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U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
FORM 10-QSB   [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004   [   ] TRANSITION REPORT UNDER SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITIONREPORT FROM ______ TO _____
Commission file number 0-23619
Tarpon Coast Bancorp, Inc.(Exact name of small business issuer as specified in its charter)   Florida 65-0772718   (State or other jurisdiction of (I.R.S. Employerincorporation or organization) Identification No.)   1490 Tamiami TrailPort Charlotte, FL 33948(Address of principal executive offices)   941-629-8111(Issuer’s telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section13 or 15(d) of the Exchange Act during the past 12 months (or for such shorterperiod that the registrant, as required to file such reports), and (2) has beensubject 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 ofcommon equity as of the latest practicable date.   Class Outstanding as of April 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 INFORMATION Item 1. Condensed Consolidated Financial Statements       Balance Sheets as of March 31, 2004 and December 31, 2003  1    Statements of Operations for the Three Months Ended March 31, 2004 and 2003  2    Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003  3    Notes to Financial Statements  4  Item 2. Management’s Discussion and Analysis  6  Item 3. Controls and Procedures  8 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders  9  Item 6. Exhibits and Reports on Form 8-K  9 SIGNATURES  10 EXHIBITS     EX-31.1 302 Certification of CEO EX-31.2 302 Certification of President EX-31.3 302 Certification of CFO EX-32.1 906 Certification of CEO EX-32.2 906 Certification of President EX-32.3 906 Certification of CFO
 

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     PART I – FINANCIAL INFORMATION
TARPON COAST BANCORP, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Dollar amounts in thousands except per share data)           **March 31, 2004** **December 31, 2003**  **(Unaudited)**    **ASSETS**        Cash and due from banks $9,604  $8,039 Federal funds sold  1,300   4,425          Total cash and cash equivalents  10,904   12,464 Securities available for sale  19,575   20,437 Loans  89,105   83,708 Less allowance for loan losses  (1,049)  (1,007)         Net loans  88,056   82,701 Premises and equipment, net  5,297   5,320 Accrued interest & other assets  1,894   1,635          Total assets $125,726  $122,557          **LIABILITIES AND SHAREHOLDERS’ EQUITY**        Deposits:        Non-interest bearing $21,789  $17,279 Interest bearing  91,642   94,673          Total deposits  113,431   111,952 Customer Repurchase Agreements  1,833   624 Accrued interest & other liabilities  269   83          Total liabilities  115,533   112,659 Shareholders’ equity:        Common stock, par value $.01 per share,10,000,000 shares authorized; 1,182,151 sharesissued and outstanding  12   12 Additional paid-in capital  10,941   10,941 Deficit  (807)  (970)Unrealized gain (loss) on securities available for sale  47   (85)         Total shareholders’ equity  10,193   9,898          Total liabilities and shareholders’ equity $125,726  $122,557          
See accompanying notes to financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(Dollar amounts in thousands except per share data)           **Three months ended March 31,**  **2004** **2003**Interest income:        Interest and fees on loans $1,312  $1,252 Interest on securities  240   187 Interest on federal funds sold  3   7          Total interest income  1,555   1,446 Interest expense:        Interest on deposits  277   421 Interest on repurchase agreements  6   3          Total interest expense  283   424          Net interest income  1,272   1,022 Provision for loan losses  —   49          Net interest income afterprovision for loan losses  1,272   973 Non-interest income  350   439 Non-interest expense:        Salaries and benefits  800   781 Occupancy and equipment expense  214   206 Other expense  339   339          Total non-interest expense  1,353   1,326          Income before income taxes  269   86 Income (taxes) benefit  (106)  82          Net income  163   168          Other comprehensive income (loss)  132   (119)         Comprehensive income $295  $49          Earnings per share:        Basic $0.14  $0.14          Diluted $0.13  $0.14          Weighted average shares outstanding:        Basic  1,182,151   1,182,151          Diluted  1,218,296   1,182,955          
See accompanying notes to financial statements.
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TARPON COAST BANCORP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(Dollar amounts in thousands except per share data)           **Three months ended March 31,**  **2004** **2003**Cash flows from operating activities:        Net income $163  $168 Adjustments to reconcile net income to netcash provided by (used in) operating activities:        Depreciation  86   100 Provision for loan losses  —   49 Deferred tax provision (benefit)  106   (82)(Increase) Decrease in accrued interestand other assets  (292)  (166)Increase (Decrease) in accrued interestand other liabilities  186   (409)         Total adjustments  86   (508)         Net cash provided by operating activities  249   (340)         Cash flows from investing activities:        Net increase in loans  (5,355)  (5,113)Purchases of securities available for sale  —   (5,839)Maturities of securities available for sale  1,063   3,420 Purchase of restricted securities  (142)  —Purchases of premises and equipment  (63)  (15)         Net cash used in investing activities  (4,497)  (7,547)         Cash flows from financing activities:        Increase in deposits  1,479   7,037 Increase in customer repurchase agreements  1,209   1,727          Net cash provided by financing activities  2,688   8,764          Increase (Decrease) in cash and cash equivalents  (1,560)  877 Cash and cash equivalents, beginning of period  12,464   8,053          Cash and cash equivalents, end of period $10,904   8,930          Supplemental disclosure of cash flow information:        Cash paid during the period for interest $292  $425          Cash paid during the period for income taxes $—  $—          
See accompanying notes to financial statements.
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TARPON COAST BANCORP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSTHREE AND NINE MONTHS ENDED MARCH 31, 2004
NOTE A — ORGANIZATION AND BASIS OF PRESENTATION
Organization:
     Tarpon Coast Bancorp, Inc. (the “Company”) was incorporated under the lawsof the state of Florida on August 7, 1997. Effective June 1, 1998, theCompany’s new wholly owned subsidiary, Tarpon Coast National Bank (the “Bank”)received federal regulatory approval to commence its banking operations.Contemporaneously, the Company became a registered bank holding company underthe Bank Holding Company Act of 1956, as amended. Also effective June 1, 1998,the Bank received approval from the Federal Deposit Insurance Corporation (the“FDIC”) for deposit insurance. In 2000, the Company formed Tarpon CoastFinancial Services, Inc. as a wholly owned subsidiary of the Bank for thepurpose of selling insurance and investment products.
Basis of Presentation:
     The accompanying unaudited consolidated financial statements include theaccounts of the Company and its subsidiaries. All inter-company accounts andtransactions have been eliminated in consolidation.
     The accompanying unaudited consolidated financial statements have beenprepared in accordance with generally accepted accounting principles forinterim financial information and with instructions to Form 10-QSB.Accordingly, they do not include all of the information and footnotes requiredby generally accepted accounting principles for complete financial statements.In the opinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary have been made for the fair presentation of theCompany’s consolidated financial position and results of operations. Operatingresults for the three-month period ended March 31, 2004 are not necessarilyindicative of the results that may be expected for the year ended December 31,2004.
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NOTE B – STOCK-BASED COMPENSATION:
Employee compensation expense under stock options is reported using theintrinsic value method. No stock-based compensation cost is reflected in netincome, as all options granted had an exercise price equal to or greater thanthe market price of the underlying common stock at date of grant. Thefollowing table illustrates the effect on net income and earnings per share ifexpense was measured using the fair value recognition provisions of FASBStatement No. 123, *Accounting for Stock-Based Compensation.*           **Three Months Ended**  **March 31,**  **2004** **2003**Net income as reported $163  $168 Deduct: Total stock-based employeecompensation expense determined underfair value based method for all awardsnet of related tax effects $11  $11          Pro forma net income $152  $157          Basic income per share as reported $0.14  $0.14          Basic pro forma income per share $0.13  $0.14          Diluted income per share as reported $0.13  $0.13          Diluted pro forma income per share $0.12  $0.13          
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Item 2. Management’s Discussion and Analysis of Financial Condition andResults of Operations
**General**
The following is a discussion of the Company’s financial condition and resultsof operations for the period ended March 31, 2004:
**Financial Condition**
At March 31, 2004, the Company had approximately $113.4 million in deposits and$1.8 million in customer repurchase agreements as compared to $112 million and$0.6 million, respectively, at December 31, 2003. Stockholders’ equitycomprised $10.2 million at March 31, 2004 and $9.9 million at December 31,2003, the change comprising net income for the period of $163,000 together withunrealized gains in the Company’s investment portfolio of $132,000.
To March 31, 2004, the Company used these funds to generate $89.1 million inoutstanding loans ($83.7 million at December 31, 2003). At March 31, 2004 theCompany also had approximately $28.1 million in unfunded loan commitments.Non-performing loans totaled $227,000 at both March 31, 2004 and December 31,2003 and are comprised of two junior liens on residential properties.
At March 31, 2004 the Company held approximately $19.6 million ($20.4 millionat December 31, 2003) in investment securities and carried premises andequipment of $5.3 million at both March 31, 2004 and December 31, 2003. TheCompany’s remaining liquidity at March 31, 2004, less current cash reserverequirements, was invested in overnight federal funds of $1.3 million ($4.4million at December 31, 2003).
In December of 2003, the Company acquired a site in Punta Gorda, Florida toconstruct and house its fourth full-service banking center. The Companyanticipates opening in a modular banking facility in the summer of 2004 whilethe permanent facility is being readied.
**Results of Operations**
For the three-month period ended March 31, 2004, the Company reported netincome of $163,000, compared to net income of $168,000 for the comparableperiod in 2003. Pre-tax income for the period ending March 31, 2004 was$269,000 compared to $86,000 for the same period in 2003. Net income for thecurrent period reflects a tax provision of $106,000 or that amount that isproportionate with current federal and state income tax rates applied topre-tax income, while net income for the three month period ended March 31,2003 was favorably impacted by the recognition of $82,000 in deferred taxbenefits reflecting the Company’s potential for the realization of netoperating loss carry-forward benefits in future periods. It is anticipated thatfuture pre-tax income will bear tax provisions consistent with that applied tothe most current reporting period.
Interest income for the comparable three-month periods was $1,555,000 in 2004and $1,446,000 in 2003 or a yield on average earning assets of 5.83% and 6.45%,respectively. Net interest income was $1,272,000 in 2004 and $1,022,000 in 2003(net interest margins of 4.77% and 4.56%,
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respectively) after deductinginterest expense of $283,000 in 2004 and $424,000 in 2003 or an average ratepaid on interest-bearing funds of 1.22% and 2.14%, respectively. Rate variancesbetween the comparable three-month periods of 2004 and 2003 increased netinterest income approximately $57,000 while corresponding volume variancescontributed another $193,000.
The declines in yields earned on interest-earning assets and paid oninterest-bearing funds are reflective of the continuing low rate environmentdriven by the aggressive rate cutting posture maintained by the Federal Reservesince 2001 and into 2004. For the three month period ended March 31, 2004, thenet interest margin experienced modest improvement over the correspondingperiod of a year ago as the Bank generated larger savings from decreasing ratespaid on interest-bearing funds than income given up from declining yields oninterest-earning assets. Management anticipates that future margins maycompress as the Company’s earning assets continue to re-price downward unlessand until such time as the rate environment changes.
Provisions for loan losses of $0 and $49,000 for the three-month periods endedMarch 31, 2004 and 2003, respectively, were based on the Bank’s loss experiencetogether with its assessment of the potential impacts of current economicconditions on the credit quality of the portfolio, including the analysis ofpotential problem credits for impairment, supplemented with peer industry lossdata of comparably sized and positioned commercial banks. Significant to thisassessment in 2004 was net recovery of previously charged-off loan balances ofapproximately $42,000 for the quarter that served to replenish the allowancefor loan losses.
Non-interest income is comprised principally of service charges on depositaccounts, fees on residential lending secondary market activities and fees andcommissions from the sale of insurance and investment products. Non-interestincome aggregated $350,000 and $439,000 for the three-month periods ended March31, 2004 and 2003, respectively. Amounts for the three-month periods endedMarch 31, 2004 and 2003 include commission and fee income from the sales ofinsurance and investment products aggregating $153,000 and $138,000,respectively. Residential lending secondary market activities generated feeincome of $113,000 for the three month period ending March 31, 2004 comparedwith $202,000 for the corresponding period in 2003. While an active refinancingmarket has aided fee income from residential secondary market activities overthe last two years, the demand for such has declined with rising rates togetherwith the saturation in the potential market for refinancing. This condition isexpected to continue however it is not anticipated to have a material adverseimpact, as most expenses associated with this activity are incremental anddirect in nature. The balance of the increase in non-interest income isgenerally consistent with the increase in the volume of deposit activity.
Non-interest expenses for the comparable three-month periods were $1,353,000and $1,326,000 comprised principally of salaries and benefits ($800,000 in 2004and $781,000 in 2003) and occupancy costs ($214,000 in 2004 and $206,000 in2003). At March 31, 2004 the Company had 58 employees compare to 54 employees ayear earlier, and at both
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period ends had three full-service banking offices, aresidential mortgage center and an operations center.
The expansion in facilities and personnel is in accordance with the Company’sstrategic growth and expansion initiative that is designed to fully leveragethe Company’s capital position and attain critical mass. Additional incrementalexpenditures associated with the Company’s expansion activities may have theeffect of limiting the Company’s profitability until such time as the Bank cangenerate volumes of loans and deposits, and other fee generating services,sufficient to cover these additional costs.
Item 3. Controls and Procedures
a. Evaluation of Disclosure Controls and Procedures. The Company’smanagement is responsible for establishing and maintaining controls andprocedures designed to ensure that information required to be disclosedin the reports that the Company files or submits under the Securitiesand Exchange Act of 1934 is recorded, processed, summarized andreported within the time periods specified in the rules and forms ofthe Securities and Exchange Commission. Based upon management’sevaluation of the effectiveness of those disclosure controls andprocedures, as of the end of the period covered by this report, theChief Executive Officer, President, and Chief Financial Officer of theCompany have concluded that the Company’s disclosure controls andprocedures were adequate for such purposes. b. Changes in Internal Controls. The Company made no changes in itsinternal control over financial reporting that occurred during theperiod covered by this report that has materially affected, or isreasonably likely to materially affect, its internal control overfinancial reporting.
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PART II — OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
     None.
Item 6. Exhibits and Reports on Form 8-K
1. Exhibits 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxleyact of 2002 31.2 Certification pursuant to Section 302 of the Sarbanes-Oxleyact of 2002 31.3 Certification pursuant to Section 302 of the Sarbanes-Oxleyact of 2002 32.1 Certification pursuant to 18 U.S.C. Section 1350, as added bysection 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification pursuant to 18 U.S.C. Section 1350, as added bysection 906 of the Sarbanes-Oxley Act of 2002 32.3 Certification pursuant to 18 U.S.C. Section 1350, as added bysection 906 of the Sarbanes-Oxley Act of 2002
2. Reports on Form 8-K
  Form 8-K Current Report dated February 2, 2004 announcing Results ofOperations and Financial Condition for the year ended December 31, 2003.
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SIGNATURES
     In accordance with the requirements of the Exchange Act, the registrantcaused this report to be signed on its behalf by the undersigned, thereto dulyauthorized.   Date: April 26, 2004 /s/ George E. Cline, III  George E. Cline, III Chief Financial Officer   Date: April 26, 2004 /s/ Todd H. Katz  Todd H. Katz President   Date: April 26, 2004 /s/ Lewis S. Albert  Lewis S. Albert Chief Executive Officer
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