The allowance for loan losses as a percent of total loans was 1.24% at September 30, 2002 and 1.17% at December 31, 2001. Management believes that such allowance for loan losses is sufficient to cover estimated losses in the Bank's loan portfolio. Deposits increased $111.6 million, or 24.7%, to $562.8 million at September 30, 2002 from $451.2 million at December 31, 2001. The increase in total deposits primarily resulted from an increase of $75.5 million or 38.9% in time deposits $100,000 and over, combined with an increase of $30.1 million or 156.9% in interest-bearing demand deposits. Time deposits often fluctuate in response to interest rate changes and can vary rather significantly on a quarterly basis. - 13 - The increase in time deposits $100,000 and over resulted primarily from an increase in brokered deposits. Noninterest-bearing deposits decreased $25.2 million or 25.2%. This is a result of the transfer of almost all repurchase agreements sold into demand deposit accounts by our customers at December 31, 2001 as part of their intangible tax strategy. These funds flowed back into repurchase agreements after year-end, as can be seen by comparing the relative balances of demand deposits and repurchase agreements sold at September 30, 2002 and December 31, 2001. Savings deposits decreased $413,000 or 0.6%. Money market accounts increased $16.0 million or 253.4%. Growth in money market accounts are primarily attributable to continued expansion of the Company's customer base as a result of ongoing marketing activities. Repurchase agreements sold increased $37.6 million, or 836.5%, to $42.1 million at September 30, 2002 from $4.5 million at December 31, 2001, for reasons discussed in the previous paragraph, together with continued expansion of the Company's customer base. Other borrowed funds increased $594,000 or 6.1% to $10.3 million at September 30, 2002 from $9.7 million at December 31, 2001. Accrued interest payable decreased $298,000 or 10.4%, to $2.6 million at September 30, 2002 from $2.9 million at December 31, 2001. This decrease is due primarily to a reduction in overall interest rates. Accounts payable and accrued expenses increased $1.1 million or 51.7% to $3.1 million at September 30, 2002 from $2.0 million at December 31, 2001. Shareholders' equity increased by $1.3 million to $47.4 million at September 30, 2002, from $46.1 million at December 31, 2001. This increase is the result of net income for the first nine months of 2002 of $923,000, combined with the issue of stock under the Company's employee stock purchase plan of $211,000, the issue of stock related to exercise of options and issue of stock grants of $116,000, and an increase in other comprehensive income related to an unrealized gain in the Company's bond portfolio of $292,000. These increases were partially offset by cash dividends paid on Series B preferred stock of $263,000. Non-accrual loans were $355,000 at September 30, 2002, a decrease of $735,000 or 67.4%, compared to the balance of $1.1 million at December 31, 2001. These loans were reclassified under the Bank's policy of transferring loans to non-accrual status when they become more than 90 days past due on either principal or interest. The Company believes the specific reserves placed against these loans are adequate, and payment is being sought from secondary sources, such as the sale of collateral. Allowance for Loan Losses - ------------------------- Management determines the allowance for loan losses by establishing a general allowance by loan pool determined for groups of smaller, homogenous loans possessing similar characteristics and non-homogeneous loans that are not classified. All classified loans are reviewed on an individual basis. General Allowance It is difficult for a lending institution the size of the Bank to use migration analysis or other more sophisticated approaches due to the small size of the loan portfolio, and the significant changes in the lending strategy and mix of the loan portfolio from the date of the Merger. For this reason, a reasonable indicator of the Bank's potential future losses in the non-criticized and non-specialized pools of loans is the historical performance of the Bank's peer group on a rolling four-quarter basis. This information is gathered quarterly from the Uniform Bank Performance Report provided by the Federal Financial ---------------------------------- Institutions Examination Council. As the bank matures, and growth stabilizes, it is management's intention to replace this peer group methodology with the actual loss experience of the Bank. - 14 - Added to the peer group historical performance are those current conditions that are probable to impact future loan losses. To account for these current conditions, management has reviewed various factors to determine the impact on the current loan portfolio. This methodology involves determining a range for each current condition adjustment, "lower range to upper range". The "lower range" represents management's opinion of a higher near term probability. The "upper range" represents management's opinion of a lower near term probability that allows management to "shock" the loan portfolio and look at the level of reserves required should an "upper range" scenario start to unfold. The following current condition factors were considered in this analysis: o Changes in lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices. o Changes in national and local economic and business conditions, including the condition of various market segments. o Changes in the nature and volume of the portfolio. o Changes in the experience, ability, and depth of lending management and staff. o Changes in the volume and severity of past due and classified loans; and the volume of non-accruals, trouble debt restructurings and other loan modifications. o The existence and effect of any concentrations of credit, and changes in the level of such conditions. o The effect of external factors, such as competition and legal and regulatory requirements, on the level of estimated credit losses in the Bank's portfolio. Specific Allowance Management believes that given the small number of classified loans, type of historical loan losses, and the nature of the underlying collateral, creating specific allowances for classified assets results in the most accurate and objective allowance. Should the number of these types of assets grow substantially, other methods may have to be considered. The method used in setting the specific allowance uses current appraisals as a starting point, based on the Bank's possible liquidation of the collateral. On assets other than real estate, which tend to depreciate rapidly, another current valuation is used. For instance, in the case of commercial loans collateralized by automobiles, the current NADA wholesale value is used. On collateral such as over-the-road equipment, trucks or heavy equipment, valuations are sought from firms or persons knowledgeable in the area, and adjusted for the probable condition of the collateral. Other collateral such as furniture, fixtures and equipment, accounts receivable, and inventory, are considered separately with more emphasis given to the borrower's financial condition and trends rather than the collateral support. The value of the collateral is then discounted for estimated selling cost. Summary The various methodologies included in this analysis take into consideration the historic loan losses and specific allowances. In addition, the allowance incorporates the results of measuring impaired loans as provided by Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures". These accounting standards - 15 - prescribe the measurement methods, income recognition and disclosures related to impaired loans. Specific allowances totaled $1.7 million at September 30, 2002. The range for the allowance for loan losses at September 30, 2002, including specific allowances, was determined to be between $5.7 million or 1.17% of loans (low range) and $9.0 million or 1.86% of loans (high range). At September 30, 2002, the Bank's total allowance for credit losses is $6.4 million or 1.24% of loans as compared to $4.7 million or 1.17% of loans at December 31, 2001. Criticized/Classified assets have increased when measured against loans outstanding. This is primarily attributable to specific reserves resulting from the classification of additional credits during the second and third quarters of 2002. At September 30, 2002, this benchmark was 4.7% of loans outstanding compared to 2.27% at December 31, 2001. Past due loans have decreased to .11% of loans outstanding at September 30, 2002 compared to .20% at December 31, 2001. Non-Performing Assets have declined as a percentage of total loans including other real estate owned to .70% at September 30, 2002 versus ..96% at December 31, 2001. Net loan losses for the first nine months of 2002 were $415,000 or .09% of average loans outstanding for the period, compared to $718,000, or .22% of average loans for the same nine-month period in 2001. LIQUIDITY The Company, through its subsidiary, the Bank, has traditionally maintained levels of liquidity above levels required by regulatory authorities. The Bank's operational needs, demand for loan disbursements, and savings withdrawals can be met by loan principal and interest payments received, new deposits, and excess liquid assets. Significant loan demand, deposit withdrawal, increased delinquencies and increased real estate acquired in settlement of loans could alter this condition. Management does not foresee any liquidity problems for the remainder of 2002. Liquidity and Sources of Capital - -------------------------------- Liquidity is the Company's ability to meet all deposit withdrawals immediately, while also providing for the credit needs of customers. The September 30, 2002 financial statements evidence a satisfactory liquidity position as total cash and cash equivalents amounted to $107.1 million, representing 15.7% of total assets. Investment securities available for sale amounted to $46.8 million, representing 6.9% of total assets. These securities provide a secondary source of liquidity since they can be converted into cash in a timely manner. The Company's ability to maintain and expand its deposit base and borrowing capabilities are also a source of liquidity. For the nine-month period ended September 30, 2002, total deposits increased from $451.2 million at December 31, 2001 to $562.8 million, or 24.7%. During this period, repurchase agreements sold increased from $4.5 million to $42.1 million, or 836.5%, and other borrowed funds increased $594,000 from $9.7 million to $10.3 million, or 6.1%. There can be no assurance that the Company will be able to maintain this level of growth. The Company's management closely monitors and maintains appropriate levels of interest earning assets and interest bearing liabilities so that maturities of assets are such that adequate funds are provided to meet customer withdrawals and loan demand. There are no trends, demands, commitments, events or uncertainties that will result in, or are reasonably likely to result in, the Company's liquidity increasing or decreasing in any material way. The Company's Board and executive officers are committed to maintaining capital at a level sufficient to protect depositors, provide for reasonable growth, and fully comply with all regulatory requirements. In December 2001, April 2002, and June 2002, the Company participated in pooled trust preferred offerings. By issuing trust preferred securities through its subsidiary trusts, the Company was able to increase its Tier 1 capital for regulatory purposes without diluting the ownership interests of its common shareholders. Also, dividends paid on trust preferred securities are deductible as interest expense for income tax purposes. For the specific transactions, terms and rates of the Company's trust preferred securities issues, please refer - 16 - to footnote 6 of Item 1 above, together with footnote 13 of the Company's consolidated financial statements for the years ended December 31, 1999, 2000 and 2001 filed in conjunction with the Company's annual report on form 10-K for the year ended December 31, 2001. At September 30, 2002, the net proceeds from pooled trust preferred trust offerings included in the calculation of Tier 1 capital for regulatory purposes is $13.5 million. The table below illustrates the Bank's regulatory capital ratios at September 30, 2002: Minimum September 30, Regulatory Bank 2002 Requirement - ---- ------------- ----------- Tier 1 Capital 8.93% 4.00% ==== ==== Total risk-based capital ratio 10.02% 8.00% ===== ==== Leverage ratio 8.17% 4.00% ==== ==== Neither the Company nor its subsidiaries have historically incurred off-balance sheet obligations through the use of or investment in off-balance sheet derivative financial instruments or structured finance or special purpose entities organized as corporations, partnerships or limited liability companies or trusts. CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING STATEMENTS This Report contains statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements appear in a number of places in this Report and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things: (i) potential acquisitions by the Company; (ii) trends affecting the Company's financial condition or results of operations; and (iii) the Company's business and growth strategies. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. These factors include, but are not limited to the following: (a) competitive pressure in the banking industry; (b) changes in the interest rate environment; (c) the fact that general economic conditions may be less favorable than the Company expects; and (d) changes in the Company's regulatory environment. The accompanying information contained in this Report, including, without limitation, the information set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations", as well as in the Company's Securities Act filings, identifies important additional factors that could adversely affect actual results and performance. Prospective investors are urged to carefully consider such factors. All forward-looking statements attributable to the Company are expressly qualified in their entirety by the foregoing cautionary statements. The foregoing discussion should be read in conjunction with the Condensed Consolidated Financial Statements of the Company (including the notes thereto) contained elsewhere in this Report. Item 3. Qualitative and Quantitative Disclosures About Market Risk The Company's financial performance is subject to risk from interest rate fluctuations. This interest rate risk arises due to differences between the amount of interest-earning assets and the amount of interest-earning liabilities subject to repricing over a specified period and the amount of change in individual interest rates. In the current interest rate environment, the liquidity and maturity structure of the Company's assets and liabilities are important to the maintenance of acceptable performance levels. A decreasing rate - 17 - environment negatively impacts earnings as the Company's rate-sensitive assets generally reprice faster than its rate-sensitive liabilities. Conversely, in an increasing rate environment, earnings are positively impacted. This asset/liability mismatch in pricing is referred to as gap ratio and is measured as rate sensitive assets divided by rate sensitive liabilities for a defined time period. A gap ratio of 1.00 means that assets and liabilities are perfectly matched as to repricing. Management has targeted gap ratio guidelines for a one-year time horizon of between .80 and 1.20 for the Bank. At September 30, 2002, the Bank had a cumulative gap ratio of approximately 1.31 for the one-year period ending September 30, 2003. This is primarily due to the Bank's receipt at the end of June of approximately $22.8 million dollars in brokered deposits, which were temporarily invested in Federal Funds sold. These deposits were obtained to take advantage of historically low funding costs. It is anticipated that the bulk of these deposits will be deployed into loans in the coming months, and prior to the end of the year, the Bank's one-year cumulative gap ratio will again be within the targeted range. At September 30, 2002, the Company had a cumulative gap ratio of 1.73 for the three-month time period. Given these gap ratios, over the next three-month period, rate-sensitive assets will reprice faster than rate-sensitive liabilities, and for the following nine-month period, rate sensitive liabilities will reprice faster than rate-sensitive assets. Varying interest rate environments can create unexpected changes in prepayment levels of assets and liabilities, which are not reflected in the interest sensitivity analysis. Prepayments may have significant effects on the Company's net interest margin. Because of these factors, in a static test, interest sensitivity gap reports may not provide a complete assessment of the Company's exposure to changes in interest rates. Accordingly, management also utilizes computerized interest rate simulation analysis to determine the Company's interest rate sensitivity. The Company is in an asset sensitive gap position for the first year, then moves into a matched position through the five year period. Overall, due to the factors cited, current simulation results indicate a relatively low sensitivity to parallel shifts in interest rates. A liability sensitive company will generally benefit from a falling interest rate environment as the cost of interest-bearing liabilities falls faster than the yields on interest-bearing assets, thus creating a widening of the net interest margin. Conversely, an asset sensitive company will benefit from a rising interest rate environment as the yields on earning assets rise faster than the costs of interest-bearing liabilities. Management also evaluates economic conditions, the pattern of market interest rates and competition to determine the appropriate mix and repricing characteristics of assets and liabilities required to produce a targeted net interest margin. In addition to the gap analysis, management uses rate shock simulation to measure the rate sensitivity of its balance sheet. Rate shock simulation is a modeling technique used to estimate the impact of changes in rates on the Company's net interest margin. The Company measures its interest rate risk by estimating the changes in net interest income resulting from instantaneous and sustained parallel shifts in interest rates of plus or minus 200 basis points over a period of twelve months. The Company's most recent rate shock simulation analysis, performed as of September 30, 2002, indicates that a 200 basis point increase in rates would cause an increase in net interest income of $860,000 over the next twelve-month period. Conversely, a 200 basis point decrease in rates would cause a decrease in net interest income of $1.3 million over a twelve-month period. This simulation is based on management's assumption as to the effect of interest rate changes on assets and liabilities and assumes a parallel shift of the yield curve. It also includes certain assumptions about the future pricing of loans and deposits in response to changes in interest rates. Further, it assumes that delinquency rates would not change as a result of changes in interest rates although there can be no assurance that this will be the case. While this simulation is a useful measure of the Company's sensitivity to changing rates, it is not a forecast of the future results and is based on many assumptions that if changed, could cause a different outcome. In addition, a change in U.S. Treasury rates in the designated amounts accompanied by a change - 18 - in the shape of the Treasury yield curve would cause significantly different changes to net interest income than indicated above. At September 30, 2002, the Company was not engaged in trading activities. The Company enters into interest rate swap agreements to manage its exposure to changes in interest rates and to convert the fixed rate on certain brokered certificates of deposit to a floating rate in order to more closely match interest rate sensitivity between selected assets and liabilities. The Company does not use derivative financial instruments for speculative purposes. As is customary for these types of instruments, the Company does not require collateral or other security from other parties to these instruments. By their nature all such instruments involve risk, including the credit risk of nonperformance by counterparties. However, at September 30, 2002, in management's opinion there was no significant risk of loss in the event of nonperformance of the counterparties to these financial instruments. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-14(c) and 15a-14(c)) as of a date within 90 days before the filing date of this quarterly report. Based on that evaluation, the Chief Executive Officer and the Chief Financial officer have concluded that our current disclosure controls and procedures are effective in providing them with material information required to be disclosed in reports filed by the Company under the Exchange Act. Changes In Internal Controls. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of this evaluation. Part II. Other Information Item 1. Legal Proceedings No disclosure required. Item 2. Changes in Securities No disclosure required. Item 3. Defaults Upon Senior Securities No disclosure required. Item 4. Submission of Matters to a Vote of Security Holders No disclosure required. Item 5. Other Information No disclosure required. - 19 - Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 99.1 Certifying Statement of the Chief Executive Officer pursuant to Section 1350 of Title 18 of the United States Code 99.2 Certifying Statement of the Chief Financial Officer pursuant to Section 1350 of Title 18 of the United States Code (b) Reports on Form 8-K. No report on Form 8-K was filed during the quarter ended September 30, 2002. - 20 - SIGNATURES ---------- Pursuant to 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. Florida Banks, Inc. Date: November 12, 2002 By: /s/ Charles E. Hughes, Jr. -------------------------- Charles E. Hughes, Jr. President and Chief Executive Officer Date: November 12, 2002 By: /s/ T. Edwin Stinson, Jr. ------------------------- T. Edwin Stinson, Jr. Chief Financial Officer - 21 - Certification by the Chief Executive Officer pursuant to Sarbanes-Oxley Section 302(a): I, Charles E. Hughes, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Florida Banks, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 By: /s/ Charles E. Hughes, Jr. ----------------------------------------- Charles E. Hughes, Jr. President and Chief Executive Officer - 22 - Certification by the Chief Financial Officer pursuant to Sarbanes-Oxley Section 302(a): I, T. Edwin Stinson, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Florida Banks, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 By: /s/ T. Edwin Stinson, Jr. --------------------------- T. Edwin Stinson, Jr. Chief Financial Officer - 23 - EX-99 3 ex991.txt EXHIBIT 99.1- CEO - CHARLES E. HUGHES, JR. Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-Q of Florida Banks, Inc. (the "Company") for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Form 10-Q"), I, Charles E. Hughes, Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange act of 1934; and (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 12, 2002 By: /s/ Charles E. Hughes, Jr. ----------------------------------------- Charles E. Hughes, Jr. President and Chief Executive Officer EX-99 4 ex992.txt EXHIBIT 99.2-CFO - T. EDWIN STINSON, JR. Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-Q of Florida Banks, Inc. (the "Company") for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Form 10-Q"), I, T. Edwin Stinson, Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange act of 1934; and (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 12, 2002 By: /s/ T. Edwin Stinson, Jr. --------------------------- T. Edwin Stinson, Jr. Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----