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U.S. SECURITIES AND EXCHANGE COMMISSION  FORM 10-QSB  [X]
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004  [  ]
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION REPORT FROM _____ TO _____ Commission file number 0-23619 Tarpon Coast Bancorp, Inc. 
  Florida
    
    65-0772718(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 1490 Tamiami Trail  
  941-629-8111 
  Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant, as 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. Class
    
    Outstanding as of July 26, 2004Common Stock, $.01 par value
    
    
    1,182,151
 Transitional Small Business
Disclosure Format: Yes [  ]  No [X]




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TARPON COAST BANCORP, INC. INDEX PART I - FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial StatementsBalance Sheets as of June 30, 2004 and December 31, 2003
    
    
    1Statements of Operations for the Three Months Ended June 30, 2004 and 2003
    
    
    2Statements of Operations for the Six Months Ended June 30, 2004 and 2003
    
    
    3Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003
    
    
    4Item 2. Managements Discussion and Analysis
    
    
    7Item 3. Controls and Procedures
    
    
    10PART II - OTHER INFORMATIONItem 4. Submission of Matters to a Vote of Security Holders
    
    
    11Item 6. Exhibits and Reports on Form 8-K
    
    
    11SIGNATURES
    
    
    12EXHIBITSEx-31.1: 302 Certification of CEOEx-31.2: 302 Certification of PresidentEx-31.3: 302 Certification of CFOEx-32.1: 906 Certification of CEOEx-32.2: 906 Certification of PresidentEx-32.3: 906 Certification of CFO




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PART I  FINANCIAL INFORMATION TARPON COAST BANCORP, INC. AND SUBSIDIARIES 
   June 30, 2004
    
    December 31, 2003(Unaudited)ASSETSCash and due from banks
    
    $
    5,367
    
    
    $
    8,039Federal funds sold
    
    
    750
    
    
    
    4,425Total cash and cash equivalents
    
    
    6,117
    
    
    
    12,464Securities available for sale
    
    
    17,496
    
    
    
    20,437Loans
    
    
    99,681
    
    
    
    83,708Less allowance for loan losses
    
    
    (1,113
    )
    
    
    (1,007
    )Net loans
    
    
    98,568
    
    
    
    82,701Premises and equipment, net
    
    
    5,298
    
    
    
    5,320Accrued interest & other assets
    
    
    2,246
    
    
    
    1,635Total assets
    
    $
    129,725
    
    
    $
    122,557LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    24,140
    
    
    $
    17,279Interest bearing
    
    
    93,350
    
    
    
    94,673Total deposits
    
    
    117,490
    
    
    
    111,952Retail Repurchase Agreements
    
    
    2,385
    
    
    
    624Accrued interest & other liabilities
    
    
    172
    
    
    
    83Total liabilities
    
    
    120,047
    
    
    
    112,659Shareholders equity:Common stock, par value $.01 per share,
10,000,000 shares authorized; 1,182,151 shares
issued and outstanding
    
    
    12
    
    
    
    12Additional paid-in capital
    
    
    10,941
    
    
    
    10,941Deficit
    
    
    (660
    )
    
    
    (970
    )Unrealized gain (loss) on securities available for sale
    
    
    (615
    )
    
    
    (85
    )Total shareholders equity
    
    
    9,678
    
    
    
    9,898Total liabilities and shareholders equity
    
    $
    129,725
    
    
    $
    122,557
 See accompanying notes to financial statements. 1




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TARPON COAST BANCORP, INC. AND SUBSIDIARIES 
    Three months ended June 30,2004
    
    2003Interest income:Interest and fees on loans
    
    $
    1,395
    
    
    $
    1,318Interest on securities
    
    
    226
    
    
    
    183Interest on federal funds sold
    
    
    5
    
    
    
    11Total interest income
    
    
    1,626
    
    
    
    1,512Interest expense:Interest on deposits
    
    
    270
    
    
    
    422Interest on repurchase agreements
    
    
    2
    
    
    
    5Total interest expense
    
    
    272
    
    
    
    427Net interest income
    
    
    1,354
    
    
    
    1,085Provision for loan losses
    
    
    64
    
    
    
    120Net interest income after
provision for loan losses
    
    
    1,290
    
    
    
    965Non-interest income
    
    
    331
    
    
    
    489Non-interest expense:Salaries and benefits
    
    
    746
    
    
    
    783Occupancy and equipment expense
    
    
    224
    
    
    
    195Other expense
    
    
    406
    
    
    
    330Total non-interest expense
    
    
    1,376
    
    
    
    1,308Income before income taxes
    
    
    245
    
    
    
    146Income (taxes) benefit
    
    
    (98
    )
    
    
    118Net income
    
    
    147
    
    
    
    264Other comprehensive income (loss)
    
    
    (662
    )
    
    
    64Comprehensive income (loss)
    
    $
    (515
    )
    
    $
    328Earnings per share:Basic
    
    $
    0.12
    
    
    $
    0.22Diluted
    
    $
    0.12
    
    
    $
    0.22Weighted average shares outstanding:Basic
    
    
    1,182,151
    
    
    
    1,182,151Diluted
    
    
    1,222,588
    
    
    
    1,186,640
 See accompanying notes to financial statements. 2




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TARPON COAST BANCORP, INC. AND SUBSIDIARIES 
    Six months ended June 30,2004
    
    2003Interest income:Interest and fees on loans
    
    $
    2,707
    
    
    $
    2,570Interest on securities
    
    
    466
    
    
    
    370Interest on federal funds sold
    
    
    8
    
    
    
    18Total interest income
    
    
    3,181
    
    
    
    2,958Interest expense:Interest on deposits
    
    
    547
    
    
    
    843Interest on repurchase agreements
    
    
    8
    
    
    
    8Total interest expense
    
    
    555
    
    
    
    851Net interest income
    
    
    2,626
    
    
    
    2,107Provision for loan losses
    
    
    64
    
    
    
    169Net interest income after
provision for loan losses
    
    
    2,562
    
    
    
    1,938Non-interest income
    
    
    681
    
    
    
    928Non-interest expense:Salaries and benefits
    
    
    1,546
    
    
    
    1,563Occupancy and equipment expense
    
    
    438
    
    
    
    401Other expense
    
    
    745
    
    
    
    669Total non-interest expense
    
    
    2,729
    
    
    
    2,633Income before income taxes
    
    
    514
    
    
    
    233Income (taxes) benefit
    
    
    (204
    )
    
    
    200Net income
    
    
    310
    
    
    
    433Other comprehensive income (loss)
    
    
    (530
    )
    
    
    (56
    )Comprehensive income (loss)
    
    $
    (220
    )
    
    $
    377Earnings per share:Basic
    
    $
    0.26
    
    
    $
    0.36Diluted
    
    $
    0.25
    
    
    $
    0.36Weighted average shares outstanding:Basic
    
    
    1,182,151
    
    
    
    1,182,151Diluted
    
    
    1,222,588
    
    
    
    1,186,640
 See accompanying notes to financial statements. 3




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TARPON COAST BANCORP, INC. AND SUBSIDIARIES 
    Six months ended June 30,2004
    
    2003Cash flows from operating activities:Net income
    
    $
    310
    
    
    $
    433Adjustments to reconcile net income to net
cash provided by (used in) operating activities:Depreciation
    
    
    169
    
    
    
    194Provision for loan losses
    
    
    64
    
    
    
    169Deferred tax provision (benefit)
    
    
    204
    
    
    
    (200
    )(Increase) Decrease in accrued interest
and other assets
    
    
    (379
    )
    
    
    (163
    )Increase (Decrease) in accrued interest
and other liabilities
    
    
    89
    
    
    
    (391
    )Total adjustments
    
    
    147
    
    
    
    (391
    )Net cash provided by operating activities
    
    
    457
    
    
    
    42Cash flows from investing activities:Net increase in loans
    
    
    (15,931
    )
    
    
    (10,721
    )Purchases of securities available for sale
    
    
    (963
    )
    
    
    (9,876
    )Maturities of securities available for sale
    
    
    3,103
    
    
    
    7,189Purchase of restricted securities
    
    
    (165
    )Purchases of premises and equipment
    
    
    (147
    )
    
    
    (19
    )Net cash used in investing activities
    
    
    (14,103
    )
    
    
    (13,427
    )Cash flows from financing activities:Increase in deposits
    
    
    5,538
    
    
    
    14,179Increase in retail repurchase agreements
    
    
    1,761
    
    
    
    2,657Net cash provided by financing activities
    
    
    7,299
    
    
    
    16,836Increase (Decrease) in cash and cash equivalents
    
    
    (6,347
    )
    
    
    3,451Cash and cash equivalents, beginning of period
    
    
    12,464
    
    
    
    8,053Cash and cash equivalents, end of period
    
    $
    6,117
    
    
    
    11,504Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    565
    
    
    $
    855Cash paid during the period for income taxes
    
    $
    
    
    
    $
    
 See accompanying notes to financial statements. 4




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TARPON COAST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2004 NOTE A - ORGANIZATION AND BASIS OF PRESENTATION: Organization:   Basis of Presentation: The accompanying unaudited consolidated financial statements include the
accounts of the Company and its subsidiaries. All inter-company accounts and
transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-QSB.
Accordingly, they do not include all of 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 have been made for the fair presentation of the
Companys consolidated financial position and results of operations. Operating
results for the three-month and six-month periods ended June 30, 2004 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2004. Earnings per Share: Basic earnings per common share are net income divided by the weighted
average number of common shares outstanding during the period. Diluted earnings
per common share include the dilutive effect of additional potential common
shares issuable under stock options and warrants. 5




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NOTE B  STOCK-BASED COMPENSATION: Employee compensation expense under stock options is reported using the
intrinsic value method. No stock-based compensation cost is reflected in net
income, as all options granted had an exercise price equal to or greater than
the market price of the underlying common stock at date of grant. The
following table illustrates the effect on net income and earnings per share if
expense was measured using the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation. Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2004
    
    2003
    
    2004
    
    2003(Dollars in thousands, except per share data)Net income as reported
    
    $
    147
    
    
    $
    264
    
    
    $
    310
    
    
    $
    433Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards
net of related tax effects
    
    $
    11
    
    
    $
    11
    
    
    $
    22
    
    
    $
    22Pro forma net income
    
    $
    136
    
    
    $
    253
    
    
    $
    288
    
    
    $
    411Basic income per share as reported
    
    $
    0.12
    
    
    $
    0.22
    
    
    $
    0.26
    
    
    $
    0.36Basic pro forma income per share
    
    $
    0.12
    
    
    $
    0.21
    
    
    $
    0.24
    
    
    $
    0.35Diluted income per share as reported
    
    $
    0.12
    
    
    $
    0.22
    
    
    $
    0.25
    
    
    $
    0.36Diluted pro forma income per share
    
    $
    0.11
    
    
    $
    0.21
    
    
    $
    0.24
    
    
    $
    0.35
 6




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Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations General The following is a discussion of the Companys financial condition and results
of operations for the period ended June 30, 2004: Financial Condition At June 30, 2004, the Company had approximately $117.5 million in deposits and
$2.4 million in customer repurchase agreements as compared to $112 million and
$0.6 million, respectively, at December 31, 2003. Stockholders equity
comprised $9.7 million at June 30, 2004 and $9.9 million at December 31, 2003,
the change comprising net income for the period of $310,000 less unrealized
losses in the Companys investment portfolio of $530,000. To June 30, 2004, the Company used these funds to generate $99.7 million in
outstanding loans ($83.7 million at December 31, 2003). At June 30, 2004 the
Company also had approximately $29.5 million in unfunded loan commitments.
Non-performing assets totaled $150,000 at June 30, 2004 and are comprised of
one junior lien on a residential property. Non-performing assets at December
31, 2003 totaled $227,000. The Company continues to experience significant demand for lending and deposit
relationships due largely to the continuing growth in the areas population and
the consequential demand for property, goods and services. Accordingly, the
Company has realized substantial increases in loans and deposits outstanding
and anticipates that, under current economic conditions, such demand will
continue. At June 30, 2004 the Company held approximately $17.5 million ($20.4
million at December 31, 2003) in investment securities and carried premises and
equipment of $5.3 million at both June 30, 2004 and December 31, 2003. The
Companys remaining liquidity at June 30, 2004, less current cash reserve
requirements, was invested in overnight federal funds of $750,000($4.4 million
at December 31, 2003). In December of 2003, the Company acquired a site in Punta Gorda, Florida to
construct and house its fourth full-service banking center. The Company
anticipates opening in a modular banking facility in the third quarter of 2004
while the permanent facility is being readied. Results of Operations For the three-month period ended June 30, 2004, the Company reported net income
of $147,000, compared to net income of $264,000 for the comparable period in
2003. Pre-tax income for the three-month period ending June 30, 2004 was
$245,000 compared to $146,000 for the same period in 2003. Net income for the
current period reflects a tax provision of $98,000 or that amount that is
proportionate with current federal and state income tax rates applied to
pre-tax income, while net income for the three month period ended June 30, 2003
was favorably and disproportionately impacted by the recognition of $118,000 in
previously unrecognized net operating loss carry-forward deferred tax
benefits. Net income for the six-month periods ended June 30, 2004 and 7




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2003 of
$310,000 and $433,000 also bear disproportionate results to pre-tax incomes of
$514,000 and $233,000, respectively, as a consequence of the recognition of
loss carry-forward deferred tax benefits of $200,000 in 2003. All such net
operating loss carry-forward deferred tax benefits were fully recognized at
December 31, 2003. Accordingly, current year and future pre-tax income will
bear tax provisions at rates of tax consistent with that applied to the most
current reporting period. Interest income for the comparable three-month periods ended June 30 was
$1,626,000 in 2004 and $1,512,000 in 2003 or a yield on average earning assets
of 5.77% and 6.13%, respectively. Net interest income was $1,354,000 in 2004
and $1,085,000 in 2003 (net interest margins of 4.81% and 4.40%, respectively)
after deducting interest expense of $272,000 in 2004 and $427,000 in 2003 or an
average rate paid on interest-bearing funds of 1.14% and 1.93%, respectively.
Rate variances between the comparable three-month periods of 2004 and 2003
increased net interest income approximately $114,000 while corresponding volume
variances contributed another $155,000. For the comparable six-month periods ended June 30, interest income was
$3,181,000 in 2004 and $2,958,000 in 2003 or an average yield of 5.80% and
6.28%, respectively. Net interest income was $2,626,000 in 2004 and $2,107,000
in 2003 (net interest margins of 4.79% and 4.48%, respectively) after deducting
interest expense of $555,000 in 2004 and $851,000 in 2003 or an average
interest-bearing funds rate of 1.18% and 2.01%, respectively. The declines in yields earned on interest-earning assets and paid on
interest-bearing funds are reflective of the aggressive rate cutting posture
maintained by the Federal Reserve since 2001 and into 2004. For the three and
six-month periods ended June 30, 2004, net interest margins continued to
experience improvement over the corresponding periods of a year ago as the Bank
generated larger savings from decreasing rates paid on interest-bearing funds
than income given up from declining yields on interest-earning assets. While
the Federal Reserve has begun to tighten rates, management does not anticipate
this policy decision will have a significant negative impact on the Companys
net interest margins unless markets rates were to increase precipitously. Provisions for loan losses of $0 and $64,000 for the three and six-month
periods ended June 30, 2004, respectively, were based on the Banks loss
experience together with its assessment of the potential impacts of current
economic conditions on the credit quality of the portfolio, including the
analysis of potential problem credits for impairment, supplemented with peer
industry loss data of comparably sized and positioned commercial banks.
Significant to this assessment in 2004 was net recovery of previously
charged-off loan balances of approximately $42,000 in the first quarter of the
year that served to replenish the allowance for loan losses. Non-interest income is comprised principally of service charges on deposit
accounts, fees on residential lending secondary market activities and fees and
commissions from the sale of insurance and investment products. Non-interest
income aggregated $331,000 and
$489,000 for the three-month periods ended June 30, 2004 and 2003, 8




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respectively, and $681,000 and 928,000 for the comparable six-month periods.
Amounts for the three-month periods ended June 30, 2004 and 2003 include
commission and fee income from the sales of insurance and investment products
aggregating $114,000 and $152,000, respectively, and $267,000 and $290,000 for
the comparable six-month periods. Residential lending secondary market
activities generated fee income of $137,000 for the three month period ending
June 30, 2004 compared with $228,000 for the corresponding period in 2003, and
$250,000 for the first six months of 2004 compared to $430,000 in 2003. While
an active refinancing market had aided fee income from residential secondary
market activities over the last two fiscal years, the demand for such has
declined with rising rates together with the saturation in the potential market
for refinancing. This condition is expected to continue however it is not
anticipated to have a material adverse impact, as most expenses associated with
this activity are incremental and direct in nature. The balance of the increase
in non-interest income is generally consistent with the increase in the volume
of deposit activity. Non-interest expenses for the comparable three-month periods ended June 30,
2004 and 2003 were $1,376,000 and $1,308,000 comprised principally of salaries
and benefits ($746,000 in 2004 and $783,000 in 2003) and occupancy costs
($224,000 in 2004 and $195,000 in 2003). For the comparable six-month periods
ended June 30, 2004 and 2003, non-interest expenses were $2,729,000 and
$2,633,000, respectively, comprised principally of salaries and benefits
($1,546,000 in 2004 and $1,563,000 in 2003) and occupancy costs ($438,000 in
2004 and $401,000 in 2003). At June 30, 2004 the Company had 59 employees
compared to 54 employees a year earlier, and at both period ends had three
full-service banking offices, a residential mortgage center and an operations
center. The expansion in facilities and personnel is in accordance with the Companys
strategic growth and expansion initiative that is designed to fully leverage
the Companys capital position and attain critical mass. Additional incremental
expenditures associated with the Companys expansion activities may have the
effect of limiting the Companys profitability until such time as the Bank can
generate volumes of loans and deposits, and other fee generating services,
sufficient to cover these additional costs. Liquidity and Capital Resources The Company utilizes its investment portfolio principally as a source of
liquidity. Deposit growth, to the extent not necessary to maintain liquidity,
is generally utilized to fund loan demand. At June 31, 2004, the Company had
unencumbered overnight liquidity aggregating approximately $14.7 million to
meet its current liquidity needs. In addition, if needed, the Company has $6.5
million in credit facilities available through correspondent banks and
maintains outlets for the sale and/or participation of loans from its
portfolio. 9




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Management of the Company strives to maintain capital at levels sufficient to
be considered well capitalized under regulatory guidelines. At June 30, 2004,
capital levels were sufficient for this purpose. When planning its growth and
expansion strategies, the Companys practice is to ensure its well
capitalized position is maintained at all times, taking into account current
capital levels together with the reinvestment of earnings. 
 Item 3. Controls and Procedures  a.
    
    Evaluation of Disclosure Controls and Procedures. The Companys
management is responsible for establishing and maintaining controls and
procedures designed to ensure that information required to be disclosed
in the reports that the Company files or submits under the Securities
and Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of
the Securities and Exchange Commission. Based upon managements
evaluation of the effectiveness of those disclosure controls and
procedures, as of the end of the period covered by this report, the
Chief Executive Officer, President, and Chief Financial Officer of the
Company have concluded that the Companys disclosure controls and
procedures were adequate for such purposes.b.
    
    Changes in Internal Controls. The Company made no changes in its
internal control over financial reporting that occurred during the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, its internal control over
financial reporting. 10




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PART II - OTHER INFORMATION 
 Item 4. Submission of Matters to a Vote of Security Holders On July 26, 2004, the Company held its annual meeting of shareholders
during which James C. Brown, Gina D. Hahn and Larry A. Tenbusch, were
re-elected to the Companys Board of Directors to serve three-year terms. In
each case, 1,135,151 or 96.0% of all shares entitled to vote were cast in favor
of the measure with no shares dissenting. In addition to Messrs. Brown,
Tenbusch and Ms. Hahn, the following individuals serve as continuing directors
until their respective terms expire: Lewis S. Albert, Chairman and Chief
Executive Officer, Mark O. Asperilla, James R. Baker, Billie A. Barger, Gerald
P. Flagel, and Todd H. Katz, Vice Chairman and President of the Company. There
were no other matters submitted to a vote of security holders during the second
quarter of 2004. 
 Item 6. Exhibits and Reports on Form 8-K  1.
    
    Exhibits  31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley
act of 200231.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley
act of 200231.3
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley
act of 200232.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as added by
section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as added by
section 906 of the Sarbanes-Oxley Act of 200232.3
    
    Certification pursuant to 18 U.S.C. Section 1350, as added by
section 906 of the Sarbanes-Oxley Act of 2002  2.
    
    Reports on Form 8-KForm 8-K Current Report dated April 21, 2004 announcing Results of
Operations and Financial Condition for the three-month period ended March
31, 2004. 11




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SIGNATURES In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereto duly
authorized. Date: July 26, 2004
    /s/ George E. Cline, IIIGeorge E. Cline, IIIChief Financial Officer Date: July 26, 2004
    /s/ Todd H. KatzTodd H. KatzPresident Date: July 26, 2004
    /s/ Lewis S. AlbertLewis S. AlbertChief Executive Officer 12