FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
--------------------
For the Quarterly Period Ended March 31, 1998 Commission File #0-21942
FIRST PALM BEACH BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 65-0418027
(State of Incorporation) (I.R.S. Employer Identification No.)
450 South Australian Avenue
West Palm Beach, Florida 33401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 655-8511
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 [ ]
The number of shares outstanding of the issuer's common stock, par value
$.01 per share, was 5,073,996 at April 30, 1998.
FIRST PALM BEACH BANCORP, INC.
FORM 10-Q
Index
Page
Safe Harbor Statement Under the Private Securities Litigation
Reform Act of 1995 for Forward-Looking Information......................................................................2
Part I. Financial Information
Item 1 Financial Statements
Consolidated Statements of Financial Condition as of
September 30, 1997 and March 31, 1998 (unaudited)..........................................................3
Consolidated Statements of Operations for the Three and Six
Months ended March 31, 1997 and 1998 (unaudited)...........................................................4
Consolidated Statements of Changes in Stockholders' Equity
for the Six Months ended March 31, 1997 and 1998 (unaudited)...............................................5
Consolidated Statements of Cash Flows for the Six Months
ended March 31, 1997 and 1998 (unaudited)..................................................................7
Notes to Unaudited Consolidated Financial Statements.......................................................9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................................................12
Item 3 Quantitative and Qualitative Disclosures about Market Risk................................................18
Part II. Other Information
Item 1 Legal Proceedings.........................................................................................20
Item 2 Changes in Securities and Use of Proceeds.................................................................20
Item 3 Defaults upon Senior Securities...........................................................................20
Item 4 Submission of Matters to a Vote of Security Holders.......................................................20
Item 5 Other Information.........................................................................................20
Item 6 Exhibits and Reports on Form 8-K..........................................................................20
Signature Page.........................................................................................................21
Exhibit Index..........................................................................................................22
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
for Forward-Looking Information
Information in this report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that are subject
to risks and uncertainties that could cause the Company's actual results to
differ materially from those projected in forward-looking statements. The use of
forward-looking statements can be identified by statements that express or
involve discussions as to expectations, beliefs, plans, objectives, assumptions
or future events or performance (often, but not always, through the use of words
or phrases such as "will likely result," "are expected to," "will continue," "is
anticipated," "estimated," "projection," or "outlook"), are not historical facts
and may be forward-looking. Such statements involve estimates, assumptions, and
uncertainties which include, but are not limited to, overall business
conditions, particularly in the business markets in which First Palm Beach
Bancorp, Inc. and its wholly owned subsidiary, First Bank of Florida operate;
general economic conditions, changes in interest rates, deposit flows, loan
demand, real estate values, and competition; changes in accounting principles,
policies, or guidelines; changes in legislation or regulation; and other
economic, competitive, governmental, regulatory, and technological factors that
affect the Company's operations, pricing, products, and services. Other factors,
such as the general state of the economy, could also cause actual results to
vary materially from the future results covered in such forward-looking
statements. Accordingly, any such statements are qualified in their entirety by
reference to, and are accompanied by, the above mentioned important factors that
could cause the Company's actual results to differ materially from those
contained in the forward-looking statements of the Company made by or on behalf
of the Company.
All such factors are difficult to predict, contain uncertainties which may
materially affect actual results and are beyond the control of the Company.
2
PART I - FINANCIAL INFORMATION
FIRST PALM BEACH BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
September 30, March 31,
1997 1998
--------------- ---------------
(Unaudited)
Assets
Cash and amounts due from depository institutions............................................. $ 21,123 $ 29,170
Interest earning deposits..................................................................... 78,806 144,477
--------------- ---------------
Total cash and cash equivalents.......................................................... 99,929 173,647
Securities available-for-sale................................................................. 59,468 50,471
Securities held-to-maturity................................................................... 14,988 6,992
Mortgage-backed and related securities available-for-sale..................................... 208,342 262,622
Mortgage-backed and related securities held-to-maturity....................................... 213,303 194,091
Loans receivable - net of allowance for loan losses........................................... 1,144,100 1,034,024
Real estate owned, at fair value.............................................................. 1,795 2,199
Repossessed automobiles, at estimated fair value.............................................. 474 388
Office properties and equipment, net.......................................................... 28,313 28,573
Federal Home Loan Bank stock, at cost......................................................... 18,296 19,045
Accrued interest receivable................................................................... 9,879 9,519
Goodwill...................................................................................... 2,631 2,534
Deferred income taxes......................................................................... 3 65
Other assets.................................................................................. 6,902 7,200
--------------- ---------------
Total assets............................................................................. $ 1,808,423 $ 1,791,370
=============== ===============
Liabilities and Stockholders' Equity
Deposit accounts.............................................................................. $ 1,229,279 $ 1,281,229
Advances from Federal Home Loan Bank.......................................................... 365,925 320,875
Securities sold under agreements to repurchase................................................ 28,946 --
Senior debentures - net of unamortized issuance costs......................................... 33,839 33,881
Advances by borrowers for taxes and insurance................................................. 17,866 8,185
Other liabilities............................................................................. 19,538 30,156
--------------- ---------------
Total liabilities........................................................................ $ 1,695,393 $ 1,674,326
Stockholders' equity:
Preferred stock ($.01 par value) authorized 1,000,000 shares; none outstanding................ -- --
Common stock ($.01 par value) authorized 10,000,000 shares; issued 5,496,375 shares;
outstanding 5,047,746 and 5,057,746 (net of treasury stock) at September 30, 1997
and March 31, 1998, respectively........................................................... 55 55
Additional paid-in capital.................................................................... 53,521 54,234
Retained earnings, substantially restricted................................................... 71,397 74,027
Treasury stock, at cost (448,629 shares at September 30, 1997 and 438,629 shares at
March 31, 1998)............................................................................ (9,825) (9,606)
Common stock purchased by:
Employee stock ownership plan................................................................. (955) (531)
Recognition and retention plans............................................................... (117) (57)
Unrealized decrease in fair value on available-for-sale securities (net of applicable
income taxes).............................................................................. (1,046) (1,078)
--------------- ---------------
Total stockholders' equity.................................................................... 113,030 117,044
--------------- ---------------
Total liabilities and stockholders' equity.................................................... $ 1,808,423 $ 1,791,370
=============== ===============
These financial statements should be read in conjunction with the Notes to
Unaudited Consolidated Financial Statements herein and the Notes to Consolidated
Financial Statements appearing in First Palm Beach Bancorp, Inc.'s 1997 Annual
Report to Stockholders.
3
FIRST PALM BEACH BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
---------------------------------- -----------------------------------
March 31, 1997 March 31, 1998 March 31, 1997 March 31, 1998
---------------- ---------------- ---------------- ----------------
Interest Income:
Loans..................................................... $ 21,613 $ 23,066 $ 42,680 $ 45,973
Securities available-for-sale............................. 1,036 1,099 3,091 2,497
Securities held-to-maturity............................... 344 109 612 255
Mortgage-backed and related securities available-for-sale. 2,000 4,451 3,312 8,316
Mortgage-backed and related securities held-to-maturity... 2,341 3,554 4,439 7,299
Trading securities........................................ -- 155 -- 239
Other..................................................... 174 362 362 713
---------------- ---------------- ---------------- ----------------
Total interest income................................ 27,508 32,796 54,496 65,292
---------------- ---------------- ---------------- ----------------
Interest Expense:
Deposits.................................................. 14,045 15,241 27,840 30,388
Advances from Federal Home Loan Bank...................... 2,371 5,440 4,994 10,781
Securities sold under agreements to repurchase............ 146 91 295 279
Senior debentures......................................... -- 967 -- 1,934
---------------- ---------------- ---------------- ----------------
Total interest expense................................. 16,562 21,739 33,129 43,382
---------------- ---------------- ---------------- ----------------
Net interest income.................................... 10,946 11,057 21,367 21,910
Provision for loan losses................................. 567 2,883 1,369 3,851
---------------- ---------------- ---------------- ----------------
Net interest income after provision for loan losses.... 10,379 8,174 19,998 18,059
---------------- ---------------- ---------------- ----------------
Other Income:
Servicing income and other fees........................... 953 1,104 1,955 2,211
Net gain on sale of loans and mortgage-backed and related
securities............................................. 397 2,865 927 3,457
Net gain on sale of securities available-for-sale......... 193 209 193 395
Net realized and unrealized gain (loss) on trading
securities............................................. 136 (492) 136 204
Miscellaneous............................................. 454 952 828 1,745
---------------- ---------------- ---------------- ----------------
Total other income..................................... 2,133 4,638 4,039 8,012
---------------- ---------------- ---------------- ----------------
Other Expenses:
Employee compensation and benefits........................ 4,758 5,311 8,842 10,803
Occupancy and equipment................................... 1,563 1,783 2,957 3,623
Federal deposit insurance premium......................... 183 289 595 486
Provision for losses and net losses on sale of real estate
owned.................................................. 90 97 52 192
Advertising and promotion................................. 310 342 682 571
Miscellaneous............................................. 1,812 1,496 3,326 3,091
---------------- ---------------- ---------------- ----------------
Total other expenses................................... 8,716 9,318 16,454 18,766
---------------- ---------------- ---------------- ----------------
Income before provision for income taxes.................. 3,796 3,494 7,583 7,305
Provision for income taxes................................ 1,520 1,408 3,034 2,905
---------------- ---------------- ---------------- ----------------
Net income............................................. $ 2,276 $ 2,086 $ 4,549 $ 4,400
================ ================ ================ ================
Earnings per share:
Basic.................................................. $ 0.47 $ 0.42 $ 0.93 $ 0.89
Diluted................................................ $ 0.46 $ 0.40 $ 0.91 $ 0.85
These financial statement should be read in conjunction with the Notes to
Unaudited Consolidated Financial Statements herein and the Notes to Consolidated
Financial Statements appearing in First Palm Beach Bancorp, Inc.'s 1997 Annual
Report to Stockholders.
4
FIRST PALM BEACH BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
Unrealized
Common Common Gain (Loss) In
Additional Stock Stock Fair Value on Total
Common Paid-in Retained Treasury Purchased Purchased Available-for- Stockholders'
Stock Capital Earnings Stock by ESOP by RRP Sale Securities Equity
------ ---------- -------- ---------- --------- --------- --------------- -------------
Six months ended March 31, 1997
Balance at September 30, 1996.........$ 55 $ 52,891 $ 65,064 $ (8,660) $ (1,769) $ (161) $ (1,995) $ 105,425
Net income............................ -- -- 4,549 -- -- -- -- 4,549
Accretion of unrealized gain
on securities and mortgage-
backed and related securities
transferred from available-
for-sale to held-to-maturity,
net of income taxes................. -- -- -- -- -- -- (17) (17)
Change in unrealized losses on
securities available-for-sale
and mortgage-backed and
related securities available-
for-sale, net of income taxes....... -- -- -- -- -- -- (1,454) (1,454)
Amortization of deferred
compensation, Employee Stock
Ownership Plan and Recognition
and Retention Plans................. -- 396 -- -- 398 (16) -- 778
Purchase of Treasury Stock at
cost (114,000 shares)............... -- -- -- (2,668) -- -- -- (2,668)
Exercise of stock options by
certain directors and
employees........................... -- (359) -- 662 -- -- -- 303
Declaration of dividends of
$0.30 per share..................... -- -- (1,512) -- -- -- -- (1,512)
------ ---------- -------- ---------- --------- --------- --------------- -------------
Balance at March 31, 1997.............$ 55 $ 52,928 $ 68,101 $ (10,666) $ (1,371) $ (177) $ (3,466) $ 105,404
====== ========== ======== ========== ========= ========= =============== =============
(Continued)
5
FIRST PALM BEACH BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
Unrealized
Common Common Gain (Loss) In
Additional Stock Stock Fair Value on Total
Common Paid-in Retained Treasury Purchased Purchased Available-for- Stockholders'
Stock Capital Earnings Stock by ESOP by RRP Sale Securities Equity
------ ---------- -------- ---------- --------- --------- --------------- -------------
Six months ended March 31, 1998
Balance at September 30, 1997.........$ 55 $ 53,521 $ 71,397 $ (9,825) $ (955) $ (117) $ (1,046) $ 113,030
Net income............................ -- -- 4,400 -- -- -- -- 4,400
Accretion of unrealized gain
on securities and mortgage-
backed and related securities
transferred from available-
for-sale to held-to-maturity,
net of income taxes................. -- -- -- -- -- -- 2 2
Change in unrealized losses on
securities available-for-sale
and mortgage-backed and
related securities available-
for-sale, net of income taxes....... -- -- -- -- -- -- (34) (34)
Amortization of deferred
compensation, Employee Stock
Ownership Plan and Recognition
and Retention Plans................. -- 655 -- -- 424 60 -- 1,139
Exercise of stock options by
certain directors and
employees........................... -- 58 -- 219 -- -- -- 277
Declaration of dividends of
$0.35 per share..................... -- -- (1,770) -- -- -- -- (1,770)
------ ---------- -------- ---------- --------- --------- --------------- -------------
Balance at March 31, 1998.............$ 55 $ 54,234 $ 74,027 $ (9,606) $ (531) $ (57) $ (1,078) $ 117,044
====== ========== ======== ========== ========= ========= =============== =============
These financial statements should be read in conjunction with the Notes to
Unaudited Consolidated Financial Statements herein and the Notes to Consolidated
Financial Statements appearing in First Palm Beach Bancorp, Inc.'s 1997 Annual
Report.
6
FIRST PALM BEACH BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
For the Six Months Ended
March 31, March 31,
1997 1998
--------------- ---------------
Cash flow from (for) operating activities:
Net income................................................................................. $ 4,549 $ 4,400
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation............................................................................. 793 1,250
Employee Stock Ownership Plan and Recognition and Retention Plan compensation expense.... 778 1,139
Amortization of Senior Debentures' issuance cost......................................... -- 123
Accretion of discounts, amortization of premiums, and other deferred yield items......... (328) 269
Amortization of goodwill................................................................. 97 97
Provision for loan losses................................................................ 1,369 3,851
Provision for losses and net losses on sales of real estate owned........................ 52 192
Net realized and unrealized (gain) on trading securities................................. (136) (204)
Purchase of trading securities............................................................. (24,126) (148,431)
Sale of trading securities................................................................. 19,433 148,373
Net gain on sale of:
Loans.................................................................................. (423) (2,391)
Mortgage-backed and related securities available-for-sale.............................. (504) (1,089)
Securities available-for-sale.......................................................... (193) (395)
Property and equipment................................................................. -- (161)
(Increase) decrease in accrued interest receivable....................................... (1,127) 288
Increase in other assets................................................................. (386) (298)
Increase (decrease) in other liabilities - net of change in dividends payable and
deferred taxes......................................................................... (3,837) 10,490
--------------- ---------------
Net cash (used for) provided by operating activities................................. (3,989) 17,503
--------------- ---------------
Cash flow from (for) investing activities:
Loan originations and principal payments on loans.......................................... (83,490) (45,729)
Principal payments received on mortgage-backed and related securities...................... 26,258 29,485
Purchases of:
Loans.................................................................................... (1,036) (9,598)
Mortgage-backed and related securities held-to-maturity.................................. (32,713) --
Mortgage-backed and related securities available-for-sale................................ (91,639) (167,304)
Securities held-to-maturity.............................................................. (15,413) --
Securities available-for-sale............................................................ (88,641) (40,918)
Office properties and equipment.......................................................... (6,694) (1,972)
Proceeds from sales of:
Loans.................................................................................... 27,747 160,881
Mortgage-backed and related securities available-for-sale................................ 31,990 103,125
Securities available-for-sale............................................................ 43,483 50,113
Repossessed automobiles.................................................................. 7,793 1,981
Real estate acquired in settlement of loans.............................................. 1,260 814
Office properties and equipment.......................................................... -- 623
(Purchase) Sale of Federal Home Loan Bank stock............................................ 4 (749)
Proceeds from maturities of securities..................................................... 37,797 10,000
Other investing activities................................................................. (4,051) (1,445)
--------------- ---------------
Net cash (used for) provided by investing activities..................................... (147,345) 89,307
--------------- ---------------
(Continued)
7
FIRST PALM BEACH BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
For the Six Months Ended
March 31, March 31,
1997 1998
--------------- ---------------
Cash flow from (for) financing activities:
Purchase of treasury stock at cost......................................................... (2,668) --
Exercise of stock options.................................................................. 303 277
Net increase (decrease) in:
NOW accounts, demand deposits, and savings accounts...................................... 22,440 59,543
Certificates of deposit.................................................................. 57,845 (7,593)
Advances from Federal Home Loan Bank..................................................... (50) (45,050)
Securities sold under agreement to repurchase............................................ -- (28,946)
Advances by borrowers for taxes and insurance............................................ (7,423) (9,681)
Dividends paid on stock.................................................................. (1,270) (1,642)
--------------- ---------------
Net cash (used for) provided by financing activities................................... 69,177 (33,092)
--------------- ---------------
Net (decrease) increase in cash and cash equivalents.......................................... (82,157) 73,718
Cash and cash equivalents, beginning of period................................................ 161,413 99,929
--------------- ---------------
Cash and cash equivalents, end of period...................................................... $ 79,256 $ 173,647
=============== ===============
Supplemental disclosure of cash flows
Supplemental disclosure of cash flow information:
Cash paid for income taxes............................................................... $ 155 $ 1,550
=============== ===============
Cash paid for interest on deposits and other borrowings.................................. $ 34,291 $ 43,835
=============== ===============
Supplemental schedule of noncash investing and financing activities:
Repossessed automobiles acquired in settlement of loans.................................. $ 9,306 $ 4,639
=============== = ===============
Real estate acquired in settlement of loans.............................................. $ 1,585 $ 1,568
=============== = ===============
Changes in unrealized loss on available-for-sale securities, net of income taxes........... $ 1,471 $ 32
=============== ===============
These financial statements should be read in conjunction with the Notes to
Unaudited Consolidated Financial Statements herein and the Notes to Consolidated
Financial Statements appearing in First Palm Beach Bancorp, Inc.'s 1997 Annual
Report to Stockholders.
8
FIRST PALM BEACH BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AT AND FOR THE THREE AND SIX MONTH PERIODS ENDED
MARCH 31, 1997 AND 1998
(1) Basis of Presentation
First Palm Beach Bancorp, Inc. (the "Company") was organized in May
1993 as the holding company for First Bank of Florida (the "Bank"),
formerly First Federal Savings and Loan Association of the Palm
Beaches, in connection with the Bank's conversion (the "Conversion")
from a federally chartered mutual savings and loan association to a
federally chartered stock savings and loan association. The Bank
changed its name from First Federal Savings and Loan Association of
the Palm Beaches to First Bank of Florida on October 15, 1996.
The unaudited consolidated financial statements include the accounts
of First Palm Beach Bancorp, Inc. (the "Company") and its wholly-owned
subsidiary, First Bank of Florida (the "Bank"), and the Bank's
wholly-owned subsidiaries - The Big First, Inc., Retail Investment
Corporation, First Corporate Center, Inc., and First Bank of Florida
Mortgage Corporation. Material intercompany accounts and transactions
have been eliminated in financial statement consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Generally Accepted Accounting Principles
(GAAP) for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X of the Securities and
Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all material adjustments
(consisting of only normal recurring accruals) necessary for a fair
presentation have been included. The results of operations and other
data for the six months ended March 31, 1998 are not necessarily
indicative of results that may be expected for the entire fiscal year
ending September 30, 1998.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates. Areas in the accompanying financial statements where
estimates are significant include the allowance for loan losses, and
the carrying value of real estate owned.
Certain amounts in the March 31, 1997 and September 30, 1997
consolidated financial statements have been reclassified to conform to
the presentation for March 31, 1998.
(2) New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income," which requires that an enterprise report, by
major components and as a single total, the change in its net assets
during the period from nonowner sources; and No. 131 "Disclosures
about Segments of an Enterprise and Related Information," which
establishes annual and interim reporting standards for an enterprise's
operating segments and related disclosures about its products,
services, geographic areas, and major customers. Adoption of these
statements will not impact the Company's consolidated financial
position, results of operations or cash flows, and any effect will be
limited to the form and content of its disclosures. Both statements
are effective for fiscal years beginning after December 15, 1997, with
earlier application permitted.
9
(3) Earnings Per Share
The Company adopted the provisions of SFAS No. 128, "Earnings per
Share" as of December 31, 1997, and restated all prior periods
presented. The statement is designed to make the earnings per share
computation comparable to International Accounting Standards and is
effective for financial statements issued for periods ending after
December 15, 1997. Basic earnings per share were determined by
dividing net income for the period by the weighted average number of
shares of common stock outstanding, excluding unallocated shares held
by the ESOP. Diluted earnings per share reflects the potential
dilutions that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings of
the Bank. Diluted earnings per share were determined by dividing net
income for the period by the weighted average number of shares of
common stock outstanding and potential common stock outstanding
excluding unallocated shares held by the ESOP and Recognition and
Retention Plan shares.
The following is a reconciliation of the numerator and denominator of
basic and diluted earnings per share for the three month and six month
periods ended March 31, 1998.
Three Months Ended Six Months Ended
March 31, March 31,
1997 1998 1997 1998
-------------- -------------- -------------- --------------
Numerator:
Net Income (in thousands)...................... $ 2,276 $ 2,086 $ 4,549 $ 4,400
============== ============== ============== ==============
Denominator:
Average shares common stock outstanding utilized
in the calculation of basic earnings per share. 4,850,524 4,966,996 4,873,632 4,951,876
Potential common stock due to the dilutive effect of
stock options.................................. 134,109 199,667 129,796 202,053
-------------- -------------- -------------- --------------
Average shares outstanding utilized in the 4,984,633 5,166,663 5,003,428 5,153,929
calculation of diluted earnings per share......
============== ============== ============== ==============
(4) Commitments and Contingencies
Commitments to originate loans of $38.5 million at March 31, 1998
represent the total principal amounts which the Bank plans to fund
within the normal commitment period of 60 to 90 days. As of March 31,
1998 the Bank had $52.4 million in commitments to fund undisbursed
balances of loans previously closed. As of March 31, 1998, the Bank
had $13.0 million in commitments to purchase securities and $3.2
million in commitments to purchase loans.
(5) Allowance for Loan Losses; Impaired Loans
An analysis of the changes in the allowance for loan losses for the
six months ended March 31, 1998 and fiscal year ended September 30,
1997, is as follows:
Fiscal Year Ended Six Months Ended
September 30, 1997 March 31, 1998
--------------------- ----------------------
(In thousands)
Balance at beginning of period.......... $ 11,855 $ 6,046
Current provision....................... 3,281 3,851
Charge-offs - net....................... (9,090) (3,565)
--------------------- ----------------------
Ending balance.......................... $ 6,046 $ 6,332
===================== ======================
10
At March 31, 1998, and September 30, 1997 the Bank's impaired loans
consisted of the following:
September 30, 1997 March 31, 1998
---------------------- ---------------------
(In thousands)
Impaired loan balances.......................................... $ 1,267 $ 2,287
Related allowance for loan losses............................... $ 349 $ 430
Average recorded investment in impaired loans................... $ 4,924 $ 1,498
Interest income recognized during impairment period............. $ 921 $ 32
11
FIRST PALM BEACH BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THIS DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED HEREIN AND WITH
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS APPEARING IN FIRST PALM BEACH BANCORP, INC.'S 1997 ANNUAL REPORT TO
STOCKHOLDERS.
General
First Palm Beach Bancorp, Inc. (the "Company") was organized in May 1993 as the
holding company for First Bank of Florida (the "Bank"), formerly First Federal
Savings and Loan Association of the Palm Beaches, in connection with the Bank's
conversion (the "Conversion") from a federally chartered mutual savings and loan
association to a federally chartered stock savings and loan association. The
Bank changed its name from First Federal Savings and Loan Association of the
Palm Beaches to First Bank of Florida on October 15, 1996. The Company is
headquartered in West Palm Beach, Florida.
The Company's consolidated results of operation are primarily those of its
wholly owned subsidiary, the Bank.
The Bank's principal business has been, and continues to be, attracting retail
deposits from the general public and investing those deposits, together with
funds generated from operations and borrowings, primarily in one-to-four family,
owner-occupied, residential mortgage loans, consumer loans, and to a lesser
extent, construction loans, commercial real estate loans, multi-family
residential mortgage loans, and other commercial loans. In addition, the Bank
invests in mortgage-backed securities, securities issued by the U.S. Government
and government agencies, and other investments permitted by federal laws and
regulations. The Bank is a member of the FHLB system and its deposits are
insured to the applicable limits by the Federal Deposit Insurance Corporation
(the "FDIC"). The Bank is subject to regulation by the Office of Thrift
Supervision (the "OTS") as its chartering agency and the FDIC as its deposit
insurer.
At March 31, 1998, the Bank had 50 full-service branches in Palm Beach, Martin,
Broward, Dade and Lee Counties, Florida. Two loan production offices are located
in Palm Beach County and one loan production office is in Lee County. As of
March 31, 1998, the Bank operated four of its full-service branches inside
Winn-Dixie supermarkets and nineteen inside Albertson's supermarkets. During the
quarter ended March 31, 1998, the Bank opened two full-service branches, one of
which is a supermarket branch. The Bank has completed construction on one
additional Albertson's branch and is in the process of reviewing two additional
leases. The Bank may open additional supermarket branches at Albertson's in the
future.
The Company's results of operations depend primarily on net interest income,
which is the difference between the interest income earned on its loan and
investment portfolio, and its cost of funds, consisting of the interest paid on
deposits and borrowings. Net interest income is impacted by the provision for
loan losses. The Company's operating results are also affected, to a lesser
extent, by fee income and by gains or losses on the sale of loans, trading
securities, securities and mortgage-backed securities available-for-sale, and
real estate owned, as well as operating expenses. The Company's operating
expenses consist primarily of employee compensation and benefits, occupancy and
equipment expenses, FDIC insurance premiums, advertising and promotional
expenses and other general and administrative expenses. The Company's results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates and U.S. Treasury
yield curves, and to a lesser extent by government policies and actions of
regulatory authorities.
12
Liquidity and Capital Resources
The Bank's most liquid assets are cash, amounts due from depository institutions
and interest-bearing deposits. The levels of these assets depend on the Bank's
lending, investing, operating and deposit activities during any given period. At
March 31, 1998, cash, and amounts due from depository institutions and
interest-earning deposits totaled $173.6 million.
The Bank's primary sources of funds are deposits, proceeds from principal and
interest payments on loans, proceeds from the amortization, maturing and sales
of securities, advances from the FHLB and securities sold under agreements to
repurchase ("reverse repurchase agreements"). On June 30, 1997, the Company
issued $35 million of 10.35% Series A Senior Debentures Due 2002 ("Series A
Debentures"). The net proceeds of the debenture issuance are being used for
general corporate purposes, including a contribution of $25 million of the net
proceeds to the Bank. On December 23, 1997 the Company completed an exchange of
all of the outstanding Series A Debentures for Series B Debentures, which are
registered under the Securities Act of 1933, as amended, and are otherwise
identical to the Series A Debentures. Liquidated damages provided for in the
Series A Debentures for failure to so register the Series B Debentures are
therefore not applicable. While maturity and scheduled amortization of loans and
securities are predictable sources of funds, deposit inflows and mortgage
prepayments are greatly influenced by local market conditions, general interest
rates and regulatory changes.
The primary investing activities of the Bank are the origination of
single-family mortgage loans and the purchase of mortgage-backed and other
securities. A primary component of the Bank's current strategic plan is to
increase its originations of mortgage and consumer loans, excluding indirect
automobile loans. At September 30, 1996, the Bank discontinued its indirect
automobile lending program, which produced delinquency rates and a level of
repossessed assets which management deemed unacceptable and which resulted in
higher loan loss provisions. During the six months ended March 31, 1998, the
Bank's loan originations totaled $190.5 million, compared to $191.7 million for
the six months ended March 31, 1997. Purchases of mortgage-backed and other
securities totaled $208.2 million for the six months ended March 31, 1998,
compared to $228.4 million for the six months ended March 31, 1997. These
activities were funded primarily by principal repayments on loans and
mortgage-backed securities, maturities of investment securities, and increases
in deposits. Principal repayments on loans and mortgage-backed securities
totaled $174.3 million during the six months ended March 31, 1998, compared to
$134.5 million for the six months ended March 31, 1997. Maturities and calls of
investment securities totaled $10.0 million and $37.8 million, respectively,
during the six months ended March 31, 1998 and 1997. Loan and securities sales,
which totaled $314.1 million and $103.2 million, respectively, during the six
months ended March 31, 1998 and 1997, provided additional cash flows.
Deposits increased $52.0 million during the six months ended March 31, 1998,
compared to an increase of $80.3 million during the six months ended March 31,
1997. Deposit flows are affected by, among other things, the level of interest
rates, and the interest rates and products offered by local competitors.
Certificates of deposit which are scheduled to mature in one year or less from
March 31, 1998 totaled $731.6 million. Based upon the Company's current pricing
strategy and deposit retention experience, management believes that a
significant portion of such deposits will remain with the Company. Net
borrowings decreased by $74.0 million during the six months ended March 31,
1998, which decrease was comprised of decreases of $45.1 million and $28.9
million in FHLB advances and reverse repurchase agreements, respectively.
OTS regulations require a savings institution to maintain an average daily
balance of liquid assets (generally cash; certain time deposits; bankers'
acceptances; specified United States Government, state or federal agency
obligations; shares of certain mutual funds and certain corporate debt
securities and commercial paper) equal to a specified percentage (determined as
of the end of the preceding calendar quarter or as an average daily balance
during the preceding quarter) of its net withdrawable deposit accounts plus
short-term borrowings. The Bank historically has maintained a level of liquid
assets in excess of this regulatory requirement. The liquidity requirement at
September 30, 1997 was 5.0%. The requirement at March 31, 1998 was 4.0%. The
Bank's average liquidity ratio was 7.0% and 5.1% at September 30, 1997 and March
31, 1998, respectively. Liquidity management is a daily and long-term function
13
of the Bank's management strategy. If the Bank requires liquid funds beyond its
ability to generate them internally, additional sources of funds are available
through the use of FHLB advances and reverse repurchase agreements.
The Bank also invests in U.S. Treasury and agency securities, collateralized
mortgage obligations, municipal bonds and FHLB overnight funds. During periods
when the Bank's loan demand is lower, the Bank may purchase short-term
investment securities to obtain a higher yield than otherwise would be
available.
At March 31, 1998, the Bank had outstanding commitments to originate $38.5
million of loans and $52.4 million in commitments to fund undisbursed balances
of loans previously closed. At March 31, 1998, the Bank had $3.2 million in
commitments to purchase loans and $13.0 million in commitments to purchase
securities. Management is of the opinion that the Bank will have sufficient
funds available to meet all of these commitments.
At March 31, 1998, the Bank exceeded each of the OTS capital requirements and
was considered a "well capitalized" institution for regulatory purposes. The
following tables present the capital of the Bank at March 31, 1998:
To Be Considered Well
Capitalized Under
For Capital Adequacy Prompt Corrective Action
Actual Purposes Provisions
----------------------- ---------------------- --------------------------
Ratio Ratio Ratio
----------------------- ---------------------- --------------------------
As of March 31, 1998:
Total Capital (to Risk-weighted Assets) 16.72% 8.00% 10.00%
Core (Tier 1) Capital (to Adjusted Tangible Assets) 7.55% 4.00% 5.00%
Tangible Capital (to Tangible Assets) 7.55% 1.50% N/A
Core (Tier 1) Capital (to Risk-weighted Assets) 16.01% N/A 6.00%
Changes in Financial Condition
Total assets decreased $17.1 million to $1.791 billion at March 31, 1998 from
$1.808 billion at September 30, 1997. Cash and cash equivalents, securities
held-to-maturity, securities available-for-sale, trading securities,
mortgage-backed and related securities held-to-maturity and mortgage-backed and
related securities available-for-sale increased $91.8 million to $687.8 million
at March 31, 1998 from $596.0 million at September 30, 1997. Loans receivable
decreased by $110.1 million to $1.034 billion at March 31, 1998 from $1.144
billion at September 30, 1997. Loans originated amounted to $190.5 million
(which included $157.9 million of one- to four-family residential mortgage
loans, $3.9 million of commercial mortgage loans and $28.7 million of consumer
loans) during the six months ended March 31, 1998 compared to $191.7 million
(which included $152.8 million of one- to four-family residential mortgage
loans, $9.8 million of commercial mortgage loans and $29.1 million of consumer
loans) during the six months ended March 31, 1997. Indirect automobile loan
balances decreased to $65.4 million at March 31, 1998 from $88.4 million at
September 30, 1997 primarily as a result of the repayment of such loans and
repossession activity. On March 31, 1998, as part of the Bank's interest rate
risk management strategy and to take advantage of a market opportunity to
capture additional income which might not have been available at a later time,
the Bank sold $117.0 million principal balance of fixed rate and $43.7 million
of adjustable rate residential loans at a premium resulting in net loan sale
proceeds of $165.5 million. On March 31, 1998 the Bank used such net loan sale
proceeds to repay $50.0 million of FHLB advances, and held the remaining
proceeds in cash and cash equivalents. Subsequent to March 31, 1998, the Bank
repaid an additional $50.0 million of FHLB advances and is reinvesting the
remaining loan sale proceeds of $65.5 million in loans and other investments.
Deposit accounts increased $52.0 million to $1.281 billion at March 31, 1998
from $1.229 billion at September 30, 1997. The average interest rate paid on
deposits was 4.98% as of March 31, 1998 and 4.99% as of September 30, 1997.
14
Advances from the FHLB decreased $45.0 million to $320.9 million at March 31,
1998 from $365.9 million at September 30, 1997. Proceeds from the loan sale on
March 31, 1998 were used to pay down FHLB advances of $50.0 million on that same
day. There are no securities sold under agreements to repurchase ("reverse
repurchase agreements") at March 31, 1998 compared to $28.9 million at September
30, 1997. All reverse repurchase agreements existing at September 30, 1997
matured and were paid off during the six months ended March 31, 1998. Advances
from borrowers for taxes and insurance decreased by $9.7 million to $8.2 million
at March 31, 1998 from $17.9 million at September 30, 1997 due to the remittance
of escrowed real estate taxes in November 1997.
Stockholders' equity increased $4.0 million to $117.0 million at March 31, 1998
from $113.0 million at September 30, 1997. The increase to stockholders' equity
during the six month period ended March 31, 1998 was due to net income of $4.4
million and increases in additional paid in capital, employee stock ownership
plan and recognition and retention plan accounts of $1.1 million due to the
amortization of related compensation expense. Dividends declared during the six
months ended March 31, 1998 reduced stockholders' equity by $1.8 million.
Interest Rate Sensitivity
The matching of assets and liabilities may be analyzed by examining the extent
to which assets and liabilities are "interest rate sensitive" and by monitoring
an institution's interest rate sensitivity "gap." An asset or liability is
"interest rate sensitive" within a specific time period if it will mature or
reprice within that time period. The interest rate sensitivity gap is defined as
the difference between the aggregate amount of interest-earning assets maturing
or anticipated to reprice, based upon certain assumptions, within a specified
time period and the aggregate amount of interest-bearing liabilities maturing or
anticipated to reprice, based upon certain assumptions, within that time period.
A gap is considered negative when the amount of interest rate sensitive
liabilities maturing or repricing within a specified time frame exceeds the
amount of interest rate sensitive assets maturing or repricing within that same
time frame.
During a period of rising interest rates, a company with a negative gap position
would tend to experience a decrease in net interest income while a company with
a positive gap position would tend to experience an increase in net interest
income. During a period of declining interest rates a company with a negative
gap position would generally be expected, absent the effect of other factors, to
experience a greater decrease in the cost of liabilities relative to yield on
assets and thus an increase in the net interest income.
The Bank's one year interest rate sensitivity gap as a percentage of total
assets was a negative 24.1% at March 31, 1998 as compared to a negative 15.4% at
September 30, 1997. During the quarter ended March 31, 1998, the Bank
reevaluated the methods and assumptions used for evaluating interest rate risk.
As part of this evaluation the Bank implemented a new asset liability software
modeling program. This new modeling program computes interest rate sensitivity
on an individual asset and liability cash flow basis rather than on an aggregate
cash flow basis, as was the case under the previous model. The increase in the
Bank's negative interest rate sensitivity gap is primarily attributable to this
change in interest rate sensitive asset and liability valuation methodology. The
software model utilized to compute the Bank's interest rate sensitivity gap
makes various estimates regarding cash flows from principal repayments on loans
and mortgage-backed securities and/or call activity on investment securities.
Actual results could differ significantly from these estimates, which may result
in material variances in the calculated interest rate sensitivity gap.
The Bank's policy is to manage its exposure to interest rate risk by attempting
to match the maturities of its interest rate sensitive assets and liabilities,
in part, by emphasizing, when market conditions permit, the origination of
adjustable rate mortgages ("ARM") and short term residential construction loans.
As of March 31, 1998, these loans constituted approximately 47% of outstanding
mortgage loans. Approximately 8% of outstanding mortgage loans with seven year
and ten year fixed rates which become one year adjustable loans thereafter are
classified as ARM loans. The Bank also manages its exposure by purchasing short
average life and adjustable-rate collateralized mortgage obligations and
mortgage-backed securities.
15
Asset Quality
The Company and the Bank regularly review interest earning assets to determine
proper valuation of those assets. Management monitors the asset portfolio by
reviewing historical loss experience, known and inherent risks in the portfolio,
the value of any underlying collateral, prospective economic conditions and the
regulatory environment. During the six months ended March 31, 1998,
non-performing assets decreased $0.3 million to $10.1 million from $10.4 million
at September 30, 1997. Non-performing loans decreased by $0.6 million to $7.5
million at March 31, 1998 from $8.1 million at September 30, 1997. Real estate
owned increased $0.4 million to $2.2 million at March 31, 1998 from $1.8 million
at September 30, 1997. Repossessed assets decreased $86,000 to $388,000 at March
31, 1998 from $474,000 at September 30, 1997.
During the quarter ended March 31, 1998, an additional loan loss provision of
$2.2 million with respect to the Bank's indirect automobile loan portfolio was
recorded. At March 31, 1998 and September 30, 1997, the allowance for loan
losses related to the indirect automobile loan portfolio was 5.72% and 3.68% (as
a percentage of the outstanding balance of such portfolio) respectively on
outstanding balances of $65.4 million and $88.4 million, respectively. The
Company exited the indirect automobile lending business as of September 30,
1996. During the six months ended March 31, 1998 management continued to monitor
and evaluate the performance of the remaining indirect automobile loan portfolio
and recorded net charge-offs related to indirect automobile loans for the six
months ended March 31, 1998 of $2.7 million. Prior to March 31, 1998, management
estimated that the rate of repossessed collateral and loan delinquencies related
to indirect automobile loans would significantly improve in the future as the
indirect automobile loan portfolio matured. During the quarter ended March 31,
1998, repossessions decreased, but not as quickly as anticipated. Additionally,
delinquencies remained at 7.55% (as a percentage of the outstanding balance of
the indirect automobile loan portfolio) at March 31, 1998 as compared to 8.77%
at September 30, 1997. The combination of the net charge-offs on indirect loans
being higher than expected and no significant improvement of the delinquency
rate on indirect loans during the six month period caused management to revise
its estimate related to the Company's loan loss provision with respect to the
indirect automobile loan portfolio. The additional provision was based on
management's evaluation of the portfolio's remaining term to maturity,
historical loss experience, related delinquency rates and the value of the
underlying collateral. Management will continue to monitor the performance of
the remaining indirect automobile loan portfolio, and will adjust the loan loss
provision if current estimates of collectibility change.
The following table sets forth information regarding the Bank's non-performing
loans, repossessed assets and real estate owned at the dates indicated. The Bank
generally discontinues accruing interest on loans that are 90 days or more past
due, or when management determines that a loan is impaired, or not performing,
at which time the accrued but uncollected interest is excluded from interest
income.
ASSET QUALITY
(In thousands)
September 30, 1997 March 31, 1998
--------------------- ---------------------
Non-performing mortgage loans delinquent more than 90 days.. $ 6,824 $ 6,508
Non-performing other loans delinquent more than 90 days..... 1,262 1,030
--------------------- ---------------------
Total non-performing loans.................................. 8,086 7,538
Real estate owned, net of related allowance................. 1,795 2,199
Repossessed assets, net of related allowance................ 474 388
--------------------- ---------------------
Total non-performing assets................................. $ 10,355 $ 10,125
===================== =====================
Non-performing loans to total loans......................... 0.68% 0.69%
Non-performing assets to total assets....................... 0.57% 0.57%
Allowance for loan losses to non-performing loans........... 74.77% 84.00%
16
RESULTS OF OPERATIONS
Comparison of results in this section are for the three month periods ended
March 31, 1998 and March 31, 1997, and the six month periods then ended.
General
Net income for the quarter ended March 31, 1998 was $2.1 million as compared to
$2.3 million for the quarter ended March 31, 1997, a decrease of $200,000.
Earnings for the quarter ended March 31, 1998 as compared to the same quarter
last year were primarily impacted by a $2.3 million increase in the provision
for loan losses which, together with a $600,000 increase in non-interest
expense, was offset in part by a $2.5 million increase in non-interest income,
primarily from gains on loan and security sales. Net income for the six months
ended March 31, 1998 was $4.4 million as compared to $4.5 million for the six
months ended March 31, 1997, a decrease of $100,000.
Net Interest Income
Net interest income before provision for loan losses was $11.1 million for the
quarter ended March 31, 1998 as compared to $11.0 million for the quarter ended
March 31, 1997. For the six months ended March 31, 1998, net interest income
before provision for loan losses was $21.9 million as compared to $21.4 million
for the six months ended March 31, 1997.
The increase in net interest income for the six months ended March 31, 1998 was
in part due to an increase in interest earning assets of $226.0 million to
$1.712 billion at March 31, 1998 from $1.486 billion at March 31, 1997. The
average balance of interest earning deposits, securities and mortgage-backed and
related securities available-for-sale and held-to-maturity and FHLB stock
increased by $211 million from $370 million for the six months period ended
March 31, 1997 to $581 million for the six month period ended March 31, 1998.
During these same periods the average balance of loans increased by $118 million
from $1.039 billion to $1.157 billion.
The actual increase in interest bearing liabilities was $208.0 million from
$1.428 billion at March 31, 1997 to $1.636 billion at March 31, 1998. The
average balance of deposits increased by $66 million from $1.125 billion for the
six month period ended March 31, 1997 to $1.191 billion for the six month period
ended March 31, 1998. During these same periods the average balance of FHLB
advances increased $192 million from $171 million to $363 million. In addition,
the Company issued Series A Debentures in June of 1997 resulting in an average
balance for the six months ended March 31, 1998 of $34 million.
For the six months ended March 31, 1997 and 1998 the average balance of
interest-earning assets exceeded the average balance of interest-bearing
liabilities by $104 million and $140 million, respectively. Although the
Company's average net interest earning assets increased by $36 million, the
recent declining interest rate environment negatively impacted the Company's net
interest income. The net interest margin declined to 2.53% for the six month
period ended March 31, 1998 from 3.03% for the six month period ended March 31,
1997. Interest margins have been negatively impacted by the recent declining
interest rate environment, which has led to an increase in residential loan
refinancings without a corresponding decrease in the Company's cost of funds.
The average yield on interest earning assets decreased from 7.73% to 7.48%;
however, the average cost of funds increased from 5.08% to 5.44% from March 31,
1997 to March 31, 1998, respectively.
Provision for Loan Losses
During the quarter ended March 31, 1998, the provision for loan losses increased
to $2.9 million from $567,000 for the comparable period ended March 31, 1997.
For the six months ended March 31, 1998 the provision for loan losses increased
to $3.9 million as compared to $1.4 million for the six months ended March 31,
1997. The increases for both the quarter and the six month periods are primarily
attributable to an additional loan loss provision of $2.2 million with respect
17
to the Company's indirect automobile loan portfolio. The additional provision
was based upon management's evaluation of such factors as the portfolio's
remaining term to maturity, historical loss experience and value of the
underlying collateral. The balance of the indirect automobile loan portfolio at
March 31, 1998 was $65.4 million as compared to $115.8 million at March 31,
1997. See "Asset Quality."
Other Income
Other income increased to $4.6 million for the quarter ended March 31, 1998 from
$2.1 million for the quarter ended March 31, 1997. For the six months ended
March 31, 1998 other income increased to $8.0 million from $4.0 million for the
six months ended March 31, 1997. The increase in other income for the quarter
ended March 31, 1998 is primarily the result of a $2.4 million gain on the
Company's sale of $160.7 million principal balance of fixed and adjustable rate
residential loans on March 31, 1998. The increase in other income for the six
months ended March 31, 1998 is due to an increase in the gain on sale of loans
from $422,000 for the six months ended March 31, 1997 to $2.4 million for the
six months ended March 31, 1998. In addition, net gains on sales of
mortgage-backed and related securities, securities available for sale and net
realized and unrealized gain on trading securities increased $0.8 million from
$833,000 to approximately $1.7 million for the six months ended March 31, 1997
as compared to the six months ended March 31, 1998. Miscellaneous income
increased from $828,000 for the six months ended March 31, 1997 to $1.7 million
during the six months ended March 31, 1998 primarily due to fees related to the
increased refinancing of mortgages during the period and increased fees
collected from use of the Bank's ATM network by non-customers.
Other Expenses
Other expenses increased to $9.3 million for the quarter ended March 31, 1998 as
compared to $8.7 million for the quarter ended March 31, 1997. For the six
months ended March 31, 1998, other expenses increased to $18.8 million as
compared to $16.5 million for the six months ended March 31, 1997. The increase
of $0.6 million in other expenses for the quarter ended March 31, 1998 as
compared to the quarter ended March 31, 1997 includes increases in compensation
of $0.5 million and increases in occupancy and equipment of $0.2 million. The
increase of $2.3 million in other expenses for the six months ended March 31,
1998 as compared to the six months ended March 31, 1997 includes increases in
compensation of $2.0 million and increases in occupancy and equipment of $0.7
million. The increases for both the quarter and the six month periods are
primarily due to the growth of the Bank. Between March 31, 1997 and March 31,
1998 the Bank increased its branch network by 25% with the addition of ten
full-service branches. Since March 31, 1997 the Bank has also added a loan
production office and a commercial loan department, and has expanded the credit
review and loan servicing functions and related staff.
The Company utilizes and is dependent upon data processing systems and software
to conduct its business. The data processing systems and software include a
mainframe processing system licensed to the Company by an outside vendor and
various purchased software packages which are run on in-house computer networks.
In 1997, the Company initiated a review and assessment of all hardware and
software to confirm that it will function properly in the year 2000. The
Company's mainframe software vendor and the majority of the other vendors which
have been contacted have indicated that their hardware and/or software will be
Year 2000 compliant. The Company has started to test certain software for Year
2000 compliance. While some expenses will be incurred during the next two years,
Year 2000 compliance is not expected to have a material effect on the Company's
consolidated financial statements. Costs of addressing the Year 2000 issues will
be charged to earnings as they are incurred.
Quantitative and Qualitative Disclosures about Market Risk
As a financial institution holding company, the Company's primary component of
market risk is interest rate volatility. Fluctuations in interest rates will
ultimately impact both the level of income and expense recorded on a large
portion of the Bank's assets and liabilities, and the market value of all
interest-earning assets, other than those with short term maturities. All of the
Company's interest rate risk exposure lies at the Bank level. Accordingly,
interest rate risk management procedures are performed at the Bank level. Based
on the nature of the Bank's operations, the Bank is not subject to foreign
18
currency exchange or commodity price risk. The Bank's real estate portfolio,
concentrated primarily within Palm Beach, Martin, Broward, Dade and Lee counties
of Florida, is subject to risks associated with the local economy. See "Interest
Rate Sensitivity."
19
PART II - OTHER INFORMATION
FIRST PALM BEACH BANCORP, INC.
Item 1 Legal Proceedings
Neither the Company nor its subsidiaries are involved in any pending
legal proceedings, other than routine legal matters occurring in the
ordinary course of business which in the aggregate involve amounts
which in management's opinion are not material to the consolidated
financial condition or results of operations of the Company.
Item 2 Changes in Securities and Use of Proceeds.
Not applicable.
Item 3 Defaults upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5 Other Information
Not applicable.
Item 6 Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this report:
11 Statement Re: Computation of Per Share Earnings.
27 Financial Data Schedule (for SEC use only)
(b) None.
20
FIRST PALM BEACH BANCORP, INC.
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.
First Palm Beach Bancorp, Inc.
(Registrant)
Date:
May 8, 1998 /s/ Louis O. Davis, Jr.
-------------------------------------
Louis O. Davis, Jr.
President and Chief Executive Officer
(Duly Authorized Officer)
Date:
May 8, 1998 /s/ Suzanne S. Brenner
-------------------------------------
Suzanne S. Brenner
Treasurer and Chief Financial Officer
(Principal Financial Officer)
21
EXHIBIT INDEX
Exhibit
Number Description Page
11 Statement Re: Computation of Per Share Earnings....................................................23
27 Financial Data Schedule (for SEC use only).........................................................24
22