UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

or

Commission File Number 0-24683

FLORIDA BANKS, INC.

5210 BELFORT ROAD, SUITE 310, JACKSONVILLE, FL 32256
(Address of principal executive offices)

(904) 332-7770
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No x

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

COMMON STOCK, $.01 PAR VALUE PER SHARE: 6,955,376 OUTSTANDING AT MAY 5, 2004

Table of Contents

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PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

FLORIDA BANKS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)

See notes to consolidated condensed financial statements.

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FLORIDA BANKS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

See notes to consolidated condensed financial statements.

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FLORIDA BANKS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

See notes to consolidated condensed financial statements

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FLORIDA BANKS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE-MONTH PERIODS ENDED
MARCH 31, 2004 AND 2003 (UNAUDITED)

1. BACKGROUND AND BASIS OF PRESENTATION

Background

Florida Banks, Inc. (the “Company”) was formed in 1997 to create a statewide community banking system that would focus on the largest and fastest growing Florida banking markets. The Company began to operate in 1998 after it completed the acquisition of First National Bank of Tampa, which became the Company’s wholly owned banking subsidiary and was subsequently named Florida Bank, N.A. (the “Bank”). The Company offers a broad range of traditional banking products and services, focusing primarily on small to medium-sized businesses with annual revenues between $5 million and $40 million. The Company currently operates community-banking offices in the Tampa, Jacksonville, Gainesville, Ft. Lauderdale, St. Petersburg/Clearwater, Ocala and West Palm Beach markets. As opportunities arise, it may also expand into other Florida market areas with demographic characteristics similar to the markets it currently serves.

Basis of Presentation

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) related to interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to SEC rules and regulations. The consolidated financial statements reflect, in the opinion of management, all adjustments of a normal recurring nature necessary to present fairly the financial position and results of operations for the periods indicated.

The consolidated balance sheet as of December 31, 2003 has been derived from the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2003. The financial statements and related notes included in this report should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 as they do not include all disclosures provided in the annual consolidated financial statements.

The results of operations for the three-month period ended March 31, 2004 are not necessarily indicative of the results to be expected for the full fiscal year.

The consolidated condensed financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Stock Options

Pursuant to the disclosure requirements of Statement of Financial Accounting Standards (“SFAS”) No. 148, the following table provides an expanded reconciliation for all periods presented that adds back to reported net income the recorded expense under Accounting Principles Board Opinion (“APB”) No. 25, net of related income tax effects, deducts the total fair value expense under SFAS No. 123, net of related income tax effects and shows the reported and pro forma earnings per share amounts.

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Reclassifications

Certain amounts for prior periods have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements

In December 2003, the FASB issued FIN 46 (revised December 2003) Consolidation of Variable Interest Entities (“FIN 46(R)”). This interpretation defines trust-preferred vehicles as variable interest entities and requires traditional trust preferred vehicles to be deconsolidated effective the first reporting period ending after March 15, 2004. Accordingly, investments in trust-preferred vehicles totaling $620,000 at March 31, 2004 have not been eliminated in consolidation.

In March of 2004, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 105, Application of Accounting Principles to Loan Commitments, Topic 5: DD. This Bulletin summarizes the views of the SEC regarding the application of generally accepted accounting principles to loan commitments accounted for as derivative instruments and must be applied to all loan commitments accounted for as derivatives entered into after March 31, 2004. As a result of adopting this bulletin, the Company anticipates a reduction in earnings in the second quarter of $1.2 million over the prior quarter resulting from a timing difference in the recognition of income on closed loans held for sale that have yet to be delivered to the investor.

Recent Developments

On March 17, 2004, the Company announced that it entered into a definitive agreement to be acquired by The South Financial Group, Inc. (“South Financial”) in an all-stock transaction. Under terms of the agreement, the Company’s shareholders will receive 0.77 shares of South Financial common stock for each share of the Company’s common stock subject to certain minimum price levels for South Financial common stock. In addition, outstanding options to purchase the Company’s common stock will be converted into options to acquire South Financial’s common stock at the 0.77 exchange ratio. The transaction is expected to close in July

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2004 and is subject to regulatory and Company shareholder approval. The Company’s subsidiary, Florida Bank, N.A., will merge into South Financial’s Florida banking subsidiary, Mercantile Bank.

2. EARNINGS PER COMMON SHARE

The following is a reconciliation of the denominator used in the computation of basic and diluted earnings per common share. As the Company experienced a loss in the first quarter of 2004, stock options outstanding are anti-dilutive and are not included in the Earnings per Share Calculation for the three-month period ended March 31, 2004.

The incremental shares from the assumed conversion of stock options for the three-months ended March 31, 2004 and 2003 were determined using the treasury stock method, under which the assumed proceeds were equal to (1) the amount that the Company would receive upon exercise of the options plus (2) the amount of tax benefit that would be credited to additional paid-in capital assuming exercise of the options. The assumed proceeds are used to purchase outstanding common shares at the Company’s average market value for the period.

3. DERIVATIVE INSTRUMENTS

The following instruments are derivatives as defined by SFAS No. 133:

Interest rate swap agreements at March 31, 2004 consist of twenty-seven agreements, which effectively convert the interest rate on certain certificates of deposit from a fixed rate to a variable rate to more closely match the interest rate sensitivity of the Company’s assets and liabilities. The Company has designated and assessed the derivatives as highly effective fair value hedges, as defined by SFAS No. 133.

Additionally, the Company entered into a foreign currency swap agreement during the first quarter of 2001 which expired January 31, 2004. This swap agreement did not qualify for hedge accounting under SFAS No. 133. Accordingly, all changes in the fair value of the foreign currency swap agreement were reflected in the earnings of the Company.

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The Company enters into commitments to make loans whereby the interest rate on the loan is set prior to funding (rate lock commitment). Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Therefore, they are recorded, at fair value, in mortgage loans held for sale on the accompanying consolidated balance sheets with changes in fair value recorded in gain on sale of mortgage loans on the accompanying consolidated statement of operations. In measuring the fair value of rate lock commitments, the amount of the expected gain on sale of the loans is included in the valuation. This value is calculated adjusting for an anticipated fallout factor for loan commitments that will never be funded. This policy of recognizing the value of the derivative has the effect of recognizing the gain from mortgage loans before the loans are sold. Rate lock commitments expose the Company to interest rate risk. The Company manages that risk by entering into forward sales contracts, which are recorded at fair value with changes in fair value reported in gain on sale of mortgage loans.

4. GUARANTEES

The Company issues standby letters of credit to provide credit support for some creditors in case of default. As of March 31, 2004, the carrying amount of the liability was $58,000 and the maximum potential payment was approximately $10.8 million.

The Company also sells loans without recourse that may have to be subsequently repurchased due to defects that occurred during the loan’s origination process. The defects are categorized as documentation errors, underwriting errors and fraud. When a loan sold to an investor without recourse fails to perform according to its contractual terms, the investor will typically review the loan file to determine whether defects in the origination process occurred. If a defect is identified, the Company may be required to either repurchase the loan or indemnify the investor for losses sustained. If there are no defects, the Company has no commitment to repurchase the loan. The maximum exposure to cover the estimated loss related to the loan origination process defects that are inherent within this portfolio as of March 31, 2004 represents the principal balance of the loan portfolio (approximately $1.3 billion). The fair value of the liability recorded in the Consolidated Condensed Balance Sheet as of March 31, 2004 is approximately $100,000.

5. SEGMENT REPORTING

Prior to October 1, 2002, the Company had one reporting segment. However, in October 2002, the Company started a mortgage banking division, which is managed as a segment. Accordingly, the Company has two reporting segments: the commercial bank and the mortgage bank. The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each segment appeals to different markets and accordingly requires different technology and marketing strategies.

The commercial bank segment provides its commercial customers such products as working capital loans, equipment loans and leases, commercial real estate loans and other business related products and services. This segment also offers mortgage loans to principals of its commercial customers. The mortgage bank segment originates mortgage loans through its network of mortgage brokers and sells these loans (on a wholesale basis) into the secondary market.

Information about reportable segments, and reconciliation of such information to the consolidated financial statements as of and for the three months ended March 31 follows:

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