10-Q 1 sarasota10q.txt SARASOTA BANCORPORATION FORM 10Q Securities and Exchange Commission Washington, D.C. 20549 Form 10-QSB Quarterly Report Pursuant to Section 13 Or 15(D) of the Securities Exchange Act of 1934 For Quarterly Period Ended Commission File Number: September 30, 2002 33-41045 SARASOTA BANCORPORATION, INC. ----------------------------- (Exact name of small business issuer as specified in its charter) Florida 65-0235255 ------------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Two North Tamiami Trail, Suite 100, Sarasota, Florida 34236 ----------------------------------------------------------- (Address of principal executive offices) (941) 955-2626 -------------- (Issuer's telephone number) Not applicable -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the last 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 ----------------- ------------------- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Common Stock, $.01 Par Value 589,000 ---------------------------- ------------------------------------ Class Outstanding at November 12th, 2002 Transitional Small Business Disclosure Format (Check One): Yes No X ---------------- ------------------- REFER TO NOTES TO THE FINANCIAL STATEMENTS PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS. SARASOTA BANCORPORATION, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS September 30, 2002 and December 31, 2001 (UNAUDITED)

REFER TO NOTES TO THE FINANCIAL STATEMENTS SARASOTA BANCORPORATION, INC. SARASOTA, FLORIDA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001 (UNAUDITED)

REFER TO NOTES TO THE FINANCIAL STATEMENTS SARASOTA BANCORPORATION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)

REFER TO NOTES TO THE FINANCIAL STATEMENTS SARASOTA BANCORPORATION, INC. AND SUBSIDIARY Notes to Financial Statements (Unaudited) September 30, 2002 Note 1 - Basis of Presentation The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for Interim Financial Statements and with the instructions to Form 10-QSB. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2001. Note 2 - Summary of Organization Sarasota BanCorporation, Inc., Sarasota, Florida (the "Company"), was incorporated under the laws of the State of Florida on December 28, 1990, for the purpose of becoming a bank holding company with respect to a proposed de novo bank, Sarasota Bank (the "Bank"), Sarasota, Florida. Prior to formation of the Company, the Company's organizers formed a partnership to commence organizing a bank holding company. The partnership was subsequently merged into the Company as of December 30, 1990. As a result, each organizers' capital account in the partnership was exchanged for common stock of the Company and all assets of the partnership were contributed as capital to the Company in consideration of the issuance of its common stock to the organizers. On September 15, 1992, the organizers received approval from the Office of the Comptroller of the State of Florida for the organization of a new state banking association and approval was also received on May 29, 1992 from the Federal Reserve Board to form a one-bank holding company. On September 15, 1992, the Company acquired 100% of the Bank's capital stock by injecting $4.25 million into the Bank's capital accounts. Note 3 - Significant Accounting Policies The accounting and reporting policies of the Company conform to generally accepted accounting principles and to general practices in the banking industry. The following summarizes the more significant of these policies: Investment Securities. As of September 30, 2002, no Investment Securities ---------------------- were carried as "Held to Maturity." Available for Sale Securities. As of September 30, 2002, the market value ------------------------------ of "Available for Sale Securities" was $30,603,023. Earnings Per Share. Earnings per share were $0.79 for the quarter ended ------------------- September 30, 2002 and may not be indicative of projected earnings (losses) for the year ending December 31, 2002. Income Taxes. The Company will be subject to taxation whenever taxable ------------- income is generated. As of September 30, 2002, the provision for income taxes was $796,850. Statement of Cash Flows. The presentation of the statement of cash flows is ----------------------- condensed as permitted by the Securities and Exchange Commission. The classification of cash flows is consistent with the requirements of FASB Statement No. 95. Note 4 - Related Parties One of the Company's directors serves as legal counsel for the Company. Gross fees for these services during the nine months ended September 30, 2002 were $17,156. Another director of the Company provides advertising, printing and other miscellaneous services to the Company. The gross billings, which include costs passed through to other companies providing services to the Company, were $55,295 for the nine months ended September 30, 2002. Another director provides accounting services for the Company. Fees for these services for the nine months ended September 30, 2002 were $2,350. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ------ ------------------------------------------------------------------------ OF OPERATIONS ------------- The following discussion addresses the factors that have affected Sarasota BanCorporation, Inc.'s (the "Company") financial condition and results of operations as reflected in the Company's unaudited financial statements for the three and nine months ended September 30, 2002. Results of Operations The Company's net income for the third quarter of 2002 was $462,840, a 475.03% increase as compared to a net loss of ($123,414) for the same period in 2001. Earnings per share increased from ($0.22) to $0.79 per share for the third quarter of 2002 as compared to the same period in 2001. The increase in net income for the third quarter of 2002 is primarily attributable to a decrease in the provision for loan losses and decreased interest paid on deposit accounts. The Company's net income for the nine months ended September 30, 2002 was $1,243,740 compared to $350,082 for the same period in 2001, an increase of $893,658 or 255.27%. Earnings per share increased $1.48 from $0.63 to $2.11 per share for the nine-month period ended September 30, 2002 as compared to the same period in 2001. The increase in net income for the nine months ended September 30, 2002 was primarily attributable to a $1,326,691 or a 32.34% decrease in total interest expense. The increase in net income was also attributable to a $411,050 or a 47.58% decrease in the provision for loan losses for the nine-month period ended September 30, 2002 as compared to the same period in 2001. Interest and fees on loans decreased $488,465 or, 7.44%, for the nine-month period ended September 30, 2002. Interest on investment securities increased by $239,223, or 29.31% while interest on Federal Funds sold decreased by $171,005, or 71.95%, for the nine-month period ended September 30, 2002. Net interest income after provision for loan losses for the third quarter of 2002 increased $940,312 or 213.44%, to $1,380,863 from $440,551 for the third quarter of 2002. The increase in net interest income resulted primarily from decreased expenses for the provision for loan losses and decreased interest paid on deposit accounts. The net interest margin for the third quarter ended September 30, 2001 was 3.57% on average earning assets of $123,747,500 for the period stated. For the same period in 2002, the net interest margin was 4.23%, on average earning assets of $143,410,400. The increase in net interest margin is reflective of the Bank's decision to purchase brokered deposits at rates less than the current market rate and to allow higher priced interest bearing liability accounts to rollover at lower interest rates. Net interest income after the provision for loan losses for the nine-month period ended September 30, 2002 increased $1,317,494 or 49.69%, to $3,969,072 from $2,651,578 for the comparable period in 2001. The increase in net interest income resulted primarily from a decrease in the interest paid on deposits. The net interest margin for the nine months ended September 30, 2002 was 4.28% on average earning assets of $134,777,300 for the period stated. For the same period in 2001, the net interest margin was 3.69%, on average earning assets of $121,605,043. The increase in net interest margin is reflective of a rapid decrease in the higher cost time deposit rates and a relatively slower change in loan rates. Non-interest expense for the third quarter of 2002 decreased $52,555 or 6.89%, as compared to the third quarter of 2001. Non-interest expense for the nine-month period ended September 30, 2002 decreased $4,750 or 0.21%, as compared to the same period in 2001. These decreases are primarily the result of decreased professional service fees. Non-interest income decreased $33,613, or 28.71%, during the third quarter ended September 30, 2002 as compared to the same period in 2001. This decrease is primarily attributable to a decrease in other income associated with the termination of a sublease on a portion of the Bank's premises. For the nine-month period ended September 30, 2002, non-interest income increased $103,953 or 59.48% to $278,718 compared to $174,765 for the same period in 2001. The increase for the nine-month period ended September 30, 2002 is primarily attributable to the decrease in losses associated with the sale of repossessed assets. Financial Condition For the nine-month period ended September 30, 2002, the Company experienced continued asset, loan and deposit growth. Total assets increased 22.06% to $153,980,732 at September 30, 2002 from $126,155,597 at December 31, 2001. This increase is primarily attributable to loan growth and an increase in securities available-for-sale. The allowance for loan loss provision for the third quarter of 2002 was $169,000 compared to $710,000 in the third quarter of 2001. The reserve balance for loan losses as of September 30, 2002 was $1,355,422 as compared to $1,217,166 at December 31, 2001. At September 30, 2002, the allowance for loan losses represented 1.23% of total loans outstanding compared to 1.26% at December 31, 2001. Although management considers the allowance to be adequate at September 30, 2002, management expects to increase the allowance throughout the remainder of fiscal 2002 based upon evaluations of specific loans and the weighting of various loan categories as suggested by the Bank's internal loan rating system. The provision for loan losses is based upon management's continuing analysis and evaluation of various factors, including current economic conditions, the size of the loan portfolio, past loan loss experience, underlying collateral value, the Bank's internal rating system and other factors deemed relevant by management. Through the third quarter of 2002, there were 72 charged-off loans in the aggregate amount of $397,283 and total recoveries of $58,213 or a net of 0.30% of total loans outstanding. The ratio of non-performing loans (including loans 90 days or more past due) to total outstanding loans was $1,127,000, or 1.02%, as of September 30, 2002 compared to 0.85% for the same period in 2001. As of December 31, 2001, non-performing loans were $824,000, or 0.85%, of total loans outstanding. The Bank also has one relationship which has been placed on non-accrual status. This relationship consists of five loans and amounted to $1,032,000 as of September 30, 2002. The Bank has entered into a workout agreement with regard to this relationship in an effort to assist the borrower in restructuring certain financial-related operations of the borrower's business. The anticipated workout period for this relationship is three years. There were no other loans past due in excess of 90 days as of September 30, 2002. Capital Adequacy Federal banking regulators have established certain capital adequacy standards required to be maintained by banks and bank holding companies. These regulations establish minimums of risk-based capital of 4% for core capital (Tier 1), 8% for total risk-based capital, and at least 3% for the leverage ratio. Three percent is the minimum leverage ratio for the most highly rated banks. All other banks are required to meet a minimum of at least 100 or 200 basis points above the 3% level. The Company's Tier 1 risk-based capital ratio at September 30, 2002 was 9.79%, its total risk-based capital ratio was 11.01%, and its leverage ratio was 7.54%. Liquidity The Company views liquidity as the ability to provide for the credit needs of the market and to provide funds for deposit withdrawals. With a loan to deposit ratio of 84.49% at September 30, 2002, cash and due from banks of $3,649,301 and federal funds sold of $9,518,304, the Company does not anticipate any events which would require liquidity beyond that which is available through deposit growth or its investment portfolio. The Company actively manages the levels, types, and maturities of earning assets in relation to the sources available to fund current and future needs to ensure adequate funding will be available at all times. There are no known trends or any known commitments or uncertainties that will result in the Company's liquidity increasing or decreasing in any material way. Cautionary Note Regarding Forward-Looking Statements The Company may, from time to time, make written or oral forward-looking statements, including statements contained in the Company's filings with the Securities and Exchange Commission (the "Commission") and its reports to shareholders. Such forward-looking statements are made based on management's belief as well as assumptions made by, and information currently available to, management pursuant to "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The Company's actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including governmental monetary and fiscal policies, deposit levels, loan demand, loan collateral values, securities portfolio values and interest rate risk management; the effects of competition in the banking business from other commercial banks, savings and loan associations, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market mutual funds and other financial institutions operating in the Company's market area and elsewhere, including institutions operating through the Internet; changes in acquisitions; failure of assumptions underlying the establishment of reserves for loan losses, including the value of collateral underlying delinquent loans and other factors. The Company cautions that such factors are not exclusive. The Company does not undertake to update any forward-looking statements that may be made from time to time by, or on behalf of, the Company. Item 3. CONTROLS AND PROCEDURES. ------ ----------------------- Within the 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 15d-15. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company and its subsidiary required to be included in the Company's Securities and Exchange Commission's filings. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date management carried out this evaluation. PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds ------ ----------------------------------------- On September 15, 2002, the Company issued an aggregate of 29,860 shares to two directors and one former director of the Company in connection with their exercise of stock purchase warrants, received in connection with the founding of the Bank at an exercise price of $18.86 per share. The issuances of the securities described above were made in reliance on the exemption from registration provided in Section 4(2) of the Securities Act of 1933, as amended, transactions by an issuer not involving a public offering. Each of the purchasers has a pre-existing relationship with the Company and the offers and sales were made without any public solicitation. No underwriter was involved in the transaction and no commissions were paid. Item 6. Exhibits and Reports on Form 8-K ------ -------------------------------- (a) Exhibits. -------- Exhibit 99.1. Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the ------------------- quarter ended September 30, 2002. 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. SARASOTA BANCORPORATION, INC Dated: November 12, 2002 By: /s/ Christine L. Jennings ------------------------------------------ Christine L. Jennings President and Chief Executive Officer (Principal Executive Officer) Dated: November 12, 2002 By: /s/ Susan K. Flynn ------------------------------------------ Susan K. Flynn Sr. Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) CERTIFICATIONS I, Christine L. Jennings, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Sarasota BanCorporation, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarter report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ Christine L. Jennings ------------------------------------- Christine L. Jennings President & Chief Executive Officer CERTIFICATIONS I, Susan K. Flynn, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Sarasota BanCorporation, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarter report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ Susan K Flynn ------------------------------------- Susan K. Flynn Sr. Vice President & Chief Financial Officer EXHIBIT INDEX

SARASOTA BANCORPORATION INC / FL 10-Q