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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-24683
FLORIDA BANKS, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 58-2364573
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5210 BELFORT ROAD, SUITE 310
JACKSONVILLE, FL
32256
(Address of principal executive offices)
(904) 332-7770
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Title Outstanding
COMMON STOCK, $.01 PAR VALUE OUTSTANDING AT JUNE 28, 2002
PER SHARE 6,727,158
1
Item 1. Financial Statements
FLORIDA BANKS, INC.
CONDENSED BALANCE SHEETS (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
ASSETS 2002 2001
CASH AND DUE FROM BANKS $ 20,380,434 $ 19,332,159
FEDERAL FUNDS SOLD AND REPURCHASE AGREEMENTS 84,452,000 54,657,000
------------- -------------
Total cash and cash equivalents 104,832,434 73,989,159
INVESTMENT SECURITIES:
Available for sale, at fair value (cost $35,235,616 and $33,562,507
at June 30, 2002 and December 31, 2001) 36,132,511 33,954,045
Held to maturity, at cost (fair value $1,831,352 and $2,934,245
at June 30, 2002 and December 31, 2001) 1,791,329 2,867,163
Other investments 2,253,350 2,064,550
------------- -------------
Total investment securities 40,177,190 38,885,758
LOANS:
Commercial real estate 271,033,885 210,373,284
Commercial 155,664,855 142,910,691
Residential mortgage 22,376,599 22,308,820
Consumer 35,196,872 23,158,053
Credit card and other loans 1,894,557 2,911,884
------------- -------------
Total loans 486,166,768 401,662,732
Allowance for loan losses (5,969,585) (4,692,216)
Net deferred loan fees (364,439) (218,821)
------------- -------------
Net loans 479,832,744 396,751,695
PREMISES AND EQUIPMENT, NET 4,143,414 3,361,882
ACCRUED INTEREST RECEIVABLE 1,956,583 1,722,746
DEFERRED INCOME TAXES, NET 3,434,531 4,016,786
DERIVATIVE INSTRUMENTS 279,784
OTHER REAL ESTATE OWNED 3,187,348 2,777,827
OTHER ASSETS 400,843 537,588
------------- -------------
TOTAL ASSETS $ 637,965,087 $ 522,323,225
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing demand $ 67,669,174 $ 99,899,425
Interest-bearing demand 27,025,147 19,164,133
Regular savings 62,995,557 64,338,080
Money market accounts 8,044,065 6,342,009
Time $100,000 and over 249,032,569 194,016,109
Other time 110,235,035 67,489,519
------------- -------------
Total deposits 525,001,547 451,249,275
REPURCHASE AGREEMENTS SOLD 38,205,776 4,495,547
OTHER BORROWED FUNDS 9,703,688 9,714,692
ACCRUED INTEREST PAYABLE 2,247,513 2,863,882
DERIVATIVE INSTRUMENTS 171,037
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 2,107,534 2,038,795
------------- -------------
Total liabilities 577,437,095 470,362,191
------------- -------------
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
OF SUBSIDIARY TRUST 13,525,201 5,819,000
------------- -------------
SHAREHOLDERS' EQUITY:
Series B Preferred Stock, $68.00 par value, 1,000,000 shares authorized, 102,283
shares issued and outstanding at December 31, 2001 6,955,244
Common stock, $.01 par value; 30,000,000 shares authorized;
7,029,358 and 5,979,860 shares issued, respectively 70,294 59,799
Additional paid-in capital 53,923,409 46,828,142
Accumulated deficit (deficit of $8,434,037
eliminated upon quasi-reorganization on December 31, 1995) (5,684,108) (6,079,156)
Treasury stock 302,200 shares at cost (1,866,197) (1,866,197)
Accumulated other comprehensive income, net of tax 559,393 244,202
------------- -------------
Total shareholders' equity 47,002,791 46,142,034
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 637,965,087 $ 522,323,225
============= =============
See notes to condensed financial statements.
2
FLORIDA BANKS, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Three-Month Period Ended Six-Month Period Ended
June 30, June 30,
---------------------------- ---------------------------
2002 2001 2002 2001
---- ---- ---- ----
INTEREST INCOME:
Loans, including fees $ 7,947,575 $ 6,643,186 $15,177,735 $13,410,101
Investment securities 571,360 655,886 1,146,494 1,353,715
Federal funds sold 156,728 239,248 359,587 531,216
----------- ----------- ----------- -----------
Total interest income 8,675,663 7,538,320 16,683,816 15,295,032
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits 3,454,760 3,756,127 6,940,273 7,701,825
Repurchase agreements 125,323 349,675 251,458 741,334
Borrowed funds 107,967 92,477 225,103 188,634
----------- ----------- ----------- -----------
Total interest expense 3,688,050 4,198,279 7,416,834 8,631,793
----------- ----------- ----------- -----------
NET INTEREST INCOME 4,987,613 3,340,041 9,266,982 6,663,239
PROVISION FOR LOAN LOSSES 1,027,516 384,029 1,407,950 623,413
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,960,097 2,956,012 7,859,032 6,039,826
----------- ----------- ----------- -----------
NONINTEREST INCOME:
Service fees 401,070 291,333 769,518 515,580
Loss on sale of available for sale investment securities (12) (12)
Other noninterest income 167,477 112,111 336,237 206,783
----------- ----------- ----------- -----------
568,547 403,432 1,105,755 722,351
----------- ----------- ----------- -----------
NONINTEREST EXPENSES:
Salaries and benefits 2,522,202 2,003,631 4,711,045 4,164,968
Occupancy and equipment 506,740 426,887 973,290 863,372
Data processing 200,282 168,178 397,196 331,447
Dividends on preferred security of subsidiary trust 140,758 223,740
Other 899,734 658,274 1,597,604 1,203,886
----------- ----------- ----------- -----------
4,269,716 3,256,970 7,902,875 6,563,673
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 258,928 102,474 1,061,912 198,504
PROVISION FOR INCOME TAXES 97,427 39,495 404,089 74,965
----------- ----------- ----------- -----------
NET INCOME $ 161,501 $ 62,979 $ 657,823 $ 123,539
=========== =========== =========== ===========
PREFERRED STOCK DIVIDENDS 20,008 140,058
----------- ----------- ----------- -----------
NET INCOME APPLICABLE TO COMMON SHARES $ 141,493 $ 62,979 $ 517,765 $ 123,539
=========== =========== =========== ===========
INCOME PER COMMON SHARE:
Basic $ 0.02 $ 0.01 $ 0.08 $ 0.02
=========== =========== =========== ===========
Diluted $ 0.02 $ 0.01 $ 0.08 $ 0.02
=========== =========== =========== ===========
See notes to condensed financial statements.
3
FLORIDA BANKS, INC.
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Other
Preferred Stock Common Stock Additional Comprehensive
---------------------------------------- Paid-In Accumulated (loss) income
Shares Par Value Shares Par Value Capital Deficit Net of Tax
BALANCE, JANUARY 1, 2001 5,929,751 $59,298 $46,750,329 $(6,760,222) $ 13,870
Comprehensive income:
Net Income 808,439
Unrealized gain on available for sale
investment securities, net of tax of $160,168 230,332
Comprehensive income
Issuance of common stock to Employee
Stock Purchase Plan 50,109 501 226,587
Issuance of Series B Preferred Stock 102,283 $6,955,244 (148,774)
Series B Preferred Stock Dividends Paid (127,373)
Purchase of treasury stock
_______ __________ _________ _______ ___________ ___________ ________
BALANCE, DECEMBER 31, 2001 102,283 6,955,244 5,979,860 59,799 46,828,142 (6,079,156) 244,202
Comprehensive income:
Net Income 657,823
Unrealized gain on available for sale
investment securities, net of tax of $337,502 315,191
Comprehensive income
Issuance of common stock to Employee
Stock Purchase Plan 16,871 169 86,380
Series B preferred stock dividends paid (262,775)
Conversion of Series B preferred stock to
common (102,283) (6,955,244) 1,022,830 10,228 6,945,015
Exercise of stock options and issue of stock
grants 9,797 98 63,872
_______ _________ __________ _______ ___________ ___________ ________
BALANCE, June 30, 2002 - $ - 7,029,358 $70,294 $53,923,409 $(5,684,108) $559,393
======= ========= ========= ======= =========== =========== ========
Treasury
Stock Total
BALANCE, JANUARY 1, 2001 $(1,506,836) $38,556,439
Comprehensive income:
Net Income 808,439
Unrealized gain on available for sale
investment securities, net of tax of $160,168 230,332
___________
Comprehensive income 1,038,771
Issuance of common stock to Employee
Stock Purchase Plan 227,088
Issuance of Series B Preferred Stock 6,806,470
Series B Preferred Stock Dividends Paid (127,373)
Purchase of treasury stock (359,361) (359,361)
__________ ___________
BALANCE, DECEMBER 31, 2001 (1,866,197) 46,142,034
Comprehensive income:
Net Income 657,823
Unrealized gain on available for sale
investment securities, net of tax of
$337,502 315,191
___________
Comprehensive income 973,014
Issuance of common stock to Employee
Stock Purchase Plan 86,548
Series B preferred stock dividends paid (262,775)
Conversion of Series B preferred stock to
common
Exercise of stock options and issue of stock grants 63,970
__________ ___________
BALANCE, June 30, 2002 $(1,866,197) $47,002,791
=========== ===========
See notes to condensed financial statements.
4
FLORIDA BANKS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Six-Month Period Ended
June 30,
-------------------------------
OPERATING ACTIVITIES: 2002 2001
-------------------------------
Net income $ 657,823 $ 123,539
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 417,627 372,441
Reinvested dividends on investment securities (69,062)
Deferred income tax provision 392,089 74,965
Loss on disposition of furniture and equipment 6,577
Accretion of premium on investments, net (39,124) (113,285)
Amortization of premium on loans 42,223
Provision for loan losses 1,407,950 623,413
Loss on foreign currency translation 17,349
Loss on derivative instruments 49,643 4,620
Increase in accrued interest receivable (233,837) (84,614)
Decrease in accrued interest payable (616,369) (442,083)
Decrease (increase) in other assets 136,745 (20,396)
Increase in other liabilities 68,739 30,424
------------- -------------
Net cash provided by operating activities 2,231,796 575,601
------------- -------------
INVESTING ACTIVITIES:
Proceeds from sales, paydowns and maturities of investment securities:
Available for sale 12,600,564 6,314,181
Held to maturity 1,110,385 2,579,079
Purchases of investment securities:
Available for sale (14,200,037) (7,950,301)
Held to maturity (3,361,015)
Other investments (188,800) (136,700)
Net increase in loans (84,993,268) (46,432,802)
Proceeds from sale of other real estate owned 242,979
Purchases of premises and equipment (1,199,159) (439,152)
------------- -------------
Net cash used in investing activities (86,627,336) (49,426,710)
------------- -------------
FINANCING ACTIVITIES:
Net (decrease) increase in demand deposits, money market accounts and savings accounts (23,729,780) 19,661,131
Net increase in time deposits 97,761,976 26,535,565
Increase in repurchase agreements 33,710,229 21,844,123
Increase (decrease) in borrowed funds (3,011,004) 17,615
Proceeds from FHLB advances 3,000,000
Proceeds from exercise of stock options 63,969
Preferred dividends paid (262,776)
Proceeds from sale of Series B preferred stock 6,690,918
-------------
Issuance cost of trust preferred securities 7,706,201
-------------
Net cash provided by financing activities 115,238,815 74,749,352
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 30,843,275 25,898,243
CASH AND CASH EQUIVALENTS:
Beginning of period 73,989,159 43,687,964
------------- -------------
End of period $ 104,832,434 $ 69,586,207
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 8,033,203 $ 4,772,436
============= =============
NONCASH FINANCING ACTIVITIES:
Proceeds from demand deposits used to purchase shares of
common stock under Employee Stock Purchase Plan $ 86,549 $ 161,497
============= =============
See notes to condensed financial statements.
5
FLORIDA BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX-MONTH PERIODS ENDED
JUNE 30, 2002 AND 2001 (UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
Florida Banks, Inc. (the "Company") was incorporated on October 15, 1997
for the purpose of becoming a bank holding company and acquiring First
National Bank of Tampa (the "Bank"). On August 4, 1998, the Company
completed its initial public offering and its merger (the "Merger") with
the Bank pursuant to which the Bank was merged with and into Florida Bank
No. 1, N.A., a wholly-owned subsidiary of the Company, and renamed Florida
Bank, N.A.
The condensed financial statements have been prepared in accordance with
the rules and regulations of the Securities and Exchange Commission
related to interim financial statements. These unaudited condensed
financial statements do not include all disclosures provided in the annual
financial statements. The condensed financial statements should be read in
conjunction with the financial statements and notes thereto contained in
the Company's Annual Report to Shareholders incorporated by reference into
the Company's Form 10-K for the year ended December 31, 2001. All
adjustments of a normal recurring nature which, in the opinion of
management, are necessary to fairly present the results of the interim
periods have been made. Results of operations for the three- and six-month
periods ended June 30, 2002, are not necessarily indicative of the results
to be expected for the full year.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
2. EARNINGS PER COMMON SHARE
The following is a reconciliation of the denominator used in the
computation of basic and diluted earnings per common share.
Three-Month Period Ended Six-Month Period Ended
June 30, June 30,
-------------------------------- -------------------------------
2002 2001 2002 2001
--------------- --------------- --------------- --------------
Weighted average number of common
shares outstanding - Basic 6,552,607 5,709,004 6,124,728 5,681,919
Incremental shares from the assumed
conversion of stock options 16,497 2,817 16,497 2,817
--------- --------- --------- ---------
Total - Diluted 6,569,104 5,711,821 6,141,225 5,684,736
========= ========= ========= =========
The incremental shares from the assumed conversion of stock options for
the three- and six-month periods ended June 30, 2002 and 2001 were
determined using the treasury stock method, under which the assumed
proceeds were equal to (1) the amount that the Company would receive upon
exercise of the options plus (2) the amount of tax benefit that would be
credited to additional paid-in capital assuming exercise of the options.
The assumed proceeds are used to purchase outstanding common shares at the
6
FLORIDA BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX-MONTH PERIODS ENDED
JUNE 30, 2002 AND 2001 (UNAUDITED) (Continued)
- --------------------------------------------------------------------------------
Company's average market value for the period. The convertible preferred
stock outstanding at June 30, 2001 was considered to be anti-dilutive and
is therefore excluded from the computation of diluted earnings per share.
3. DERIVATIVE INSTRUMENTS
The Company adopted Statement of Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended,
on January 1, 2001. This statement requires all derivative instruments to
be recorded on the balance sheet at fair value.
The following instruments qualify as derivatives as defined by SFAS No.
133:
June 30, 2002
-------------------------------
Contract/Notional Fair
Amount Value
Interest rate swap agreements $ 42,500,000 $497,805
Foreign currency swap agreements $ 2,000,000 $ 22,338
Interest rate swap agreements at June 30, 2002 consist of seven agreements
which effectively convert the interest rate on certain certificates of
deposit from a fixed rate to a variable rate to more closely match the
interest rate sensitivity of the Company's assets and liabilities. The
Company has designated and assessed the derivatives as highly effective
fair value hedges, as defined by SFAS No. 133. The Company recognized
losses of $21,281 and $49,643 during the three-month and six-month periods
ended June 30, 2002 as a result of changes in the fair value of loan
participation agreements which contained imbedded derivatives at December
31, 2001 and March 31, 2002, and were no longer in place at June 30, 2002.
Additionally, the Company entered into a foreign currency swap agreement
during the first quarter of 2001. This swap agreement does not qualify for
hedge accounting under SFAS No. 133. Accordingly, all changes in the fair
value of the foreign currency swap agreement are reflected in the earnings
of the Company. The Company recognized losses of $8,840 and $17,349 during
the three-month and six-month periods ended June 30, 2002 as a result of
changes in the fair value of the foreign currency agreement.
4. PREFERRED STOCK
On June 29, 2001 the Company issued 100,401 shares of Series B Preferred
stock. On July 24, 2001, the Company issued an additional 1,882 shares of
Series B Preferred Stock. All Series B Preferred shares were issued for
$68.00 per share through a private placement. On April 16, 2002, all
102,283 shares of preferred stock automatically converted into 1,022,830
shares of common stock as a result of the average closing price of the
Company's common stock closing above $8.00 for the period from March 4,
2002 through April 15, 2002.
7
FLORIDA BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX-MONTH PERIODS ENDED
JUNE 30, 2002 AND 2001 (UNAUDITED) (Continued)
- --------------------------------------------------------------------------------
5. RECENT ACCOUNTING PRONOUNCEMENTS
In July of 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets".
SFAS No. 141 establishes accounting and reporting standards for business
combinations. This Statement eliminates the use of the
pooling-of-interests method of accounting for business combinations,
requiring future business combinations to be accounted for using the
purchase method of accounting. The provisions of this Statement apply to
all business combinations initiated after June 30, 2001. This Statement
also applies to all business combinations accounted for using the purchase
method of accounting for which the date of acquisition is July 1, 2001 or
later. The Statement had no impact on the Company's consolidated financial
position and results of operations.
SFAS No. 142 establishes accounting and reporting standards for goodwill
and other intangible assets. With the adoption of this Statement, goodwill
is no longer subject to amortization over its estimated useful life.
Rather, goodwill will be subject to at least an annual assessment for
impairment by applying a fair-value based test. The Company adopted SFAS
No. 142 on January 1, 2002. As the Company currently has no goodwill or
intangible assets, the adoption of the Statement did not have an impact on
the Company's consolidated financial position and results of operations.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the period in
which it is incurred and requires that the amount recorded as a liability
be capitalized by increasing the carrying amount of the related long-lived
assets. Subsequent to initial measurement, the liability is accreted to
the ultimate amount anticipated to be paid, and is also adjusted for
revisions to the timing or amount of estimated cash flows. The capitalized
cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for
its recorded amount or incurs a gain or loss upon settlement. SFAS No. 143
is required to be adopted for fiscal years beginning after June 15, 2002,
with earlier application encouraged. The Statement will not have an impact
on the Company's consolidated financial position and results of
operations.
In August, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement supersedes
SFAS No. 121 "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of". SFAS No. 144 retains the fundamental
provisions of SFAS No. 121 for (a) recognition and measurement of the
impairment of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001. The adoption of the
Statement did not have a material impact on the Company's consolidated
financial position and results of operations.
8
FLORIDA BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX-MONTH PERIODS ENDED
JUNE 30, 2002 AND 2001 (UNAUDITED) (Continued)
- --------------------------------------------------------------------------------
In April 2002, the Financial Accounting Standards Board issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". This Statement rescinds SFAS
No. 4, "Reporting Gains and Losses from Extinguishment of Debt", and an
amendment of that Statement, SFAS No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements". This Statement also rescinds SFAS No.
44, "Accounting for Intangible Assets of Motor Carriers". This Statement
amends SFAS No. 13, "Accounting for Leases", to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the
required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This Statement
also amends other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their applicability
under changed conditions. This Statement will be effective for the year
ended December 31, 2003 and for transactions entered into after May 15,
2002. It does not appear that this statement will have a material effect
on the financial position, operations or cash flows of the Company.
In June 2002, the Financial Accounting Standards Board issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities".
This Statement nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." Under Issue 94-3, a liability for an exit cost was
recognized at the date of an entity's commitment to an exit plan. This
Statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. SFAS No.
146 is effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. It does not appear
that this statement will have a material effect on the financial position,
operations or cash flows of the Company.
6. TRUST PREFERRED SECURITIES
On April 10, 2002, the Company participated in a pooled trust preferred
offering. In connection with the transaction, the Company, through its
subsidiary trust, Florida Banks Capital II (the "Trust II"), issued
$4,000,000 in trust preferred securities. The Trust II also issued
$124,000 of common securities to the Company and used the total proceeds
to purchase $4,124,000 in 30-year subordinated debentures of the Company.
The preferred securities pay dividends at an initial rate of 6.02% through
October 22, 2002. The rate then becomes a floating rate based on 6-month
LIBOR plus 3.70%, adjusted semi-annually after each dividend payment date.
Dividend payment dates are April 22 and October 22 of each year. There is
a par call option beginning April 22, 2007. The subordinated debentures
are the sole assets of the Trust II and are eliminated, along with the
related income statement effects, in the Company's consolidated financial
statements.
On June 28, 2002, the Company participated in a pooled trust preferred
offering. In connection with the transaction, the Company, through its
subsidiary trust, Florida Banks Capital I (the "Trust I"), issued
$4,000,000 in trust preferred securities. The Trust I also issued $124,000
of common securities to the Company and used the total proceeds to
purchase $4,124,000 in 30-year subordinated debentures of the Company.
9
FLORIDA BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX-MONTH PERIODS ENDED
JUNE 30, 2002 AND 2001 (UNAUDITED) (Continued)
- --------------------------------------------------------------------------------
The preferred securities pay dividends at an initial rate of 5.48% through
September 30, 2002. The rate then becomes a floating rate based on 3-month
LIBOR plus 3.75%, adjusted quarterly after each dividend payment date.
Dividend payment dates are March 30, June 30, September 30 and December 30
of each year. There is a par call option beginning June 30, 2007. The
subordinated debentures are the sole assets of the Trust I and are
eliminated, along with the related income statement effects, in the
Company's consolidated financial statements.
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the financial
statements and related notes appearing elsewhere in this Quarterly Report on
Form 10-Q.
Critical Accounting Policies
The accounting and reporting policies for the Company and its subsidiaries are
in accordance with accounting principles generally accepted in the United States
and conform to general practices within the banking industry. The more critical
accounting and reporting policies include the Company's accounting for the
allowance for loan losses, other real estate owned and derivative instruments.
In particular, the accounting for these areas requires significant judgments to
be made by management. Different assumptions in the application of these
policies could result in material changes in the Company's consolidated
financial position or consolidated results of operations. See "Allowance for
Loan Losses" herein for a complete discussion. Please also refer to Note 1 in
the "Notes to Consolidated Financial Statements" in the Company's Annual Report
and "Critical Accounting Policies" in the management discussion and analysis on
Form 10-K on file with the Securities and Exchange Commission for details
regarding all of the Company's critical and significant accounting policies.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
The Company's net income applicable to common shares for the second quarter of
2002 was $141,493, compared to $62,979 for the three-month period ended June 30,
2001. Basic income per common share for the second quarter of 2002 was $.02
compared to $.01 for the second quarter of 2001. The increase in net income can
be primarily attributed to increased net interest income.
The increase in net interest income of $1.6 million or 49.3%, to $5.0 million
for the second quarter of 2002 compared to $3.3 million the second quarter in
2001, consists of an increase in interest income of $1.1 million, or 15.1%, and
decrease in interest expense of $510,000, or 12.2%. The increase in interest
income in the second quarter of 2001 is primarily attributable to an increase of
$1.3 million in interest and fees on loans resulting from the growth in the loan
portfolio. The decrease in interest expense resulted primarily from a decrease
of $301,000 in interest on deposits and a decrease of $224,000 in interest on
repurchase agreements. These decreases in interest expense are attributable to
the decline in market interest rates on deposits and repurchase agreements.
The provision for loan losses charged to operations increased $643,000 to $1.0
million for the second quarter of 2002 from $384,000 in the second quarter of
2001. This increase primarily reflects the growth of the overall loan portfolio.
For a more detailed discussion of the provision for loan losses, see "Allowance
---------
for Loan Losses" in the "Financial Condition" section below.
- ---------------
Non-interest income increased 40.9% or $165,000 to $569,000 for the three months
ended June 30, 2002 from $403,000 for the three months ended June 30, 2001. The
increase in non-interest income primarily resulted from an increase in service
fees of $110,000 to $401,000 for the three months ended June 30, 2002 from
$291,000 for the three months ended June 30, 2001. The increase in service fees
resulted primarily from an increase in deposits.
Non-interest expense increased $1.0 million or 31.1% to $4.3 million for the
three-month period ended June 30, 2002 compared to $3.3 million for the
three-month period ended June 30, 2001. The increase in non-interest expense
resulted primarily from increases in salaries and benefits, dividends on
preferred security of subsidiary trust, and other expenses. Salaries and
11
benefits expenses increased $519,000 to $2.5 million for the second quarter of
2002 compared to $2.0 million for the second quarter of 2001. This increase is
primarily the result of additional staff associated with the overall growth of
the Company's business. Dividends on preferred security of subsidiary trust were
$141,000 for the second quarter of 2002. The Company had no subsidiary trust
securities outstanding during the second quarter of 2001, so this expense for
that quarter was zero. Other expenses increased $241,000, or 36.7% to $900,000
for the second quarter of 2002 compared to $658,000 for the second quarter of
2001. This increase is primarily attributed to the expenses associated with
supporting operations related to the overall growth of the Company. Specific
operational expenses which increased include communications, recruitment
expenses and expenses related to other real estate owned.
A provision for income taxes of $97,000 was recognized for the three-month
period ended June 30, 2002 as compared to $39,000 for the same period ended June
30, 2001. These provisions for income taxes represent an estimated effective
annual tax rate of approximately 38%.
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
The Company's net income applicable to common shares for the first half of 2002
was $518,000, compared to $124,000 for the six-month period ending June 30,
2001. Basic income per share for the first half of 2001 was $.08 compared to
$.02 for the first half of 2001. The increase in net income can be primarily
attributed to increased net interest income.
The increase in net interest income of $2.6 million or 39.1%, to $9.3 million
for the first half of 2002 compared to $6.7 million the first half in 2001,
consists of an increase in interest income of $1.4 million, or 9.1%, and a
decrease in interest expense of $1.2 million, or 14.1%. The increase in interest
income in the first half of 2002 is primarily attributable to an increase of
$1.8 million in interest and fees on loans resulting from the growth in the loan
portfolio. The decrease in interest expense for the first half of 2002 is
primarily attributable to a decrease of $762,000 in interest on deposits and a
decrease of $490,000 in interest on repurchase agreements. These decreases in
interest expense are attributable to the decline in market interest rates on
deposits and repurchase agreements.
The provision for loan losses charged to operations increased $785,000 to $1.4
million for the first half of 2002 from $623,000 in the first half of 2001. This
increase primarily reflects the growth of the overall loan portfolio. For a more
detailed discussion of the provision for loan losses, see "Allowance for Loan
------------------
Losses" in the Financial Condition section below.
- ------
Non-interest income increased 53.1% or $383,000 to $1.1 million for the six
months ended June 30, 2002 from $722,000 for the six months ended June 30, 2001.
The increase in non-interest income primarily resulted from an increase in
service fees of $254,000 to $770,000 for the six months ended June 30, 2002 from
$516,000 for the six months ended June 30, 2001. The increase in service fees
resulted primarily from an increase in deposits. Other noninterest income
increased $129,000 to $336,000 for the six months ended June 30, 2002 from
$207,000 for the same period in 2001. This increase was primarily attributable
to an increase in mortgage loan referral fees.
Non-interest expense increased $1.3 million or 20.4% to $7.9 million for the
six-month period ended June 30, 2002 compared to $6.6 million for the six-month
period ended June 30, 2001. The increase in non-interest expense resulted
primarily from increases in salaries and benefits, dividends on preferred
security of subsidiary trust, and other expenses. Salaries and benefits expenses
increased $546,000 to $4.7 million for the first half of 2002 compared to $4.2
million for the first half of 2001. This increase is primarily the result of
additional staff associated with the overall growth of the Company's business.
Dividends on preferred security of subsidiary trust were $224,000 for the first
12
half of 2002. The Company had no subsidiary trust securities outstanding during
the first half of 2001, so this expense for that period was zero. Other expenses
increased $394,000, or 32.7% to $1.6 million for the first half of 2002 compared
to $1.2 million for the first half of 2001. This increase is primarily
attributed to the expenses associated with supporting operations related to the
overall growth of the Company. Specific operational expenses which increased
included ACH expenses and expenses related to other real estate owned.
A provision for income taxes of $404,000 was recognized for the six-month period
ended June 30, 2002 as compared to $75,000 for the same period ended June 30,
2001. These provisions for income taxes represent an estimated effective annual
tax rate of approximately 38%.
FINANCIAL CONDITION
Total assets at June 30, 2002 were $638.0 million, an increase of $115.6 million
or 22.1%, from $522.3 million at December 31, 2001. The increase in total assets
primarily resulted from the investment of new deposit growth and other borrowed
funds in loans and investment securities. Securities available for sale
increased $2.2 million or 6.4% to $36.1 million at June 30, 2002 as compared to
$34.0 million at December 31, 2001. Federal funds sold increased $29.8 million
or 54.5% to $84.5 million at June 30, 2002 from $54.7 million at December 31,
2001. The increase in federal funds sold reflects additional deposit growth late
in the second quarter that had not yet been deployed in loan growth.
Total loans increased $84.5 million, or 21.0%, to $486.2 million at June 30,
2002, from $401.7 million at December 31, 2001. The increase in total loans was
funded by increases in depository accounts, repurchase agreements sold and other
borrowings. The allowance for loan losses increased $1.3 million or 27.2% during
the first six months of 2002. The increase resulted from net charge-offs of
loans of $131,000 plus additional provisions of $1.4 million during that period.
The allowance for loan losses as a percent of total loans was 1.23% at June 30,
2002 and 1.17% at December 31, 2001. Management believes that such allowance for
loan losses is sufficient to cover estimated losses in the Bank's loan
portfolio.
Deposits increased $73.8 million, or 16.3%, to $525.0 million at June 30, 2002
from $451.2 million at December 31, 2001. The increase in total deposits
primarily resulted from an increase of $55.0 million or 28.4% in time deposits
$100,000 and over, combined with an increase of $42.7 million or 63.3% in other
time deposits. Noninterest-bearing deposits decreased $32.2 million or 32.2%.
This is a result of the transfer of almost all repurchase agreements sold into
demand deposit accounts by our customers at December 31, 2001 as part of their
intangible tax strategy. These funds flowed back into repurchase agreements
after year-end, as can be seen by comparing the relative balances of demand
deposits and repurchase agreements sold at June 30, 2002 and December 31, 2001.
Interest-bearing demand deposits increased $7.9 million or 41.0%. Savings
deposits decreased $1.3 million or 2.1%. Money market accounts increased $1.7
million or 26.8%. Time deposits often fluctuate in response to interest rate
changes and can vary rather significantly on a quarterly basis. The increase in
time deposits $100,000 and over resulted primarily from an increase in brokered
deposits. Growth in other deposit categories are primarily attributable to
continued expansion of the Company's customer base as a result of ongoing
marketing activities.
Repurchase agreements sold increased $33.7 million, or 749.9%, to $38.2 million
at June 30, 2002 from $4.5 million at December 31, 2001, for reasons discussed
in the previous paragraph. Other borrowed funds decreased $11,000, or 0.1% to
$9.7 million at June 30, 2002 from $9.7 million at December 31, 2001. Accrued
interest payable decreased $616,000 or 21.5%, to $2.2 million at June 30, 2002
from $2.9 million at December 31, 2001. This decrease is due primarily to a
reduction in overall interest rates.
13
Accounts payable and accrued expenses increased $69,000 or 3.4% to $2.1 million
at June 30, 2002 from $2.0 million at December 31, 2001.
Shareholders' equity increased by $861,000 to $47.0 million at June 30, 2002,
from $46.1 million at December 31, 2001. This increase is the result of net
income for the first half of $518,000, combined with the issue of stock under
the Company's employee stock purchase plan of $86,000, and an increase in other
comprehensive income related to an unrealized gain in the Company's bond
portfolio of $315,000. These increases were partially offset by cash dividends
paid on Series B preferred stock of $263,000.
Non-accrual loans were $468,000 at June 30, 2002, a decrease of $632,000 or
57.4%, compared to the balance of $1.1 million at December 31, 2001. These loans
were reclassified under the Bank's policy of transferring loans to non-accrual
status when they become more than 90 days past due on either principal or
interest. The Company believes the specific reserves placed against these loans
are adequate, and payment is being sought from secondary sources, such as the
sale of collateral.
Allowance for Loan Losses
Management determines the allowance for loan losses by establishing a general
allowance by loan pool determined for groups of smaller, homogenous loans
possessing similar characteristics and non-homogeneous loans that are not
classified. All classified loans are reviewed on an individual basis.
General Allowance
It is difficult in a bank of our size to use migration analysis or other more
sophisticated approaches due to the small size of the loan portfolio, and the
significant changes in the lending strategy and mix of the loan portfolio from
the date of the Merger. For this reason, a reasonable indicator of the Bank's
potential future losses in the non-criticized and non-specialized pools of loans
is the historical performance of the Bank's peer group on a rolling four-quarter
basis. This information is gathered quarterly from the Uniform Bank Performance
Report provided by the Federal Financial Institutions Examination Council. As
the bank matures, and growth stabilizes, it is management's intention to replace
this peer group methodology with the actual loss experience of Florida Bank,
N.A.
Added to the peer group historical performance are those current conditions that
are probable to impact future loan losses. To account for these current
conditions, management has reviewed various factors to determine the impact on
the current loan portfolio. This methodology involves determining a range for
each current condition adjustment, "lower range to upper range". The "lower
range" represents management's opinion of a higher near term probability. The
"upper range" represents management's opinion of a lower near term probability
that allows management to "shock" the loan portfolio and look at the level of
reserves required should an "upper range" scenario start to unfold. As long as
the reserves fall within this range, our primary regulator should be comfortable
with the adequacy of our reserves. The following current condition factors were
considered in this analysis:
o Changes in lending policies and procedures, including underwriting
standards and collection, charge-off, and recovery practices.
o Changes in national and local economic and business conditions,
including the condition of various market segments.
o Changes in the nature and volume of the portfolio.
o Changes in the experience, ability, and depth of lending management and
staff.
14
o Changes in the volume and severity of past due and classified loans;
and the volume of non-accruals, trouble debt restructurings and other
loan modifications.
o The existence and effect of any concentrations of credit, and changes
in the level of such conditions.
o The effect of external factors, such as competition and legal and
regulatory requirements, on the level of estimated credit losses in the
Bank's portfolio.
Specific Allowance
Management believes that given the small number of classified loans, type of
historical loan losses, and the nature of the underlying collateral, creating
specific allowances for classified assets results in the most accurate and
objective allowance. Should the number of these types of assets grow
substantially, other methods may have to be considered.
The method used in setting the specific allowance uses current appraisals as a
starting point, based on the Bank's possible liquidation of the collateral. On
assets other than real estate, which tend to depreciate rapidly, another current
valuation is used. For instance, in the case of commercial loans collateralized
by automobiles, the current NADA wholesale value is used. On collateral such as
over-the-road equipment, trucks or heavy equipment, valuations are sought from
firms or persons knowledgeable in the area, and adjusted for the probable
condition of the collateral. Other collateral such as furniture, fixtures and
equipment, accounts receivable, and inventory, are considered separately with
more emphasis given to the borrower's financial condition and trends rather than
the collateral support. The value of the collateral is then discounted for
estimated selling cost.
Summary
The various methodologies included in this analysis take into consideration the
historic loan losses and specific allowances. In addition, the allowance
incorporates the results of measuring impaired loans as provided by Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures". These accounting standards
prescribe the measurement methods, income recognition and disclosures related to
impaired loans. Specific allowances totaled $1.6 million at June 30, 2002. The
range for the allowance for loan losses at June 30, 2002, including specific
allowances, was determined to be between $5.5 million or 1.12% of loans (low
range) and $8.8 million or 1.82% of loans (high range).
At June 30, 2002, our total allowance for credit losses is $5.9 million or 1.23%
of loans as compared to $4.7 million or 1.17% of loans at December 31, 2001.
Criticized/Classified assets have increased when measured against loans
outstanding. This is primarily attributable to the classification of additional
credits during the second quarter of 2002. At June 30, 2002, this benchmark was
3.87% of loans outstanding compared to 2.27% at December 31, 2001. Past due
loans have decreased slightly to .14% of loans outstanding at June 30, 2002
compared to .20% at December 31, 2001. Non-Performing Assets have declined as a
percentage of total loans including other real estate owned to .78% at June 30,
2002 versus .96% at December 31, 2001. Net loan losses for the first half of
2002 were $130,581 or .03% of average loans outstanding for the period.
15
LIQUIDITY
The Company, through its subsidiary, the Bank, has traditionally maintained
levels of liquidity above levels required by regulatory authorities. The Bank's
operational needs, demand for loan disbursements, and savings withdrawals can be
met by loan principal and interest payments received, new deposits, and excess
liquid assets. Significant loan demand, deposit withdrawal, increased
delinquencies and increased real estate acquired in settlement of loans could
alter this condition. Management does not foresee any liquidity problems for
2002.
Liquidity and Sources of Capital
Liquidity is the Company's ability to meet all deposit withdrawals immediately,
while also providing for the credit needs of customers. The June 30, 2002
financial statements evidence a satisfactory liquidity position as total cash
and cash equivalents amounted to $104.8 million, representing 16.4% of total
assets. Investment securities available for sale amounted to $36.1 million,
representing 5.7% of total assets. These securities provide a secondary source
of liquidity since they can be converted into cash in a timely manner. The
Company's ability to maintain and expand its deposit base and borrowing
capabilities are also a source of liquidity. For the six-month period ended June
30, 2002, total deposits increased from $451.2 million at December 31, 2001 to
$525.0 million, or 16.3%. During this period, repurchase agreements sold
increased from $4.5 million to $38.2 million, or 749.9%, and other borrowed
funds decreased from $11,000 from $9.7 million to $9.7 million, or 0.1%. There
can be no assurance that the Company will be able to maintain this level of
growth. The Company's management closely monitors and maintains appropriate
levels of interest earning assets and interest bearing liabilities so that
maturities of assets are such that adequate funds are provided to meet customer
withdrawals and loan demand. There are no trends, demands, commitments, events
or uncertainties that will result in, or are reasonably likely to result in, the
Company's liquidity increasing or decreasing in any material way.
The Company's Board and executive officers are committed to maintaining capital
at a level sufficient to protect depositors, provide for reasonable growth, and
fully comply with all regulatory requirements.
In December, 2001, April, 2002, and June, 2002, the Company participated in
pooled trust preferred offerings. By issuing trust preferred securities, the
Company is able to increase its Tier 1 capital for regulatory purposes without
diluting the ownership interests of its common shareholders. Also, dividends
paid on trust preferred securities are deductible as interest expense for income
tax purposes. For the specific transactions, terms, and rates of the Company's
trust preferred issues, please refer to footnote 6 above, together with footnote
13 of the Company's consolidated financial statements for the years ended
December 31, 1999, 2000 and 2001 files in conjunction with the Company's annual
report on form 10-K. At June 30, 2002, the net proceeds from pooled trust
preferred trust offerings included in the calculation of Tier 1 capital for
regulatory purposes is $13,525,000.
The table below illustrates the Bank's regulatory capital ratios at June 30,
2002:
Minimum
June 30, Regulatory
Bank 2002 Requirement
- ---- ------------------- ---------------
Tier 1 Capital 9.44 % 4.00 %
==== ====
Total risk-based capital ratio 10.54 % 8.00 %
===== ====
Leverage ratio 9.24 % 4.00 %
==== ====
Neither the Company nor its subsidiaries have historically incurred off-balance
sheet obligations through the use of or investment in off-balance sheet
derivative financial instruments or structured finance or special purpose
entities organized as corporations, partnerships or limited liability companies
or trusts.
16
CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis contains various "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs concerning future
events, including, but not limited to, statements regarding growth in sales of
the Company's products, profit margins and the sufficiency of the Company's cash
flow for its future liquidity and capital resource needs. These forward-looking
statements are further qualified by important factors that could cause actual
results to differ materially from those in the forward-looking statements.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
The Company's financial performance is subject to risk from interest rate
fluctuations. This interest rate risk arises due to differences between the
amount of interest-earning assets and the amount of interest-earning liabilities
subject to repricing over a specified period and the amount of change in
individual interest rates. In the current interest rate environment, the
liquidity and maturity structure of the Company's assets and liabilities are
important to the maintenance of acceptable performance levels. A decreasing rate
environment negatively impacts earnings as the Company's rate-sensitive assets
generally reprice faster than its rate-sensitive liabilities. Conversely, in an
increasing rate environment, earnings are positively impacted. This
asset/liability mismatch in pricing is referred to as gap ratio and is measured
as rate sensitive assets divided by rate sensitive liabilities for a defined
time period. A gap ratio of 1.00 means that assets and liabilities are perfectly
matched as to repricing. Management has targeted gap ratio guidelines for a
one-year time horizon of between .80 and 1.20 for the Bank. At June 30, 2002,
the Bank had a cumulative gap ratio of approximately 1.32 for the one-year
period ending June 30, 2003. This is primarily due to the Bank's receipt at the
end of June of approximately $22.8 million dollars in brokered deposits, which
were temporarily invested in Federal Funds sold. These deposits were obtained to
take advantage of historically low funding costs. It is anticipated that the
bulk of these deposits will be deployed into loans in the coming months, and
prior to the end of the third quarter, the Bank's one-year cumulative gap ratio
will again be within the targeted range. At June 30, 2002, the Company had a
cumulative gap ratio of 2.42 for the three-month time period. Given these gap
ratios, over the next three-month period, rate-sensitive assets will reprice
faster than rate-sensitive liabilities, and for the following nine-month period,
rate sensitive liabilities will reprice faster than rate-sensitive assets.
Varying interest rate environments can create unexpected changes in
prepayment levels of assets and liabilities, which are not reflected in the
interest sensitivity analysis. Prepayments may have significant effects on the
Company's net interest margin. Because of these factors, in a static test,
interest sensitivity gap reports may not provide a complete assessment of the
Company's exposure to changes in interest rates. Accordingly, management also
utilizes computerized interest rate simulation analysis to determine the
Company's interest rate sensitivity. The Company is in an asset sensitive gap
position for the first year, then moves into a matched position through the five
year period. Overall, due to the factors cited, current simulation results
indicate a relatively low sensitivity to parallel shifts in interest rates. A
liability sensitive company will generally benefit from a falling interest rate
environment as the cost of interest-bearing liabilities falls faster than the
yields on interest-bearing assets, thus creating a widening of the net interest
margin. Conversely, an asset sensitive company will benefit from a rising
interest rate environment as the yields on earning assets rise faster than the
costs of interest-bearing liabilities. Management also evaluates economic
conditions, the pattern of market interest rates and competition to determine
the appropriate mix and repricing characteristics of assets and liabilities
required to produce a targeted net interest margin.
17
In addition to the gap analysis, management uses rate shock simulation to
measure the rate sensitivity of its balance sheet. Rate shock simulation is a
modeling technique used to estimate the impact of changes in rates on the
Company's net interest margin. The Company measures its interest rate risk by
estimating the changes in net interest income resulting from instantaneous and
sustained parallel shifts in interest rates of plus or minus 200 basis points
over a period of twelve months. The Company's most recent rate shock simulation
analysis, performed as of June 30, 2002, indicates that a 200 basis point
increase in rates would cause an increase in net interest income of $3,755,000
over the next twelve-month period. Conversely, a 200 basis point decrease in
rates would cause a decrease in net interest income of $659,000 over a
twelve-month period.
This simulation is based on management's assumption as to the effect of
interest rate changes on assets and liabilities and assumes a parallel shift of
the yield curve. It also includes certain assumptions about the future pricing
of loans and deposits in response to changes in interest rates. Further, it
assumes that delinquency rates would not change as a result of changes in
interest rates although there can be no assurance that this will be the case.
While this simulation is a useful measure of the Company's sensitivity to
changing rates, it is not a forecast of the future results and is based on many
assumptions that if changed, could cause a different outcome. In addition, a
change in U.S. Treasury rates in the designated amounts accompanied by a change
in the shape of the Treasury yield curve would cause significantly different
changes to net interest income than indicated above.
At June 30, 2002, the Company was not engaged in trading activities.
The Company enters into interest rate swap agreements to manage its
exposure to changes in interest rates and to convert the fixed rate on certain
brokered certificates of deposit to a floating rate in order to more closely
match interest rate sensitivity between selected assets and liabilities. The
Company does not use derivative financial instruments for speculative purposes.
As is customary for these types of instruments, the Company does not require
collateral or other security from other parties to these instruments. By their
nature all such instruments involve risk, including the credit risk of
nonperformance by counterparties. However, at June 30, 2002, in management's
opinion there was no significant risk of loss in the event of nonperformance of
the counterparties to these financial instruments.
Part II. Other Information
Item 1. Legal Proceedings
No disclosure required.
Item 2. Changes in Securities
No disclosure required.
Item 3. Defaults Upon Senior Securities
No disclosure required.
Item 4. Submission of Matters to a Vote of Security Holders
18
At the annual meeting of the Company's shareholders, three items were
submitted to a vote of the common shareholders:
(a) T. Stephen Johnson, J. Malcom Jones, Jr. and Nancy LaFoy were
re-elected as directors of the Company, to succeed themselves for a
term of three years, expiring at the annual meeting of shareholders
in 2005. Each of the directors received a minimum of 5,421,260 votes
to re-elect, or 92% of the shares voted at the meeting.
(b) An amendment to the Company's 1998 Stock Option Plan was approved by
the shareholders, with 4,541,909 shares, or 80% of the shares voted
at the meeting, voting in favor of the amendment, 773,625 shares
voting against and 16,656 shares abstaining.
(c) The shareholders ratified the Audit Committee's engagement of
Deloitte & Touche, LLP as the Company's independent auditors, with
5,322,620, or 93% of the shares voted at the meeting voting for
approval, 7,950 shares voting against and 1,620 shares abstaining..
Item 5. Other Information
No disclosure required.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
4.1 Indenture, dated as of April 10, 2002, between Florida Banks,
Inc. and Wilmington Trust Company, as trustee
4.2 The Amended and Restated Declaration of Trust, dated as of
April 10, 2002, among Florida Banks, Inc., as sponsor, the
Administrator(s) named therein and Wilmington Trust Company,
as Delaware Trustee and Institutional Trustee, and the holders
from time to time of undivided beneficial interests in the
assets of Florida Banks Capital Trust II
4.3 Indenture, dated as of June 27, 2002, between Florida Banks,
Inc. and Wells Fargo Delaware Trust Company, as trustee
4.4 The Amended and Restated Trust Agreement dated as of June 27,
2002 among Florida Banks, Inc., as depositor, the
Administrative Trustees named therein and Wells Fargo Bank,
N.A., as property trustee, Wells Fargo Delaware Trust Company,
as resident trustee, and the holders from time to time of
undivided beneficial interests in the assets of Florida Banks
Capital Trust II;
10.1 Placement Agreement, dated as of March 26, 2002, between
Florida Banks, Inc. and Florida Banks Capital Trust II and
Salomon Smith Barney Inc.
10.2 Debenture Subscription Agreement, dated as of April 10, 2002,
between Florida Banks, Inc. and Florida Banks Capital Trust II
10.3 Capital Securities Subscription Agreement, dated March 26,
2002, among Florida Banks, Inc., Florida Banks Capital Trust
II and MM Community Funding III, Ltd.
10.4 Common Securities Subscription Agreement, dated April 10,
2002, between Florida Banks, Inc. and Florida Banks Capital
Trust II
10.5 Guarantee Agreement, dated as of April 10, 2002, between
Florida Banks, Inc. and Wilmington Trust Company, as trustee
19
10.6 Subscription Agreement, dated as of June 27, 2002, between
Florida Banks, Inc., Florida Banks Capital Trust II and Bear,
Stearns & Co.
10.7 Placement Agreement, dated as of June 27, 2002, between
Florida Banks, Inc. and Florida Banks Capital Trust II and
SAMCO Capital Markets, a division of Service Asset Management
Company
10.8 Trust Preferred Securities Guarantee Agreement, dated as of
June 27, 2002, between Florida Banks, Inc. and Wells Fargo, as
trustee
99.1 Certifying Statement of the Chief Executive Officer to Section
1350 of Title 18 of the United States Code
99.2 Certifying Statement of the Chief Financial Officer pursuant
to Section 1350 of Title 18 of the United States Code
(b) Reports on Form 8-K.
On April 22, 2002, the Company filed a report on Form 8-K to announce the
conversion of the Company's Series B preferred stock to common stock.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Florida Banks, Inc.
Date: August 14, 2002 By: /s/ Charles E. Hughes, Jr.
-----------------------------------------
Charles E. Hughes, Jr.
President and Chief Executive Officer
Date: August 14, 2002 By: /s/ T. Edwin Stinson, Jr.
-----------------------------------------
T. Edwin Stinson, Jr.
Chief Financial Officer
20