Exhibit 99.1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report under Section 13 or 15(d)
- --- of the Securities Exchange Act of 1934.
For the quarterly period ended June 30, 2002
or
Transition report under 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) Identification No.)
425 22nd Avenue, North
St. Petersburg, Florida 33704
(Address of principal executive offices)
(727) 894-5696
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 quarterly 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 issuer's classes
of common stock, as of the latest practicable date:
Common stock, par value $1 per share 8,004,331 shares
- ------------------------------------ ------------------------------------
(class) Outstanding at June 30, 2002
GULF WEST BANKS, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Condensed Consolidated Balance Sheets -
June 30, 2002 (unaudited) and December 31, 2001........................2
Condensed Consolidated Statements of Earnings -
Three and Six months ended June 30, 2002 and 2001 (unaudited)..........3
Condensed Consolidated Statement of Stockholders' Equity -
Six Months Ended June 30, 2002 (unaudited).............................4
Condensed Consolidated Statements of Cash Flows -
Six Months ended June 30, 2002 and 2001 (unaudited)....................5
Notes to Condensed Consolidated Financial Statements (unaudited).......6-8
Review By Independent Certified Public Accountants.......................9
Report on Review by Independent Certified Public Accountants............10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................11-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................17
Item 4. Submission of Matters to a Vote of Security Holders................17
Item 6. Exhibits and Reports on Form 8-K...................................18
SIGNATURES.................................................................19
Exhibit Index..............................................................20
GULF WEST BANKS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
June 30, December 31,
Assets 2002 2001
---- ----
(unaudited)
Cash and due from banks............................................................. $ 15,072 16,860
Federal funds sold and money-market investments 35,231 13,754
-------- --------
Total cash and cash equivalents............................................ 50,303 30,614
Securities available for sale....................................................... 128,358 121,726
Loans, net of allowance for loan losses of $3,751 and $3,410........................ 313,428 330,123
Federal Home Loan Bank stock........................................................ 1,678 1,228
Premises and equipment, net......................................................... 12,771 12,822
Cash surrender value of bank owned life insurance................................... 14,194 13,932
Accrued interest receivable......................................................... 2,282 2,309
Deferred tax asset.................................................................. 414 1,113
Goodwill, net....................................................................... 1,282 1,282
Other assets........................................................................ 2,226 892
--------- ---------
Total...................................................................... $ 526,936 516,041
======= =======
Liabilities and Stockholders' Equity
Liabilities:
Noninterest-bearing demand deposits.............................................. 86,744 94,066
Savings, NOW deposits and money-market deposits.................................. 185,231 177,519
Time deposits.................................................................... 139,826 153,738
------- -------
Total deposits............................................................. 411,801 425,323
Federal Home Loan Bank advances.................................................. 20,000 20,000
Other borrowings................................................................. 48,320 27,600
Other liabilities................................................................ 1,969 2,481
--------- ---------
Total liabilities.......................................................... 482,090 475,404
------- -------
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, 8,004,331 and 7,904,798 issued and outstanding.................... 8,004 7,905
Additional paid-in capital....................................................... 31,080 30,427
Retained earnings................................................................ 4,527 2,197
Accumulated other comprehensive income........................................... 1,235 108
--------- ----------
Total stockholders' equity................................................. 44,846 40,637
-------- --------
Total...................................................................... $ 526,936 516,041
======= =======
See accompanying Notes to Condensed Consolidated Financial Statements.
GULF WEST BANKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
2002 2001 2002 2001
---- ---- ---- ----
(unaudited) (unaudited)
Interest income:
Loans.................................................. $ 5,858 6,913 12,005 13,745
Interest on securities................................. 1,810 1,451 3,522 2,683
Other interest-earning assets.......................... 148 236 250 390
------------ ------------ ------------ -------------
Total interest income.............................. 7,816 8,600 15,777 16,818
----------- ----------- ------------ -----------
Interest expense:
Deposits............................................... 1,704 3,291 3,637 6,793
Other borrowings....................................... 524 580 1,052 1,050
------------ ------------ ------------- ------------
Total interest expense............................. 2,228 3,871 4,689 7,843
----------- ----------- ------------- ------------
Net interest income................................ 5,588 4,729 11,088 8,975
Provision for loan losses.................................. 188 196 375 353
------------- ------------ -------------- ------------
Net interest income after provision for loan
losses......................................... 5,400 4,533 10,713 8,622
------------ ----------- ------------ -----------
Noninterest income:
Service charges on deposit accounts.................... 501 450 959 862
Income earned on bank owned life insurance............. 127 135 262 272
Gain on sale of securities available for sale.......... 1 32 328 238
Other.................................................. 155 188 329 382
------------- ------------- -------------- -----------
Total noninterest income........................... 784 805 1,878 1,754
------------- ------------- ------------- ----------
Noninterest expense:
Salaries and employee benefits......................... 2,389 2,104 4,864 4,235
Occupancy.............................................. 726 771 1,479 1,511
Data processing ..................................... 55 47 111 102
Advertising ........................................... 123 116 226 218
Stationery and supplies................................ 117 127 217 253
Other.................................................. 463 430 912 1,047
------------- ------------- -------------- -----------
Total noninterest expense.......................... 3,873 3,595 7,809 7,366
------------ ------------ ------------- -----------
Earnings before income taxes............................... 2,311 1,743 4,782 3,010
Income taxes....................................... 816 594 1,659 1,002
------------- ------------- ------------- ------------
Net earnings...............................................$ 1,495 1,149 3,123 2,008
============= ============ ============= ============
Basic earnings per share...................................$ .19 .15 .39 .26
============= ============ ============= ============
Weighted-average number of shares outstanding for
basic.................................................. 7,977,399 7,832,904 7,954,110 7,821,986
============= ============ ============= ============
Diluted earnings per share.................................$ .18 .14 .38 .25
============= ============ ============= ============
Weighted-average number of shares outstanding for
diluted................................................ 8,288,209 8,035,652 8,209,376 8,021,855
============= ============ ============= ============
Dividends per share ..................... $ -- .10 .10 .10
============= ============ ============= ============
See accompanying Notes to Condensed Consolidated Financial Statements.
GULF WEST BANKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity
Six Months Ended June 30, 2002
(Dollars in thousands)
Accumulated
Common Stock Other
--------------------------- Additional Compre- Total
Number of Paid-in Retained hensive Stockholders'
Shares Amount Capital Earnings Income Equity
----------- -------- ------- -------- ------ -------------
Balance at December 31, 2001 ............... 7,904,798 $ 7,905 30,427 2,197 108 40,637
---------
Comprehensive income:
Net earnings (unaudited) .............. -- -- -- 3,123 -- 3,123
Net change in unrealized gain on
securities available for sale,
net of taxes of $676 (unaudited) . -- -- -- -- 1,127 1,127
---------
Comprehensive income (unaudited) ...... -- -- -- -- -- 4,250
---------
Shares issued under stock option
plan (unaudited) ...................... 83,173 83 568 -- -- 651
---------
Shares sold to employees (unaudited) ....... 16,360 16 85 -- -- 101
---------
Cash dividends paid (unaudited) ............ -- -- -- (793) -- (793)
- -------------------------------------------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 2002 (unaudited) ....... 8,004,331 $ 8,004 31,080 4,527 1,235 44,846
========= ========= ========= ========= ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
GULF WEST BANKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
Six Months Ended
June 30,
------------------
2002 2001
---- ----
(unaudited)
Cash flows from operating activities:
Net earnings ........................................................ $ 3,123 2,008
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation .................................................... 588 630
Provision for loan losses ....................................... 375 353
Net amortization of fees, premiums and discounts ................ 29 264
Deferred income tax credit (provision) .......................... 24 (281)
Income from mortgage banking activity ........................... (42) (54)
Proceeds from sales of loans held for sale ...................... 2,767 4,551
Originations of loans held for sale ............................. (2,725) (4,497)
Decrease in accrued interest receivable ......................... 27 11
Increase in other assets ........................................ (1,596) (177)
(Decrease) increase in other liabilities ........................ (512) 246
Gain on sale of securities available for sale ................... (328) (238)
-------- --------
Net cash provided by operating activities .................. 1,730 2,816
-------- --------
Cash flows from investing activities:
Purchase of securities available for sale ........................... (46,395) (48,207)
Proceeds from sales and maturity of securities available for sale ... 31,949 14,217
Principal repayments on securities available for sale ............... 9,944 8,142
Purchase of Federal Home Loan Bank stock ............................ (450) --
Purchase of premises and equipment, net ............................. (537) (879)
Net decrease (increase) in loans .................................... 16,291 (9,917)
-------- --------
Net cash provided by (used in) investing activities ........ 10,802 (36,644)
-------- --------
Cash flows from financing activities:
Net (decrease) increase in deposits ................................. (13,522) 10,193
Net increase in Federal Home Loan Bank advances ..................... -- 10,000
Net increase of other borrowings .................................... 20,720 24,056
Dividends paid ...................................................... (793) (746)
Issuance of common stock ............................................ 752 267
-------- --------
Net cash provided by financing activities .................. 7,157 43,770
-------- --------
Net increase in cash and cash equivalents .................. 19,689 9,942
Cash and cash equivalents at beginning of period ......................... 30,614 29,563
-------- --------
Cash and cash equivalents at end of period ............................... $ 50,303 39,505
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ........................................................ $ 4,688 7,743
======== ========
Income taxes .................................................... $ 1,905 950
======== ========
Noncash transaction-
Accumulated other comprehensive income, net change in
unrealized gain on securities available for sale, net of tax $ 1,127 571
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
GULF WEST BANKS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
1. General. In the opinion of the management, the accompanying condensed
consolidated financial statements of Gulf West Banks, Inc. and
Subsidiaries (the "Company") contain all adjustments (consisting
principally of normal recurring accruals) necessary to present fairly
the financial position at June 30, 2002, and the results of operations
for the three-month and six-month periods ended June 30, 2002 and 2001
and the cash flows for the six-month periods ended June 30, 2002 and
2001. The results of operations for the three and six months ended
June 30, 2002 are not necessarily indicative of the results to be
expected for the full year.
2. Loan Impairment and Losses. The average net investment in collateral
dependent impaired loans and interest income recognized and received
on these loans is as follows:
Six Months Ended
June 30,
-------------------
2002 2001
---- ----
(In thousands)
Gross loans with no related allowance, at end of period $5,959 2,505
====== ======
Average net investment in impaired loans .............. $5,959 2,521
====== ======
Interest income recognized on impaired loans .......... $ 55 127
====== ======
Interest income received on impaired loans ............ $ 78 128
====== ======
The activity in the allowance for loan losses is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ------------------------
2002 2001 2002 2001
---- ---- ---- ----
(In thousands)
Balance at beginning of period $3,560 3,253 3,410 3,195
Provision for loan losses .... 188 196 375 353
Charge-offs, net of recoveries 3 (65) (34) (164)
------ ------ ------ ------
Balance at end of period ..... $3,751 3,384 3,751 3,384
====== ====== ====== ======
(continued)
GULF WEST BANKS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
3. Earnings Per Share ("EPS"). The following is a reconciliation of the
numerators and denominators of the basic and diluted earnings per
share computations. All per share amounts reflect the five percent
stock dividend declared on September 20, 2001. (Dollars are in
thousands, except per share amounts.)
2002 2001
------------------------------- -----------------------------
Weighted- Per Weighted- Per
Average Share Average Share
Earnings Shares Amount Earnings Shares Amount
-------- ------ ------ -------- -------- ------
Three Months Ended June 30:
Basic EPS:
Net earnings available to
common stockholders.................... $ 1,495 7,977,399 $ .19 $ 1,149 7,832,904 $ .15
===== === ===== ===
Effect of dilutive securities-
Incremental shares from assumed
exercise of options.................... 310,810 202,748
---------- ----------
Diluted EPS:
Net earnings available to
common stockholders
and assumed conversions................ $ 1,495 8,288,209 $ .18 $ 1,149 8,035,652 $ .14
===== ========= === ===== ========= ===
Six Months Ended June 30:
Basic EPS:
Net earnings available to
common stockholders.................... $ 3,123 7,954,110 $ .39 $ 2,008 7,821,986 $ .26
===== === ===== ===
Effect of dilutive securities-
Incremental shares from assumed
exercise of options.................... 255,266 199,869
--------- ---------
Diluted EPS:
Net earnings available to
common stockholders
and assumed conversions................ $ 3,123 8,209,376 $ .38 $ 2,008 8,021,855 $ .25
===== ========= === ===== ========= ===
Shares not included in the computations of diluted earnings per share
because the option exercise price was not less than the average
market price of common share are as follows:
Number of Price Year Year
Shares Range Issued Expiring
------ ----- ------ --------
For the three months ended
June 30, 2002 ................................... -- $ -- -- --
June 30, 2001 ................................... 13,572 $ 8.05-10.20 1998-1999 2008-2009
For the six months ended
June 30, 2002 ................................... -- $ -- -- --
June 30, 2001 ................................... 13,572 $ 8.05-10.20 1998-1999 2008-2009
(continued)
GULF WEST BANKS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
4. Merger. On March 21, 2002, the Company entered into an Agreement and
Plan of Merger (the "Agreement") with The South Financial Group, Inc.,
a South Carolina corporation ("TSFG"). Pursuant to the Agreement, Gulf
West will merge with and into TSFG (the "Merger"). In the Merger, TSFG
will issue 4,465,141 shares of common stock, par value $1.00 per
share, of TSFG and pay $32,400,178 in cash. The Agreement was approved
by the Company's shareholders on July 11, 2002.
Consummation of the Merger is expected to occur in the third quarter of
2002. However, the consummation of the Merger is subject to approval
by the required bank regulatory authorities and other customary
closing conditions, and there can be no assurances regarding when or
if the Merger will be consummated.
5. Dividend Payable. On July 11, 2002 the Board of Directors approved a
cash dividend of $.08 per share, payable to shareholders of record on
July 22, 2002 and payable on August 1, 2002.
GULF WEST BANKS, INC. AND SUBSIDIARIES
Review by Independent Certified Public Accountants
Hacker, Johnson & Smith PA, the Company's independent certified public
accountants, have made a limited review of the financial data as of June
30, 2002, and for the three-month and six-month periods ended June 30, 2002
and 2001 presented in this document, in accordance with standards
established by the American Institute of Certified Public Accountants.
Their report furnished pursuant to Article 10 of Regulation S-X is included
herein.
Report on Review by Independent Certified Public Accountants
The Board of Directors
Gulf West Banks, Inc.
St. Petersburg, Florida:
We have reviewed the condensed consolidated balance sheet of Gulf West
Banks, Inc. and Subsidiaries (the "Company") as of June 30, 2002, and the
related condensed consolidated statements of earnings for the three-month
and six-month periods ended June 30, 2002 and 2001, the condensed
consolidated statements of cash flows for the six-month periods ended June
30, 2002 and 2001 and the condensed consolidated statement of stockholders'
equity for the six-month period ended June 30, 2002. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by
the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with auditing standards generally
accepted in the United States of America, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the condensed consolidated financial statements
referred to above for them to be in conformity with accounting principles
generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated
balance sheet as of December 31, 2001, and the related consolidated
statements of earnings, stockholders' equity and cash flows for the year
then ended (not presented herein); and in our report dated January 18, 2002
we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2001, is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
HACKER, JOHNSON & SMITH PA
Tampa, Florida
July 15, 2002
GULF WEST BANKS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
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.
General
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 asset is all of the issued and
outstanding shares of capital stock of Mercantile Bank, a Florida state
banking corporation which is headquartered in St. Petersburg, Florida
("Mercantile").
Through its subsidiary, Mercantile, the Company provides a variety of
personal and commercial banking services to customers located in the
Florida counties of Pinellas, Hillsborough, and Pasco. The Company targets
niche markets that are underserved by the larger regional banks. These
markets include small to mid-size businesses and professional offices as
well as individuals who expect a higher level of personalized attention.
On March 21, 2002, the Company entered into an Agreement and Plan of Merger
(the "Agreement") with The South Financial Group, Inc., a South Carolina
corporation ("TSFG"). Pursuant to the Agreement, Gulf West will merge with
and into TSFG (the "Merger"). In the Merger, TSFG will issue 4,465,141
shares of common stock, par value $1.00 per share, of TSFG and pay
$32,400,178 in cash. The Agreement was approved by the Company's
shareholders on July 11, 2002.
Consummation of the Merger is expected to occur in the third quarter of
2002. However, the consummation of the Merger is subject to approval by the
required bank regulatory authorities and other customary closing
conditions, and there can be no assurances regarding when or if the Merger
will be consummated.
GULF WEST BANKS, INC. AND SUBSIDIARIES
Liquidity and Capital Resources
During the six months ended June 30, 2002, the Company's primary sources of
funds consisted of loan principal repayments, borrowings and proceeds from
the sale, maturity and principal repayment of securities available for
sale. The Company used its capital resources principally to fund existing
and continuing loan commitments, to purchase securities available for sale
and to fund net deposit outflows. At June 30, 2002, the Company had
commitments to originate loans totaling $5.8 million. Management believes
the Company has adequate resources to fund all its commitments and that
substantially all of its existing commitments will be funded in 2002.
Management also believes that, if so desired, it can adjust the rates on
interest-bearing deposits to retain or attract deposits in a changing
interest-rate environment.
As a Florida-chartered commercial bank, Mercantile is required to maintain
a liquidity reserve of at least 15% of its total transaction accounts and
8% of its total nontransaction accounts less those deposits of certain
public funds. The liquidity reserve may consist of cash on hand, cash on
demand with other correspondent banks and other investments and short-term
marketable securities as defined, such as federal funds sold and United
States securities or securities guaranteed by the United States. As of June
30, 2002, Mercantile had liquidity of approximately $135 million or 33.4%
of total deposits (net of secured deposits).
Management believes Mercantile was in compliance with all minimum capital
requirements which it was subject to at June 30, 2002.
The following ratios and rates are presented for the dates and periods
indicated:
Six Months Six Months
Ended Year Ended Ended
June 30, December 31, June 30,
2002 2001 2001
---------------- ------------- -------------
Average equity as a percentage
of average assets.......................................... 8.15% 7.95% 7.88%
Equity to total assets at end of period....................... 8.51% 7.87% 7.51%
Return on average assets (1).................................. 1.20% 1.05% 0.86%
Return on average equity (1).................................. 14.78% 13.23% 10.96%
Noninterest expenses to average assets (1).................... 3.01% 3.13% 3.17%
Nonperforming loans and foreclosed real estate as
a percentage of total assets at end of period.............. 1.18% 0.95% 0.04%
(1) Annualized for the six months ended June 30, 2002 and 2001.
(continued)
GULF WEST BANKS, INC. AND SUBSIDIARIES
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest and dividend income of
the Company from interest-earning assets and the resultant average yields;
(ii) the total dollar amount of interest expense on interest-bearing
liabilities and the resultant average cost; (iii) net interest income; (iv)
interest-rate spread; (v) net interest margin.
Three Months Ended June 30,
-------------------------------------------------------------------
2002 2001
---------------------------------- ------------------------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate
------- --------- ------- ------- --------- -------
(Dollars in thousands)
Interest-earning assets:
Loans (1)................................ $ 319,978 5,858 7.32% $ 325,285 6,913 8.50%
Securities............................... 127,871 1,810 5.66 90,802 1,451 6.39
Other interest-earning assets (2)........ 30,612 148 1.93 21,135 236 4.47
-------- ------ -------- -------
Total interest-earning assets........ 478,461 7,816 6.53 437,222 8,600 7.87
----- -----
Noninterest-earning assets.................. 43,677 44,243
-------- --------
Total assets......................... $ 522,138 $ 481,465
======= =======
Interest-bearing liabilities:
Savings, NOW accounts and
money-market deposits................ 181,563 478 1.05 157,391 908 2.31
Time deposits............................ 141,801 1,226 3.46 165,699 2,383 5.75
Borrowings............................... 63,764 524 3.29 47,462 580 4.89
-------- ------- -------- -----
Total interest-bearing liabilities... 387,128 2,228 2.30 370,552 3,871 4.18
----- -----
Noninterest-bearing liabilities............. 91,913 73,867
Stockholders' equity........................ 43,097 37,046
-------- --------
Total liabilities and stockholders'
equity........................... $ 522,138 $ 481,465
======= =======
Net interest income......................... $ 5,588 $ 4,729
===== =====
Interest-rate spread (3).................... 4.23% 3.69%
==== ====
Net interest margin (4)..................... 4.67% 4.33%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities..... 1.24 1.18
==== ====
(1) Includes loans on nonaccrual status.
(2) Includes federal funds sold, interest-bearing deposits and FHLB stock
dividends.
(3) Interest-rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
GULF WEST BANKS, INC. AND SUBSIDIARIES
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest and dividend income of
the Company from interest-earning assets and the resultant average yields;
(ii) the total dollar amount of interest expense on interest-bearing
liabilities and the resultant average cost; (iii) net interest income; (iv)
interest-rate spread; (v) net interest margin.
Six Months Ended June 30,
------------------------------------------------------------------
2002 2001
-------------------------------- ------------------------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate
------- --------- ---- ------- --------- ----
(Dollars in thousands)
Interest-earning assets:
Loans (1)................................ $ 324,720 12,005 7.39% $ 322,105 13,745 8.53%
Securities............................... 124,181 3,522 5.67 82,938 2,683 6.47
Other interest-earning assets (2)........ 26,439 250 1.89 16,114 390 4.84
-------- -------- ------- --------
Total interest-earning assets........ 475,340 15,777 6.64 421,157 16,818 7.99
------ ------
Noninterest-earning assets.................. 43,103 43,564
-------- -------
Total assets......................... $ 518,443 $ 464,721
======= =======
Interest-bearing liabilities:
Savings, NOW accounts and
money-market deposits................ 177,880 939 1.06 153,331 1,996 2.60
Time deposits............................ 146,305 2,698 3.69 163,551 4,797 5.87
Borrowings.............................. 62,417 1,052 3.37 40,363 1,050 5.20
-------- ------ ------- ------
Total interest-bearing liabilities... 386,602 4,689 2.43 357,245 7,843 4.39
------ ------
Noninterest-bearing liabilities............. 89,584 70,846
Stockholders' equity........................ 42,257 36,630
------- -------
Total liabilities and stockholders'
equity........................... $ 518,443 $ 464,721
======= =======
Net interest income......................... $ 11,088 $ 8,975
====== ======
Interest-rate spread (3).................... 4.21% 3.60%
==== ====
Net interest margin (4)..................... 4.67% 4.26%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities..... 1.23 1.18
==== ====
(1) Includes loans on nonaccrual status.
(2) Includes federal funds sold, interest-bearing deposits and FHLB stock
dividends.
(3) Interest-rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
GULF WEST BANKS, INC. AND SUBSIDIARIES
Comparison of Three-Month Periods Ended June 30, 2002 and 2001
General. Net earnings for the three-month period ended June 30, 2002
were $1,495,000 or $.19 per basic share ($.18 per diluted share)
compared to net earnings of $1,149,000 or $.15 per basic ($.14 per
diluted share) for the three-month period ended June 30, 2001. 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 decreased from $8.6 million for the
three-month period ended June 30, 2001 to $7.8 million for the
three-month period ended June 30, 2002. Interest income on loans
decreased $1.1 million due to a decrease in the weighted-average
yield earned on the portfolio from 8.50% to 7.32% and a decrease in
the average loan portfolio balance from $325.3 million for the
three-month period ended June 30, 2001 to $320.0 million for the
three-month period ended June 30, 2002. Interest on investment
securities increased $.4 million due to an increase in the average
investment securities portfolio to $127.9 million in 2002 from $90.8
million in 2001 only partially offset by a decrease in the average
yield in 2002 from 6.39% to 5.66%. Interest on other
interest-earning assets decreased $88,000 due to a decrease in
average yield earned on other interest-earning assets from 4.47% in
2001 to 1.93% in 2002 only partially offset by an increase in the
average balance to $30.6 million from $21.1 million in 2001.
Interest Expense. Interest expense decreased to $2.2 million for the
three-month period ended June 30, 2002 from $3.9 million for the
three-month period ended June 30, 2001. Interest expense on deposit
accounts decreased primarily due to a decrease in the
weighted-average rate paid in 2002 from 4.07% to 2.11%. The Company
was successful in restructuring its deposit account makeup in 2002
by decreasing reliance on time deposits which decreased from 36.1%
of deposits at June 30, 2001 to 34.0% of deposits at June 30, 2002.
Interest expense on other borrowings decreased to $524,000 from
$580,000 in 2001 primarily due to a decrease in average rates paid
on these borrowings only partially offset by an increase in average
borrowings from $47.5 million in 2001 to $63.8 million in 2002. The
average cost of all interest-bearing liabilities decreased from
4.18% for the three-month period ended June 30, 2001 to 2.30% for
the three-month period ended June 30, 2002.
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 $196,000 for the three-month period
ended June 30, 2001 to $188,000 for the three-month period ended
June 30, 2002. Management believes the allowance for loan losses of
$3,751,000 is adequate at June 30, 2002.
Noninterest Income. Total noninterest income decreased to $784,000 for
the three-month period ended June 30, 2002 from $805,000 in 2001,
due to decreases on the gain on sale of securities available for
sale and other noninterest income partially offset by an increase in
service fees on deposits.
Noninterest Expenses. Total noninterest expenses increased to $3.9
million for the three-month period ended June 30, 2002 from $3.6
million for the three-month period ended June 30, 2001, primarily
due to increases in salaries and employee benefits.
Income Taxes. The income tax provision for the three months ended June
30, 2002 was $816,000 or 35.3% of earnings before income taxes
compared to $594,000 or 34.1% for the three months ended June 30,
2001.
GULF WEST BANKS, INC. AND SUBSIDIARIES
Comparison of Six-Month Periods Ended June 30, 2002 and 2001
General. Net earnings for the six-month period ended June 30, 2002 were
$3,123,000 or $.39 per basic share ($.38 per diluted share) compared
to net earnings of $2,008,000 or $.26 per basic ($.25 per diluted
share) for the six-month period ended June 30, 2001. 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 decreased from $16.8 million for the
six-month period ended June 30, 2001 to $15.8 million for the
six-month period ended June 30, 2002. Interest income on loans
decreased $1.7 million due to a decrease in the weighted-average
yield earned on the portfolio from 8.53% to 7.39% which was
partially offset by an increase in the average loan portfolio
balance from $322.1 million for the six-month period ended June 30,
2001 to $324.7 million for the six-month period ended June 30, 2002.
Interest on investment securities increased $839,000 due to an
increase in the average investment securities portfolio to $124.2
million in 2002 from $82.9 million in 2001 only partially offset by
a decrease in the average yield in 2002 from 6.47% to 5.67%.
Interest on other interest-earning assets decreased $140,000 due to
a decrease in the average yield earned on other interest-earning
assets from 4.84% in 2001 to 1.89% in 2002 only partially offset by
an increase in the average balance to $26.4 million from $16.1
million in 2001.
Interest Expense. Interest expense decreased to $4.7 million for the
six-month period ended June 30, 2002 from $7.8 million for the
six-month period ended June 30, 2001. Interest expense on deposit
accounts decreased primarily due to a decrease in the
weighted-average rate paid in 2002 from 4.29% to 2.24% only
partially offset by an increase in the average balance to $324.2
million from $316.9 million. The Company was successful in
restructuring its deposit account makeup in 2002 by decreasing
reliance on time deposits which decreased from 36.1% of deposits at
June 30, 2001 to 34.0% of deposits at June 30, 2002. Interest
expense on other borrowings increased to $1,052,000 from $1,050,000
in 2001 primarily due to an increase in average borrowings from
$40.4 million in 2001 to $62.4 million in 2002 only partially offset
by a decrease in average rates paid on these borrowings. The average
cost of all interest-bearing liabilities decreased from 4.39% for
the six-month period ended June 30, 2001 to 2.43% for the six-month
period ended June 30, 2002.
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 $353,000 for the six-month period ended
June 30, 2001 to $375,000 for the six-month period ended June 30,
2002. Management believes the allowance for loan losses of
$3,751,000 is adequate at June 30, 2002.
Noninterest Income. Total noninterest income increased to $1.9 million
for the six-month period ended June 30, 2002 from $1.8 million in
2001, due to increases in service fees on deposits and gain on sale
of securities.
Noninterest Expenses. Total noninterest expenses increased to $7.8
million for the six-month period ended June 30, 2002 from $7.4
million for the six-month period ended June 30, 2001, primarily due
to increases in salaries and employee benefits.
Income Taxes. The income tax provision for the six months ended June 30,
2002 was $1,659,000 or 34.7% of earnings before income taxes
compared to $1,002 or 33.3% for the six months ended June 30, 2001.
GULF WEST BANKS, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises primarily from interest-rate risk
inherent in its lending and deposit taking activities. The Company has
little or no risk related to trading accounts, commodities or foreign
exchange.
Management actively monitors and manages its interest rate risk exposure.
The primary objective in managing interest-rate risk is to limit, within
established guidelines, the adverse impact of changes in interest rates on
the Company's net interest income and capital, while adjusting the
Company's asset-liability structure to obtain the maximum yield-cost spread
on that structure. Management relies primarily on its asset-liability
structure to control interest rate risk. However, a sudden and substantial
increase in interest rates could adversely impact the Company's earnings,
to the extent that the interest rates borne by assets and liabilities do
not change at the same speed, to the same extent, or on the same basis.
There have been no significant changes in the Company's market risk
exposure since December 31, 2001.
PART II. OTHER INFORMATION
Item 1. 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
The Annual Meeting of Shareholders (the "Annual Meeting") of Gulf West
Banks, Inc., was held on April 18, 2002, to consider the election of three
directors with terms expiring at the 2005 Annual Meeting.
At the Annual Meeting, 6,181,008 shares were present in person or by proxy.
Listed below are the directors that were elected at the Annual Meeting with
a summary of the votes cast for each nominee:
Term For Withheld
---- --- --------
Algis Koncius....................... 2005 6,133,798 47,210
Louis P. Ortiz, CPA................. 2005 6,133,191 47,817
P.N. Risser, III.................... 2005 6,084,858 96,150
In addition to the foregoing, the following individuals are directors of
Gulf West whose terms continued after the Annual Meeting:
Gordon W. Campbell
John Cooper Petagna
Thomas M. Harris
Robert A. Blakely
Austin L. Fillmon
Ross E. Roeder
GULF WEST BANKS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION, CONTINUED
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description of Document
- -------------- -----------------------
2(9) Agreement and Plan of Merger, dated as of March 21, 2002, by and
between The South Financial Group, Inc., and Gulf West Banks,
Inc.
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(7) 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
10.9(8) Employee Stock Purchase Plan
11(2) Statement regarding computation of per share earnings
23.1 Consent of Hacker, Johnson & Smith PA
99.1 Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
(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) contained in Note 3 to the condensed consolidated financial
statements set forth in this Form 10-Q.
(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.
(7) incorporated by reference to the exhibits included in Gulf
West's Form 10-K for the year ended December 31, 2001 as filed with the
Securities and Exchange Commission on March 8, 2002.
(8) incorporated by reference to the exhibits included in Gulf
West's Form S-8 as filed with Securities and Exchange Commission on July
20, 1999.
(9) incorporated by reference to the exhibits included in Gulf
West's Form 10-Q for the quarter ended March 31, 2002 as filed with the
Securities and Exchange Commission on April 30, 2002.
(b) Reports on Form 8-K
No Report on Form 8-K were filed by the Company during the quarter
ended June 30, 2002.
GULF WEST BANKS, INC. AND SUBSIDIARIES
SIGNATURES
Under 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.
GULF WEST BANKS, INC.
(Registrant)
Date: August 5, 2002 By: /s/Gordon W. Campbell
-------------------------- ----------------------------------
Gordon W. Campbell, Chairman of the
Board and President
Date: August 5, 2002 By: /s/Barry K. Miller
--------------------------- ----------------------------------
Barry K. Miller, Secretary
(Chief Financial Officer)
GULF WEST BANKS, INC. AND SUBSIDIARIES
Exhibit Index
Exhibit Number Description of Document
- -------------- -----------------------
2(9) Agreement and Plan of Merger, dated as of March 21, 2002, by and
between The South Financial Group, Inc., and Gulf West Banks,
Inc.
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(7) 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
10.9(8) Employee Stock Purchase Plan
11(2) Statement regarding computation of per share earnings
23.1 Consent of Hacker, Johnson & Smith PA
99.1 Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
(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) contained in Note 3 to the condensed consolidated financial
statements set forth in this Form 10-Q.
(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.
(7) incorporated by reference to the exhibits included in Gulf
West's Form 10-K for the year ended December 31, 2001 as filed with the
Securities and Exchange Commission on March 8, 2002.
(8) incorporated by reference to the exhibits included in Gulf
West's Form S-8 as filed with Securities and Exchange Commission on July
20, 1999.
(9) incorporated by reference to the exhibits included in Gulf
West's Form 10-Q for the quarter ended March 31, 2002 as filed with the
Securities and Exchange Commission on April 30, 2002.
Exhibit 23.1
Consent of Independent Accountants
The Board of Directors
Gulf West Banks, Inc.
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 333-83205 and No. 333-58589) of Gulf West
Banks, Inc. of our report dated July 15, 2002 relating to the consolidated
condensed financial statements, which appear in this Form 10-Q.
/s/ Hacker, Johnson & Smith PA
HACKER, JOHNSON & SMITH PA
Tampa, Florida
August 5, 2002
Exhibit 99.1
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Gulf West Banks, Inc. (the
"Company") on Form 10-Q for the period ending June 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"),
Gordon W. Campbell, as Chief Executive Officer of the Company, and Barry K.
Miller, as Chief Financial Officer of the Company, each hereby certifies,
pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of
the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:
(1) The Report fully complies with the requirements of section
13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and result of operations of
the Company.
/s/ Gordon W. Campbell
- ------------------------------
Gordon W. Campbell
Chief Executive Officer
[Date] August 5, 2002
/s/ Barry K. Miller
- ------------------------------
Barry K. Miller
Chief Financial Officer
[Date] August 5, 2002
This certification accompanies this Report pursuant to section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.