10-K/A 1 form10ka.txt AMENDMENT TO 10K FILING ON 3-28-2003 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-K/A --------------------- Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 2002 ------------------------------ Commission File No. 0-24683 FLORIDA BANKS, INC. A Florida corporation (IRS Employer Identification No. 58-2364573) 5210 Belfort Road Suite 310, Concourse II Jacksonville, Florida 32256 (904) 332-7770 Securities Registered Pursuant to Section 12(b) of the Securities Exchange Act of 1934: None Securities Registered Pursuant to Section 12(g) of the Securities Exchange Act of 1934: Common Stock, $.01 par value 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes No X ------ ------ The aggregate market value of the common stock of the registrant held by nonaffiliates of the registrant (5,903,489 shares) on June 28, 2002 was approximately $48,703,784, based on the closing price of the registrant's common stock as reported on the NASDAQ National Market on June 28, 2002. For the purposes of this response, officers, directors and holders of 5% or more of the registrant's common stock are considered the affiliates of the registrant at that date. As of February 26, 2003, there were 6,783,603 shares of $.01 par value common stock issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Portions of the registrant's definitive proxy statement to be delivered to shareholders in connection with the 2002 Annual Meeting of Shareholders scheduled to be held on May 22, 2003 are incorporated by reference in response to Part III of this Report. EXPLANATORY NOTE This Amendment on Form 10-K/A to the Florida Banks, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2002 is being filed solely for the purpose of including page 7, which was unintentionally omitted in the original filing of the Financial Statements required by Part III, Item 8. PART III Item 8. Financial Statements and Supplementary Data The following financial statements are filed with this report:
Consolidated Balance Sheets - December 31, 2002 and 2001 ................... 4 Consolidated Statements of Operations - Years ended December 31, 2002, 2001 and 2000 .............................................................. 5 Consolidated Statements of Shareholders' Equity - Years ended December 31, 2002, 2001 and 2000 .................................................... 6 Consolidated Statements of Cash Flows - Years ended December 31, 2002, 2001 and 2000 .............................................................. 7 Notes to Consolidated Financial Statements ................................. 8
The following exhibit is filed with this report: 23.1 Consent of Deloitte & Touche LLP(7) ---------- (7) Filed herewith. 2 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders of Florida Banks, Inc. Jacksonville, Florida We have audited the accompanying consolidated balance sheets of Florida Banks, Inc. and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Florida Banks, Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP Jacksonville, Florida February 28, 2003 3 FLORIDA BANKS, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2002 and 2001 ------------------------------------------------------------------------------------------------------------------------------------ 2002 2001 ASSETS CASH AND CASH EQUIVALENTS: Cash and due from banks $ 26,964,504 $ 19,332,159 Federal funds sold and repurchase agreements 62,515,000 54,657,000 ------------- ------------- Total cash and cash equivalents 89,479,504 73,989,159 INVESTMENT SECURITIES: Available for sale, at fair value (cost $50,155,158 and $33,562,507 at December 31, 2002 and 2001) 50,930,650 33,954,045 Held to maturity (fair value $229,475 and $2,934,245 at December 31, 2002 and 2001) 227,925 2,867,163 Other investments 2,493,350 2,064,550 ------------- ------------- Total investment securities 53,651,925 38,885,758 MORTGAGE LOANS HELD FOR SALE 54,674,248 LOANS, net of allowance for loan losses of $7,263,029 and $4,692,216 at December 31, 2002 and 2001 543,192,040 396,751,695 PREMISES AND EQUIPMENT, NET 5,466,332 3,361,882 ACCRUED INTEREST RECEIVABLE 2,375,102 1,722,746 DEFERRED INCOME TAXES, NET 3,908,751 4,016,786 DERIVATIVE INSTRUMENTS 2,321,643 279,784 OTHER REAL ESTATE OWNED 652,500 2,777,827 OTHER ASSETS 343,505 537,588 ------------- ------------- TOTAL ASSETS $ 756,065,550 $ 522,323,225 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY DEPOSITS: Noninterest-bearing $ 141,395,150 $ 99,899,425 Interest-bearing 523,514,558 351,349,850 ------------- ------------- Total deposits 664,909,708 451,249,275 REPURCHASE AGREEMENTS 4,653,878 4,495,547 OTHER BORROWED FUNDS 9,921,898 9,714,692 ACCRUED INTEREST PAYABLE 2,377,963 2,863,882 ACCOUNTS PAYABLE AND ACCRUED EXPENSES 4,765,136 2,038,795 ------------- ------------- Total liabilities 686,628,583 470,362,191 ------------- ------------- COMPANY OBLIGATED MANDITORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS 16,473,092 5,819,000 ------------- ------------- COMMITMENTS (NOTE 9) SHAREHOLDERS' EQUITY: Series B preferred stock, $68.00 par value, 110,000 shares authorized, 102,283 shares issued and outstanding at December 31, 2001 6,955,244 Series C preferred stock, $100.00 par value, 50,000 shares authorized, 50,000 shares issued and outstanding at December 31, 2002 5,000,000 Common stock, $.01 par value; 30,000,000 shares authorized 6,768,362 and 5,677,660 shares issued, respectively 67,684 56,777 Additional paid-in capital 52,287,390 44,964,967 Accumulated deficit (deficit of $8,134,037 eliminated upon quasi-reorganization on December 31, 1995) (4,874,873) (6,079,156) Accumulated other comprehensive income, net of tax 483,674 244,202 ------------- ------------- Total shareholders' equity 52,963,875 46,142,034 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 756,065,550 $ 522,323,225 ============= =============
See notes to consolidated financial statements. 4 FLORIDA BANKS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 ------------------------------------------------------------------------------------------------------------------------------------ 2002 2001 2000 ------------ ------------ ------------- INTEREST INCOME: Loans, including fees $ 31,852,739 $ 27,692,486 $ 20,072,894 Investment securities 2,239,454 2,653,164 2,477,179 Federal funds sold 582,723 819,741 1,215,804 Repurchase agreements 252,245 214,787 219 ------------ ------------ ------------ Total interest income 34,927,161 31,380,178 23,766,096 ------------ ------------ ------------ INTEREST EXPENSE: Deposits 14,622,492 14,948,191 12,393,304 Repurchase agreements 501,638 1,204,752 903,794 Borrowed funds 460,027 395,131 413,938 ------------ ------------ ------------ Total interest expense 15,584,157 16,548,074 13,711,036 ------------ ------------ ------------ NET INTEREST INCOME 19,343,004 14,832,104 10,055,060 PROVISION FOR LOAN LOSSES 3,025,775 1,889,079 1,912,380 ------------ ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 16,317,229 12,943,025 8,142,680 ------------ ------------ ------------ NONINTEREST INCOME: Service fees 1,718,888 1,224,020 705,584 Gain on sale of mortgage loans 1,092,911 Gain on sale of commercial loans 42,888 104,151 Mortgage loan origination fees 805,264 234,810 55,807 (Loss) gain on sale of available for sale investment securities (3,967) 73,976 9,864 Other noninterest income 383,775 411,046 239,928 ------------ ------------ ------------ 4,039,759 2,048,003 1,011,183 ------------ ------------ ------------ NONINTEREST EXPENSES: Salaries and benefits 11,037,925 8,761,416 6,813,011 Occupancy and equipment 2,105,683 1,785,996 1,527,775 Data processing 872,630 677,963 456,972 Dividends on preferred security of subsidiary trust 633,580 12,995 Other 3,354,991 2,454,819 2,087,962 ------------ ------------ ------------ 18,004,809 13,693,189 10,885,720 ------------ ------------ ------------ INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES 2,352,179 1,297,839 (1,731,857) PROVISION (BENEFIT) FOR INCOME TAXES 885,121 489,400 (651,704) ------------ ------------ ------------ NET INCOME (LOSS) 1,467,058 808,439 (1,080,153) PREFERRED STOCK DIVIDENDS (140,058) (250,091) ------------ ------------ ------------ NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 1,327,000 $ 558,348 $ (1,080,153) ============ ============ ============ EARNINGS (LOSS) PER COMMON SHARE: Basic $ 0.21 $ 0.10 $ (0.19) ============ ============ ============ Diluted $ 0.20 $ 0.10 $ (0.19) ============ ============ ============
See notes to consolidated financial statements. 5 FLORIDA BANKS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 ------------------------------------------------------------------------------------------------------------------------------------ Preferred Stock Common Stock Additional --------------------- ------------------- Paid-In Shares Par Value Shares Par Value Capital BALANCE, JANUARY 1, 2000 5,718,656 $57,187 $45,526,443 Comprehensive loss: Net loss Unrealized gain on available for sale investment securities, net of tax of $411,821 Comprehensive loss Issuance of common stock under employee stock purchase plan 75,995 760 366,393 Purchase and retirement of common stock (106,000) (1,060) (646,932) ------- ---------- --------- ------- ----------- BALANCE, DECEMBER 31, 2000 5,688,651 56,887 45,245,904 Comprehensive income: Net income Unrealized gain on available for sale investment securities, net of tax of $138,968 Comprehensive income Issuance of common stock under employee stock purchase plan 50,109 501 226,587 Issuance of Series B preferred stock, net 102,283 $6,955,244 (148,774) Series B preferred stock cash dividend paid Purchase and retirement of common stock (61,100) (611) (358,750) ------- ---------- --------- ------- ----------- BALANCE, DECEMBER 31, 2001 102,283 6,955,244 5,677,660 56,777 44,964,967 Comprehensive income: Net income Unrealized gain on available for sale investment securities, net of tax of $144,482 Comprehensive income Conversion of Series B preferred stock into common stock (102,283) (6,955,244) 1,022,830 10,228 6,945,016 Exercise of stock options 7,063 71 46,401 Issuance of common stock under employee stock purchase plan 41,133 411 210,359 Issuance of restricted stock 19,676 197 120,647 Issuance of Series C preferred stock, net 50,000 5,000,000 Series B preferred stock dividend paid ------- ---------- --------- ------- ----------- BALANCE, DECEMBER 31, 2002 50,000 $5,000,000 6,768,362 $67,684 $52,287,390 Accumulated Other Comprehensive Accumulated Income (Loss), Deficit Net of Tax Total BALANCE, JANUARY 1, 2000 $(5,680,069) $(668,706) $39,234,855 Comprehensive loss: Net loss (1,080,153) (1,080,153) Unrealized gain on available for sale investment securities, net of tax of $411,821 682,576 682,576 ----------- Comprehensive loss (397,577) Issuance of common stock under employee stock purchase plan 367,153 Purchase and retirement of common stock (647,992) ----------- --------- ----------- BALANCE, DECEMBER 31, 2000 (6,760,222) 13,870 38,556,439 Comprehensive income: Net income 808,439 808,439 Unrealized gain on available for sale investment securities, net of tax of $138,968 230,332 230,332 ----------- Comprehensive income 1,038,771 Issuance of common stock under employee stock purchase plan 227,088 Issuance of Series B preferred stock, net 6,806,470 Series B preferred stock cash dividend paid (127,373) (127,373) Purchase and retirement of common stock (359,361) ----------- --------- ----------- BALANCE, DECEMBER 31, 2001 (6,079,156) 244,202 46,142,034 Comprehensive income: Net income 1,467,058 1,467,058 Unrealized gain on available for sale investment securities, net of tax of $144,482 239,472 239,472 ----------- Comprehensive income 1,706,530 Conversion of Series B preferred stock into common stock Exercise of stock options 46,472 Issuance of common stock under employee stock purchase plan 210,770 Issuance of restricted stock 120,844 Issuance of Series C preferred stock, net 5,000,000 Series B preferred stock dividend paid (262,775) (262,775) ----------- --------- ----------- BALANCE, DECEMBER 31, 2002 $(4,874,873) $ 483,674 $52,963,875 =========== ========= ===========
See notes to consolidated financial statements. 6 FLORIDA BANKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 ---------------------------------------------------------------------------------------------------------------------------- 2002 2001 2000 -------------- -------------- -------------- OPERATING ACTIVITIES: Net income (loss) $ 1,467,058 $ 808,439 $ (1,080,153) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 863,886 756,426 647,891 Restricted stock grants 120,844 Loss on disposition of furniture and equipment 17,628 15,468 Deferred income tax (benefit) expense (36,447) 449,400 (651,704) Loss (gain) on sale of securities 3,967 (73,976) (9,864) Loss (gain) on sale of real estate owned 6,703 (24,928) (18,263) Loss on foreign currency translation 23,650 206,151 Loss (gain) on derivative instruments 43,258 (262,008) Amortization (accretion) of premiums (discount) on investments, net 131,708 (295,582) (196,934) Amortization of premiums on loans 123,055 196,651 112,308 Accretion of debt issuance costs 70,445 Provision for loan losses 3,025,775 1,889,079 1,912,380 Net increase in mortgage loans held for sale (54,674,248) (Increase) decrease in accrued interest receivable (652,356) 174,557 (876,128) Decrease (increase) in other assets 194,083 (2,180) (328,023) (Decrease) increase in accrued interest payable (485,919) 657,503 1,589,830 Increase (decrease) in accounts payable and accrued expenses 2,726,341 1,279,801 (167,948) ------------- ------------- ------------- Net cash (used in) provided by operating activities (47,048,197) 5,776,961 948,860 ------------- ------------- ------------- INVESTING ACTIVITIES: Proceeds from sales, paydowns and maturities of investment securities: Available for sale 27,068,362 15,808,333 12,261,314 Held to maturity 2,700,791 4,154,215 1,082,529 Purchases of investment securities: Available for sale (43,858,241) (17,193,780) (15,560,354) Held to maturity (3,361,015) (4,362,796) Other (428,800) (798,550) (364,200) Net increase in loans held for investment (150,265,325) (119,896,460) (129,226,819) Purchases of premises and equipment (2,968,336) (839,608) (1,522,711) Proceeds from the sale of premises and equipment 3,841 Proceeds from the sale of real estate owned 2,771,124 114,928 864,263 ------------- ------------- ------------- Net cash used in investing activities (164,980,425) (122,008,096) (136,828,774) ------------- ------------- ------------- FINANCING ACTIVITIES: Net increase in demand deposits, money market accounts and savings accounts 91,014,976 86,829,039 29,713,892 Net increase in time deposits 120,771,110 59,390,096 116,787,033 Proceeds from issuance of preferred stock, net 5,000,000 6,806,470 Proceeds from issuance of trust preferred securities, net 10,583,647 5,819,000 Exercise of stock options 46,472 Purchase of treasury stock (359,361) (647,992) Preferred dividends paid (262,775) (127,373) Proceeds from FHLB advances 10,000,000 9,500,000 5,000,000 Repayment of FHLB advances (10,000,000) (7,000,000) (5,000,000) Increase (decrease) in repurchase agreements 158,331 (14,316,831) 7,775,267 Increase (decrease) in other borrowed funds 207,206 (8,710) (18,950) ------------- ------------- ------------- Net cash provided by financing activities 227,518,967 146,532,330 153,609,250 ------------- ------------- ------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 15,490,345 30,301,195 17,729,336 CASH AND CASH EQUIVALENTS: Beginning of year 73,989,159 43,687,964 25,958,628 ------------- ------------- ------------- End of year $ 89,479,504 $ 73,989,159 $ 43,687,964 ============= ============= =============
See notes to consolidated financial statements. 7 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 -------------------------------------------------------------------------------- l. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Florida Banks, Inc. (the "Company") was incorporated on October 15, 1997 for the purpose of becoming a bank holding company and acquiring 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 consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. The following summarizes these policies and practices: Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the allowance for loan losses and the valuation of other real estate owned, deferred tax assets and embedded derivative instruments. Cash and Cash Equivalents - Cash and cash equivalents include cash and due from banks, Federal funds sold and repurchase agreements all of which mature within ninety days. Generally, Federal funds and repurchase agreements are sold for one day periods. Investment Securities - Debt securities for which the Company has the positive intent and ability to hold to maturity are classified as held to maturity and reported at amortized cost. Securities are classified as trading securities if bought and held principally for the purpose of selling them in the near future. No investments are held for trading purposes. Securities not classified as held to maturity are classified as available for sale, and reported at fair value with unrealized gains and losses excluded from earnings and reported net of tax as a separate component of other comprehensive income or loss until realized. Other investments, which include Federal Reserve Bank stock and Federal Home Loan Bank stock, are carried at cost as such investments are not readily marketable. Realized gains and losses on sales of investment securities are recognized in the statements of operations upon disposition based upon the adjusted cost of the specific security. Declines in value of investment securities judged to be other than temporary are recognized as losses in the statements of operations. Loans Held for Investment - Loans held for investment are stated at the principal amount outstanding, net of unearned income and an allowance for loan losses. Interest income on all loans is accrued based on the outstanding daily balances. 8 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- Management has established a policy to discontinue accruing interest (nonaccrual status) on a loan after it has become 90 days delinquent as to payment of principal or interest unless the loan is considered to be well collateralized and the Company is actively in the process of collection. In addition, a loan will be placed on nonaccrual status before it becomes 90 days delinquent if management believes that the borrower's financial condition is such that collection of interest or principal is doubtful. Interest previously accrued but uncollected on such loans is reversed and charged against current income when the loan is estimated to be uncollectible. Interest income on nonaccrual loans is recognized only as received. Nonrefundable fees and certain direct costs associated with originating or acquiring loans are recognized over the life of the related loans on the interest method. Mortgage Loans Held for Sale - Mortgage loans held for sale are residential mortgage loans originated by the Company which management either intends to sell at some point in the future or which are committed to be sold to various institutions under agreements obtained at the time the Company extends commitments to borrowers. Mortgage loans held for sale are reported at the lower of cost or estimated fair value, determined on an aggregate basis. Commitments to Originate Mortgage Loans - The Company enters into commitments to originate mortgage loans whereby the interest rate on the loans is determined prior to funding (rate lock commitments). Rate lock commitments on loans that are intended to be sold are considered to be derivatives and are therefore, recorded at fair value with changes in fair value recorded in earnings. The fair value of these commitments is included in mortgage loans held for sale. Allowance for Loan Losses - The determination of the balance in the allowance for loan losses is based on an analysis of the loan portfolio and reflects an amount which, in management's judgment, is adequate to provide for probable loan losses after giving consideration to the growth and composition of the loan portfolio, current economic conditions, past loss experience, evaluation of probable losses in the current loan portfolio and such other factors that warrant current recognition in estimating loan losses. Loans which are considered to be uncollectible are charged-off against the allowance. Recoveries on loans previously charged-off are added to the allowance. Impaired loans are loans for which it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impairment losses are included in the allowance for loan losses through a charge to the provision for loan losses. Impairment losses are measured by the present value of expected future cash flows discounted at the loan's effective interest rate, or, as a practical expedient, at either the loan's observable market price or the fair value of the collateral. Interest income on impaired loans is recognized only as received. Large groups of smaller balance homogeneous loans (consumer loans) are collectively evaluated for impairment. Commercial loans and larger balance real estate and other loans are individually evaluated for impairment. Premises and Equipment - Premises and equipment are stated at cost less accumulated depreciation computed on the straight-line method over the estimated useful lives of 3 to 20 years. Leasehold improvements are 9 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- amortized on the straight-line method over the shorter of their estimated useful life or the period the Company expects to occupy the related leased space. Maintenance and repairs are charged to operations as incurred. Income Taxes - Deferred tax liabilities are recognized for temporary differences that will result in amounts taxable in the future and deferred tax assets are recognized for temporary differences and tax benefit carryforwards that will result in amounts deductible or creditable in the future. Net deferred tax liabilities or assets are recognized through charges or credits to the deferred tax provision. A deferred tax valuation allowance is established if it is more likely than not that all or a portion of the deferred tax assets will not be realized. Subsequent to the Company's quasi-reorganization (see Note 18) reductions in the deferred tax valuation allowance are credited to additional paid-in capital. Derivative Instruments - As part of the its asset/liability management policy, the Company uses derivatives to manage interest and foreign currency exchange rate exposures by modifying the characteristics of the related balance sheet instruments. In accordance with Statement of Financial Accounting Standard ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, derivatives are carried at fair value. The accounting for changes in the fair value (that is, gains or losses) of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason for holding it. If the derivative is designated as a fair-value hedge, the changes in the fair value of the derivative and the hedged items are recognized in earnings. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded to other comprehensive income and are recognized in the statement of operations when the hedged item affects earnings. See Note 5 for additional information regarding derivative instruments. Other Real Estate Owned - Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets. Repurchase Agreements - Repurchase agreements consist of agreements with customers to pay interest daily on funds swept into a repo account based on a rate of .75% to 1.00% below the Federal funds rate. Such agreements generally mature within one to four days from the transaction date. In addition, the Company has securities sold under agreements to repurchase, which are classified as secured borrowings. Such borrowings generally mature within one to thirty days from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the transaction. Information concerning repurchase agreements for the years ended December 31, 2002 and 2001 is summarized as follows: 2002 2001 Average balance during the year $ 37,725,667 $ 33,568,040 Average interest rate during the year 1.33% 3.59% Maximum month-end balance during the year $ 49,542,093 $ 44,576,894
10 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- Other Borrowed Funds - Other borrowed funds consist of Federal Home Loan Bank borrowings and treasury tax and loan deposits. Treasury tax and loan deposits generally are repaid within one to 120 days from the transaction date. Stock Options - The Company has elected to account for its stock options under the intrinsic value based method with pro forma disclosures of net earnings and earnings per share, as if the fair value based method of accounting defined in SFAS No. 123 Accounting for Stock Based Compensation, had been applied. Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at the grant date or other measurement date over the amount an employee must pay to acquire the stock. Under the fair value based method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. Comprehensive Income - Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items along with net income, are components of comprehensive income. The components of other comprehensive income and related tax effects are presented in the consolidated statements of shareholders' equity. Transfers of Financial Assets - Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Earnings Per Common Share - Basic earnings per common share ("EPS") excludes dilution and is computed by dividing earnings applicable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects additional common shares that would have been issued, as well as any adjustment to income that would result form the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and convertible preferred stock. The potential common shares are determined using the treasury stock method for outstanding stock options and the if-converted method for preferred stock.. Recent Accounting Pronouncements - In April 2002, the Financial Accounting Standards Board ("FASB") 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 11 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- changed conditions. The provisions of this Statement related to the rescission of SFAS No. 4 shall be applied in fiscal years beginning after May 15, 2002, with early application encouraged. The provisions in paragraphs 8 and 9(c) of this Statement related to SFAS No. 13 shall be effective for transactions occurring after May 15, 2002, with early application encouraged. The Company adopted the Statement effective January 1, 2003 and it did not have a material impact on the Company's consolidated financial position and consolidated results of operations. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This Statement nullifies Emerging Issues Task Force ("EITF") No. 94-3 and requires that a liability for costs associated with an exit or disposal activity be recognized only when the liability is incurred. SFAS No. 146 is effective for exit and disposal activities that are initiated after December 31, 2002. The Company adopted the Statement effective January 1, 2003 and does not expect it to have a material impact on the Company's consolidated financial position and consolidated results of operations. In October, 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial Institutions, which removes acquisitions of financial institutions from the scope of both SFAS No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, and Interpretation 9, Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or a Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method, and requires that those transactions be accounted for in accordance with SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, except for transactions between two or more mutual enterprises. In addition, this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that SFAS No. 144 requires for other long-lived assets that are held and used. The Company adopted the Statement effective October 1, 2002. Adoption did not have an impact on the Company's consolidated financial position and consolidated results of operations. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation -Transition and Disclosure. This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation, and provides alternative methods and transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements in both annual and interim financial statements related to the methods of accounting for stock-based employee compensation and the effect of the method on reported results. The Statement also prohibits the use of the prospective method of transition, as outlined in SFAS No. 123, if options are to be expensed when charging to the fair value based method in fiscal years beginning after December 15, 2003. The Company adopted the disclosure requirements of SFAS No. 148 on December 31, 2002. In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others. This Interpretation addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. In addition, the Interpretation clarifies the requirements related to the 12 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- recognition of a liability by a guarantor at the inception of a guarantee for the obligations that the guarantor has undertaken in issuing the guarantee. The Company adopted the disclosure requirements of FIN 45 for the fiscal year ended December 31, 2002, and the recognition provisions on January 1, 2003. In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities. This Interpretation applies to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise held a variable interest that is acquired on or before January 31, 2003. The Company will adopt the Interpretation as of July 31, 2003, however since it does not have any variable interests, or situations with majority interests, there will be no impact on its consolidated financial position and consolidated results of operations. Reclassifications - Certain reclassifications have been made to the 2001 and 2000 consolidated financial statements to conform with the presentation adopted in 2002. 2. INVESTMENT SECURITIES The amortized cost and estimated fair value of available for sale and held to maturity investment securities as of December 31, 2002 and 2001 are as follows: Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value December 31, 2002 Available for sale: U.S. Treasury securities and other U.S. agency obligations $ 6,721,835 $ 52,718 $ 6,774,553 ----------- ----------- ----------- ----------- State and municipal 990,000 60,527 1,050,527 Mortgage-backed securities 37,263,079 660,553 $ (10,571) 37,913,061 ----------- ----------- ----------- ----------- Total debt securities 44,974,914 773,798 (10,571) 45,738,141 Mutual funds 5,180,244 12,265 5,192,509 ----------- ----------- ----------- ----------- Total securities available $50,155,158 $ 786,063 $ (10,571) $50,930,650 =========== =========== =========== =========== for sale Held to maturity: Mortgage-backed securities $ 227,925 $ 1,550 $ $ 229,475 =========== =========== =========== ===========
13 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value December 31, 2001 Available for sale: U.S. Treasury securities and other U.S. agency obligations $ 840,341 $ 17,615 $ 857,956 State and municipal 1,285,000 63,230 1,348,230 Mortgage-backed securities 28,409,558 445,563 $ (134,870) 28,720,251 ----------- ----------- ----------- ----------- Total debt securities 30,534,899 526,408 (134,870) 30,926,437 Mutual funds 3,027,608 3,027,608 ----------- ----------- ----------- ----------- Total securities available $33,562,507 $ 526,408 $ (134,870) $33,954,045 =========== =========== =========== =========== for sale Held to maturity: U.S. Treasury securities and other U.S. agency obligations $ 1,861,974 $ 35,991 $ (1,320) $ 1,896,645 Mortgage-backed securities 1,005,189 32,411 1,037,600 ----------- ----------- ----------- ----------- $ 2,867,163 $ 68,402 $ (1,320) $ 2,934,245 =========== =========== =========== ===========
Expected maturities of debt securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. The amortized cost and estimated fair value of debt securities, at December 31, 2002, by contractual maturity, are shown below: Available for Sale Held to Maturity ------------------------------ ------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value Due before one year $ 500,000 $ 502,350 Due after one year through five years 3,354,225 3,411,635 Due after five years through ten years 3,587,610 3,635,060 Due after ten years 270,000 276,035 ----------- ----------- ----------- ----------- 7,711,835 7,825,080 Mortgage-backed securities 37,263,079 37,913,061 $ 227,925 $ 229,475 ----------- ----------- ----------- ----------- Total $44,974,914 $45,738,141 $ 227,925 $ 229,475 =========== =========== =========== ===========
Investment securities with a carrying value of $41,259,412 and $27,335,655 were pledged as security for certain borrowed funds and public deposits held by the Company at December 31, 2002 and 2001, respectively. 14 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- 3. LOANS Loans at December 31, are summarized as follows: 2002 2001 Commercial real estate $ 313,120,588 $ 210,373,284 Commercial 166,122,230 142,910,691 Residential mortgage 23,080,140 22,308,820 Consumer 45,859,704 23,158,053 Credit card and other loans 2,791,678 2,911,884 ------------- ------------- Total loans 550,974,340 401,662,732 Allowance for loan losses (7,263,029) (4,692,216) Net deferred loan fees (519,271) (218,821) ------------- ------------- Net loans $ 543,192,040 $ 396,751,695 ============= ============= Changes in the allowance for loan losses are summarized as follows: 2002 2001 Balance, beginning of year $ 4,692,216 $ 3,510,677 Provision for loan losses 3,025,775 1,889,079 Charge-offs (485,950) (827,784) Recoveries 30,988 120,244 ----------- ----------- Balance, end of year $ 7,263,029 $ 4,692,216 =========== =========== The Company's primary lending area is the state of Florida. Although the Company's loan portfolio is diversified, a significant portion of its loans are collateralized by real estate. Therefore, the Company could be susceptible to economic downturns and natural disasters. It is the Company's lending policy to collateralize real estate loans based upon certain loan to appraised value ratios. Nonaccrual loans totaled approximately $1,535,000 and $1,090,000 of which approximately $151,000 and $681,000 is guaranteed by the Small Business Administration ("SBA") at December 31, 2002 and 2001, respectively. The effects of carrying nonaccrual loans during 2002, 2001, and 2000 resulted in a reduction of interest income of approximately $67,000, $147,000, and $151,000, respectively. 15 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- The following is a summary of information pertaining to impaired loans: December 31, 2002 2001 ---------- ---------- (approximately) Impaired loans with a valuation allowance $1,415,000 $1,184,000 Impaired loans without a valuation allowance ---------- ---------- Total impaired loans $1,415,000 $1,184,000 ========== ========== Valuation allowance related to impaired loans $ 690,000 $ 295,000 Years ended December 31, 2002 2001 2000 ---------- ---------- ---------- (approximately) Average investment in impaired loans $1,300,000 $1,065,000 $3,230,000 ========== ========== ========== The interest income recognized on impaired loans for the years ended December 31, 2002, 2001 and 2000 was not significant. No additional funds are committed to be advanced in connection with impaired loans. At December 31, 2002 and 2001, restructured loans amounted to approximately $3,124,000 and $1,095,000, respectively. There were no restructured loans at December 31, 2000. No additional funds are committed to be advanced in connection with restructured loans. 4. PREMISES AND EQUIPMENT Major classifications of these assets are as follows: 2002 2001 Land $ 2,009,387 $ 95,000 Buildings 660,315 660,315 Leasehold improvements 1,014,555 956,465 Furniture, fixtures and equipment 4,736,652 3,756,657 ----------- ----------- 8,420,909 5,468,437 Accumulated depreciation and amortization (2,954,577) (2,106,555) ----------- ----------- $ 5,466,332 $ 3,361,882 =========== =========== Depreciation and amortization amounted to $863,886, $756,426 and $647,891 for the years ended December 31, 2002, 2001 and 2000, respectively. 16 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- 5. DERIVATIVE INSTRUMENTS The following instruments qualify as derivatives as defined by SFAS No. 133: December 31, 2002 ------------------------------- Contract/National Fair Amount Value Interest rate swap agreements $85,500,000 $ 2,308,044 Foreign currency swap agreements 2,000,000 12,599 Commitments to fund mortgage loans 49,733,296 356,210 Interest rate swap agreements consist of numerous 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. 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 a loss of approximately $67,000 and a gain of approximately $6,000 for the years ended December 31, 2002 and 2001, respectively, as a result of changes in the fair value of the foreign currency agreement. The Company has adopted the provisions of the Derivatives Implementation Group, Implementation Issue C13, When a Loan Commitment is Included in the Scope of Statement No. 133 ("DIG C13"). DIG C13 requires that loan commitments that relate to the origination or acquisition of mortgage loans that will be held for resale must be accounted for as derivative instruments in accordance with SFAS No. 133. The fair value of commitments to fund mortgage loans is included in mortgage loans held for sale. 6. INCOME TAXES The components of the provision (benefit) for income tax expenses for the years ended December 31, 2002, 2001 and 2000 are as follows: 2002 2001 2000 Current tax expense $ 921,568 $ 40,000 Deferred tax (benefit) provision (36,447) 449,400 $(651,704) --------- --------- --------- $ 885,121 $ 489,400 $(651,704) ========= ========= ========= 17 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- Income taxes for the years ended December 31, 2002, 2001 and 2000, differ from the amount computed by applying the federal statutory corporate rate to earnings before income taxes as summarized below: 2002 2001 2000 Provision (benefit) based on Federal income tax rate $ 799,741 $ 441,265 $(588,831) State income taxes net of Federal benefit 85,384 49,731 (66,362) Other (4) (1,596) 3,489 --------- --------- --------- $ 885,121 $ 489,400 $(651,704) ========= ========= =========
The components of net deferred income taxes at December 31, 2002 and 2001 are as follows: 2002 2001 Deferred income tax assets: Net operating loss carryforwards $1,728,963 $2,672,891 Allowance for loan losses 2,473,645 1,477,424 Loan fees 195,402 84,549 AMT credits 52,530 Cash to accrual adjustment 37,586 77,950 Other 183 ---------- ---------- 4,435,779 4,365,344 ---------- ---------- Deferred income tax liabilities: Accumulated depreciation 150,108 116,121 Unrealized gain on investment securities 291,818 147,335 Other 85,102 85,102 ---------- ---------- 527,028 348,558 ---------- ---------- Deferred income tax assets, net $3,908,751 $4,016,786 ========== ==========
At December 31, 2002 and 2001, the Company had tax net operating loss carryforwards of approximately $4,595,000 and $7,098,000, respectively. Such carryforwards expire as follows: $321,000 in 2006, $1,919,000 in 2007, $1,620,000 in 2008, $92,000 in 2009, and $643,000 in 2018. A change in ownership on August 4, 1998, as defined in section 382 of the Internal Revenue Code, limits the amount of net operating loss carryforwards utilized each year to approximately $700,000. Unused limitations from each year accumulate in successive years. At December 31, 2002 and 2001, the Company assessed its earnings history and trends over the past three years, its estimate of future earnings, and the expiration dates of the loss carryforwards and has determined that it is more likely than not that the deferred tax assets will be realized. Accordingly, no valuation allowance is recorded at December 31, 2002 and 2001. 18 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- 7. DEPOSITS Interest-bearing deposits at December 31, 2002 and 2001 are summarized as follows: 2002 2001 Interest-bearing demand $ 52,803,427 $ 19,164,133 Regular savings 66,940,672 64,338,080 Money market accounts 19,210,512 6,342,009 Time $100,000 and over 314,852,717 194,016,109 Other time 69,707,230 67,489,519 ------------ ------------ $523,514,558 $351,349,850 ============ ============ At December 31, 2002, the scheduled maturities of time deposits are as follows: 2003 $201,993,812 2004 51,372,387 2005 50,969,043 2006 8,940,130 2007 61,404,779 Thereafter 9,879,796 ------------ Total $384,559,947 ============ 8. OTHER BORROWED FUNDS Other borrowed funds at December 31, 2002 and 2001 are summarized as follows: 2002 2001 Treasury tax and loan deposits $2,421,898 $2,214,692 Federal Home Loan Bank advance, principal due upon maturity on July 6, 2010, subject to early termination; interest, due quarterly, is fixed at 5.90% 5,000,000 5,000,000 Federal Home Loan Bank advance, principal due upon maturity on September 14, 2011, subject to early termination; interest, due quarterly, is fixed at 4.80% 2,500,000 2,500,000 ---------- ---------- $9,921,898 $9,714,692 ========== ==========
Treasury tax and loan deposits are generally repaid within one to 120 days from the transaction date. The Federal Home Loan Bank of Atlanta has the option to convert the $2,500,000 advance outstanding at December 31, 2002 into a three-month LIBOR-based floating rate advance September 14, 2006, and any payment date thereafter with at least two business days prior notice to the Company. 19 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- If the Federal Home Loan Bank elects to convert the advance, then the Company may elect, with at least two business days prior written notice, to terminate in whole or part the transaction without payment of a termination amount on any subsequent payment date. The Company may elect to terminate the advance and pay a prepayment penalty, with two days prior written notice, if the Federal Home Loan Bank does not elect to convert this advance. The Federal Home Loan Bank advances are secured by certain mortgage loans receivable of approximately $91,776,000 at December 31, 2002. 9. COMMITMENTS Leases - The Company has entered into certain noncancellable operating leases and subleases for office space and office property. Lease terms are generally for five to twenty years, and in many cases, provide for renewal options. Rental expense for 2002, 2001 and 2000 was approximately $852,000, $705,000 and $659,000, respectively. Rental income for 2002, 2001 and 2000 was approximately $27,000, $45,000 and $55,000, respectively. Both rental expense and rental income are included in net occupancy and equipment expense in the accompanying consolidated statements of operations. The following is a schedule of future minimum lease payments and future minimum lease revenues under the sublease at December 31, 2002. Payments for Revenue Under Operating Leases Subleases 2003 $ 862,931 $ 22,650 2004 661,117 2005 410,271 2006 420,609 2007 316,953 Later years 1,179,717 ---------- ---------- $3,851,598 $ 22,650 ========== ========== Federal Reserve Requirement - The Federal Reserve Board requires that certain banks maintain reserves, based on their average deposits, in the form of vault cash and average deposit balances at a Federal Reserve Bank. The requirement as of December 31, 2002 and 2001 was approximately $8,946,000 and $2,750,000, respectively. Litigation - Various legal claims also arise from time to time in the normal course of business which, in the opinion of management, will not have a material effect on the Company's consolidated financial statements. 20 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- 10. SHAREHOLDERS' EQUITY Series B 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. Conversion Rights - Each share of preferred stock is convertible into ten shares of the Company's common stock at a price of $6.80 per share (subject to adjustment for stock splits, stock dividends, etc.). The preferred stock will be automatically converted to common stock upon the following events: 1) change in control; 2) if the average closing price of the Company's common stock for any 30 consecutive trading day period is at or above $8.00 per share; or 3) the consummation of an underwritten public offering at a price of $8.00 per share or greater of the Company's common stock. Dividends - Cumulative cash dividends accrue at seven percent annually and are payable quarterly in arrears. Liquidation Preference - In the event of any liquidation, dissolution or winding up of the affairs of the Company, the holders of Series B preferred stock at that time shall receive $68.00 per share plus an amount equal to accrued and unpaid dividends thereon through and including the date of distribution prior to any distribution to holders of common stock. The liquidation preference at December 31, 2001 was $7,077,962. 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 exceeding $8.00 for the period from March 4, 2002 through April 15, 2002. Series C Preferred Stock On December 31, 2002, the Company issued 50,000 shares of Series C preferred stock for $100.00 per share through a private placement. The Series C preferred stock is not convertible or redeemable except as a result of a change in control. Dividends - Non-cumulative cash dividends accrue at five percent annually and are payable quarterly in arrears. Liquidation Preference - In the event of any liquidation, dissolution or winding up of affairs of the Company, the holders of Series C preferred stock at the time shall receive $100.00 per share plus an amount equal to accrued and unpaid dividends thereon through and including the date of distribution prior to any distribution to holders of common stock. The liquidation preference at December 31, 2002 was $5,000,000. 21 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- The Company and shareholder have agreed that they will cooperate in filing an application with the Board of Governors of the Federal Reserve System seeking approval for an exchange of the Series C preferred shares for shares of a new series of preferred stock, which would be substantially similar to the Series C shares, except the new shares would be convertible into the Company's common stock at $10.00 per share. Warrants In 1998, in connection with the sale of common stock, warrants to purchase 80,800 shares of common stock at $10.00 per share were issued to accredited foreign investors. Such warrants have been valued at an aggregate price of approximately $165,000, or $2.04 per share, as determined by an independent appraisal and have been recorded as additional paid-in capital. The warrants are exercisable through February 3, 2008. Incentive Stock During 2001, the Company's Board of Directors approved the Amended and Restated Incentive Compensation Plan (the "Incentive Plan") for all full-time senior officers and other officers and employees so designated by the Chief Executive Officer. The amendments to this Plan permit the issuance of common stock to officers and employees as incentive awards. Previously, the incentive awards were paid in cash. The Company has reserved 300,000 shares of common stock for issuance pursuant to the Incentive Plan. Upon attainment of the required goals, the officer would be awarded shares in the Company based on a pre-established vesting schedule, currently a three-year period beginning one year after the grant date. In January 2002, the Company awarded 59,029 shares under the Incentive Plan at a weighted average grant price of $6.14 based upon the closing share price on the date of grant. Compensation expense included in earnings for 2002 is approximately $121,000. Stock Options On June 4, 1998, the Company adopted the 1998 Stock Option Plan (the "1998 Plan"), effective March 31, 1998, which provides for the grant of incentive or non-qualified stock options to certain directors, officers and key employees who participate in the plan. An aggregate of 1,000,000 shares of common stock are reserved for issuance pursuant to the 1998 Plan. During 2002, 2001 and 2000, the Company granted 94,900, 62,650 and 277,900 options, respectively, at various exercise prices based on the fair value of the stock at the time of grant. Pursuant to the disclosure requirements of SFAS No. 148, the following table provides an expanded reconciliation for all periods presented that adds back to reported net income the recorded expense under Accounting Principles Board Opinion ("APB") No. 25, net of related income tax effects, deducts the total fair value expense under SFAS No. 123, net of related income tax effects and shows the reported and pro forma earnings per share amounts. 22 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- 2002 2001 2000 Net income (loss) applicable to common shares As reported $ 1,327,000 $ 558,348 $ (1,080,153) Total stock-based employee compensation cost included in the determination of net income, net of related tax effects 75,370 Total stock-based employee compensation cost determined under fair value method for all awards, net of related tax effects (219,434) (243,347) (281,435) ------------- ----------- ------------- Pro forma net income (loss) applicable to common shares $ 1,182,936 $ 315,001 $ (1,361,588) ============= =========== ============= Earnings (loss) per share - Basic As reported $ 0.21 $ 0.10 $ (0.19) Pro forma 0.18 0.06 (0.24) Earnings (loss) per share - Dilutive As reported $ 0.20 $ 0.10 $ (0.19) Pro forma 0.18 0.06 (0.24)
Under SFAS No. 123, the fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for options granted in 2002, 2001 and 2000, respectively: dividend yield of 0%, expected volatility of 32.08%, 32.27% and 32.64%, risk-free interest rate of 3.48%, 4.57% and 6.44%, and an expected life of 3 years. A summary of the status of fixed stock option grants under the Company's stock-based compensation plans as of December 31, 2002, 2001 and 2000, and changes during the years ending on those dates is presented below: 2002 2001 2000 Weighted Average Weighted Average Weighted Average Options Exercise Price Options Exercise Price Options Exercise Price Outstanding - Beginning of year 850,348 $ 8.63 816,948 $ 8.76 561,848 $ 10.00 Granted 94,900 7.93 62,650 6.52 277,900 6.37 Cancelled (34,087) 9.09 (29,250) 7.73 (22,800) 10.00 Exercised (7,063) 6.58 -------- -------- -------- Outstanding - End of year 904,098 $ 8.68 850,348 $ 8.63 816,948 $ 8.76 ======== ======== ======== Options exercisable at year end 730,833 $ 8.84 652,291 $ 9.04 465,206 $ 9.39 Weighted average fair value of options granted during the year $ 2.07 $ 1.80 $ 1.94
23 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- The following table summarizes information related to stock options outstanding at December 31, 2002: Weighted Weighted Weighted Average Average Average Exercise Options Remaining Exercise Options Exercise Price Outstanding Life Price Exercisable Price ------------- --------------- --------------- ------------- --------------- ------------- $5.25 - 6.75 337,700 7.57 $ 6.75 234,790 $ 6.40 $7.98 - 10.00 566,398 6.10 $ 9.84 496,093 $ 10.00
11. RESTRICTION ON DIVIDENDS, LOANS AND ADVANCES Federal and State bank regulations place certain restrictions on dividends paid and loans or advances made by the Bank to the Company. The total amount of dividends which may be paid at any date is generally limited to the retained earnings of the Bank, and loans or advances are limited to 10 percent of the Bank's capital stock and surplus on a secured basis. At December 31, 2002, the Bank's retained earnings available for the payment of dividends was approximately $3,472,000. Accordingly, approximately $58,113,000 of the Company's equity in the net assets of the Bank was restricted at December 31, 2002. Funds available for loans or advances by the Bank to the Company amounted to approximately $5,771,000. In addition, dividends paid by the Bank to the Company would be prohibited if the effect thereof would cause the Bank's capital to be reduced below applicable minimum capital requirements. 12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Company originates financial instruments with off-balance sheet risk in the normal course of business, usually for a fee, primarily to meet the financing needs of its customers. The financial instruments include commitments to fund loans, letters of credit and unused lines of credit. These commitments involve varying degrees of credit risk, however, management does not anticipate losses upon the fulfillment of these commitments. At December 31, 2002, financial instruments having credit risk in excess of that reported in the balance sheet totaled approximately $193,443,000. 13. TRUST PREFERRED SECURITIES On December 18, 2001, the Company participated in a pooled trust preferred offering. In connection with the transaction, the Company, through its subsidiary trust, Florida Banks Statutory Trust I (the "Statutory Trust I"), issued $6,000,000 in trust preferred securities. The Statutory Trust I also issued $186,000 of common securities to the Company and used the total proceeds to purchase $6,186,000 in 30-year subordinated debentures of the Company. The preferred securities paid dividends at an initial rate of 5.60% through March 17, 2002. The rate then became a floating rate based on 3-month LIBOR plus 3.60%, adjusted quarterly after each dividend payment date. Dividend payment dates are March 18, June 18, September 18 24 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- and December 18 of each year. There is a par call option beginning December 18, 2006. 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 Trust II (the "Capital Trust II"), issued $4,000,000 in trust preferred securities. The Capital 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 preferred securities pay dividends at an annual 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. On June 28, 2002, the Company participated in a pooled trust preferred offering. In connection with the transaction, the Company, through its subsidiary trust, Florida Banks Capital Trust I (the "Capital Trust I"), issued $4,000,000 in trust preferred securities. The Capital Trust I 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 preferred securities pay dividends at an annual rate based on 3-month LIBOR plus 3.65% adjusted quarterly after each dividend payment date. Dividend payment dates are March 30, June 30, September 30 and January 30 of each year. There is a par call option beginning June 30, 2007. On December 19, 2002, the Company participated in a pooled trust preferred offering. In connection with the transaction, the company, through its subsidiary trust, Florida Banks Statutory Trust II (the "Statutory Trust II"), issued $3,000,000 in trust preferred securities. The Statutory Trust II also issued $93,000 of common securities to the Company and used the total proceeds to purchase $3,093,000 in 30-year subordinated debentures of the Company. The preferred securities pay dividends at an initial rate of 4.66% through March 25, 2003. 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 26, June 26, September 26 and December 26 of each year. There is a par call option beginning December 26, 2007. The subordinated debentures are the sole assets of the Subsidiary Trusts and are eliminated, along with the related income effects, in the Company's consolidated financial statements. 14. SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION Supplemental disclosure of cash flow information: 2002 2001 2000 Cash paid during the year for interest on deposits and borrowed funds $15,630,556 $15,890,571 $12,121,206 Cash paid for income taxes, net of refunds $ 275,000
Supplemental schedule of noncash investing and financing activities: 25 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- 2002 2001 2000 Proceeds from demand deposits used to purchase shares of common stock under the employee stock purchase plan $ 210,770 $ 227,088 $ 367,153 Loans transferred to real estate owned $ 652,500 $2,867,827 $ 846,000 Increase in fair market value of derivative instruments used to hedge interest rate exposure on time deposits $2,085,117 $ 17,776
15. CONDENSED FINANCIAL INFORMATION OF FLORIDA BANKS, INC. (PARENT ONLY) The following represents the parent only condensed balance sheets as of December 31, 2002 and 2001 and the related condensed statements of operations and cash flows for the years ending December 31, 2002, 2001 and 2000. Condensed Balance Sheets 2002 2001 Assets Cash and repurchase agreements $ 1,951,961 $ 1,315,647 Available for sale investment securities, at fair value (cost $3,292,213 and $6,204,759, respectively) 3,418,212 6,386,271 Premises and equipment, net 170,091 221,220 Accrued interest receivable 21,591 38,903 Deferred income taxes, net 2,555,217 1,105,521 Prepaid and other assets 52,301 225,578 Investment in bank subsidiary 61,585,111 43,931,579 Investment in other subsidiaries 536,366 195,366 ------------ ------------ Total Assets $ 70,290,850 $ 53,420,085 ============ ============ Liabilities and Shareholders' Equity Subordinated debentures payable to subsidiary trust $ 17,000,092 $ 6,005,000 Repurchase agreements 1,000,000 Due to Florida Bank, N.A 92,318 Accounts payable and accrued expenses 326,883 180,733 Shareholders' Equity Preferred stock 5,000,000 6,955,244 Common stock 70,706 59,799 Additional paid-in capital 54,150,565 46,828,142 Treasury stock (1,866,197) (1,866,197) Accumulated deficit (4,874,873) (6,079,156) Accumulated other comprehensive income, net of tax 483,674 244,202 ------------ ------------ Total Liabilities and Shareholders' Equity $ 70,290,850 $ 53,420,085 ============ ============
26 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- Condensed Statements of Operations 2002 2001 2000 Interest income on loans, including fees $ 496 $ 18,719 $ 434,389 Interest income on investment securities 318,230 666,051 847,440 Other interest income 34,811 80,748 241,941 Other income 436,948 27 ------------ ------------ ------------ Total income 353,537 1,202,466 1,523,797 ------------ ------------ ------------ Equity in undistributed income (loss) of bank subsidiary 3,379,437 1,654,552 (539,611) Equity in undistributed loss of subsidiary (152) (155) (479) Expenses (3,419,569) (2,557,156) (2,389,988) Income tax benefit 1,153,805 508,732 326,128 ------------ ------------ ------------ Net income (loss) $ 1,467,058 $ 808,439 $ (1,080,153) ============ ============ ============ Condensed Statements of Cash Flows 2002 2001 2000 Operating activities: Net income (loss) $ 1,467,058 $ 808,439 $ (1,080,153) Adjustments to reconcile net income (loss) to net cash used in operating activities: Equity in undistributed (income) loss of Florida Bank, N.A (3,379,437) (1,654,552) 539,611 Equity in loss of Florida Bank Financial Services, Inc. 152 155 479 Depreciation and amortization 62,618 65,353 60,177 Restricted stock grants 120,844 Deferred income tax benefit (1,428,806) (548,731) (326,128) Loss on disposal of premises and equipment 1,597 Transfer from affiliate, net (3,079) Gain on sale of investment securities (73,988) (5,174) Accretion of discounts on investments, net (15,466) (16,687) (20,957) Accretion of debt issuance costs 70,445 (Benefit) provision for loan losses (10,000) (64,411) Amortization of loan premiums 1,225 45,685 Decrease in accrued interest receivable 17,312 41,150 32,451 (Decrease) increase in due to Florida Bank, N.A (92,318) 92,318 32,941 Decrease (increase) in prepaid and other assets 173,277 (92,775) (88,899) Increase (decrease) in accounts payable and accrued expenses 145,998 98,253 (241,388) ------------ ------------ ------------ Net cash used in operating activities (2,861,402) (1,289,840) (1,114,169) ------------ ------------ ------------ Investing activities: Purchase of premises and equipment (8,410) (62,353) (35,650) Proceeds from sales, paydowns and maturities of investment securities 2,928,012 5,865,516 5,264,240 Purchase of investment securities (7,441,787) Net decrease in loans 1,073,535 6,657,377 Purchase of common stock of Florida Bank Statutory Trust I (341,000) (186,000) Purchase of common stock of Florida Bank Financial Services, Inc. (10,000) Capital contributed to Florida Bank, N.A (14,000,000) (9,500,000) (12,300,000) ------------ ------------ ------------ Net cash used in investing activities (11,421,398) (2,809,302) (7,865,820) ------------ ------------ ------------
27 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- 2002 2001 2000 Financing activities: (Decrease) increase in repurchase agreements $ (1,000,000) $ (9,143,000) $ 4,085,000 Payment of debt issuance costs (196,353) Proceeds from issuance of common stock, net 210,770 227,088 367,153 Proceeds from the issuance of preferred stock, net 5,000,000 6,806,470 Proceeds from the issuance of subordinated debt, net 11,121,000 6,005,000 Preferred dividends paid (262,775) (127,373) Net proceeds from the exercise of stock options 46,472 Purchase of treasury stock (359,361) (647,992) ------------ ------------ ------------ Net cash provided by financing activities 14,919,114 3,408,824 3,804,161 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 636,314 (690,318) (5,175,828) Cash and cash equivalents at beginning of year 1,315,647 2,005,965 7,181,793 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 1,951,961 $ 1,315,647 $ 2,005,965 ============ ============ ============
16. REGULATORY MATTERS The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2002, that the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 2002 and 2001, notifications from the Office of the Comptroller of the Currency categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as adequately or well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category. The Company's and Bank's actual capital amounts and ratios are also presented in the following table. 28 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- To be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ------------------------- -------------------------- ---------------------------- Amount Ratio Amount Ratio Amount Ratio As of December 31, 2002: Total capital (to risk-weighted assets) Florida Banks, Inc. $ 76,216,000 11.92% > $ 51,160,000 > 8.00% N/A N/A - - Florida Bank, N.A. 68,443,000 10.75 > 50,920,000 > 8.00 > $ 63,650,000 > 10.00% - - - - Tier I capital (to risk-weighted assets) Florida Banks, Inc. 68,953,000 10.78 > 25,580,000 > 4.00 N/A N/A - - Florida Bank, N.A. 61,180,000 9.6 > 25,460,000 > 4.00 > 38,190,000 > 6.00 - - - - Tier I capital (to average assets) Florida Banks, Inc. 68,953,000 9.9 > 27,655,000 > 4.00 N/A N/A - - Florida Bank, N.A. 61,180,000 8.9 > 27,280,000 > 4.00 > 34,100,000 > 5.00 - - - -
To be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ------------------------- -------------------------- ---------------------------- Amount Ratio Amount Ratio Amount Ratio As of December 31, 2001: Total capital (to risk-weighted assets) Florida Banks, Inc. $ 55,800,000 12.70% > $ 35,152,000 > 8.00% N/A N/A - - Florida Bank, N.A. 47,963,000 11.00 > 34,897,000 > 8.00 > $ 43,622,000 > 10.00% - - - - Tier I capital (to risk-weighted assets) Florida Banks, Inc. 51,108,000 11.63 > 17,576,000 > 4.00 N/A N/A - - Florida Bank, N.A. 43,271,000 9.9 > 17,449,000 > 4.00 > 26,173,000 > 6.00 - - - - Tier I capital (to average assets) Florida Banks, Inc. 51,108,000 10.64 > 19,216,000 > 4.00 N/A N/A - - Florida Banks, N.A. 43,271,000 9.17 > 18,883,000 > 4.00 > 23,604,000 > 5.00 - - - -
29 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- 17. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating financial instrument fair values: General Comment - The financial statements include various estimated fair value information as required by SFAS No. 107, Disclosures about Fair Value of Financial Instruments. Such information, which pertains to the Company's financial instruments is based on the requirements set forth in SFAS No. 107 and does not purport to represent the aggregate net fair value of the Company. Furthermore, the fair value estimates are based on various assumptions, methodologies and subjective considerations, which vary widely among different financial institutions and which are subject to change. Cash and Cash Equivalents - Cash and due from banks, federal funds sold and repurchase agreements are repriced on a short-term basis; as such, the carrying value closely approximates fair value. Investment Securities - Fair values for available for sale and held to maturity securities are based on quoted market prices, if available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Other Investment Securities - Fair value of the Bank's investment in Federal Reserve Bank stock and Federal Home Loan Bank stock is based on its redemption value, which is its cost of $100 per share. Mortgage Loans Held for Sale - Fair values of mortgage loans held for sale are based on commitments on hand from investors or prevailing market prices. Loans Held for Investment - For variable rate loans that reprice frequently, the carrying amount is a reasonable estimate of fair value. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities. Derivative Instruments - Fair values of derivative instruments are based on quoted market prices, if available. If quoted market prices are not available, fair values are determined based on a cash flow model using market assumptions. Deposits - The fair value of demand deposits, savings deposits and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed rate certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently being offered to a schedule of aggregated expected monthly time deposit maturities. Repurchase Agreements - The carrying amounts of repurchase agreements approximates the estimated fair value of such liabilities due to the short maturities of such instruments. Other Borrowed Funds - For treasury tax and loan deposits, the carrying amount approximates the estimated fair value of such liabilities due to the short maturities of such instruments. The fair value of the Federal Home Loan Bank advances are based on quoted market prices. Company Obligated Manditorily Redeemable Preferred Securities of Subsidiary Trusts - The fair value of the Company's trust preferred securities approximates the estimated fair value as such liabilities reprice frequently based on a quoted market rate of interest. 30 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- A comparison of the carrying amount to the fair values of the Company's significant financial instruments as of December 31, 2002 and 2001 is as follows: 2002 2001 --------------------------- --------------------------- Carrying Fair Carrying Fair (Amounts in Thousands) Amount Value Amount Value Financial assets: Cash and cash equivalents $ 89,480 $ 89,480 $ 73,989 $ 73,989 Available for sale investment securities 50,931 50,931 33,954 33,954 Held to maturity investment securities 228 229 2,867 2,934 Other investments 2,493 2,493 2,065 2,065 Mortgage loans held for sale 54,674 54,674 Loans held for investment 550,974 551,469 401,663 427,211 Derivative instruments 2,322 2,322 280 280 Financial liabilities: Deposits $664,910 $667,897 $451,249 $453,684 Repurchase agreements 4,654 4,654 4,496 4,496 Other borrowed funds 9,922 8,831 9,715 9,273 Company obligated manditorily redeemable preferred securities of subsidiary trusts 16,473 16,473 5,819 5,819 Off-balance sheet credit related financial instruments: Commitments to extend credit $193,443 $193,443 $162,683 $162,683
18. QUASI-REORGANIZATION Effective December 31, 1995, the Bank completed a quasi-reorganization of its capital accounts. A quasi-reorganization is an accounting procedure provided for under current banking regulations that allows a bank to restructure its capital accounts to remove a deficit in undivided profits without undergoing a legal reorganization. A quasi-reorganization allows a bank that has previously suffered losses and subsequently corrected its problems to restate its records as if it had been reorganized. A quasi-reorganization is subject to regulatory approval and is contingent upon compliance with certain legal and accounting requirements of the banking regulations. The Bank's quasi-organization was authorized by the Office of the Comptroller of the Currency upon final approval of the Bank's shareholders which was granted November 15, 1995. As a result of the quasi-reorganization, the Bank charged against additional paid-in capital its accumulated deficit through December 31, 1995 of $8,134,037. 31 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- 19. EARNINGS PER COMMON SHARE Earnings per common share have been computed based on the following. 2002 2001 2000 ----------- ----------- ----------- Net income (loss) $ 1,467,058 $ 808,439 $(1,080,153) Less preferred stock dividends (140,058) (250,091) ----------- ----------- ----------- Net income (loss) applicable to common stock $ 1,327,000 $ 558,348 $(1,080,153) =========== =========== =========== Weighted average number of common shares outstanding - Basic 6,442,022 5,703,524 5,681,290 Incremental shares from the assumed conversion of stock options 89,597 2,738 583 ----------- ----------- ----------- Total - Diluted 6,531,619 5,706,262 5,681,873 =========== =========== ===========
The incremental shares from the assumed conversion of stock options were determined using the treasury stock method under which the assumed proceeds were equal to (1) the amount that the Company would receive upon the exercise of the options plus (2) the amount of the tax benefit that would be credited to additional paid-in capital assuming exercise of the options. The convertible preferred stock was determined to be anti-dilutive and is therefore excluded from the computation of diluted earnings per share. 20. GUARANTEES The Company issues standby letters of credit to provide credit support for some creditors in case of default. As of December 31, 2002, the carrying amount of the liability was $0 and the maximum potential payment was $8,792,836. Effective January 1, 2003, and in compliance with the FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, the Company adopted the recognition requirements for guarantees entered into after December 31, 2002. The Company does not anticipate a material impact on its operations from this accounting standard. 21. SEGMENT REPORTING Prior to October 1, 2002, the Company had one reporting segment. However, in October 2002, the Company started a mortgage banking division which is managed as a segment. Accordingly, during 2002 the Company has two reporting segments, the commercial bank and the mortgage bank. The commercial bank segment provides its commercial customers such products as working capital loans, equipment loans and leases, commercial real estate loans and other business related products and services. This segment also offers mortgage loans to principals of its commercial customers. The mortgage bank segment originates mortgage loans through its network of mortgage brokers and sells these loans (on a wholesale basis) into the secondary market. 32 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) ---------------------------------------------------------------------- Information about reportable segments, and reconciliation of such information to the consolidated financial statements as of and for the year ended December 31, 2002 follows: Commercial Mortgage Intersegment Consolidated Bank Bank Other Eliminations Total ------------ ------------ ------------ ------------ ------------ Net interest income $ 18,943,155 $ 61,645 $ 338,204 $ 19,343,004 Noninterest income 2,684,723 1,355,036 4,039,759 Noninterest expense 13,689,351 911,222 3,404,236 18,004,809 Net income (loss) before taxes 4,912,752 505,459 (3,066,032) 2,352,179 Assets 694,561,452 55,234,735 70,290,850 (64,021,487) $756,065,550 Expenditures for additions to premises and equipment 2,398,326 561,600 8,410 2,968,336
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on profit or loss from operations before income taxes. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each segment appeals to different markets and accordingly requires different technology and marketing strategies. The Company derives a majority of its revenues from interest income and gain on sale of mortgage loans and the chief operating decision maker relies primarily on net income before taxes to assess the performance of the segments and make decisions about resources to be allocated to the segments. Therefore, the segments are reported above using net income before taxes. The Company does not allocate income taxes to the segments. The Company does not have operating segments other than those reported. Parent Company financial information is included in the other category above and is deemed to represent an overhead function rather than an operating segment. The Company does not have a single external customer from which it derives 10 percent or more of its revenues and operates in one geographical area. 22. BENEFIT PLAN The Company has a 401(k) defined contribution benefit plan (the "Plan") which covers substantially all of its employees. The Company matches 50% of employee contributions to the Plan, up to 6% of all participating employees compensation. The Company contributed $144,000, $136,000 and $110,092 to the Plan in 2002, 2001 and 2000, respectively. 33 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- 23. EMPLOYEE STOCK PURCHASE PLAN On January 22, 1999, the Board of Directors of the Company adopted the Employee Stock Purchase Plan (the "Plan"). The Plan was approved by the Company's shareholders at the Company's 1999 Annual Meeting of Shareholders on April 23, 1999. The Plan provides for the sale of not more than 200,000 shares of common stock to eligible employees of the Company pursuant to one or more offerings under the Plan. The purchase price for shares purchased pursuant to the Plan is the lesser of (a) 85% of the fair market value of the common stock on the grant date, or if no shares were traded on that day, on the last day prior thereto on which shares were traded, or (b) an amount equal to 85% of the fair market value of the common stock on the exercise date, or if no shares were traded on that day, on the last day prior thereto on which shares were traded. Shares purchased by employees were approximately 41,000, 50,000 and 76,000 for the years ended December 31, 2002, 2001 and 2000, respectively. 24. RELATED PARTY TRANSACTIONS The Company lends to shareholders, directors, officers, and their related business interests on substantially the same terms as loans to other individuals and businesses of comparable credit worthiness. Such loans outstanding were approximately $2,364,000 and $1,274,000 at December 31, 2002 and 2001. Deposits from related parties held by the Company at December 31, 2002 and 2001 were approximately $3,772,000 and $489,000, respectively. On September 9. 2002, Florida Bank, N.A. purchased a parcel of land for the purpose of future construction of a corporate headquarters and the Jacksonville banking office. A director of the Company was among the eleven sellers of the property. The purchase price was $905,084, which did not exceed an independent appraisal of the property which was conducted prior to the purchase. 34 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued) -------------------------------------------------------------------------------- 25. SUMMARIZED QUARTERLY DATA (UNAUDITED) Following is a summary of the quarterly results of operations for the years ended December 31, 2002 and 2001: Fiscal Quarter --------------------------------------------------------------- First Second Third Fourth Total $ In Thousands Except Per Share Amounts 2002 Interest income $ 8,008 $ 8,676 $ 9,067 $ 9,176 $ 34,927 Interest expense 3,729 3,688 4,126 4,041 15,584 -------- -------- -------- -------- -------- Net interest income 4,279 4,988 4,941 5,135 19,343 Provision for loan losses 380 1,028 699 919 (1) 3,026 -------- -------- -------- -------- -------- Net interest income after provision for loan losses 3,899 3,960 4,242 4,216 16,317 Noninterest income 537 569 755 2,179 4,040 Noninterest expense 3,633 4,270 4,578 5,524 18,005 -------- -------- -------- -------- -------- Income before income taxes 803 259 419 871 2,352 Income tax expense 307 97 153 328 885 -------- -------- -------- -------- -------- Net income 496 162 266 543 1,467 Preferred stock dividends (120) (20) (140) -------- -------- -------- -------- -------- Net income applicable to common shares $ 376 $ 142 $ 266 $ 543 $ 1,327 ======== ======== ======== ======== ======== Basic income per share $ 0.07 $ 0.02 $ 0.04 $ 0.08 $ 0.21 Diluted income per share $ 0.07 $ 0.02 $ 0.04 $ 0.08 $ 0.20 ---------- (1) Includes an additional provision for loan losses of approximately $530,000 related to the specific reserve established against a customer's uncollected ACH account.
35 FLORIDA BANKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Concluded) -------------------------------------------------------------------------------- Fiscal Quarter ---------------------------------------------------------------------- First Second Third Fourth Total $ In Thousands Except Per Share Amounts 2001 Interest income $ 7,757 $ 7,538 $ 8,022 $ 8,063 $31,380 Interest expense 4,434 4,198 4,072 3,844 16,548 ------- ------- ------- ------- ------- Net interest income 3,323 3,340 3,950 4,219 14,832 Provision for loan losses 239 384 820 446 1,889 ------- ------- ------- ------- ------- Net interest income after provision for loan losses 3,084 2,956 3,130 3,773 12,943 Noninterest income 319 403 591 735 2,048 Noninterest expense 3,307 3,257 3,367 3,763 13,694 ------- ------- ------- ------- ------- Income before income taxes 96 102 354 745 1,297 Income tax expense 35 39 134 281 489 ------- ------- ------- ------- ------- Net income 61 63 220 464 808 Preferred stock dividends (127) (123) (250) ------- ------- ------- ------- ------- Net income applicable to common shares $ 61 $ 63 $ 93 $ 341 $ 558 ======= ======= ======= ======= ======= Basic income per share $ 0.01 $ 0.01 $ 0.02 $ 0.06 $ 0.10 Diluted income per share $ 0.01 $ 0.01 $ 0.02 $ 0.06 $ 0.10
* * * * * * 36 SIGNATURES In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, in the City of Jacksonville, State of Florida on March 31, 2003. FLORIDA BANKS, INC. By:/s/ Charles E. Hughes, Jr. ---------------------------------------- Charles E. Hughes, Jr. President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Charles E. Hughes, Jr. President, Chief Executive March 31, 2003 --------------------------------------- Officer and Director (Principal Charles E. Hughes, Jr. Executive Officer) /s/ T. Edwin Stinson, Jr. Chief Financial Officer, March 31, 2003 --------------------------------------- Secretary, Treasurer and T. Edwin Stinson, Jr. Director (Principal Financial and Accounting Officer) /s/ M.G. Sanchez Chairman of the Board March 31, 2003 --------------------------------------- M. G. Sanchez /s/ T. Stephen Johnson Vice-Chairman of the Board March 31, 2003 --------------------------------------- T. Stephen Johnson /s/ Clay M. Biddinger Director March 31, 2003 --------------------------------------- Clay M. Biddinger /s/ P. Bruce Culpepper Director March 31, 2003 --------------------------------------- P. Bruce Culpepper /s/ Dr. Adam F. Herbert, Jr. Director March 31, 2003 --------------------------------------- Dr. Adam F. Herbert, Jr. /s/ W. Andrew Krusen, Jr. Director March 31, 2003 --------------------------------------- W. Andrew Krusen, Jr. /s/ Nancy E. LaFoy Director March 31, 2003 --------------------------------------- Nancy E. LaFoy /s/ Wilford C. Lyon, Jr. Director March 31, 2003 --------------------------------------- Wilford C. Lyon, Jr. /s/ David McIntosh Director March 31, 2003 --------------------------------------- David McIntosh
37 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 amendment to the annual report on Form 10-K/A of Florida Banks, Inc.; 2. Based on my knowledge, this amendment to the annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and c) presented in this annual 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 annual 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: March 31, 2003 By: /s/ Charles E. Hughes, Jr. ------------------------------ Charles E. Hughes, Jr. President and Chief Executive Officer 38 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 amendment to the annual report on Form 10-K/A of Florida Banks, Inc.; 2. Based on my knowledge, this amendment to the annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and c. presented in this annual 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 annual 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: March 31, 2003 By: /s/ T. Edwin Stinson, Jr. ------------------------------- T. Edwin Stinson, Jr. Chief Financial Officer 39 EXHIBIT INDEX Exhibit Number Description of Exhibit ------ ---------------------- 23.1 Consent of Deloitte & Touche, LLP 40