-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VTzzJzia5ZX0pWhKfT9UFE3hIQIzT5288k/AAwHMY/yrMsXr1hnTKZAAVlzpV0O9 IOYnQB+39Vo+JilrAquiTA== 0000950144-98-002745.txt : 19980317 0000950144-98-002745.hdr.sgml : 19980317 ACCESSION NUMBER: 0000950144-98-002745 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980316 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GULF WEST BANKS INC CENTRAL INDEX KEY: 0000932773 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 593276590 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-23713 FILM NUMBER: 98565951 BUSINESS ADDRESS: STREET 1: 425 22ND AVE N CITY: ST PETERSBURG STATE: FL ZIP: 33704 BUSINESS PHONE: 8138945696 MAIL ADDRESS: STREET 1: 425 22ND AVE NORTH CITY: ST PETERSBURG STATE: FL ZIP: 33704 10-K 1 GULF WEST BANKS 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to _____________________. Commission file number: 000-23713 GULF WEST BANKS, INC. (Exact Name of Registrant as Specified in Its Charter) FLORIDA 59-3276590 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 425 22ND AVENUE NORTH ST. PETERSBURG, FLORIDA 33704 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (813) 894-5696 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered - ------------------- ----------------------------------------- NONE NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $1.00 PER SHARE (Title of Class) 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. [ ] 2 The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 28, 1998, was $21,469,910. The number of shares of the registrant's common stock outstanding as of February 28, 1998, was 5,458,786. DOCUMENTS INCORPORATED BY REFERENCE The registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1997, is incorporated by reference into Part II of this Annual Report on Form 10-K. The registrant's definitive Proxy Statement relating to the registrant's 1998 annual meeting of shareholders, as filed with the Commission on March 16, 1998, is incorporated by reference into Part III of this Annual Report on Form 10-K. 2 3 PART I ITEM 1. BUSINESS. INTRODUCTION Gulf West Banks, Inc. ("Gulf West" or the "Company") is a one-bank holding company registered under the Bank Holding Company Act of 1956, as amended, and was incorporated under the laws of the State of Florida effective October 24, 1994. Gulf West's principal assets are all of the issued and outstanding shares of capital stock of Mercantile Bank, a Florida state banking corporation which is located in St. Petersburg, Florida ("Mercantile"), and all of the issued and outstanding shares of Liberty Leasing Corporation ("Liberty"), a Florida corporation located in Tampa, Florida, which is engaged in equipment leasing. The principal executive offices of Gulf West and Mercantile are located at 425 22nd Avenue North, St. Petersburg, Florida 33704, and their telephone number is (813) 894-5696. Liberty is located at 5440 Mariner Street, Suite 204, Tampa, Florida 33609 and its telephone number is (813) 287-2982. ACTIVITIES OF GULF WEST Currently, the only business activity of Gulf West is to own and operate Mercantile and Liberty. Mercantile provides a wide range of personal and commercial banking services to customers located in the Florida counties of Pinellas, Hillsborough, and Pasco. The activities of Mercantile are described in more detail below under the caption "Activities of Mercantile." Liberty is an equipment leasing company that arranges financing for a variety of equipment for all types of businesses. Liberty currently comprises a de minimis portion of Gulf West's total assets and earnings. Although other activities are permitted under the Bank Holding Company Act of 1956, management of Gulf West has no current plans to engage in any other activities, although it may choose to do so at a later date. ACQUISITION OF CITIZENS NATIONAL BANK AND TRUST COMPANY On January 16, 1998, the Company acquired Citizens National Bank and Trust Company of Port Richey, Florida ("Citizens National") in exchange for approximately 1,950,000 shares of the common stock of the Company. The acquisition was effected through the merger of Citizens National with and into Mercantile pursuant to an Amended and Restated Agreement and Plan of Merger, dated October 16, 1997, by and among Gulf West, Mercantile, and Citizens National. Citizens National was a national banking association which was originally chartered by the Office of the Controller of the Currency on February 29, 1988. Prior to the acquisition, Citizens National engaged in general commercial banking and trust services from its one full service banking location in Port Richey, Florida. As a part of the acquisition, Mercantile amended its charter to include trust powers so that it could continue the trust business of Citizens National. As a result of the acquisition, Citizens National's single banking office is currently being operated as the Port Richey office of Mercantile. ACTIVITIES OF MERCANTILE The principal services offered by Mercantile include commercial and individual checking and savings accounts, money market accounts, certificates of deposit, most types of loans, and letters of credit. Mercantile also provides credit card services through a national credit card issuer and acts as issuing agent for U.S. Savings Bonds, travelers checks, and cashiers checks. Mercantile offers collection teller services, wire transfer facilities, safe deposit facilities, and night depository facilities. Merctantile's transaction accounts and time certificates are tailored to Mercantile's principal market area at rates competitive with those offered in Mercantile's primary service area. In addition, Mercantile offers certain retirement account services, including individual retirement accounts. As described above, Mercantile also offers trust services in its newly acquired Pasco County, Florida office. All of Mercantile's deposit accounts are insured by the FDIC up to the maximum amount allowed by law. Mercantile offers a wide range of short to medium-term commercial and personal loans. Commercial loans include both secured and unsecured loans for working capital (including inventory and receivables), business expansion (including acquisition of real estate and improvements), purchase of equipment and machinery, and Small Business Administration ("SBA") loans. Consumer loans include secured and unsecured loans for financing automobiles, home improvements, and personal investments. Mercantile also originates and holds construction and acquisition loans on residential real estate. At December 31, 1997, commercial and consumer loans accounted for approximately 74.14% and 10.60%, respectively, of Mercantile's loan portfolio. 3 4 Loans on residential real estate accounted for the remaining 15.26% of the loan portfolio. All loans are made in compliance with applicable federal and state regulations. Mercantile's lobby business hours are generally from 9:00 a.m. to 4:00 p.m., Monday through Thursday, 9:00 a.m. to 6:00 p.m. on Fridays, and 9:00 a.m. to 12:00 p.m. on Saturdays. The drive-up teller hours are generally 8:00 a.m. to 5:00 p.m. on Monday through Thursday, 8:00 a.m. to 6:00 p.m. on Fridays, and 8:00 a.m. to 12:00 p.m. on Saturdays. However, drive-in hours do vary slightly from office to office depending on customer requirements. Mercantile also has 24-hour automatic teller machines (ATM's) at each of its offices. Mercantile issues debit cards to its customers that can be used in any bank ATM as well as any ATM's which are members of the HONOR and CIRRUS networks. Mercantile's data processing is handled by an outside service bureau -- FiServ, Inc. of Atlanta, Georgia. Item processing is handled by Barnett Technologies, Inc., Tampa, Florida. The amount paid for these services is dependent on the volume of transactions and the number of accounts being processed. In the year ended December 31, 1997, Mercantile paid $409,000 for data processing services. Mercantile makes extensive use of personal computers in all areas of its operations that permit efficient handling of deposit and loan accounts and other paper intensive applications such as word processing. MARKET AREA Seven of Mercantile's banking offices are located in Pinellas County, Florida, two are located in Hillsborough County, Florida, and one is located in Pasco County, Florida. All three counties are in the west central Gulf Coast of Florida. The residential population of Pinellas County as of the 1990 census was 852,000 and the estimated population in 1997 was 887,000. Hillsborough County had a residential population of 834,000 as of the 1990 census and the estimated 1997 population was 911,000. Pasco County had a residential population of 281,000 as of the 1990 census and the estimated 1997 population was 315,000. The area has many more seasonal residents. The majority of Mercantile's business is generated from customers whose businesses or residences are located in an area within a radius of three miles of one of its banking offices. Four of the Pinellas County offices are located within the city limits of St. Petersburg, one is located in the unincorporated community of Tierra Verde, one is located in the city limits of Dunedin, and another one in the city limits of Pinellas Park. The Hillsborough County offices are located within the city limits of Tampa and Temple Terrace, and the Pasco County office is located in the city limits of Port Richey. OPERATING STRATEGY The management of the Company believes that the emerging dominance of large regional holding companies in the banking industry has created a need for more locally-owned institutions with personalized banking services. Mercantile was organized as a locally-owned, locally-managed community financial institution, owned and managed by people who are actively involved in Mercantile's market area and committed to its economic growth and development. With local ownership, management, and directors, the Company's management believes that Mercantile can be more responsive to the communities it serves and tailor services to its customers' needs rather than provide the standardized services that large holding companies tend to offer. Local ownership and operation will allow faster, more responsive, and flexible decision-making which is not available at the majority of financial institutions in or near Mercantile's market area which are branch offices of large regional holding company banks with headquarters located elsewhere in Florida or in the United States. The principal business of Mercantile is to attract deposits from the general public and to invest those funds in various types of loans and other interest-earning assets. Funds are provided for the operations of Mercantile through proceeds from the sale of investments and loans, from amortization and repayment of outstanding loans, investments, net deposit inflow, and from borrowings. Earnings of Mercantile depend primarily upon the difference between (1) the interest and fees received by Mercantile from loans, the securities held in its investment portfolio, and other investments and (2) expenses incurred by Mercantile in connection with obtaining funds for lending (including interest paid on deposits and other borrowings) and expenses relating to day-to-day operations. To the extent market conditions permit, Mercantile follows a strategy intended to insulate Mercantile's interest rate gap from adverse changes in interest rates by maintaining spreads through the adjustability of its interest-earning assets and interest-bearing liabilities. Mercantile's ability to reduce interest-rate risk in its loan and investment portfolios will depend upon a number of factors, many of which are beyond Mercantile's control, including among others, competition for loans and deposits in its market area and conditions prevailing in the secondary market. The primary sources of Mercantile's funds for lending and for other general business purposes are Mercantile's capital, deposits, loan repayments, and borrowings. Mercantile expects that loan repayments will be relatively stable sources of funds, 4 5 while deposit inflows and outflows will be significantly influenced by prevailing interest rates, money market rates, and general economic conditions. Generally, short-term borrowings may be used to compensate for reductions in normal sources of funds while longer-term borrowings may be used to support expanded lending activities. Mercantile's customers are primarily individuals, professionals, small and medium size businesses, and seasonal retirees located predominantly in Pinellas, Hillsborough, and Pasco Counties, Florida. Mercantile's locations are situated in areas that are convenient to these types of customers. Mercantile continually seeks to develop new business though an ongoing program of personal calls on both present and potential customers. As a local independent bank, Mercantile utilizes traditional local advertising media as well as direct mailings, telephone contacts, and brochures to promote the bank and develop loans and deposits. In addition, Mercantile's directors all have worked and/or lived in or near Mercantile's market area for a number of years. Management believes that this factor, coupled with the past and continued involvement of the directors and officers in various local community activities, will further promote Mercantile's image as a locally-oriented independent institution, which management believes is an important factor to its targeted customer base. COMPETITION The banking industry in general, and Mercantile's market in particular, is characterized by significant competition for both deposits and lending opportunities. In its market area, Mercantile competes with other commercial banks, savings and loan associations, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking firms, and various other nonbank competitors. Competition for deposits may have the effect of increasing the rates of interest Mercantile will pay on deposits, which would increase Mercantile's cost of money and possibly reduce its net earnings. Competition for loans may have the effect of lowering the rate of interest Mercantile will receive on its loans, which would lower Mercantile's return on invested assets and possibly reduce its net earnings. Many of Mercantile's competitors have been in existence for a significantly longer period of time than Mercantile, are larger and have greater financial and other resources and lending limits than Mercantile, and may offer certain services that Mercantile does not provide at this time. However, management feels that the market is rich with opportunity to provide tailor-made custom banking products and services which cannot be provided by the large institutions which offer many banking products and services on an impersonal basis. With the recent acquisitions by larger institutions, the opportunity has been enhanced as customers are looking for more personalized service. This concept known as "niche" or "boutique" banking will enable Mercantile to capture its share of the professional market, entrepreneurs, and small to medium size commercial businesses while continuing to provide exceptional banking services to all customers. The profitability of Mercantile depends upon its ability to compete in this market area. At the present time, Mercantile is unable to predict the extent to which competition may adversely affect its financial condition and operating results. There are approximately 30 commercial banks and savings and loan associations in Pinellas County. In Hillsborough County there are approximately 31 such institutions, and in Pasco County, there are approximately 20 such institutions. Mercantile expects to receive competition from all of these financial institutions, a significant number of which have offices located in the St. Petersburg and Tampa areas. In order to compete with major financial institutions and others in Mercantile's market area, Mercantile emphasizes specialized and personal service by its directors, officers, and employees. Mercantile believes that its local ownership and community oriented operating philosophy and personalized banking service are competitive factors which strengthen Mercantile. EMPLOYEES As of December 31, 1997, Gulf West employed 113 employees of which 104 were full-time and nine were part-time, including six executive officers. Gulf West's employees are not represented by a collective bargaining group, and Gulf West considers its relations with its employees to be excellent. Gulf West provides employees with benefits customary in the banking industry, which include major medical insurance, group term life insurance, dental insurance, long term disability insurance, a 401(k) savings plan, and vacation and sick leave. YEAR 2000 COMPLIANCE The Company has an ongoing program designed to ensure that its operational and financial systems will not be adversely affected by year 2000 software failures caused by processing errors arising from calculations involving the year 2000 or subsequent years. Based on current estimates, the Company expects to incur approximately $50,000 over the next three years on its program to redevelop, replace, or repair its computer applications to make them "year 2000 compliant." While the Company 5 6 believes that it is doing everything technologically possible to assure year 2000 compliance, it is to some extent dependent on vendor cooperation. The Company is requiring its computer system and software vendors to represent that the products provided are, or will be, year 2000 compliant, and the Company has planned a program of testing for compliance. The Company recognizes that any year 2000 compliance failures could result in additional expense to the Company. ACQUISITION OF FORMER NATIONSBANK FACILITY In December 1997, Mercantile purchased a former NationsBank branch office facility located at 4801 W. Hillsborough Avenue in Tampa, Florida. This facility is a 1,900 square foot, free-standing, one-story building with five drive-in teller lanes and four inside teller stations. Mercantile has received regulatory approval to open an office at this location, and the opening of this office is currently scheduled for early in the second quarter of 1998. ITEM 2. PROPERTIES. Gulf West corporate offices are located within the main office of Mercantile. Liberty Leasing occupies approximately 1,800 square feet of leased space in the Tampa Koger Center located at 5440 Mariner Street. The lease is for a three-year term expiring July 31, 1999, automatically renewable for successive three-year terms unless a ninety-day notice is provided by either party to the lease. The rental payments are subject to annual CPI escalators with a minimum of 5%. The current base monthly rent is $2,105 plus taxes. In addition to its main office in St. Petersburg, Mercantile also has four additional locations throughout St. Petersburg, at the Koger Executive Center, in the "Maximo" area of South St. Petersburg, in the downtown business district and an operations center on Scherer Drive. Mercantile also has branches in Tierra Verde, in the Westshore area in Tampa, in the Countryside area in Clearwater, in Temple Terrace, and in Largo. As discussed above in "Acquisition of Citizens National Bank and Trust Company," Mercantile has also recently acquired an office in the Pasco County city of Port Richey. Mercantile's main office is located at 425 22nd Avenue North, St. Petersburg, Florida 33704. This office also serves as Mercantile's main office banking facility. It has approximately 9,000 square feet and houses a branch office on the first floor, the commercial lending department and Mercantile's and Gulf West's executives offices. The building was constructed in 1987 and is a two-story structure located on a 71,000 square foot parcel of land which Mercantile owns. Two other buildings are also located on this site, both one story structures containing 3,100 and 6,500 square feet of space which Mercantile currently leases to small retailers and professional offices. The property is located less than two miles north of the downtown business district of St. Petersburg. Mercantile's branch office at this location was opened in 1987. It contains approximately 2,700 square feet and has two drive-in lanes, an ATM, a night depository, safety deposit boxes and four lobby teller stations. At December 31, 1997 this office had $39,029,274 in deposits. The Tierra Verde office is located at 1110 Pinellas Bayway, Tierra Verde, Florida 33715. Tierra Verde is an unincorporated island community southwest of downtown St. Petersburg, Florida. The residents of Tierra Verde are generally affluent, with one of the highest per capita income levels on Florida's west coast. Mercantile opened for business at this office in May 1986, and this was Mercantile's main office until November 1988, when the main office was relocated to its current location. Mercantile's branch office in Tierra Verde is located on the first floor of a two story commercial condominium complex which fronts on the island's main thoroughfare. The branch contains 2,000 square feet with three lobby teller stations, an ATM, night depository, safety deposit boxes and one drive-in teller lane. Mercantile also owns 2,000 square feet of office space directly above the branch which houses a conference room, meeting room and office space. At December 31, 1997, this office had $31,251,883 in deposits. The Koger office is located at 9400 4th Street North, St. Petersburg, Florida 33702. Mercantile rents approximately 2,500 square feet on the first floor of a building that is part of a multi-building professional office complex known as the Koger Executive Center. The complex is located approximately five miles north of Mercantile's main office and the building in which the branch is located fronts on 4th Street North, which is a major north-south traffic artery in St. Petersburg. The office was opened in 1991 and at December 31, 1997, had $22,237,268 in deposits. The office has four lobby teller stations, an ATM, a night depository, safe deposit boxes and three drive-in teller lanes. The Westshore branch office is located at 4202 West Kennedy Boulevard, Tampa, Florida 33609, on the corner of Lois Avenue and Kennedy Boulevard. The office is in a 4,000 square foot, free-standing, one story building which is leased by Mercantile. The office is within one mile of the center of the Westshore business district, which is a major business center of Tampa. The office was opened in late 1993 and at December 31, 1997, had $14,700,443 in deposits. The office has four lobby 6 7 teller stations, four drive-in teller lanes, an ATM, a night depository and safe deposit boxes. Mercantile's Countryside office at 28100 U.S. Highway 19 North, Clearwater, Florida 33761 is located within the city limits of Dunedin but has a Clearwater mailing address. Mercantile leases approximately 3,325 square feet on the first floor of a five story, 80,000 square foot professional office building. Chase Manhattan Bank of Florida occupied this facility until late 1994, when the office was closed due to a consolidation program by that institution. The facility has four lobby teller stations, three drive-in teller lanes, an ATM, a night depository, and safe deposit boxes. This office opened in March, 1995, and at December 31, 1997, had $16,157,420 in deposits. The Temple Terrace office is located at 9400 North 56th Street, Temple Terrace, Florida 33617. This facility is a 4,000 square foot, free-standing, one-story building located on two acres of land that was purchased by Mercantile in November, 1995. The office has six lobby teller stations, three drive-in teller lanes, an ATM, a night depository and safe deposit boxes and was opened in January, 1996. Total deposits of this office at December 31, 1997, were $16,591,473. Mercantile's Bryan Dairy office is located at 8040 Bryan Dairy Road, Largo, Florida 33777, within the corporate city limits of Pinellas Park. Mercantile rents 5,000 square feet in a commercial complex that was constructed in mid-1996. The office opened in September 1996, and has four lobby teller stations, three drive-in teller lanes, an ATM, a night depository and safe deposit boxes. At December, 31, 1997, total deposits of this office were $5,217,065. The Maximo office is located at 3655 50th Avenue South, St. Petersburg, Florida 33711. Mercantile built this 3,000 square-foot facility in late 1996 and opened the office in December, 1996. The building is situated on one acre of land and contains four lobby teller stations, three drive-in teller lanes, an ATM, a night depository and safe deposit boxes. On December 31, 1997, deposits were $4,872,783. Mercantile's Downtown St. Petersburg office is located at 240 1st Avenue South, St. Petersburg, Florida 33701 in the heart of the downtown business district. The Bank rents approximately 3,436 square feet on the first floor of a four story office building. The facility has four lobby teller stations, a walk-up teller station, two drive-in teller lanes, an ATM, a night depository and safe deposit boxes. The office was opened in February 1997. At December 31, 1997, total deposits of this office were $5,058,919. Mercantile's Port Richey office is located at 9550-1 U.S. Highway 19, Port Richey, Florida 34668. As noted above under the caption "Acquisition of Citizens National Bank and Trust Company," Mercantile acquired the Pasco County office as a result of the merger of Citizens National with and into Mercantile on January 16, 1998. This office occupies 10,210 square feet of leased space on two floors. The facility has four lobby teller stations and two outside drive-in teller lanes, as well as safe deposit booths. As of January 31, 1998, total deposits at this office were $65,089,038. In December 1997, Mercantile purchased a former NationsBank branch office facility located at 4801 W. Hillsborough Avenue in Tampa, Florida 33614. This facility is a 1,900 square foot, free-standing, one-story building with five drive-in teller lanes and four inside teller stations. Mercantile has received regulatory approval to open an office at this location, and the opening of this office is currently scheduled for early in the second quarter of 1998. Mercantile also rents approximately 6,636 square feet in a professional office complex located at 2860 Scherer Drive, St. Petersburg, Florida 33716. This facility houses Mercantile's consumer and residential lending departments, the data processing operations department, the deposit and loan operations department and the accounting department. 7 8 The following table presents information regarding the terms of the leases to which Mercantile is currently a party:
CURRENT SQUARE START/ MONTHLY LOCATION FEET END OPTIONS BASE RENT OTHER TERMS - -------- ---- --- ------- --------- ----------- Koger Office 2,500 4/1/96 - Automatic 3,136 Annual CPI increases 9400 4th Street N. 3/31/01 5 Year Plus use tax St. Petersburg Renewals CAM Countryside Office 3,325 3/1/95 - Two option 5,993 Annual CPI not less than 4% 28100 US 19 North 2/28/05 Periods of Plus use tax Clearwater 5 years each CAM Westshore Office 4,000 9/1/93 - Two option 4,679 Annual CPI not less than 4% 4202 W. Kennedy Blvd. 8/31/98 Periods of Plus use tax Tampa 5 years each CAM Bryan Dairy Office 5,000 7/1/96 - Four option 6,250 Fixed for 1st 5 years - 8040 Bryan Dairy Road 6/30/11 periods of Plus use tax 3% annual increases thereafter Largo 5 years each CAM Downtown St. Petersburg Office 3,436 1/1/97 - Sublease 4,583 240 1st Avenue South 7/31/98 Plus use tax St. Petersburg 8/1/98 - One option Year 1 - 4,054 7/31/03 period for Year 2 - 4,369 5 years Year 3 - 4,518 Year 4 - 4,673 Year 5 - 4,833 Plus use tax CAM Operations Center 6,636 6/1/96 - One option Year 1 - 4,015 2860 Scherer Drive 5/31/01 period of Year 2 - 4,153 Suite 630 5 years Year 3 - 4,291 St. Petersburg Year 4 - 4,429 Year 5 - 4,567 Plus use tax CAM Port Richey Office 9550-1 U.S. Highway 19 Port Richey First Floor 5,300 5/4/88- One option $7,265 6/4/98 period of Plus use tax 10 years CAM Second Floor 5,210 8/25/98 Two option $2,171 9/25/99 periods of 5 Plus use tax years each CAM
8 9 ITEM 3. LEGAL PROCEEDINGS. Gulf West and Mercantile are parties to various legal proceedings in the ordinary course of business. Management does not believe that there is any pending or threatened proceeding against Gulf West or Mercantile which, if determined adversely, would have a material adverse effect on the business, results of operations, or financial position of Gulf West or Mercantile. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. (a) Although there is no established public trading market for the Company's common stock, the brokerage firm of Raymond James & Associates, Inc. facilitates trades of the Company's common stock in the over-the-counter market. Prices reported to the Company ranged from $4 5/8 to $5 1/8 per share during 1996 and $5 1/8 to $5 1/2 during 1997. The Company paid cash dividends of $0.03 per share in 1995, paid a 5% stock dividend in 1996 and declared a 10% stock dividend in January, 1998. Further dividends, if any, will be determined by the Board of Directors. As of January 17, 1998, the Company had approximately 625 holders of record of common stock. The following sales of shares of Gulf West common stock, par value $1.00 per share ("Gulf West Common Stock"), were not registered pursuant to the Securities Act of 1933, as amended (the "Securities Act"), but were issued pursuant to the exemptions indicated below: On January 27, 1997, 7,691 shares of Gulf West Common Stock were issued to officers and employees of Gulf West pursuant to Gulf West's employee stock purchase plan at a per share purchase price of $5.12. Such shares were issued pursuant to the intrastate offering exemption contained in Section 3(11) of the Securities. Such exemption was available because all shares were offered and sold only to employees of Gulf West or its subsidiaries, all of whom are residents of Florida, and Gulf West is incorporated and does business solely in the State of Florida. On May 6, 1997, each member of the Board of Directors of Gulf West was issued 420 shares of Gulf West Common Stock as compensation for his service on the Board of Directors. This transaction was made in reliance on the exemption set forth in Rule 504 under the Securities Act. On September 23, 1997, the President of Gulf West, pursuant to the exercise of options, purchased an aggregate of 5,595 shares of Gulf West Common Stock. 2,625 of such shares were purchased at a per share exercise price of $3.81, and 2,970 of such shares were purchased at a per share exercise price of $2.92. This transaction was made in reliance on the exemption set forth in Rule 504 under the Securities Act. (b) Not applicable. ITEM 6. SELECTED FINANCIAL DATA. The information required by this Item is incorporated herein by reference to the information set forth under the caption "SELECTED FINANCIAL DATA" in the 1997 Annual Report to Shareholders of Gulf West (the "1997 Annual Report").. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this Item is incorporated herein by reference to the information set forth under the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in the 1997 Annual Report. 9 10 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information required by this Item is incorporated herein by reference to the information set forth under the following captions contained in the 1997 Annual Report: (i) "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Market Risk;" (ii) "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Asset-Liability Structure;" and (iii) Note 10 to "CONSOLIDATED FINANCIAL STATEMENTS OF GULF WEST BANKS, INC. AND SUBSIDIARIES." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this Item is incorporated herein by reference to the information set forth under the caption "FINANCIAL REVIEW" in the 1997 Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this Item regarding the Company's directors and executive officers is incorporated herein by reference to the information set forth under the caption "MANAGEMENT" in the Company's definitive Proxy Statement for the 1998 Annual Meeting of Shareholders, as filed with the Commission on March 16, 1998 (the "1998 Proxy Statement"). The information required by this Item regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by reference to the information set forth under the caption "EXECUTIVE COMPENSATION -- Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's 1998 Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item is incorporated herein by reference to the information set forth under the caption "EXECUTIVE COMPENSATION" in the Company's 1998 Proxy Statement. 10 11 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item is incorporated herein by reference to the information set forth under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the 1998 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Mercantile has extended loans to various officers and directors of Mercantile and Gulf West. All of these loans were made in the ordinary course of business, were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectibility or present other unfavorable features. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Documents filed as part of this Annual Report on Form 10-K: (1) Financial Statements Independent Auditor's Report.............................................page 47 of 1997 Annual Report Consolidated Balance Sheet...............................................page 27 of 1997 Annual Report Consolidated Statement of Earnings.......................................page 28 of 1997 Annual Report Consolidated Statements of Stockholders' Equity..........................page 29 of 1997 Annual Report Consolidated Statements of Cash Flows....................................page 30 of 1997 Annual Report
(2) All schedules have been included as an exhibit to this Annual Report on Form 10-K or the information is included elsewhere in the financial statements or notes thereto. 3) Exhibits:
Exhibit Number Description of Document - -------------- ----------------------- 2* Amended and Restated Agreement and Plan of Merger by and among Citizens National Bank and Trust Company, Inc., Gulf West Banks, Inc. and Mercantile Bank 3.1* Articles of Incorporation of Gulf West Banks, Inc. 3.2* Bylaws of Gulf West Banks, Inc. 10.1* Form of Registration Rights Agreement with Gordon W. Campbell and John Wm. Galbraith 10.2* Salary Continuation Agreements with Gordon W. Campbell, Barry K. Miller, and Robert A. Blakley (1) 10.3* Employment Contract with Gordon W. Campbell (1) 10.4* Stock Option Plan (1) 11** Statement regarding computation of per share earnings 13 1997 Annual Report to Shareholders 21* Subsidiaries of Registrant 23.1 Consent of Hacker, Johnson, Cohen & Grieb PA 27 Financial Data Schedule (for SEC use only)
(1) denotes a management contract or compensatory plan or arrangement required to be filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K. *incorporated by reference to the exhibits included in Amendment No. 2 to Gulf West's S-4 Registration Statement, as filed with the Securities and Exchange Commission on December 4, 1997 (Registration No. 333-37307). 11 12 **incorporated by reference to Note 1 of the Consolidated Financial Statements of Gulf West Banks, Inc. and Subsidiaries, as contained in the 1997 Annual Report to Shareholders. (b) No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1997. 12 13 SIGNATURES Pursuant to 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, thereunto duly authorized. GULF WEST BANKS, INC. By: /s/ Gordon W. Campbell --------------------------------- Gordon W. Campbell, President Date: February 19, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
Signature Capacity Date --------- -------- ---- /s/ Gordon W. Campbell President, Chairman of the Board February 19, 1998 - ------------------------------- Gordon W. Campbell /s/ Barry K. Miller Executive Vice President/Secretary/ February 19, 1998 - ------------------------------- Treasurer (principal financial officer Barry K. Miller and principal accounting officer) /s/ John Wm. Galbraith Director February 25, 1998 - ------------------------------- John Wm. Galbraith /s/ Thomas M. Harris Director February 19, 1998 - ------------------------------- Thomas M. Harris /s/ Algis Koncius Director February 19, 1998 - ------------------------------- Algis Koncius /s/ Louis P. Ortiz Director February 19, 1998 - ------------------------------- Louis P. Ortiz /s/ John C. Petagna, Jr. Director February 19, 1998 - ------------------------------- John C. Petagna, Jr. /s/ P.N. Risser, III Director February 19, 1998 - ------------------------------- P. N. Risser, III /s/ Ross E. Roeder Director February 19, 1998 - ------------------------------- Ross E. Roeder
13 14 EXHIBIT INDEX
Exhibit Number Description of Document - -------------- ----------------------- 2* Amended and Restated Agreement and Plan of Merger by and among Citizens National Bank and Trust Company, Inc., Gulf West Banks, Inc. and Mercantile Bank 3.1* Articles of Incorporation of Gulf West Banks, Inc. 3.2* Bylaws of Gulf West Banks, Inc. 10.1* Form of Registration Rights Agreement with Gordon W. Campbell and John Wm. Galbraith 10.2* Salary Continuation Agreements with Gordon W. Campbell, Barry K. Miller, and Robert A. Blakley 10.3* Employment Contract with Gordon W. Campbell 10.4* Stock Option Plan 11** Statement regarding computation of per share earnings 13 1997 Annual Report to Shareholders 21* Subsidiaries of Registrant 23.1 Consent of Hacker, Johnson, Cohen & Grieb PA 27 Financial Data Schedule (for SEC use only)
*incorporated by reference to the exhibits included in Amendment No. 2 to Gulf West's S-4 Registration Statement, as filed with the Securities and Exchange Commission on December 4, 1997 (Registration No. 333-37307). **incorporated by reference to Note 1 of the Consolidated Financial Statements of Gulf West Banks, Inc. and Subsidiaries, as contained in the 1997 Annual Report to Shareholders. 14 EX-13 2 1997 ANNUAL REPORT 1 GULF WEST BANKS [LOGO] GULF WEST BANKS ANNUAL REPORT 1997 2 CORPORATE PROFILE Gulf West Banks, Inc. is a St. Petersburg, Florida based bank holding company which owns 100% of the outstanding stock of Mercantile Bank and Liberty Leasing Corporation. Mercantile Bank, founded in 1986, is a state chartered commercial bank with ten offices, providing a wide range of banking services to businesses and individuals located primarily in Pinellas, Hillsborough and Pasco Counties, Florida. Liberty Leasing Corporation is an equipment leasing company that arranges financing for a variety of equipment for all types of businesses. On January 16, 1998, Gulf West acquired Citizens National Bank and Trust Company, Port Richey, Florida, a $75 million asset bank in Pasco County, Florida. Since the Citizens acquisition occurred in 1998, this report does not reflect the resulting combined financial position and operations. MISSION The company strives to provide shareholders with superior market valuation for their investment by positioning Gulf West Banks, Inc. as the premier financial services company headquartered in the Tampa Bay area. This is achieved by balancing growth with profitability while maintaining the highest standards of safety and soundness. Key business strategies include targeting market segments not adequately served by the competition, hiring and retaining top professional bankers, delivering highly personalized service, and actively assisting the local communities we serve to grow and prosper. [GULF WEST BANKS LOGO]
TABLE OF CONTENTS FINANCIAL HIGHLIGHTS ............................. 1 PRESIDENT'S MESSAGE .............................. 2 BANK LOCATIONS ................................... 4 BOARD OF DIRECTORS ............................... 5 COMMUNITY BOARDS ................................. 5 OFFICERS ......................................... 6 SELECTED FINANCIAL DATA .......................... 8 FINANCIAL REVIEW ................................. 11 INVESTOR AND GENERAL INFORMATION ................. INSIDE BACK COVER
This Annual Report contains certain forward-looking statements which represent the issuer's expectations or beliefs, including, but not limited to, statements concerning the banking industry and the issuer's operations, performance, financial condition, and growth. For this purpose, any statements contained in this Annual Report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "can," "estimate" or "continue" or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the issuer's control, and actual results may differ materially depending on a variety of important factors, including competition, general economic conditions, potential changes in interest rates, and changes in the value of real estate securing loans made by issuer, among other things. 3 CONSOLIDATED FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share amounts)
AT YEAR END: 1997 1996 ---------- --------- Assets $ 204,848 174,814 Loans, net $ 122,555 112,660 Investment securities $ 53,183 40,231 Deposits $ 169,101 149,335 Stockholders' equity $ 14,541 13,100 Book value per share (1) $ 3.95 3.58 Shares outstanding (1) 3,676,943 3,658,633 Equity-to-assets ratio 7.10% 7.49% Nonperforming assets-to-total assets ratio (2) 0.31% 0.46% FOR THE YEAR: 1997 1996 1995 ----------- ---------- ----------- Interest income $ 14,039 10,844 8,447 Net earnings $ 1,255 314 708 Return on average assets .69% .22% .63% Return on average equity 9.18% 2.45% 6.93% Average equity-to-average assets ratio 7.50% 8.87% 9.11% Noninterest expenses to average assets 4.26% 4.38% 3.73% Earnings per share: Basic 0.34 0.09 0.23 Diluted 0.33 0.08 0.22 Average yield or rate during the year ended December 31, ---------------------------------------------- YIELDS AND RATES: 1997 1996 1995 ------ ----- ------- Loan portfolio 9.41% 9.51% 9.62% Securities 6.44% 6.25% 6.23% Other interest-earnings assets 5.42% 5.35% 5.92% All interest-earnings assets 8.47% 8.38% 8.44% Deposits and borrowings 4.45% 4.37% 4.45% Interest-rate spread (3) 4.02% 4.01% 3.99% Net interest margin (4) 4.84% 4.78% 4.71%
- -------------------------------------------------------------------------------- (1) All per share information is presented to reflect all stock dividends and stock splits including the 10% stock dividend declared January 15,1998. (2) Nonperforming assets consist of nonaccrual loans and other real estate owned. (3) Average yield on all interest-earning assets less average rate paid on all interest-bearing liabilities. (4) Net interest income divided by average interest-earning assets. [LOGO] 4 PRESIDENT'S MESSAGE Dear Shareholders: Nineteen ninety-seven was the best year in the history of our company both in terms of earnings and in growth. Total after tax earnings were $1.255 million or $0.33 diluted earnings per share, compared with earnings in 1996 of $314,000 or $0.08 diluted earnings per share. The 1996 earnings were adversely affected by a one-time Savings Association Insurance Fund ("SAIF") assessment of $470,000. Since our subsidiary, Mercantile Bank, converted from a savings and loan charter in 1990, it was subject to this one time assessment. As a result of the recapitalization of the SAIF Fund, our ongoing annual deposit insurance premium was substantially reduced and amounted to $93,000 in 1997, as opposed to an estimated premium of $334,000 had we continued to pay at the old rate. The banking industry continues to be extremely well capitalized and healthy. The FDIC has built its insurance fund to the highest level in the history of its existence, and the future continues to look bright for the industry. Your Board of Directors declared a 10% stock dividend payable March 16, 1998 to shareholders of record on February 16, 1998, which will bring the total number of outstanding shares of Gulf West Banks, Inc. to just over 6 million shares. The most significant event for the company in the past twelve months was the closing of our merger with Citizens National Bank and Trust Company of Port Richey, Florida. This $75 million bank was consolidated into Mercantile Bank in mid-January which brought total assets to $276 million as of January 31, 1998. We were quite pleased to complete this marriage with a very fine Pasco County institution which not only adds quality assets and deposits but also some very qualified employees to our staff family. Mercantile Bank now operates ten offices in the three Tampa Bay area counties of Pinellas, Hillsborough and Pasco. Approval has been received for the opening of an eleventh office which will be located in Hillsborough County on the corner of Hillsborough Avenue and Anderson Road, directly north of Tampa International Airport. This office is in a largely industrial area which will enhance our continued corporate mission to serve the small business and commercial establishments of the Tampa Bay area. Gulf West Banks, Inc. is now a reporting company with the Securities and Exchange Commission and has applied for listing of its common stock on the Nasdaq National Market System. We expect the application process to be completed shortly and for our stock to be quoted on Nasdaq very soon - possibly by the time you receive this Annual Report. Other significant events in 1997 included the opening of our Downtown St. Petersburg office, the conversion of our operating systems to an improved data processing program, and the installation of a wide area terminal network in our banking offices. Our Business Express product offers on-line banking for corporate customers. Our leasing subsidiary, Liberty Leasing Corporation, has grown significantly in the volume of leases originated. Liberty, which is located in Tampa, moved into new, larger quarters and added to both its sales and office staff. 2 [LOGO] 5 The deposit mix of Mercantile Bank continues to be quite favorable with a large percentage of deposit growth coming from transaction accounts and other low cost deposit accounts. The consolidation of some of the large regional banks in Florida has provided opportunities for all community banks to grow. We continue to emphasize the fact that we are independent and "customer oriented." This message seems to have reached an ever greater number of commercial businesses who have contacted our offices about moving their accounts to Mercantile. More and more community banks are being acquired by out-of-state holding companies which are anxious to expand into the growing, prosperous Florida market. Over 16 million people now reside in Florida, and the Tampa Bay area is definitely a leader in the commercial segment of Florida's growth. Mercantile's positioning, to remain exclusively in the Tampa Bay area and to concentrate primarily on small business and commercial customers, has proven to be a winning strategy and is certainly one which will be continued in the future. Nineteen ninety-eight should be an excellent year for your company. Earnings estimates, based on current conditions, are above our last year's results and, with our additional capital and back-room capability, it should be possible to leverage these strengths to build on our past growth. Management believes this growth should translate into better performance in the coming year. While the national economy may be reaching a cyclical point of turning, we see no immediate evidence of any such change to date. The quality of our assets remains quite high. This Annual Report includes all of the financial information required to be included in our Form 10-K. This data is quite extensive and should explain in great detail the financial condition of your company. I believe you will be pleased as you read the balance of this Annual Report. Again, thank you for your support. We look forward to serving you and the many customers you refer to us in the coming year. [PHOTO] Sincerely, /s/ Gordon W. Campbell - ----------------------------------- Gordon W. Campbell Chairman of the Board and President Gulf West Banks, Inc. February 1998 [LOGO] 3 6 MERCANTILE BANK LOCATIONS N.E. ST. PETERSBURG 425 22nd Avenue North St. Petersburg, Florida 33704 Phone (813) 823-2265 Fax (813) 898-5515 BONNIE S. ROWE Banking Manager REYNE L. POWELL Assistant Manager TIERRA VERDE 1110 Pinellas Bayway Tierra Verde, Florida 33715 Phone (813) 867-8674 Fax (813) 867-7692 LILLY CASTRO Banking Manager PETER A. LAKATOS Assistant Manager MAXIMO 3655 50th Avenue South St. Petersburg, Florida 33711 Phone (813) 866-2973 Fax (813) 866-7622 ROBERT B. MONTGOMERY Banking Manager CAROLYN D. RIGGINS Assistant Manager DOWNTOWN ST. PETERSBURG 240 1st Avenue South St. Petersburg, Florida 33701 Phone (813) 897-9410 Fax (813) 897-9078 LINDA B. MELLENEY Banking Manager KOGER CENTER 9400 Fourth Street North St. Petersburg, Florida 33702 Phone (813) 570-2265 Fax (813) 576-0627 CAROLYN E. CASSIDA Banking Manager ANDREE E. HOYLMAN Assistant Manager COUNTRYSIDE 28100 U.S. Highway 19 North Clearwater, Florida 34621 Phone (813) 799-2265 Fax (813) 799-6984 GRAHAM R. COOK Banking Manager SUELLEN EVANS Assistant Manager PORT RICHEY 9550-1 U.S. Highway 19 Port Richey, Florida 34668 Phone (813) 846-1444 Fax (813) 847-3827 CAROL L. KINNARD Interim Banking Manager JOANNE D. HALL Assistant Manager BRYAN DAIRY 8040 Bryan Dairy Road Largo, Florida 33777 Phone (813) 547-4040 Fax (813) 547-2519 CAROLE A. CHILDS Banking Manager TAMPA WESTSHORE 4202 W. Kennedy Boulevard Tampa, Florida 33609 Phone (813) 286-8789 Fax (813) 287-3630 MARY F. CARPENTER Banking Manager MICHAEL A. MAIO Assistant Manager TEMPLE TERRACE 9400 N. 56th Street Temple Terrace, Florida 33617 Phone (813) 985-2265 Fax (813) 985-8921 DIANE TONE Banking Manager NINA HAWTHORNE Assistant Manager WEST HILLSBOROUGH 4801 W. Hillsborough Avenue Tampa, Florida 33614 Phone (813) 884-0200 Fax (813) 884-0928 (opening April 1998) Website and E-Mail Addresses WEBSITE www.gwbk-mercantile.com E-MAIL Mercant1@gte.net [MAP] 4 [MAP] 7 GULF WEST BANKS, INC. AND MERCANTILE BANK DIRECTORS GORDON W. CAMPBELL Chairman of the Board President Gulf West Banks, Inc. Chairman of the Board President Mercantile Bank Chairman Argyll Associates, Inc. AUSTIN L. FILLMON Construction/Development (Mercantile Bank Director) JOHN WM. GALBRAITH Chairman Galbraith Properties, Inc. HENRY W. HANFF, M.D. Orthopaedic Surgeon THOMAS M. HARRIS Attorney-At-Law Harris, Barrett, Mann & Dew PANDURANG V. KAMAT, M.D. Cardio Thoracic Surgeon ALGIS KONCIUS President Koncius Enterprises VAN L. McNEEL Chairman of the Board McNeel Capital Company (Mercantile Bank Director) LOUIS P. ORTIZ, CPA Managing Partner McNulty, Garcia & Ortiz, P.A. JOHN COOPER PETAGNA President American Municipal Securities, Inc. P. N. RISSER, III President & CEO Risser Oil Corporation ROSS E. ROEDER Chairman of the Board CEO MDR, Inc. Consulting Group MERCANTILE BANK COMMUNITY BOARDS N.E. ST. PETERSBURG TERRY L. BARNES Senior Vice President Corporate Finance Raymond James & Assoc. DR. PETER R. BETZER Chairman Marine Science Dept. University of South Florida JOHN C. CANNON President and CEO St. Petersburg Family YMCA THOMAS L. DUPONT Chairman/Publisher duPont Registry BENJAMIN B. GODWIN President Godwin Real Estate, Inc. KEVIN M. HUSSEY President Stewart Title of Pinellas, Inc. DAVID W. LOONEY Vice President TarHeel Roofing JAMES S. NEADER Owner Neader Sports Management MICHAEL R. ZOLLER President Economy Stationers, Inc. TIERRA VERDE MIRIAM BERGER President Miramar Services MARJORIE V. CHASE Investments THOMAS F. GAFFNEY President Winter Park Capital Company ARNOLD E. KRAAG Managing Partner Island Marina Developers WILLIAM C. NEWTON President Professional Bayway Management JACK L. SMITHERS President Smithers Pest Control, Inc. MAXIMO RICHARD D. WILKES, D.V.M. Veterinarian Bay Mooring Animal Hospital BERNIE YOUNG President Young at Heart Marketing KOGER CENTER KATHRYN DEL GRANDE Firm Manager McNulty, Garcia & Ortiz, P.A., CPAs BARRY W. GREENLEAF President Endeavor Medical CHERYL P. HARRIS Executive Director American Institute of Constructors [LOGO] 5 8 COMMUNITY BOARDS (continued) RAYMOND P. HEMPSTEAD President Barney's Motorcycle Sales, Inc. THEODORE C. HENTER, JR. President Henter-Joyce, Inc. COUNTRYSIDE TERRY HUNT President T.L. Hunt, Inc. MEL JOHNSON Vice President/District Manager Fidelity National Title Insurance PAUL KLIMCZAK President and CEO Bay Insurance Marketing EMIL PRATESI Attorney Richards, Gilkey, Fite, Slaughter, Pratesi & Ward, P.A. MARTIN H. SCHWEITZER, CPA Schweitzer & Dobosz JOSEPH J. SOROTA, JR. Attorney JOEL S. TRAUB Vice President Coastal Builders DOWNTOWN GLENN FARLEY Chief Financial Officer Capitol Marketing Concepts, Inc. AL KARNAVICIUS President Bayprint DARRYL LeCLAIR President and CEO Echelon International RICHARD P. AUSTIN President Templeton Funds Annuity Company BRYAN DAIRY THOMAS L. BOOTH President Contract Cleaning Specialists JOHN G. THOMAS President Flo Tec Automation Assoc. LINDA D. KAUTZ Systems Director of Clinical Support Charter Behavioral Health Systems of Tampa Bay TAMPA WESTSHORE CAROL C. BARRY Assistant Vice President Fidelity National Title Insurance STEVE FREEDMAN President Freedman's Office Furniture, Inc. THOMAS E. O'BRIEN Executive Vice President AAA/Auto Club South MILLIE WOOLF President Air Animal, Inc. MICHAEL YORK President Communication Systems Management ARNOLD ZAZULIA President A to Z Products, Inc. TEMPLE TERRACE PERRY JACOBSEN Investment Representative Edward Jones JERRY N. PERRY President The Perry Co. of Tampa, Inc. WESLEY W. RINK Retired Banker JOHN RUZIC Owner/Managing Partner Quality Suites Hotel LINDA SHATTLES President Terrace Title WILLIAM C. TAYLOR President Taylor Industrial Sales, Inc. GULF WEST BANKS, INC. OFFICERS GORDON W. CAMPBELL President BARRY K. MILLER Secretary/Treasurer ROBERT A. BLAKLEY Vice President JOHN T. SICA Vice President DOUGLAS WINTON Vice President 6 [LOGO] 9 Mercantile Bank Officers GORDON W. CAMPBELL Chairman of the Board President ROBERT A. BLAKLEY Executive Vice President CHARLES B. MCKENZIE Executive Vice President BARRY K. MILLER Executive Vice President JOHN T. SICA Executive Vice President DOUGLAS WINTON Executive Vice President PHILIP H. CHESNUT President - Pasco County GILBERT K. GRASS Senior Vice President JEFFREY A. HACKETT Senior Vice President KENNETH E. HUBER Senior Vice President ROBERT G. SHOEMAKER Senior Vice President KAY L. BONENFANT First Vice President CAROL L. KINNARD First Vice President CATHERINE M. RAWL First Vice President BONNIE S. ROWE First Vice President JEFFREY P. SELIGSOHN, CPA First Vice President & Controller MICHELE K. BREEN Vice President THERESA G. BROCK Vice President CAROLYN E. CASSIDA Vice President LILLY CASTRO Vice President GRAHAM R. COOK Vice President LEE-ELLEN CURRY Vice President KAREN L. DONAHOE Vice President EMILY A. DUTY Vice President MICHAEL L. HAAN Vice President EDWIN C. HANCOCK Vice President DONNA K. LAWRENCE Vice President SHERI MERRIFIELD Vice President CAROL J. POIERIER Vice President JUNE R. SOOS Vice President DIANE L. TONE Vice President DEBORAH H. DRAKE Assistant Vice President LISA M. NAPOLITANO Assistant Vice President MARY F. CARPENTER Banking Officer CAROLE A. CHILDS Banking Officer DAWN SHEA JANNONE Banking Officer LINDA B. MELLENEY Banking Officer ROBERT B. MONTGOMERY Banking Officer TAMMY J. BAKER Consumer Loan Officer LIBERTY LEASING CORPORATION OFFICERS ROBERT A. BLAKLEY Chairman WILLIAM H. TRIPP President RICHARD L. CARNEY Vice President 7 [LOGO] 10 Selected Financial Data (Dollars in thousands, except per share amounts)
At December 31, ----------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Cash and due from banks $ 9,046 8,631 5,555 5,882 4,488 Federal funds sold 8,903 3,356 5,600 5,300 6,300 Investment securities 53,183 40,231 33,489 23,963 17,091 Loans 123,270 112,979 73,948 63,472 53,374 All other assets 10,446 9,617 7,344 5,832 5,485 -------- ------- ------- ------- ------ Total assets $204,848 174,814 125,936 104,449 86,738 ======== ======= ======= ======= ====== Deposits 169,101 149,335 109,192 96,372 78,532 Other borrowings 20,237 12,047 3,799 -- -- All other liabilities 969 332 431 149 299 Stockholders' equity 14,541 13,100 12,514 7,928 7,907 -------- ------- ------- ------- ------ Total liabilities and stockholders' equity $204,848 174,814 125,936 104,449 86,738 ======== ======= ======= ======= ======
TOTAL ASSETS TOTAL DEPOSITS [GRAPH] [GRAPH] TOTAL SHAREHOLDERS' EQUITY NET LOANS [GRAPH] [GRAPH] 8 11
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Total interest income $ 14,039 10,844 8,447 6,146 4,931 Total interest expense 6,026 4,659 3,736 2,521 2,046 --------- --------- --------- --------- --------- Net interest income 8,013 6,185 4,711 3,625 2,885 Provision for loan losses 437 401 240 176 40 --------- --------- --------- --------- --------- Total interest income after provision for loan losses 7,576 5,784 4,471 3,449 2,845 Noninterest income 1,987 1,031 849 603 838 Noninterest expense 7,654 6,324 4,181 3,228 3,056 --------- --------- --------- --------- --------- Earnings before income taxes 1,909 491 1,139 824 627 income taxes 654 177 431 142 -- --------- --------- --------- --------- --------- Net earnings $ 1,255 314 708 682 627 ========= ========= ========= ========= ========= Earnings per share (1): Basic $ 0.34 0.09 0.23 0.25 0.23 ========= ========= ========= ========= ========= Diluted $ 0.33 0.08 0.22 0.25 0.23 ========= ========= ========= ========= ========= Without SAIF Assessment** Net earnings $ 1,255 608** 708 682 627 ========= ========= ========= ========= ========= Earnings per common share - basic (1) $ 0.34 0.17** 0.23 0.25 0.23 ========= ========= ========= ========= ========= Earnings per common share - diluted (1) $ 0.33 0.16** 0.22 0.25 0.23 ========= ========= ========= ========= ========= ** SAIF assessment was paid in 1996 AT OR FOR THE YEAR ENDED DECEMBER 31, --------------------------------------------------------- FOR THE PERIOD: 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Return on average assets 0.69% 0.22% 0.63% 0.74% 0.80% Return on average equity 9.18% 2.45% 6.93% 8.69% 8.26% Average equity to average assets 7.50% 8.87% 9.11% 8.47% 9.70% Interest rate spread during the period (2) 4.02% 4.01% 3.99% 3.82% 3.42% Net interest margin 4.84% 4.78% 4.71% 4.37% 4.09% Noninterest expense to average assets 4.26% 4.39% 3.73% 3.49% 3.91% AT THE END OF THE PERIOD: Ratio of average interest-earning assets to average interest-bearing liabilities 1.22 1.21 1.19 1.18 1.23 Nonperforming loans, and foreclosed real estate as a percentage of total assets 0.31% 0.46% 1.01% 0.81% 0.26% Allowance for loan losses as a percentage of total loans 1.26% 1.04% 1.11% 1.03% 1.14% Allowance for loan losses as a percentage of nonperforming loans 245.53% 148.19% 107.37% 933.80% 269.30% Total number of offices 9 8 5 4 4 Full-service banking offices 9 8 5 4 4 Total shares outstanding at end of period (1) 3,676,943 3,658,633 3,605,530 2,707,981 2,707,186 Book value per share (1) 3.95 3.58 3.47 2.93 2.92 - ----------------------------------------------------------------------------------------------------------
(1) All per share information is presented to reflect all stock dividends and stock splits including the 10% stock dividend declared January 15,1998. (2) Difference between weighted-average yield on all interest-earning assets and weighted-average rate on all interest-bearing liabilities. This statement has not been reviewed, or confirmed for accuracy or relevance, by the Federal Deposit Insurance Corporation. [LOGO] 12 Notes 10 13 Financial Review
Contents Managements's Discussion and Analysis ...................... 13 Management's Responsibilities for Financial Reporting ...... 26 Consolidated Balance Sheets ................................ 27 Consolidated Statements of Earnings ........................ 28 Consolidated Statements of Stockholders' Equity ............ 29 Consolidated Statements of Cash Flows ...................... 30 Notes to Consolidated Financial Statements ................. 31 Report of Independent Accountants .......................... 47
11 14 Notes 12 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Gulf West Banks, Inc. (the "Holding Company") is a one-bank holding company and owns 100% of the outstanding stock of Mercantile Bank (the "Bank"). The Bank is a State (Florida) chartered commercial bank. The Bank, through ten banking offices, provides a wide range of banking services to individuals and businesses located primarily in Pinellas and Hillsborough Counties, Florida. During 1996, the Holding Company acquired all the outstanding common shares of Liberty Leasing Corporation ("Liberty") in exchange of 30,000 shares of the Holding Company's common stock. Liberty is an equipment leasing company that arranges financing for a variety of equipment for all types of businesses and is headquartered in Tampa. The acquisition has been accounted for using the purchase method of accounting. The Holding Company's only business activities are the operations of the Bank and Liberty. An inactive subsidiary of the Bank, Portfolio Recoveries Inc., was dissolved in 1995. Collectively the entities are referred to as the "Company". The principal services offered by the Bank include commercial and individual checking and savings accounts, money-market accounts, certificates of deposit, most types of loans, including commercial and working capital loans and real estate, home equity and installment loans, as well as financing through letters of credit. The Bank also provides credit card services through a national credit card issuer and acts as issuing agent for U.S. Savings Bonds, travelers checks and cashiers checks. It offers collection teller services, wire transfer facilities, safe deposit and night depository facilities. The transaction accounts and time certificates are tailored to the Bank's principal market area at rates competitive with those offered in the Bank's primary service area. In addition, the Bank offers certain retirement account services, including individual retirement accounts. All deposit accounts are insured by the FDIC up to the maximum amount allowed by law. The Bank offers a wide range of short to medium-term commercial and personal loans. Commercial loans include both secured and unsecured loans for working capital (including inventory and receivables), business expansion (including acquisition of real estate and improvements), purchase of equipment and machinery, and Small Business Administration ("SBA") loans. Consumer loans include secured and unsecured loans for financing automobiles, home improvements, and personal investments. The Bank also originates and holds construction and acquisition loans on residential real estate. At December 31, 1997, the Company had total consolidated assets of $204.8 million, an increase of 17.2% over total assets of $174.8 million at December 31, 1996. During the year ended December 31, 1997, loans receivable increased $9.9 million or 8.8%. The Company's portfolio of investment securities increased to $53.2 million as of December 31, 1997 from $40.2 million as of December 31, 1996. The Bank's deposits increased to $169.1 million as of December 31, 1997 from $149.3 million as of December 31, 1996, a 13.2% increase. The Company had consolidated net earnings of $1,255,000 or $.34 basic earnings per share ($.33 diluted earnings per share) for the year ended December 31, 1997 compared to consolidated net earnings of $314,000 or $.09 basic earnings per share (.08 diluted earnings per share) for 1996. The consolidated net earnings for the year ended December 31, 1996 included the effect of the SAIF special assessment of $470,000 (before taxes). REGULATION AND LEGISLATION As a state-chartered commercial bank, the Bank is subject to extensive regulation by the Florida Department of Banking and Finance ("Florida DBF") and the Federal Deposit Insurance Corporation ("FDIC"). The Bank files reports with the Florida DBF and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other financial institutions. Periodic examinations are performed by the Florida DBF and the FDIC to monitor the Bank's compliance with the various regulatory requirements. The Holding Company and the Bank are also subject to regulation and examination by the Federal Reserve Board of Governors. As a Florida corporation, the Bank is also subject to the Florida Act and the regulation of the Florida Department of State under the authority to administer and implement the Florida Act. ACQUISITION On January 16, 1998, the Company acquired Citizens National Bank and Trust Company, Port Richey, Florida ("Citizens"). The acquisition was accomplished through the merger of Citizens with and into Mercantile. In consideration of the merger, the Company issued 1.95 million shares of its common stock to the shareholders of Citizens. At December 31, 1997, Citizens had total assets of $75.5 million, total loans of $30.7 million and total deposits of $66.4 million. Citizens operated one banking office in Pasco County, Florida. The Company will account for this transaction using the purchase method of accounting. 13 16 YEAR 2000 COMPLIANCE The Bank has an ongoing program designed to ensure that its operational and financial systems will not be adversely affected by year 2000 software failures, due to processing errors arising from calculations using the year 2000 date. Based on current estimates the Bank expects to incur $50,000 over the next three years on its program to redevelop, replace, or repair its computer applications to make them "year 2000 compliant." While the Bank believes it is doing everything technologically possible to assure year 2000 compliance, it is to some extent dependent upon vendor cooperation. The Bank is requiring its computer system and software vendors to represent that the products provided are, or will be, year 2000 compliant, and has planned a program of testing for compliance. It is recognized that any year 2000 compliance failures could result in additional expense to the Bank. CREDIT RISK The Bank's primary business is making commercial, business, consumer and real estate loans. That activity entails potential loan losses, the magnitude of which depend on a variety of economic factors affecting borrowers which are beyond the control of the Bank. While management has instituted underwriting guidelines and credit review procedures to protect the Bank from avoidable credit losses, some losses will inevitably occur. The following table sets forth certain information regarding nonaccrual loans and foreclosed real estate, including the ratio of such loans and foreclosed real estate to total assets as of the dates indicated, and certain other related information.
AT DECEMBER 31, ----------------------------------------------------- 1997 1996 1995 1994 1993 ----- ----- ----- ----- ----- (DOLLARS IN THOUSANDS) Nonaccrual loans: Residential real estate loans .......................... $ 51 91 -- 53 74 Commercial real estate ................................. 488 628 747 -- 150 Commercial loans ....................................... 83 41 -- -- -- Consumer loans and other ............................... 15 39 26 18 4 ----- ----- ----- ----- ----- Total nonaccrual loans ............................. 637 799 773 71 228 ----- ----- ----- ----- ----- Total nonperforming loans .......................... 637 799 773 71 228 ----- ----- ----- ----- ----- Total nonperforming loans to total assets .......... .31% .46% .61% .07% .26% ===== ===== ===== ===== ===== Foreclosed real estate: Real estate acquired by foreclosure or deed in lieu of foreclosure ............................... -- -- 497 -- -- ----- ----- ----- ----- ----- Total nonperforming loans and foreclosed real estate $ 637 799 1,270 71 228 ===== ===== ===== ===== ===== Total nonperforming and foreclosed real estate to total assets ................................. .31% .46% 1.01% .07% .26% ===== ===== ===== ===== =====
Interest income that would have been recorded under the original terms of nonaccrual loans and the interest income actually recognized are summarized below:
YEAR ENDED DECEMBER 31, ---------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Interest income that would have been recognized $71 82 23 6 21 Interest income recognized .................... 51 66 15 4 13 --- --- --- --- --- $20 16 8 2 8 === === === === ===
14 17 The following table sets forth information with respect to activity in the Bank's allowance for loan losses during the periods indicated:
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) Average loans outstanding, net ........................... $ 116,148 87,000 65,747 57,185 51,691 ========= ========= ========= ========= ========= Allowance at beginning of year ........................... 1,184 830 663 613 633 --------- --------- --------- --------- --------- Charge-offs: Commercial loans ...................................... (36) -- (41) (61) (60) Consumer loans ........................................ (60) (54) (57) (77) (9) --------- --------- --------- --------- --------- Total loans charged-off ............................. (96) (54) (98) (138) (69) --------- --------- --------- --------- --------- Recoveries ............................................... 39 7 25 12 9 --------- --------- --------- --------- --------- Net charge-offs ..................................... (57) (47) (73) (126) (60) --------- --------- --------- --------- --------- Provision for loan losses charged to operating expenses 437 401 240 176 40 --------- --------- --------- --------- --------- Allowance at end of year .............................. $ 1,564 1,184 830 663 613 ========= ========= ========= ========= ========= Ratio of net charge-offs to average loans outstanding . .0005 .0005 .0011 .0022 .0011 ========= ========= ========= ========= ========= Allowance as a percent of total loans ................. 1.26% 1.04% 1.11% 1.03% 1.14% ========= ========= ========= ========= ========= Total loans at end of year ............................ $ 124,291 114,065 74,654 64,059 53,674 ========= ========= ========= ========= =========
The following table presents information regarding the Bank's total allowance for loan losses as well as the allocation of such amounts to the various categories of loans:
DECEMBER 31, ------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------------- ---------------- --------------- ---------------- ---------------- % OF % OF % OF % OF % OF LOANS IN LOANS IN LOANS IN LOANS IN LOANS IN EACH EACH EACH EACH EACH CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY AMOUNT TO AMOUNT TO AMOUNT TO AMOUNT TO AMOUNT TO OF TOTAL OF TOTAL OF TOTAL OF TOTAL OF T0TAL ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- (DOLLARS IN THOUSANDS) Commercial loans $ 328 15.9% $ 179 15.9% $136 19.5% $137 20.7% $110 18.0% Commercial real estate loans .. 985 58.2 782 55.4 447 37.2 327 49.3 276 45.0 Residential real estate loans .. 63 15.3 67 19.4 120 33.4 119 17.9 153 25.0 Consumer loans .. 188 10.6 156 9.3 127 9.9 80 12.1 74 12.0 ------ ----- ------ ----- ---- ----- ---- ----- ---- ----- Total allowance for loan losses .. $1,564 100.0% $1,184 100.0% $830 100.0% $663 100.0% $613 100.0% ====== ===== ====== ===== ==== ===== ==== ===== ==== =====
15 18 RESULTS OF OPERATIONS The operating results of the Company depend primarily on its net interest income, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities, consisting primarily of deposits. Net interest income is determined by the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities ("interest-rate spread") and the relative amounts of interest-earning assets and interest-bearing liabilities. The Company's interest-rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. In addition, the Company's net earnings are also affected by the level of nonperforming loans and foreclosed real estate, as well as the level of its noninterest income, and its noninterest expenses, such as salaries and employee benefits, occupancy and equipment costs and provisions for losses on foreclosed real estate and income taxes. The following table sets forth for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest/dividend income; (iv) interest-rate spread; (v) interest margin; and (vi) ratio of average interest-earning asset to average interest-bearing liabilities.
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------------------------- 1997 1996 1995 ------------------------------- ---------------------------- ------------------------- INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE AVERAGE AND YIELD/ AVERAGE AND YIELD/ AVERAGE AND YIELD/ BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE -------- --------- ------- ------- --------- ------- ------- --------- ------ (DOLLARS IN THOUSANDS) Interest-earning assets: Loans (1) ..................... $116,148 10,934 9.41% $ 87,000 8,272 9.51% $ 65,747 6,326 9.62% Securities .................... 41,335 2,661 6.44% 33,387 2,086 6.25% 29,573 1,842 6.23% Other interest-earning assets (2) ................ 8,187 444 5.42% 9,084 486 5.35% 4,714 279 5.92% -------- ------- -------- ------ -------- ----- Total interest-earning assets ................. 165,670 14,039 8.47% 129,471 10,844 8.38% 100,034 8,447 8.44% ------- ------ ----- Noninterest-earning assets ....... 16,754 14,966 12,159 -------- -------- -------- Total assets.............. $182,424 $144,437 $112,193 ======== ======== ======== Interest-bearing liabilities: Savings and NOW deposits ...... 40,267 1,245 3.09% 28,219 812 2.88% 21,501 645 3.00% Money-market deposits ......... 13,747 371 2.70% 11,716 317 2.71% 10,068 304 3.02% Time deposits ................. 72,841 3,953 5.43% 61,226 3,260 5.32% 50,245 2,669 5.31% Other borrowings .............. 8,705 457 5.25% 5,447 270 4.96% 2,073 118 5.69% -------- ------- -------- ------ -------- ----- Total interest-bearing liabilities ........ 135,560 6,026 4.45% 106,608 4,659 4.37% 83,887 3,736 4.45% ------- ------ ----- Demand deposits .................. 33,153 25,005 17,671 Noninterest-bearing liabilities .. 36 17 415 Stockholders' equity ............. 13,675 12,807 10,220 -------- -------- -------- Total liabilities and stockholders' equity............. $182,424 $144,437 $112,193 ======== ======== ======== Net interest income .............. $ 8,013 $ 6,185 $4,711 ======= ======= ====== Interest-rate spread (3) ......... 4.02% 4.01% 3.99% ==== ==== ==== Net interest margin (4) .......... 4.84% 4.78% 4.71% ==== ==== ==== Ratio of average interest- earning assets to average interest- bearing liabilities ........... 1.22 1.21 1.19 ==== ==== ====
- --------------------------------------- (1) Includes nonaccrual loans. (2) Includes interest-bearing deposits, federal funds sold and securities purchased under agreements to resell. (3) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest- bearing liabilities. (4) Net interest margin is net interest income dividend by average interest-earning assets. 16 19 RATE/VOLUME ANALYSIS The following table sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (change in rate multiplied by prior volume), (2) changes in volume (change in volume multiplied by prior rate) and (3) changes in rate-volume (change in rate multiplied by change in volume).
YEAR ENDED DECEMBER 31, 1997 VS. 1996 ----------------------------------- INCREASE (DECREASE) DUE TO ----------------------------------- RATE/ RATE VOLUME VOLUME TOTAL ----- ------ ------ ------ (In thousands) Interest earning assets: Loans ....................... $ (82) 2,771 (27) 2,662 Securities .................. 63 497 15 575 Other interest-earning assets 7 (48) (1) (42) ----- ------ --- ------ Total ..................... (12) 3,220 (13) 3,195 ----- ------ --- ------ Interest-bearing liabilities: Deposits: Savings and NOW deposits .. 60 347 26 433 Money market deposits ..... (1) 55 -- 54 Time deposits ............. 63 618 12 693 Other borrowings .......... 16 161 10 187 ----- ------ --- ------ Total ..................... 138 1,181 48 1,367 ----- ------ --- ------ Net change in net interest income $(150) 2,039 (61) 1,828 ===== ====== === ======
YEAR ENDED DECEMBER 31, 1996 VS. 1995 ------------------------------- INCREASE (DECREASE) DUE TO ------------------------------- RATE/ RATE VOLUME VOLUME TOTAL ---- ------ ------ ----- (In thousands) Interest earning assets: Loans ....................... $(73) 2,043 (24) 1,946 Securities .................. 6 237 1 244 Other interest-earning assets (27) 259 (25) 207 ---- ----- --- ----- Total ..................... (94) 2,539 (48) 2,397 ---- ----- --- ----- Interest-bearing liabilities: Deposits: Savings and NOW deposits .. (26) 201 (8) 167 Money market deposits ..... (32) 50 (5) 13 Time deposits ............. 5 584 2 591 Other borrowings .......... (15) 192 (25) 152 ---- ----- --- ----- Total ..................... (68) 1,027 (36) 923 ---- ----- --- ----- Net change in net interest income $(26) 1,512 (12) 1,474 ==== ===== === =====
17 20 LIQUIDITY AND CAPITAL RESOURCES A Florida chartered commercial bank is required to maintain a liquidity reserve of at least 15% of its total transaction accounts and 8% of its total nontransaction accounts less deposits of certain public funds. The liquidity reserve may consist of cash on hand, cash on demand with other correspondent banks and other investments and short-term marketable securities as determined by the rules of the Florida DBF, such as federal funds sold and United States securities or securities guaranteed by the United States or agencies thereof. As of December 31, 1997 and December 31, 1996, the Bank has liquidity of approximately $71.1 million and $52.2 million, or approximately 37.6% and 32.3% of total deposits combined with borrowings, respectively. During the year ended December 31, 1997, the Company's primary sources of funds consisted of principal payments on loans and investment securities, proceeds from sales and maturities of securities available for sale and net increases in deposits. The Company used its capital resources principally to purchase investment securities and fund existing and continuing loan commitments. At December 31, 1997, the Company had commitments to originate loans totaling $6.3 million. Scheduled maturities of certificates of deposit during the 12 months following December 31, 1997 totaled $58.8 million as of December 31, 1997. Management believes the Company has adequate resources to fund all its commitments, that substantially all of its existing commitments will be funded within the next twelve months and, if so desired, that it can adjust the rates on certificates of deposit to retain deposits in a changing interest-rate environment. The following table sets forth, by maturity distribution, certain information pertaining to the investment securities portfolio (dollars in thousands):
AFTER ONE YEAR AFTER FIVE YEARS ONE YEAR OR LESS TO FIVE YEAR TO TEN YEARS AFTER TEN YEARS TOTAL ----------------- ----------------- ----------------- ------------------ ------------------ CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD -------- ------- -------- ------- -------- ------- -------- ------- -------- ------- AT DECEMBER 31, 1997: U.S. agency obligations .... $ -- - % $ 1,004 7.00% $ -- --% $ -- --% $ 1,004 7.00% U.S. Treasury securities ..... 3,478 4.86 8,097 6.44 -- -- -- -- 11,575 5.96 Mortgage-backed securities ..... 7,159 6.85 18,017 6.85 3,214 6.85 12,214 6.85 40,604 6.85 ------- ------- ------ ------- ------- Total .......... $10,637 6.19% $27,118 6.73% $3,214 6.85% $12,214 6.85% $53,183 6.66% ======= ==== ======= ==== ====== ==== ======= ==== ======= ==== AT DECEMBER 31, 1996: U.S. agency obligations .... $ -- - % $ 1,008 7.00% $ -- --% $ -- --% $ 1,008 7.00% Municipal obligations .... 350 5.39 249 5.67 100 6.28 -- -- 699 5.62 U.S. Treasury securities ..... 2,507 5.63 13,460 5.72 -- -- -- -- 15,967 5.70 Mortgage-backed securities ..... 2,462 7.08 9,454 7.08 4,738 7.08 5,903 7.08 22,557 7.08 ------- ------- ------ ------- ------- Total .......... $ 5,319 6.28% $24,171 6.30% $4,838 7.06% $ 5,903 7.08% $40,231 6.51% ======= ==== ======= ==== ====== ==== ======= ==== ======= ====
18 21 REGULATORY CAPITAL REQUIREMENTS Under FDIC regulations, the Bank is required to meet certain minimum regulatory capital requirements. This is not a valuation allowance and has not been created by charges against earnings. It represents a restriction on stockholders' equity. 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, 1997, that the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 1997, the most recent notification from the State and Federal regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as 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 below. There are no conditions or events since that notification that management believes have changed the Bank's category. The following table summarizes the capital requirements for the Bank (dollars in thousands):
TO BE WELL CAPITALIZED UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS: -------------------- -------------------- --------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------ ----- ------ ----- ------ ----- AT DECEMBER 31, 1997: Total Capital (to Risk-Weighted Assets)....... $15,458 11.3% $10,922 8.0% $13,652 10.0% Tier I Capital (to Risk-Weighted Assets)....... 13,894 10.2 5,461 4.0 8,191 6.0 Tier I Capital (to Average Assets)............. 13,894 7.5 7,397 4.0 9,246 5.0 AT DECEMBER 31, 1996: Total Capital (to Risk-Weighted Assets)....... 13,719 11.4% 9,664 8.0% 12,079 10.0% Tier I Capital (to Risk-Weighted Assets)....... 12,535 10.4 4,832 4.0 7,248 6.0 Tier I Capital (to Average Assets)............. 12,535 7.7 6,495 4.0 8,118 5.0
MARKET RISK Market risk is the risk of loss from adverse changes in market prices and rates. The Company's market risk arises primarily from interest rate risk inherent in its lending and deposit taking activities. To that end, management actively monitors and manages its interest rate risk exposure. The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance-sheet transactions are aggregated, and the resulting net positions are identified. Disclosures about the fair value of financial instruments, which reflect changes in market prices and rates, can be found in Note 10 of Notes to Consolidated Financial Statements. The Company's primary objective is managing interest-rate risk is to minimize the adverse impact of changes in interest rates on the Bank's net interest income and capital, while adjusting the Company's asset-liability structure to obtain the maximum yield-cost spread on that structure. The Company relies primarily on its asset-liability structure to control interest rate risk. However, a sudden and substantial increase in interest rates may adversely impact the Company's earnings, to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis. The Company does not engage in trading activities. 19 22 ASSET - LIABILITY STRUCTURE As part of its asset and liability management, the Company has emphasized establishing and implementing internal asset-liability decision processes, as well as communications and control procedures to aid in managing the Company's earnings. Management believes that these processes and procedures provide the Company with better capital planning, asset mix and volume controls, loan-pricing guidelines, and deposit interest-rate guidelines which should result in tighter controls and less exposure to interest-rate risk. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are "interest-rate sensitive" and by monitoring an institution's interest-rate sensitivity "gap." An asset or liability is said to be interest-rate sensitive within a specific time period if it will mature or reprice within that time period. The interest-rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. The gap ratio is computed as dividing rate-sensitive assets by rate-sensitive liabilities. A gap ratio of 1.0% represents perfect matching. A gap is considered positive when the amount of interest-rate sensitive assets exceeds interest-rate sensitive liabilities. A gap is considered negative when the amount of interest-rate sensitive liabilities exceeds interest-rate sensitive assets. During a period of rising interest rates, a negative gap would adversely affect net interest income, while a positive gap would result in an increase in net interest income. During a period of falling interest rates, a negative gap would result in an increase in net interest income, while a positive gap would adversely affect net interest income. Since gap analysis does not take into account the probability that potential maturities or repricings of interest rate sensitive assets and liabilities will occur, or the relative magnitude of the repricings, the Company also uses an industry standard computer modeling system to perform "Income Simulation Analysis." Income simulation analysis captures not only the potential of assets and liabilities to mature or reprice but the probability that they will do so. In addition, income simulation analysis attends to the relative sensitivities of balance sheet items and projects their behavior over an extended period of time and permits management to assess the probable effects on balance sheet items of not only changes in market interest rates but also of proposed strategies for responding to such changes. On a quarterly basis, management of the Company performs an income simulation analysis to determine the projected effect on net interest income of both a 200 basis point increase and a 200 basis point decrease in the level of interest rates. These scenarios assume that the 200 basis point rate changes occur in even monthly increments over twelve months and then hold constant for an additional twelve months. The volatility of net interest income over this twenty-four month period in both an up and down rate scenario is measured by reference to the levels of such income in a flat rate scenario. The Company has established guidelines for the acceptable volatility of net interest income for the twenty-four month period and management institutes appropriate strategies designed to keep the volatility levels within those guidelines. In order to minimize the potential for adverse effects of material and prolonged increases in interest rates on the results of operations, the Company's management continues to monitor asset and liability management policies to better match the maturities and repricing terms of its interest-earning assets and interest-bearing liabilities. Such policies have consisted primarily of: (i) emphasizing the origination of adjustable-rate loans; (ii) maintaining a stable core deposit base; and (iii) maintaining a significant portion of liquid assets (cash and short-term investments). The Company has also maintained a relatively large portfolio of liquid assets (cash and assets maturing or repricing in one year or less) in order to reduce its vulnerability to shifts in market rates of interest. At December 31, 1997, 10.5% of the Companys' total assets consisted of cash and short-term U.S. Government securities maturing in one year or less. Furthermore, as of such date, the Company's liquidity ratio was 37.6%. The Company also seeks to maintain a large stable core deposit base by providing quality service to its customers without significantly increasing its cost of funds or operating expenses. The success of the Companys' core deposit strategy is demonstrated by the stability and growth of its demand accounts, money-market deposit accounts, savings accounts and NOW accounts, which totaled $99.2 million, representing 58.7% of total deposits at December 31, 1997. Management anticipates that these accounts will increase and in the future comprise a significant portion of its deposit base. As of December 31, 1997, the Companys' one-year negative interest-rate sensitivity gap in dollars was $69.0 million. Although management believes that the implementation of the foregoing strategies has reduced the potential adverse effects of changes in interest rates on the Companys' results of operations, any substantial and prolonged increase in market rates of interest could have an adverse impact on the Companys' results of operations. As discussed above, on a quarterly basis management performs an income simulation analysis to measure the volatility of the Company's projected net interest income when subjected to 200 basis point interest rate shocks. As a result of this simulation analysis, management believes that its present gap position is appropriate for the current interest rate environment and that a negative gap will continue in the one year time period. 20 23 The following table sets forth certain information relating to the Company's interest-earning assets and interest-bearing liabilities at December 31, 1997 that are estimated to mature or are scheduled to reprice within the period shown.
MORE THAN MORE THREE THAN SIX MORE MONTHS MONTHS THAN ONE THREE SIX TO ONE YEAR TO MORE THAN MONTHS MONTHS YEAR FIVE YEARS FIVE YEARS TOTAL --------- ------- ------- ---------- ---------- ------- ($ IN THOUSANDS) Loans (1),(2): Adjustable rate .............. $ 14,753 6,365 11,714 41,082 274 74,188 Fixed rate ................... 388 1,478 911 3,951 11,477 18,205 Consumer and other loans ..... 16,394 424 892 12,390 2,513 32,613 --------- ------- ------- ------- ------ ------- Total loans ............... 31,535 8,267 13,517 57,423 14,264 125,006 Investments (3),(4) ............ 8,903 -- 3,478 13,261 36,444 62,086 --------- ------- ------- ------- ------ ------- Total rate-sensitive assets 40,438 8,267 16,995 70,684 50,708 187,092 --------- ------- ------- ------- ------ ------- Deposit accounts (5): Savings and NOW .............. 45,888 -- -- -- -- 45,888 Money market ................. 16,324 -- -- -- -- 16,324 Time deposits ................ 27,018 14,739 17,088 11,030 22 69,897 --------- ------- ------- ------- ------ ------- Total deposit accounts ......... 89,230 14,739 17,088 11,030 22 132,109 Other borrowings ............... 12,737 -- 7,500 -- -- 20,237 --------- ------- ------- ------- ------ ------- Total rate-sensitive liabilities ........... 101,967 14,739 24,588 11,030 22 152,346 --------- ------- ------- ------- ------ ------- Gap (repricing differences) .... $ (61,529) (6,472) (7,593) 59,654 50,686 34,746 ========= ======= ======= ======= ====== ======= Cumulative GAP ................. $ (61,529) (68,001) (75,594) (15,940) 34,746 ========= ======= ======= ======= ====== Cumulative GAP/total assets .... (30.00)% (33.20)% (36.90)% (7.78)% 16.96% ========= ======= ======= ======= ======
- ------------------------- (1) In preparing the table above, adjustable-rate loans are included in the period in which the interest rates are next scheduled to adjust rather than in the period in which the loans mature. Fixed-rate loans are scheduled, including repayment, according to their contractual maturities. (2) Includes nonaccrual loans and loans held for sale. (3) Investments are scheduled according to their respective repricing and maturity dates. (4) Includes federal funds sold and securities purchased under agreement to resell. (5) NOW, savings and money-market accounts are regarded as ready accessible withdrawable accounts. Time accounts are scheduled according to their respective maturity dates. 21 24 The following table reflects the contractual principal repayments by period of the Company's loan portfolio at December 31, 1997.
RESIDENTIAL YEARS ENDING COMMERCIAL MORTGAGE CONSUMER DECEMBER 31, LOANS LOANS LOANS TOTAL - --------------------- ------- ------ ------ ------- (IN THOUSANDS) 1998 ........................ $25,466 820 3,335 29,621 1999 ........................ 10,335 580 2,715 13,630 2000 ........................ 7,024 642 2,624 10,290 2001-2002 ................... 9,236 1,257 3,238 13,731 2003-2004 ................... 10,092 1,058 908 12,058 2005-2012 ................... 29,896 5,952 357 36,205 Thereafter .................. 99 9,372 -- 9,471 ------- ------ ------ ------- Total .................... $92,148 19,681 13,177 125,006 ======= ====== ====== =======
Of the $95,385,000 of loans due after 1998, 27% of such loans have fixed rates of interest and 73% have adjustable rates. The following table displays loan originations by type of loan and principal reductions during the periods indicated:
YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1997 1996 1995 1994 1993 -------- ------- ------- ------- ------- (IN THOUSANDS) Originations: Commercial loans ........... $ 12,102 12,543 8,030 6,271 5,600 Commercial real estate loans 31,329 49,234 18,342 9,950 6,265 Residential real estate .... 4,197 3,125 2,314 3,497 1,136 Consumer loans ............. 11,692 9,689 8,979 8,948 8,266 -------- ------- ------- ------- ------- Total loans originated .. 59,320 74,591 37,665 28,666 21,267 Principal reductions ............. (49,094) (35,180) (27,070) (18,281) (16,797) -------- ------- ------- ------- ------- Increase in gross loans . $ 10,226 39,411 10,595 10,385 4,470 ======== ======= ======= ======= =======
The following table sets forth information concerning the Company's loan portfolio by type of loan at the dates indicated.
AT DECEMBER 31, ---------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------------- ------------------- ------------------ ------------------ ------------------ % OF % OF % OF % OF % OF AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL --------- ----- --------- ----- -------- ----- -------- ----- -------- ----- (DOLLARS IN THOUSANDS) Commercial .... $ 19,752 15.9% $ 18,169 15.9% $ 14,531 19.5% $ 9,597 15.0% $ 4,846 9.0% Commercial real estate . 72,396 58.2 63,207 55.4 27,772 37.2 19,721 30.8 12,667 23.6 Residential real estate . 18,966 15.3 22,095 19.4 24,949 33.4 27,307 42.6 29,483 54.9 Consumer ...... 13,177 10.6 10,594 9.3 7,402 9.9 7,434 11.6 6,678 12.5 --------- ----- --------- ----- -------- ----- -------- ----- -------- ----- Total loans 124,291 100.0% 114,065 100.0% 74,654 100.0% 64,059 100.0% 53,674 100.0% ===== ===== ===== ===== ===== Less: Deferred loan fees ...... (172) (221) (134) (90) (68) Allowance for loan losses (1,564) (1,184) (830) (663) (613) --------- --------- -------- -------- -------- Loans, net $ 122,555 $ 112,660 $ 73,690 $ 63,306 $ 52,993 ========= ========= ======== ======== ========
22 25 The following table shows the distribution of, and certain other information relating to, deposit accounts by type:
AT DECEMBER 31, ---------------------------------------- 1997 1996 ------------------ ------------------ % OF % OF AMOUNT DEPOSIT AMOUNT DEPOSIT -------- ------- -------- ------- (DOLLARS IN THOUSANDS) Demand deposits ........ $ 36,992 21.9% $ 29,601 19.8% Savings and NOW deposits 45,888 27.1 33,733 22.6 Money market deposits .. 16,324 9.7 13,976 9.4 Time deposits .......... 69,897 41.3 72,025 48.2 -------- ----- -------- ----- Total deposits ......... $169,101 100.0% $149,335 100.0% ======== ===== ======== =====
Jumbo certificates ($100,000 and over) mature as follows:
AT DECEMBER 31, --------------- 1997 ------- (IN THOUSANDS) Due three months or less .......... $11,141 Due over three months to six months 3,111 Due over six months to one year ... 4,938 Due over one year ................. 1,313 ------- $20,503 =======
The scheduled maturities of time deposits are as follows:
AT DECEMBER 31, --------------- 1997 ------- (IN THOUSANDS) Due in one year or less ....................... $58,845 Due in more than one but less than three years 6,656 Due in more than three but less than five years 4,374 Due in over five years ........................ 22 ------- $69,897 =======
The following table sets forth the net deposit flows of the Company during the periods indicated (in thousands):
YEAR ENDED DECEMBER 31, --------------------------- 1997 1996 1995 ------- ------ ------ Net increase before interest credited $13,848 35,508 9,075 Net credited ........................ 5,918 4,635 3,745 ------- ------ ------ Net deposit increase ........... $19,766 40,143 12,820 ======= ====== ======
The following table shows the average amount of and the average rate paid on each of the following interest-bearing deposit account categories during the periods indicated:
1997 1996 1995 ------------------ ------------------ ----------------- AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE BALANCE YIELD BALANCE YIELD BALANCE YIELD -------- ------- -------- ------- ------- ------- (DOLLARS IN THOUSANDS) Savings and NOW deposits ........... $ 40,267 3.09% $ 28,219 2.88% $21,501 3.00% Money market deposits .............. 13,747 2.70 11,716 2.71 10,068 3.02 Time deposits ...................... 72,841 5.43 61,226 5.32 50,245 5.31 -------- ---- -------- ---- ------- ---- Total interest-bearing deposits $126,855 4.39% $101,161 4.34% $81,814 4.42% ======== ==== ======== ==== ======= ====
23 26 COMPARISON OF YEAR ENDED DECEMBER 31, 1997 AND 1996 GENERAL Net earnings for the year ended December 31, 1997 were $1,255,000 or $.34 per share compared to net earnings of $314,000 or $.09 per share for the year ended December 31, 1996. This increase in the Company's net earnings was primarily due to an increase in net interest income and noninterest income, partially offset by increases in noninterest expenses and income taxes. INTEREST INCOME AND EXPENSE Interest income increased from $10.8 million for the year ended December 31, 1996 to $14.0 million for the year ended December 31, 1997. Interest income on loans increased $2.6 million due an increase in the average loan portfolio balance from $87.0 million for the year ended December 31, 1996 to $116.1 million for the year ended December 31, 1997, partially offset by a decrease in the weighted-average yield earned on the portfolio. Interest on investment securities increased $575,000 due to an increase in the average yield earned from 6.25% in 1996 to 6.44% in 1997, as well as an increase in the average investment securities portfolio to $41.3 million in 1997 from $33.4 million in 1996. Interest on other interest-earning assets decreased $42,000 due to a decrease in average other interest-earning assets from $9.1 million in 1996 to $8.2 million in 1997. Interest expense increased to $6.0 million for the year ended December 31, 1997 from $4.7 million for the year ended December 31, 1996. Interest expense on deposit accounts increased primarily due to an increase in average interest-bearing deposit balances from $101.2 million during the year ended December 31, 1996 to $126.9 million for the comparable period in 1997. Interest expense on other borrowings increased $187,000 from $270,000 to $457,000 primarily due to an increase in average borrowings from $5.5 million in 1996 to $8.7 million in 1997 as well as an increase in average rates. The average cost of all interest-bearing liabilities increased from 4.37% for the year ended December 31, 1996 to 4.45% for the year ended December 31, 1997. PROVISION FOR LOAN LOSSES The provision for loan losses is charged to earnings to bring the total allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by the Bank, industry standards, the amounts of nonperforming loans, general economic conditions, particularly as they relate to the Bank's market areas, and other factors related to the collectibility of the the Bank's loan portfolio. The provision increased from $401,000 for the year ended December 31, 1996 to $437,000 for the year ended December 31, 1997. Management believes that the allowance for loan losses of $1,564,000 is adequate at December 31, 1997. NONINTEREST INCOME Total noninterest income increased $1.0 million to $2.0 million for the year ended December 31, 1997 from $1.0 million reported in 1996, principally from an increase in leasing fees from Liberty Leasing, an increase in service fees on deposits, an increase on gains on sales of securities. NONINTEREST EXPENSE Total noninterest expense increased $1.4 million to $7.7 million for the year ended December 31, 1997 from $6.3 million for the year ended December 31, 1996, primarily due to an increase in salaries and employee benefits and occupancy expense relating to additional banking offices opened in 1996 and 1997, as well as additional data processing expenses partially offset by the SAIF special assessment that was recorded in 1996, but not in 1997. COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995 GENERAL Net earnings for the year ended December 31, 1996 were $314,000 or $.09 per share compared to $708,000 or $.23 per share for the year ended December 31, 1995. This decrease in the Company's net earnings was primarily due to an increase in noninterest expenses, including the one-time SAIF special assessment, partially offset by an increase in net interest income and noninterest income as well as a decrease in income taxes. 24 27 INTEREST INCOME AND EXPENSE Interest income increased by $2.4 million from $8.4 million for the year ended December 31, 1995 to $10.8 million for the year ended December 31, 1996. Interest income on loans increased $1.9 million due to an increase in the average loan portfolio balance from $65.7 million for the year ended December 31, 1995 to $87.0 million for 1996, partially offset by a decrease in the weighted average yield from 9.6% in 1995 to 9.5% in 1996. Interest on securities increased $244,000 due to an increase in the average securities balance from $29.6 million in 1995 to $33.4 million in 1996, as well as an increase in average yield from 6.2% in 1995 to 6.3% in 1996. Interest on other interest-earning assets increased $207,000 primarily due to an increase from $4.7 million in average other interest-earning assets in 1995 to $9.1 million in 1996, partially offset by a decrease in weighted average yield. Interest expense increased to $4.7 million for the year ended December 31, 1996 from $3.7 million for the year ended December 31, 1995. Interest expense on deposit accounts and other borrowings increased because of a $22.7 million increase in the average balance, which was only partially offset by a decrease of 8 basis points in the average yield paid on deposits and other borrowings. PROVISION FOR LOAN LOSSES The provision for loan losses is charged to earnings to bring the total allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by the Bank, industry standards, the amounts of nonperforming loans, general economic conditions, particularly as they relate to the Bank's market areas, and other factors related to the collectibility of the Bank's loan portfolio. The provision increased from $240,000 for the year ended December 31, 1995 to $401,000 for the year ended December 31, 1996. NONINTEREST INCOME Total noninterest income increased $182,000 for the year ended December 31, 1996 compared to 1995 primarily due to an increase in leasing fees due to the acquisition of Liberty Leasing on September 1, 1996, service fees on deposit accounts and other income. NONINTEREST EXPENSE Total noninterest expense increased $2.1 million for the year ended December 31, 1996 compared to 1995, primarily due to an increase in employee compensation and benefits, occupancy and equipment expenses and the SAIF special assessment. The increase in compensation and occupancy expense was related to new banking offices opened in 1996. IMPACT OF INFLATION AND CHANGING PRICES The financial statements and related data presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, substantially all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a more significant impact on the Bank's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates. FUTURE ACCOUNTING REQUIREMENTS Financial Accounting Standards 130 - Reporting Comprehensive Income establishes standards for reporting comprehensive income. The Standard defines comprehensive income as the change in equity of an enterprise except those resulting from stockholder transactions. All components of comprehensive income are required to be reported in a new financial statement that is displayed with equal prominence as existing financial statements. The Company will be required to adopt this Standard effective January 1, 1998. As the Statement addresses reporting and presentation issues only, there will be no impact on operating results from the adoption of this Standard. Financial Accounting Standards 131 - Disclosures about Segments of an Enterprise and Related Information establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company will be required to adopt this Standard effective January 1, 1998. As the Standard addresses reporting and disclosure issues only, there will be no impact on operating results from adoption of this Standard. 25 28 RESPONSIBILITIES FOR FINANCIAL REPORTING To Our Stockholders: Gulf West Banks, Inc. has prepared and is responsible for the following consolidated financial statements. The financial statements were prepared in conformity with generally accepted accounting principles in the United States. Other financial information in this Annual Report is consistent with the financial statements. Management maintains a system of internal control designed to provide reasonable, but not absolute, assurance that we are meeting our responsibility for the integrity and objectivity of the financial statements. This control system includes: - subsidiary reporting, including budget analysis, that provides reasonable assurance that errors or irregularities that could be material to the consolidated financial statements would be detected promptly - a corporate code of professional ethics monitored regularly - an internal audit function - continuing review and evaluation of the control environment The audit report of Hacker, Johnson, Cohen & Grieb PA, independent public accountants, follows the consolidated financial statements. The Board of Directors pursues its oversight role for these financial statements through its Audit Committee, composed solely of directors who are neither officers nor employees of Gulf West Banks, Inc. The Audit Committee meets periodically with the independent public accountants and internal auditors, with and without the presence of management, to review their activities and to discuss internal accounting control, auditing and financial reporting matters. /s/ Gordon W. Campbell Gordon W. Campbell Chairman and President /s/ Barry K. Miller Barry K. Miller Secretary/Treasurer 26 29 GULF WEST BANKS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, ------------------- 1997 1996 -------- ------- ASSETS Cash and due from banks ............................................... $ 9,046 8,631 Federal funds sold and securities purchased under agreements to resell 8,903 3,356 -------- ------- Total cash and cash equivalents ........................ 17,949 11,987 Securities available for sale ......................................... 53,183 40,231 Loans receivable, net of allowance for loan losses of $1,564 and $1,184 122,555 112,660 Loans held for sale, at cost which approximates market ................ 715 319 Premises and equipment, net ........................................... 7,043 6,515 Accrued interest receivable ........................................... 1,119 906 Deferred tax asset .................................................... 328 215 Other assets .......................................................... 1,956 1,981 -------- ------- Total .................................................. $204,848 174,814 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Demand deposits ................................................. 36,992 29,601 Savings, NOW deposits and money-market deposits ................. 62,212 47,709 Time deposits ................................................... 69,897 72,025 -------- ------- Total deposits ......................................... 169,101 149,335 Other borrowings ................................................ 20,237 12,047 Other liabilities ............................................... 969 332 -------- ------- Total liabilities ...................................... 190,307 161,714 -------- ------- Commitments and Contingency (Notes 5 and 10) Stockholders' equity: Class A preferred stock, $5 par value, authorized 1,000,000 shares, none issued or outstanding ................ -- -- Common stock, $1 par value; 10,000,000 shares authorized, 3,342,676 and 3,326,030 issued and outstanding .. 3,343 3,326 Additional paid-in capital ...................................... 9,308 9,254 Retained earnings ............................................... 1,705 450 Unrealized gain on securities available for sale, net of tax of $112 and $42 .................................. 185 70 -------- ------- Total stockholders' equity ............................. 14,541 13,100 -------- ------- Total .................................................. $204,848 174,814 ======== =======
See accompanying Notes to Consolidated Financial Statements. 27 30 GULF WEST BANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS ($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ---------------------------- 1997 1996 1995 ------- ------- ----- Interest income: Loans receivable ..................................... $10,934 8,272 6,326 Securities available for sale ........................ 2,661 2,086 1,842 Other interest-earning assets ........................ 444 486 279 ------- ------- ----- Total interest income ........................... 14,039 10,844 8,447 ------- ------- ----- Interest expense: Deposits ............................................. 5,569 4,389 3,618 Other borrowings ..................................... 457 270 118 ------- ------- ----- Total interest expense .......................... 6,026 4,659 3,736 ------- ------- ----- Net interest income ....................................... 8,013 6,185 4,711 Provision for loan losses ....................... 437 401 240 ------- ------- ----- Net interest income after provision for loan losses ....... 7,576 5,784 4,471 ------- ------- ----- Noninterest income: Service fees on deposit accounts ..................... 816 566 446 Loan servicing fees, net ............................. 25 44 61 Gain (loss) from sale of securities available for sale 237 (10) 97 Income from mortgage banking activity ................ 56 39 71 Leasing fees and commissions ......................... 508 131 -- Other income ......................................... 345 261 174 ------- ------- ----- Total noninterest income ........................ 1,987 1,031 849 ------- ------- ----- Noninterest expenses: Salaries and employee benefits ....................... 4,273 3,230 2,305 Occupancy expense .................................... 1,502 968 664 Data processing ...................................... 409 224 159 Federal deposit insurance premium .................... 93 181 208 Advertising .......................................... 205 186 124 Stationary, printing and supplies .................... 216 195 104 Telephone and postage ................................ 215 174 127 SAIF special assessment .............................. -- 470 -- General insurance .................................... 107 95 96 Other expense ........................................ 634 601 394 ------- ------- ----- Total noninterest expenses ...................... 7,654 6,324 4,181 ------- ------- ----- Earnings before income taxes .............................. 1,909 491 1,139 Income taxes .................................... 654 177 431 ------- ------- ----- Net earnings .............................................. $ 1,255 314 708 ======= ======= ===== Earnings per share: Basic ................................................ $ .34 .09 .23 ======= ======= ===== Diluted .............................................. $ .33 .08 .22 ======= ======= =====
See accompanying Notes to Consolidated Financial Statements. 28 31 GULF WEST BANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNREALIZED GAIN COMMON STOCK (LOSS) ON --------------------- ADDITIONAL SECURITIES TOTAL NUMBER OF PAID-IN RETAINED AVAILABLE STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS FOR SALE EQUITY --------- ------ ---------- -------- ---------- ------------- Balance at December 31, 1994 ....... 2,344,572 $2,345 5,812 343 (573) 7,927 Shares issued under employee stock purchase plan ............... 4,748 5 11 -- -- 16 Shares sold ........................ 772,351 772 2,639 -- -- 3,411 Decrease in unrealized loss on securities available for sale -- -- -- -- 577 577 Cash dividends of $.03 per share ... -- -- -- (125) -- (125) Net earnings ....................... -- -- -- 708 -- 708 --------- ------ ----- ------ ---- ------- Balance at December 31, 1995 ....... 3,121,671 3,122 8,462 926 4 12,514 Shares issued under employee stock purchase plan ............... 7,270 7 19 -- -- 26 Shares issued in exchange for Liberty Leasing Corporation . 30,000 30 120 -- -- 150 Shares issued under stock option plan ........................ 9,000 9 21 -- -- 30 Stock dividend ..................... 158,089 158 632 (790) -- -- Increase in unrealized gain on securities available for sale -- -- -- -- 66 66 Net earnings ....................... -- -- -- 314 -- 314 --------- ------ ----- ------ ---- ------- Balance at December 31, 1996 ....... 3,326,030 3,326 9,254 450 70 13,100 Shares issued under employee stock purchase plan ............... 7,691 8 31 -- -- 39 Shares issued under stock option plan ........................ 5,595 6 13 -- -- 19 Shares issued to directors as compensation ................ 3,360 3 10 -- -- 13 Increase in unrealized gain on securities available for sale -- -- -- -- 115 115 Net earnings ....................... -- -- -- 1,255 -- 1,255 --------- ------ ----- ------ ---- ------- Balance at December 31, 1997 ....... 3,342,676 $3,343 9,308 1,705 185 14,541 ========= ====== ===== ====== ==== =======
See accompanying Notes to Consolidated Financial Statements. 29 32 GULF WEST BANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------------ 1997 1996 1995 -------- ------- ------- Cash flows from operating activities: Net earnings ................................................... $ 1,255 314 708 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation ............................................... 778 463 333 Decrease (increase) in other assets ........................ 25 (139) (309) Provision for loan losses .................................. 437 401 240 Deferred income tax (credit) provision ..................... (183) (119) 114 Income from mortgage banking activity ...................... (56) (39) (71) Increase (decrease) in other liabilities ................... 637 (99) 251 Increase in accrued interest receivable .................... (213) (109) (195) Net amortization of fees, premiums and discounts ........... (9) (61) (69) Write-down on foreclosed real estate ....................... -- 106 -- (Gain) loss on securities available for sale ............... (237) 10 (97) (Gain) loss on other real estate ........................... (23) 17 1 (Gain) loss on disposal of premises and equipment .......... -- (1) 3 Proceeds from sales of loans held for sale ................. 6,429 5,225 5,421 Originations of loans held for sale ........................ (6,768) (5,247) (5,184) -------- ------- ------- Net cash flow provided by operating activities ......... 2,072 722 1,146 -------- ------- ------- Cash flows from investing activities: Purchase of securities available for sale ...................... (37,420) (27,384) (23,155) Proceeds from sale and maturity of securities available for sale 21,932 16,378 12,336 Principal repayments on securities available for sale .......... 2,914 4,421 2,322 Proceeds from sale of foreclosed real estate ................... 74 272 82 Additions to foreclosed real estate ............................ -- (3) (8) Purchase of premises and equipment ............................. (1,309) (2,807) (1,286) Proceeds from sale of premises and equipment ................... 3 51 1 Net increase in loans .......................................... (10,331) (39,265) (11,385) -------- ------- ------- Net cash used in investing activities .................. (24,137) (48,337) (21,093) -------- ------- ------- Cash flows from financing activities: Net (decrease) increase in time deposits ....................... (2,128) 20,223 1,921 Net increase in demand, savings, NOW and money-market deposit accounts .............................. 21,894 19,920 10,899 Net increase of other borrowings ............................... 8,190 8,248 3,799 Issuance of common stock ....................................... 71 56 3,427 Dividends paid ................................................. -- -- (125) -------- ------- ------- Net cash provided by financing activities .............. 28,027 48,447 19,921 -------- ------- ------- Net increase (decrease) in cash and cash equivalents ... 5,962 832 (26) Cash and cash equivalents at beginning of year ...................... 11,987 11,155 11,181 -------- ------- ------- Cash and cash equivalents at end of year ............................ $ 17,949 11,987 11,155 ======== ======= ======= Supplemental disclosure of cash flow information: Cash paid during the year for: Interest ................................................... $ 5,918 4,635 3,745 ======== ======= ======= Income taxes ............................................... $ 623 427 274 ======== ======= ======= Noncash transactions: Reclassification of loans to foreclosed real estate ........ $ 179 -- 613 ======== ======= ======= Reclassification of foreclosed real estate to loans ........ $ 128 106 -- ======== ======= ======= Reclassification of securities to available for sale ....... $ -- -- 10,139 ======== ======= ======= Issuance of common stock for acquisition of Liberty Leasing $ -- 150 -- ======== ======= =======
See accompanying Notes to Consolidated Financial Statements. 30 33 GULF WEST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 AND FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL. Gulf West Banks, Inc. (the "Holding Company") is a one-bank holding company and owns 100% of the outstanding stock of Mercantile Bank (the "Bank"). The Bank is a State (Florida) chartered commercial bank. The Bank, through nine banking offices, provides a wide range of banking services to individuals and businesses located primarily in Pinellas and Hillsborough Counties, Florida. During 1996, the Holding Company acquired all the outstanding common shares of Liberty Leasing Corporation ("Liberty") in exchange of 30,000 shares of the Holding Company's common stock. Liberty is an equipment leasing company that arranges financing for a variety of equipment for all types of businesses and is headquartered in Tampa. The acquisition has been accounted for using the purchase method of accounting. Liberty had nominal assets and liabilities and goodwill of $157,000 resulted. The goodwill is being amortized over ten years and is included in other assets. The Holding Company's only business activities are the operations of the Bank and Liberty. An inactive subsidiary of the Bank, Portfolio Recoveries Inc., was dissolved in 1995. Collectively the entities are referred to as the "Company". ACQUISITION. On January 16, 1998, the Company acquired Citizens National Bank and Trust Company, Port Richey, Florida ("Citizens"). The acquisition was accomplished through the merger of Citizens with and into Mercantile. In consideration of the merger, the Company issued 1.95 million shares of its common stock to the shareholders of Citizens. At December 31, 1997, Citizens had total assets of $75.5 million, total loans of $30.7 million and total deposits of $66.4 million. Citizens operated one banking office in Pasco County, Florida. The Company will account for this transaction using the purchase method of accounting. BASIS OF PRESENTATION. The accompanying consolidated financial statements include the accounts of the Holding Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting practices of the Company conform to generally accepted accounting principles and to general practice within the banking industry. ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles 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. SECURITIES. The Bank may classify its securities as either trading, held to maturity or available for sale. Trading securities are held principally for resale and recorded at their fair values. Unrealized gains and losses on trading securities are included immediately in earnings. Held-to-maturity securities are those which the Bank has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities consist of securities not classified as trading securities nor as held-to-maturity securities. Unrealized holding gains and losses, net of tax, on available-for-sale securities are reported as a net amount in a separate component of stockholders' equity until realized. Gains and losses on the sale of available-for-sale securities are determined using the specific-identification method. Premiums and discounts on securities available for sale and held to maturity are recognized in interest income using the interest method over the period to maturity. LOANS HELD FOR SALE. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. (continued) 31 34 GULF WEST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED LOANS RECEIVABLE. Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan. The accrual of interest on impaired loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received. The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Management's periodic evaluation of the adequacy of the allowance is based on the Bank's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, and current economic conditions. FORECLOSED REAL ESTATE. Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations are included in the statements of earnings. PREMISES AND EQUIPMENT. Premises and equipment are stated at cost less accumulated depreciation. Depreciation of premises and equipment is provided on the straight-line basis over the estimated useful life of the related asset. ADVERTISING. The Company expenses all media advertising as incurred. INCOME TAXES. Provisions for income taxes are based on taxes payable or refundable for the current year (after exclusion of nontaxable income such as interest on state and municipal securities) and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. STOCK-BASED COMPENSATION. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("Statement 123") establishes a "fair value" based method of accounting for stock-based compensation plans and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees" (Opinion 25). The Company has elected to follow Opinion 25 and related interpretations in accounting for its employee stock options. Statement 123 requires the disclosure of proforma net earnings and earnings per share determined as if the Company accounted for its employee stock options under the fair value method of that Statement. (continued) 32 35 GULF WEST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED EARNINGS PER SHARE. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations. Options to purchase 42,000 shares of common stock at $5.50 a share in 1997 and 47,500 shares at $4.50 in 1995 were not included in the computation of diluted EPS because the options exercise price was not less than the average market price of the common shares. These options expire on August 21, 2007 and August 17, 2005, respectively ($ in thousands, except per share amounts).
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------------------------------ 1997 1996 1995 ------------------------------- -------------------------------- ------------------------------- WEIGHTED-PER WEIGHTED- PER WEIGHTED- PER AVERAGE SHARE AVERAGE SHARE AVERAGE SHARE EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT -------- ------------ ------ -------- ---------- ------ -------- ----------- ------- Basic EPS: Net earnings available to common stockholders $1,255 3,670,326 $ .34 314 3,628,246 $ .09 708 3,113,292 $ .23 ===== ===== ===== Effect of dilutive securities- Incremental shares from assumed exercise of options 85,909 70,599 49,544 --------- --------- --------- Diluted EPS: Net earnings available to common stockholders and assumed conversions $1,255 3,756,235 $ .33 314 3,698,845 $ .08 708 3,162,836 $ .22 ====== ========= ===== === ========= ===== === ========= =====
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS. In the ordinary course of business, the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received. FAIR VALUES OF FINANCIAL INSTRUMENTS. The following methods and assumptions were used by the Company in estimating fair values of financial instruments disclosed herein: CASH AND CASH EQUIVALENTS. The carrying amounts of cash and cash equivalents approximate their fair value. (continued) 33 36 GULF WEST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED. SECURITIES AVAILABLE FOR SALE. Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. LOANS. For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for certain fixed-rate mortgage (e.g. one-to-four family residential), commercial real estate and commercial loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. DEPOSIT LIABILITIES. The fair values disclosed for demand, NOW, money-market and savings deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. SHORT-TERM BORROWINGS. Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. ACCRUED INTEREST. The carrying amounts of accrued interest approximate their fair values. OFF-BALANCE-SHEET INSTRUMENTS. Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. RECLASSIFICATIONS. Certain amounts in the 1996 and 1995 financial statements have been reclassified to conform to the 1997 presentation. FUTURE ACCOUNTING REQUIREMENTS. Financial Accounting Standards 130 - Reporting Comprehensive Income establishes standards for reporting comprehensive income. The Standard defines comprehensive income as the change in equity of an enterprise except those resulting from stockholder transactions. All components of comprehensive income are required to be reported in a new financial statement that is displayed with equal prominence as existing financial statements. The Company will be required to adopt this Standard effective January 1, 1998. As the Statement addresses reporting and presentation issues only, there will be no impact on operating results from the adoption of this Standard. Financial Accounting Standards 131 - Disclosures about Segments of an Enterprise and Related Information establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company will be required to adopt this Standard effective January 1, 1998. As the Standard addresses reporting and disclosure issues only, there will be no impact on operating results from adoption of this Standard. (2) SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL The Bank enters into purchases of securities under agreements to resell substantially identical securities. At December 31, 1997 and 1996, these agreements matured daily. The agreements were with a major bank. Securities purchased under agreements to resell averaged approximately $6,061,000 and $3,320,000 during 1997 and 1996, and the maximum amounts outstanding at any month-end during 1997 and 1996 was $10,522,000 and $3,206,000, respectively. There were no such agreements during 1995. (continued) 34 37 GULF WEST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (3) SECURITIES AVAILABLE FOR SALE Debtsecurities have been classified according to management's intent. The carrying amounts and approximate fair values are as follows (in thousands):
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- ------ SECURITIES AVAILABLE FOR SALE: DECEMBER 31, 1997: U.S. agency obligations .. $ 1,000 4 -- 1,004 U.S. Treasury securities . 11,454 140 19 11,575 Mortgage-backed securities 40,432 190 18 40,604 ------- --- ------ ------ $52,886 334 37 53,183 ======= === ====== ====== DECEMBER 31, 1996: U.S. agency obligations .. 1,000 8 -- 1,008 Municipal obligations .... 700 -- 1 699 U.S. Treasury securities . 15,970 -- 3 15,967 Mortgage-backed securities 22,449 108 -- 22,557 ------- --- ------ ------ $40,119 116 4 40,231 ======= === ====== ======
During the quarter ended December 31, 1995, the Company adopted the provisions of SFAS No. 115 Questions and Answers Guide ("SFAS No. 115 Q&A") which allowed a one-time reclassification of securities between held to maturity and available for sale between November 15, 1995 and December 31, 1995. The Company reclassified $10,139,000 of securities from held to maturity to available for sale. Such reclassification resulted in a credit of $23,389 to shareholders' equity. The scheduled maturities of securities available for sale at December 31, 1997 were as follows (in thousands).
AT DECEMBER 31, 1997 ----------------------- AMORTIZED FAIR COST VALUE --------- ------- Due in one year or less ............. $10,577 10,637 Due after one year through five years 26,970 27,118 Due in five years to ten years ...... 3,196 3,214 Due after ten years ................. 12,143 12,214 ------- ------ $52,886 53,183 ======= ======
For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the weighted-average contractual maturities of underlying collateral. The mortgage-backed securities may mature earlier than their weighted-average contractual maturities because of principal prepayments. (continued) 35 38 GULF WEST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (3) SECURITIES AVAILABLE FOR SALE, CONTINUED Securities sales transactions are summarized as follows (in thousands):
YEAR ENDED DECEMBER 31, ----------------------------------- 1997 1996 1995 ------- ------ ----- Proceeds from sales $19,582 9,478 9,312 ======= ====== ===== Gross gains ....... 237 -- 97 Gross loss ........ -- 10 -- ------- ------ ----- Net gain (loss) ... $ 237 (10) 97 ======= ====== =====
The Company had pledged securities with book values in the amount of approximately $3,622,000 and $2,951,000 at December 31, 1997 and 1996, respectively to secure public deposits. Also, securities in the amount of $498,000 and $197,000 at December 31, 1997 and 1996, respectively have been pledged to secure treasury tax deposits. (4) LOANS The components of loans was as follows (in thousands):
AT DECEMBER 31, 1997 1996 --------- -------- Commercial ................................... $ 19,752 18,169 Commercial real estate ....................... 72,396 63,207 Residential real estate ...................... 18,966 22,095 Consumer ..................................... 13,177 10,594 --------- -------- Subtotal .................................. 124,291 114,065 Net deferred loan fees, premiums and discounts (172) (221) Allowance for loan losses .................... (1,564) (1,184) --------- -------- $ 122,555 112,660 ========= ========
An analysis of the change in the allowance for loan losses follows (in thousands):
YEAR ENDED DECEMBER 31, ----------------------------------- 1997 1996 1995 ------- ------ ---- Balance at January 1 .... $ 1,184 830 663 ------- ------ ---- Loans charged off ....... (96) (54) (98) Recoveries .............. 39 7 25 ------- ------ ---- Net loans charged off (57) (47) (73) Provision for loan losses 437 401 240 ------- ------ ---- Balance at December 31 .. $ 1,564 1,184 830 ======= ====== ====
(continued) 36 39 GULF WEST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (4) LOANS, CONTINUED Impaired loans were as follows (in thousands):
1997 1996 1995 ---- ---- ---- Balance at end of year ..................... $489 494 507 Average balance during year ................ 492 501 563 Total related allowance for losses ......... 100 100 100 Interest income recognized on impaired loans 38 52 50 ==== === ===
CREDIT RISK AND CREDIT LOSSES. A credit risk concentration results when the Company has a significant credit exposure to an individual or a group engaged in similar activities or having similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Most of the Company's business activity is with customers located within Pinellas and Hillsborough Counties, Florida. The loan portfolio is diversified among individuals and types of industries. Loans are expected to be repaid from cash flow or proceeds from the sale of selected assets of the borrowers. The amount of collateral obtained upon extension of credit is based on the Company's credit evaluation of the customer. Collateral primarily includes accounts receivable, inventory, property and equipment, income-producing commercial properties and residential homes. LOANS TO RELATED PARTIES. The aggregate amount of loans owed to the Company by its executive and senior officers, directors, and their related entities at December 31, 1997 and 1996 was approximately $1,105,000 and $697,000, respectively. The loans outstanding as of December 31, 1997 were made up of $856,000 of mortgage loans and $249,000 of various other types of loans. These loans have been made on substantially the same terms, including collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than normal risk of collectibility. (5) PREMISES AND EQUIPMENT A summary of premises and equipment follows (in thousands):
AT DECEMBER 31, ---------------------- 1997 1996 ------- ------ Land .............................. $ 1,800 1,413 Building and leasehold improvements 4,125 3,925 Furniture, fixtures and equipment . 3,692 3,108 ------- ------ Total, at cost ................ 9,617 8,446 Less accumulated depreciation ..... (2,574) (1,931) ------- ------ $ 7,043 6,515 ======= ======
(continued) 37 40 GULF WEST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (5) PREMISES AND EQUIPMENT, CONTINUED The Company leases facilities and certain equipment under operating leases with noncancellable terms. Rent expense amounted to approximately $388,000, $248,000 and $158,000 for the years ended December 31, 1997, 1996 and 1995, respectively. A summary of the operating lease commitments at December 31, 1997 follows (in thousands):
YEAR ENDING DECEMBER 31, AMOUNT ------------ -------- 1998.............................................................. $ 331 1999.............................................................. 268 2000.............................................................. 273 2001.............................................................. 225 2002.............................................................. 195 Thereafter........................................................ 1,397 ------- $ 2,689 =======
(6) LOAN SERVICING Loans serviced for others are not included in the accompanying consolidated balance sheet. The unpaid principal balances of these loans are summarized as follows (in thousands):
AT DECEMBER 31, --------------------- 1997 1996 ------- ------ Loan portfolios serviced for: FNMA ......................................... $15,210 17,161 FHLMC ........................................ 3,765 4,682 Other investors .............................. 3,633 7,685 ------- ------ $22,608 29,528 ======= ====== Custodial escrow balances maintained in connection with loan servicing .......................... $ 388 80 ======= ======
(7) DEPOSITS The aggregate amount of certificates of deposit with a minimum denomination of $100,000, was approximately $20,503,000 and $22,680,000 at December 31, 1997 and 1996, respectively. A schedule of maturities for certificate accounts follows (in thousands):
AT DECEMBER 31, YEAR ENDING --------------- DECEMBER 31, 1997 ------------ ---- 1998................................................... $ 58,845 1999................................................... 5,195 2000................................................... 1,461 2001................................................... 2,166 2002 and thereafter.................................... 2,230 -------- $ 69,897 ========
(continued) 38 41 GULF WEST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (8) OTHER BORROWINGS Securities sold under reverse repurchase agreements were delivered to the broker-dealers who arranged the transactions. Securities collateralizing customer reverse repurchase agreements are held in safekeeping by a third party. The agreements at December 31, 1997 mature within three months. Information concerning securities sold under agreements to repurchase is summarized as follows ($ in thousands):
YEAR ENDED DECEMBER 31, ---------------------------------- 1997 1996 1995 ---- ---- ---- Average balance during the year ......... $ 8,646 5,447 2,019 Average interest rate during the year ... 5.25% 4.88% 5.72% Maximum month-end balance during the year $18,237 12,547 5,545
The average rate was determined by dividing the total interest paid by the average outstanding borrowings. Securities underlying the agreements are as follows (in thousands):
AT DECEMBER 31, --------------- 1997 ---- Carrying value .............. $23,459 ======= Estimated fair value ........ $23,535 =======
At December 31, 1997, the Company had five variable-rate lines of credit from other financial institutions, totaling $12,500,000. At December 31, 1997, borrowings against these lines totaled $2,000,000. (9) INCOME TAXES The consolidated provision for income taxes consisted of the following (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 ----- ---- ---- Current: Federal .............. $ 751 278 263 State ................ 86 18 54 ----- ---- --- Total current .... 837 296 317 ----- ---- --- Deferred: Federal .............. (156) (102) 97 State ................ (27) (17) 17 ----- ---- --- Total deferred ... (183) (119) 114 ----- ---- --- Total income taxes $ 654 177 431 ===== ==== ===
(continued) 39 42 GULF WEST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (9) INCOME TAXES, CONTINUED The provision for income taxes is different from that computed by applying the federal statutory rate of 34% as indicated in the following analysis (dollars in thousands):
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------- 1997 1996 1995 -------------------- --------------------- --------------------- % OF % OF % OF PRETAX PRETAX PRETAX AMOUNT EARNINGS AMOUNT EARNINGS AMOUNT EARNINGS ------ -------- ------ -------- ------ -------- Tax provision at statutory rate ........ $ 649 34.0% $ 167 34.0% $ 387 34.0% Increase (reduction) in taxes resulting from: State taxes, net of federal income tax benefit ................... 39 2.1 18 3.7 47 4.1 Tax-exempt income ................ (30) (1.6) (17) (3.5) -- -- Other, net ....................... (4) (.2) 9 1.8 (3) (.2) ----- ---- ----- ---- ----- ---- Income tax provision ............. $ 654 34.3% $ 177 36.0% $ 431 37.9% ===== ==== ===== ==== ===== ====
The tax effects of each type of item that gives rise to deferred taxes are (in thousands):
AT DECEMBER 31, ---------------- 1997 1996 ---- ---- Deferred tax assets: Allowance for loan losses .......................... $489 346 Interest income from loans on nonaccrual status .... 2 2 Deferred compensation .............................. 101 66 ---- --- Total gross deferred tax assets .............. 592 414 ---- --- Deferred tax liabilities: Net unrealized gain on securities available for sale 112 42 Accumulated depreciation ........................... 143 129 Excess servicing ................................... -- 2 Prepaid expenses ................................... 9 26 ---- --- Total gross deferred tax liabilities ......... 264 199 ---- --- Net deferred tax asset ....................... $328 215 ==== ===
(continued) 40 43 GULF WEST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (10) FINANCIAL INSTRUMENTS The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit and standby letters of credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the balance sheet. The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed-expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management's credit evaluation of the counterparty. Standby letters of credit and conditional commitments are issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that included in extending loans to customers. The estimated fair values of the Company's financial instruments were as follows (in thousands):
AT DECEMBER 31, 1997 AT DECEMBER 31, 1996 ---------------------- --------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ------ ----- ------ ----- Financial assets: Cash and cash equivalents ... $ 17,949 17,949 11,987 11,987 Securities available for sale 53,183 53,183 40,231 40,231 Loans receivable ............ 122,555 122,579 112,660 112,868 Accrued interest receivable . 1,119 1,119 906 906 Financial liabilities: Deposit liabilities ......... 169,101 169,335 149,335 149,433 Short-term borrowings ....... 20,237 20,237 12,047 12,047
A summary of the notional amounts of the Company's financial instruments, which approximate fair value, with off-balance-sheet risk at December 31, 1997, follows (in thousands): Unfunded loan commitments at variable rates $ 6,349 Available lines of credit ................. $13,495 Standby letters of credit ................. $ 372
(continued) 41 44 GULF WEST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (11) STOCK OPTION PLAN Certain key employees and directors of the Company have options to purchase shares of the Company's common stock under its stock option plan. Under the plan, the total number of shares which may be issued shall not exceed 12% (currently 441,233 shares) of the Company's total outstanding shares. At December 31, 1997, 13,368 remain available for grant. All per share amounts reflect the 10% stock dividend declared January 15, 1998. A summary of stock options transactions follows ($ in thousands, except per share amounts):
RANGE OF PER WEIGHTED SHARE AVERAGE AGGREGATE NUMBER OF OPTION PER SHARE OPTION SHARES PRICE PRICE PRICE -------- ----------- --------- --------- Outstanding at December 31, 1994 320,513 $ 2.65-3.46 2.83 908 Options granted ................ 59,194 3.89 3.90 230 Options forfeited .............. (7,579) 2.85-3.89 3.45 (26) ------- ----------- ------- Outstanding at December 31, 1995 372,128 2.65-3.89 2.99 1,112 Options granted ................ 11,550 3.89 3.89 45 Options exercised .............. (10,106) 2.65-3.45 2.94 (30) Options forfeited .............. (8,303) 2.77-3.89 3.71 (29) ----------- ---- ------- Outstanding at December 31, 1996 365,269 2.65-3.89 3.01 1,098 Options granted ................ 73,082 4.66-5.00 4.87 356 Options exercised .............. (6,155) 2.65-3.46 3.03 (19) Options forfeited .............. (4,331) 2.95 2.95 (13) ----------- ------- Outstanding at December 31, 1997 427,865 $ 2.65-5.00 3.32 $ 1,422 ======= =========== ==== =======
The weighted-average remaining contractual life of the outstanding stock options at December 31, 1997, 1996 and 1995 was sixty-eight months, sixty-nine months and seventy-nine months, respectively. These options are exercisable as follows:
NUMBER WEIGHTED AVERAGE YEAR ENDING OF SHARES EXERCISE PRICE ----------- --------- -------------- 1998.............................. 391,102 $3.23 1999.............................. 20,438 4.15 2000.............................. 9,604 4.43 2001.............................. 6,721 4.61 ------- ----- 427,865 $3.32 ======= =====
(continued) 42 45 GULF WEST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (11) STOCK OPTION PLAN, CONTINUED In order to calculate the fair value of the options, it was assumed that the risk-free interest rate was 6.0%, there would be no dividends paid by the Company over the exercise period, the expected life of the options would be the entire exercise period and stock volatility would be zero due to the lack of an active market for the stock. The following information pertains to the fair value of the options granted to purchase common stock in 1997, 1996 and 1995 (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 ---- ---- ---- Weighted-average grant-date fair value of options issued during the year .................... $ 40 24 102 ======== === === Proforma net earnings ........................... $ 1,215 280 708 ======== === === Proforma basic earnings per share ............... $ .33 .07 .23 ======== === ===
(12) STOCK DIVIDEND The Board of Directors declared a 10% and a 5% stock dividend on January 15, 1998 and during 1996, respectively. All per share amounts have been presented to reflect these stock dividends. (13) REGULATORY MATTERS The Bank is subject to various regulatory capital requirements administered by the various 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 Company'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 judgements 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, 1997, that the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 1997, the most recent notification from the State and Federal regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as 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 below. There are no conditions or events since that notification that management believes have changed the Bank's category. (continued) 43 46 GULF WEST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (13) REGULATORY MATTERS, CONTINUED The Bank's actual capital amounts and ratios are also presented in the table.
TO BE WELL CAPITALIZED UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS: ------------------- ------------------- ------------------ AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------- ----- ------- ----- ------- ----- AS OF DECEMBER 31, 1997: Total capital (to Risk Weighted Assets) ...... $15,458 11.3% $10,922 8.00% $13,652 10.00% Tier I Capital (to Risk Weighted Assets) ...... 13,894 10.2 5,461 4.00 8,191 6.00 Tier I Capital (to Average Assets) ... 13,894 7.5 7,397 4.00 9,246 5.00 AS OF DECEMBER 31, 1996: Total capital (to Risk Weighted Assets) ...... $13,719 11.36% $ 9,664 8.00% $12,079 10.00% Tier I Capital (to Risk Weighted Assets) ...... 12,535 10.38 4,832 4.00 7,248 6.00 Tier I Capital (to Average Assets) ... 12,535 7.72 6,495 4.00 8,118 5.00
(14) PROFIT SHARING PLAN The Company sponsors a Section 401(k) profit sharing plan. The profit sharing plan is available to all employees electing to participate after meeting certain length-of-service requirements. The Company's contributions to the profit sharing plan are comprised of two components: a guaranteed match and a discretionary match. Expense relating to the Company's contributions to the profit sharing plan included in the accompanying consolidated financial statements was $63,000, $49,000 and $26,000 for the years ended December 31, 1997, 1996 and 1995, respectively. (15) DEFERRED COMPENSATION PLANS The Company has deferred compensation agreements with certain officers. The terms of the agreements provide for the payments of specified benefits to these participants upon severance or retirement or their beneficiaries in the event of death of the participant while employed by the Company or while receiving benefits. The Company is accruing the present value of the future benefits over the terms of the agreements. The expense of the deferred compensation plans was approximately $96,000, $76,000 and $66,000 for the years ended December 31, 1997, 1996 and 1995, respectively. (continued) 44 47 GULF WEST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (16) PARENT COMPANY ONLY FINANCIAL STATEMENTS Condensed financial statements of the Holding Company are presented below. The Holding Company commenced business in January 1995. CONDENSED BALANCE SHEETS (IN THOUSANDS)
AT DECEMBER 31, ------------------- 1997 1996 ------- ------ ASSETS Cash and cash equivalents with subsidiary $ 152 276 Investment in wholly-owned subsidiaries . 14,138 12,655 Other assets ............................ 251 169 ------- ------ Total ............................... $14,541 13,100 ======= ====== LIABILITIES AND STOCKHOLDERS' EQUITY Stockholders' equity .................... 14,541 13,100 ------- ------ Total ............................... $14,541 13,100 ======= ======
CONDENSED STATEMENTS OF EARNINGS (IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, ----------------------------- 1997 1996 1995 ------- ---- ---- Revenues ............................... $ -- -- 3 Expenses ............................... 38 25 14 ------- ---- ---- Loss before earnings of subsidiaries (38) (25) (11) Earnings of subsidiaries ........... 1,293 339 719 ------- ---- ---- Net earnings ....................... $ 1,255 314 708 ======= ==== ====
(continued) 45 48 GULF WEST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (16) PARENT COMPANY ONLY FINANCIAL STATEMENTS, CONTINUED CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, --------------------------------- 1997 1996 1995 ------- ------ ------ Cash flows from operating activities: Net earnings ............................................ $ 1,255 314 708 Adjustments to reconcile net earnings to net cash used in operating activities: Equity in undistributed earnings of subsidiaries .... (1,293) (339) (719) Net (increase) decrease in other assets ............. (82) 12 5 Decrease in other liabilities ....................... -- -- (31) ------- ------ ------ Net cash used in operating activities ........... (120) (13) (37) ------- ------ ------ Cash flows from investing activities: Investment in subsidiaries .............................. (75) (3,082) -- Dividends received from subsidiary ...................... -- -- 50 ------- ------ ------ Net cash (used in) investing activities ......... (75) (3,082) 50 ------- ------ ------ Cash flows from financing activities: Net proceeds from issuance of common stock .............. 71 56 3,427 Cash dividends .......................................... -- -- (125) ------- ------ ------ Net cash provided by financing activities ....... 71 56 3,302 ------- ------ ------ Net (decrease) increase in cash and cash equivalents ........ (124) (3,039) 3,315 Cash and cash equivalents at beginning of the year .......... 276 3,315 -- ------- ------ ------ Cash and cash equivalents at end of year .................... $ 152 276 3,315 ======= ====== ======
46 49 [HACKER, JOHNSON, COHEN & GRIEB PA LETTERHEAD] INDEPENDENT AUDITORS' REPORT The Board of Directors Gulf West Banks, Inc. St. Petersburg, Florida We have audited the accompanying consolidated balance sheets of Gulf West Banks, Inc. and Subsidiaries (the "Company") at December 31, 1997 and 1996 and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997. 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 generally accepted auditing standards. 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ HACKER, JOHNSON, COHEN & GRIEB PA HACKER, JOHNSON, COHEN & GRIEB PA Tampa, Florida January 16, 1998 47 50 Notes 48 51
Investor and General Information Corporate Headquarters 425 22nd Avenue North St. Petersburg, Florida 33704 Annual Meeting The Annual Meeting of the Stockholders will be held at the Feather Sound Country Club located at 2201 Feather Sound Drive, St. Petersburg, Florida at 5:00 P.M., April 16, 1998. Transfer Agent and Registrar Sun Trust Bank; Atlanta Stock Transfer Department Post Office Box 4625 Atlanta, Georgia 30302 1-800-568-3476 Corporate Counsel Fowler, White, Gillen, Boggs, Villareal and Banker, P.A. 501 East Kennedy Boulevard, Suite 1700 Tampa, Florida 33602 Independent Auditors Hacker, Johnson, Cohen & Grieb PA Certified Public Accountants 500 North Westshore Boulevard Tampa, Florida 33609 Form 10-K A copy of the Form 10-K, as filed with the Securities and Exchange Commission, may be obtained by stockholders without charge upon written request to Barry K. Miller, Secretary/Treasurer, 425 22nd Avenue North, St. Petersburg, Florida 33704.
Common Stock Prices and Dividends Although there is no established public trading market for the Company's common stock, the brokerage firm of Raymond James & Associates, Inc. facilitates trades of the Company's common stock in the over-the-counter market. Prices reported to the Company ranged from $4 5/8 to $5 1/8 per share during 1996 and $5 1/8 to $5 1/2 during 1997. The Company paid cash dividends of $0.03 per share in 1995, paid a 5% stock dividend in 1996 and declared a 10% stock dividend in January 1998. Future dividends, if any, will be determined by the Board of Directors. As of January 17, 1998, the Company had approximately 625 shareholders of record of common stock. 52 [LOGO] Gulf West Banks, Inc. 425 22nd Avenue North St. Petersburg, Florida 33704 (813) 894-5696 EX-23.1 3 CONSENT OF HACKER, JOHNSON 1 ACCOUNTANTS' CONSENT The Board of Directors Gulf West Banks, Inc. St. Petersburg, Florida: We consent to the use of our report dated January 16, 1998 relating to the consolidated balance sheets as of December 31, 1997 and 1996 and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997 of Gulf West Banks, Inc., in the Annual Report for 1997 on Form 10-K of Gulf West Banks, Inc. /s/ HACKER, JOHNSON, COHEN & GRIEB PA HACKER, JOHNSON, COHEN & GRIEB PA Tampa, Florida February 3, 1998 EX-27 4 FINANCIAL DATA SCHEDULE
9 YEAR DEC-31-1997 DEC-31-1997 9,046 0 8,903 0 53,183 0 0 124,119 1,564 204,848 169,101 20,237 969 0 0 0 3,343 11,198 204,848 10,934 2,661 444 14,039 5,569 6,026 8,013 437 237 7,654 1,909 1,909 0 0 1,255 .34 .33 4.8 0 0 0 0 1,184 96 39 1,564 1,564 0 0
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