10-K 1 d10k.txt FORM 10-K 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, 2001 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: (727) 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. [_] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of January 31, 2002, was $51,223,000. The number of shares of the registrant's common stock outstanding as of January 31, 2002, was 7,932,188. DOCUMENTS INCORPORATED BY REFERENCE The registrant's definitive Proxy Statement relating to the registrant's 2002 annual meeting of shareholders to be held on April 18, 2002, is incorporated by reference into Part III of this Annual Report on Form 10-K. PART I Item 1. Business. Special Note Regarding Forward-Looking Statements This 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 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 of 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 Company'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 Mercantile, among other things. Introduction Gulf West Banks, Inc. ("Gulf West" or the "Company") is a financial holding company registered under the Bank Holding Company Act of 1956, as amended, and was incorporated under the laws of the State of Florida effective October 24, 1994. Gulf West's principal assets are all of the issued and outstanding shares of capital stock of Mercantile Bank, a Florida state banking corporation which is located in St. Petersburg, Florida ("Mercantile"). Gulf West also owns all of the issued and outstanding shares of Mercantile Bank Leasing, Inc. ("MBL"), a Florida corporation, which was engaged in equipment leasing until November 15, 2000 at which time the operations of this company were discontinued. 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 (727) 894-5696. Activities of Gulf West Currently, the only business activity of Gulf West is to own and operate Mercantile. 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." Until its activities were terminated on November 15,2000, MBL was an equipment leasing company that arranged financing for a variety of equipment for all types of businesses. While active, MBL comprised 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 and the Gramm-Leach-Bliley Act of 1999, 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 2,731,415 shares (adjusted to reflect subsequent stock dividends) 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. At the time of the acquisition, Mercantile amended its charter to include trust powers so that it could continue the trust business of Citizens National. Subsequent to the acquisition, Mercantile sold the trust accounts to SunTrust Bank, Nature Coast and the trust department is no longer active. As a result of the acquisition, Citizens National's single banking office is currently being operated as the Port Richey office of Mercantile. 2 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. Mercantile offers debit cards, collection teller services, wire transfer services, safe deposit facilities, night depository facilities, telephone banking services and internet banking services. Mercantile'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. 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, 2001, commercial and consumer loans accounted for approximately 86.2% and 3.8%, respectively, of Mercantile's loan portfolio. Loans on residential real estate accounted for the remaining 10.0% 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 and 9:00 a.m. to 6:00 p.m. on Fridays. 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 has 24-hour automatic teller machines (ATM's) at each of its offices. Mercantile issues cards to its customers that can be used in any of it's ATM's as well as any ATM's which are members of the STAR and CIRRUS networks. Mercantile offers debit cards that can be used at the aforementioned ATMs or at any location that accepts Mastercard. Telephone and internet banking products are also available to Mercantile customers, giving them access to their accounts 24 hours a day. Mercantile's data processing and item processing are handled in-house. All of its offices are electronically linked through a wide-area network that facilitates internal communications and the handling of deposit and loan accounts and other paper intensive applications. Mercantile has a telephone banking system as well as internet banking both of which services provides its customers with added convenience in conducting banking transactions. Market Area Seven of Mercantile's banking offices are located in Pinellas County, Florida, six are located in Hillsborough County, Florida, and two are 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 2000 census was 921,000. Hillsborough County had a residential population of 999,000 as of the 2000 census. Pasco County had a residential population of 345,000 as of the 2000 census. 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. Operating Strategy The management of the Company believes that the 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 the United States. 3 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 and 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 depends 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, 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 through 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, most of Mercantile's directors have worked and/or lived in or near Mercantile's market area for a number of years. Management believes that these factors, 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. 4 There are approximately 32 commercial banks and savings and loan associations with 286 branch offices in Pinellas County. In Hillsborough County there are approximately 35 such institutions with 210 offices, and in Pasco County, there are approximately 22 such institutions with 81 offices. Mercantile expects to receive competition from all of these financial institutions, a significant number of which have offices located in the St. Petersburg, Tampa and Port Richey 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, 2001, Gulf West employed 207 employees of which 182 were full-time and 25 were part-time, including four senior 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, stock purchase plan, and vacation and sick leave. Item 2. Properties Gulf West corporate offices are located within the main office of Mercantile. Mercantile's corporate offices are 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 executive 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. In addition to its main office in St. Petersburg, Mercantile also has six additional locations throughout Pinellas County, six locations in Hillsborough County and two locations in Pasco County. Seven of these offices are owned facilities while the other eight are leased. Mercantile also rents approximately 16,650 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, the item processing department, the human resources department and the accounting department. 5 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. Since March 25,1998 the Company's common stock has been quoted on the Nasdaq National Market System under the symbol "GWBK." The high and low bids for the Company's common stock on the Nasdaq National Market System for the years 2000 and 2001 were as follows: Quarter Ended High Low ------------- ---- --- March 31, 2000 $7.93 $6.35 June 30, 2000 $9.06 $6.35 September 30, 2000 $7.93 $7.14 December 31, 2000 $8.09 $6.55 March 31, 2001 $9.05 $7.02 June 30, 2001 $9.05 $7.62 September 30, 2001 $8.98 $7.67 December 31, 2001 $9.70 $8.19 These over-the-counter market quotations reflect inter-dealer prices without retail mark-up, mark-down or commissions and may not necessarily reflect actual transactions. The Company paid a 10% stock dividend in February 1998, a 10% stock dividend in December 1998, a 5% stock dividend in November 1999, a 5% stock dividend in October 2000, a 5% stock dividend in October 2001 and a cash dividend of $0.10 per share in 2001. (The above market information has been restated for the effect of these stock dividends.) Further dividends, if any, will be determined by the Board of Directors based on several factors including the Company's growth rate, profitability, financial condition and capital requirements. As of January 31, 2002, the Company had approximately 1,400 holders of record of common stock. Certain of the Company's shares are held in "nominee" or "street" name and, accordingly, the exact number of owners of such shares is not known. 6 Item 6. Selected Financial Data.
At December 31, ------------------------------ 2001 2000 1999 1998 1997 -------- ------- ------- ------- ------- (Dollars in thousands, except per share figures) Cash and due from banks........................... $ 16,860 11,389 11,924 16,045 9,046 Federal funds sold and securities purchased under agreements to resell....................... 13,754 18,174 12,323 11,654 8,903 Investment securities............................. 121,726 74,962 77,857 69,087 53,183 Loans, net........................................ 330,123 316,964 283,225 208,608 122,555 Federal Home Loan Bank stock...................... 1,228 1,228 - - - All other assets.................................. 32,350 32,219 31,273 26,780 11,161 -------- ------- ------- ------- ------- Total assets..................................... $516,041 454,936 416,602 332,174 204,848 ======== ======= ======= ======= ======= Deposits.......................................... 425,323 392,054 356,567 286,372 169,101 Federal Home Loan Bank advances................... 20,000 10,000 - - - Other borrowings.................................. 27,600 14,984 27,417 15,438 20,237 All other liabilities............................. 2,481 2,345 2,284 1,400 969 Stockholders' equity.............................. 40,637 35,553 30,334 28,964 14,541 -------- ------- ------- ------- ------- Total liabilities and stockholders' equity....... $516,041 454,936 416,602 332,174 204,848 ======== ======= ======= ======= ======= Year Ended December 31, ---------------------------------- 2001 2000 1999 1998 1997 ---- ---- ------- ------- ------- Total interest income............................. $ 33,558 31,345 26,854 21,018 14,039 Total interest expense............................ 14,049 15,212 12,455 9,602 6,026 -------- ------- ------- ------- ------- Net interest income............................... 19,509 16,133 14,399 11,416 8,013 Provision for loan losses......................... 761 537 670 440 437 -------- ------- ------- ------- ------- Net interest income after provision for loan losses.................................. 18,748 15,596 13,729 10,976 7,576 Noninterest income................................ 3,981 3,534 3,478 2,856 1,987 Noninterest expenses.............................. 15,019 13,811 12,773 10,132 7,654 -------- ------- ------- ------- ------- Earnings before income taxes...................... 7,710 5,319 4,434 3,700 1,909 Income taxes...................................... 2,669 1,794 1,364 1,179 654 -------- ------- ------- ------- ------- Net earnings...................................... $ 5,041 3,525 3,070 2,521 1,255 ======== ======= ======= ======= ======= Earnings per share (1): Basic............................................ $0.64 0.45 0.40 0.33 0.27 ======== ======= ======= ======= ======= Diluted.......................................... $0.63 0.44 0.39 0.32 0.26 ======== ======= ======= ======= =======
(1) Restated for 5% stock dividends on September 20, 2001, September 21, 2000 and on October 21, 1999 and 10% stock dividends on November 19, 1998 and on January 15, 1998. (continued) 7
At or For the Year Ended December 31, --------------------------------------------- 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- (Dollars in thousands, except per share figures) For the Period: Return on average assets.......................... 1.05% 0.83% 0.79% 0.84% 0.69% Return on average equity.......................... 13.23% 10.84% 10.35% 9.22% 9.18% Average equity to average assets.................. 7.95% 7.62% 7.59% 9.15% 7.50% Interest rate spread during the period (2)........ 3.85% 3.52% 3.66% 3.57% 4.02% Net interest margin............................... 4.47% 4.18% 4.12% 4.25% 4.84% Noninterest expense to average assets............. 3.13% 3.24% 3.27% 3.39% 4.20% Dividend pay-out ratio............................ .15 - - - - At the End of the Period: Ratio of average interest-earning assets to average interest-bearing liabilities............. 1.19 1.17 1.13 1.19 1.22 Nonperforming loans, and foreclosed real estate as a percentage of total assets........... 0.95% 0.01% 0.80% 0.43% 0.31% Allowance for loan losses as a percentage of total loans................................... 1.02% 1.00% 1.00% 1.15% 1.26% Allowance for loan losses as a percentage of nonperforming loans........................... 69.46% 6728.22% 96.15% 219.97% 245.53% Total number of offices........................... 15 15 12 11 9 Full-service banking offices...................... 15 15 12 11 9 Total shares outstanding at end of period (1)..... 7,904,798 7,793,247 7,724,771 7,690,933 4,682,174 Book value per share (1).......................... 5.14 4.56 3.92 3.76 3.10
(1) All per share information is presented to reflect the two stock dividends of 10% declared January 15, 1998 and November 19, 1998 and the 5% stock dividends declared on October 21, 1999, on September 21, 2000 and on September 20, 2001. (2) Difference between weighted-average yield on all interest-earning assets and weighted-average rate on all interest-bearing liabilities. 8 Item 7. 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 ("Mercantile"). Mercantile is a State (Florida) chartered commercial bank. Mercantile, through fifteen banking offices, provides a wide range of banking services to individuals and businesses located primarily in Pinellas, Hillsborough and Pasco Counties, Florida. The Holding Company also owns all of the issued and outstanding shares of Mercantile Bank Leasing, Inc. ("MBL"). MBL was engaged in equipment leasing until November 15, 2000 at which time the operations of this Company were discontinued. Currently the Holding Company's only business activity is the operation of Mercantile. Collectively the entities are referred to as "Gulf West." The principal services offered by Mercantile 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. 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. It offers collection teller services, wire transfer services, safe deposit and night depository facilities, telephone banking services, internet banking services and debit cards. The 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. All 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, 2001, Gulf West had total consolidated assets of $516.0 million, an increase of 13.4% over total assets of $454.9 million at December 31, 2000. During the year ended December 31, 2001, net loans receivable increased to $330.1 million or 4.1%. Gulf West's portfolio of investment securities increased to $121.7 million as of December 31, 2001 from $75.0 million as of December 31, 2000, a 62.3% increase. Mercantile's deposits increased to $425.3 million as of December 31, 2001 from $392.1 million as of December 31, 2000, a 8.5% increase. Gulf West had consolidated net earnings of $5,041,000 or $.64 basic earnings per share ($.63 diluted earnings per share) for the year ended December 31, 2001 compared to consolidated net earnings of $3,525,000 or $.45 basic earnings per share (.44 diluted earnings per share) for 2000. Regulation and Legislation As a state-chartered commercial bank, Mercantile is subject to extensive regulation by the Florida Department of Banking and Finance ("Florida DBF") and the Federal Deposit Insurance Corporation ("FDIC"). Mercantile 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 Mercantile's compliance with the various regulatory requirements. The Holding Company and Mercantile are also subject to regulation and examination by the Federal Reserve Board of Governors. As Florida corporations, Mercantile and Gulfwest are 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. 9 On November 12, 1999 the Gramm-Leach-Bliley Act (the "Act") was enacted into law. This financial services reform legislation does three fundamental things. First, it repeals provisions of the Glass Steagall Act to permit commercial banks to affiliate with investment banks. Second, it substantially modifies the forty-three year old Bank Holding Company Act of 1956 to permit companies that own commercial banks to engage in any type of financial activity. Finally, it allows subsidiaries of banks to engage in a broad range of financial activities that are not permitted for banks themselves. As a result of this new Act, banking companies and other types of financial companies, for example, securities, insurance and financial technology companies, will be able to combine more readily. Besides these key items, the Act includes many other important provisions including provisions regarding the privacy of customer information; increased access by community banks to the Federal Home Loan Bank System; and significant changes to the requirements imposed by the Community Reinvestment Act. Pursuant to one of the provisions in the Act, Mercantile applied for membership in the Federal Home Loan Bank of Atlanta and was approved for membership on January 28, 2000. Acquisition On January 16, 1998, Gulf West 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, Gulf West issued 2.7 million shares of its common stock (adjusted for subsequent stock dividends) 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. Gulf West accounted for this transaction using the purchase method of accounting. 10 Credit Risk Gulf West's primary business is making commercial real estate and business 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 Gulf West. While management has instituted underwriting guidelines and credit review procedures to protect Gulf West from avoidable credit losses, some losses will inevitably occur. While Gulf West maintains a diverse loan portfolio, commercial real estate loans constitute the Company's largest line of lending business. Within that portfolio the only definitive concentration lies in first real estate mortgages to the hospitality industry (hotel/motel). Anticipating a recessionary climate and a build-up in room supply within its primary lending area, the Company significantly curtailed its lending to this sector. Although this portfolio has performed reasonably well during the current economic downturn, it remains susceptible to further downward pressure in economic conditions. Loans outstanding to this industry at December 31, 2001 amounted to approximately $44 million or 13% of total loans. 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.
At December 31, ----------------------------- 2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ (Dollars in thousands) Nonperforming (nonaccrual) loans: Residential real estate loans............................ $ - - 98 84 51 Commercial real estate................................... 4,162 - 2,625 653 488 Commercial loans......................................... 747 42 240 343 83 Consumer loans and other................................. - 5 - 28 15 ------ ------ ------ ------ ------ Total nonperforming (nonaccrual) loans................ 4,909 47 2,963 1,108 637 ------ ------ ------ ------ ------ Total nonperforming loans to total assets............. .95% .01% .71% .33% .31% ====== ====== ====== ====== ====== Foreclosed real estate: Real estate acquired by foreclosure or deed in lieu of foreclosure........................................... - - 353 309 - ------ ------ ------ ------ ------ Total nonperforming loans and foreclosed real estate.. $4,909 47 3,316 1,417 637 ====== ====== ====== ====== ====== Total nonperforming and foreclosed real estate to total assets........................................ .95% .01% .80% .43% .31% ====== ====== ====== ====== ======
The major portion of the $4.9million in nonperforming loans at year end 2001, was a $3.5 million participation in a $5.5 million real estate loan on a 168 room hotel property located in central Florida. This hotel was valued at $10.2 million in an October 2001 MAI appraisal. The borrower became delinquent on loan payments in mid 2001 in part due to problems related to the 2001 economic slowdown and growth in room supply in that market. Consequently, foreclosure action was commenced. The borrower filed Chapter 11 bankruptcy in August 2001 thereby delaying foreclosure proceedings. The hotel is currently being operated under the oversight of the bankruptcy court. Once title to the property is obtained through the foreclosure action, management anticipates that the hotel could be sold in a reasonable time frame with limited exposure to any loss of principal. 11 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, ------------------------- 2001 2000 1999 1998 1997 ----- ---- ---- ---- ---- (In thousands) Interest income that would have been recognized.. $264 7 259 108 71 Interest income recognized....................... - 4 216 63 51 ---- ---- ---- ---- ---- $264 3 43 45 20 ==== ==== ==== ==== ====
The following table sets forth information with respect to activity in Gulf West's allowance for loan losses for the periods indicated:
Year Ended December 31, ------------------------------------------- 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- (Dollars in thousands) Average loans outstanding, net............................ $328,085 296,544 264,010 174,476 116,148 ======== ======== ======== ======== ======== Allowance at beginning of year............................ 3,195 2,849 2,436 1,564 1,184 -------- -------- -------- -------- -------- Charge-offs: Commercial loans......................................... (602) (168) (251) (92) (36) Consumer loans........................................... (74) (58) (36) (91) (60) Residential.............................................. - - (8) - - -------- -------- -------- -------- -------- Total loans charged-off................................. (676) (226) (295) (183) (96) -------- -------- -------- -------- -------- Recoveries................................................ 130 35 38 87 39 -------- -------- -------- -------- -------- Net charge-offs......................................... (546) (191) (257) (96) (57) -------- -------- -------- -------- -------- Provision from acquisition of Citizens National Bank and Trust............................................... - - - 528 - -------- -------- -------- -------- -------- Provision for loan losses charged to operating expenses.. 761 537 670 440 437 -------- -------- -------- -------- -------- Allowance at end of year................................. $ 3,410 3,195 2,849 2,436 1,564 ======== ======== ======== ======== ======== Ratio of net charge-offs to average loans outstanding.... 0.1664 .0644 .0973 .0550 .0491 ======== ======== ======== ======== ======== Allowance as a percent of total loans.................... 1.02% 1.00% 1.00% 1.15% 1.26% ======== ======== ======== ======== ======== Total loans at end of year............................... $333,859 320,147 286,109 211,114 124,291 ======== ======== ======== ======== ========
12 The following table presents information regarding Gulf West's total allowance for loan losses as well as the allocation of such amounts to the various categories of loans:
At December 31, ------------------------------------------------------------------- 2001 2000 1999 1998 1997 ------------------- ------------------- ----------------- ----------------- ------------- % of % of % of % of % of Loans in Loans in Loans in Loans in Loans in Each Each Each Each Each Amount Category Amount Category Amount Category Amount Category Amount Category of to Total of to Total of to Total of to Total of to Total Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans --------- ----- --------- ------ --------- ----- --------- ----- --------- ----- (Dollars in thousands) Commercial loans..... $ 886 16.6% $ 857 15.3% $ 714 13.9% $ 541 14.3% $ 328 15.9% Commercial real estate loans........ 2,257 69.6 2,073 70.5 1,864 70.7 1,616 59.3 985 58.2 Residential real estate loans........ 71 10.0 98 10.6 114 11.2 140 20.6 63 15.3 Consumer loans....... 196 3.8 167 3.6 157 4.2 139 5.8 188 10.6 ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- Total allowance for loan losses............. $3,410 100.0% $3,195 100.0% $2,849 100.0% $2,436 100.0% $1,564 100.0% ====== ===== ====== ===== ====== ===== ====== ===== ====== =====
13 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 deposit 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, 2001 and December 31, 2000, Mercantile had liquidity of approximately $102.4 million and $84.4 million, or approximately 25% and 22.0% of total deposits (net of secured deposits), respectively. During the year ended December 31, 2001, Gulf West's primary sources of funds consisted of principal payments on loans and investment securities, proceeds from sales and maturities of securities available for sale, net increases in deposits, and proceeds from Federal Home Loan Bank advances. Gulf West used its capital resources principally to purchase investment securities and to fund existing and continuing loan commitments. At December 31, 2001, Gulf West had commitments to originate loans totaling $15 million. Scheduled maturities of certificates of deposit during the 12 months following December 31, 2001 totaled $124 million. Management believes Gulf West 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 Years 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, 2001: U.S. Treasury securities................ $ 996 1.67% $ 3,649 4.10% $ - -% $ - -% $ 4,645 3.58% Corporate and other obligations............... 133 7.43 2,545 8.29 4,094 8.04 9,151 8.74 15,923 8.48 ------- ------- ------- ------- -------- $ 1,129 2.35% $ 6,194 5.82% $ 4,094 8.04% $ 9,151 8.74% $ 20,568 7.37% ======= ======= ======= ======= ======= ======= ======= ======= Equity securities.......... 842 3.04% Mortgage-backed securities................ 100,316 5.77% -------- Total...................... $121,726 6.02% ======== ====== At December 31, 2000: U.S. agency obligations............... $ - -% $ 4,987 6.04% $ 1,962 6.71% $ - -% $ 6,949 6.23% U.S. Treasury securities................ 5,002 5.64 - - - - - - 5,002 5.64 Corporate and other obligations............... 140 5.75 595 8.07 4,611 8.35 8,215 8.90 13,561 8.69 ------- ------- ------- ------- -------- $ 5,142 5.64% $ 5,582 6.26% $ 6,573 7.86% $ 8,215 8.90% $ 25,512 7.41% ======= ====== ======= ======= ======= ======= ======= Equity securities.......... 101 2.63% Mortgage-backed securities................ 49,349 6.61% -------- Total...................... $ 74,962 6.90% ======== ======
14 Regulatory Capital Requirements Gulf West (on a consolidated basis) and Mercantile are subject to various regulatory capital requirements administered by the federal and state 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 Gulf West's and Mercantile's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective actions, Gulf West and Mercantile must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies. Quantitative measures established by regulation to ensure capital adequacy require Gulf West and Mercantile to maintain minimum amounts and ratios (set forth in the following table) 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, 2001 and 2000, that Gulf West and Mercantile met all capital adequacy requirements to which they are subject. As of December 31, 2001, the most recent notification from the Federal Deposit Insurance Corporation categorized as well capitalized, institution must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed Mercantile's category. Gulf West's and Mercantile's actual capital amounts and percentages are also presented in the table.
Minimum To Be Well Capitalized Under Minimum Capital Prompt Corrective Actual Requirement Action Provisions ---------------- ---------------- ------------------ Amount Ratio Amount Ratio Amount Ratio -------- ------ -------- ------ --------- ------- As of December 31, 2001: Total Risk-Based Capital to Risk-Weighted Assets: Gulf West................................ $42,657 11.7% $29,057 8.0% N/A N/A Mercantile............................... 40,048 11.1 28,990 8.0 $36,237 10.0% Tier I Capital to Risk-Weighted Assets: Gulf West................................ 39,247 10.8 14,529 4.0 N/A N/A Mercantile............................... 36,638 10.1 14,495 4.0 21,742 6.0 Tier I Capital to Average Assets: Gulf West................................ 39,247 7.9 19,890 4.0 N/A N/A Mercantile............................... 36,638 7.4 19,877 4.0 24,847 5.0 As of December 31, 2000: Total Risk-Based Capital to Risk-Weighted Assets: Gulf West................................ $37,517 10.9% $27,462 8.0% N/A N/A Mercantile............................... 35,474 10.3 27,435 8.0 $34,294 10.0% Tier I Capital to Risk-Weighted Assets: Gulf West................................ 34,322 10.0 13,731 4.0 N/A N/A Mercantile............................... 32,279 9.4 13,718 4.0 20,576 6.0 Tier I Capital to Average Assets: Gulf West................................ 34,322 7.8 17,583 4.0 N/A N/A Mercantile............................... 32,279 7.4 17,538 4.0 21,923 5.0
15 Market Risk Market risk is the risk of loss due to adverse changes in market prices and rates. Gulf West's market risk arises primarily from interest-rate risk inherent in its lending and deposit gathering 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 the Notes to Consolidated Financial Statements. Gulf West does not engage in trading or hedging activities and does not invest in interest-rate derivatives or enter into interest rate swaps. Gulf West's primary objective in managing interest-rate risk is to minimize the adverse impact of changes in interest rates on Gulf West's net interest income and capital, while adjusting Gulf West's asset-liability structure to obtain the maximum yield-cost spread on that structure. Gulf West relies primarily on its asset-liability structure to control interest-rate risk. See the section below titled Asset-Liability Structure. However, a sudden and substantial increase in interest rates may adversely impact Gulf West'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. Management of Gulf West uses modeling techniques to simulate changes in net interest income under various rate scenarios. Important elements of these techniques include the mix of floating versus fixed rate assets and liabilities, and the scheduled, as well as expected, repricing and maturing volumes and rates of the existing balance sheet. The projected effects that assumed interest rate shifts would have on the net interest income of Gulf West for the succeeding twelve-month period as of December 31, 2001 are discussed below under Asset-Liability Structure. Asset - Liability Structure As part of its asset and liability management, Gulf West has emphasized establishing and implementing internal asset-liability decision processes, as well as communications and control procedures to aid in managing Gulf West's earnings. Management believes that these processes and procedures provide Gulf West 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 generally 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 generally result in an increase in net interest income, while a positive gap would adversely affect net interest income. As of December 31, 2001, Gulf West's one-year negative interest-rate sensitivity gap in dollars was $125.0 million. 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, Gulf West 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. 16 On a quarterly basis, management of Gulf West performs an income simulation analysis to determine the projected effect on net interest income of various increases and decreases in the level of interest rates. These scenarios assume that the 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. Such a "rate shock analysis" requires key assumptions which are inherently uncertain, such as deposit sensitivity, cash flows from investments and loans, reinvestment options, management's capital plans, market conditions and the timing, magnitude and frequency of interest rate changes. As a result, the simulation is at best an estimate and cannot accurately predict the impact of future interest rate changes on net interest income. Gulf West 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. As of December 31, 2001, the simulation analysis projects an increase in net interest income of 0.56% for the following 12 months assuming a decrease in interest rates of 50 basis points spaced evenly throughout that 12 month period. If rates increase by 200 basis points over that same 12-month period, then net interest income will decrease by 2.42%. These volatility levels are within the Company's guidelines. In order to minimize the potential for adverse effects of material and prolonged increases in interest rates on the results of operations, Gulf West'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). Gulf West also maintains a 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, 2001, 6.2% of Gulf West's total assets consisted of cash and short-term U.S. Government and agency securities maturing in one year or less. Furthermore, as of such date, Gulf West's liquidity ratio was 25.4%. Gulf West 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 Gulf West's 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 $271.6 million, representing 63.8% of total deposits at December 31, 2001. Management anticipates that these accounts will increase and in the future comprise a significant portion of its deposit base. 17 The following table sets forth certain information relating to Gulf West's interest-earning assets and interest-bearing liabilities at December 31, 2001 that are estimated to mature or are scheduled to reprice within the period shown. Since assets and liabilities within each interest-sensitive period may not reprice by the same amount or at the same time, the following table may not be reflective of changes in net interest income which would result from changes in the general level of interest rates.
More Than More Three Than Six More More Months Months Than One than Five Three to Six to One Year to Years and Months Months Year Five Years Insensitive Total ---------- -------- --------- ----------- ------------ ------- ($ in thousands) Loans (1),(2): Adjustable rate................ $ 66,040 13,107 11,198 143,751 5,588 239,684 Fixed rate..................... 15,173 1,633 3,212 35,347 38,810 94,175 -------- ------- -------- ------- ------- ------- Total loans................... 81,213 14,740 14,410 179,098 44,398 333,859 FHLB stock...................... - - - - 1,228 1,228 Investments (3),(4)............. 14,995 213 187 42,620 77,465 135,480 -------- ------- -------- ------- ------- ------- Total rate-sensitive assets... 96,208 14,953 14,597 221,718 123,091 470,567 -------- ------- -------- ------- ------- ------- Deposit accounts (5): Savings and NOW................ 23,280 - - - 65,137 88,417 Money market................... 84,683 - - - 4,419 89,102 Time deposits.................. 43,229 40,124 40,492 29,827 66 153,738 -------- ------- -------- ------- ------- ------- Total interest-bearing deposit accounts....................... 151,192 40,124 40,492 29,827 69,622 331,257 Other borrowings................ - 9,700 9,600 28,300 - 47,600 -------- ------- -------- ------- ------- ------- Total rate-sensitive liabilities................. 151,192 49,824 50,092 58,127 69,622 378,857 -------- ------- -------- ------- ------- ------- Gap (repricing differences)..... $(54,984) (34,871) (35,495) 163,591 53,469 91,710 ======== ======= ======== ======= ======= ======= Cumulative GAP.................. $(54,984) (89,855) (125,350) 38,241 91,710 ======== ======= ======== ======= ======= Cumulative GAP/total assets..... (10.65)% (17.41)% (24.29)% 7.41% 17.77% ======== ======= ======== ======= =======
_________________________ (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. (3) Investments are scheduled according to their respective repricing and maturity dates. (4) Includes federal funds sold. (5) The savings and NOW accounts repricing volumes are based on management's assumptions of the sensitivity of these accounts to changes in market interest rates. Time accounts are scheduled according to their respective maturity dates. 18 The following table reflects the contractual principal repayments by period of Gulf West's loan portfolio at December 31, 2001.
Residential Years Ending Mortgage Consumer December 31, Commercial Loans Loans Total ------------ ---------- -------- ------ ----- (In thousands) 2002........ $ 35,278 2,514 3,292 41,084 2003........ 20,557 1,163 2,599 24,319 2004........ 28,860 1,215 2,164 32,239 2005-2006... 29,262 3,011 2,918 35,191 2007-2011... 93,487 7,058 978 101,523 Thereafter.. 80,407 18,336 760 99,503 -------- ------ ------ ------- Total..... $287,851 33,297 12,711 333,859 ======== ====== ====== =======
Of the $292,775 of loans due after 2002, 29% of such loans have fixed rates of interest and 71% have adjustable rates. The following table displays loan originations by type of loan and principal reductions during the periods indicated:
Year Ended December 31, ---------------------------------- 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- (In thousands) Originations and purchases: Commercial loans....................... $ 37,224 32,644 25,799 23,066 12,102 Commercial real estate loans........... 76,966 63,515 107,828 71,624 31,329 Residential real estate................ 8,337 8,399 15,410 16,085 4,197 Consumer loans......................... 9,593 8,996 8,271 11,046 11,692 --------- ------- ------- ------- ------- Total loans originated and purchased.. 132,120 113,554 157,308 121,821 59,320 Loans acquired with purchase of Citizens.. - - - 30,744 - (Increase) in available lines of credit... (6,642) (16,212) (4,053) (12,374) (2,913) Principal reductions...................... (111,766) (63,304) (78,260) (53,368) (46,181) --------- ------- ------- ------- ------- Increase in gross loans............... $ 13,712 34,038 74,995 86,823 10,226 ========= ======= ======= ======= =======
19 The following table sets forth information concerning Gulf West's loan portfolio by type of loan at the dates indicated.
At December 31, --------------------------------------------------------------- 2001 2000 1999 1998 1997 -------- -------- ------- ------ ------- % of % of % of % of % of Amount Total Amount Total Amount Total Amount Total Amount Total --------- -------- -------- --------- ---------- -------- --------- ------- -------- ------- (Dollars in thousands) Commercial.................. $ 55,320 16.6% $ 49,027 15.3% $ 39,612 13.9% $ 30,102 14.3% $ 19,752 15.9% Commercial real estate................ 232,531 69.6 225,825 70.5 202,263 70.7 125,089 59.3 72,396 58.2 Residential real estate................ 33,297 10.0 33,838 10.6 32,125 11.2 43,427 20.6 18,966 15.3 Consumer.................... 12,711 3.8 11,457 3.6 12,109 4.2 12,496 5.8 13,177 10.6 -------- ----- -------- ------ -------- ------ -------- ------- -------- ----- Total loans............... 333,859 100.0% 320,147 100.0% 286,109 100.0% 211,114 100.0% 124,291 100.0% ===== ====== ====== ======= ===== Less: Deferred loan fees premiums and discounts................. (326) 12 (35) (70) (172) Allowance for loan losses............... (3,410) (3,195) (2,849) (2,436) (1,564) -------- -------- -------- ------ -------- Loans, net................ $330,123 $316,964 $283,225 $208,608 $122,555 ======== ======== ======== ======== ========
The following table shows the distribution of, and certain other information relating to, deposit accounts by type:
At December 31, ------------------------------ 2001 2000 ------- ------- % of % of Amount Deposit Amount Deposit ------ ------- ------ ------- (Dollars in thousands) Noninterest-bearing demand deposits........... $ 94,066 22.1% $ 74,546 19.0% Savings and NOW deposits...................... 88,417 20.8 79,305 20.2 Money-market deposits......................... 89,102 20.9 69,329 17.7 Time deposits................................. 153,738 36.2 168,874 43.1 -------- ----- -------- ----- Total deposits................................ $425,323 100.0% $392,054 100.0% ======== ===== ======== =====
Jumbo certificates ($100,000 and over) mature as follows: At December 31, --------------- 2001 ---- (In thousands) Due three months or less....................... $ 16,910 Due over three months to six months............ 16,188 Due over six months to one year................ 14,382 Due over one year.............................. 6,172 -------- $ 53,652 ======== The scheduled maturities of time deposits are as follows: At December 31, --------------- 2001 ---- (In thousands) Due in one year or less............................... $ 123,845 Due in more than one but less than three years........ 27,148 Due in more than three but less than five years....... 2,679 Due in over five years................................ 66 --------- $ 153,738 ========= 20 The following table sets forth the net deposit flows of Gulf West during the periods indicated (in thousands): Year Ended December 31, ----------------------- 2001 2000 1999 ---- ---- ---- Net increase before interest credited......... $45,393 22,098 58,857 Net credited.................................. 12,124 13,389 11,338 ------- ------ ------ Net deposit increase........................ $33,269 35,487 70,195 ======= ====== ====== 21 Results of Operations The operating results of Gulf West 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. Gulf West's interest-rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. In addition, Gulf West'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 Gulf West 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 assets to average interest-bearing liabilities.
Year Ended December 31, ---------------------------------------------------------------------------------------- 2001 2000 1999 ----------------------------- ---------------------------- --------------------------- 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)................................ $328,085 27,101 8.26% $296,544 25,525 8.61% $264,010 21,813 8.26% Securities............................... 92,627 5,841 6.31% 76,113 4,978 6.54% 74,693 4,522 6.05% Other interest-earning assets (2)........ 15,708 616 3.92% 13,314 842 6.32% 10,570 519 4.91% -------- ------- -------- ------- -------- ------- Total interest-earning assets........... 436,420 33,558 7.69% 385,971 31,345 8.12% 349,273 26,854 7.69% ------- ------- ------- Noninterest-earning assets (3)............ 42,798 40,861 41,601 -------- -------- -------- Total assets............................ $479,218 $426,832 $390,874 ======== ======== ======== Interest-bearing liabilities: Savings and NOW deposits................. 79,301 890 1.12% 82,856 1,511 1.82% 86,707 1,685 1.94% Money-market deposits.................... 82,625 2,537 3.07% 52,245 2,554 4.89% 33,243 1,149 3.46% Time deposits............................ 157,334 8,507 5.41% 169,003 9,487 5.61% 168,151 8,607 5.12% Other borrowings......................... 46,513 2,115 4.55% 26,880 1,660 6.18% 21,042 1,014 4.82% -------- ------- -------- ------- -------- ------- Total interest-bearing liabilities..... 365,773 14,049 3.84% 330,984 15,212 4.60% 309,143 12,455 4.03% ------- ------- ------- Noninterest-bearing liabilities........... 75,337 63,328 52,081 Stockholders' equity...................... 38,108 32,520 29,650 -------- -------- -------- Total liabilities and stockholders' equity.................. $479,218 $426,832 $390,874 ======== ======== ======== Net interest income....................... $19,509 $16,133 $14,399 ======= ======= ======= Interest-rate spread (4).................. 3.85% 3.52% 3.66% ======= ==== ==== Net interest margin (5)................... 4.47% 4.18% 4.12% ======= ==== ==== Ratio of average interest-earning assets to average interest-bearing liabilities.. 1.19 1.17 1.13 ======== ======== ========
________________________________________ (1) Includes nonaccrual loans. (2) Includes federal funds sold, securities purchased under agreements to resell, money-market accounts and FHLB stock. (3) Includes bank owned life insurance which is not considered an interest- earning asset. (4) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (5) Net interest margin is net interest income divided by average interest- earning assets. 22 Rate/Volume Analysis The following table sets forth certain information regarding changes in interest income and interest expense of Gulf West 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, 2001 vs. 2000 ----------------------------------- Increase (Decrease) Due to ----------------------------------- Rate/ Rate Volume Volume Total -------- ------- ------- ------- (In thousands) Interest earning assets: Loans............................. $(1,029) 2,715 (110) 1,576 Securities........................ (178) 1,080 (39) 863 Other interest-earning assets..... (320) 151 (57) (226) ------- ----- ---- ------ Total............................ (1,527) 3,946 (206) 2,213 ------- ---- ------ Interest-bearing liabilities: Deposits: Savings and NOW deposits......... (581) (65) 25 (621) Money market deposits............ (950) 1,485 (552) (17) Time deposits.................... (349) (655) 24 (980) Other borrowings................. (438) 1,213 (320) 455 ------- ----- ------ Total............................ (2,318) 1,978 (823) (1,163) ------- ----- ---- ------ Net change in net interest income.. $ 791 1,968 617 3,376 ======= ===== ==== ====== Year Ended December 31, 2000 vs. 1999 ---------------------------------- Increase (Decrease) Due to ---------------------------------- Rate/ Rate Volume Volume Total ---- ------ ------ ----- (In thousands) Interest earning assets: Loans............................. $ 912 2,688 112 3,712 Securities........................ 363 86 7 456 Other interest-earning assets..... 149 135 39 323 ------- ----- ---- ------ Total............................ 1,424 2,909 158 4,491 ------- ----- ---- ------ Interest-bearing liabilities: Deposits: Savings and NOW deposits......... (104) (75) 5 (174) Money market deposits............ 476 657 272 1,405 Time deposits.................... 832 44 4 880 Other borrowings................. 286 281 79 646 ------- ----- ---- ------ Total............................ 1,490 907 360 2,757 ------- ----- ---- ------ Net change in net interest income.. $ (66) 2,002 (202) 1,734 ======= ===== ==== ====== Comparison of Years Ended December 31, 2001 and 2000 23 General Net earnings for the year ended December 31, 2001 were $5,041,000 or $0.64 per basic share ($.63 per diluted share) compared to net earnings of $3,525,000 or $.45 per basic share ($.44 per diluted share) for the year ended December 31, 2000. This increase in Gulf West's net earnings was primarily due to an increase in net interest income partially offset by increases in noninterest expenses and income taxes, all of which resulted from the continued growth of the Company. Decreases in market interest rates during 2001 benefited the Company's interest margin since it was able to reprice its deposits and borrowings more quickly than loans and investments were repriced. Interest Income Interest income increased from $31.3 million for the year ended December 31, 2000 to $33.6 million for the year ended December 31, 2001. Interest income on loans increased $1.6 million due to an increase in the average loan portfolio balance from $296.5 million for the year ended December 31, 2000 to $328.1 million for the year ended December 31, 2001, only partially offset by a decrease in the weighted-average yield earned on the portfolio from 8.61% to 8.26%. Interest on investment securities increased $863,000 due to an increase in the average investment securities portfolio to $92.6 million in 2001 from $76.1 million in 2000 only partially offset by a decrease in the average yield in 2001 from 6.54% to 6.31%. Interest on other interest-earning assets decreased $226,000 due to a decrease in average yield on other interest-earning assets from 6.32% in 2000 to 3.92% in 2001 only partially offset by an increase in the average balance to $15.7 million from $13.3 million in 2000. Interest Expense Interest expense decreased to $14.0 million for the year ended December 31, 2001 from $15.2 million for the year ended December 31, 2000. Interest expense on deposit accounts decreased primarily due to a decrease in the weighted-average rate paid in 2001 from 4.46% to 3.74% in 2001 only partially offset by an increase in the average balance to $319.3 million from $304.1 million. The Company was successful in restructuring its deposit account makeup in 2001 by decreasing reliance on time deposits which decreased from 43% of deposits at December 31, 2000 to 36% of deposits at December 31, 2001. Interest expense on other borrowings increased to $2.1 million from $1.7 million in 2000 primarily due to an increase in average borrowings from $26.9 million in 2000 to $46.5 million in 2001 only partially offset by a decrease in average rates paid on these borrowings. The average cost of all interest-bearing liabilities decreased from 4.60% for the year ended December 31, 2000 to 3.84% for the year ended December 31, 2001. 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 Gulf West, industry standards, the amounts of nonperforming loans, general economic conditions, particularly as they relate to Gulf West's market areas, and other factors related to the collectability of Gulf West's loan portfolio. The provision increased from $537,000 for the year ended December 31, 2000 to $761,000 for the year ended December 31, 2001. Management believes the allowance for loan losses of $3.4 million is adequate at December 31, 2001. Noninterest Income Total noninterest income increased to $4.0 million for the year ended December 31, 2001 from $3.5 million in 2000. Increases in service fees on deposits, other fees, other income and gain on sale of securities were partially offset by a decrease in leasing fees and commissions which was due to the cessation of leasing activities in November of 2000. Noninterest Expenses Total noninterest expenses increased $1.2 million to $15.0 million for the year ended December 31, 2001 from $13.8 million for the year ended December 31, 2000, primarily due to increases in salaries, employee benefits and occupancy expense relating to additional banking offices opened in 2000, partially offset by a decrease in data processing outsourcing expense. Comparison of Years Ended December 31, 2000 and 1999 General Net earnings for the year ended December 31, 2000 were $3,525,000 or $.45 per basic share ($.44 per diluted share) compared to net earnings of $3,070,000 or $.40 per basic share ($.39 per diluted share) for the year ended December 31, 1999. This increase in Gulf West's net earnings was primarily due to an increase in net interest income partially offset by increases in noninterest expenses and income taxes, all of which resulted from the continued growth of the Company. Interest Income Interest income increased from $26.9 million for the year ended December 31, 1999 to $31.3 million for the year ended December 31, 2000. Interest income on loans increased $3.7 million due to an increase in the average loan portfolio balance from $264.0 million for the year ended December 31, 1999 to $296.5 million for the year ended December 31, 2000, and by an increase in the weighted-average yield earned on the portfolio from 8.26% to 8.61%. Interest on investment securities 24 increased $456,000 due to an increase in the average investment securities portfolio to $76.1 million in 2000 from $74.7 million in 1999 and an increase in the average yield in 2000. Interest on other interest- earning assets increased $323,000 due to a increase in average other interest- earning assets from $10.6 million in 1999 to $13.3 million in 2000 and an increase in the average yield from 4.91% to 6.32%. Interest Expense Interest expense increased to $15.2 million for the year ended December 31, 2000 from $12.5 million for the year ended December 31, 1999. Interest expense on deposit accounts increased primarily due to an increase in average interest- bearing deposit balances from $288.1 million during the year ended December 31, 1999 to $304.1 million for 2000. Interest expense on other borrowings increased $646,000 primarily due to an increase in average borrowings from $21.0 million in 1999 to $26.9 million in 2000 and an increase in average rates. The average cost of all interest-bearing liabilities increased from 4.03% for the year ended December 31, 1999 to 4.60% for the year ended December 31, 2000. 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 Gulf West, industry standards, the amounts of nonperforming loans, general economic conditions, particularly as they relate to Gulf West's market areas, and other factors related to the collectability of Gulf West's loan portfolio. The provision decreased from $670,000 for the year ended December 31, 1999 to $537,000 for the year ended December 31, 2000. Noninterest Income Total noninterest income remained about the same at $3.5 million for the year ended December 31, 2000 and 1999. Increases in service fees on deposits, other fees, other income and gain on sale of securities were offset by a decrease in leasing fees and commissions. Noninterest Expenses Total noninterest expenses increased $1.0 million to $13.8 million for the year ended December 31, 2000 from $12.8 million for the year ended December 31, 1999, primarily due to increases in salaries, employee benefits and occupancy expense relating to additional banking offices opened in 1999 and 2000, partially offset by a decrease in data processing outsourcing expense. 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 Gulf West are monetary in nature. As a result, interest rates have a more significant impact on Gulf West'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. 25 Selected Quarterly Results Selected quarterly results of operations for the four quarters ended December 31 are as follows (in thousands, except share amounts):
2001 2000 --------------------------- --------------------------- Fourth Third Second First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter ------- ------- ------- ------- ------- ------- ------- ------- Interest income.......... $8,160 8,580 8,600 8,218 8,265 7,926 7,676 7,478 Interest expense......... 2,749 3,457 3,871 3,972 4,226 3,929 3,549 3,508 Net interest income...... 5,411 5,123 4,729 4,246 4,039 3,997 4,127 3,970 Provision for loan losses.................. 187 221 196 157 210 47 57 223 Earnings before income taxes............ 2,539 2,161 1,743 1,267 1,244 1,377 1,538 1,160 Net earnings............. 1,626 1,407 1,149 859 824 914 1,010 777 Basic earnings per common share (1)........ .20 .18 .15 .11 .10 .12 .13 .10 Diluted earnings per common share (1)........ .20 .17 .15 .11 .10 .11 .13 .10 Cash dividends declared per common share........ - - .10 - - - - - Market price range (1): High.................... 9.70 8.98 9.05 9.05 8.09 7.93 9.06 7.93 Low..................... 8.19 7.67 7.62 7.02 6.55 7.14 6.35 6.35
(1) All per share information is presented to reflect all stock dividends and stock splits including the 5% stock dividends declared September 21, 2000 and September 20, 2001. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The information required by this Item is incorporated herein by reference to the information set forth under the following captions contained in this Form 10-K: (i) "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Market Risk;" (ii) "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Asset-Liability Structure;" and (iii) Note 10 to "CONSOLIDATED FINANCIAL STATEMENTS OF GULF WEST BANKS, INC. AND SUBSIDIARIES." 26 Item 8. Financial Statements and Supplementary Data. GULF WEST BANKS, INC. AND SUBSIDIARIES Consolidated Balance Sheets ($ in thousands, except share amounts)
December 31, ------------- 2001 2000 ---- ---- Assets Cash and due from banks........................................ $ 16,860 11,389 Federal funds sold and money-market investments................ 13,754 18,174 -------- ------- Total cash and cash equivalents........................... 30,614 29,563 Securities available for sale.................................. 121,726 74,962 Loans, net of allowance for loan losses of $3,410 and $3,195... 330,123 316,964 Federal Home Loan Bank stock................................... 1,228 1,228 Premises and equipment, net.................................... 12,822 12,920 Cash surrender value of bank owned life insurance.............. 13,932 13,388 Accrued interest receivable.................................... 2,309 2,419 Deferred tax asset............................................. 1,113 1,130 Goodwill, net.................................................. 1,282 1,362 Other assets................................................... 892 1,000 -------- ------- Total..................................................... $516,041 454,936 ======== ======= Liabilities and Stockholders' Equity Liabilities: Noninterest-bearing demand deposits........................... 94,066 74,546 Savings, NOW deposits and money-market deposits............... 177,519 148,634 Time deposits................................................. 153,738 168,874 -------- ------- Total deposits............................................ 425,323 392,054 Federal Home Loan Bank advances............................... 20,000 10,000 Other borrowings.............................................. 27,600 14,984 Other liabilities............................................. 2,481 2,345 -------- ------- Total liabilities......................................... 475,404 419,383 -------- ------- Commitments and contingencies (Notes 4, 10 and 15) Stockholders' equity: Class A preferred stock, $5 par value, authorized 1,000,000 shares, none issued or outstanding................ - - Common stock, $1 par value; 25,000,000 shares authorized, 7,904,798 and 7,422,140 issued and outstanding.. 7,905 7,422 Additional paid-in capital.................................... 30,427 27,070 Retained earnings............................................. 2,197 1,194 Accumulated other comprehensive income (loss)................. 108 (133) -------- ------- Total stockholders' equity................................ 40,637 35,553 -------- ------- Total..................................................... $516,041 454,936 ======== =======
See accompanying Notes to Consolidated Financial Statements. 27 GULF WEST BANKS, INC. AND SUBSIDIARIES Consolidated Statements of Earnings ($ in thousands, except per share amounts)
Year Ended December 31, ------------------------ 2001 2000 1999 ---- ---- ---- Interest income: Loans.............................................. $27,101 25,525 21,813 Securities available for sale...................... 5,841 4,978 4,522 Other interest-earning assets...................... 616 842 519 ------- ------ ------ Total interest income........................... 33,558 31,345 26,854 ------- ------ ------ Interest expense: Deposits........................................... 11,934 13,552 11,441 Other borrowings................................... 2,115 1,660 1,014 ------- ------ ------ Total interest expense.......................... 14,049 15,212 12,455 ------- ------ ------ Net interest income.................................. 19,509 16,133 14,399 Provision for loan losses....................... 761 537 670 ------- ------ ------ Net interest income after provision for loan losses.. 18,748 15,596 13,729 ------- ------ ------ Noninterest income: Service fees on deposit accounts................... 1,858 1,496 1,420 Other fees......................................... 576 573 444 Gain from sale of securities available for sale.... 542 200 60 Income from mortgage banking activity.............. 236 66 31 Leasing fees and commissions....................... - 448 869 Income from bank owned life insurance.............. 544 532 601 Other income....................................... 225 219 53 ------- ------ ------ Total noninterest income........................ 3,981 3,534 3,478 ------- ------ ------ Noninterest expenses: Salaries and employee benefits..................... 9,026 8,217 7,154 Occupancy expense.................................. 3,024 2,653 2,426 Data processing.................................... 209 332 701 Federal deposit insurance premium.................. 72 73 141 Advertising........................................ 408 352 337 Stationery, printing and supplies.................. 475 426 416 Telephone and postage.............................. 327 321 303 Other expense...................................... 1,478 1,437 1,295 ------- ------ ------ Total noninterest expenses...................... 15,019 13,811 12,773 ------- ------ ------ Earnings before income taxes......................... 7,710 5,319 4,434 Income taxes.................................... 2,669 1,794 1,364 ------- ------ ------ Net earnings......................................... $ 5,041 3,525 3,070 ======= ====== ====== Earnings per share: Basic.............................................. $ .64 .45 .40 ======= ====== ====== Diluted............................................ $ .63 .44 .39 ======= ====== ======
See accompanying Notes to Consolidated Financial Statements. 28 GULF WEST BANKS, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity ($ in thousands)
Accumulated Other Compre- Additional hensive Total Common Stock Paid-In Retained Income Stockholders' ------------------- Shares Amount Capital Earnings (Loss) Equity ------ ------ -------- -------- ------ ------ Balance at December 31, 1998...................... 6,643,717 $6,644 21,397 537 386 28,964 ------ Comprehensive income: Net earnings for 1999............................ - - - 3,070 - 3,070 Net change in unrealized gains (losses) on available-for-sale securities, net of taxes.... - - - - (1,848) (1,848) ------ Comprehensive income............................. - - - - - 1,222 ------ Shares issued under employee stock purchase plan.. 10,830 11 39 - - 50 ------ Other............................................. - - 3 - - 3 ------ Shares issued under stock option plan............. 18,613 18 79 - - 97 ------ Cash for fractional shares........................ - - - (2) - (2) ------ Stock dividends................................... 333,435 334 2,688 (3,022) - - --------- ------ ------ ------ ------- ------ Balance at December 31, 1999...................... 7,006,595 7,007 24,206 583 (1,462) 30,334 ------ Comprehensive income: Net earnings for 2000............................ - - - 3,525 - 3,525 Net change in unrealized gains (losses) on available-for-sale securities, net of taxes.... - - - - 1,329 1,329 ------ Comprehensive income............................. - - - - - 4,854 ------ Shares issued under employee stock purchase plan.. 21,345 21 134 - - 155 ------ Shares issued under stock option plan............. 40,973 41 169 - - 210 ------ Stock dividends................................... 353,227 353 2,561 (2,914) - - --------- ------ ------ ------ ------- ------ Balance at December 31, 2000...................... 7,422,140 7,422 27,070 1,194 (133) 35,553 ------ Comprehensive income: Net earnings for 2001............................ - - - 5,041 - 5,041 Net change in unrealized gains (losses) on available-for-sale securities, net of taxes.... - - - - 241 241 ------ Comprehensive income............................. - - - - - 5,282 ------ Shares issued under employee stock purchase plan.. 17,977 18 98 - - 116 ------ Shares issued under stock option plan............. 91,386 91 341 - - 432 ------ Cash dividends paid............................... - - - (746) - (746) ------ Stock dividends................................... 373,295 374 2,918 (3,292) - - --------- ------ ------ ------ ------- ------ Balance at December 31, 2001...................... 7,904,798 $7,905 30,427 2,197 108 40,637 ========= ====== ====== ====== ======= ======
See accompanying Notes to Consolidated Financial Statements. 29 GULF WEST BANKS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands)
Year Ended December 31, ---------------------------- 2001 2000 1999 ---- ---- ---- Cash flows from operating activities: Net earnings...................................................... $ 5,041 3,525 3,070 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation.................................................... 1,277 1,151 1,056 Provision for loan losses....................................... 761 537 670 Deferred income tax credit...................................... (128) (289) (412) Income from mortgage banking activity........................... (236) (66) (31) Increase in other liabilities................................... 136 61 884 Decrease (increase) in accrued interest receivable.............. 110 (350) (423) Decrease (increase) in other assets............................. 108 (95) (441) Net amortization of fees, premiums and discounts................ 363 354 330 Write-down on foreclosed real estate............................ - - 18 Gain on sale of securities available for sale................... (542) (200) (60) Proceeds from sale of loans held for sale....................... 13,536 5,434 1,729 Originations of loans held for sale............................. (13,300) (5,368) (1,700) Amortization of goodwill........................................ 80 185 96 -------- ------- ------- Net cash flow provided by operating activities............... 7,206 4,879 4,786 -------- ------- ------- Cash flows from investing activities: Net increase in loans............................................. (14,143) (34,197) (93,395) Purchase of securities available for sale......................... (96,242) (23,035) (24,640) Proceeds from sale and maturity of securities available for sale.. 28,224 19,365 17,486 Principal repayments on securities available for sale............. 22,042 8,725 13,138 Proceeds from sale of foreclosed real estate, net................. - 87 67 Purchase of Federal Home Loan Bank stock.......................... - (1,228) - Net purchase of premises and equipment............................ (1,179) (2,168) (2,981) Increase in bank owned life insurance............................. (544) (531) (235) -------- ------- ------- Net cash used in investing activities........................ (61,842) (32,982) (90,560) -------- ------- ------- Cash flows from financing activities: Net increase in deposits.......................................... 33,269 35,487 70,195 Advances from the Federal Home Loan Bank.......................... 10,000 10,000 - Net increase (decrease) of other borrowings....................... 12,616 (12,433) 11,979 Issuance of common stock and other................................ 548 365 150 Cash dividend paid................................................ (746) - (2) -------- ------- ------- Net cash provided by financing activities.................... 55,687 33,419 82,322 -------- ------- ------- Net increase (decrease) in cash and cash equivalents......... 1,051 5,316 (3,452) Cash and cash equivalents at beginning of year...................... 29,563 24,247 27,699 -------- ------- ------- Cash and cash equivalents at end of year............................ $ 30,614 29,563 24,247 ======== ======= ======= Supplemental disclosure of cash flow information: Cash paid during the year for: Interest........................................................ $ 14,181 15,062 13,368 ======== ======= ======= Income taxes.................................................... $ 2,518 2,079 1,587 ======== ======= ======= Noncash transactions: Reclassification of loans to foreclosed real estate............. $ - 376 175 ======== ======= ======= Reclassification of foreclosed real estate to loans............. $ - 642 66 ======== ======= ======= Loans converted into available-for-sale securities.............. $ - - 18,032 ======== ======= ======= Net change in unrealized gain (loss) on available for sale securities, net of taxes..................................... $ 241 1,329 (1,848) ======== ======= =======
See accompanying Notes to Consolidated Financial Statements. 30 GULF WEST BANKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2001 and 2000 and For Each of the Years in the Three-Year Period Ended December 31, 2001 (1) Summary of Significant Accounting Policies General. Gulf West Banks, Inc. (the "Holding Company") is a financial holding company which owns 100% of the outstanding stock of Mercantile Bank ("Mercantile") and Mercantile Bank Leasing, Inc. ("MBL"). Collectively the entities are referred to as "Gulf West." Mercantile is a State (Florida) chartered commercial bank. The Bank's deposits are insured by the Federal Deposit Insurance Corporation. Mercantile, through fifteen banking offices, provides a variety of banking services to individuals and businesses located primarily in Pinellas, Hillsborough and Pasco Counties, Florida. MBL has been an equipment leasing company that arranged financing for a variety of equipment for all types of businesses. MBL's operations were discontinued on November 15, 2000. The Holding Company's primary business activities are the operations of Mercantile. Gulf West operates in only one reportable industry segment: banking. 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 Gulf West conform to accounting principles generally accepted in the United States of America and to general practice within the banking industry. Estimates. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loans losses. Cash and Cash Equivalents. For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash balances, due from banks, federal funds sold, securities purchased under agreements to resell and money-market investments, all of which mature within ninety days. Securities. Gulf West 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 Gulf West 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 other comprehensive income. 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 or the call date, as applicable. Loans Held for Sale. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Loans. Loans 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. 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 loans is discontinued at the time the loan is ninety days delinquent unless the loan is well collateralized and in process of collection. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. (continued) 31 GULF WEST BANKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (1) Summary of Significant Accounting Policies, Continued Loans, Continued. All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest earnings. The interest on these loans is accounted for on the cash-basis or cost- recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Allowance for Loan Losses. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. A loan is considered impaired when, based on current information and events, it is probable that Gulf West will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, Gulf West does not separately identify individual consumer and residential loans for impairment disclosures. Foreclosed Assets. Foreclosed assets 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. Land is stated at cost. Buildings and leasehold improvements and furniture, fixtures and equipment are stated at cost less accumulated depreciation and amortization computed using the straight-line method over the estimated useful life of the related asset or remaining term of the lease, whichever is shorter. Transfer of Financial Assets. Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from Gulf West, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) Gulf West does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Advertising. Gulf West expenses all media advertising as incurred. (continued) 32 GULF WEST BANKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (1) Summary of Significant Accounting Policies, Continued Income Taxes. Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of temporary differences between revenues and expenses reported for financial statement and those reported for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. Valuation allowances are provided against assets which are not likely to be realized. Stock Compensation Plans. Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. 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 Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock. Stock options issued under Gulf West's stock option plans have no intrinsic value at the grant date, and under Opinion No. 25 no compensation cost is recognized for them. Gulf West has elected to continue with the accounting methodology in Opinion No. 25 and, as a result, has provided proforma disclosures of net earnings and earnings per share and other disclosures, as if the fair value based method of accounting had been applied. Earnings Per Share. Basic earnings per share is computed on the basis of the weighted-average number of common shares outstanding. Diluted earnings per share is computed based on the weighted-average number of shares outstanding plus the effect of outstanding stock options, computed using the treasury stock method. The Board of Directors declared 5% stock dividends on September 20, 2001, September 21, 2000 and on October 21, 1999. All per share amounts have been presented to reflect these stock dividends. Off-Balance-Sheet Financial Instruments. In the ordinary course of business, Gulf West has entered into off-balance-sheet financial instruments consisting of unfunded loan commitments, unused lines of credit and standby letters of credit. Such financial instruments are recorded in the consolidated financial statements when they are funded. Fair Values of Financial Instruments. The following methods and assumptions were used by Gulf West 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. 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. Federal Home Loan Bank Stock. Fair value of Gulf West's investment in Federal Home Loan Bank stock is based on its redemption value, which is its cost of $100 per share. 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. (continued) 33 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. Short-Term Borrowings. Rates currently available to Gulf West for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. Federal Home Loan Bank Advances. Fair values of Federal Home Loan Bank advances are estimated using discounted cash flow analysis based on Gulf West's current incremental borrowing rates for similar types of borrowings. 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 rates currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. Comprehensive Income. Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net earnings. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net earnings, are components of comprehensive income. The components of other comprehensive income and related tax effects are as follows:
Year Ended December 31, ----------------------- 2001 2000 1999 ---- ---- ---- Unrealized holding gains on available-for-sale securities... $ 928 2,327 (2,896) Reclassification adjustment for gains realized in income.... (542) (200) (60) ----- ----- ------ Net unrealized gains (losses)............................... 386 2,127 (2,956) Income (taxes) benefit...................................... (145) (798) 1,108 ----- ----- ------ Net amount.................................................. $ 241 1,329 (1,848) ===== ===== ======
Future Accounting Requirements. On July 20, 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 141 also specifies the criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. SFAS No. 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives, and reviewed for impairment. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized prior to the adoption of SFAS No. 142. Gulf West has adopted the provisions of SFAS No. 141. The initial adoption of SFAS No. 141 had no impact on Gulf West's consolidated financial statements. SFAS No. 142 was adopted by Gulf West on January 1, 2002. Management believes the adoption of SFAS 142 will result, because of the discontinuance of the amortization of goodwill, in an annual decrease in future expenses of approximately $80,000. (continued) 34 GULF WEST BANKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (2) Securities Available for Sale Securities 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 ---------- ---------- ---------- ------- December 31, 2001: U.S. Treasury securities........................................................ $ 4,572 73 - 4,645 Corporate and other obligations................................................. 15,866 280 223 15,923 Equity securities............................................................... 818 44 20 842 Mortgage-backed securities...................................................... 100,296 492 472 100,316 -------- ------- -------- ------- $121,552 889 715 121,726 ======== ======= ======== ======= December 31, 2000: U.S. agency obligations......................................................... 5,004 6 8 5,002 U.S. Treasury securities........................................................ 6,929 32 12 6,949 Corporate and other obligations................................................. 13,467 192 98 13,561 Equity securities............................................................... 108 2 9 101 Mortgage-backed securities...................................................... 49,666 136 453 49,349 -------- ------- -------- ------- $ 75,174 368 580 74,962 ======== ======= ======== =======
The scheduled maturities of securities available for sale at December 31, 2001 are as follows (in thousands).
Amortized Fair Cost Value ---------- ------- Due in one year or less.......................................................... $ 1,127 1,129 Due after one year through five years............................................ 6,073 6,194 Due in five years to ten years................................................... 4,010 4,094 Due after ten years.............................................................. 9,228 9,151 Equity securities................................................................ 818 842 Mortgage-backed securities....................................................... 100,296 100,316 -------- ------- $121,552 121,726 ======== =======
Securities sales transactions are summarized as follows (in thousands):
Year Ended December 31, ---------------------------- 2001 2000 1999 ------- -------- ------- Principal received from sales.................................................... $15,162 12,396 8,352 ======= ======== ======= Gross gains...................................................................... 542 200 67 Gross loss....................................................................... - - 7 ------- -------- ------- Net gain......................................................................... $ 542 200 60 ======= ======== =======
(continued) 35 GULF WEST BANKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (2) Securities Available for Sale, Continued Gulf West had pledged securities with book values as follows (in thousands):
At December 31, --------------------- 2001 2000 --------- --------- Security for public funds.......................... $ 8,995 9,588 Treasury tax deposits.............................. $ 620 300 As bankruptcy trustee.............................. $ - 101 Securities sold under agreements to repurchase..... $ 31,786 25,609
During 2001 and 2000, Gulf West executed securities transactions with a broker/dealer controlled by one of Gulf West's directors. These transactions were for the purchase of $6,099,000 and $5,000,000, respectively. During 2001, there were no sales, sales during 2000 consisted of $5,000,000 of mortgaged-backed securities. (3) Loans The components of loans were as follows (in thousands):
At December 31, ------------------------ 2001 2000 ---------- ---------- Commercial real estate...................................... $ 232,531 225,815 Commercial.................................................. 55,320 49,037 Residential real estate..................................... 33,297 33,838 Consumer.................................................... 12,711 11,457 --------- --------- Subtotal................................................. 333,859 320,147 Net deferred loan fees, premiums and discounts.............. (326) 12 Allowance for loan losses................................... (3,410) (3,195) --------- --------- Loans, net............................................... $ 330,123 316,964 ========= =========
An analysis of the change in the allowance for loan losses follows (in thousands):
Year Ended December 31, ------------------------- 2001 2000 1999 -------- -------- ------- Balance at January 1..................... $ 3,195 2,849 2,436 -------- ------ ------ Loans charged off........................ (676) (226) (295) Recoveries............................... 130 35 38 -------- ------ ------ Net loans charged off................. (546) (191) (257) Provision for loan losses................ 761 537 670 -------- ------ ------ Balance at December 31................... $ 3,410 3,195 2,849 ======== ====== ======
(continued) 36 GULF WEST BANKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (3) Loans, Continued Impaired loans, all collateral dependent, were as follows (in thousands): 2001 2000 1999 ------ ------ ------ Balance at end of year........................ $5,959 2,536 2,546 Average balance during year................... 4,100 2,536 7 Total related allowance for losses............ - - - Interest income recognized on impaired loans.. 236 234 - Credit Risk and Credit Losses. A credit risk concentration results when Gulf West 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 Gulf West's business activity is with customers located within Pinellas, Pasco and Hillsborough Counties, Florida. The loan portfolio is generally 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 Gulf West's credit evaluation of the customer. Collateral primarily includes accounts receivable, inventory, property and equipment, income-producing commercial properties and residential homes. However, Gulf West has a concentration of loans in the hospitality industry, the aggregate amount of loans at December 31, 2001 and 2000 was $43,839,000 and $57,291,000, respectively on 18 and 30 loans, respectively. Loans to Related Parties. The aggregate amount of loans owed to Gulf West by its executive and senior officers, directors, and their related entities at December 31, 2001 and 2000 was approximately $6,271,000 and $8,778,000, respectively. The loans outstanding as of December 31, 2001 were made up of $4,947,000 of mortgage loans and $1,324,000 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. (4) Premises and Equipment A summary of premises and equipment follows (in thousands): At December 31, ------------------ 2001 2000 ------- ------- Land............................................ $ 4,055 4,038 Buildings and leasehold improvements............ 8,331 7,700 Furniture, fixtures and equipment............... 7,199 6,735 ------- ------- Total, at cost................................ 19,585 18,473 Less accumulated depreciation and amortization.. (6,763) (5,553) ------- ------- $12,822 12,920 ======= ======= (continued) 37 GULF WEST BANKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (4) Premises and Equipment, Continued Gulf West leases certain facilities and equipment under operating leases with noncancellable terms. Some leases contain escalation clauses and expense pass-throughs as well as renewal options. Rent expense amounted to approximately $941,000, $809,000 and $703,000 for the years ended December 31, 2001, 2000 and 1999, respectively. A summary of the operating lease commitments at December 31, 2001 follows (in thousands): Year Ending December 31, Amount ------------ ------ 2002................................. $ 942 2003................................. 818 2004................................. 668 2005................................. 531 2006................................. 408 Thereafter........................... 958 ------- $ 4,325 ======= (5) Loan Servicing Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of these loans are summarized as follows (in thousands): At December 31, ------------------- 2001 2000 ------- ------- Loan portfolios serviced for: FNMA....................................... $ 17,609 22,948 FHLMC...................................... 710 1,204 Other investors............................ 4,091 3,245 -------- ------- $ 22,410 27,397 ======== ======= Custodial balances maintained in connection with loans serviced for others............. $ 72 265 ======== ======= The servicing for FNMA and FHLMC was sold on December 15, 2001. The effective transfer dates when servicing will cease are February 1 and February 16, 2002, respectively. (6) Deposits The aggregate amount of time deposits with a minimum denomination of $100,000 was approximately $53,652,000 and $54,494,000 at December 31, 2001 and 2000, respectively. A schedule of maturities for time deposits follows (in thousands): Year Ending At December 31, --------------- December 31, 2001 ------------ ---- 2002................................................ $ 123,845 2003 and 2004....................................... 27,148 2005 and 2006....................................... 2,679 Thereafter.......................................... 66 ---------- $ 153,738 ========== (continued) 38 GULF WEST BANKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (7) Federal Home Loan Bank Advances Federal Home Loan Bank of Atlanta ("FHLB") advances are collateralized by all of Gulf West's FHLB stock, and blanket floating liens on 1-4 family mortgage loans, and qualifying commercial real estate loans and are as follows (in thousands): Maturing in the Weighted-Average At December 31, --------------------- Year Ending Interest Rate 2001 2000 -------------- --------------- ------- ------- 2001 7.10% $ - 5,000 2002 6.01% 5,000 5,000 2003 3.47% 5,000 - 2006* 5.03% 10,000 - ------- ------- $20,000 10,000 ======= ======= * Subject to a one-time call in 2004. (8) Other Borrowings Other borrowings are summarized as follows (in thousands):
At December 31, ----------------- 2001 2000 -------- ------- Securities sold under agreements to repurchase....... $ 27,600 11,984 Federal funds purchased.............................. - 3,000 -------- ------- Total other borrowings.......................... $ 27,600 14,984 ======== =======
Securities sold under agreements to repurchase were delivered to the broker-dealers who arranged the transactions. Securities collateralizing customer repurchase agreements are held by a third party. The agreements at December 31, 2001 mature within three years. Information concerning securities sold under agreements to repurchase is summarized as follows ($ in thousands): Year Ended December 31, ------------------------- 2001 2000 1999 ------- ------ ------ Average balance during the year............ $28,555 21,610 21,042 Average interest rate during the year...... 3.99% 5.95% 4.82% Maximum month-end balance during the year.. $41,102 26,709 27,917 The average rate was determined by dividing the total interest paid by the average outstanding borrowings. At December 31, 2001 and 2000, Gulf West had five and six, respectively, variable-rate lines of credit from other financial institutions, excluding the Federal Home Loan Bank of Atlanta, totaling $24,000,000 and $29,000,000, respectively. At December 31, 2001 and 2000, borrowings against these lines totaled $0 and $3,000,000, respectively. (continued) 39 GULF WEST BANKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (9) Income Taxes Allocation of income taxes between current and deferred portion is as follows (in thousands): Year Ended December 31, ----------------------- 2001 2000 1999 ------ ----- ----- Current: Federal................ $2,398 1,773 1,573 State.................. 399 310 203 ------ ----- ----- Total current....... 2,797 2,083 1,776 ------ ----- ----- Deferred: Federal................ (108) (247) (352) State.................. (20) (42) (60) ------ ----- ----- Total deferred...... (128) (289) (412) ------ ----- ----- Total income taxes.. $2,669 1,794 1,364 ====== ===== ===== The reasons for the differences between the statutory Federal income tax rate and the effective tax rates are as follows ($ in thousands):
Year Ended December 31, ----------------------- 2001 2000 1999 --------------------------- ------------------ -------- % of % of % of Pretax Pretax Pretax Amount Earnings Amount Earnings Amount Earnings ------ -------- ------ -------- ------ -------- Tax provision at statutory rate......... $2,621 34.0% $1,808 34.0% $1,508 34.0% Increase (reduction) in taxes resulting from: State taxes, net of federal income tax benefit........................ 250 3.2 176 3.3 94 2.1 Tax-exempt income................... (287) (3.7) (291) (5.5) (327) (7.3) Other, net.......................... 85 1.1 101 1.9 89 2.0 ------ ---- ------ ---- ------ ---- Income tax provision................ $2,669 34.6% $1,794 33.7% $1,364 30.8% ====== ==== ====== ==== ====== ====
(continued) 40 GULF WEST BANKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (9) Income Taxes, Continued The tax effects of each type of item that gives rise to deferred taxes are as follows (in thousands): At December 31, --------------- 2001 2000 ------ ----- Deferred tax assets: Allowance for loan losses............................. $1,149 1,068 Net unrealized loss on securities available for sale.. - 79 Deferred compensation................................. 304 245 Interest income from loans on nonaccrual status....... 42 5 Other................................................. - 67 ------ ----- Total gross deferred tax assets................... 1,495 1,464 ------ ----- Deferred tax liabilities: Accumulated depreciation.............................. 261 217 Purchase accounting adjustments, net.................. 50 117 Net unrealized gain on securities available for sale.. 66 - Other................................................. 5 - ------ ----- Total gross deferred tax liabilities.............. 382 334 ------ ----- Net deferred tax asset............................ $1,113 1,130 ====== ===== (continued) 41 GULF WEST BANKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (10) Financial Instruments Gulf West 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 unfunded loan commitments, available lines of 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 Gulf West has in these financial instruments. Gulf West's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for unfunded loan commitments, available lines of credit and standby letters of credit is represented by the contractual amount of those instruments. Gulf West 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. Gulf West evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by Gulf West upon extension of credit is based on management's credit evaluation of the counterparty. Standby letters of credit and conditional commitments are issued by Gulf West 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 Gulf West's financial instruments were as follows (in thousands):
At December 31, 2001 At December 31, 2000 -------------------- -------------------- Carrying Fair Carrying Fair Amount Value Amount Value ---------- -------- ---------- -------- Financial assets: Cash and cash equivalents........ $ 30,614 30,614 29,563 29,563 Securities available for sale.... 121,726 121,726 74,962 74,962 Loans............................ 330,123 336,472 316,964 317,933 Accrued interest receivable...... 2,309 2,309 2,419 2,419 Federal Home Loan Bank stock..... 1,228 1,228 1,228 1,228 Financial liabilities: Deposits......................... 425,323 428,693 392,054 394,832 Federal Home Loan Bank advances.. 20,000 19,930 10,000 10,025 Other borrowings................. 27,600 27,600 14,984 14,984
A summary of the notional amounts of Gulf West's financial instruments, which approximate fair value, with off-balance-sheet risk at December 31, 2001, follows (in thousands): Unfunded loan commitments at variable rates.. $14,987 ======= Available lines of credit.................... $52,781 ======= Standby letters of credit.................... $ 2,553 ======= (continued) 42 GULF WEST BANKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (11) Stock Option Plan Certain key employees and directors of Gulf West have options to purchase shares of Gulf West'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 948,576 shares) of Gulf West's total outstanding shares. At December 31, 2001, 92,201 remain available for grant. All per share amounts reflect the 5% stock dividends declared September 20, 2001, September 21, 2000 and October 21, 1999. Some options are fully vested when granted while others generally vest over four years. A summary of stock option 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, 1998.. 679,268 $2.08-10.20 3.73 2,535 Options granted................... 226,343 7.23-8.05 7.28 1,647 Options exercised................. (21,548) 2.17-4.28 2.69 (58) Options forfeited................. (637) 7.07 7.07 (5) ------- ----- Outstanding at December 31, 1999.. 883,426 2.08-10.20 4.66 4,119 Options granted................... 115,106 6.91-7.14 7.02 808 Options exercised................. (45,174) 2.31-4.28 3.25 (147) Options forfeited................. (23,325) 4.28-7.23 6.00 (140) ------- ----- Outstanding at December 31, 2000.. 930,033 2.08-10.20 4.99 4,640 Options granted................... 64,600 7.81-9.02 8.98 580 Options exercised................. (95,662) 2.08-7.23 2.57 (246) Options forfeited................. (12,596) 7.14-7.23 7.46 (94) ------- ----- Outstanding at December 31, 2001.. 886,375 $2.08-10.20 5.51 4,880 ======= =========== ==== =====
The weighted-average remaining contractual life of the outstanding stock options at December 31, 2001, 2000 and 1999 was seventy-seven months, eighty months and eighty-five months, respectively. These options are exercisable as follows: Number Weighted-Average Year Ending of Shares Exercise Price ----------- --------- -------------- 2002..................... 830,210 $5.33 2003..................... 24,648 7.98 2004..................... 21,892 7.97 2005..................... 9,625 9.02 ------- ----- 886,375 $5.51 ======= ===== (continued) 43 GULF WEST BANKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (11) Stock Option Plan, Continued Proforma information regarding net earnings and earnings per share has been determined as if Gulf West had accounted for its employee stock options under the fair value method and is as follows: Year Ended December 31, ----------------------- 2001 2000 1999 ------ ----- ----- Net earnings: As reported............... $5,041 3,525 3,070 ====== ===== ===== Proforma.................. $4,869 3,080 2,829 ====== ===== ===== Basic earnings per share: As reported............... $ .64 .46 .40 ====== ===== ===== Proforma.................. $ .62 .40 .38 ====== ===== ===== Diluted earnings per share: As reported............... $ .63 .45 .39 ====== ===== ===== Proforma.................. $ .61 .39 .37 ====== ===== ===== The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Year Ended December 31, ----------------------- 2001 2000 1999 ----- ---- ---- Risk-free interest rate........................ 4.5% 5.5% 6.0% Dividend yield................................. -% -% -% Expected volatility............................ 46% 51% 60% Expected life in years......................... 10 10 10 Per share fair value of options at grant date.. $4.83 5.28 5.99 ===== ==== ====
(continued) 44 GULF WEST BANKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (12) Earnings Per Share ("EPS") The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations. All share amounts reflect the five percent stock dividends declared on September 20, 2001, September 21, 2000 and October 21, 1999. ($ in thousands, except per share amounts).
Year Ended December 31, ----------------------- 2001 2000 1999 ----------------------------- ----------------------------- ------------------ 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.......... $ 5,041 7,845,911 $ .64 $ 3,525 7,773,062 $ .45 $ 3,070 7,716,443 $ .40 ====== ====== ====== Effect of dilutive securities- Incremental shares from assumed exercise of options............... 136,131 179,242 217,057 --------- --------- --------- Diluted EPS: Net earnings available to common stockholders and assumed conversions........... $ 5,041 7,982,042 $ .63 $ 3,525 7,952,304 $ .44 $ 3,070 7,933,500 $ .39 ======== ========= ====== ======== ========= ====== ======== ========= ======
Shares not included in the computations of diluted earnings per share because the option exercise price was not less than the average market price are as follows:
Number of Price Year Year Shares Range Issued Expires --------- ------------ --------- --------- For the year ended December 31, 2001.. 65,047 $9.02-10.20 1998-2001 2008-2011 For the year ended December 31, 2000.. 219,633 7.23-10.20 1998-1999 2008-2009 For the year ended December 31, 1999.. 2,547 10.20 1998 2008
(continued) 45 GULF WEST BANKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (13) Regulatory Matters Gulf West (on a consolidated basis) and Mercantile are subject to various regulatory capital requirements administered by the federal and state 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 Gulf West's and Mercantile's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective actions, Gulf West and Mercantile must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies. Quantitative measures established by regulation to ensure capital adequacy require Gulf West and Mercantile to maintain minimum amounts and ratios (set forth in the following table) 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, 2001, that Gulf West and Mercantile met all capital adequacy requirements to which they are subject. As of December 31, 2001, the most recent notification from the Federal Deposit Insurance Corporation categorized Mercantile as well capitalized. An institution must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed Mercantile's category. Gulf West's and Mercantile's actual capital amounts and percentages are presented in the following table.
Minimum To Be Well Capitalized Under Minimum Capital Prompt Corrective Actual Requirement Action Provisions --------------- --------------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of December 31, 2001: Total Risk-Based Capital to Risk-Weighted Assets: Gulf West................................ $42,657 11.7% $29,057 8.0% N/A N/A Mercantile............................... 40,048 11.1 28,990 8.0 $36,237 10.0% Tier I Capital to Risk-Weighted Assets: Gulf West................................ 39,247 10.8 14,529 4.0 N/A N/A Mercantile............................... 36,638 10.1 14,495 4.0 21,742 6.0 Tier I Capital to Average Assets: Gulf West................................ 39,247 7.9 19,890 4.0 N/A N/A Mercantile............................... 36,638 7.4 19,877 4.0 24,847 5.0 As of December 31, 2000: Total Risk-Based Capital to Risk-Weighted Assets: Gulf West................................ $37,517 10.9% $27,462 8.0% N/A N/A Mercantile............................... 35,474 10.3 27,435 8.0 $34,294 10.0% Tier I Capital to Risk-Weighted Assets: Gulf West................................ 34,322 10.0 13,731 4.0 N/A N/A Mercantile............................... 32,279 9.4 13,718 4.0 20,576 6.0 Tier I Capital to Average Assets: Gulf West................................ 34,322 7.8 17,583 4.0 N/A N/A Mercantile............................... 32,279 7.4 17,538 4.0 21,923 5.0
(continued) 46 GULF WEST BANKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (14) Profit Sharing Plan Gulf West sponsors a Section 401(k) profit sharing plan which is available to all employees electing to participate after meeting certain length- of-service requirements. Gulf West's contributions to the profit sharing plan are comprised of two components: a guaranteed match and a discretionary match. Expense relating to Gulf West's contributions to the profit sharing plan included in the accompanying consolidated statements of earnings was approximately $136,000, $123,000 and $127,000 for the years ended December 31, 2001, 2000 and 1999, respectively. (15) Deferred Compensation Plans Gulf West 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 Gulf West or while receiving benefits. Gulf West is accruing the present value of the future benefits over the terms of the agreements. The expense of the deferred compensation plans included in the accompanying consolidated statements of earnings was approximately $157,000, $146,000 and $135,000 for the years ended December 31, 2001, 2000 and 1999, respectively. (continued) 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. Condensed Balance Sheets (In thousands)
At December 31, ------------------- 2001 2000 ---- ---- Assets Cash and cash equivalents with subsidiary....................... $ 1,750 1,631 Securities available for sale................................... 797 76 Investments in wholly-owned subsidiaries........................ 38,035 33,728 Other assets.................................................... 73 120 ------- ------ Total........................................................ $40,655 35,555 ======= ====== Liabilities and Stockholders' Equity Other liabilities............................................... 18 2 Stockholders' equity............................................ 40,637 35,553 ------- ------ Total........................................................ $40,655 35,555 ======= ======
Condensed Statements of Earnings (In thousands)
Year Ended December 31, ----------------------- 2001 2000 1999 ------ ----- ----- Revenues........................................................ $ 151 115 - Expenses........................................................ 237 331 293 ------ ----- ----- Loss before earnings of subsidiaries and income tax benefit.. (86) (216) (293) Income tax benefit.............................................. (43) (81) (99) Earnings of subsidiaries........................................ 5,084 3,660 3,264 ------ ----- ----- Net earnings................................................. $5,041 3,525 3,070 ====== ===== =====
(continued) 48 GULF WEST BANKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (16) Parent Company Only Financial Statements, Continued Condensed Statements of Cash Flows (In thousands)
Year Ended December 31, ----------------------- 2001 2000 1999 ----- ---- ---- Cash flows from operating activities: Net earnings................................................. $ 5,041 3,525 3,070 Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: Gain on sale of securities available for sale.............. (111) (96) - Equity in undistributed earnings of subsidiaries........... (5,084) (3,660) (3,264) Net decrease in other assets............................... 47 86 201 Increase in other liabilities.............................. 16 - - Dividends from subsidiaries................................ 1,200 800 - ------- ------ ------ Net cash provided by (used in) operating activities..... 1,109 655 7 ------- ------ ------ Cash flows from investing activities: Purchase of securities available for sale.................... (1,091) (757) - Sale of securities available for sale........................ 481 770 - Investment in subsidiaries................................... (182) (28) (110) ------- ------ ------ Net cash provided by (used in) investing activities..... (792) (15) (110) ------- ------ ------ Cash flows from financing activities: Net proceeds from issuance of common stock................... 548 365 150 Cash dividends............................................... (746) - (2) ------- ------ ------ Net cash (used in) provided by financing activities..... (198) 365 148 ------- ------ ------ Net increase in cash and cash equivalents....................... 119 1,005 45 Cash and cash equivalents, beginning of year.................... 1,631 626 581 ------- ------ ------ Cash and cash equivalents, end of year.......................... $ 1,750 1,631 626 ======= ====== ======
49 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 ("Gulf West") at December 31, 2001 and 2000, 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, 2001. These financial statements are the responsibility of Gulf West's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Gulf West at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. s/HACKER, JOHNSON & SMITH PA Tampa, Florida January 18, 2002 50 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 & Smith 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/ Chief Financial Officer 51 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 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 2002 Annual Meeting of Shareholders. 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 2002 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 2002 Proxy Statement. 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 2002 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 collectability or present other unfavorable features. 52 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 included in Form 10-K (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) The exhibits required to be filed herewith are listed on the "Exhibit Index" commencing at page 55 herein. (b) No reports on Form 8-K were filed by the Company during the quarter ended December 31, 2001. 53 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, Chairman and President Date: February 21, 2002 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 indicated:
Signature Capacity Date --------- -------- ---- /s/ Gordon W. Campbell Chairman of the Board February 21, 2002 ------------------------------- Gordon W. Campbell /s/ Barry K. Miller Secretary/ (principal February 21, 2002 ------------------------------- financial officer and Barry K. Miller principal accounting officer) /s/ Thomas M. Harris Director February 21, 2002 ------------------------------- Thomas M. Harris /s/ Algis Koncius Director February 21, 2002 ------------------------------- Algis Koncius /s/ Louis P. Ortiz Director February 21, 2002 ------------------------------- Louis P. Ortiz /s/ John C. Petagna, Jr. Director February 21, 2002 ------------------------------- John C. Petagna, Jr. /s/ P.N. Risser, III Director February 21, 2002 ------------------------------- P. N. Risser, III /s/ Ross E. Roeder Director February 21, 2002 ------------------------------- Ross E. Roeder /s/ Robert A. Blakley Director February 21, 2002 ------------------------------- Robert A. Blakley /s/ Austin L. Fillmon Director February 21, 2002 ------------------------------- Austin L. Fillmon
54 EXHIBIT INDEX Exhibit Number Description of Document -------------- ----------------------- 2/(1)/ Amended and Restated Agreement and Plan of Merger by and among Citizens National Bank and Trust Company, Inc., Gulf West Banks, Inc. and Mercantile Bank 3.1/(1)/ Articles of Incorporation of Gulf West Banks, Inc. 3.2/(1)/ Bylaws of Gulf West Banks, Inc. 3.3/(4)/ Articles of Amendment to Articles of Incorporation of Gulf West Banks, Inc. 10.1/(1)/ Form of Registration Rights Agreement with Gordon W. Campbell and John Wm. Galbraith 10.2/(1)/ Salary Continuation Agreements with Gordon W. Campbell, Barry K. Miller, and Robert A. Blakley 10.3 Amended and Restated Contract of Employment with Gordon W. Campbell 10.4/(5)/ 1995 Nonstatutory Stock Option Plan as Amended April 20, 2000 10.5/(3)/ Agreement to transfer fiduciary accounts to SunTrust Bank, Nature Coast 10.6/(6)/ Executive Officer Bonus Program 10.7/(5)/ Mercantile Bank Executive Severance Pay Plan 10.8/(6)/ Executive Vice President Bonus Program 11/(2)/ Statement regarding computation of per share earnings /(1)/ incorporated by reference to the exhibits included in Amendment No. 2 to Gulf West's S-4 Registration Statement, as filed with the Securities and Exchange Commission on December 4, 1997 (Registration No. 333-37307). /(2)/ incorporated by reference to Note 1 of the Consolidated Financial Statements of Gulf West Banks, Inc. and Subsidiaries, as contained in this Annual Report on Form 10-K. /(3)/ incorporated by reference to the exhibits included in Gulf West's Form 10-Q for the quarter ended March 31, 1998, as filed with the Securities and Exchange Commission on May 8, 1998. /(4)/ incorporated by reference to the exhibits included in Gulf West's Form 10-Q for the quarter ended June 30, 1999, as filed with the Securities and Exchange Commission on July 27, 1999. /(5)/ incorporated by reference to the exhibits included in Gulf West's Form 10-Q for the quarter ended June 30, 2000 as filed with the Securities and Exchange Commission on July 26, 2000. /(6)/ incorporated by reference to the exhibits included in Gulf West's Form 10-K for the year ended December 31, 2000 as filed with the Securities and Exchange Commission on March 6, 2001. 55